What exactly is a business plan? A business plan is simply a document that outlines a company’s goals and helps potential investors determine if they’re comfortable giving you financial funds. In short, a business plan is an outline of how you plan to operate your business, as well as a snapshot of your past operations and will give a guidebook for how you’ll operate now and in the future. A business plan serves as a road map for your company’s success. Unfortunately, not every business gets funding; therefore, a business plan becomes extremely important.
So, what should you look for when creating financial forecasts with a business plan? The first thing to look for is the accuracy of the forecasts. This becomes more important if you are basing these projections on non-recurring revenue.
For example, if most of your projected revenues are likely to be recurring, then you have a lot of work ahead of you. Most banks won’t take the risk of financing a startup simply because it’s assumed that all revenues will be recurring. The majority of investors don’t factor this into their funding decision process; therefore, it’s necessary to include sales and operating assumptions in your business plan, such as future realized investment and operating profit margin. To make things worse, banks won’t provide additional funding if the assumptions aren’t accurate. So, it’s very important to ensure that the assumptions you’ve included in your business plan are supported by solid data. Without them, it will be difficult for you to convince a banker that your startup is a good investment.
Another area where it’s important to emphasize your projections in your business plan is the amount of debt you’ll assume in the projections. As stated previously, the majority of investors are more comfortable lending money to businesses that are well-established. Therefore, it’s necessary that you include a balance sheet showing your projected yearly expenses as well as projected sales and profit.
It’s also a good idea to include projections assuming the growth rate of the industry. Here’s where some analysts get tripped up: they assume that all businesses will grow at the same rate as the average of all startups over the history of business, ignoring the fact that startups are natural cycles. It’s a good idea, however, to show a trend line for your Startup Growth Rate, which will give bankers something to look at when they review your business plan. In addition, a number of research into past trends can help confirm the growth assumption you’ve chosen.
A final area where you should include a projection is expenses. Most entrepreneurs underestimate the costs associated with starting a startup business. Projections of startup expenses are critical to convincing potential investors. Make sure to take into account possible employee expenses (such as office supplies), marketing expenses, rent (assuming you’re planning on renting or purchasing space), supplies (electric, water, etc), taxes, and a variety of other fees that can be reflected in your projections.
When consulting with new startup clients, the BizAnvil success team will guide you through the competitive analysis, a full marketing SWOT, and a collaborative business plan development cycle that will prepare your business for investor pitches, bank offices, or even the SBA evaluation process. Our goal is to help you create a thriving business and realize your dream of success. Just call us at 337-329-8080 or contact BizAnvil using our secure form.
We’re happy to process a MNDA and consult with you. It’s what we do!