Do You Need a Business Plan to Start a Business or Apply for a Loan?
A business plan is not just something you prepare because a bank or financing program asks for it.It is one of the best ways to test whether your business idea actually makes sense before you invest more time and money into it.A strong business plan should help you answer five important questions:What value are you offering?
Who is your customer?
How will you find customers?
How will the business operate?
Will the business actually be profitable?Those questions form the five main stages of business planning.
1. Company Profile: What Is Your Business Really Offering?
Your company profile should explain the foundation of the business.Ask yourself:
What does my business do?
What problem am I solving?
Why would a customer choose me?
What makes my product or service valuable?This section should also identify the owners, management, business structure, location, goals and key milestones.The goal is to clearly define what the business is and where you want it to go.
2. Market Research: Who Is Your Customer and Who Are Your Competitors?
A great idea is not enough if there is no real market for it.Your market research should help you understand:
Who is my ideal customer?
Where are they located?
What are they currently buying?
Who are my competitors?
What can I offer that is different or better?
What Is a SWOT Analysis?A useful part of your market research is a SWOT analysis:
Strengths — What does your business do well?Weaknesses — Where could your business improve?
Opportunities — What gaps, trends or opportunities could help you grow?
Threats — What competitors or outside factors could negatively affect your business?
A SWOT analysis helps you look at your business realistically instead of focusing only on the positives.
3. Sales & Marketing: How Will Customers Actually Find You?
This is where many business ideas become real — or fall apart.Ask yourself:
How will people hear about my business?
What will I charge?
How does my pricing compare with competitors?
What happens after someone contacts me?
How long will it take to turn an inquiry into a paying customer?
Your marketing strategy may include Google, social media, SEO, paid advertising, referrals or professional partnerships.But marketing is not only about getting the next sale.You are also building a brand.Strategic partnerships can also be extremely valuable. Think about professionals or businesses that already serve the same customers you want to reach and may become referral partners.
4. Operations: How Will Your Business Work Day to Day?
A business needs more than customers. It needs systems.Your operations plan should consider:
Are there licences or regulatory requirements?
Do I need business insurance?
Who are my suppliers?
How will I deliver my product or service?
Will I eventually need employees or contractors?
You should also complete a risk assessment.Ask yourself:
What could realistically go wrong — and what would I do about it?Maybe advertising costs more than expected. Maybe sales grow more slowly than projected. Maybe there is a technology problem, supplier issue or unexpected expense.A strong business plan does not pretend there is no risk.It shows that you understand the risks and have thought about how you would respond.
5. Financials: Can Your Business Actually Make Money?
This is one of the most important parts of a business plan.Your financial forecast should answer:
How much money do I need to start my business?
What will my monthly business expenses be?
How many sales do I realistically expect?
How much revenue could the business generate?
When will my business break even?
Why Is a Cash-Flow Forecast Important?
A cash-flow forecast shows when money is expected to come into your business and when expenses need to be paid.It helps you see whether you will have enough money available to operate your business month by month.It can also be an important part of a business-loan or financing application.
What Is a Break-Even Point?
Your break-even point is the point at which your business revenue covers your costs.
Ask yourself:How many clients or sales do I need every month just to cover my expenses?That number can be one of the biggest reality checks in your entire business plan.How Much of Your Own Money Should You Invest When Applying for a Business Loan?If you are planning to approach a bank or financing program, a great idea and the time you have invested in developing it may not be enough on their own.Lenders may also want to see that you are financially invested in your business
be prepared to invest 10%–20% of the project funding from your own funds when developing the financial forecast.The exact amount depends on the particular lender and financing program, so requirements should always be confirmed before applying.But the principle is simple:
If you are asking someone else to invest in your business, be prepared to show how you are investing in it too.That investment could include money already spent on your website, equipment, software, registrations or other legitimate business startup costs.
Is a Business Plan Really Worth It?
Absolutely.A business plan can help you:determine whether your business idea is financially realisticunderstand your ideal customeranalyze your competitorsdevelop a marketing strategyidentify potential riskscalculate your startup costsforecast revenue and expensesdetermine your break-even pointprepare for a business-loan or financing applicationBefore asking:“How do I get a business loan?”It may be better to first ask:“Do I fully understand the business I am asking someone to finance?”That is exactly what a good business plan is designed to help you answer.Have a business idea but don’t know where to start? Start with the plan.
