We get asked a lot of questions about business plans. So we are putting together a series of blogs with answers to the questions we get asked the most. We hope you find this useful!
#1 Why do I need to write a business plan for my startup if the bank will only lend against my personal assets and income?
Well, you don’t have to write business plans for start ups. But the bank will not consider this a business loan, more as a top up on a mortgage if you have one, or a home loan if you don’t. Sometimes the interest rates may be better if you approach it this way, but the problem is that your business will have no track record with the bank. So when you start making a profit and you potentially want to expand, the bank may find it more difficult to assess the credit profile of your business, and therefore restrict the loan and products they provide to you.
In order to apply for a business loan, you need a business plan. And this is a good way to set up your relationship and credit history with the bank in anticipation of the business standing on its own. Down the track you may be able to negotiate removing your personal security in support of the loan if the business has a good track record that the bank has been monitoring since it started up. All good reasons to write a business plan for a start up in support of a small business loan application.
#2 Why business plans need reasonable and supportable sales projections?
A critical part of successfully obtaining funding is the building of credibility and belief in the performance prospects of your business. One of the main ways to do this is to provide a potential investor with forecast projections that are supported by logical and reasonable assumptions and analysis. Investors need a reason to say “yes” to an investment proposal and the easiest way for them to say “yes” is if they believe they will get there money back and get a decent return on their investment (if they are providing equity).