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30 March 2016 | Commercial Finance

So why do you need a business plan?

When you’re setting off on a road trip with a destination in mind, having a route planned and fuel to get there are really the absolute basics. If you’re super-organised, you might also have a contingency plan for more petrol along the way, drinks and road snacks so that you can avoid the motorway service prices and you might even have a CD or a playlist to keep you entertained.

Setting up or taking on a new business involves more planning than a road trip, but the principle is essentially the same. You need an idea of where you want the business to be and a plan of how you’re going to get there.  You need to plan your budget and it would be sensible to account for any surprises along the way. 

When you're in the lengthy process of buying a business or setting up a new one, in the whirlwind of finance, legal’s and everything else, it's pretty understandable that actually sitting and writing up a business plan may not be that high on your list of priorities. But, if you were asked if your plan was just to wing it, I highly doubt that you would say ‘yes’.  Except, by not having a business plan, you are essentially doing just that: winging it.

Success is the end goal of any business owner (I don't think a worthwhile conversation could be had for any which it isn't). As well as setting out where you want your business to be in 1, 3 or 10 years’ time, your business plan is your opportunity to drill down into your way to get there.  By breaking down the individual steps, you are more likely to identify any road blocks that you couldn't see from the map in your head. It is far better to pro-actively manage any potential risks that could arise, than have to react to them when they jump out and surprise you.  A rent review in year 5 that results in an increase could put a hold on those expansion plans that you had in mind unless you factor this into your financial projections beforehand. 

When working with people in this position, it always surprises me when they have thought that a business plan isn't necessary. As an outsider to what's going on in your head, it can be a challenge to fully appreciate the brilliance behind some of the business operators we see without it being harnessed  in way that we or lenders can understand. For an existing operator looking to add another business to their portfolio, it’s very easy to say that you don’t want to make any significant changes.

The business could tick-over absolutely fine without your input. The changes that you want to make may seem so minor or so obvious that the time spent to actually put them in writing would be a waste. Time is money after all. But these minor changes add up.

One of the key aspects to a finance application is whether the business can afford the loan repayments. Despite the uncertainty as to when the Bank of England base rate will rise, the banks have a responsibility to you, your business and the economy to ensure that businesses can still afford loan repayments when base rate inevitably does go up. 

All banks have a policy relating to how much of a buffer is needed once loan repayments have been met before they can back a proposal - how much this is, differs from bank to bank. Those small savings that you thought were non-consequential for anyone not directly involved in the business, especially those that can be made immediately, could be the difference from being on the right side of the buffer - and the wrong side.
When Christie Finance submits a proposal to a bank, a business plan can be a real asset to support the application.

There are three key areas which we look at when considering the chances of success for a proposal;

1) Background of the key individuals involved
2) Strength of the business
3) Affordability of the loan

A good business plan will cover aspects of all three of these and will give a lender slightly more of a flavour your business i. We pride ourselves on the ‘added value’ that you get from using a Christie Finance broker. Our goal is to get you the finance that you want, but we strive for a personalised, supportive and co-operative working partnership which means that if you need a set of fresh eyes or a critique of your business plan from a finance perspective, we’ll be there for you.

Next time: What goes into a 'good' business plan?