Do you know what sort of a business risk you are?
Did you know when you’re applying for a financing loan your banker is checking out to see if you’re a good or bad business risk?
Here are some tips on how to make sure the business plan you’ve submitted with your loan application makes you a good risk to lend to.
Keep the personal out
It’s business, business, business all the way.
A sure-fire way to present as a risk is to discuss going into business with your friend who you went to school with but then, at a party, you had a fight and you didn’t speak for six weeks but it’s great now and you’re BFFs and want to open a café together. Yay!
A much better way is to describe how you have skills in accounting, management and customer service with six years’ experience at ABC restaurant, coupled with your Business Degree attained from Amazing University and your business partner is a skilled chef trained at Delicious Institute who has been a sous chef at DEF restaurant for seven years.
The combination of the skills you both have provides a solid business where all key skills and requirements are met.
Keep it real- profit & loss projections
All of us who’ve started a business have dreams of how things are going to be in the future and we are all going to be squillionaires really quickly after setting up our business. My slick new luxury car is on the way…
However, in your profit and loss projections it’s important to keep it real. An unrealistic figure will stand out to a keen eye.
So, you have a t-shirt screen printing business you want a loan for to set up and you’re going to sell each t-shirt for $40 each cos they’re super cool.
So how much do you think you’ll make in the first year?
If you say $1 million profit in the first year I suspect your bank manager will respond with “really? Prove it”.
You’ll need to show that through your business plan, you’re able to produce enough t-shirts to cover associated costs and achieve a $1 million profit.
- Exactly what are all your associated costs?
- What is the manufacturing process?
- If you’re going to make each t-shirt yourself, how many can you make in a day to fulfil sales to make $1 million profit?
- In fact, if it’s not you selling the t-shirts, who is?
And more questions need answering…
Chances are to begin with, you won’t be able to personally screen print enough t-shirts and sell them yourself to make $1 million in the first year.
If the numbers look off, your business looks off too…
You know your audience
It’s great you’ve had experience working in the industry you now want to have a business in it but working as an employee and being the business owner are very different.
The place you worked at, worked because it knew its audience and how to differentiate itself from its competitors.
If you have a business that operates in a local community or area, your city council will have some good data on who lives in the area, some information around their age and discretionary income.
You’ll also need to check out who else in the same business or similar operates in your competitor space and determine how your business will appeal differently to them.
If the person approving your loan can see you’ve done the research and you understand your playing field, you become less of a risk.
Finally…
Your banker needs a really clear picture of your business and that you know your stuff. A comprehensive but clear and easy to read business plan that proves itself with supportive material and figures that have been researched and proved will take you over the line.
Good luck!!!