Jun 28, 2018 Business Loans and Business Plans
A lot of business owners and budding entrepreneurs ask me why they should have a business plan. They complain that the bank wants one to get a loan and doing one is a lot of work. Of course, for a new business, a business plan requires that the entrepreneur think out all aspects of the new business – what need they are going to meet that is not being met, how they are going to get customers, how they are going to produce their product or provide their service, how much money they need to get started, etc. A good business plan should provide a roadmap of what needs to be done to get the business underway. This is very valuable to the business owner. Just don’t have someone do one for you that is full of fluff and generalizations. It should be as specific as possible. The bank and the Small Business Administration (SBA) wants one to be sure your idea is sound and to be sure you have thought it all out. It is a good test of how good a manager you are going to be.
Existing businesses can also benefit from a business plan, especially those that are treading water or are in industries in transition. Again, it should be practical rather than lengthy. You don’t want to do it just to have it sit on a shelf. If you need to borrow money, you will probably need one for the lender.
Earlier this year, I did a business plan for a company with a complicated story. The owners bought the business five years earlier. At the time, the business was losing money. Over the next four years, the owners reduced the loss, but the business was still not profitable. In the fifth year, they made a few mistakes and the losses increased ceding much of the progress of the first four years. They were also in an industry undergoing transition and definitely out of fashion with lenders. They needed a loan.
I performed a lot of analysis of the industry and discovered that while the big players in their industry were losing money, it was because that bought up many smaller companies, paid too much and financed the purchases with high interest debt. Many of the underlying companies were profitable at their purchase but could not carry the debt burden. I found out that other mid-sized and smaller companies in the same industry were profitable.
I also analyzed the market for my client’s services and concluded that there were many untapped customers. The comprehensive business plan that I developed provided thoughtful nuance to the industry’s perception and debunked the perception that all companies in the industry were in trouble. It also told their story of what happened in the most recent year, and outlined the plan they were going to execute to get rapidly back to profitability.
In the end, they got the loan they were seeking on good terms. It would not have been possible without a great business plan and all the analysis and thinking that went into it.
Bryan B Mason
Apollo Consulting Group, Providence, RI