Stage 6: Financing
Step 23: Write a Business Plan
The Concept:
A written business plan is a blueprint for success and is highly recommended even if you are not seeking outside financing.
What you need to know:
At this point your business planning should be almost complete. Now is the time to take all the information that you have gathered and compile it into a written business plan. The plan is significant for you because it involves research that helps you gain a thorough understanding of your business and what it takes to run it. You will know what to do to make and keep your business successful.
Others who review your plan - namely investors -- will expect it to be in a certain format when you present it so that most of their questions are answered. A business plan is organized and presents all information - be it 5 pages or 55 pages -- succinctly and logically. The length is not the key as long as you are certain to address the following areas:
Cover Letter: If you seek financing, note the amount of funding requested, collateral, the purpose of the loan, and source(s) of repayment.
Reference: Assess Financial Situation, Compile Business Budgets.
Table of Contents: Readers should be able to quickly locate the desired information in this essential element.
Executive Summary: This section should be written last and may be combined with the cover letter. Keep it short and sweet. It includes:
- Business name
- Location and facility description
- Product or service
- Market and competition
- Management and business goals
Reference: Define Idea, Assess Self, Market Strategy.
Products and Services:
Description of product line or services
- Uniqueness of the product or service
- Product/service comparison
Reference: Idea, Market Research.
Manufacturing Process: (if applicable)
- Materials
- Sources of supply
- Production methods
Reference: Technology, Personnel, Equipment, Quality Control, Inventory, Market Research, Regulatory.
Market Analysis:
- Description of full market
- Industry trends
- Target marke
- Competition
Reference: Market Research, Breakeven Point.
Marketing Strategy:
- Overall strategy to market your product or service
- Pricing policy
- Methods of selling, servicing, distributing
Reference: Marketing Strategy, Location, Technology, Personnel.
Management Plan:
- Form of business organization (legal entity)
- Board of directors (if corporation)
- Company officers/responsibilities
- Resumes of key personnel/professional advisors
- Staffing plan/number of employees
- Facilities plan/planned improvements
- Management system
Reference: Assess Self, Technology, Personnel, Equipment, Quality Control, Inventory, Professional Advisors, Legal Entity, Licenses, Proprietary Issues, Taxes, Accounting Systems, Regulatory, Location, Insurance.
Financial Projections:
- Cash flow
- Profit and loss statement
- Balance sheet
- Explanation of budgets
Reference: Budgets, Breakeven Point.
Does your business work together as a whole?
Go/No Go Decision 2:
Now that you have compiled all of your ideas, research, and projections, it is critical to again ask, "Does my plan still work?"
The cash flow summarizes the entire plan in dollars and cents. Does the cash flow "ending cash" remain positive? If not, rework the plan to increase revenues, decrease expenses, or increase initial funding as needed to address this issue.
- Does my plan show that my financial and non-financial goals can be met? If not, rework the plan to address this concern.
- Do my answers to all previous questions still hold true now that the entire plan has been pulled together? If not, rework the plan to address concerns.
If you answered "no" to any of the above and cannot find a solution, do not proceed.
Step 24: Seek Financing
The Concept:
You've researched, you've planned, you've put it all to paper—now you need money to make it all happen. Pursue sources of financing most likely to help you given your financial situation and the soundness of your plan.
What you need to know:
There are three kinds of financing: Owner financing (using your own money entirely), debt financing (loans to be repaid and secured with collateral) and equity financing (selling a portion of your business to investors who may or may not participate in its operation).
Review your completed business plan with professionals who specialize in business financing. Their experience and perspective can help you comply with the many state and federal securities laws when seeking financing.
Approach your chosen financing source with at least the executive summary of the business plan in hand. Briefly review the proposal and determine if there is any potential to explore a financial relationship. Then submit the full business plan and personal financial statement, summarizing total assets and total liabilities, for consideration. Supply whatever additional information is requested to answer any questions the lender, partner or investor may have.
If your financing proposal is approved, it may be done conditionally. In some cases, for instance, a bank may require the Small Business Administration to back up a portion of the loan, or that you bring on a co-signer, or that you secure additional equity investment.
Whatever your source of financing, be flexible since loans and investments can be structured in many ways. Negotiate on the terms, rate, closing costs and repayment schedule. Make sure that negotiated terms work within your proposed business budget. If they do not work, propose to rework the structure or do not accept the financing.
If your initial financing source declines to participate, strongly consider the reasons given for denial. Either strengthen your proposal accordingly or re-direct your search to a more appropriate funding source and begin the financing process again.
Points to consider:
- When and how quickly am I required to repay the money?
- Are there fees associated with the type of financing I'm seeking? Can I afford them?
- Have I fully explored the continuum of funding sources (e.g. family/friends, personal money or assets, venture capitalists, public and private sectors) before approaching an external funding source?
- What kinds of security (guarantors, cosigner, mortgage, insurance policies, savings, or other collateral) can I offer a lender?
- Can you attain the needed funding to start your business? If not, can you make changes to make financing feasible?
Go/No Go Decision 3:
Answer this question:
Is financing available given personal resources, market and industry issues, and the proposed business plan?
If not, what can be done to strengthen the funding proposal? Should you look toward a funding source that invests in riskier ventures?
If no solution is found, do not proceed.
