Business Start-up

A business plan is essential for your enterprise. Whether your business is starting up or established, the business plan is the
roadmap for future development.

It is a key document when you are looking for business funding - whether applying for a simple overdraft or looking for new
investment or capital.

The business plan helps them understand your vision and goals for the business, how you are going to spend the invested or
borrowed money, and how this will benefit the business and potential funding providers.

It is the first source of information that most providers of funding see about a start-up company and is crucial in getting their
attention and interest. This guide sets out the key elements that they will be looking for.
Potential investors and lenders will examine your business plan closely to determine whether to risk their money.

There is no standard format but most plans include:

• An executive summary highlighting the main points - to catch people's attention.
  
• Details of key personnel with an organisational chart showing individual responsibilities.
  
• Details of competitors and how your product or service fits into the market - eg who your potential customers are and why
  you think they will buy your product or service.
  
• Your marketing plan - how you are going to get your product or service in front of potential customers, together with any
  assumptions made when setting your targets.
  
• Financial information - eg key ratios. These can be used to compare your business' performance against industry
  benchmarks. It's also a good idea to give details of any major expenditure you've made on long-term assets and explain the
  reasons behind any changes in working capital items, such as stock, debtors and creditors. Remember to include balance
  sheet and profit and loss account details. Many lenders ask for three years' financial information. If this is not available,
  supply details about trading to date.
  
• How you will manage credit, expenditure, stock planning and control, and debtors and creditors.
  
• Tailor your business plan to the target audience
  
• A business plan serves a number of purposes and you may have to modify information depending on your target audience.
  

Your bank will be interested in:

• how you intend to repay a loan or overdraft
  
• what you are going to do with the money
  
• how the loan will help the business to grow
  
• what other loan or debt commitments you have
  
• Most lenders operate a credit-scoring system. Make sure you give up-to-date and relevant information. A good relationship
  with your bank manager will not influence the credit score - the manager may have discretion to negotiate terms but not to
  change the decision itself.
  

Tell potential investors about:

• what you are going to do with the money
  
• when and how you are going to pay it back
  
• the expected return
  
• your other sources of funding
  
• your management's track record
  
• Include a detailed forecast of your profits and cashflow.
  

Indicate to shareholders:

• the prospects for the share price
  
• how they may be able to sell their shares
  
• what dividend they can expect on their shares
  
• your management's track record
  
• what say they might have in the business
  
• Demonstrate how they can exit with positive returns within three to five years.
  

Many businesses with growth potential fail to raise funds because they lack investment readiness, ie they do not understand the
expectations of investors, cannot turn proposals into attractive opportunities or are unaware of financing sources.

Common reasons why business plans and loan applications fail include:

• a weak management team
  
• a flawed marketing plan
  
• unrealistic forecasts
  
• incomplete and poor presentations
  
• Demonstrate your commitment to the business
  
• If you want to attract outside funding, it is important to invest your own money in your business. If you are not prepared to
  risk your own capital a lender is unlikely to want to risk theirs.
  

If you are looking for funds, the business plan needs to show the extent to which you are committing your own resources. It should
list all the cash and assets that you have put into the business.

You can demonstrate strong commitment to your business by:

• reinvesting profits from the business rather than taking dividends yourself
  
• putting in more cash of your own
  
• using personal borrowings (eg a mortgage) and guarantees to raise funds
  
• finding funds from family, friends and existing investors
  

It is always helpful to detail the backing you already have from banks and other investors - especially independent investors.
Remember that money attracts money. The more backers you have, the easier it is to attract new ones.

Personal credit history
Because your commitment and track record in meeting your obligations are so important, lenders and investors will want to know
your personal credit history. Credit references will be taken up for sole traders and each partner in a partnership.

Find out what kind of information is held by credit reference agencies at the Experian website.

A credit reference agency will discover if you, or any partner or co-director of the business, have a poor credit history or county
court judgments.

If you have poor credit rating, use the notes supporting the business plan to state the facts and give your own version of how the
poor credit history arose. This is much better than having the new investor find out without any explanation. You should also state
what you are doing to repair your credit history.

Read about how to improve your credit history on the Equifax website.
Getting the best from your business plan - key considerations
Your business plan is a tool you can use to attract new funds or use as a strategy document. Give yourself the best chance of
success by following these suggestions.

Before presenting the plan ensure that you:

• check that the help you are applying for is still available - you may no longer qualify
  
• back up any assumptions in the plan with thorough research
  
• find out your own credit rating by applying to Experian or Equifax for your credit file - a small charge is payable
  
• get someone to read the plan to spot spelling and typing errors, and to ensure that it makes logical sense
  
• Write your plan in a way that demonstrates your commitment to the business. Give it a professional feel by limiting the use
  of graphics, colours and font types. Above all, make sure that your plan is always honest and realistic.
  

Things to avoid:

• Being overly ambitious - make sure you can justify any assumptions or projections.
  
• Ignoring financial difficulties - warn your bank or lender if you anticipate that you may not be able to meet a repayment.
  There is every chance you will be able to come to some arrangement.
  
• Failing to devise and implement effective cashflow arrangements, eg have clear procedures for chasing up any accounts
  receivable.
  
• Once you have presented the plan, ensure you review and revise it as your business grows. If you are refused investment
  or a loan, take the criticism on board and consider how you might improve the plan.
  

Professional help
Seek the help of your business adviser or accountant in compiling your business plan or loan application form. They will ensure that
the financial information is compiled and presented correctly and that key areas stand out.

A specialist broker can help to find potential investors, usually for a fee and a percentage of funds raised.