Most people who go into small business borrow money. Whether it is because you do not have the cash to go into business or whether it is because you are doing so to get the tax benefits. It does not really matter what the reason is, the fact of the matter is that to get a loan you should have a business plan to take to your lender.
You see, a very high percentage of small businesses fail in the first 5 years and mostly it is because of finance either at the beginning or the finance to grow the business as required during that time. If it is not the finance it is more often than not the fact that the owner has no marketing strategy and eventually the business fades into oblivion.
To convince a lender to give you money you need to be able to prove to them that you know what you are doing and what you plan to do in the next 5 years. Gone are the days when you can walk into a bank, like I did 30 years ago and ask for a loan and have the bank manager say with a big smile on his face: "I like the look of you, I will definitely lend you the money."
THE PURPOSE OF A BUSINESS PLAN
The idea of a business plan is to let your lender understand:
- what your proposed business is all about
- how well you understand your proposed business
- that you have analysed the business ownership structure
- that you have talked to your accountant
- that you have a very good budget for setting up the business and also for the ongoing running of the business
- that you have researched your product or products
- that you have had a good look at what your competition is doing in their business
- that you know the legal obligations of the business
- that you have a marketing plan and the funds to pay for it
- your plans for the next 5 years
- most importantly how you plan to pay the money back
I am sure you can see from this list that there is a lot to consider when making up a business plan and you can also see why a lender would want you to have one if you are planning on starting a small business on their money.
Earlier we mentioned a marketing plan, and it is also very important to have one made up and you should take a copy of the marketing plan with you when you approach your lender.
To sum up, before committing yourself to anything in your small business you should have a business plan and a marketing plan already made up and in printed form.
