When creditors study a new firm’s business plan, they expect to see effort contributed by the owner into the enterprise. In order to invest in this venture, a creditor wants to be sure that the new company has a good chance of succeeding. The strategy should demonstrate that the new firm intends to flourish by satisfying demonstrated market needs with a product or service and that it is capable of doing so. The staff and personnel working on the new enterprise should be qualified and devoted to the venture’s success.
Market analysis
A good business plan should demonstrate that the owners greatly understand the market into which the new firm will enter. The strategy should demonstrate that the firm has a considerable chance to satisfy demand, and carve out a market niche. Nevertheless, the proposal must demonstrate the firm’s plans to offer superior products or services at competitive market rates. Statistics and demographic data should be included in the strategy to back up its assumptions.
Partner’s equity
Potential creditors seek proof that the business owner has invested sufficient cash in the business. This demonstrates effort and commitment that sets the company on a solid foundation. The financial plan’s predictions should include the start-up capital as well as the source of each one’s contribution. The capital contributions of owners should show on their personal financial statements, which should be included in the financial portion of the plan.
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Historical financial Information
If the firm is already in operation, the plan must include historical financial statements for the last three years. Balance sheets, income statements, and cash flow statements are examples of financial statements. Personal financial accounts for the principals should be included. Current loans and substantial assets that may be accessible to creditors in the event of liquidation should be listed in notes to corporate balance statements. Income and cash flow statements should be thoroughly described.
Financial projections
Financial projections/predictions are created by gathering the internal and external accounting data that you already use in your day-to-day business management. A more realistic picture of how successful your firm can be is achieved by estimating your income and costs.
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Projections over the next three to five years demonstrate the owners’ expectations for the company’s performance. Creditors want to see enough positive cash flow to cover financial obligations. During the life of a loan, bank loan agreements may demand that the firm maintains a specified debt coverage ratio (the amount of cash on hand for repaying interest and principal). The predictions should correspond to the company’s financial requirements. The estimates should be based on realistic assumptions about future income and expenses.
Management team
The management component of the business plan should contain partners, senior executives, and board members. A small start-up company may have a single proprietor or a two or three-person management team. A concise biographical overview should address formal schooling, relevant training, important previous job, and primary duties at the new organization for each individual. Similar information regarding the company’s attorneys and accountants would be appropriate.
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