How to Write a Good Business Plan?

Most of potential investors (banks, fonds, private investors, etc…) wants to see a business plan which serves as the first step in deciding whether to invest or not.

event 22.02.2021.
Foto: Unsplash

However, the majority of literature that deals with writing a business plan do not stress enough that there are different types of financing providers who observe business plans from different perspectives.

  • bankers– they stress financial aspects of a certain proposition and underline with little emphasis marketing or entrepreneurial issues and other
  • equity investors – the managers of venture capital funds, and business angels who have a completely different approach from a classical banking one, i.e. they pay more attention to the market and to financial questions
  • business angels, i.e. individual investors or a group of investors – pay more attention to the entrepreneurs themselves than to the managers of venture capital funds.

The implication for entrepreneurs is that they must adjust their business plan according to whether they ask for financing from a bank, venture capital funds, or a business angel, i.e. from private investors.

A financing decision – Banks

Bankers are faced with the situation of information asymmetry when assessing applications for loans. Information that is needed for the assessment of entrepreneurs’ competence and commitment, as well as for the prospects of the business, is either unavailable or not economical to obtain. What is more, they can be difficult to interpret too. In order to avoid any possible risk of failure in the financing, it is important to elaborate a business plan or an investment study that contains all elements.

Bankers often apply capital access to lending in which their decision concerning lending will emphasize financial aspects – margins, cash flow forecasts, the ratios of funds, ratios of property management and financial control, especially the availability of collateral, while the complete evaluation of project proposed is of less importance.
Willingness to provide collateral indicates an entrepreneur’s confidence in his abilities, and it raises a possibility of the success of a certain project.

Also, it is considered that taking of collateral aligns entrepreneurs’ interests with bankers’ interests. „The financing decisions made by banks will be dominated by financial considerations, and they will pay less attention to the entrepreneurial abilities or to the possibilities of projects, despite the fact that they are all needed in the content of a business plan itself.“