Why a Business Plan Matters for Business Credit

About the Video

Cort and Jim explored the concept of a business plan, highlighting its importance and how it can influence your business credit. They noted that having a well-structured business plan can significantly enhance your business’s credibility, making it easier to secure additional credit opportunities.

Prefer to Read? A full transcript is provided below.

Cort: 

Hello and welcome to another edition of Wealthy and Wise. I’m your host, Cort Christie CEO and founder of NCH. Today we’re going to be talking about business plans and why every entrepreneur needs a business plan to help them build business credit and get access to financing, trade lines, and business loans for their new start-up. And with me, I have an expert, James Crothers, one of our senior people, one of our managers here at NCH.

But he’s also got a really unique specialty. He is a guru when it comes to business plans, and he really is going to fill in all the details of why entrepreneurs need business plans and how they interact with business credit. So, James, thanks for being on the program today. 

James:
I’m glad to be here.

Cort:

It’s been a little while since I’ve had you on. Thanks for joining us. So, business plans and business credit are like two peas in a pod. They really opened the doors for financing capital and growing your business. And I know it’s so much more than that, but let’s give a quick breakdown to the audience. First of all, you know, what’s a business plan? Why it’s important and then we’ll go into business credit. What is it and why it’s important? 

James:
Absolutely. One of the things that we have, the pleasure and privilege of doing is working with thousands of businesses of all shapes and sizes from all over the country. And we tend to see a lot of patterns of people that have this idea. Hey, I want to get into business, I’ve got this idea. And they just don’t realize until they jump into the business that there’s a lot more to it than just the craft that they’re engaging in.

Part of our job as business owners and then as advisors is to be able to break down really complex challenges that every business goes through. Things like trying to figure out how much money maybe an owner needs to make to be able to survive in that business. Which then leads us to how much money is the business have to generate.

And then we have to start looking at all of the auxiliary services and things that come into the business, right? How is your product coming from? Where are their startup funds? How are they planning to approach that investor or that lender? So it just kind of keeps mushrooming.

And one of the things that we have found is taking the time to really dive in and preplan this blueprint, if you will, of your business for the next three years gives you a chance as a business owner to see where all those weak spots are, or really to ask yourself would I fund this business. If somebody came to me, you know what’s missing or what can we do to improve it?

And obviously our job as advisors here is to really make sure that we’re kind of giving a more of an overview look at the business where I know a lot of business owners are really hyper-focused and usually particular areas or not. And so business planning allows us to take the client and have them take just a step back, a five-hundred-foot view, if you will, and really understand, hey, what am I getting into? What are my potential pitfalls? And if we can see it on paper, we can correct it before it’s a reality that they have to deal with. 

Cort:

Okay, so that’s important. And they’ve got now a roadmap. They’ve got something that’s going to point out their weaknesses that the things they didn’t see. And so, then we shift into business credit. So now let’s talk about what is business credit. Why is it important? 

James:

Yeah, so business credit is kind of the way businesses start to utilize how they get funding, get credit lines and vendor lines. And one of the things that I always try to counsel my clients on is when they start thinking about how am I going to fund my business, we tend to want to stay away from cash, right?

Cash is super expensive. It doesn’t have multifaceted utilization. Once it’s spent, it becomes a liability. But if you’re really, really smart, business credit allows us to seek out credit lines and vendor credit, things that are not only important to the business, but allow you to build a history and a profile on your company to other vendors, credit cards and other, you know, parties will say, hey, this is a company we want to do business with.

So, it’s really a double-edged sword for most business owners. It removes them kind of one step away from their business so they can protect their personal credit while still getting really important credit opportunities that you’re going to need to grow as a business. So even when we hear, we’re going to fund our own business, you never want to step away from the fact that, hey, if I could build a financial partner that I get to control, you know, why wouldn’t I go down that path?

There’s some energy that goes into that. But that’s where the business plan and credit kind of combined together to create that path and make it as simple as possible for a business owner, especially new business owners who are kind of learning this as they go.

Cort:

That’s very good. As our listeners start thinking about business credit, business plans, how they help me accelerate the growth of my company, how they help me attract financing from banks or from investors that want to join me.

One of the things I want to bring down to a really basic level is when you set up or write a business plan, basically, it’s a document and it might be 20 pages, it might be 100 pages depending on how involved you want to get. But that document becomes sort of a business roadmap. It includes financial projections and includes kind of your marketing plan. It’s all this put together for something that you can look at. It’s tangible and you can review periodically. 

Now when we talk about business credit, what we’re talking about is all of us, not just you, but all of us at one point had to establish a credit rating for ourselves, and we might have been 16 or 18 or 22. And we got maybe our first loan or a credit card, ultimately, then adding to our personal credit score. Every business has a unique opportunity to establish their own business credit score. And therefore, that’s what we’re discussing when it comes to business credit ‘building’ because it’s a process to build like a FICO score of 800 is a perfect score.

We are trying to build what they call a Dun Bradstreet score, paid X score of 80, and that’s somewhat of an equivalent. It means you have A-plus business credit. And so, as we’re talking here, we’re talking about combining these two things, a business plan and business credit or A-plus business credit, building these together in order to really sort of maximize the opportunity for growth that a business has.

What are some examples that you have, James, of situations where somebody has kind of been able to combine these and speed up the growth of their company? 

James:
Absolutely. So, there are a few major industries that we work with, real estate being one of them. And, you know, people that are trying to break into that industry, there are really two sides.

And just to give an example, if I’m going to get into the rehabbing business. One, I’ve got to attract lenders who are willing to put the money up and buy the property. But on the flip side, they’re like, hey, you got to have skin in the game, and you have to be able to know that you know, something goes wrong. We want you to have some challenges with that, not just us. 

And so, with the business plan, what we can do is, say they’re brand new and they’ve never flipped property before. We have the power to bring that knowledge of what has worked for thousands of investors all over the country. And to document that on average is maybe going to be 40 to 45 pages that can be used not only for the owner.

And this is what gets confused sometimes. The business plan is an educational tool for the owner. A lot of times you go, I need a business plan for the bank. Well, if you’re going to a bank or a lender, just be aware that they already know their numbers. They know the market, they know everything. What the business plan tells them is what you know about the market.

So, it’s not just so much about having a business plan. It’s about having a real business plan that looks at numbers that’s unique, that’s unique to you. But also, if a bank was to review it, they can look at it and go, yeah, this is how we see the market as one example. This could be for trucking companies.

For restaurants is another big industry. And as you can imagine, there are a lot of moving parts within the restaurant industry. There’s a high risk of failure just going into the industry to say, well, what’s going to make you different? What makes you stand out and what are the things that you could show us that as an investor would protect our investment if things didn’t go as well as you in your mind, You hope it will, because the only thing we know about business is that it never goes the way that you expect.

So, in that thought process, what are you doing as a business owner to be able to sidestep that and know that, hey, this could happen and if it does, this is what we’re going to do about it. And this is where that commitment and determination of entrepreneurs really becomes that spirit that drives them. But the business plan is a roadmap that self-educates the owner to go, here’s where I’m at, and, you know, I’ll be honest with a lot of clients we deal with, we generally start with the ideas that they have, the numbers that they have, and it’s usually very different at the end because if, say, for example, I have a client whose goal is to make $250,000 a year, well, we’re able to break down because of that plan every milestone that it takes for them to get to that point. And a lot of times I’ll look at that. We know, yeah, I’m not prepared for this yet or I’m not. I was even thinking and then all of a sudden it allows us to see, okay, let’s mold this to what’s realistic and make sure that it’s a plan that when you take it to the market, that it’s going to get and really push you to be successful, what you’re looking to do.

Cort:
And one of the things that’s interesting about this is you can be building a business plan, writing a business plan, and completing a business plan before you launch your business. You can build business credit before you actually launch your business. So, we always say that you know, if you’re an existing business owner that doesn’t have either of these tools, you’re fortunate you got ahead without them.

But now you want to leverage the existing business to make sure you’ve got the right direction that you’re going in. Most importantly, you build your business credit score for when you need that bank financing or when you need to go out and get trade lines for your business. Maybe from a vendor that’s supplying your equipment or tires or restaurant materials, food, whatever you need, you’ve got the ability to go out to them, say, look at my great credit score, and they’re going to give you terms like 60 or 90 days to pay them back because of that business credit score.

This works for both startups and existing businesses, both of these things together. And I think that’s really important for everybody to understand this isn’t just about startups and it’s not just about businesses that are existing. If you’ve got an idea, it works for you as well. 

I think there’s so much behind these two tools for every entrepreneur and, you know, if I think of myself right, and I look at the businesses that I own, each one of them has high credit line credit cards, just basically that. 

The only way you get great credit card lines set up for your business is if you’ve demonstrated the ability to go into those lines and pay them off. We’re talking about spending money on your credit cards month in and month out. Now, I’ve been able to do that over time. Therefore, I’ve got credit cards, several of them for businesses with over a quarter million-dollar credit lines attached to them. And these are attached to the business. These are not things that I personally guarantee. That’s very important.

If there ever was a crazy downturn or massive recession in the economy where you’re concerned about the solvency or the future of your business, having a bank line or credit line from a credit card company, all of those things can help you get through those tough times. But also, if things got really bad, you’re not filing personal bankruptcy. You may have to file business bankruptcy, but it separates out your personal world from your business world. Really important for you to understand that.

And these are things that every business owner that is  successful has leverage their banking relationships, their credit card relationships, their trade credit relationships to really extend out terms as far as they can or to build up the size of the credit lines that they have as well so that they can grow and keep evolving their business model, or most importantly, to not have to tap personal resources every time your business is going through a phase of expansion, you’ve got banks that are working with you makes it that much easier than worrying about whether you’re taking cash out of your pocket to pay for things for the business. Why not just go to a bank or an institution that’s going to lend you money. Makes it a lot easier for yourself, and it separates out your personal and business world.

James:

And I think the other thing to keep in mind with credit and planning is that it’s a duplicatable process. So, if you’re a business owner that has two or three different businesses, you can duplicate what you do on one on all of them. So, this is why when we’re working with a lot of entrepreneurs, we always want them to be aware that you stepping aside, you are much more of a value to your company when we can continue to use you over a long period of time versus you going in and you getting the credit and overextending yourself, which unfortunately is what the average business does.

But when we of course, working with the Nevada Corporate Headquarters, we just teach you a much smarter way to be able to get that separation. Because as an advisor, one thing that I would really be pushing is to know what I could utilize if something happened in one business. Now we could lean on other businesses or start a new business to get you back on track.

So, there are a lot of advantages and that’s why having the planning down, especially as an advisor, I need to know your plan because a lot of times we’ll get these phone calls of what do I do? Or, you know, here’s the emergency that happened and it’s that business plan that we all turn to because it’s already kind of brought that. We’ve talked about it. We know, hey, this could have been a possibility. Here’s what we’re going to do in that case. And even sometimes the business owner forgets they’ve done that. But those exit strategies are supercritical. And if you haven’t taken the time to do that, it just puts you in a position where you just might not make the best decisions at that time. 

Cort:
Absolutely. And I think about credibility for somebody that’s got to do business or business that might be a year or two old and you’re going to run into situations where you’re going to have to be convincing somebody that you’ve got a great business idea or you’ve got a business that has a long potential, a long future ahead of it. And the fact that you actually have things documented, you’ve put a business plan together, it’s something that you can pass off to your banker or pass off to an investor or even a partner, meaning like, let’s say you partner with another organization and that organization’s going to supply you with something or provide you with some services.

This shows that the organization that you’ve got credibility. You’ve thought through how your business is going to grow and how it’s going to evolve. And then when I think of business credit, if I have an A-plus personal credit score, that means something, right? That means I can go out and get an auto loan or I can get a mortgage much easier.

I can get a bank credit line, or I can ask for more money on the credit lines that I have with my credit card companies that I have personally. Well, the same works for the business. And now if you have A-plus business credit score, I can go out and talk to financial institutions or even partner with other organizations and they may check out my business credit score and they’re going to find out you’re real, you’re legit. You take things seriously when it comes to your business. 

And that’s something that’s very important when talking to anyone, because when you might be talking to an investor or if they’re a real small business investor, they’ve heard so many stories from so many people, they pitch them to bring in money to their business. But when you start providing them documentation, showing them how disciplined you are, that you built your business credit and put your business plan together and have these things to show and demonstrate already how you’ve laid the foundation properly for your business, they’re going to take you more seriously than anyone who is just coming in with a couple of sheets of paper about a business idea that they have every day of the week. 

All of these things kind of come together for financial institutions, for investors, for partners, for vendors, for suppliers. You have a business plan that shows a clear path, and you have great business credit scores for your business. And now all of a sudden people will take you much more seriously and be attracted to want to do business with you.

James:
Yeah, and I think one of the key takeaways is this is also a chance to really make you different, to make you stand out, and to really show the world that you’re serious about the business that you’re looking to start or the business that you have. And you know, even if you’ve been in business, you know, don’t worry about the past.

What a business plan allows you to do is to look into the future. We always do three-year plans. Three years is a very safe timeframe to be able to look at it and say, here, where are you out right now? What’s stopping you from growth and then allowing yourself to build the proper team around you to be able to carry through that. And that’s another big advantage of the planning process. 

Cort:
Absolutely. Well, James, thank you again for being on the program again. For all of us and all of our listeners here today, and for those of you who want to learn more about having a business plan put together and built for you or establishing your business credit, simply click the link below.

Schedule an appointment with one of our counselors. It’s a free consultation for you. It’s an opportunity to learn about business plans, learn about what’s involved in us building it, and putting it together for you. And in addition to that, understanding what our business credit-building process looks like and how we can accelerate you to A-plus business credit in as little as 90 days.

So, click the link, sign up, and schedule a free consultation so you can learn more about these great products. Thanks again for tuning in to another edition of Wealth and Wise. I’m your host Cort Christie.

With NCH, the state’s top business formation service, you can register your LLC in Nevada quickly and easily. Our specialists will help you choose the right entity for your company and understand why an LLC in Nevada is your best option. We’ll assist you with all necessary Nevada LLC forms, including the vital Articles of Organization, and help you comply with state regulations. In addition, we offer expert assistance with tax compliance, credit building, and payroll management. Schedule a private consultation to explore effective solutions to minimize tax liabilities and protect your wealth. Start unleashing your LLC’s full potential today with NCH.

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