What can you do to significantly improve your business plan, subsequently increasing your chances of securing any required finance?
Over the years I’ve written a lot of business plans and to date, have a 100% success rate in obtaining finance for my clients. I say this not to impress you, but to offer some assurance that this article will be of value.
I’ve also read many business plans when assessing the business for finance and therefore understand what lenders are looking for when evaluating applications.
1. What your business plan must do
The assessment process presents an impartial view of the business. The person reviewing the business plan does not know the personalities and is therefore reading the hard, cold facts. The business plan must therefore move this person, it must be interesting and it must convey the message that the business is well-run.
It must also demonstrate that the you, the owner, is very switched on to what’s happening within your industry and niche market. As you are unable to meet the decision-maker, it’s important that the business plan does the talking for you.
Your plan must become a salesperson in print!
2. Tell your story…
I’ve seen so many plans over the years that miss out vital information. Background information woven into a good story is so important. The reader must get a good sense of:
- the business
- you, its owner
- the team
- where it’s going
- what it’s trying to achieve and why it’s important to the future of the business.
When writing a business plan, this information is best set out in two sections. A plan usually begins with a quick summary followed by the background information. This is the story providing the history of the business and bringing it up-to-date.
The next section details where the business is heading, the key reasons why the business owner believes this to be the correct decision, the pros and cons of taking this path and the expected returns.
This provides the lender with an objective profile of the business and the decision-making within it.
- Is there a feeling conveyed in the plan that the business has a well-reasoned plan that has a good chance of success?
- Has the business owner considered everything?
3. Be tough in your analysis of your business
It’s disappointing how many business plans lack a SWOT analysis. If you haven’t heard of this term, it stands for Strengths, Weaknesses, Opportunities and Threats.
The ability of a business owner to break down their competitive strengths is important. Hopefully, this can be proved through previous or current advertising and confirmed via trading figures. A business should compete on their strengths and find ways to improve all aspects of their offering to support their message to the market.
A good open discussion about potential weaknesses is important with additional comment indicating what you intend to change to minimise the points you raised. Can these weaknesses seriously hurt the business? If so, how, what could they cost and what plans are under way to close off these particular issues?
Your opportunities should tie into the reason why you are seeking finance. If you haven’t done so already, explain why these opportunities are worth taking forward. There could be other opportunities you have considered which may be for a later or simply not deemed as important as the one you have chosen.
There are always threats to a business whether due to possible changes in government legislation, the rise of a competitor that attracts some of the market share away from your business, loss of key staff, sickness; your own or key staff. It’s important you detail these and explain what you’ve either done, are doing or propose to do within a reasonable timeframe to minimise these.
4. Provide variations in the numbers
When the story is complete, an assessor looks at the numbers. This is often a key area where you can improve your business plan.
They will be looking at accounting history and projections. Attention to detail here is paramount. Often, I’ve seen conservative or average trading history, presented with projections that show massive growth in sales, month on month. If the story doesn’t tell the reader exactly what will happen to make the projections possible, the assessor will question “How is this possible?” You can’t expect the reader to take a leap of faith at this critical point in their assessment.
Whenever there’s a request for finance, there is always a time lag between receiving the funds and seeing a return on the investment. And yet, in many plans I’ve seen, sales increase almost immediately upon receipt of the funds. This doesn’t happen often in real life so think carefully about the timescales when it comes to lining up your team, receiving the funds and spending the money etc, with what you expect to happen and when.
It’s always a good idea to sensitise your numbers, perhaps reducing sales by 20% compared to your initial projections, but also adding another X% to show what could happen if you exceed projections. How is your cash flow and profit affected either way and is there a need for additional planning just in case it doesn’t go according to plan?
This is the biggest area for contention from a lender and yet I rarely see enough detail to be able to explain the numbers, demonstrate that contingencies are in place for under and over performance.
A line-by-line analysis of your numbers with detailed text can make a significant difference.
5. Remember the additional, prove-it information
In addition to the main plan, it’s important that you include any additional information that presents a clearer and better picture for the assessor. This could be marketing material, breakdowns of past marketing campaigns and their success, information on specialised machinery you may be seeking to buy including the quote from the supplier.
If you want to significantly improve your business plan, any scrap of information that builds on or confirms your case for support is vital.
I mentioned in point 1 that your business plan must be a salesperson in print. The more information you provide and stack with provable data or examples, the stronger your case. Pay attention to the detail because the assessor is unable to fill in the gaps. If there are gaps, there is uncertainty. The more uncertain the assessor is, the more likely they will decline your application.
As a business owner, you should be able to tell your story and present a sensible case for funding. The additional information should prove your facts or assumptions, providing a level of comfort that you have a balanced argument, taking well-reasoned steps to set your business on course for success.
I hope this article has provided food for thought in terms of the areas where you can improve your business plan and you are successful with your next application.
If this is your first time creating a business plan, you may also like to check out my previous article: “How to Write a Simple but Effective Business Plan”
Good luck.
