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All businesses have their own myths, a remarkable persistent myth around business borrowing is the notion that you have to write a ‘special’ business plan for lenders; by special, the implication is always that figures need to be bumped up, that it should include glossy pages and pictures and that there should be loads of superlatives and frivolous promises.
And here’s the thing – at best this ‘special’ plan will be a waste of time, at worst it will be an extremely costly error that will actually put lenders off dealing with you.
Over the years, I’ve had clients who pay accountants or consultants £5,000 or more for plans that are frankly, comical – the biggest irony is that the firm who has charged all the money wants to haggle a couple of points on the interest rate to justify their fee.
So, to save you time and money, here are 3 reasons why you shouldn’t invest huge amounts of time on effort in a special plan for lenders:
- It’s your business and your plan. Quite simply you really do need to create a straight forward plan which illustrates both the need for money and the capacity to repay it. Without that simple but realistic plan you won’t know how much you need, when you need it or what type of funding is best for you.The most expensive form of borrowing is the one that doesn’t meet your needs.
- It’s a discussion document. If your plan is read by the decision maker, the next stop is that they will want to talk it through – If you have made up facts and figures to impress a lender you won’t be able to discuss them with confidence or depth, all you will have done is prolonged the journey to being declined.
- Lenders aren’t stupid. The implication of the ‘special plan’ myth is that lenders will automatically reduce everything by a certain percentage, hence you have to build it up to counter this. It won’t happen. What they will do is challenge certain assumptions. If those assumptions are way off the mark they will assume that all other assumptions are similarly amiss. If you are informed and close to reality, they will judge you as such.
So yes, you do need a thought through plan, and it does need cashflow projections. You need it for yourself before you even contemplate looking for funding, otherwise you will be pitching cluelessly between different types of funder and the worst eventuality is that you will succeed in getting funding against a fictional document.
You might want professional input from an accountant or a marketing specialist, but you, not they should create the plan.
Save yourself time and money, there is no need for
- Glossy printing / presentations.
- Pages and pages of hyperbole and waffle.
- Mountains of technical detail.
- Pretty financial graphs.
- A mission statement.