The process of putting together a business plan, including the thought you put in before beginning to write it, forces you to take an objective, critical, unemotional look at your business project in its entirety. The business plan is an operating tool, which, if properly used, will help you manage the business and work effectively towards its success.
The importance of planning cannot be over emphasized. By taking an objective look at your business, you can identify areas of weakness and strength, pinpoint needs you might otherwise overlook, spot opportunities early, and begin planning how to best achieve your business goals.
The business plan also helps you see problems before they grow large and helps you identify their source, thus suggesting ways to solve them. A well-prepared business plan will even help avoid some problems altogether.
The business plan also provides information needed by others to evaluate your venture, especially if you will need to seek outside financing. A thorough business plan can quickly become a complete financing proposal that will meet the requirements of most lenders.
Since many business plans are submitted to banks or other sources of financing, it is important to realize how a banker analyzes a business plan and what questions will be asked during this analysis. A banker’s job is to assess the degree of risk for each proposed loan and to be satisfied that the loan can be repaid by the borrower while still allowing the business to operate profitably.
This analysis is based on factors such as: the nature of the business, the purpose of the loan, the amount of the loan, the ability to repay the loan and the character and management skills of the business owner.
Bankers, lawyers and certified public accountants are professionals in their fields and should be included in the planning at whatever point their knowledge and expertise can be helpful. You must do the work. A professionally prepared business plan won’t do you any good if you don’t thoroughly understand it. That level of understanding only comes from being involved from the very start. The best way to enhance your chances of success is to plan and follow through on your planning. It is also important to note that there are numerous software packages on the market that will assist you in preparing your business plan. However, you should not rely on the software and simply “filling in the blanks” – you must understand the document and avoid preparing a document that has a “cookie cutter” look to it.
It is important to emphasize that businesses with several years of successful operation will find it far easier to obtain financing than start-ups, as lenders will be much more receptive and confident in your ability to repay a loan at that point. In fact, without a strong business plan that has realistic expectations and forecasts, demonstrates managerial experience, and provides collateral, it may be impossible for a new business to get extending financing for a new venture as they represent a high risk of default.
This doesn’t mean you can’t get a loan as a start-up, but rather that you will have to compensate for the lack of a track record by being strong and well prepared in other areas. Demonstrate by your enthusiasm and the thoroughness of your business plan that you are committed to the venture and that it will succeed. Keep in mind that when applying for a loan; you’re selling both yourself and your business.
The business owner should remember that he/she bears the financial responsibility for all decision-making and that the success or failure may be the result of these decisions.
Remember that as you develop your business plan, you may have to modify or revise your initial questions.