FINANCE AT YOUR FINGERTIPS by Moses Ayiku, Jr. MBA OP/ED
In terms of setting up a business, one of the most common tools available is that of writing a business plan. A business plan is a well-researched and structured report that provides information about a particular business opportunity. Information that one can find in a business plan includes the cost of setting up the business, the core products, and services to be offered, pricing information, market research and analysis, operational factors, financial analysis including the overall profitability or otherwise of the project amongst other pieces of information.
A business plan assists the owner of a business to not only assess the intended investment but provides basic guidelines for establishing the entity. In the formal financial sector, a business plan is a standard requirement when one is trying to tap into various sources of funding.
Before one invests sizable amounts into any investment, it is advisable to write a business plan. The length and intensity of the business plan can vary. It depends on many factors including the cost of the investment, the existence of competitors, the maturity of that industry and other factors.
Depending on the strategic partners one may have for the business, a business plan is definitely the way to let outside parties know the seriousness of the entrepreneur. It shows that the prospective business owner is serious and has quality information about the business they intend to invest in.
When it comes to writing the business plan, there are several options available to a prospective business owner. One could hire someone or a company to write the business plan. Such an arrangement would increase the chances of obtaining a professional business plan with quality findings based on good research and analysis. The other side is that it would cost a sizeable amount to pay for a quality business plan. However, if one can afford it, it could prove to be a worthwhile investment.
Another way to write the business plan, is for the prospective business owner to research and write the business plan themselves. These days tremendous resources abound on business planning. Online resources can be googled to obtain information about writing a business plan. The upside to writing a business plan for your own business is that through the research and writing process you will gain a lot of invaluable information, some of which may not end up in the business plan. Yet such information could prove invaluable when you actually start the business.
The other side of it is that the process of researching and writing a business plan can be time consuming. There are costs involved in obtaining all the information for a business plan. Some information, for example market data, may be purchased and this goes to increase the cost of writing a business plan.
Once you are planning to take a risk with your money, it is wise to give yourself the best chance to succeed. One way to do that is to research the proposed industry that your business is in, learn about the industry as a whole and its peculiarities. Such information can act as a valuable resource when one does take the plunge and start a new business.
When we look at successful businesses, we do find that businesses that started based on sound business planning principles had a higher success rate than those started without basic business planning.
Once the plan has confirmed the visibility of the business as well as provided guidelines on how to succeed in establishing the business, it is time to move to the financing stage. One must identify investment sources and put together the financing plan for the business. Without a clear plan to raise capital for the business, it would only be a mirage. Simply put, if there is no capital, then there is no business.
The first place to seek financing for a business should be one’s own savings and finances. If you can raise the full amount of capital for setting up the business from your own pocket, it gives you the ability to actually start the business. One has control of the process in this situation of 100 % self – financing of the business. If one cannot raise the full amount for the setting up of the business, then there would be the need to look for outside sources of investment capital. This would include people within your network such as friends and family.
In other cases, some can raise money for their new businesses from financial institutions. This is an area that requires research and good documentation. One must research whether the financial institution does provide some forms of credit that could assist the business. One must find out the requirements for obtaining financing from any financial institution.
At this stage your success of raising money from the financial institutions would depend on the business plan, the overall profitability of the business, the risk factors, and the cost of setting up the business, amongst others. Friends and family have proven to be a major source of funding for new businesses. A study by Bank of America in 2020 indicated that 83% of business owners obtain various forms of support including financial from their own network of family and friends.
In the next part we will continue with information about starting a new business.
Please feel free to share with me your questions and experiences on starting a new business. I will do my best to respond, and, in some cases, I will write on some of these questions.
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