by Anthony Noel
The second in a series about business-to-business relationships discusses the advantages of having a good business plan.
Last time, we opened this series by emphasizing the importance of the relationship between a business and its bank (see Can You Relate?). That relationship, we said, is often the cornerstone upon which are built solid relations with many other businesses which also are important to our success.
Most businesses begin dealing with a bank early in their existence, if not right at the start. Whether you are seeking a capital loan to get your business started or a line of credit to help navigate unpredictable cash-flow challenges, your banker will take you far more seriously if you can provide details about your business. The best way to do this is with a business plan.
A carefully constructed business plan is not just a tool used for capitalizing your business, although that is certainly an important function of such a document. A good business plan also is a device which can help you reach the outcomes you seek for your company. A business plan should identify your market, not only in terms of geographic area, but also the types of clients you serve. It should give some idea of your potential market (with information to support your conclusions wherever possible). It also should provide some details about how you market your work, manage your people and bill your customers.
Banks are especially interested in the background of a company's owners, its current assets and, of course, how the funds of any specific capital loan will be used. Your projected schedule for hiring people, along with a brief summary of the company's management philosophy and/or practices, are also good to include. But let's back up a little and take a closer look at the individual components which contribute to a business plan.
Most business plans begin with a 'Statement of Purpose,' an introductory page stating not the purpose of your business but of the plan itself. If the plan is intended for the use of the company's management and as guide for financial institutions, this is the place to say so.
It is also a good idea to provide some history of the company on the same page and to give a brief look at what the funds being applied for will mean to the success of the business. You can also use the Statement of Purpose to summarize information such as market location and ownership. Don't get too detailed at this point, however. That will happen elsewhere in the plan. All this information can make for a somewhat lengthy document. In my business plan, the Statement of Purpose follows the cover page and precedes the Table of Contents (yes, the plan is detailed enough to warrant a 'contents' page).
In order, section headings in my plan include Description of Business, Market, Market Size, Marketing Approach, Competition, Location of Business, Advertising, Management, Personal History of Owner, Credit, Duties and Responsibilities, Salaries, Resources, How our Work is Purchased, Personnel, Application and Effect of Loan, and Summary. The summary is followed by several appendices which support or further detail information referred to in the main body of the plan.
All this sounds like a lot of work because it is. But the beauty of a business plan is that it forces you to think about issues which any serious business owner should be thinking about anyway. For example, think about 'Marketing Approach.' How do you get work now and how will you get work in the future? Sitting down and reviewing such questions serves a much broader purpose than completing your business plan. It helps you identify methods of getting business.
The bank, of course, is especially interested in how a loan will be used. Under 'Application and Effect of Loan,' state the amount sought and what getting it will mean for your company. You should also list the company or personal assets you will offer as collateral.
I recommend keeping a business plan as readable as possible. Your goal, without gilding the lily, is to keep the reader excited about your company's goals and what you will do to reach them. So, in the example of 'Application and Effect of Loan' (and anywhere else in the document where detailed information might break the flow of the plan's major points), I suggest using an appendix to provide details. Grouping supporting information at the end of the plan allows the reader to refer to it when he or she feels compelled to do so. Placing such details in the main body of the document forces them on the reader and can break the flow. Obviously, a business plan is not assembled in one afternoon. It requires both hindsight and foresight and will probably force several changes in your approach to success. While it is a valuable tool in developing a strong relationship with your bank, the positive role it can play in keeping you and your business focused on vital issues cannot be overstated. A detailed, carefully considered business plan can be an important first step in discovering what you want and how to achieve it.
And while a good relationship with your banker can provide funds for your business's growth, it offers other important benefits as well. We will enumerate these advantages and begin looking at other business-to-business relationships next month.
Anthony Noel writes, consults, and teaches woodworking and journalism, along with doing an occasional custom job in his shop in Macungie, PA.
Have a business related question? Visit WOODWEB's Business Forum. The Business Forum is co-sponsored by ISWonline and is moderated by Anthony Noel. All business topics are welcome, from sales and marketing to dealing with difficult customers.
This article is reprinted by permission of Custom Woodworking Business Magazine.