How a business plan is key to unlocking funds
Franchise Consultant Tony Urwin provides some advice about where to start when seeking funding for a franchise
Whether you run an existing business and are looking to expand through franchising, or are seeking funding from a bank in order to acquire a franchise, the old saying, ‘fail to plan and you plan to fail’ has never been truer.
Banks are still lending. However, it is important to remember that the quality of your application for funding will have a great influence on your chances of success. Increasingly, banks are looking to receive a ‘professional’ business plan, SWOT analysis and CV to back up the application.
The BBC programme Dragons’ Den gives a good insight into how ill-prepared potential borrowers can be when asking for money. On numerous occasions the pitch will fall apart when the owners get to the financials. This is no different than when approaching a bank. In every case, the key is the business plan. At the very least, this should include details of the business, the management team, analysis of the market, marketing plan and – most importantly – a three-year forecast of profit and loss, the balance sheet and a cash flow forecast. This must clearly demonstrate where the funding is required, how it will be used and how it will be repaid. Banks will also want to see that the business owners believe in the business sufficiently to invest their own funds.
Why would a bank invest their funds if the owners will not? No lender will finance a business if the owners do not have any of their own money at risk, whether a start-up or an established business.
It is essential that you provide the right type of information to enable your would-be lender to make an informed decision with ease.
Avoid assumptions – don’t presume the bank will know everything about the specific kind of business you’re in. They can’t possibly have a detailed knowledge and understanding of the thousands and thousands of business types. Describe in simple language what your business does and how it will make a profit. Tell them who your customers will be and how you will sell to them. Identify your competitors and give reliable information about your market.
Choose an easy layout – organise your business plan into sections so it’s easy to refer to the information. Use headings and sub-headings and try not to overload them with information that isn’t relevant. Think about using a template from your bank.
Know the numbers – most funding requests fall apart at this stage. You need to support your request for funding with solid facts and figures and, what’s more, know them inside out. Projections must make sense and be achievable and don’t forget to include how you see the money being repaid. You should also include a statement of your personal expenses that will need to be paid while the business is growing.
Be concise – stick to a clear, reasoned outline of your objectives and the exact purpose of the funding. Make the plan as short, compressed and readable as possible.
Don’t be a shrinking violet – always include a section on the management of the business. Detail the key people involved in the business, their background and their skills.
It is possible to have these documents produced by your Accountant or other professionals who provide this service. Such people can provide an excellent service. However, it is important that you are involved closely in the process of writing these documents as they need to be your own.
Finally – put yourself in your banker’s shoes. Imagine that you are asked to consider the business plan and part with your own money. Would you lend against it? The plans that stand out from the crowd are those that are accurate, focused and realistic. Your business plan should make sense and convince the person reading it that you are low risk. Good luck!