Finance companies and banks demand a written business plan before putting up financial support to a new business. All medium and large companies inevitably prepare a financial budget for the coming year. That should tell everyone that not producing a written business plan is the first mistake everyone starting a new business might make.
Starting a new business without a proper business plan is akin to taking a blind walk in the dark without no road or map to follow. It should not come as a surprise to learn that the majority of new start ups consequently fail within the first two years dashing the hopes and dreams of many budding entrepreneurs.
The benefits to an entrepreneur in producing a detailed comprehensive business plan when some-one is considering starting a new business lie strongly in the thought process that goes into producing that plan rather than the ultimate plan itself. New start ups should regard a business plan as a road map to get the show on the road.
A properly thought out and written business plan for a small business should contain the details of how the small business is going to get started. For more help visit to: www.info- product-profit-revealed.com. A typical plan might include a short synopsis of the new business with sections on sales and marketing, operations or production, purchasing, personnel plus a financial section evaluating those plans and putting real numbers on the written text.
The short synopsis should briefly describe the main business and mention each of the main ingredients contained within the plan to attain the objectives. The rest of the business plan should support that synopsis and should be factual rather than a sales document.
Sales and marketing should include an analysis of the potential and forecast sales, competition and how the sales will be achieved. Identify the sales channels that will produce the sales and why they will produce the sales. The sales section should specifically state the volume of sales of each product over at least the first year and the price at which each of those products will be sold and note the sensitivity of all items to unexpected events.
The operations and production section is dependent upon the type of business and will be variable depending on whether the new start up business was providing services, retailing or manufacturing. The production section is basically a detailed picture of the vehicle that will be used to generate the products to be sold.
Purchasing would include an analysis of how the products to be sold would be sourced. Volumes should be stated and sources of supply specifically identified with a real purchase cost of all major items specified not guessed.
Personnel would include the names of the people involved with brief details of their knowledge, qualifications and previous experience. For more help visit to: www.instant-cd-products.com. The personnel section would also include details of people yet to be recruited if the work to be performed is going to be critical to the new business.
The financial section of a business plan should contained a forecast profit and loss account preferably each month for the first year at least with perhaps a summary of the second year. In addition to the profit and loss account a cash flow statement taking into account capital introduced and stock levels should also be produced.
The sales and production or purchasing numbers including volume and prices contained within the report should be reflected in the financial report. Each major critical assumption within the plan should be subjected to a financial sensitivity analysis that takes into account all potential risks to volume and price levels.
The process of preparing a detailed comprehensive business plan that has been properly researched has significant benefits in itself. If the business has been researched and thought through before the new business starts there is a much higher can it will succeed and suffer fewer negative surprises once the real work of generating sales and profit begins.
A Successful Business Plan
Running your own business can be very rewarding however it is certainly challenging too. You'll find yourself working long hard hours and making difficult decisions day in day out, so it is definitely not an easy option. A heavy dose of realism and plenty of research is a must before you take that first step and approach your bank manager for finance.
Writing your plan
The importance of a good business plan can not be overstated when you are starting up in business. Although the initial objective of the document is to help you raise finance for the business, it will also help you understand what you wish to achieve from the business and is an essential document to review the performance against your projections and can alert you to anything that is not going according to plan. The plan should demonstrate that you understand the business opportunity and unsurprisingly, a bank will only lend when it has a very good chance of being repaid. You may wish to seek professional advice in drafting the plan although it is too important to be left to someone else to write. Banks can supply a business plan template to give you guidance as to what to include in the document. Accountants and Business Link advisers can also provide valuable assistance in producing a business plan.
You must be able to confidently answer any questions raised by the bank manager about the business, your chosen market and the financial projections. The bank manager will want to see a robust plan summarising the business opportunity however they won't be interested a lengthy document covering the operation of the business in minute detail. It's always a good idea to practice presenting your proposal before you actually meet the bank manager.
What to include
The essential elements of a plan will include the past experience and skills of the business owner and key employees. A brief overview of the business and the market is also important. The business operational issues should also be covered including; premises, staffing, marketing, insurance, equipment, information technology, suppliers, customers, health and safety and stock control. Businesses that have a unique product or service or a competitive advantage are more likely to be successful in their market. A breakdown of the strengths, weaknesses, opportunities and threats to your business is also useful and is commonly called a SWOT Analysis.
You will also need to provide a list of personal assets and liabilities, as well as income and expenditure. The plan should detail your stake in the business and the source of the contribution for example savings, redundancy, re-mortgage, family loan or inheritance. The amount you are looking to raise from the lender, repayment term and available security should also been quoted. Cashflow and profit forecasts are also vital elements of the business plan. The ability to generate cash is critical to the success of any business. If the business cannot generate sufficient cash at the right time to meet payments due then there will be potential problems. The profit and loss projection will show the expected level of sales, the cost of these sales to the business and the operating expenditure.
Submit your plan for review
A copy of the business plan should be sent to the bank manager a few days in advance of the scheduled meeting to give them the opportunity to read the document before you meet. Banks will generally expect a personal financial commitment from you of between 30 and 50 per cent of the total set up costs including any working capital requirement. In most cases security will be required to cover any loan or overdraft finance agreed.
Treat it as a working document
No business plan is ever set in stone as objectives and forecasts can alter as you gain a better understanding of your marketplace and the business develops. The business plan is a working document and should be regularly referred to checking ongoing performance against the forecasts. It is likely that the bank manager will check the account activity and compare it to the original projections, especially in the early months of trading. If there are any major discrepancies expect to be questioned about them. It is better to adopt a proactive stance in your relationship with the bank manager and to highlight trading issues at an early stage to seek advice and support.
Both Nikku & Maxim Garanichev are contributors for EditorialToday. The above articles have been edited for relevancy and timeliness. All write-ups, reviews, tips and guides published by EditorialToday.com and its partners or affiliates are for informational purposes only. They should not be used for any legal or any other type of advice. We do not endorse any author, contributor, writer or article posted by our team.
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