Why Does A Small Business Need A Business Plan?

Any entrepreneur who approaches a bank with a view to securing funding for a start-up venture or business will generally be asked to submit a business plan to support the application.

Business plans are rarely required for existing businesses that are looking for finances to expand and grow, but never the less, the banks are prone to look more favourably on any application if there is a business plan to refer to.

There isn’t one fixed/standard form of business plan. Each plan will vary depending on the nature of the venture or proposal contained in the document. If you’re just starting up in business, then the document will probably define the business and set out what it is hoping to achieve within pre-defined time scales. If your existing business is looking to expand, then the plan may be drawn up to support a loan application, or raise additional funding. Never the less all business plans have certain things in common: they all need to be clear, concise and focused.

So what should be in the business plan?

Well, that in a sense depends who the plan is written for, but generally a business plan should prove that your business will generate sufficient revenue to cover any expenses and outgoings. Business plans will vary, however, depending on the audience they are for.  If you’re writing a plan for your colleagues and partners with the intention of expanding an existing business, then the focus of the plan may be more operational than financial. But if you’re writing a plan to secure a business loan or start-up funding, then the bank manager’s primary concerns will be financial. Is it a realistic plan? Is there sufficient predicted cash flow to guarantee that the business can repay its commitments? Does the plan inspire enough confidence to risk investment?

What makes a successful business plan?

It’s generally accepted that there are 5 key elements that are necessary for any successful business plan.  Business plans should:

  • Present a carefully considered and well thought out idea.
  • Be written in a clear and concise way.
  • Be logically structured.
  • Clearly illustrate how the business will prove to be successful.
  • Clearly demonstrate future profitability.

The easiest way to think about a business plan is to view it in the same way as a business card. It’s there to create an impression and should inspire confidence in both you and the business. Obviously it needs to be presented professionally and it’s vital to ensure that the numbers add up. If you are challenged about your calculations and the projections are wrong, then the plan will definitely be rejected. What every business needs to remember is that the plan is written to convince any investor that you’re worth taking a risk on. Your plan therefore needs to clearly demonstrate that you have the necessary talent, ability and determination to deliver.

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