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Definition Of A Business Plan Essay

892 words - 4 pages

A business plan is a written document that articulates a business concept, marketpotential, opportunities, growth strategies and financial requirements. (William Clark,www.entreworld.org). A business plan should start with a simple statement of purposedescribing the following:- The amount and type of loan required.- The amount of money you are putting in (cash or equity).- The period for which the loan will be outstanding.- The purpose of the loan.- The impact the loan and purpose will have on the company.- The collateral that will be used to support the loan.(William Motz, www.netfact.com).A business plan is essential because it's an excellent opportunity to guide a start-up orexisting business. It forces the founder to consider every facet of a proposal business or growthidea and places approval and funding decisions on paper, where they can be evaluated andconsidered by all interested parties.There are many different sources of financing for small business 's, some of them includethe most popular which is the line of credit financing, which is short term financing usuallygranted by a bank up to a predetermined limit, debtor borrows as needed up to the limit of creditwith out need to renegotiate the loan. Lease financing is also available which would only applyif you were financing the acquisition of plant or equipment by leasing it rather than buying it.There is also asset based financing which is financing an enterprise by using its hard assets forcollateral to acquire a loan of sufficient size with which to finance operations. Another is royaltybased funding. This usually refers to financing for small companies that is secured and repaidwith royalties. Venture capital is another option. Money from investment pools or firms thatspecialize in financing young companies' growth, usually in return for stock in the business orcompany. (www.entreworld.org). Don't forget the easiest way to get money for your business,that is from family, friends, and personal savings. Lending institutions are more likely to give anexisting business money before they will give a new business money, because the existing onehas already established itself, and/or has collateral in the business. (Business Essentials, RonaldJ. Ebert and Ricky W. Griffin). The biggest advantage of debt financing is that it allows you, thebusiness owner, to retain control of your company. You are therefore entitled to all companyprofits and have ultimate decision-making authority. Since many entrepreneurs start a businessfor exactly these reasons, a critical advantage of debt financing is that it provides you with somefinancial freedom, your debt is limited to the loan repayment period. After you have repaid theborrowed money, the lender has no further claims to your business. The biggest disadvantage ofdebt financing is having to make monthly payments on a loan. Cash may be scarce and expensesmay be higher than...

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