Market research is the process of learning about the overall industry down to target markets. It includes identifying the real needs, desires, and preferences of your consumers. Or, in other words, making sure a customer exists for your product or service. Market Research is a key part of any business plan but, is especially important in a bank busines plan for a new business.
Generally speaking, bank business plans will place a greater emphasis on your financials than most other types of business plans. The reason for this is that a bank’s motivation is different than an investor or a potential partner. They are less concerned with the overall trajectory and potential of your business and more concerned with whether or not you will be able to make your monthly loan payment.
For this reason, the financials in the Bank Business Plan become the focus. Banks rely on prior actual performance, in conjunction with financial projections, to make their decision. However, if your business is yet to launch or is just starting out, you won’t have meaningful actual numbers. So, how do you lay a strong enough foundation that makes a bank or other lender feel confident your business will generate enough revenue to pay the bills? The answer: market research.
If your bank business plan doesn’t have actuals to rely on, it will be based almost solely on projections. Anyone can pull random numbers from the air to create financial projections but, they must be able to be substantiated. Market Research is the best way to convince the bank that the sales, and therefor cash flow, projections are realistic and likely to be achieved.
Market research validates that your assumptions can be achieved by providing important information like the total size of the market and that there is room in the market (in relation to competitors) for your business. It should also show that there is a real appetite from real consumers. This may be demonstrated by early adopters, or feedback from focus groups or surveys.
It’s important to note that a loan officer won’t just consider market research, financial projections, or any other aspect of the bank business plan when making their decision. It will also rely on your personal financials and credit. Again, this goes back to ensuring that the loan will be repaid. In many cases, you will be personally responsible for repaying the loan even if the business is unable to or it closes.
Given the importance that market research plays in the bank business plan, you may want to consider hiring a professional. Professional business plan writing firms tend to offer many related business planning services in addition to the writing plans themselves. This includes things like market research and Financial Modeling. Depending on your comfort level with finances, market research, or writing you may want to consider having them do your entire plan from start to finish.
However you prepare your plan, especially if you are a new business, make sure your market research is top notch. This will put your Bank Business Plan on the right track and increase your chances of approval.
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