How – and Why - to Include Financial Modeling in Your Bank Business Plan

Financial modeling will play a larger role in the Bank Business Plan than you may realize. Although it is one step removed, it still forms the basis of the one of the most important aspects of the plan, the financial projections.

Financial Modeling Defined

In order to understand why financial modeling in a bank business plan matters so much, you have to know what it is. Financial models are interactive documents created in spreadsheets or special Financial Modeling software. They are created to allow for various inputs to be tested out to view and evaluate the outputs.

They are used in several business scenarios. This includes bank business plans and everyday business decision making. They can help with every aspect of the business from inventory planning to deciding which vendor to use for a specific supply, from understanding the value of the business to projecting the ROI for a potential investor.

Financial Models vs. Financial Projections

People often confuse financial projections and financial modeling. While financial models are dynamic, interactive tools, financial projections are static numbers that do not change. Financial models are meant to change, that is their purpose. to input different potential scenarios, plug in appropriate assumptions, and see the outcomes. Projections, on the other hand, are meant to be a prediction of the future. In the case of a bank business plan, this tends to be a 3- to 5-year outlook of the expected outcomes at a set point in time.

Financial Modeling as it Relates to the Bank Business Plan

1. Financial Projections – The most obvious relationship to the bank Business Plan is seen in the financial projections. You cannot arrive at your final financial projections without the use of financial modeling. Financial projections are almost never decided in one pass. They require looking at your number in various scenarios before landing on what is most reasonable and feasible.

2. Determining You Need a Loan – The only way you can know for sure if you need a bank loan in the first place is to explore financial modeling. Through the use of financial modeling, you can look at your future business plans and future cash flow. This allows you to determine if a loan is needed in the first place and, if so, when the cash infusion will be necessary.

3. Planning for Growth – Often, the need for a bank business plan isn’t out of financial survival but, rather to facilitate potential growth. It is only through financial modeling that you can view the potential future of your business’s overall trajectory. This includes viewing how you can grow if you can secure additional funding at a particular time.

Financial Modeling Facilitates the Bank Business Plan

Financial modeling allows you to see the potential future of your business. In the process of creating the financial projections for you bank business plan you are effectively set goal posts for your business. It is also highly revealing of the potential outcomes of future decisions on your business. This is all vital information that loan officers will want to consider when deciding whether to loan you and your business money. Solid financial modeling leads to solid Financial Projections which turns into positive bank loan application results.

Exploring the Cost of Paid Market Research Options

As a statistic, the outlook for businesses to succeed beyond 10 years can be alarming. As time goes on, the failure rate for startups gradually increases and on average looks like this: 21.5% of startups fail in the first year, 30% in the second year, 50% in the fifth year, and 70% in their 10th year. In 2019, the long-term failure rate of startups remained around 90%.

When you begin to dig into these figures and talk to small business owners, it becomes apparent that one of the main contributors is being blindsided by issues that could have been prevented with Market Research. Of the main reasons Investopedia cites for why businesses fail, two of them are directly tied to market research. They include targeting the wrong market and not doing enough research.

The Advantages of Hiring Market Research Experts

With startup failure rates as high as they are, and two of the main reasons businesses fail being tied to a lack of, or inadequate, market research, the value of doing it properly becomes apparent. Yet, unfortunately, many individuals are at a loss for how to get started or what methods to deploy. This is why the savviest of entrepreneurs tend to hire experts to perform this critical task.

One of the first obstacles is knowing how to set up your primary research methods to reach the right audience and gather the right information. Primary market research means going right to the source: your potential customers. Common primary research methods include interviews, surveys, focus groups, and observations.

Experts are also adept at secondary research, which includes accessing and analyzing existing market research information and data. This is often difficult for individuals as they don’t know where to go, are unable to access information due to hefty subscription fees, or don’t know how to properly analyze the information once obtained.

Not only are market research experts able to identify and gather the most relevant information to get to the heart of your business, they have access to the most trusted secondary data sources (like IBISWorld and Statista), and most importantly know how to analyze the information to gather meaningful insights. They also have the expertise, capacity, and resources to do it faster than doing it yourself.

Experts, like Joorney Business Plans, know how to adequately classify your target market(s) and how to identify the most important questions that need to be addressed for each unique business and what market research methodologies are best suited to answer them.

How Much Does It Cost to Hire Someone to Conduct Market Research?

Once the value of paying someone to do your market research becomes apparent, the next logical consideration is whether or not you can afford it or how much you should budget. How much market research will cost can vary widely based on a number of factors including:

• Your business goals (aka: what questions you need answered)

• Type of business (Industry, B2C vs. B2B, local/niche vs. global)

• How much base information you already have

• What level of insight you need

• How quickly you need the information

Generally speaking, pricing will be based on what type of report you expect and the depth of information required. According to one of the most comprehensive sources of market research information on the web, marketresearch.com, average costs for most common types of reports are as follows:

• Top level reports– $100 – $1,000 – Typically includes an overview of the broad industry, top players, and basic insights.

• Full-market reports– $1,500 – $8,000 – This is a more in-depth report that gives a full review of the industry, market, and subcategories, including their current state and future projections. It will also include current trends and technologies, and predictions about what way the market will move in the short-term and long-term.

• Product detail market reports– $15,000-$35,000 – This type of report is a deep dive into testing/researching a specific product/service. The cost is high as it often uses several specifically-tailored, custom methods of testing your target audience(s) to determine things like product market fit, product satisfaction, and overall perception of your product in the marketplace.

Hiring the Right Market Research Expert: Firms vs. Consultants vs. Universities

You have three primary options for hiring outside experts – firms, consultants, and universities.

Firms tend to fall within the average price ranges mentioned above more closely than the other types of experts. As an example, Joorney’s Premium Research starts at $3,000. A common output of our service is most closely aligned with what is described as a full-market report. However, all market research services are fully tailored to the unique needs of our clients. In general, firms usually provide a great value as you are getting the combined expertise of multiple professionals and research experts. They also tend to be more responsive as they have set business hours and administrative staff and they are able to offer quick turnaround times due to capacity.

Individual market research consultants are another option. Due to the broad nature of individual consultants, their prices tend to vary more widely. Prices are typically based on the individuals’ level of experience and several other factors. While there are many great consultants out there, it can be overwhelming to select one. The ease of creating a good website and trendy marketing solutions can also make it very difficult to identify one that will actually deliver the results you expect.

The option that people tend to think about least is universities. This can be a good solution particularly if your budget is constrained as they often charge a fraction of firms or consultants charge. Many business schools offer Market Research services as a way to draw in real-life clients to provide their students with practical experience. While this can be a good solution, be prepared for a longer timeline as programs may only accept a certain number of clients and timetables often align with curriculum. The quality of the reports also tends to vary as it is prepared by students.

3 Differences Between Financial Projections in the Business Plan and Information Memorandum

Most business documents have a lot in common. One of those commonalities is that they will all include some form of Financial Projections. However, the financials presented will not always be the same. As an example, the financial projections in the business plan differ from those in the information memorandum. Understanding the difference can shed some light on the versatility of financial projections in general.

Business Plan and Information Memorandum Defined

In order to appreciate the difference between the financial projections in a business plan and Information Memorandum, you must first understand these two documents.

If you’re unfamiliar with a business plan, it is the most common business planning documents. It is as straightforward as the name implies. It is the plan for your business. It will include key elements of the business such as an overview of the products or services you will offer, an overview of the industry and market, the basics of your marketing plan, the team/personnel plan, and overall operational structure, among other things.

The information memorandum has most of the same key sections of a business plan. The big difference is that it is used by professionals – usually business brokers or mergers & acquisitions (M&A) firms - to market a business that is for sale.

Understanding the Differences

1. They’re Not that Different – The first thing to realize and acknowledge is fundamentally, financial projections in a business plan and information memorandum aren’t really that different. They should be based on the same core concepts and information. They will also be determined and produced via financial models.

2. Your Audience – In every business document you must speak to the correct audience. The big difference is that a business plan is usually written for an immigration officer, bank loan officer, or potential investor. Information memorandums on the other hand are usually meant for potential business acquirers.

3. The Emphasis – The reason differentiating between the audience is important is because what you emphasize from the financial projections for the business or information memorandum will vary based on it. You must always approach each document with the mindset of what will matter most to the intended audience and present the aspects that are most important to them.

Wrapping it Up

Even when you’re looking for differences in financial projections between the Business Plan and other types of business documents like the information memorandum, you’ll often find similarities. They are, after all, built on the same premise. They are all about predicting the future based on past trends (if applicable) and assumptions about the future that can be substantiated.

What will often differ is how they are presented, what is presented, and what the emphasis is placed on. This will typically be determined based on the type of document and the audience.

The Role of Professionals

Creating financial projections for a business plan, information memorandum, or any other type of business document can be a nuisance. When it comes to the business plan, you may not be comfortable using Excel or other type of spreadsheet software, or may not have a financial background. In terms of the information memorandum, you’re likely a broker or M&A firm that simply does not have the time.

Whatever the case, don’t underestimate the value that professionals can bring to your Financial Projections. If you choose to hire professionals for the financials projections, or any part of your business document, make sure to look for ones with the right expertise. This is often ones with experience or a specific background in your industry.

How Professional Business Plan Writers Use Their Skills to Prepare a Pitch Deck

 

Professional business plan writers should actually be known as professional business document writers. They tend to not just write business plans. They often also write standalone executive summaries, teasers, or the Pitch Deck. The reason they are able to offer these additional documents is because many of the skills are transferable.

These are some of the ways they translate their skills as professional business plan writers to other documents, like the pitch deck.

Concise Language – You can certainly elaborate more in a business plan than in a pitch deck. However, both require short, direct statements that highlight the most important information. Professional Business Plan Writers find it quite natural to take their writing style from writing a full business plan to preparing a pitch deck.

Adjusting to Audience – One of the primary rules of writing a business plan is to know your audience. This means adjusting the plan to appeal to the correct audience. This doesn’t mean changing the fundamental aspects of the plan. Rather, professional business plan writers know how to call out the information that matters most. The pitch deck, typically meant for investors, is no different. Professional business plan writers already know how to write for investors. The pitch deck is just taking that one step further.

Highlighting Strengths – Beyond just speaking to the right audience, it is also an art possessed by professional business plan writers to simultaneously bring attention to strengths, while overcoming weaknesses. They don’t ignore weaknesses, because that would be unrealistic. But, they know how to present in them in a way that doesn’t seem detrimental. This skill definitely comes in handy when working on the pitch deck.

Deep Business Model Expertise – Whether its in the business plan or the pitch deck, professional business plan writers are able to easily grasp complex business models. They would not have successfully progressed to the level of professional if they couldn’t. It’d difficult to concisely summarize something if you don’t understand it. This deep appreciation and understanding is of vital importance when presenting a business concept via a pitch deck.

A Knack for Structure – Business plans tend to follow a similar format, but they are not all exactly the same. Depending on the business, its strengths, the audience, and other factors, professional Business Plan writers will augment the document. It will still follow a predictable order for the audience but, will be in a way that makes the most sense to present a fully cohesive business plan. The same concept applies to the pitch deck. They should roughly follow a standard order and format but, the exact order should vary based on the business.

Working with a Designer – Professional business plan writers are typically very good at writing and often not so good at graphic design. Part of what allows professional business plan writers to live up to the term “professional” is they know their strengths. This also means by default they know their weaknesses and will seek out someone who will compensate for those. Regarding the pitch deck, and even to a small extend the business plan, they will hire a designer.

All these skills and more make professional Business Plan Writers well suited for other types of business documents. Make sure not to overlook them if you are considering outsourcing your pitch deck.

The Importance of Doing Market Research for Your Business Plan and the Different Types of Research to Take into Consideration

Any successful business starts with a business plan, and a thorough business plan should definitely start with Market Research to provide you with a detailed analysis of your market and to help you identify new opportunities.

Market research is the process of gathering and analysing information about target markets, potential customers, and competitors in order to keep up with the latest trends and provide an insight into customers’ thinking and buying patterns.

Different types of market research:

1. Primary vs. Secondary

There are two main types of market research: primary and secondary.

Primary research is the process of collecting new and raw data directly from the source, while secondary research involves analysis and interpretations of the data already collected through primary research.

Focus groups with specialists, face to face interviews with customers and online surveys are the most used methods in primary research. On the other hand, the necessary data to conduct secondary research can be found on the internet, on the reports of government and non-government agencies or by contacting market research firms.

Since primary research is done from scratch and conducted on the basis of new first-hand data it can be a long, expensive process. Secondary research is often faster because all the relevant data is already available but, often you will need a subscription or to purchase one-time access to see this informaiton. Depending the source, this can be expensive as well.

2. Quantitative vs. Qualitative

Within the primary and secondary research, two types of data collection methodologies can be used: qualitative and quantitative research.

Qualitative research uses unstructured or semi-structured techniques, like focus groups and interviews, to collect non-numerical data such as opinions, motivations, attitudes and behaviors. It is used to initiate market research and aims to develop hypotheses for potential quantitative research.

Quantitative research uses structured data collection methods, like surveys and observations, to generate statistics and numerical data such as spending patterns and market trends. It can be used to test theories and assumptions, draw general conclusions from the research and make future predictions.

For your market research you can choose either type of research or a mixed methods approach depending on, among other things, your budget and the type of data you need to answer your research question.

Why market research is important to the business plan

Accurate market research helps businesses better understand the state of the market, the consumer behavior, and the economic trends. All these are critical information to have when creating a Business Plan. They provide managers with the knowledge to make smarter business decisions because, if done correctly, market research is a powerful tool to help your marketing and financial strategies and minimise the risks involved when making key business decisions.

Market research is also important to the business plan because it helps you assess your business ideas and better understand your customer by answering questions such as who is buying your product, what motivates them, and whether they are loyal to your brand.

Keep in mind that market trends and the customers needs and preferences are constantly changing. Therefore, conducting market research should be considered as an ongoing activity to help you better understand the market dynamics and improve your offering.

How to approach market research

Before you start market research you should, first of all, set out clear goals and objectives and identify your target audience. Then, you have to choose the most suitable market research and data collection methodologies. Once all the necessary data is collected you have to analyse it and draw conclusions that will guide your business decisions.

Although you may be able to conduct your own market research, it may be better to hire a professional Market Research Firm to get the maximum benefits from the whole market research process. They have more expertise in the field and they will guide you through important decisions such as the suitable type of market research to use and the perfect questions to ask in your surveys or interviews. Finally, they will provide refined market analysis and business recommendations to help you make the best decisions for your business.