- A business plan helps you get the money you need to start, grow, expand or diversify your business
Lenders, investors, business partners, venture capitalists and angel investors usually require a business plan before they can consider your proposal seriously. They want to ensure that your business has a good chance of winning. They want to ensure that your business will be sustainable and profitable in the long run. Business plans help investors assess as to whether you have successfully identified a gap in the market or a problem that needs a solution. Essentially, is your business concept a solution to a problem? What about the market? Are people interested in your product or service? Is there demand? What is the competition like? Do you have a business strategy to combat competition? Do you have a management team to run the business? Is the management team skilled, experienced and competent? You need to thoroughly draft a well thought out business plan with a good financial plan. The business plan should demonstrate business sense. Investors and bankers look for the following:
- A business plan that is sound and makes business sense
- If your business is an existing business, investors or bankers will check to see if the cash flow is sufficient to make the future loan repayments
- For a new business, investors or bankers will check if the owner has a track record of running a profitable entity and having some experience of operating a similar entity in the past
- A business person with financial reserves and personal collateral that is sufficient to solve any unexpected problems/ challenges and fluctuations that affect business entities
The bank will ask themselves questions such as why do you need the money and are you able to pay it back. Lenders are more comfortable with people so close to their ideal loan candidate. Lenders and banks lend out money that is deposited with then. They conduct a due diligence on people or businesses that are looking for money to borrow. They look for people or businesses whose creditworthiness is less than perfect.
- A business plan helps you decide to proceed or stop
As the prospective business owner, you are the most important person to convince of the soundness of your business concept and its ability to succeed. Your business plan is designed to provide answers to the potential questions that prospective equity or debt providers are likely to ask.
Your business plan will show you how money flows through your business. It will also show you the strengths, weaknesses, opportunities and threats of your business. The business plan should help uncover and correct flaws in your business concept. It should further help you identify the risks that you are likely to face as well as how to mitigate the risks. If you realise that your business idea will not work, you will be in a position to avoid starting or expanding your business. This stops you from wasting time and money. It should go without saying that great entrepreneurs owe their success to an earlier decision not to start a business with built in or high risk inherent problems.
- A business plan helps you keep track
Your time is precious. Time is money. Business owners spend countless hours dealing with unforeseen circumstances. The business plan encapsulates plans for your future operations, marketing efforts, branding efforts, human resources or manpower requirements, funding requirements and a plan for managing risks.
- A business plan improves your odds of success
If you fail to plan, chances are you plan to fail. Starting or expanding a business without a strategic plan is gambling – you might win, you might fail. Depending on how you decide to fund the business, your money or the bank’s money is at stake. If you plan well, you can make money and pay back the bank. However, if you do not plan well, chance are that you will default. Most banks usually ask for collateral in the form of land. By writing a business plan you improve the probability of sustaining your business. 70% to 90% of start-up businesses fail within their first year of operations. One of the reasons why they fail is because they do not have a business plan. It might sound like a coincidence that they do not have a business plan. Be prudent and take time to write your business plan.
- A business plan helps you understand the macro-environment
A well-crafted and researched business plan will help you understand the changes taking place in the external business environment. These can include: political, economic, social and technological changes. You may also want to consider legislative and environmental changes and how they impact your business. Think of the policies and other political changes your government is implementing. What impact do they have on your business? How do changes in interest rates, increments in fuel, rising fuel prices and inflation impact your business? What about changes in social welfare and demographics? Is a rising population an advantage to your business? What about a growing middle income community? Think of the changes taking place in the technology arena. We have seen fantastic changes in the way we pay for goods and services. We can swipe, eWallet, send bitcoin and do all sorts of amazing things. How do these things affect your business? A well-researched business plan helps you identify the opportunities and threats.