A few days ago, the cabinet gave a green light to the disbursement of the Sh50 billion annual Hustler Fund. It is an exciting time for hustlers looking to grow their businesses courtesy of the fund. Here are a few things to keep in mind as you draw up that business proposal—a requirement in the loan application:
Every business requires key resources to perform its key activities that deliver value to the ultimate paying client. Just engage your mind to profile your client segment(s) carefully and to understand how they will be served best cost-effectively.
No business is small as long as it has a large potential market - the people with the profile for its target market can be reached economically wherever they are in large numbers. Once upon a time, car owners had to troop to insurance agencies to collect insurance stickers.
Innovation took away that power from the agents and expanded the market by making it easier and more economical to obtain insurance cover online once you have made the payment. Further innovation has made it possible for thousands of motorcycles to be insured on a monthly basis while making the distribution of stickers available at petrol stations.
A business plan is a forward-looking plan, usually taking a deeper look at the description of the business intention in terms of market, products and activities; the structure the business will take to serve its customer segments and the financial elements. Financial elements combine the first two items.
Money is required to do the business and is also produced from doing the business. In a recent article, we looked at Costs and Revenues. Cost includes the cost structure (mix of fixed and variable costs), and comes from the infrastructure part of the business which includes its key activities, resources and partners. Revenues results from the output of the value part of the business which includes its customer segments, value proposition, channels and customer relationship management.
Bankers require details and need to be convinced from the face of it that they understand what goes on in the business. In the eyes of bankers, you manage these seven parts – the selection of the customer segments to serve; the bundle of products and services for serving each customer segment; the channels to best reach them with the bundle of products and services at prices that are profitable and your approaches for acquiring, maintaining and growing customers.
Once you have clarified these first seven parts of your business, you have achieved the first element of the business plan. Just describe their future outlook clearly and succinctly.
As a business owner and your staff, you are the business managers. You must present a picture of a people knowledgeable of their business and capable of lifting the business during difficult economic times. Describe your experience and that of your key staff in managing a business in difficult economic times. This includes experience acquired in other previous engagements.
In the second part of the business plan, which is largely how your business is and will be structured, you demonstrate your understanding of the business in its current shape as well as how it will look in the proposed shape after you have received funding. An outsider cannot do this better than you, the owner or manager of the business.
Make reasonable justification of every resource you have already deployed in the business wherever they are deployed, and of those you are proposing to deploy. A good business should be independent of its owners, and profitable.
The third key element of a business plan is the financials. As I mentioned in the opening section, money is used up to carry out the business and is also produced from the business. This section of the business plan starts with a description of how resources have already been deployed, before looking at how many resources will be deployed, and the justification.
For example, if your business requires machinery, is buying the most profitable option at the current growth stage of the business? Could it have benefitted better from either leasing or hiring first?
Which of these three options will present the most profitable opportunity? A good business should demonstrate a strong ability to finance its growth from its own earnings before exploring external sources to fund expansion.
Only a start-up should look for seed capital to finance clearly identifiable growth milestones.
A business experiment should seek to create a profitable business that is also responsive to the customers. It needs money when it has reached the stage where it has produced a prototype product for a properly defined market segment. It needs money for expanding market reach – to produce and deliver value profitably to the market for more revenues.
Patrick Wameyo is a financial literacy coach at Financial Academy and Technologies and an entrepreneurship coach at The Entrepreneurship Center EA.