Wecanfinancial.ca wrote on financial blogs many times of the importance of the business plan, in proper institutional format, in order for entrepreneurs to be able to qualify for any reasonable of meaningful business financing. In this article we will revisit many of the items that are extremely important for successful business finance application. We also will use some of the recent specifics that in our opinion help a lot for all new corporate finance and small business loan applications in 2016.
Business plan doesn’t have to be long, or necessarily too short. In our recent survey, out of 15 financial institutions we found some of the major issues institutions have with the business plans, prospective borrowers or financial consultants submit at the time of the application.
- Too long but no usable details.
Many of our small business loan bankers found out that about 60% of applicants think that with a 60 page business plan, they are ok and cover most of the basics no matter what. In our experience some of the best business plans for small businesses are 20-30 pages long. First couple of pages is general description of the business and background of the entrepreneur or business owner. Then action plan, marketing plan, and major business logics on why this business needs money and how the money will be utilized. It’s important to be detailed in the actual money utilization part, and how the money spent result in more money earned for the business in both short term and long term prospective.
For large businesses 20-30 pages plan might not be enough, but the most usable part of the plan will definitely fit in 20-30 page size. The use of proceeds table, break even analysis, 3 year projections, and consolidated income and balance sheet statement will be the most important part of the plan.
- About 20-30 percent of the business plans submitted for small business loans and corporate loans are too short and even less detailed then long version plans with not enough details.
It’s interesting how both extremes above are not good for the financing and in this difficult environment where financing is not readily available business owners and entrepreneurs looking for funding need to avoid both types of plans. Again in our recent survey of small business loan bankers and corporate finance bankers, short business plans lacking details was one of the biggest turn offs in the beginning of the application process. The question the banker would ask a prospective small business loan borrower is that if you can not write about yourself and your business more than 12 pages, how could you expect a financing package of several hundred thousand dollars from our institution? Therefore the golden rule of thumb, short version of the business plan should be 15-16 pages, some call it an executive summary. The long version of the business plan for a business with revenue under $1Mil per year is 20-30 pages, for businesses with larger revenues 50-60 pages. For complex financial transactions involving derivative products, secured/unsecured components etc. 100-150 page business plan will suffice.
Some of our customers ask us if they can work on their business plan themselves without hiring a consultant or WeCanFinancial team to prepare the document for them. We generally prefer to work on the plan together with the client, this way we understand the business and financial needs better. Once we will be sharing our understanding on the business with the banks and institutions serving our clients, our confidence in the client, results in the banks confidence in the client – this a win/win situation. Therefore we strongly suggest our present and future clients to hire a professional to work on the business plan, where client can have all of the active input on the general character of the business, financial requirements and expected results from financing.