Do Business Well

Every bank and lending institution will require a business plan before they commit themselves to lending you money. A business plan basically shows that you have established that there is a market for your product/service and that having established sufficient demand, you have a good estimate of what your costs will be, as well as your sales volume, cash-flow and likely profit (although the last is often optimistic).

Business Link advisors say that the same mistakes crop up time and time again. ‘The major mistake we see on business plans is that people have failed to do their market research — and the banks say the same. People believe that if they don’t sell as many as they hoped they just have to work harder. Wrong. If the market for your product is only a hundred people, then all the hard work in the world won’t increase that.’

It is, of course, hard to project exact profits and loss. But with thorough market research and realistic pricing you can work out a rough estimate. ‘My business plan was almost a piece of fiction says Verna Wilkins of Tamarind Books. ‘But the bank could see that I’d done my homework and that there was a demand for the books I wanted to produce. I also was prepared to ask what was needed to make my proposition work and that showed them I meant business.’

Remember, a business plan is not just to impress the bank. Its essential purpose is to prove that the business is viable and to act as a reference point while you are establishing the business. Although business plans vary, they should include :

1 A clear description of the type of business. If you are running a cleaning agency, say so. The bank won’t be edified by a description of yourself as a domestic operative sub-contracted supply agent. If your business has a unique selling point, explain what it is. If you have training and well-established contacts in the field make a note of that too.

2 A description of the premises (i.e. your home) and any key staff (i.e. you and any employees).

3 Details of the product or service. Again, try to keep it simple.

4 Details of market research conducted. How it was done and what it established. How you intend to use that market research in order to market your services/product and estimate sales demand.

5 Details of the competition – and how or why you intend to offer a better service/product. If, for instance, you are setting up a mobile hairdresser when there are three mobile hairdressers in the same street, you need to prove to the bank that there is a demand for your service.

6 Financial information, i.e. fixed and variable costs you expect to incur, including details of any equipment you have bought/intend to buy, the cash-flow forecast, pricing and profit margin and volume of sales. Remember to include such things as childcare, extra electricity and telephone bills in your costs – it all mounts up. Of course, it is hard to know exactly what you will sell – but try to make a stab using the market research you did. If in doubt, err on the side of caution.

7 Each bank has its own form, which may also require other information, such as the estimated break-even point, turnover etc.

If your business plan is turned down, find out why. Even if you decide to go ahead with alternative financing, it is a good idea to find out why the bank feels your idea isn’t viable – is it merely that your business plan isn’t well presented, or do they believe you don’t have enough collateral ?

Once you have done your market research, got all the advice you can and found some finance, you are well on the way to the next stage – getting the business up and running.

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