What Second-Phase Planning Mistakes Are Often Made

by Debi Enders

After your business is up and running, you may want to move in a different direction or expand. The second phase of planning is different, especially if you intend to finance your next stage of growth. Be aware of these common mistakes.

No. 1: using your original business plan to get a loan today. Your business is in a different place than it was when it opened. Your income and expenses may no longer match your original projections. You may be using a different retail strategy but have never updated the plan to reflect it. Lenders understand that things change. They want to understand how your business runs today, what it will cost to achieve the growth you project and how long it will take the improvements you envision to pay for themselves. 

What to do instead: Update your business plan to reflect any changes. Along with forward-looking projections, it’s helpful to include some history; lenders like to see evidence of follow-through and a record of achieving past goals. Incidentally, a good business plan doesn’t always need to be lengthy. A well-conceived plan can be expressed in two or three pages.

No. 2: assuming your lender will use the same lending criteria for this loan as for past ones. Your company is not the only thing that has undergone changes in recent years. Lending standards may be different than they were the last time you sought financing -- even if your business has remained successful.  

What to do instead: Conduct an analysis to determine the financial impact an equipment purchase or other upgrade will have on your business. Will it require you to hire extra personnel or change your marketing? Can you secure the additional orders needed to justify the expense? Lenders will want to see that you have considered these issues before you sit down to discuss a loan. They will also want to see a plan for delivering revenue.  Both will impact their ability to lend.

Debi Enders (debi.enders@commercebank.com) is assistant vice president, small business banking at Commerce Bank.