A guide to writing a business plan in support of an application for small business financing

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A GUIDE TO WRITING A BUSINESS PLAN
IN SUPPORT OF AN APPLICATION FOR
FINANCIAL INVESTMENT
Terence Westgate 2022
terencewestgate@gmail.com

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SECTION 1
CONTENTS OF THE BUSINESS PLAN GUIDE
SECTION 1 Contents
SECTION 2 Introduction
2 a Initial questions
SECTION 3 The Executive Summary
SECTION 4 A description of the products or services that the business sells
SECTION 5 Sales and marketing
SECTION 6 Directors, managers and operatives
SECTION 7 Money
SECTION 8 Planned activities for the next year
SECTION 9 End note

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SECTION 2
INTRODUCTION
Before any lender or investor will part with any money they will want to see a business plan of
the enterprise.
The objective of this guide is to help entrepreneurs apply to banks or investors for
financial capital.
All new businesses need some financial capital to get started, but many entrepreneurs know
little or nothing about financial planning and control, which is essential when applying for
funding.
‘Profits are not cash.’ Profits are a theoretical calculation, and a business may still show
profits and yet go bankrupt.
When a business fails it’s because it has run out of cash and cannot pay its bills. It happens
to large as well as small businesses.
The all-important factor in a business plan is the ‘Cashflow Forecast’, which models the future
liquidity, or available cash of a business in the foreseeable future.
The figures in a cashflow forecast and the accompanying information which supports those
figures provide the basis for a banker or an investor to make the ‘yes / no’ decision.
A bank lends money to businesses while investors buy parts of businesses. In either case the
parameters of the investment decision are basically the same; ‘what is the likelihood of my
losing money, and if so, how much?
A banker will also want to know if the business will be able to meet the interest charges and
repay the loan in due course.
A cashflow forecast in a spreadsheet will allow the users – investors and entrepreneurs, to
‘flex’ the model by asking ‘what if’ questions – for example, ‘what if material prices rise 10%?’,
or ‘what if sales rise steeply?’ – will the business still be able to support itself in – say, six
months’ time?
So this is the case for a cashflow forecast in a business plan.
This Guide sets out how to construct a cashflow forecast in a form that I have found to be the
most useful.
A business plan may be used in support of applications for financial capital to:
Start a new business
Buy an existing business
Develop an existing business
A business plan should contain at least the following information -
o An executive summary
o A description of the products or services that the business sells
o How the products or services are sold
o The people in the business – owners, managers and staff
o A Cash-Flow Forecast
o A plan of activities
Descriptions of these sections are set out below.

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Executive Summary.
The Executive Summary should be no more than one or two pages and should contain
enough information to enable the prospective investor to decide very quickly if this is a
business he or she wants to be involved in.
The Executive Summary should set out -
o What does the business provide to its customers
o What is the market and competition
o Profiles of the management.
o A cashflow forecast
o A plan of future activities.
The details in the business plan can be set out in separate sections.
Section 4 Deliverables – the products and services you will deliver to your
customers
Section 5 Marketing and sales of your deliverables
Section 6 People – owners, managers, staff,
Section 7 Cashflow forecast
Section 8 Activities planned for the next year

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ESSENTIAL INFORMATION TO INCLUDE IN THE BUSINESS PLAN
1. What is your name and contact details?
2. What are you going to sell – does it have a name?
3. What is the name and address of the business applying for funds?
4. What arrangements have you made about compliance regulations – is it legal?
5. How much money are you looking for?
6. Loan or investment finance – i.e. selling a share in the business?
7. How much capital are you yourself putting into the business?
8. Who are the owners of the business?
9. Who are the directors of the business – if a, Limited company?
10. Who is going to run the business – managers and operatives? – brief profiles.
11. Experience in running a business
12. Experience with this product or service
13. From which premises are you going to carry on your business?
14. What do you need to do to get up and running?
15. Do you have a plan of action to get running?
16. How long do you think it will take?
17. How much will it cost?
18. How much do you estimate the day to day running costs (overheads) will be each
month? - for example wages, electricity etc.
19. What is the nature of your business, e.g. trading, services, manufacturing?
20. Does your product or service have a USP, or unique selling proposition?
21. Who are you going to sell to - who will be your customers?
22. How did you find out about the market for your products or services?
23. How much do you plan to charge?
24. What's the competition as you see it?
25. How will you source your deliverables - will you buy them in - act as a broker, or
manufacture them yourselves?
26. Have you an estimate of the volume and value of your first year’s sales, month by
month?
27. When do you expect to get paid?

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SECTION 3
EXECUTIVE SUMMARY
The Executive Summary should be no more than one or two pages and should contain
enough information to enable the prospective investor to decide very quickly if this is a
business he or she wants to be involved in.
The Executive Summary should set out -
A brief history of the business – with a startup, a profile of the entrepreneur
What products and services will be offered to its customers
What is the perceived market and competition – who will be the customers?
Profiles of the directors, managers and operatives of the business,
A cashflow forecast – (see section 7– ‘Money’)
The planned activities for the next year
What resources are required to get started?
How much do you estimate it will cost to get started?
How long will it take before you invoice your first customer?
This should give a potential investor an idea of whether of not he or she wants to be involved
at all in this business.
The details in the business plan can be set out in separate sections
Section 4 Deliverables – the products and services you will deliver to your customers
Section 5 Marketing and sales of your deliverables
Section 6 People – owners, directors, managers and staff,
Section 7 (a) Money – cashflow forecasts in narrative
Section 7 (b) Cashflow forecasts in a separate Excel spreadsheet, so that the reader may
manipulate the component worksheet figures and observe the overall effects)
Section 8 Planned activities for the next year

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SECTION 4
PRODUCTS AND SERVICES - THE ‘DELIVERABLES’
Here are some of the questions a potential investor might ask about your deliverables.
Is there a Unique Selling Proposition – what makes your offer special?
Are there issues of patents or intellectual property – is the product protected in this regard?
Contract(s) of supply – for each item or component required to make the product to be sold,
including skilled labour, (which we also consider under ‘people’). The contracts of supply will
affect the cash flow forecasts as well. Lead times are the periods between placing an order
with a supplier and receiving the goods
Material availability – we should consider the availability of materials needed for the product.
For example, in the event of supplier failure, are there backup sources of supply so that the
firm will not default on its own sales commitments?
Skills (also see ‘People’) – are necessary skills readily available? Is there a skills shortage?
Is training required? How long does it take? Who will provide it – where? How much does it
cost (see also ‘money’ section)? Is there any guarantee that newly skilled workers will stay
with the firm?
Material pricing – this aspect of the product is vitally important and is included in the
consideration of supplier contracts. Successful purchasing management includes price
negotiation, price stability or ‘fixing’ and payment terms.
Legality – is the product or service legal in the markets for which it is intended? Another
aspect of legal issues concerns title to the premises from which the business operates and if
necessary, government permissions to carry on the business in its preferred location.
Premises – are there sufficient land and buildings available to enable production to take
place, and is there room for expansion if more space is required as the business grows?
Hazardous materials or processes. Does the business involve the use of hazardous materials
or processes? Are there adequate protective measures and permissions?
Equipment – is there a requirement for special equipment? Are adequate maintenance,
backup and replacements available? Has equipment obsolescence been considered?
Environmental responsibility and responsible waste management; are there adequate policies
and practices in place?
Are the product’s warranties and guarantees feasible?
Is there insurance cover in place for third party liabilities?
Costing – this also belongs in the ‘money’ section, but how exactly are product costs arrived
at? N.B. this is why cash flow forecasts are so important.
SERVICES to be offered by the applicant for funds
o What services do you intend to offer to you clients – names and descriptions?
o What experience do you have in this field?
o What are your relevant qualifications?
o Do you have certification?
o Do you have membership of appropriate professional bodies?
o Can you provide testimonials and/or references?
o Are you able to comply with all relevant regulations?

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o What experience do your managers and operatives have?
o Are they appropriately qualified?
o Who writes your contracts for services?
o Do you offer any form of guarantee?
o Are you fully insured?
o Do you offer credit to your clients?
o Do you carry out credit checks on your clients?
SUPPLEMENTARY QUESTIONS FOR MANUFACTURERS
Do manufacturing designs, processes, specifications, parameters exist in documented form?
Materials for processing
Specifications –
Availability –
Suppliers –
Terms of trade –
Alternative suppliers –
Quotations from potential suppliers -
Internal routines and systems of the applicant
Internal requisitioning –
Purchase ordering –
Currency used to pay for the materials -
Arrangements for delivery to the applicant’s place of business –
Progress chasing purchase orders –
Goods received procedures –
Inspection –
Reject procedures –
Acceptance routine –
Purchase ledger management
Storage and inventory management systems –
Works ordering – from inventory to processing
Inventory picking –
Processing (how - by whom – skill-sets required – training requirements) –
Inspection & testing –
Approvals and rejection routines –
Operating manuals and training for customers
Packing –
Storage –
Dispatch - what are the arrangements for delivery by the applicant to its customers –
Billing customers (terms of trade)
Currency used for sale prices –
Sales ledger management –
Debtor management -
Returns policy & procedures –
Are there arrangements in place to compensate for currency fluctuations? –
Sub contracting
Selection of sub-contractors –
Contracts and terms of trade –
Payment and bought ledger management –
Design protection –
Responsibility for provision of materials –

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Monitoring progress of sub-contractors –
Receiving production from sub-contractors –
Inspection – acceptance and rejection routines – see above
Plant and equipment
Full description and specifications of plant and equipment (“P&E”) needed to
manufacture
Availability of Products & Equipment – suppliers – references – warranties
maintenance – backup
Quotations from potential suppliers
Acquisition of Products & Equipment –
Ordering –
Terms of trade –
Payment terms –
Installation –
Testing –
Commissioning –
Operator training –
commissioning
Premises
Suitable premises already occupied –
Permissions and licences to operate manufacturing on these premises –
Access –
Land and buildings – full description and photos and plans –
Tenure – owned – leased – rented – security of tenure for how long?
Acquisition of new premises –

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SECTION 5
SALES AND MARKETING
Did you do any research into the market for your deliverables?
How was the market research carried out?
By whom?
When?
How?
Over what period?
Description of the market for your deliverables.
Who are the customers?
Where are they located?
What are they prepared to spend?
What is the overall size of the market?
Pricing
How are prices decided?
Are prices related to cost?
How?
What prices will the market bear?
Is there flexibility to allow discounting?
At what level are point-of-sales prices determined?
Is customer demand price sensitive?
Upwards?
Downwards?
Competition
What is the competition to your product in the marketplace?
Price?
Quality?
Brand loyalty?
Availability?
Delivery?
Presentation?
Marketing communications
How do you communicate with prospective customers – advertising?
Social media – e.g. Facebook, Amazon?
Newspapers and magazines?
Is there a budget for advertising?
Is feedback from customers collected and analysed?
How do you communicate with existing customers – post-sales support?
Sales
What is your sales strategy – how do you close sales?
Who writes your sales contracts?
Who decides on your customer payment and credit terms?
Do you use discounting?
How and when will you issue invoices?
How will you exercise credit control?
Distribution
How are the products and services brought to the customers?
Warranties and guarantees
Are the product’s warranties and guarantees an attraction or a liability?
Are you insured against claims from third parties and customers?

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SECTION 6
DIRECTORS, MANAGERS AND OPERATIVES
Let us now move on to what is probably the most important component of your business – the
people. Certainly, an investor or a lender will want to know the answer to most of the following
questions.
So before looking at the commercial aspects of the project, a potential investor will need to
look at the person whom he is going to give his money to use in the business.
CV’s will be required for each of the key people involved in managing the business.
At the start of a new venture, there may be just an owner-manager. The question that the
would-be investor will ask is, ‘Can this entrepreneur run a business?’
What sort of a manager is he? Is he trustworthy? What is his personal wealth? Does he have
a successful track record of running a business?
The qualities required to start up a business, to bring an idea into reality are not necessarily
those qualities needed to manage a business, or part of a business, day to day.
Secondly, but just as important, what sort of a team will he create and lead?
Each business has three main branches of activity and therefore management expertise;
Production, responsible for sourcing whatever the business will sell – even if it is
services
Sales and marketing,
Finance – in particular, managing the cash flow – maintaining the liquidity of the firm
If an equity investment is contemplated, then is the entrepreneur is ready, willing and able to
relinquish part of the ownership and control of the business?

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SECTION 7
MONEY
Profits aren’t cash!
Profits as calculated by Generally Accepted Accounting Practices, are theoretical constructs
designed to give a ‘True and Fair View’ of a company’s general state of affairs.
To survive, a business must remain liquid, that means alwayshaving enough cash
available to pay its bills when they become due.
A business entity that cannot pay its bills may be forced into bankruptcy and closure,
even though it is making theoretical profits.
Cashflow forecasts are the basis for planning and controlling finances. They are used to guide
money management – making sure that there will always be enough money on hand to pay
bills when they fall due.
A cashflow forecast is simply a mirror of expected future bank statements made up of best
estimates of when you expect to receive money and when you expect to make payments.
That means that money management inside the business must be exercised – credit control,
cash-book maintenance and adhering to a cash budget that is provided by the cashflow
forecast.
Constructing a cashflow forecast
A cashflow forecast is simply a matrix of time periods as one dimension and amounts of
money as the other dimension. It is an extension of the cash-book into the future and provides
that basis of a cash budget.
My preferred method is to use a spreadsheet comprising 6 worksheets;
1. Payments for capital expenditure (“CAPEX”) e.g. equipment, vehicles etc.
2. Payments of overhead expenses, rent of premises, power, water, office staff
(“OHEADS”)
3. Payments of materials and labour that will be consumed by the production of the
deliverables (“COP”)
4. Expected receipts from invoices submitted (“SALESREC”)
5. Expected receipts of capital finance, e.g. loans, purchases of shares in the
business (“CAPIN”)
6. Cashflow forecast itself, which is made up of the totals of each of the previous
five worksheets. (“CFF”)
The choice of time periods is entirely up to you and if you want to involve him, your banker. I
think that monthly intervals for the next six months is workable in a small to medium sized
business. The time period may also depend on the type of business contemplated, for
seasonal business it could be 2 years forecasts.

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SECTION 8
PLANNED ACTIVITIES FOR THE NEXT YEAR
The object of this section is to provide checklists of the tasks to be carried out and when, in
order to implement the purpose of the capital investment.
Each activity carries a cost and these costs should be entered into the cashflow forecast
model under the appropriate time period.
Here are some examples, to which the business managers will add more from their detailed
knowledge of their particular business.
o Acquisition, adaptation of premises to operate from
o Acquisition of plant, machinery and equipment necessary for production purposes
o Acquiring licences, permissions to carry on the business
o Arranging insurance cover
o Acquiring vehicles
o Buying or leasing administrative systems including accounting and billing systems
o Opening bank accounts
o Staff contract preparation, recruiting and training staff
o Arranging for electricity, gas, water and telecommunication services
o Registration with H M Revenue &Customs and local authorities
o Ensuring compliance with health and safety regulations
Schedules of planned activities can be documented manually in charts and/or by using one of
the many computer packages available. It is important to monitor progress against the plan
and where appropriate to use the plan as a communications and management tool.
The cashflow forecast becomes a cash budget for this purpose, playing a major part in the
control of expenditures so as not to exhaust available cash and perhaps halting the operation
of the business.

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SECTION 9
END NOTE
CONTRACTS AND DUE DILIGENCE
A contract is a legally binding agreement and for any contract to be valid it must satisfy the
following conditions; both parties must have the legal capacity to enter into the contract, there
must be intention to create a legal relationship between the parties, there must be an offer
and an unconditional acceptance, there must be consideration i.e. objects of value to be
exchanged between the parties, and finally, the contract itself must be legal.
A cashflow forecast is, however, only as useful as the integrity of the figures it contains, which
are at best informed guesses. However, there is a process known as ‘Due Diligence’ which
refers to the scrutiny of the assumptions and in particular, the contracts that give rise to them.
A form of due diligence should be performed on key contracts which underpin the assumed
receipts and payments in the forecasts to check that the contracts are valid and on the bona-
fides of customers and contractors.
Up to one third of new businesses fail in the first two years of their existence.
Most of them don’t make it because they under-estimated how much money they would need
to establish themselves and keep going until the business became cash positive – that is,
generated more cash than was being spent as they went along.
Banks lend out other people’s money, so they will naturally be cautious and probably ask for
security against loans.
Business Angels and Venture Capitalists are more adventurous and are prepared to lose
money in exchange for a share of the profits of the new business. Of course, they don’t want
to lose money, but they won’t take away your house, your car and your dog if things do go
wrong.
In my experience, most entrepreneurs are totally focussed on the business - the product and
the market. But the third component is finance and it requires management, that is planning
and control, and that is where the majority of new business failures occur – they don’t practise
budgetary management. All right, it’s mundane, even boring, but it is the difference between a
business and an adventure.
I believe that it is worth getting someone in at the start whose sole duty is to draw up cash
budgets, manage the cash book and attend to the banking.
It’s possible, just possible that some entrepreneurs may be saved from bankruptcy by this
approach – I wish them luck.
If you decide that you need further advice, please contact me to see how
I might help
terencewestgate@gmail.com quoting reference CFF