Do You Have a Plan?

Thinking about starting a new business? Lots of people do this time of year. It’s a surefire way to make more money and be your own boss. The advantages of owning your own business are endless. Work from home…in your pj’s…no boss breathing down your neck…no office politics…no commute…

If everyone could start their own home based business they would. So why will most people never do it? Money. Every business needs it to get started. You could ask your friends and family for some seed money, but most likely you’ll only be able to get a few thousand dollars. You could get cash from your credit cards but interest rates are so high that you would go into massive debt very quickly. You could sell your car or refinance your house or dip into your kid’s college fund but those would most likely get you divorced or crimp your lifestyle.

Asking banks for a loan is one way to go. It’s not easy though. Banks are notoriously stringent lenders. You’ve got to show them your ideas and you’ll definitely have to show them your business plan.

Business plans are the road maps to success. They tell lenders and your employees how you plan to succeed. They contain information on how you plan to operate, market research, sales strategies, marketing techniques, competitors and a financial forecast.

There are eight essential topics you’ll need to cover in your business plan. Some “how to” guides say you need more than that, but these eight are the areas that every expert agrees you must write out.

You should always start with a brief summary of the business you want to start. Write a paragraph or two that explain why your business will be a success. You are trying to convince loan officers to give you money so make your statement as persuasive as possible.

The rest of these topics don’t need to go in any particular order. The most important part is to include enough information on all of these points so that the loan officer has enough information to decide.

One of the earlier points you should cover is your businesses goals. Explain what you want your company to accomplish and how fast.  Make sure to include information on short term as well as long term goals. This section doesn’t have to be too long, a few paragraphs are sufficient.

You can also start off with a brief account of how the company began. Describe what led you to create this new company and how you came up with the idea. This statement should lead you into a section where you can discuss the credentials of everyone who holds a management position in the company. If you are the sole employee write about your background and experience. Show the lender why you are confident you can make your business a success.  Profile all lead members of your business and explain what their responsibilities are at your company. This is an important part of your business plan, don’t skimp on this section.

At some point you’ll need to describe the services/products you plan to sell. This is another extremely important section so be as thorough as possible. Give a detailed description of all services/products for sale. Explain how they will benefit the customer, the problem that your services/products solve, and how your service/product is better than similar ones on the market today.

Immediately following the product/service description should be information about the  you are entering. Analyze your competition and the extent of your market. It’s extremely important to convince the bank that the market you are entering is not only thriving but growing. No one wants to lend money to someone entering a declining market.

Be sure to go into your potential customer base too. If your business will have a traditional brick and mortar location that depends on locals, explain how large your potential customer base is within a relatively short driving distance. For web based businesses you’ll need to include information on a national basis. Make sure to include plenty of verifiable facts and statistics in your analysis.

At some point you’ll need to go into your marketing and sales strategy. In this section it’s important to explain to the lenders how you plan to build a customer base. Will you advertise on the web, on television, in print (or all three)? What will you do to announce that your company is now open for business? If you have any sales letters or advertisements already finished you could include them in the index of your business plan.

The section lenders will be most interested in is the financials section. Here you need to explain a number of costs and projected income. Be sure to include information on the amount of money you need to start your business. Show how you arrived at that number. What will the money you are borrowing be used for? Equipment rental? Working capital? Etc. Once you show that you’ll need to show lenders your break-even point, expected profits (long term and short term), and a cash flow projection. Also include information on how you plan to repay the money you borrow. Will it take you a year? Five? Ten? What are your preferred loan term?

Lastly you’ll need to explain your exit strategy to the bank. This will be a hard section for you to write. Business planning is exciting and exhilarating so writing about how you’ll know when it’s time to throw in the towel will go against those feelings. Honestly it’s kind of a downer to write about, but an important one none the less. The lenders need to know what benchmarks you’ll use to decide when it’s time to call it quits. Will it be if an important person leaves the company? Will it be a certain dollar amount (or lack thereof) that will convince you the business is kaput? Show lenders you’ve thought of everything by writing this section.

Writing a business plan isn’t just for the banks sake, it’s for your benefit as well. Prepare one even if you don’t plan on taking a loan to start your business. A well thought out business plan will make starting your business that much easier because you will have created a roadmap to success.

Good luck!

Ethan Warrick


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