Author: Jill Pearson

What is a business plan for? To convince partners!

The business plan is also a communication tool with your partners. Some suppliers, and your financial partners (banks and investors) will not fail to ask you to send them a business plan before doing business with you.

In this context, the business plan takes on another dimension: it must convince.

When addressed to a supplier, the business plan must highlight both the business opportunity for the latter – that is to say, highlight a level of forecast order volume that is credible and attractive – and the the financial soundness of your business – that is, reassuring the supplier against any risk of default on your part.

If you apply for financing from your bank, they will also assess the financial soundness of your project: what are the chances of the business being successful? What is the level of debt in the capital structure? Will the business generate enough cash to pay the interest and repay the principal? Will the weight of the debt requested leave enough resources for the company to develop?

Finally, when it is intended for an equity investor, the business plan must highlight the potential return on investment of the project. Your business plan must be able to convince the investor that the profitability of the project will be sufficient to offset the risk he takes by investing in the company and that the latter has the means to achieve the objectives set in the plan. .

To be successful in convincing, your business plan must be read. But your interlocutors have better things to do than read a little about your business. The business plan is therefore also an exercise in form.

In addition to the content, your business plan must therefore be perfect in form in order to make your future partner want to read it. This is due to a few elements: a clear and airy presentation, content that goes straight to the point, and a good catchphrase: that is, a good executive summary .

Is it essential to make a business plan?

You have now realized the importance of this task, but also its time consuming side. It is therefore normal to expect us to answer you yes: the business plan is essential.

Making a business plan will be for the future, it will allow you to project yourself and get an overview of the financial potential of your business.

Also know that a banker or an investor will not take you seriously without a business plan, you must therefore arm yourself with a professional document with a realistic forecast and explanations that hold up.

Which tool to choose to make a business plan?

It is up to you to decide how you will implement your business plan, however here are some tips.

Choose to create a business plan in Excel

This solution is the cheapest, but not the easiest. Indeed, without knowledge of accounting, financial modeling, and office automation, it will be difficult for you to obtain a reliable forecast.

Call on a chartered accountant or consultant

A support professional will offer you invaluable help in setting up your business plan. However, check that he is familiar with your field of activity, and that he is able to make a critical judgment on your turnover assumptions. Also pay attention to the cost generated by fees which can quickly rise, especially if your project evolves after the first version on the forecast.

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How do investors evaluate a business plan?

This article examines how investors analyze a business plan.

To understand how investors look at business plans, you need to put yourself in their shoes and understand what their earning opportunities are and what risks they are exposed to.

The situation of the investor is very different depending on whether he invests in the debt or in the capital of the company. Let us take a look at the structure of the company for a moment in order to understand the challenges.

Debt, equity and their challenges

A business is a collection of assets financed by debt and equity. These assets generate cash flows which are then distributed among the various providers of capital.

The main difference between debt and equity is the contractual nature of debt. A loan is a contract between a company and a lender: the lender advances a sum of money to the company, which in exchange agrees to repay it and pay it interest according to a schedule defined in advance.

As the cash flows that the lender will receive is guaranteed by a contract, the only risk to which the lender is exposed is the risk of bankruptcy of the business. In addition, during a bankruptcy, the lender benefits from a privileged creditor position compared to other providers of capital such as shareholders.

 

Thus the lender’s position is relatively comfortable (cash flow guaranteed by contract, privileged position in the event of bankruptcy) but offers in return only a limited earning potential (nothing more than the cash flows provided for by the contract). . The position of equity investors is the exact opposite.

Equity investors can benefit from unlimited gains: they receive their share of each dividend paid by the company and can realize a considerable capital gain on the resale of their shares in the event of the sale or going public. business.

However, there can be no assurance that the company will be able to pay dividends or that the value of their shares will be greater than their purchase price in the event of resale. And, in the event of bankruptcy, they are the last to get something back.

As you can see there is therefore a major difference between the opportunities for gain and the risks of loss associated with each type of capital provider. This difference is reflected in the view that a banker will have on your business plan compared to an equity investor.

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