Business Expansion Planning

Business expansion planning falls into two major categories: (A) operational plans—the physical requirements, and (B) financial plans—how to pay for your expansion. Only you, the business owner, can do the operational planning, since no one knows your business like you do.

Plus, you may have a different approach to planning your operational expansion than every other owner of a similar business.

In addition, the financial side of business expansion planning can be further broken down into two separate considerations: (1) expansions that require a loan to accomplish, and (2) expansions that require equity capital to accomplish.

Most business owners are a little less comfortable when preparing financial plans for business expansion, rather than operating plans…so let's see if we can make the financial part of business expansion planning a little less stressful.


If you need to prepare a business plan for your expansion, I suggest you take a look at my book "Small Business Planning: How to Plan Without Writing a Business Plan." For more information, click here.


Loans

Let’s look at consideration number (1) first—business expansion planning requiring a loan to complete. It is important to understand who you are preparing this business plan for; who your audience will be. The people who will be looking at this plan will likely be financial types…bankers, loan officers, etc. Their primary interest will be your ability to repay the loan.

If you are just interested in small business equipment financing, you often can simply supply good performance history for your business, along with a strong balance sheet and a plausible reason for needing the equipment.

Normally, your regular banker will loan you the money, depending on your ability to repay the loan (this is more difficult during a recession). Or, quite often, the equipment manufacturer will finance the purchase for you… or arrange for the financing by a third party.

If the expansion is a little more involved than just buying some equipment with minor building refurbishment, your banker may suggest looking to the Small Business Administration (SBA) for a loan guarantee.

The important thing here is to first start with your regular bank—they should always be in the loop on any and all financing you do.

Here are the things you need to take to your regular banker—even if they already have most of this information on file:

  • A brief, but complete description of why you are looking to borrow money.

  • A summary of your past financial performance coupled with pro-forma numbers showing how your expansion will positively impact your business. (Don't get carried away here—summary information is adequate.)

  • A brief description of any major event that has occurred in your business since your last business plan; like a new major contract, or new major customers, or the hiring of a new talent that increased the capability of your business. Anything truly positive you can present to your banker.

  • A specific request for the loan, including the amount, the interest rate, the term, and the collateral you are willing to put up. Be precise, but certainly not demanding.

  • An Appendix containing recent historical financial statements showing how well your business has been doing. This is essential.

Put all this material in a simple folder—nothing fancy or pretentious—and present it to your banker in person. Just remember… if your business has not been performing extremely well, or you have very little collateral to offer, and your credit is poor, you will likely not get the loan, and your business expansion planning will have been wasted.

If you do have all these requirements and your banker still turns you down, you will have to go to other financial institutions for the money. In that case you may need to create a more formal business plan.


Equity Capital

This is the second consideration of your business expansion planning, which requires additional equity capital to complete your expansion. You will need to seek out an Angel Investor or Venture Capitalist, depending on the size of your project, as well as the size of your business.

If you used professional investors before, you now need to update your previous business plan and emphasize the significance of your expansion.

If this is your first encounter with a professional investor, you will need to write a formal business plan. Remember that investors will want to know everything about you and your business before they even talk about investing money in your expansion.

I would suggest you carefully read the report titled Creating a Business Plan before you write your formal business plan, or try contacting outside investors.

Right now it is a bit difficult to obtain expansion financing, and that condition is expected to be with us for quite some time. Your business will have to show excellent financial performance and historical profitability, plus you will need to have impeccable credit before you will even be considered by a financial institution.

So, your best bet for a while may be private financing, whether loans or equity capital. This means you will likely need a more formal business plan, because private investors will usually know nothing about your business.


For more detailed information on writing a business plan, refer to my book "Small Business Planning: How to Plan Without Writing a Business Plan." Click here for more information.


For further information on finding money to support your business expansion planning, I suggest you read the module on Small Business Financing. You can also access it from the NAVBAR.


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11/19/13

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