Sections of this topic
Financing for For-Profits
Applies to
for-profits unless otherwise noted.
For-profit entrepreneurs and managers often seek financing
to start a new business, restructure operations or start a new
product. Note that an entrepreneur will very likely need a
business plan in order to secure financing.
Developing a business plan holds many more advantages than just
applying for funding.
Sections of This Topic Include
Financing Your Business
General Advice and Overviews of Sources
How Much Do You Need?
Your Own (or Your Family’s or Friends’) Money
Seller Financing
Angels
Banks and Finance Companies
State Agencies
SBA-Backed Loans
Venture Capitalists
Selling Stock — Going Public
Resources for Assistance
Also consider
Related Library Topics
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Financing Your Business
© Copyright Tove Rasmussen
I just spoke with a bank manager yesterday about how his clients do not have
well thought out plans for starting a business or expanding a business. So,
I thought I’d help you out here.
Standard Questions a Bank Will Ask – a Business Plan
- Do you have experience in the industry?
- Does your plan make sense?
- Is there a market need?
- Can you make money?
- Does your pricing make sense?
- What are the risks?
You need to have your bases covered on these questions before talking with
the bank.
Then, the bank will ask for a business
plan.
For a new business, the bar is high. You are trying to prove a need without
the sales to show you have a salable product or service.
For an expansion, you must have already demonstrated the value of your product.
However, the bank will still require a well thought out plan that it believes
you can and will implement.
Prepare for the Business Plan with Research
To prepare for the business plan research the government requirements, effect
of the economic cycle (especially being in a downturn now), social and technological
trends. Understand these issues thoroughly and how they will affect your business.
Then look at your possible competitors. This includes substitutes for your
product, the ease of entering the market, the bargaining power of suppliers
and of buyers. Take a look on the web and talk to industry participants.
Summarize the Business Plan with Opportunities and Threats, Strengths and
Weaknesses
Spend some time understanding your market needs and buying behavior (Refer
to What DOES Your Target Market Want? below). The results will provide you with
the information you need to determine your competitive advantage and/or the
reason your expansion will be successful.
Follow the research up by understanding the value of your product or service
to your customers in dollars and cents, particularly versus your competition.
Ensure you have your product or service, pricing, promotion and delivery of
your service figured out.
Then thoroughly consider your company’s strengths and weaknesses. Try
to get an outside view from customers. A simple but carefully considered survey
can help here. The wording will be crucial to obtaining useful information.
Take a look at the Net Promoter(R) Score literature to see if this is the approach
you want to use (netpromoter.com).
Armed with this information, you will be ready to prepare your business plan.
I will cover this in the next blog. Feel free to let me know any specific issues
you have so I can be sure to address them.
Putting Your Business Plan Together
The bank wants a business plan. You have collected all the information on the
external environment, company strengths and weaknesses. You thoroughly understand
the market and financial rationale for starting or expanding your business.
Now it’s time to put the plan together. Typically the business plan will
start with a one page executive summary. It will include the compelling reasons
for the expansion, including the customers you have in place. For a start up,
the executive summary will highlight the advantage of your business over the
existing competitors out there.
Then you move into the details. A business plan typically starts with the marketing
plan, the reason for the business’s existence. It will include your target
market and how attractive it is to be in that market. Include market growth,
trends, size, etc. Demonstrate a clear understanding of market needs, backed
by objective data where possible.
Detailing your competitive advantage is key. Here it is critical to provide
information on your competitors in order for readers to objectively evaluate
the power of your business’s advantage.
Translate the competitive advantage into a value proposition. How valuable
is your advantage to your customers? This information will feed into your business
model ie, how you plan to make money.
Wind this all up with your promotional plan: how you plan to position your
product or service in the market; product features; the pricing level, especially
versus the competition; the promotional plan for getting your message to the
market, including direct sales; and how you plan to deliver your product to
the market.
Operations is the next key piece of the business plan. This is the opportunity
to explain in detail how the product will be manufactured or the service delivered.
It is important to outline the rationale for the key expenses and investments
needed, as this will provide the information to support the numbers in the upcoming
financial plan.
Ensure the competitive advantage is delivered by the operations, if that is
your source of advantage. The more proof there is to demonstrate the advantage
will be delivered to the market, the more credible the plan is to the bank —
and verified for your own peace of mind.
The next sections of the business plan will include the other key functions
of your business. This will vary according to the business. Possibilities include
Regulatory, Research and Development, and Information Technology. Again, explain
the expenses, investments and how these departments deliver on your competitive
advantage.
Finally, crucial to your business plan are the financials. These will include
your pro forma (projected) income statements with your revenues and expenses.
It will also include your pro forma balance sheet, with the impact of the profit
or loss on your assets, debt and equity. The assumptions need to be clear. It
is a good idea to have an accountant review these numbers, if not help you put
them together.
For the variables that present the most risk, it is a good idea to include
a best case, worst case and most likely case. This will show the impact of shifts
on the financials, which clarifies the variables to most closely monitor. An
accountant can also assist with the sensitivities.
Following the above steps will yield a solid business plan for the bank, and
for your own management of the company. Here’s wishing you the best of
luck with your new business, or expansion.
General Advice and Overviews of Sources
Small Business
Financing: The Definitive Guide
7 Sources of Financing
How to Raise Money for Starting a Business
A Hitchhiker’s
Guide to Capital Resources
Debt
overload: 5 red flags
Business startup costs – the types of startup costs businesses
face and need to account for when developing their business plans.
From Bootstrap to Venture: The Money Behind Startups
How to Raise Start-up Capital in 2011
How to
Win Over Investors in Three Minutes or Less
Types of Equity Financing for Small Businesses
The Five
Things You Must Do Before Approaching Any Investor
Five Common
Startup Money Mistakes
Where
Not to Look for Money — And Where You’re More Likely to Find It
Congress
Gets Crowdfunding (finally)
Also see the topic Getting
a Business Loan.
How Much Do You Need?
Evaluating Start-Up Costs
Determining Your Financial Requirements
The Three Primary Types of Financial Capital
Two
Weeks to Startup: Day 3 Calculating Startup Costs
Your Own (or Your Family’s and Friends’) Money
Accepting Money From Friends & Family
Borrowing Money from Friends and Family
Send Money from Crowdsourcing
Advantages and disadvantages of using your own money to start a business
Seller Financing
Seller Financing Basics
Basics of Seller Financing
Seller Financing: It Makes Dollars and Sense
“Angels”
Raising
Startup Capital
Business Startup Angel Financing
Business Angel Financing
Case Study: An Angel Investor with an Agenda
Who are Angel Investors and What is Angel Investor
Funding?
How to Find an Angel Investor
Financing Fantasy #1: Angel Investors
Banks and Finance Companies
(includes reference to getting loans)
(NOTE: Asset-based loans are backed by the buyer’s assets , for
example, buildings, accounts receivable, inventory, etc. Lines
of Credit are amounts of money the bank sets aside for the buyer
to borrow from.)
Loans
— Getting (covers most aspects of getting a loan from a bank)
Types of Business Loans
5 Tips for Using Collateral to Secure a Small
Business Loan
What to Do When Your Small Business Loan Application
Gets Stalled at the Bank
How
to Approach Lenders Now
State Agencies
(include reference to getting loans)
Offices
of economic development
Small Business Grants
Top Ten States For Small Business Loans And How You Can Get Them
SBA-Backed Loans
Small Business Administration – Loans Explained
Venture Capitalists
10 Tips for Finding Venture Funding
National Capital
Venture Association
Wikipedia
on venture capital
Capital Venture Institute
8 Cool Companies Who Just Raised Venture Capital
How
to Find the Right Investor for Your Business
Financing Fantasy #2: Venture Capital
Selling Stock — “Going Public”
(This scenario is almost impossible in a small business that
is just starting out.)
Resources for Assistance
Sources of Small Business Financing
7 sources of start-up financing
Equity Funding
also
see “Megalist for Resources”
For the Category of Financial Management (For-Profit):
To round out your knowledge of this Library topic, you may
want to review some related topics, available from the link below.
Each of the related topics includes free, online resources.
Also, scan the Recommended Books listed below. They have been
selected for their relevance and highly practical nature.
