Business

The Do’s & Don’ts of an effective business plan for seeking investment from lenders

GettyImages-493829717Any entrepreneur should first realise that a strong business plan will not only act as a guide to run a business, but also help in secure funding, attract and retain talent, help gain customer confidence and most importantly create accountability at all levels.

Writing a business plan could prove to be frustrating but that’s where the heart should take over the mind. It is always good to recollect the dreams and vision which led to the realization of the business model in the beginning and then comparing it to the present scenario and how the business evolved over time. A few key facts and figures would go a long way and help in truly reflecting the journey and plan for the future.

Give the preparation of your business plan a careful thought and follow simple guidelines. Here are a few points that should help in drafting an effective business plan and enable any entrepreneur to make an effective start.

Don’ts

  • Don’t cut and paste templates that are available online, instead, try to put together a broad structure and customize that to your business needs.
  • Don’t assume your lenders would understand everything about your business. They deal with hundreds of businesses from credit and risk perspective. It is more impactful if you facilitate them with a simple plan.
  • Don’t create a big folder and load them with unnecessary world data or research reports.
  • Don’t use highly technical subjects and terminologies that could create confusion.
  • Don’t exaggerate or make empty claims. It could prove detrimental if verifiedby the lender with their existing customers who are in a similar line of business.
  • Don’t hide weaknesses, instead put them down and try to highlight how you would address them.

Do’s

  • Research and dig deep about your business model, product and market dynamics.
  • Define the business plan period, say five years. If you have to go beyond five years, don’t get in to specifics but give broad objectives and targets.
  • Organize your business plan with proper sections and sub-sections with titles for easy reference. Executive summaries should be concise and simple, preferably a two pager for the lender to get a feel of the plan presented before delving in to the finer details.
  • Describe your business in simple terms and how it is profitable. Explain your background, what has been the past performance, market potential of your product, current market share, who you compete with, what are your competitive advantages, what are the risks that you face currently and how do you plan to mitigate the same in future, what are key USPs, SWOT analysis and more importantly how the organization structure works. A pictorial representation instead of too much written text will create an additional impact on the lender.
  • Prepare a financial plan with clear assumptions that is in coherence with the business plan described above. The plan should be able to give clear idea of funding requirement and how it would be utilised. Try to include quantitative data instead of only financial data for lenders to understand the business dynamics.
  • Projections must be realistic and should be comparable to past performance data. Ideally, if long term contracts and firm orders are available, they should be enclosed to support the funding requirements.
  • If the business plan is for a project loan, then include how the project would be planned and executed with clear timelines. Identify key risks in the project that might affect the execution. It would be good to include peer comparison of project costs to justify the funding need. Lender should be able to understand the capital cost competitiveness. Comparative quotes from reputed suppliers would add credibility. Also, identify clear source of equity funding. Lenders have been at the receiving end after sanctioning the loan when the equity gets delayed.
  • If the business plan is to secure working capital funding, then it is very critical to give working capital cycle in number of days, peak and low periods, compare with competitors and justify how the target would be achieved if they are different.
  • Clearly establish with an analysis of what would happen in the performance if lenders reduce the quantum of funding for some reason.
  • Clearly outline how the debt would be repaid and include a sensitivity analysis for the lender to understand the risks.
  • List out possible security details duly certified by registered valuers. Make sure they are not inflated.

The above points would certainly look intimidating to MSME entrepreneurs but when prepared with the help of professionals who can put together a strong bankable business plan, it will prove effective.

[“source=economictimes.indiatimes”]