A business plan may seem like an unnecessary expenditure of energy for a lot of business owners or for entrepreneurs who want to create a new business. Unless you happened to go to business school, chances are that you didn’t even consider writing either of these documents until you were looking for financing. Therefore, to you, it may seem that they are both pretty much the same thing.
In reality, they are quite different documents, both in terms of what they consist of as well as in what the primary uses of each are. Knowing the difference can help you ensure that you get the most out of each.
This plan should be written first and foremost with the goal of helping the company’s executives to keep it running smoothly. It’s like a blueprint of where you are heading and how you want to get there. If it is put together properly, it will help you stay on track.
In fact, writing the plan is a great way of checking your own assumptions and making sure that what you have in mind is a sound idea. Although consultants are sometimes hired to create them, it’s actually a better idea to at least do the first few drafts in-house. The exercise of doing so can help you catch things that an outsider could not, as well as ensure that your vision is accurately portrayed.
With respect to getting financing, while business plans are often required, they may not even be read. There is a lot more information that is needed by a prospective investor before a decision can be made.
A financial proposal should be based on your business plan, going into further detail about how you propose to achieve the results laid out in that plan from a money point of view. It must include how much financing you will need, how the funds will be used, the type of return you expect to receive and in what timeframe, and how you intend to pay back your loan.
Personal recent financial statements for owners and for the business will likely be required. Being able to show that the owners are also investing equity into the business is another key item required. Investors will also want to know what collateral is being pledged if the business should not have sufficient funds to pay off the loan.
Prospective investors or funding companies will likely give you a list of the information that they need you to present. However, you should bear in mind that this may not be exhaustive because different businesses may have something additional that should be included that is particular to that individual industry or company.