What is business plan, why it is important and how to prepare for bank loan

What is business plan and how to prepare for bank loan

What is business plan, why it is important and how to prepare for bank loan

The global recession or the economic downturn offers the best chances for new investors. Recession is the best time to invest in the market and if you manage to survive, you can make huge profits and you will surely beat your competition.

We know there are risks in business, but if you don't want to take risks, you never become a businessman. Once you have selected a type of business and it is linked to your passion, no one can stop you, always think big and dream high. Starting your own business today is not a difficult thing, but for that you need to have a robust business plan., It is the foundation of any business.

It has been observed that many businesses stop within 3 years due to a lack of proper business planning. Here we are trying to understand what a business plan is and how to prepare the best business proposition for a bank loan. Most people understand that the business plan is only a document prepared for a bank loan after it is useless and does not need to be revised, this is the big mistake and the 'one of the reasons for the closure of the company.

Here, you should keep in mind that the business plan is not a single document, but it is a dynamic document and you must revise it periodically according to your business objectives. In addition, the framework of the business plan is not identical for all types of business, it is specific to a specific business. The business plan is not only useful for new entrepreneurs for start-ups, but also for existing businesses.

What is business plan?

The business plan contains an overview of your business, including your short-term, medium-term and long-term goals, and strategies for achieving all of these goals by systematically mapping resources such as manpower, machinery, equipment, technology, etc. and of course the financial aspect. It also provides for sales planning, business expansion, financial projections and cash flow.

The systematic framework of the business plan begins with an executive summary, an introduction, details on products and services, types of customers and details, a summary of market analysis, a summary of resources, a summary of the business strategy with a growth aspect, a brief presentation on the implementation, the details of the management, summary of financial plan (the details of the financial calculation can be attached separately in the appendix) and finally the owner's contact details email, website, contact number, etc.

Things to keep in mind when preparing the business plan

To prepare any type of business plan, you need to study your business and gather information about the business plan framework related to your business. You should consider the points below before you start writing your business plan.

Length of business plan report

You must decide that how long would be your business plan report. You can prepare a short or long business plan report depending on your type of business. If your business is linked to more than one product, your report may be longer. But if the product or services are specific, i.e. limited to one or two types, it should be as short as possible. Try to keep your business plan shorter and more concise, this will help you better communicate your business objectives and your vision for obtaining a bank loan or other type of financing expected from investors.

For whom you prepare the business plan

Before you start preparing the business plan, you must decide to whom you are going to prepare it. It will decide the content of your business plan, where to focus more, which part needs more attention, which part to keep short and which part to describe more, etc. The business plan can be an internal document that you show to employees, co-founders, or others in the business world to help them, capture the vision and understand your strategy.

It can also be used externally to show potential investors, future employees or potential partners. It may contain clear guidelines on what you will do and why and how you will be successful.

How to keep the business plan alive

The business plan is not a one-off document, just like the formality for obtaining a bank loan and for attracting the investor at the initial stage. Most businesses fail because of a failure in business planning. The business plan must be a dynamic document and revise it regularly. Whenever you change the structure, technology, products and services of your business, you need to examine them and this will help you track your performance.

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Why a business plan is important

The business plan is important in deciding or studying the business idea, it is really worth the investment of time, resources and whether you are ready to start a business or need additional preparation. Besides this importance, it is essential to obtain a bank loan or an investment. Without a business plan document, you cannot contact a bank, an investor or a venture capitalist to obtain financing.

The Business plan report should be short and to the point, as it allows you to convince your lender that your business is able to support, lead and provide a market for its problems. It helps to show that you have a solid plan for achieving your sales goals and that your key financial statements and forecasts are realistic.

Business planning has been shown to help you grow 29% faster. As the business plan is a dynamic document, updating it regularly is the most important part of the process which gives you a better window on what you need to do, to set milestones, track your progress and achieve your goals and be successful. The key is to be able to respond quickly to challenges and opportunities as they arise and as you learn more about your customers.

When you adopt the practice of regularly reviewing your business plan, you are more likely to quickly address critical cash flow challenges. The other side of these big spending decisions is understanding and tracking your business cash flow. A regular review of your cash flow statement will help you spot trends before you approach a cash flow crisis.

The business plan helps you in the decision-making process and improves your confidence level. When you review your business plan, this process particularly examines your forecast against your actual sales. And this can be helpful when trying to determine if you can afford to make a large purchase or incur ongoing expenses like a new employee.

As the business plan provides the complete framework for your business, it minimizes your risks because at the start, you may not be very aware of your customers, competitors and even operations. You may be prepared for your SWOT analysis, but the business plan helps you reduce your risk through an ongoing review process. Your business review process uncovers your weaknesses, gaps and assumptions that you have made, and develops contingency plans.

Business plans provide the solid foundation for strategic planning and prioritization. Your business plan is a great place to determine how your sales and revenue goals match your spending budget. By making a clear link between what you invest in and the results you hope to achieve, this will help you ensure that you are preparing for success. If all of your team members know how their work has an impact on big business, the more they will be invested, they will be and will reach your goals, because they will know that their share of the work really matters.

The business plan includes your short, medium terms and long term goals. Therefore, this will help you define achievable goals in milestones. Each good business plan defines SMART objectives and milestones (specific, measurable, achievable, realistic and time-based). Based on these SMART goals, you can define your strategies, sales, marketing guidelines and future developments. And so, your business plan can be kept as your asset. You can sell it when you plan to sell your business. Your solid business plan can make a higher assessment of your business. Even if it is easier for a buyer to understand, it is worth it and it is easy for him to understand your business model, your target, your market and your overall growth and evolution potential. Simple but powerful financial forecasts and great business plans can help impress investors.

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How to prepare a business plan for bank loan

We have already discussed what a business plan is and why it is important to have a robust business plan for a sustainable business. Now here we are going to discuss how to prepare a robust business plan for getting a bank loan. Preparing a business plan for your business is imperative if you want to succeed, beat your competitors, and make a lasting profit by achieving your business goals.

Although you have enough cash, it is still a good strategy to start your business with a bank loan so that you can maintain your cash for business contingencies. You have to make a lot of decisions when applying for a business loan, so before you submit a business plan to get business financing, you need to learn several things to prepare a business plan for a bank loan.

Here is the important content that you need to make sure when preparing the business plan for the bank loan proposal.

Statement of Future business opportunity

Always consider the future business opportunity in your selected business idea. You need to add third-party reports, market research, competitive analysis and sector analysis to your business plan. All of these factors help you show your skill level when you present your business plan proposal to the bank manager. In addition, an analysis of future business opportunities will help you understand the business trend, demand and supply model.

Personal Financial Statement

Personal financial statements show your current financial situation and include your general information with details of your assets and liabilities. It is in the form of a spreadsheet and mainly gives information about your assets and liabilities. The lower portion of the personal financial statements represents net worth after summing the total value of assets and liabilities. You must have a personal financial statement and this must be the most recent of the last 3 months. If your business is in partnership, the financial statements of all partners are also required with an interest of 20% or more in the business.

Business Financial Statement

The business financial statements describe the source of your business income, the statement of expenses and especially the statement of assets and liabilities. It also helps to understand your business growth and growth plan. All these statements are presented in the form of a balance sheet, income statement and reconciliation of net worth.

Business financial statements are the most useful document for attracting investors and approving the bank loan proposal.

Financial Projections Statement

Financial projections help you predict future expenses, revenues, expected growth and the success of your sustainable business. It provides revenue and cash flow forecasts for at least one year or until a positive cash flow can be displayed. To apply for a bank loan, you must have short-term as well as medium-term financial projections. It also helps you in your decision-making process for future investments, production and expansion of your business.

Bank loan request

The bank loan application shows the total amount you need and how you determined it, including quotes for inventory, equipment, manpower cost, supplies, construction costs , operating costs for 1 year, etc. The bank loan request must highlight the key points of your business along with total cost.

Assurance of loan amount repay

When you apply for a business loan, the bank will review your business plan and are very interested in seeing if your business is profitable, sustainable and well planned in terms of the proper use of the loan amount. Therefore, you must describe very precisely how you will repay the loan and how your business will use the money for a better return on investment.

Business insurance details

Business insurance is important to protect the owner from loss of physical assets, financial assets and intellectual ideas. There are a number of business insurances, including general liability insurance, asset liability and product liability. The other type of insurance includes professional liability insurance, workers' compensation, commercial vehicle insurance, loss of income insurance. Insurance information is essential for any business loan, it describes the insurance terms and encloses the insurance papers of your business inventory, machines and your business recovery plan if the owner suffers a serious injury.

Long term Business plan

It is very important to provide a detailed description of your business with a clear statement of the long-term plan. It includes a long-term goal and a sustainable business strategy that will help investors decide whether you are serious about your business or not.

Business Marketing Plan

The business marketing plan takes the form of survey or analysis data, strategic figures, facts and a sustainable business objective with a long-term customer commitment and the uniqueness of your commercial products or services. It describes the fact on the basis of your study on the availability of a proven market for your product or service. The second important thing is related to the identification and detailed analysis of your competitors. It must contain the strengths and weaknesses of your competitors and relate them to your threat and opportunities. So basically, you should have completed the SWOT analysis.

The business marketing plan should also include your customer profile and your key competitive advantage. It describes the current state of your business, the target customers, the objectives and the marketing strategy of your market, the budget allocation for marketing or advertising, etc.

You can summarize it in a targeted market, details of competitors and your positioning on the global market in this particular area, commercial value, business targets and objectives, price strategy, SWOT analysis, budgeting, etc.

Statement of previous income tax return

You must attach the copies of last two to three years income tax returns. This will help investors and banks that you are aware with filing income tax returns and trust on you easily. It can be your personal and professional tax return. The tax statement must clearly show income from various sources, total taxable income after deduction of all expenses, and total taxes paid.

Investor pitch check

You must write good investor pitch check and must include your overall business strategy about providing solution of all problems, how you solved the problem with past experience, how you get opportunities for higher profit, how is your products and business in unique to beat competitors, details of your target market, your revenue or business model, your success and experience, Marketing and sales strategy to show your customer acquisition policy, details of your expert team and manpower details, financial projection, your competition, funding need and last is exit strategy.     

Human resource management details

The details of managing your company's human resources describe the ability to recruit, develop and retain the right people to move your business forward. It must include the skill of the workforce, the numbers and their organizational chart to manage the business. Your organizational structure must be precise and clearly describe the roles and responsibilities, the needs, the total workforce, the carrier's route, the details to manage your workforce and the estimated cost of the workforce, including their salaries and other welfare facilities.

Details of current debts and business assets

You must have a balance sheet and clearly identify current debts and business assets that have guaranteed resale value. You can also indicate personal property or land documents to obtain a business loan.

Details on the production plan

Describe how you are going to start production of your products. What requires for production and you must cover raw materials, machines and role of each team members.

Key member experience details

Describe the experience, qualifications and skills of each owner and key member of your management team.

Customer Details

Describe your customers and why they like to buy your product or service.

I hope this article has helped you understand what a business plan is, why the business plan is important and how to prepare the business plan.

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