What Goes into a Business Plan?
Business plans are required by most financial institutions and lenders to evaluate the value of their investment into your business. When considering a customer for leasing, Insta-Pro will also request a business plan and project feasiblity analysis. A business plan is a living document that reflects the vision and ambitions of a group of individuals. Here are a few points to consider as you begin writing:
- Start with an Executive Summary. The summary should be about one page and all key points about your project should be listed. Check Your Facts. The banker or investor reading your plan is numerate. If you make errors in your financial data, he/she will notice them, and you will lose credibility.
- Give a Brief Description. The banker or investor may not understand your business in detail. Remember, your banker probably studied banking or finance or accounting, he/she probably didn’t study agriculture or agri-processing. So make sure you explain the production method, without being overly technical.
- The Lender has the Money. That’s why you’re knocking on their door. He or she needs to have confidence in you if they are going to entrust you with their money. Would you lend money to a stranger with a start-up company and a business idea that you don’t fully understand? Probably not. Explain your company’s track record, your own professional history and the history of your management team. Remember, at the end of the day, you lend money to people, not to a business. That being said, don’t writing your autobiography. Stick to the facts, no puffy sentences please, and no scans of your diplomas and birth certificate.
- Put Yourself in the Lender’s Shoes. A banker, like a leasing company, needs to be sure that you’ll make payments on time. Their focus will be on sales and margin and cash flow. An investor, on the other hand, is more interested in capital gain and is looking to sell out in 7 to 10 years’ time and cash in a significant capital gain. In African private equity investment, returns on capital of 20-30% are not uncommon. An investor’s prime interest will be to see your company grow in size and value.
- What are You Bringing to the Table? Besides enterprise/ business acumen and leadership skills, what makes your project special? How committed are you personally? As a rule of thumb, you will need to bring 50% of the capital yourself. 30% may be acceptable if you have a first-class project. But please don’t confuse agri-processing with internet start-ups and Silicon Valley. No one wants to lend to an agribusiness start-up. In some cases, bankers may want you to establish a new company for your new business – that’s a legal, financial and fiscal choice. If this is your case, be sure that your business plan describes your other business(es), their growth and profitability. It’s simple really: if you can show a track record in setting-up and managing a successful business, your credibility goes up and with it your chances of raising funds for the new project.
- What to Include. As a potential lender/investor, I want to learn about:
- Your company’s history, track record, objectives and legal status
- Your management team, their skills and histories
- The market you are entering – who are the players, competitors, suppliers, customers
- The raw material purchasing process (often the key to successful agri-processing)
- Your customers and are they already committed (off-take agreements?)
- The value-chain you are in and your company’s position in the chain
- Your premises – strategically located? fit for purpose? adequate electricity supply?
- Sales forecasts
- Financial targets
- Factors that could disrupt your plans (devaluation, raw material shortage, power outages, drought…)
The project feasibility analysis can be annexed to the plan, but don’t forget to explain the assumptions on which it is based. Don’t worry about audited financials and legal documents at this stage. The purpose of the plan is to spark the enthusiasm of the reader, so that he or she starts to believe in your project.