A Great Business Plan
Keep in your mind that the basic purpose of your plan is to demonstrate how much money you need, why you need it, and when your investor can expect to get it back. Your business plan must be simple, but complete, and realistic. With a great business plan you'll be able to convince your investor to have confidence in you and your company and to lend you the money.
If you want to raise substantial capital for your privately held business, you need a competently prepared business plan. You must convince the investor that your business is able to repay the debt, through principal pay-downs and/or the issuance of publicly traded stock to the lender.
Here's what Robert Krummer Jr., chairman of First Business Bank in Los Angeles, said about this situation:
"The business plan is a necessity. If the person who wants to start a small business can't put a business plan together, he or she is in trouble."
Essentials of a Business Plan
This article will give you the definition of a business plan - the elements that must be included. It won’t give you all detail about a business plan. However, you can get much more information on the subject. Recently I did a Google search on business plans and came up with 318,000,000 results!
There are a lot of helpful topics out there. Your main goal will be to retrieve essential information and incorporate it into your business plan. You can always embellish this with other information as you see fit.
My definition might be a bit different than most you will see. Here it is: A business plan provides the reader with the present status of your company, where you want it to go, and how you intend to get it there.
Within this plan, you must show the current financial condition of your company and how your present financial situation will change in the next five years.
The main purpose of a plan is to demonstrate to an investor that you have a complete, clear and conservative economic vision of your business. It should give the investor comfort that you will safely be able to repay your loan at some future time. Therefore, it must include how much you want to borrow, why you want to borrow it, and how you will use the proceeds.
Basic Elements of a Business Plan
Now let's have a look at the components of your plan.
1. The main Description of Your Business. Although you should write a complete description of exactly what your business is about, don't make it too technical. Make sure that the reader, after having read it, will have a firm grasp of your business and how it serves its customers/clients.
2. Competition. Clearly describe who your rivals are and which of them dominate the field. For example, let's say that you have 10 major competitors. One or two of them control 60 percent of the revenue in your field. Explain how and why the dominant competitors were able to reach so high level of sales. Then, show how you intend to make inroads on your competition. Be sure that you are conservative and realistic.
3. Marketing. Here you should provide a detailed description of the marketing techniques that will bring your company to your desired annual sales levels. It should demonstrate to your prospective investor that you are not only confident and serious about increasing your sales base, but that you also have the requisite techniques to do so.
4. Personnel. Here you should describe your management team. Include resumes of all of the top managers. You should also list other employment categories (production/sales/administrative) and quantity of individuals you have in each category. Of course, show your total employment numbers.
5. Financial Data. Here you must show your current financial position (balance sheet) as well as your present income statement. You must then prepare pro-forma financial statements. These statements (both pro-forma balance sheet and pro-forma income statement) are the accounting equivalent of budgets. They will show where you are going financially. Additionally, you should provide pro-forma cash-flow statements. These statements are critical to the lender in that they show the stream of cash going into and out of your business and the projected balances thereof at certain points in time. In all of your projections, you must be able to support why you think that you can achieve certain levels of sales and why you think that you can control the outlays of expenses to keep them within the parameters of the pro-forma statements.
Keep in mind that your lender wants to be assured of repayment of the loan. You have to convince him that you will use the funds in a prudent way and that the money lent to you will permit you to generate future cash flow with which you will pay back the loan.
As it was said earlier about repaying the lender with publicly held stock. This is certainly a great option and can give the lender a greater return on his money than if you were to repay your debt in cash.
Remember About The Basics.
Keep in mind that as part of the process of impressing a prospective lender, you must demonstrate that you have a sound management team. Part of that team is your board of directors. Your corporate officers and your board of directors should inspire lender confidence. It is very important for you to show that you have an independent board of directors.
When you are writing up your business plan, don't be intimidated by the task. For the financial part, you can go to your CPA. For the portion on competition and marketing, you can go to a competent and respected marketing person who is thoroughly conversant with all of the ins and outs of your business. Remember, as it is said above, that there is a lot of data on business plans on the Internet. There is so much, in fact, that you have to be quite selective so as not to get lost in the details.
Also remember that the basic purpose of your business plan is to demonstrate how much money you need, why you need it, and when your lender can expect to get it back. Make the business plan simple, but complete, and realistic. With a good plan you'll be able to convince your investor to have confidence in you and your company and to lend you the money.
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Last edited by BumerM; 3rd October 2007 at 08:42 AM.