Running a business can take one of two paths; it can be reactionary and haphazard, or deliberate and geared to something specific. As a business owner, it is important for you to have a clear understanding of what these two paths entail and mean for the future and performance of the business.
A business plan helps you come up with a clear picture of what you want to achieve in the future. For lenders, the business plan helps them see how their investment will be used to further the operations of the entity, and how cash will be generated to support repayment.
Read on below to find out more about why you need a business when it comes to seeking small business financing.
A Map of the Future
A business entity that is dedicated to following a comprehensive business plan makes it easier for lenders to see a clear vision of where it is headed. These plans usually come with attached past financial documents including income statements and balance sheets as well as predictions for the future. Startups can use comparisons with other similar businesses in the same industry and of the same size. All in all, a business plan helps lenders see a clear path to be followed by the business into the future, which works to eliminate some of the uncertainty involved in the investment.
Small businesses usually need to secure funding to grow in size and dominate their market segment. As such, it is important for entrepreneurs to use detailed business plans to demonstrate and support the growth they wish to achieve. Since it is not possible for small businesses to use the limited cash they have to grow their operation in most cases, making a detailed plan of this growth can help a lot in convincing lenders of their viability.
Another important aspect that lenders usually want to know from small businesses applying for loans is the cashflow position. Loans that need to be repaid create additional cash outflows for the business. Entrepreneurs can use detailed business plans to show lenders how their expected cashflows will be enough to cater to the day to day business expenses as well as loan repayments. It is important for both cash and credit businesses to use a business plan to come up with a cashflow management strategy which satisfies lenders.