You've got a great idea.
You've developed your business plan and you're ready for your meeting with the bank manager.
You’re confident he’ll sanction your loan so you can start your business and realise your dream of entrepreneurship.
But your request is declined.
In the current climate restrictions on cash flow are much tighter, but banks always rejected countless business ideas even in the boom years
Of course, in the current climate restrictions on cash flow are much tighter, but banks always rejected countless business ideas even in the boom years.
So let's put aside credit crunch because a good business idea with sound backing from experienced people will always get investment from a bank.
So what do banks expect from a business plan?
They have money they are willing to loan to people and their goal is to get that money repaid at the prevailing rate of interest.
It's really simple.
The banks are in business to make money and are assessing the risk of lending to a new business, so your business plan must show that taking a risk on you is a risk worth taking.
Anyway, here are the five main reasons why business plans fail, and not all are related to the document itself.
1: It's not in the correct format
Bank loan staff must have to read hundreds of business plans a year so they’re used to a particular format and know what they’re looking for, so it's no use meeting your bank armed with a 200-page document that no one has the time to read.
Similarly, if you only have a couple of pages they may think you’re not serious about your business idea, and it won’t be long enough to cover the essentials. Overall, around 20 pages will generally suffice.
You can download a business plan template that covers all essential areas and is in the formats banks want to see for free at Teneric.co.uk.
2: The numbers don't stack up
If you've ever seen Dragons’ Den on TV you'll know the kind of financial numbers investors want to see and banks are no different.
If you can reel off the top of your head your revenues, profits and margins for the next three years then you may be halfway there.
But most new entrepreneurs think their business is going to take over the world and be generating millions in just 18 months or so with a high percentage of profit.
Of course, maybe one in 10,000 businesses achieve this, so be realistic.
