Are you contemplating starting your own business and are not sure where to start? As a banker who has lent out millions of dollars to businesses throughout Canada, I will share with you the most effective ways to write your business plan in order to secure funding.

What is a Business Plan?

First of all, what is a business plan? A business plan is a formal document that should outline what your business goals are, how you are going to achieve said goals and when you’d like to complete your goals. A business plan is a must have if you’re a startup or even an existing business that is looking to acquire a business loan to expand.

Key Business Plan Components

I’ve reviewed hundreds of business plans and the most important and relevant components include the following:

1. Executive Summary (1-2 Paragraphs): In this section you should be describing what your business offers and what value you provide to prospective clients. Every business should have a mission statement that explains why your business exists and what it’s goals are.
2. Product & Service Description (1-2 Pages): You should explain in detail what products or services you offer to your clients. Set a price for your services based on competition and whether or not you create more or less value in comparison.
3. Competition Analysis (1-2 Pages): It is important that you have a strong understanding of your competition in the marketplace. The more you learn about your competitors the easier it is to to create a competitive advantage in the market. A strong competitive advantage will not only help you enter the market but help you stay in the market over a longer period of time.
4. Operations Plan (1-2 Pages): An operations plan should include a full breakdown of how you’re going to operate the business on a day to day basis. Will you be a storefront business that is open 8am to 8pm every day of the week? Will you be working the front desk or will you hire staff? Depending on the industry the questions you will need to ask yourself will vary. However the best way to create this plan is to visualize it in action as if it were real then write down every detail possible. A detailed operations plan is vital especially when creating financial projections which I will explain more about later.
5. Marketing Strategy (1 Page): Your marketing strategy is going to consist of your ideal customer as well as how you plan to market to your target market/audience. A well thought out marketing strategy is essential to acquiring new clients and growing your business.
6. Financial Projections: Arguably the most important information within your business plan in regards to acquiring bank financing. You could have a 100 page report on products, pricing, competition, floor plan, marketing etc. however without properly calculated financial projections you will not receive a startup loan. Your financial projections will need to be reasonable and cannot be too aggressive. A lender will know if you’re being too optimistic in your projections. It’s easy to underestimate the cost of doing business to make profits looks higher than they should be. It is important to include as many operating costs as possible into your projections.

Common expenses to consider within your financial projections include the following:

-Rent/Mortgage
-Utilities (Water, heat, electricity)
-Property Taxes
-Cost of Goods Sold (COGS)
-Wages
-Marketing/Advertising
-Internet & Cell Phone
-Office Supplies
-Insurance
-Repairs & Maintenance

I highly recommend the following cash flow template for all Canadians starting out with their first business plan & financial projections:

Projecting Cash Flows

Cash flow is the single most important metric in business. Without cashflow all other metrics are irrelevant when it comes to acquiring a business loan. You could be worth millions in net worth however if you do not earn enough income to pay your monthly loan payment, you application will be declined.

It is important to know that net worth and assets play an important role in security for the lending institution. However, being able to accurately project profitability should be your first step.

The most common mistake is see with business owners is that they do not project the new loan payment into their projected cash flow statement. The payment amount will depend on the size of the loan, the amortization and the interest rate.

For example, let’s say you’re borrowing $100,000.00 from the bank to purchase and renovate a coffee shop. The annual cost to borrow is 10% over a 5 year term. Your monthly loan payment would be $2,124.70 for the next 60 months.

Use the following business loan calculator to determine your monthly payment amount: https://www.bdc.ca/en/articles-tools/entrepreneur-toolkit/financial-tools/business-loan-calculator

Once you’ve calculated your estimate monthly loan payment, make sure you add this as an expense in your projected cash flows.

Conclusion

Be sure to ignore irrelevant topics within your business plan. A banks lending criteria is primarily based on your financial projections. The qualitive metrics will come second to support your financial projections.

Be sure to avoid including any fluff within your business plan. Most business loan applicants are under the impression that a longer business plan is better however this is not the case. I’ve reviewed 5 page business plans that were more elaborate than 25 page business plans.

The main objective for you when writing your business plan is to show that you have a complete understanding of how your business will begin to operate and grow over time. Next, back it up with a breakdown of your projected cash flows. As long as your projections are accurate, reasonable and show profitability then you’re on the right track to acquiring a loan for your business.