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Business Plan Definition

A business plan is a document that helps entrepreneurs build their own business.

It thoroughly describes every aspect and viewpoint of the business the entrepreneur intends to start, from the company’s vision and mission to strategic goals and operational approaches.

This document is crucial, as we’ll explore later in this blog post, for securing loans from the bank to start our business.

A well-crafted business plan, coupled with a strong and secure business idea, is an excellent way to impress the bank manager and greatly increase our chances of getting financing approved.

The Importance of a Business Plan

When starting a new business, it’s crucial to decide whether to invest time in developing a business plan or to dive right into the new venture, dealing with opportunities, challenges, and changes as they arise.

Personally, I lean towards organization, preferring a roadmap that outlines what needs to be done, when, and how.

Research from ScienceDirect supports this approach.

In this study analyzing the growth rates of 11,046 companies published in the Journal of Business Venturing in 2010, planning was shown to significantly enhance business performance.

Notably, planning benefited not only startups but also established companies, sometimes even more so.

And if you think about it, it’s quite logical because a business plan acts like a compass, clearly defining business goals and mapping out the path to achieve them.

It’s invaluable when facing strategic decisions – simply refer to it to remember the core values and make informed choices about which direction to take.

Securing Financing from Banks

As mentioned earlier, a well-structured business plan is crucial for obtaining financing and investments.

In recent years, the credit market has evolved significantly, with stricter rules and regulations prompting banks to demand more documentation from SMEs.

This tightening of credit policies is due to the new Guidelines on Loan and Monitoring (LOM) issued by the European Banking Authority in July 2021.

These guidelines aim to enhance practices, governance, and processes in credit assessment and monitoring, proactively identifying credit risks and promoting better credit quality management.

Consequently, banks increasingly require a detailed business plan for medium- to long-term financing operations, and even for renewing revolving credit facilities like overdrafts, invoice advances, and supplier advances.

As you can well imagine, banks and financiers receive business plans practically every day, so ours needs to stand out from all the others to be considered.

Remember, investors and bank managers are looking for more than just brilliant ideas: they want to see a solid and realistic strategy for profitability.

It’s not about having the idea of the century, especially since everything has already been invented.

It’s better to have an evergreen business idea with a unique selling proposition.

Structure and Contents of a Business Plan

To learn how to write and structure an effective business plan, check out this blog post: How to Write a Business Plan“.

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