This article explains the importance of a business plan when seeking help from a financier. In addition it provides useful tips for writing a business plan.

A business plan has four main purposes.

1. To establish the viability of your business

2. To document your objectives and forecasts for the business

3. To benchmark and measure progress

4. To communicate your plans to outsiders – such as a financier

There are two types of financier, the lender and the investor that you may approach or who may be interested in your company venture.

The Lender i.e. a bank will be looking to see how you propose to handle potential risks that your company may encounter. Their main concern is regarding the security of the repayments for the money they have loaned you, and will therefore want to ensure that you will be managing the company’s risk wisely. As well as checking your credit rating a bank manager may ask you a number of questions in an interview which you will need to be able to answer, such as:

• Why do you need the amount requested?

• What will you do with it?

• How do you know it’s enough?

• How much less can the company survive on?

• What other sources of finance do you have or who else are you borrowing from?

• How are you going to pay it back?

• What collateral or guarantee do you have?

You need to ensure that these questions are already answered in your business plan as it is much harder to change the manager’s mind in your interview with them. The bank will look for collateral and cash flow within your plan.

Make sure you are not afraid to ask for the exact amount required, because if they lend you an amount that is not enough to get the business going and you need to ask the bank for more money, they may question how well you have planned your financial requirements. This could make them sceptical about lending you more.

Professional Investors accept risk, although they will try to limit their exposure to it. The questions they may be asking themselves while reading your business plan are:

• How much can I make? – They are usually looking to make around 30-50% annual compound growth on their investment

• How much can I lose? – What is the risk of losing their investment?

• How can I get my money back or out of the company?

• Who else is investing it this company?

So now you know why it is important to have a business plan when seeking investment from a financier, the article will give some useful tips for what to include in the business plan. The business plan should summarise the following points:

• The overall objectives of your company.

• Who your clients will be and their current buying behaviour.

• Who your suppliers are and how much bargaining power they have.

• Who your competitors are and how you will differentiate yourself from them.

• Who are the key personnel and what their core skills are.

• How the business will operate, including the assets needed to run it.

• How much finance is required; and contingencies should sales fail to meet the forecasted level.

To conclude, business plans are very useful for raising finance for a business. Even if you are lucky enough to be in a situation where you do not need to raise capital, preparing a plan will help focus your thoughts, check your calculations, help you monitor results and enable better communication of your ideas.