Finance Articles

Business Finance through your Business Plan

There has been numerous accounts of research into businesses and one result from this research clearly shows that there is a high failure rate as one in three businesses close within a year and only one in five make it past five years of being in business.

Some of the main reasons as to why businesses fail are down to aspects such as poor marketing, lack of financial awareness, unrealistic expectations. However successful businesses are more likely to succeed if they have prepared a business plan. There is a saying that states success comes to those who plan it and this is never truer than when it is applied to business.

A business plan is the process of charting a course for a business it is the act of defining the ambitions and objectives of a business as well as working out what is needed to achieve them in terms of actions and resources. Without your business plan you wont know where your business is headed and you are unlikely to get to where you want to be. A completed business plan should keep customers. Capacity and cash in balance as your business grows. It is proof that your business is viable based on the assumptions that is made within it. The business planning process defines these assumptions and ensures that the business understands, and is prepared to take, the actions needed to deliver the results it needs.

One of the main uses of a business plan is to secure external finance from investors or lenders. Investors are people who will provide your business with the money it needs without you having to pay back a penny; however it will mean that the investor gains a percentage of the shares within your business. A lender is, for example a bank; they will lend you the money you need for your business on the condition that you will repay it plus interest. Without a well prepared and structured business plan no investors or lenders will be prepared to hand over money to your business. This is because without a business plan they have no proof that you will be able to repay the debts that you will owe them.

Financial planning is key to your business plan. Your financial planning should include your businesses financial forecasts for the next three, or even five years and the level of sophistication used should reflect the level of sophistication of your business; however, the first 12 months' forecasts should have the most detail associated with them.

As well as enabling you to gain the finance that you need to start up your business, your business plan is also essential to help you spot potential pitfalls before they happen as well as a way of focusing your development efforts within the business and it also works to measure the success of your business.

It is also important to remember that your business plan is a living document that will need updating and changing as your business grows, this is regardless of whether you intend to use your business plan internally or externally, either way you should still take an objective and honest look at your business.

Helen is the web master of Angel Start-ups, specialists in all aspects of Business Plans.

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