How Financial Modeling should be applied to Your Bank Business Plan

 

The practice and exercise of Financial Modeling will play a large role in any business plan, especially a bank business plan.  Every business plan should be written with the audience in mind.  When it comes to the bank business plan, the audience will be more critical of your financial modeling techniques and ensuring that your numbers are reasonable than in other types of business plans.  Due to this high scrutiny, there are a few things to keep in mind about how your financial modeling will tie into the final bank business plan.

Have Financial Modeling Output Linked to Final Financial Projections

First and foremost, your financial modeling should be linked via the spreadsheet or other software program features to your financial projections that will be put into the Bank Business Plan.  Your financial modeling may get expansive and relatively complicated as your bank business plan evolves and you begin to plug in all the information you will need.  It is important to keep track of where all the numbers are flowing from so you can fully understand and double check your numbers.

Providing the Backup for Your Financial Projections

Proper linking is important for providing back up.  If your bank business plan is done well, it should raise questions.  A great deal of those questions tends to be around finances.  When creating the financial modeling for your bank Business Plan, it is going to be based on a lot of assumptions, especially if the business is brand new.  When you properly label and link your inputs, including making notes as to the assumptions, this will provide further detail that you will be able to quickly reference to answer any questions.

Include Key Financial Modeling Elements in the Appendices

Because so many of the assumptions behind your Financial Modeling will – or at least should - be written in your financial projections, the details behind it will be in the financial models themselves.  Some financial models are difficult to capture due to their size and expansiveness.  However, those that can be paired down, shown in a summary version, of where the entire financial model fits, should be considered for the appendices.  In the end, you likely won’t include everything but, there are certain pieces of information you will decide to include.

Financial Modeling Exercises Help Demonstrate Your Numbers are Reasonable

In a bank business plan, more than other types of business plans, they don’t want to know the best possible outcome, they want to know the reasonable, most probable, and conservative outcome.  They will also be more interested in the care with which you have approached your cash flow plan.  You will need to balance reinvesting in the business so it can grow, while also making sure you have enough available cash to cover your loan payment.

Regardless what type of business plan you are creating, financial modeling will play a huge part.  However, there is heightened scrutiny around your financials in a Bank Business Plan in many ways.  When numbers are uncertain and based off of assumptions, you need to put a loan officer’s mind at ease.  This all begins with effective financial modeling.

 

 

 

 

4 Ways to Enhance Your Information Memorandum or Business Plan

 

When it comes to drafting an Information Memorandum or business plan, it is important that you are putting your best foot forward.   There are troves of articles and guides that will give you step-by-step instructions on crafting a business plan.  In contrast, the tips presented below are things to keep in mind throughout the writing or your plan or for enhancing your business plan once it is written.

1.       Make it Relevant

The world is constantly changing, sometimes in rapid, drastic ways as we’ve seen with the global pandemic.  In order to show you have seriously considered all aspects of the business, including threats and opportunities, you should mention any current events instead of shying away from them.  Although they may be threats to your business, it is better to explain how they will be overcome instead of ignoring it, which will show a lack of due diligence.  Many businesses operate successfully in challenging environments when they are planned well.  Proactively addressing any “elephants in the room” will make for a far more convincing and trustworthy plan or business overview.

2.       Ensure it Flows

Throughout the information memorandum or Business Plan, you should be restating and reaffirming the same points.  Your market research backs up your products and services and financials.  The financials are informed by all aspects of the business plan or information memorandum.  Your staffing plan should make sense for your anticipated revenue and so on.  Most importantly, when you review your plan in its entirety, make sure there are no contradictions.

3.       Showcase the Value

Whether you are creating an information memorandum to sell your business or a business plan to secure investment in your business, it’s important to remember the purpose of your document is to showcase the value of your business.  This isn’t solely achieved through the financial projections.  Throughout the business plan or information memorandum, you should be pointing to the advantages and opportunities that exist for the potential buyer, investor, lender or other interested parties.

4.       Hire a Professional

Professional Business Plan Writers, or information memorandum writers (sometimes these may be the same professional as the business plan and information memorandum are so similar), are experts at crafting these documents and hitting all the points above.  In addition to their vast experience writing these documents, having an objective view can help you spot oversights or missed opportunities. 

Their insight will not only be invaluable but, they will write a completely customized plan that will definitely stand out from others who tried to write their plan on their own.  Furthermore, if you have a tight budget, you may choose to write the business plan or information memorandum yourself and then have it corrected and finalized by a professional.  Either way, this added professional touch can make a significant difference.

 

Regardless the intended purpose for creating your business plan or Information Memorandum, following the advice above will help strengthen your document.  That may mean getting the best possible price for the sale of your business or securing a more favorable loan or investment.  Whatever your end goal, a professional, cohesive document can make all the difference.

The Financial Projections from your Business Plan to Show in your Pitch Deck

 

The first step to getting investors for your business is crafting a stellar business plan. With your business plan complete you will move on to creating the pitch deck. The pitch deck will include an overview and summary of your entire plan, in an effort to entice potential investors to consider the full plan. Among the important aspects that will be covered is the financials. There will be far more detailed Financial Projections in your business plan than will be shown in the final pitch deck.

The detailed financials of your business plan will cover all the financial statements you would expect to use to run your daily business. This includes the income statement, the statement of cash flow, and the balance sheet. You will likely also have a break-even analysis.

The income statement is typically projected out 3-5 years, in yearly increments. The first year will be broken down by month. The statement of cashflow is likely to follow the same format. Unlike the other statements, which show movement from one period of time to another, the balance sheet shows a snapshot in time. This will also be projected in the financial projections of your business plan but, it is important to understand this distinction.

Unlike the detailed financial projections in your business plan, the financials you present in a Pitch Deck should be select and highly summarized. How do you know exactly what to include? The short answer is it will depend. If you have a particularly impressive aspect, you may want to present that. At a minimum, your pitch deck should include these two following sections.

Top Line Industry Snapshot

In order to justify and better understand the potential for the financial projections of your Business Plan, you will also look at industry financial data. You will likely go in detail about this in the business plan but, in the pitch deck you will include:

• Total industry revenue for the current or prior year

• Total industry segment revenue (if applicable) for the current or prior year

• Expected growth rate year over year

• Estimated total industry and/or segment revenue in 3 or 5 years

Condensed Income Statement

Despite having multiple financial projections in the business plan, the one that will be of most interest initially is the income statement. This will not be the fully detailed income statement. You will likely include an abbreviated version of Year 1, 2 and 3 OR Year 1, 3, and 5. You could show all five years but that tends to be a bit overwhelming, plus it doesn’t give as great an impact of demonstrating growth.

The numbers that should be shown is:

• Total Revenue

• Costs of Goods Sold

• Gross Profit (Revenue less Cost of Goods)

• Gross Margin (expressed as a %)

• Operating Expenses

• EBIT (stands for: earnings before interest and tax)

• EBIT margin (expressed as a %)

If there are any highly relevant or impressive numbers, you should show them as well but, they need to be warranted. If they don’t fit within the pitch book summary, you can also note them in a footnote.

There are other parts of your Financial Projections from your business plan you may want to include in the pitch deck but, keep it limited. It is important to remember that the purpose of the pitch deck is to give a brief overview of your business in order to draw attention to your entire business plan. Start with the basics presented above and only add additional financial information if it truly makes sense and adds to the Pitch Deck.

 

6 Reasons Professional Business Plan Writers Focus on Market Research

Professional business plan writers will sometimes spend more time on market research than any other aspect of preparing your business plan. From a professional viewpoint, market research is one of the most important aspects of business planning process. It is a substantial component to creating a solid foundation in your plan. There are many specific reasons why Professional Business Plan Writers view market research this way:

1. Market research supports the product/service – Professional business plan writers know that the best way to get feedback on your products or services is to go directly to target customers. One of the most important parts of market research is the insight you gain from surveying, interviewing, and observing your customers. The greatest idea in the world will go nowhere if people won’t buy it so hearing from your customers that they would intend to purchase your product is an important step to a successful business.

2. Market research identifies competitors – It’s not enough to know that clients like your products or services, you need be sure they would favor yours over the competition. This starts with identifying all your main competitors and that is what Market Research will do. Once identified, professional business plan writers can then seek to understand how your products or services will stack up against others.

3. Market research reveals threats and opportunities – When studying your competitors, that is when many of your greatest threats and opportunities will become evident. The entire process of market research allows professional business plan writers to continue to identify them. They could also be related to regulations in the industry or area. It’s impossible to describe everything that will be revealed but, it’s indisputable that market research serves this function.

4. Market research validates your location – If you are planning to have a business that will be based on local business only (or in large part), location will be everything. Even beyond that, market research about your location will help you define costs and evaluate other infrastructure needs that your business will need. Professional business plan writers rely on market research to either confirm that where you want to locate is a good idea or open you up to considering other places.

5. Market research informs the financials – Arguably one of the most important parts of your Business Plan is the financials. This is where professional business plan writers begin to quantify things based on market research. The market research aids in determining the prices you will set. By choosing a location, that will contribute to your total revenue potential as well as cost expectations. Even if you aren’t local, you will have identified the total market and your target market share. All of this and more contribute to your financials in the end.

6. Market research ties together the entire plan – Ultimately, it’s what you learn in the market research process that professional Business Plan Writers see as the glue that holds the business plan together. It confirms your beliefs, it tests them and, will most likely make you reconsider some things that will make your plan better. Whether explicitly stated or not, market research becomes a key part of the foundation of your overall plan.

4 Types of Market Research and How it Ties into Financial Modeling

 

Market research is the process of gather information about your potential and target customers. Meanwhile, financial modeling is the process(es)/tool(s) you will use to determine your financial projections. Unlike projections, Financial Modeling is not static and is meant to be interactive to reveal financial impacts of various different scenarios. Market research often informs financial modeling.

There are four types of market research and each kind may tie into financial modeling in different ways.

1. Primary

Information you directly collect yourself is considered primary Market Research. It includes methods like surveys, polls, interviews, and even conducting focus groups. It is particularly useful because you are getting direct information from your target customer group.

This particular type of market research may not tie directly into your financial modeling as it may not relate to numbers. However, it may inform things like the price you set for your product or how frequently customers are likely to purchase your product/service.

2. Secondary

In contrast to primary research, secondary market research is that which is obtained indirectly. It is data collected from information that already exists. This includes data and insights that are typically presented as articles, white papers, and infographics.

While primary market research tends to focus on customer preferences, this type of market research is typically used to gather information about the overall market. Because of this, it is likely that you will conduct secondary market research prior to primary.

Secondary market research tends to be more number centric and therefor ties into financial modeling quite well. It reveals the total potential for selling your product or service. It may factor into making decisions about how to price your product, as well as how much business you can reasonably expect. Both will factor in highly to your Financial Modeling.

3. Qualitative

Simply, qualitative information deals with data that cannot be measured or meaningfully expressed in numbers. Primary or secondary market research can be qualitative or quantitative. This is not a distinct type of data but, rather another way to classify the data you are collecting.

When it comes to qualitative market research it may or may not play a role in your financial modeling. It’s important to note that even if a type of market research doesn’t contribute to financials, it will inform other vital aspects of your business plan. It will help you refine your products or services and start to truly understand what your target market wants. This will still contribute significantly to supporting and validating your overall business plan, even if it doesn’t directly relate to financial modeling.

4. Quantitative

As oppose to qualitative market research, quantitative market research is anything that can be measured and expressed in numbers. Again, this may be from primary or secondary market research sources.

Quantitative Market Research always deals with measurable data. Not surprisingly, that means it has a strong tie to financial modeling. It will inform many of the numbers that will go into your financial models. This includes things that have already been mentioned like setting your price and estimating the total potential sales. It can also include things like costs specific to your market or industry.

When Selling a Business Should You Have a Pitch Deck, Information Memorandum, of Both?

Selling a business requires much more preparation than most people realize. Part of this preparation includes creating the marketing and disclosure documents that will be used to help attract buyers or investors and facilitate a sale. Two of these documents are the information memorandum and the Pitch Deck. They both play an important role in presenting your business.

Information Memorandum

The Information Memorandum is a document that outlines the details of the business for sale. It is laid out similarly to a business plan. It includes a history of the business, a description of the current products/services, marketing and operation plans, market/industry overview, information of current key staff, and – of course – financial history and Financial Projections. It will also include information on what type of sale or investment you are seeking and what the benefits are to the potential buyer/investor.

In most cases, potential buyers or investors will not review the information memorandum until they have expressed interest in the business and signed a non-disclosure agreement (NDA). There are multiple ways a potential buyer or investor may have come to be aware of your business. One of those ways is a pitch deck.

Pitch Deck

In terms of mergers and acquisitions, the pitch deck is often referred to as a teaser. The teaser, or pitch deck, is a visual summary of the information memorandum and is treated like an investment summary. It is used to spark interest in reviewing further details about the business, which is what is covered more in depth in the information memorandum. It is a much shorter document, that may be as small as a one-sheet, or a collection of several top-line slides.

The Argument for Both

You can’t know for certain what your potential buyers are going to want to see until you have identified them. Only once they are identified can you start to consider which approach will be best. In many cases, in order to be prepared for any potential buyer that may come along, you should have both. The teaser can get them to agree to look at the full information memorandum and seriously consider the business.

The Overlap

It may seem like if you aren’t certain you will need a pitch deck or teaser, maybe you should hold off. However, it is actually quite efficient to design both at the same time though you certainly don’t have to. Perhaps you are comfortable creating the information memorandum or you are utilizing an M&A advisory firm that takes care of that. You may then choose to have a Professional Pitch Deck writer take care of the teaser after the fact. Either way, the information memorandum will inform the pitch deck. Once that’s done, you can do the other at any point.

Ultimately, it’s going to come down to what you think will work for your particular audience. If you have a serious buyer who is already interested, you can likely skip the pitch deck. You will always need the Information Memorandum, especially as it is required in many states along with other types of disclosures. But, in the end, these documents work best together so, you should consider having both at the ready.

Understanding the Importance of the Financial Projections in Your Bank Business Plan

If you are not a financial wizard, comfortable in Excel, or downright enjoy numbers, there is a good chance you had someone else create the Financial Projections for your business plan. Many people have professionals assist in part, or all, of the Bank Business Plan creation. While it’s true you don’t need to know advanced accounting principles, you do need to have a thorough understanding of the financials projections. Not only will you, as a business owner, likely be expected to explain them, they are the foundation of understanding what’s going on in your business.

The first step in understanding the financial projections in the business plan is to appreciate them. If you are pursuing a bank loan or line of credit, their worth is obvious. They are an expected requirement of the overall bank business plan and presentation. So, why do financial projections beyond the business plan matter? They set the benchmark for your business. They force you to consider the long-term objective and direction of your business and map out how you may get there. They are also the benchmark against which you will measure your success.

The financial projections are presented in the format of your financials. This allows you to compare your business’s actual performance to the financial projections in your Business Plan. Whether or not you routinely update your business plan, you should update your financial projections at least annually. Having this sort of measuring stick gives you a basis for evaluating your performance so you can adjust as needed.

There is no part of the bank business plan which is completely independent of other sections. The entire document, if done well, will be cohesive with all sections reinforcing and strengthening other sections. With that said, the financial projections of your business plan are one of the most informative.

The Financial Projections are the culmination of consequences of all the decisions you will make for your business. Those reviewing your bank business plan are interested in many elements of your financials, but mainly your profits and cash flow. When presenting your bank business plan, one of the most important things for the loan officer will be determining if your business will be able to pay its loans.

Beyond the financial projections in your bank business plan, they will also be interested in your personal financials. The bank business plan format is one of the best ways to present all this information and tie it in together. It allows you to paint a picture, with numbers, of how your business will sustain itself while also demonstrating you can cover the loan if the business fails.

There are a number of reasons the financial projections in your business plan are a key aspect of your bank business plan. They are far from the only important element but, certainly near the top of the list. Being aware of their importance can help you know where to focus your intention and efforts not just on your Bank Business Plan but, in general business planning.

Professional Business Plan Writers’ 9 Most Useful Pieces of Business Plan Writing Advice

 

Whether you plan to hire Professional Business Plan Writers or not, you can always learn from their advice. Here are nine of their most useful tips.

1. Time is Your Friend – Professional business plan writers typically take weeks to month to complete a business plan and, in most cases, they are just putting together the pieces. The heavy lifting has already been done. If you are going to tackle your business plan yourself, allow at least a month if possible. It takes time to conduct thorough Market Research, consider various financial models, and your business plan will evolve as your start committing your idea to paper.

2. Design Your Branding First – It is an excellent touch to create your business plan with your branding. This is especially useful if you have an accompanying pitch deck because you are presenting to investors. Bring your business to life by creating your branding before you draft your business plan or pitch deck so it can be included.

3. Keep it Simple – People have a tendency to go through every detail in their mind when thinking about a business and that’s a good thing! But, not everyone needs to know every thought that went into every decision that was made.

4. Write with Appropriate Formality – As time evolves some people expect, and appreciate, less formality. Learn as much as you can about your audience before drafting your Business Plan and write it in a compatible tone using appropriate language.

5. Don’t Write in a Bubble – You should never tackle your business plan alone. You may be the one to literally write every word on paper, but you should always have another set of ears and eyes. Another perspective and a sounding board is imperative to creating a bullet proof business plan. This is why great professional Business Plan Writers tend to work in teams!

6. It’s Not All or Nothing - Despite the title, professional business plan writers don’t just write complete business plans. They can often be hired for specific components like conducting market research or creating your financials. They may also finalize an already written draft plan or update old plans. Either way, know that you can hire professionals only for what you need and not to write the entire thing.

7. Passion Matters – Part of the reason many professional business plan writers are professional business plan writers is because they are genuinely passionate about business plans. That comes through in how they approach crafting a plan. If you don’t love the business, maybe you should reconsider it. And, if just don’t like writing the business plan, find someone else to do it.

8. Proofreading Matters… A Lot – There is nothing that will discredit your business plan faster than a typo or silly grammatical error. Not only does it appear careless and unprofessional it’s also distracting. Weeks or months of hard work can go to waste over a typo. Proofread multiple times and ideally have several other people look it over too.

9. PDFs Are Your Friend – The only way to ensure your layout and formatting will appear the same if you send your business plan electronically to someone is if you send it in a PDF or other type of locked format. You want your plan to appear as you intend it, so send it in PDF! That’s what Professional Business Plan Writers always do.

 

Pursuing a Business Degree? 5 Reasons to Consider Having Your Final Project, Capstone, or Thesis Reviewed by Professionals

 

When pursuing a general business degree such as a bachelor’s of business administration (BBA), bachelor’s of business management (BBS), a master’s of business administration (MBA), or a doctorate of business administration (DBA), a final project or report in the form of a Business Plan or a thesis about a particular aspect of business is typically required. 

 

 

Read More Pursuing a Business Degree? 5 Reasons to Consider Having Your Final Project, Capstone, or Thesis Reviewed by Professionals

 

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