Business plans are used by most businesses regardless of size and how long they’ve been established. For young businesses, however, the time, energy and money that it takes to produce the right business plan will be worth all the effort in the end.
What may seem a chore to would-be borrowers – when all they want to do is get on with implementing their great business idea – is regarded by most serious investors or lenders as a vitally important document that provides a window into the business and, perhaps more importantly, into the hearts and minds of the people running it. In short, it provides the would-be investor with all they need to know. It is not something to skimp on or to rush.
Obviously the financial information contained in any serious Business Plan has to be accurate and realistic. There is a natural tendency for entrepreneurs to be overly-optimistic, but being overly-cautious can be equally ill-advised. Above all, the person responsible for putting the figures together has to believe in them and be able to answer probing questions as to their validity – investors will not only want to test the numbers, but also explore the assumptions behind them. We’ve all seen Dragon’s Den and experienced the painful moment when we put our head in our hands and mutter, “They don’t know the numbers.” But there is no excuse for falling into the numbers trap.
Above all, investors will want to establish how well the owners understand their business, working on the basis that, if the management doesn’t have a good grasp of the detail, how can they expect an outsider to understand or, still less, to lend them money?
The statistics are obviously crucial to the purely money-men, if only to convince them that they are going to get their money back. However, the really complete Business Plan will contain a clear vision of the future; it should capture and express the aspirations and confidence of the owners. It should demonstrate, too, that the managers understand the market in which they operate, taking account of the competition and other factors that could affect their profitability in the future.
The Business Plan has to ‘sell’ the company, reflecting the passion and commitment of the management team and so convince the audience that this is an enterprise that is worthy of support. It is a common misconception that Business Plans have to be 200 pages long to be acceptable; this is untrue. A Business Plan should convey all the points mentioned above, but, importantly, should also set out to engage the reader. Lenders / Investors can always ask more questions if there is something about which they are not satisfied.
A good Business Plan also provides a useful benchmark against which to measure future performance at a strategic level; it is an important tool for keeping a business on track.
Most entrepreneurs can ‘talk’ about their business, their invention or idea. However, not everyone has the skills to commit such matters to paper as part of a concise, accurate and well-argued document. Help and advice can be found easily enough on the internet. However, once the basic information has been collated, it is often wise to seek the assistance of an outside adviser, such as an accountant or external specialist. They should be able to test the numbers, anticipate likely questions and help provide some of the answers. This is an additional cost, but one that often turns out to be money well spent.
If you would like to find out more about flexible growth funding from Credit4, visit our website at www.credit4.co.uk or give us a call on 020 3637 0570