A business plan is a written document that outlines the goals of an organisation and how those goals will be attained. It includes an operational, financial, and marketing roadmap for the business. All sorts of enterprises, from big, established firms to tiny start-ups, employ business plans, some of which are more extensive than others.
Your lender can request to view your business plan if you’re seeking a business loan. Your strategy can demonstrate your comprehension of your target market, your business model, and your level of goal-setting realism. Writing a business plan can increase your chances of obtaining funding, even if you don’t need one to apply for one.
The necessity of a business plan
A well-written company strategy offers various benefits from an operational standpoint. A well-crafted plan will outline the risks and uncertainties that a business may face as it progresses and will also explain how the organisation will grow over time.
A business plan serves as an invaluable strategic roadmap that helps leaders stay focused on their long-term objectives in the daily bustle of the firm. It also enables companies to assess their performance; in the absence of a strategy, it can be challenging to ascertain whether an enterprise is headed on the right path.
A business plan is helpful when interacting with outside groups as well. In fact, before deciding whether to grant funding to start-up companies, banks and venture capital organisations frequently need a strong business plan.
Parts of a business plan
Every company is unique, and the same is true of every business plan. However, the majority of company plans have several generic elements. Typical elements include the management team, executive summary, business overview, products and services, market analysis, marketing and sales plan, and operational plan. Financial statements and a funding request should be included with your loan application.
The executive summary comes first. In addition to providing an overview of the content in the remainder of your business plan, the executive summary is where you may spark interest in your venture.
Basic details about your company, such as what you do, where you’re based, what items you offer, and how long you’ve been in operation, should be included. You can also discuss the factors that led you to launch your company, your biggest achievements to date, and your expansion goals.
Then there is the company overview. In this section, highlight your company’s key competencies, the issue you hope to resolve, and your strategy for doing so.
Here, you should also highlight any significant advantages your company has over rivals, such as entering a new market or taking a novel approach to an already-existing one. In this part, you should also mention important figures like your annual turnover and workforce size.
In the products and services area, give a brief description of your offerings. A lender will want to see that your products are appealing even if they don’t need to know every technical aspect.
One of the main sections of your business plan is the market study. Show that you are aware of the market you are in and how you set yourself apart from the competition. Include any market figures you can locate in this section, especially those regarding its anticipated growth in the upcoming years.
A plan for sales and marketing is necessary. This will outline the kind of new clients you hope to acquire as well as your strategy for establishing a connection with them. Your sales targets should be listed in this section, along with a connection to any upcoming marketing or advertising campaigns.
You should outline the advantages and disadvantages of entering a new market or reaching out to clients you haven’t worked with previously.
The operational plan is a crucial component that outlines the prerequisites for managing your company day-to-day. Depending on the kind of business you operate, your specific needs will change but try to be as detailed as you can.
For instance, you should factor in the cost of office space rental in your operating strategy. The price of hiring personnel, purchasing machinery, and any raw materials needed to operate your firm should also be included.
Additional tricks
If you are looking for a loan, one of the most crucial parts of your business plan is the section on the management team. Your lender will want confirmation that your senior management team is made up of people who are qualified, experienced, capable, and trustworthy.
You ought to include a funding request if you’re submitting a loan application. Here, you should specify how much money you want to borrow as well as your precise plans for using it.
The most crucial aspect of the funding request section is describing how the loan you are requesting would increase your company’s profitability and will enable you to repay the loan.
The majority of lenders will request that you include documentation of your company’s finances with your application. Charts and graphs help your lender quickly comprehend your financial situation, so they are frequently a helpful addition to this part.
Providing financial accounts serves the general purpose of demonstrating the stability and profitability of your company. Add balance sheets, cash flow statements, and income statements for the last three to five years. Providing more analysis and growth estimates for your company over the next few years can also be helpful.
What do lenders look for in a business plan?
Lenders scrutinise various aspects of your business to ensure stability, market understanding, and realistic growth plans. They evaluate these factors through what is commonly referred to as the “five Cs”: Character, Capacity, Capital, Conditions, and Collateral.
Character, the first C, underscores your integrity and reliability as a borrower. Highlighting your positive attributes in the executive summary, company overview, and management team section can strengthen this aspect.
Capacity, the second C, focuses on your ability to repay the loan. Lenders examine your growth strategies, funding requests, and financial statements to gauge this. Demonstrating realistic plans for expansion and sound financial management is crucial in this regard.
Capital, the third C, pertains to the resources already invested in your business. A larger and more established capital base increases the likelihood of loan approval. Emphasising your capital throughout the business plan showcases your commitment and financial stability.
Conditions, the fourth C, encompass market dynamics and positioning. Your market analysis should illustrate a solid understanding of market conditions, demonstrating how your business is well-aligned with your target market and positioned advantageously relative to competitors.
Collateral, the final C, involves assets that can serve as security for the loan. Providing details about the assets you possess in the operational plan can reassure lenders and may be necessary depending on the loan type.
By addressing these five Cs throughout your business plan, you can provide lenders with comprehensive insights into your business’s stability, market awareness, and growth potential, increasing the likelihood of securing financing.
The art of writing
Depending on your industry, writing a business plan may take some time, but you should take your time to make sure it is accurate and comprehensive. Beyond just helping you get a loan, a business plan gives your company direction and strategic emphasis.
When creating a business plan, the most frequent error made by entrepreneurs is to overestimate their growth potential. Try to avoid giving your lender unrealistic growth estimates because they are likely to catch you off guard.
You can also hire someone to write it for you. Although you can pay someone to draft a business plan for you, doing it yourself is frequently preferable. Compared to an outside consultant, you probably have a deeper understanding of your company.
Whether you are looking for a loan or not, writing a business plan will help your company. You may establish and maintain strategic priorities with the aid of a well-written business plan. It outlines your plans for expanding your company, which is important information for lenders who want to know that you can pay back the loan you’re looking for.