There are always risks involved in any endeavor. We’ve listed a few areas of influence to determine if you are ready to weather the risks:
Do you know the 5 year success rates in the industry you wish to pursue?
Is the business a right fit for you?
Are you financially ready?
Can you keep your day job while you’re starting out?
Do you have financial and emotional support through family and/or friends?
Does your family understand how much time will be devoted to your new business?
Have you researched and gained the appropriate knowledge about the industry? Such as: market needs, laws/regulations, assessment of insurance costs, reliable suppliers, etc.
Do you have the right skill set or access to the right skill set to manage and market your business? This may include finance, sales, distribution, service, administration, etc.
Have you researched the start-up costs of similar businesses?
Did you evaluate your personal fianaces? This may include: savings, credit cards, personal loan(s), mortgage, friends/family, private investor(s)
Have you assessed your budget and lifestyle? Do you plan to cover your basic needs or maintain your current lifestyle?
Do you understand your market? Why would consumers choose you over your competitors? What is the demand for your product/service? How will you reach potential customers?
Have you analyzed your competitors? Do you know their strengths/weaknesses? What similarities do you offer? What is appealing about them? How do you separate yourself in your market?
Who is your target customer? What is their shopping preference? Where do they socialize? How do they rank price, quality, and service?
What obstacles will you face? Will you have employees or a staff? How will you find customers? How will you source reliable suppliers? Do you need licenses/permits?
Developing a Financial Plan
We want you to understand the money side of your business. Here are some tips to help prepare your Financial Plan for lending review.
Know how much money you need (not what you want).
If you are writing a business plan for a lender, you’re hoping that someone will make a loan to help you start or grow your business
Know how the money will be used.
For example: Are you buying equipment? Or will you use the loan to manage cash flow? Are you paying salaries? Or, buying inventory?
Tell us how you plan to repay the loan.
Lenders look closely at how the businesses we loan money to expect to repay the loan. You will need to show us how you plan to generate enough revenue to cover your operating expenses and pay back the loan.
We want to see your assumptions.
These are all the details about your start-up costs. Such as: Advertising expenses, Licenses and permits, Insurance, and any unexpected expenses.
Show us how much you plan to personally invest.
We’d like to see that you have enough confidence in your success to risk your own money before we’ll risk our money. The amount of equity you are putting into your business speaks volumes to us.
Cash flow is a key component to obtaining approval for a loan. Most loans are denied due to cash flow. We have to be certain that you will have enough cash flow projections to repay the loan. Not only do costs and profits have to balance, we want to see evidence from the industry, your competition, or your own sales that you have the ability to repay the loan. As a rule, be prepared to share three cash flow scenarios. One should be conservative, another should contain realistic sales, and a third should include a more aggressive projection.
When our lenders look at the operational plan of your business, we want to see proof that your management team will be able to run a profitable business.
We need to know who’s running the each area of your business.
When we look at your operations plan, we want to see evidence that the person, or people, leading your product or service area can do the job. It’s important to name the names of each employee or partner and what they will do in your business. If you are starting a sole proprietorship, you will more than likely be doing all of the work yourself. Therefore, you will need to be able to convince us that you can handle all of the different areas of running your business. If you are large enough to have advisors, mentors, a board of directors, or a key employee(s) with experience, we will want to know about each of them too. We will also want to know that the person in charge of marketing and sales has a strong history in that area. And that your finances are being overseen by someone who has credibility in managing cash flows and preparing financial statements.
Give us your worst case scenarios.
This will provide us with a strong analysis of risks to your business and how you plan to prepare for those risks. You will need to tell us how you plan to handle the risk if no one buys your product or service. “Remember, it is our job to look at your business plan and make an informed decision about whether your business is a good risk for a loan.” We will need to see how you will plan to pay back the loan if your costs are higher than you expected or your sales don’t meet expectations. Remember, a well-developed and thoughtful business plan shows us that you’ve thought through different scenarios and changing circumstances providing us greater confidence in you and your ability to repay the loan.
Your marketing plan should be clear about what your are selling, who will buy it and why and how you're going to reach those buyers.
Explain what you’re selling clearly and transparently. Don’t leave your lender guessing or wondering about the product or service or why anyone would buy it. Identify what makes your business special, why it is needed and what your niche is.
Tell us “the who.” Tell us who you’re targeting, how much they’ll spend, and why they’ll buy from you. Tell us who your suppliers are and whether you’ve signed contracts with intent to purchase. Tell us who your main competitors are and what makes your business different or better than theirs.
Convince us you know your industry. Since you will be sharing proof that there is a demand for your product, show us how you’ve researched and understand the key trends in your industry.