Saturday, December 11, 2010

A Business Plan for Business Finance

The business plan is increasingly playing a crucial role when it comes to securing small business finance. Not only with banks, where it is now mostly compulsory to have a business plan if you are hoping to apply for business finance, but also with venture capital firms and angel investors.

Today in order to get your new business going, your business plans are essential at this stage of setting up your business. In it you will already have scoped out what your money needs are and how you plan to raise the startup capital, and you'll be using it to persuade potential investors and lenders of the benefits of funding your new business.

Your financial calculations in your business plans therefore need to be thorough and accurate and presented with confidence. Everyone expects that they'll be able to stick to their business plans and only need to borrow the absolute minimum, but more often than not something unexpected crops up to throw a wrench in the works. It therefore makes good business sense to include a contingency element in the amount of startup capital you request. It's better to do that now and have the extra cash as a safeguard than it is to have to return to your lender or investor not far down the line to ask for more money.

If it wasn't in your original business plans they are likely to be concerned about your financial ability and your request may be rejected. Many people wonder how much startup capital they should request. You want to keep costs to a minimum and invest your money wisely in your new business, while still having the security of a little extra for backup if required. What startup capital you borrow should give you a realistic challenge for your new business but should not be too risky. And back up your calculation with evidence in your business plans, since it has to be credible.

With numerous organisations in South Africa now supporting the use of business plan software in order to get the business plan right, the issue is hard to ignore. Organisations such as Investors Network and the SA Venture Capital Association are all throwing their weight behind effectively constructed and well researched business plans to ensure that not only the business is successful in finding the finance it needs but also that it is able to start successfully.

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