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Thorough Business Planning Will Make Securing Funding for Your Business Easier

Borrowing money for startup is one of the most nerve-wracking events of the planning phase. Whether you are digging out funding from your own resources or wrangling with a bank to get a loan approved, the waiting can be excruciating and tedious. However, the work you put into your idea before you start the money hunt will make the process go more smoothly and save you time, and headaches, down the road.

There are six broad steps in planning a business with any chance of success:

1. Choosing the right business idea

2. Planning the business idea

3. Planning the marketing

4. Planning the finances

5. Securing funding for startup

6. Putting it all together to Launch!

Skipping or eliminating any of these steps will make getting a business off the ground much more difficult, if not impossible. Planning all aspects of your business is a necessity. Otherwise, how will you know whether or not it is viable? How will your investors know? Simply throwing together a basic, obtuse business plan won't cut it. Rather, your investors need to know that you have a thorough understanding of where your business is headed and how it will get there.

The planning stage is really the foundation for all future results -- if you won't put the effort in here, that lackadaisical culture will come through in your day-to-day operations as well. Worse, you won't have sufficient knowledge of the opportunities, threats, and alternatives to make reasonably good decisions for the venture. If you want to convince your family, friends, banks, the SBA, or any other investors that your business idea is valid, you have to do the work to back up your claims. Failing to plan is a primary cause of startup failure. And without a sensible, comprehensive plan, you will have no chance of securing whatever startup funding you might need.

No matter where you are planning to find the cash for your startup, you will need to commit a substantial amount of your own resources first. No conscious investor is going to risk his own money if you aren't willing to risk yours as well. The planning stage will require significant time and money...money that will need to be spent before you can even approach potential investors. Still, the outcome of solid planning and a deep understanding of your business idea will pay off when you do get to talk with your investors. Your knowledge and confidence in your venture will be obvious both in your persuasive arguments (about why they should help you out) and your formal business plan. In addition, you will have a reasonably accurate estimate of exactly how much capital you need to get the venture off the ground.

If you plan to borrow directly from a bank, expect to use your personal guarantee to secure startup financing. Banks don't generally fund startups, as the risk is greatly reduced if they use their small business allocation for businesses with a proven track record of excellent management. Typically, the major banks want to see three years of financials that show good money management, consistent growth, and a clear plan for expansion. The SBA is a better bet for startups, though the process can be slow and approval by the SBA is NOT a guarantee that you will find a loan. An SBA guarantee is simply an assurance to the bank that if you default, the federal government will cover up to a certain amount of your debt. For this reason, in good economic times banks are far more willing to fund startups with an SBA approval in hand. Still, the banks and the SBA both consider your personal credit in the approval process. If your credit score is not over 680, securing an SBA or general bank loan will be difficult, especially in the current recession.

If you plan to borrow from friends and family to fund your startup, it is in your best interest to treat the transaction as professionally as possible. Do your homework to develop reasonable loan terms and formalize the agreement in writing. Be sure you and your investors discuss all possible outcomes and establish procedures for dealing with late payments, early payoff, and any other circumstance that might affect the agreed upon terms. Also, consider a 6 or more month delay in beginning repayment so that your business has enough time to build sales before the major expenses come due.

If your primary concern about your startup is how you are going to find the money, it shouldn't be. Your first order of business is to plan, plan, plan. Learn the details of how to manage your marketing and finances, and know your product, industry and competition inside and out. Once you have a complete road map of your business idea, securing financing, or bootstrapping, if necessary, will be a much easier process.

About the Author

LaunchX.com is dedicated to training entrepreneurs to turn their good ideas into great companies. The LaunchX System provides step-by-step education in the mindset and skill set entrepreneurs need to succeed. Our program includes intensive seminar training, key business software, and specialized workbooks that teach you the fundamental skills you need to achieve your financial and worklife goals through entrepreneurship. Register today for our introductory course and see what LaunchX can do for you!