Business Plans – Part 2

Yesterday I wrote of the necessity for a business plan. No matter the size or stage of business, a well thought-out plan is a strategic tool.

The size and detail included in a plan is determined in large part how the plan will be used. A simple plan will guide a start-up and short-term strategy for smaller businesses. A comprehensive plan may be needed for guiding a more complex enterprise. Plans are also needed for attracting partners, key employees, bank loans, and investors.

Start-up and small business plan

For a start-up or very small business a simple plan will guide you through the operation of the business. It will describe your core values, explain what your business goals, and out-line the core strategies and tactics you need to achieve the goals. The text of a carefully written plan for business will often be no more than a page or two in length.

Operational Plan

An operational plan for a larger enterprise may be many pages long as it describes strategy and tactics, budgets, schedules, and personnel

Business loan plan
If you need to borrow money you must convince the lender that you have carefully thought through the model for your business, can explain what it is and how it works, and, most importantly, show how the business will make enough money to pay its expenses, pay you, and still have enough cash to repay the loan. A plan for a banker will necessarily contain more detail than a simple operational plan.

The lender will need to know:
a) how much money is needed
b) what assets are available as collateral
c) how will loan proceeds be used
d) how does the business generate, or intend to generate, income
e) what expenses will the business have
f) how the loan will be repaid
g) your record in handling credit and money

So, what’s important to present to a lender is a brief narrative that explains your business and a detailed and substantiated financial forecast.

For a small privately-help company the bank will check the owner’s FICO credit scores and ask to see your personal and business tax returns for the prior three years. No matter how good your business plan is, as the owner of a small business it is you that the bank will count on to repay the loan. A great business plan is no substitute for a stellar credit record.

Investor plan

An investor provides money in return for partial ownership in the company, and will generally need to see a potential of reaping a substantial return on the investment.

There are two types of business investors: angel investors, and venture capital inves-tors. Angel investors are typically wealthy individuals willing to put their own money into a growth business that they become passionate about. A venture capital investor typically is a company that has amassed pools of money that are invested in carefully selected business with potential for phenomenal growth. Both types of investors will look for very significant returns on their investments.

An angel investor or venture capitalist will need to be satisfied that you have thoroughly thought through every aspect of the business, can defend your as-sumptions, and can make a solid case for extremely rapid growth over the next few years. A plan to be presented to investor can easily be the size of a small book.

In the next post we’ll discuss the elements of a simple business plan.