A business plan is a detailed outline about a certain income generating activity that has an element of forecast in resource allocation based on specific points of focus that defines the business (Bird, 2010). The essence is to indicate substantial consistency in expected results with a scarce resources evaluation. This makes it possible to acquire objectively the necessary extra resources from financial loans, asset-based financing, leases or hiring of material resources/equipment. The target source of extra financing can thus evaluate your projections based on past business records and the present business environment. If a consistency is clearly seen, one can be guaranteed of financing either equal to their need or more than the minimum amount of support needed. Therefore, business plans also open up avenues for further expansion that is initially envisioned (Balanko-Dickson, 2007). First time entrepreneurs have limited knowledge in certain lines of business. Having a business plan and identifying the right financier is important in attaining not only the needed material/financial resources, but some guidance towards large scale expansion.
Important Factors in a Business Plan
The essence of business plans is achieving results and business improvement. The two aspects fairly comprise in other initiative intended to make the plan a success. This in turn is defined by two important factors namely, business implementation details and the evaluation of business cash flow. Cash flow analysis is many a time confused with profits. Kyle and Chad should not fall into this trap because it is the main reason why many businesses especially start ups collapse within the first year. Cash flow is the cumulative amount of funds/money getting into the business/ revenues and getting out of the business/expenses (Pinson & Jinnett, 2006). These two aspects must balance out and for a good cash flow history. The cash expenses must not exceed the cash revenues at any time in a period of interest, which would imply that if more revenue is realized, the company’s liquidity is good and can positively attract the attention of the lenders/ banks. In simpler terms, the banks are guaranteed that the business can comfortably meet the monthly payments for a loan based on the excellent liquidity position of the company.
Implementation details are about commitment to a business vision and responsibilities. A business has to have evidence of what makes it possible to achieve the level of liquidity and to support the cash flow analysis (Pinson & Jinnett, 2006). It would be difficult to acquire funds from a bank when the activity levels and control measures put in place do not tally with the cash flow analysis presented. The lender/bank has to be convinced that the financial position reflected is purely from the business and any other external sources of funds must be accounted for by the business. Strategies and documentation must be well dated and linked to quantifiable budgets that are easily verified. A clear record of responsibility follow up and excellent tracking of presented results must be in existence.
Outline of Elements in Business Plan
- Executive Summary
b) Mission & Vision Statement
c) Factors of Success
- This should be written last
a)Company Ownership: Organization structure, Management team & Personnel Plan
c)Company Location & Facilities/ Resources
- Products & Services
a)Exact operations and products/services
b)Sources and technology in production
c)Future endeavors in production
- Market Analysis
a)Market segmentation and strategies
b)Market Needs, Trends, and Growth
c)Industry participants and distribution patterns
d)Competition Analysis in current market
- Strategy and Implementation
a)Competitive edge and value proposition
b)Market strategy: Positioning, pricing, and promotion
c)Sales strategy: Forecast and programs
d)Milestone and possible alliances
- Financial Planning
- i. Break even-analysis
- ii. Projected Profit and loss
- iii. Projected Cash flow
- iv. Balance Sheet
c) Short and Long Term Plans.
The requirements of bankers and other lenders
The most important aspect to the selected group of stakeholders is authenticity of presented information in the business plan with regards to what is seen on the ground. Consistency in business operations and the commitment level of the existing resources tell a lot about responsibility (Bird, 2010). The stakeholders want to see a guarantee of a positive return on their investment share within the shortest time possible.
Advice to the Business Owners Chad and Kyle
The business plan is meant to access credit and should fairly reflect the state of affairs. However, the lenders have experience in the lending business based on their own evaluation (Balanko-Dickson, 2007). The banksor any other lending institution is interested in the cash flow rather than the business profits, thus an imperative need for the Chad and Kyle is to understand what the cash flow is and have one ready. Should the banker suggest lower credit than expected, they should accept it that rather than come up with unsubstantiated explanations in trying to get their preferred credit amount. This is risky because it may affect the cash flows and severe any future lending prospects.