A typical cry among entrepreneurs is the challenges they face in accessing finance, often berating the difficulties they experience in securing the funding to either establish or grow their businesses. However, while pointing one finger elsewhere, there are three fingers pointing back at you.
Financiers have limited funding available, are either offered security that is not acceptable or not offered security in any format and are faced with the difficult task of proving an entrepreneur’s ability to service the debt.
This means they hold the cards in terms of choosing the best candidates behind which to place their investments. Not only can they choose, but it is their responsibility to their stakeholders to make those decisions based on information they are given.
When entrepreneurs place their proposals on the financiers’ tables, too many are gripped by the same errors. Key among them is not understanding the value and role of the business plan; not being familiar with its contents as it was prepared by a third party and only viewing that document as part of the information required by the bank rather than as a living document and roadmap to business success.
A business plan is important
The business plan is not a document that, once shown to financiers, should be stashed away in the drawer only to be considered again when the time comes for further financing. It is the document guiding the business’s growth and expansion, its challenges and milestones and the route to ensuring success.
Financiers acknowledge the majority of entrepreneurs’ errors come via self-assessment. Entrepreneurs miscalculate their changing needs and typically have doing skills not backed by crucial business skills.
This means that in securing finance, the financier’s assessment of the entrepreneur and the extent to which that person has knowledge and understanding of their business plan is vital in achieving a successful application.
Entrepreneurs sometimes also fail to wholly disclose their financial positions. Having judgements against them speaks greater volumes than merely the legality. It speaks to their approach in dealing with problems – hiding away or facing them head-on, taking the steps to resolve the matter. It speaks to the underlying issues in the company as no-one writes a business plan for failure.
Judgements will weaken an entrepreneur’s chances for securing additional finance, but addressing how those judgements came to fruition and what you did about them is equally as powerful.
What information should entrepreneurs provide in their application?
Existing businesses require three years’ audited financial statements, personal balance sheets for all members, CVs for the main members, a summary of needs and a business plan. An assessment for a startup business is all about the entrepreneur. What is the relevant experience, necessary funding and talent, what do their CV and personal balance sheets hold and is there a detailed business plan with a detailed evaluation?
When these issues are in place and the pie-in-the-sky dreams are shown to have feasible, realistic traction, the potential for financiers to provide funding escalates.
This article was first published by Business Partners.