If you are starting a business and need a loan, your lender will usually require a business plan from you. Lenders will look at your business plan to decide if your business is likely to succeed and if you’ll be able to repay the loan. Even for the few business loans that do not require a business plan, it is generally a good idea to write a business plan. It will give you, the business owner, a clearer understanding of what to expect from your business and avoid any unforeseen surprises.
What Are the Elements of a Business Plan?
According to the Small Business Association (SBA) the elements of a traditional business plan and typically include the following:
Cover Page and Table of Contents
Executive Summary
Company Description
Market Plan and Analysis
Organization and Management
Service or Product Line
Marketing and Sales
Financing Analysis
Funding Request
Appendix
Different businesses will require more details in certain categories than others. When you write a business plan, the information in the plan helps the lender understand your business, who is running it, its feasibility, and the likelihood of the lender receiving a return on their investment.
Cover Page and Table of Contents
This is a basic page that includes the name of your business, contact information, and even your logo if you have one yet. The table of contents will include page numbers to help you and your lenders easily access information in the business plan.
Executive Summary
This is an opportunity to summarize your business plan and include various details about your company and your product or service. Describe what the company does, why you think it’s a viable business, your mission statement, and include limited information on employees, location, finances, and growth plans. Also briefly describe the competition, the market, and how your company will be successful in that market.
Company Description
This section goes into more detail about your company, its customers, how it’ll be competitive, and the leaders within the company. The company description is also a good place to mention the strong points of your company, its competitive advantages, and everything positive about your company.
Market Analysis
This is a chance to show your comprehension of the industry and market of your business. Research your competitors and see what is working for them, what the current trends, and discuss what you’ll do to be better than the competition. Is there a niche your company can fill? You should discuss risks and your strategy to overcome them. You can hire someone to do the homework and create a market analysis for you, and you can even have a market analysis graphic, such as a pie chart, to illustrate your findings.
Organization and Management
This is where you describe the structure of the company and he was in charge. Is there a president, vice president, etc.? Is your company incorporated? Is there a partnership or are you a sole proprietor? If there are other leaders in your business, mention what they do, their experience and qualifications, their salaries, and their role in helping your company be successful.
Service or Product Line
Here is where you’ll talk about the products you sell, the manufacturing process, or the service you provide. Why do people want your product or service? Do you own any patents, copyright, trademark, or any type of intellectual property rights? Also, discuss the research and development you have conducted, and if your product or service has a lifecycle. How long will that product last, and how long will it be relevant?
Marketing and Sales
In this section, you’ll discuss your strategy to market your product or service. If you’ll be using a marketing company, mention that and anticipated marketing expenses. Talk about your strategy to get customers, keep them, and grow. Talk about your ideal customers and the best way to find them.
Funding Request
This section is where you detail to your lender where those borrowed funds will go. How much will go toward staffing? Marketing? Research and development? Overhead? Supplies? You’ll also ask for loan terms including how long you’ll need those funds. Don’t forget to include your financial projections of the company. Where do you think the company will be in five years? Will you be out of debt? These are some of the considerations of this section.
Financial Projections
This section goes hand-in-hand with the funding request. Remember, you are trying to persuade the lender to provide you with a loan. If the loan is for an existing business, include the previous 3-5 years of income statements, balance sheets, and cash flow statements. Also include collateral you’ll put up for the loan. Show your financial projections for the upcoming years, how you came up with those projections, and how they coincide with your loan request. Again, financial graphics show professionalism and paint a clear picture of your financial status.
Appendix
The appendix is where you put any other documents the lender asked for. These often include profit and loss statements, sales forecasts, real estate documents, tax returns, licenses and certificates, permits, resumes, ‘intent to purchase’ letters, photos of products, and anything else your lender wants from you.
These are the elements of a traditional business plan, and each section is important for the letter to decide if your company should receive funding. Don’t plan to write a business plan in a day. Give it thought, gather your documents, and make it compelling. When your business plan is complete and professional, that says a lot to the lender and increases your chance of getting a loan.