Relevance of a Business Plan PDF

Relevance of a business plan in obtaining finance What is a business plan? A business plan is a document which sets out the future plans for a business It is how a business owner will explain how they will turn their idea into a successful business The owner may then show the plan t...

Relevance of a business plan in obtaining finance What is a business plan? A business plan is a document which sets out the future plans for a business It is how a business owner will explain how they will turn their idea into a successful business The owner may then show the plan to a bank or another investor to ask for finance to help the business grow and expand Why does a business write a business plan? To persuade lenders that the business will make enough profit to be able to pay back interest and loan capital on any finance taken out Attract potential investors to the business To give the owners some direction – once a plan is written down it is more likely to be followed To set targets (SMART) and objectives that can be followed Why does a business write a business plan - continued Every business needs to write a business plan, this will help to identify early on any problem areas that the business might face A business plan will also help to monitor their effectiveness - if they knew what they were aiming for at the end of the year they could see if they have achieved it What is included in a business plan? A cash flow forecast on the plan will show the expected income and expenditure of a business over the coming year Cash flow forecast will help to show a bank that the interest rates can be afforded on any finance that they borrow Cash flow forecast will show the liquidity of the business (how quickly it can raise cash) and its ability to pay its bills A business plan will NOT improve cash flow that will be down to how well the business trades What else goes into a business plan? A. Name of the business B. Product or service and the market it is aimed at C. 4 Ps of marketing; product, price, place and promotion D. Human resources; who will be working there, managers, owners etc. E. Production costs and potential suppliers of materials F. Premises and how it will be financed; rent, mortgage, bought outright, leased from council G. Financial information; projections on revenue, costs and profits Purpose of a business plan introduction There are lots of uses of business plans, these are the four that your exam board would like you to be able to discuss. Get ready to make some notes on these from the following slides: 1. To help set up a new business 2. To help the business raise finance 3. To help the business to set objectives 4. To outline how functions of the business will be organised #1 To help set up a new business A business plan will help an entrepreneur decide what resources they need to start their business: A. Human resources; For example the staff needed for a clothes shop B. Equipment; For example scissors and a sewing machine C. Raw Materials; for example cloth or lace D. Technology: for example the till or business computer E. Vehicles; for example the company van #2 To help the business raise finance ✓A business plan may help to persuade lenders that the business will make enough profit to be able to pay back interest and loan capital on any finance taken out ✓A business plan should include a cash flow forecast and sales forecasts #2 To help the business raise finance continued ✓A business plan may help to obtain finance; from venture capitalists, banks, angel investors, or even family members ✓The lenders are going to want to see numbers that say the business will grow and that they can make a profit ✓The better the financial information, the more confident they will be in investing – this will reduce the risk for the investors #2 To help the business raise finance by negotiating ✓A business plan may help the business to negotiate a lower rate of interest on a bank loan ✓Alternatively the business plan may help the owner to negotiate a lower percentage of equity to the venture capitalists or angel investors ✓Watch the video – did the investor negotiate a higher equity percentage? #3 To help the business to set objectives ✓A business plan can show how a business aims to achieve its goals ✓For example it may show any planned activities of the business e.g. a launch night for a new restaurant ✓It should also show any potential investors what amount of sales and profit the business aims to achieve #3 To help the business to set objectives - SMART A business plan should set targets (SMART) and objectives that can be followed for the business The business owner can then monitor if they are meeting their objectives The business plan may also set out how the company aims to grow and develop in the future #4 To outline how functions of the business will be organised The business plan may show how many staff and location of the following departments; A. Production B. Marketing C. Human Resources D. Accounting and Finance Why might this not be relevant to a small sole trader business?