If you are going to a bank for lending, the plan you write is not read the way you might expect. The prose gets skimmed. The forecast gets studied. Most business plan advice online is American and written around SBA loans, which is not the process you are going through — so here is what tends to happen when a New Zealand lender picks up your plan, and what to do about it.
A lender is answering one question: can this business pay the loan back, every month, including the bad ones? Everything else in the plan exists to make the numbers believable.
That inverts how most people write. Hours go into the vision and the market section, and the financials get assembled the night before. A lender reads in the opposite order. If your forecast does not hold up, a well-written market analysis will not rescue it. If it does hold up, the narrative only needs to explain where the numbers came from.
The plan tells the story. The forecast is the evidence. Lenders spend their time on the evidence.
This is the most useful thing to understand, and the thing most first-time applicants get wrong.
A forecast showing a healthy annual profit can still be declined, because annual profit is not what pays an instalment in July. What matters is the lowest point your bank balance reaches across the twelve months. If that dips below zero, or below the buffer a lender thinks is prudent, the answer tends to be no — regardless of how the year finishes.
Take a seasonal business: strong from October to March, quiet through winter. Annual net profit of $24,000 looks comfortable. But if the closing balance drops to $900 in July while a $600 repayment is due, that is the number you will be asked about. Being able to answer — a deposit held back, an overdraft facility, catering work booked for the quiet months — is often the difference between an approval and a decline.
Lenders want the repayment covered comfortably, not exactly, so there is room for a bad month before the loan is in trouble.
Work it out yourself before the meeting:
If that figure is negative in any month, you already know the first question you will be asked. Better to arrive with the answer than to be told.
A practical point that trips up a lot of first forecasts. If you are GST-registered, every figure in your forecast should exclude GST. New Zealand prices are quoted GST-inclusive, so it is natural to type $5.20 for a coffee when the forecast needs $4.52.
Do that across twelve months and you have overstated revenue by 15%. A lender will spot it, and it undermines everything else on the page, because now they are checking your arithmetic rather than assessing your business.
Separately, GST is money you collect and pass on. It sits in your account for a while, which can make a business look better funded than it is. Show the payment in the month it actually leaves.
Lenders talk to a lot of business owners. They can tell the difference between someone who has thought about their numbers and someone who has produced a document. The tell is usually whether you can answer “what happens if sales are 20% lower than this?” without hesitating.
If you can, you are in good shape. If you cannot, that is the work to do before you book the meeting — not more polish on the executive summary.
This article is general information, not financial advice. Lending criteria differ between banks and change over time — talk to your accountant or business banker about your own situation.
Ready to write yours? B-PlanDIY takes you through five steps to a business plan and a 12-month cashflow forecast — GST handled properly, and a What If tool for testing that 20% question.
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