the business plan
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Guidelines for preparing a business plan

There are numerous templates available for you to produce a business plan. In our experience there are certain key questions a lender wants to know. We call them the 4Ms:

  • Market: What line of business are you in? A few sentences may help explain a complex business such as an IT service.
  • Model: How do you plan to do business? If you are a restaurant, are you selling fish & chip takeaways, sit-down hamburgers or is this haute-cuisine with soft music in the background? What is your route to profit? The competition?
  • Management: Probably the most important part of the plan, and one that may be the deciding factor for a lender, particularly for a startup. Who will run the business and what experience do they have in the sector? Who will be on hand to help the business through hard times or growth – and what experience do they bring?
  • Money: a lender’s first question will be: "If I lend this business my money, do I believe, based on what I know about this company, that the directors will pay back the loan on time?"

The first thing a lender will look at is the company accounts to check the profits. A startup will have limited trading history and no accounts, and the lender will have to rely on sales forecasts. Lenders hate forecasts because they are always wrong. Entrepreneurs are naturally optimistic and will overestimate business.

A good question to ask yourself is: "If we cut the revenue in half and add a third to your costs, will the company go out of business?"

Almost certainly. Then rework the forecasts to decide whether the business is realistic. There is plenty of careful examination for a lender at this point to decide whether the business is strong enough to lend to.

The point about the 4M summary is that most business plans are overcooked. A business plan seldom gives more than a flavour the enterprise, and lenders have to carry out due diligence based on their own research and gut instincts.

A fat business plan that drones on about the global market for a product and the infinite opportunities for a young company does little to reassure the lender.

A business plan is really a tool for the business owner to clarify his thinking, and to prove to stakeholders that he has thought through the venture carefully.

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