When a small business is looking for capital, a business loan is one of the first thoughts. Unless a business has an established relationship with a lender, one of the items that will be required is a business plan. A business plan should be done for every business regardless of capital needs. It does a good job of assessing the market, predicting cash flow, and ultimately shows weakness of the business. Doing a business plan on an existing business can be eye opening.
A business plan has two components- the narrative and the financials. The narrative talks about the business and the market it serves. It also describes and gives details to the financials. A component most business plans miss but are always good to include are marketing plans. The financials are a balance sheet, profit and loss (P/L) or income statement, and cash-flow statement. If a business is an existing business then it will write the narrative and do the financials based upon past performance. A start-up will have to project income and be ready to make a defense of any projections.
There are a number of business plan outlines, samples, and software that can provide help in developing the narrative. Regardless of what help one chooses, it will start with a description of the business. This will be quickly followed by a description of the market the business hopes to fill. Then the narrative will discuss how the business will conduct itself and how it arrived at the numbers that are shown in the financials. The thing to remember most of all is to brief and concise. This is not a college paper, but a financial document. Often the narrative is no more than three pages at most if the money being requested is modest. Be sure and work in the expertise of management somewhere in the narrative.
The financials are numerical formats showing the business's finances. One can use spreadsheets or other software like Quickbooks to crunch the numbers. Financials are made up of three different sets of figures. An existing business uses actual numbers and a start-up will use projections. Actually, an existing business will use two sets of numbers. First, it will use past performance numbers from actual historical data. Second, future projections based on past data and the desired capital being requested. The future financial projections should show how the infusion of cash will help increase revenue and profits, strengthening the business's ability to repay the capital loan. The financials should also show ownership's capital investment in the business. Many lenders require twenty percent or more of start-up capital to be in the form of owner equity.