It is not uncommon for small businesses with limited resources to be challenged when thinking of their bank manager to apply for corporate finance. The reason is simple Regardless of how long you have been with your bank, you still have to follow formalities regarding business startup or business search financing. The reason you will be asked to write a business plan for financing that has to be presented with your application form. You may wonder why you must present a business plan for lenders or investors. Lets keep in mind why the banks want you to prepare a business plan and then you understand why investors are asking for this valuable document that will cost you some time and money to put together, but in the end if done well, do you help raise the much needed economy.
A few reasons why banks need a business plan.
Banks take a risk to you and your business and they need to understand that risk and compare it to the expected reward from your company. Have you ever thought about how banks make their money for their shareholders? Well, they do so that they invest the capital money - usually investor funds and borrowed funds in your business with full expectations of earning higher returns than the costs they have to pay to borrow or raise their own capital. If you fail to deliver the return on your investment from your company, they will be a victim of your problems that will cost them their business. In short, the risk of company failure becomes their risk as well.
They want a better understanding of your management team who will be responsible for managing the funds invested in your business. This is a concept of many small businesses and newly started, do not fully understand. They may think that their business ideas or wonderful products are sufficient ingredients for corporate success. Nothing can be further from the truth. A company is an organization of integrated functional activities designed to achieve a desired goal. These integrated activities must be handled by various individuals within or outside the organization in order for successful results to be achieved. The bank manager who reviews your application must be sure that your team has skills at both technical and correct levels - the critical ingredients for success when present and vice versa. A poorly managed company will fail independently of the quality of its products and benefits offered to the target market. With this in mind, you must be aware that when applying for funding from a bank or other types of financiers, your management teams quality must be assessed based on past performance. They also want to know if your management team has industry, business and marketing skills. Obviously, of course, you create a virtual or physical team, which means that the knowledge balance is critical to assuring the bank that your company will not expose them to indefinite risks.
They definitely want to be sure that your business model is robust. That you have thought about the benefits and disadvantages of each option and have a profitable business proposal that does not lack reality. This will be tested with issues in areas where gaps are detected and you will be expected to provide responses that are credible to ensure their funds are not exposed. Banks want to see positive returns on their investment in your business, they do not compromise on your own short business and the earlier you address the weaknesses in your business plan, the sooner you will be able to get funding for your business.
Together, regardless of who you want to raise money from, if you want to fund your business as a start or an existing business growth, you need to address all four areas mentioned above in your business plan. Ive just summarized some of the most important points to keep in mind and you can find more of my articles to learn thoroughly about the subject. In my experience of writing and reviewing hundreds of business plans for financing, a clear written concession is 10-15 pages business plan sufficient. This should contain 3-4 pages of financial information and I can also assure you to stress - test your financial plan for variations in assumptions that underlie cash flow forecasts so that you plan to mitigate risks that the test shows as the bank will Do as part of your own due diligence test. This is called sensitivity analysis.