Planning can increase access to capital
A well thought out plan can provide companies with increased access to capital. The planning process provides companies with information on the requirements to obtain funding, such as having properly prepared financial statements and certain financial metrics. Like any investment or loan, investors and lenders bear the risk of default and losing all of their money.
When risk is high lenders and investors will require unfavorable return rates, or disbar the proposal all together. Unlike larger companies, smaller companies are automatically perceived by banks and investors as very risky due to the large amount of uncertainty related to idiosyncratic and external factors. By bearing this defaulted perception of risk small companies need to find an edge wherever possible.
A sound plan will provide banks and/or investors with extensive details on what the capital requirements are; how the capital will be utilized; information on current and future risk factors; and financial statements. As a result, capital providers will be able to gain better understanding of the business, thereby potentially opening up more financing options.
Adding up the benefits of small business planning equals a path to success. Conversely failure to plan can negatively impact business vitality and growth.
In part two of this series we’ll look at how to properly execute a plan…after all a plan that can not be executed is not really a plan.
This piece was co-authored by Greg Devaux.