Debt Collection Agency Business Plan Template

Over the past 20+ years, we have helped over 10,000 entrepreneurs and business owners create business plans to start and grow their debt collection agencies.

In this article, we will first give you some background information with regards to the importance of business planning. We will then go through a debt collection agency business plan template step-by-step so you can create your plan today.

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What Is a Debt Collection Agency Business Plan?

A business plan provides a snapshot of your debt collection agency as it stands today, and lays out your growth plan for the next five years. It explains your business goals and your strategies for reaching them. It also includes market research to support your plans.

 

Why You Need a Debt Collection Agency Business Plan

If you’re looking to start a debt collection agency or grow your existing debt collection agency, you need a business plan.  A solid business plan will help guide your business strategy, your investment strategy and your decision-making. It will also help you raise funding, if needed, and plan out the growth of your debt collection agency business to improve your chances of success. Your debt collection agency business plan is a living document that should be updated annually as your company grows and changes.

 

Sources of Funding for Debt Collection Agencies

With regards to funding, the main sources of funding for a debt collection agency business are personal savings, credit cards, bank loans, and angel investors. When it comes to bank loans, banks will want to review your business plan and gain confidence that you will be able to repay your loan and interest. To acquire this confidence, the loan officer will not only want to ensure that your financials are reasonable, but they will also want to see a professional plan. Such a plan will give them the confidence that you can successfully and professionally operate a business. Personal savings and bank loans are the most common funding paths for debt collection agencies.

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If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your plan and financial model in hours.

How to Write a Business Plan for a Debt Collection Agency

If you want to start a debt collection agency or expand your current one, you need a business plan. A strong debt collection agency business plan should include the following 10 sections:

Executive Summary

Your executive summary provides an introduction to your business plan, but it is normally the last section you write because it provides a summary of each key section of your plan.

The goal of your executive summary is to quickly engage the reader. Explain to them the kind of debt collection agency business you are running and the status. For example, are you a startup, do you have a debt collection agency business that you would like to grow, or are you operating a chain of debt collection agencies?

Next, provide an overview of each of the subsequent sections of your plan.

• Give a brief overview of the debt collection agency industry.
• Discuss the type of debt collection agency you are operating.
• Detail your direct competitors. Give an overview of your target customers.
• Provide a snapshot of your marketing strategy. Identify the key members of your team.
• Offer an overview of your financial plan.

 

Company Overview

In your company overview, you will detail the type of debt collection agency business you are operating.

For example, you might specialize in one of the following types of debt collection agency businesses:

1. First-Party Agencies:  These agencies are typically subsidiaries or departments within the original creditor’s organization. They handle the initial stages of debt collection and maintain the relationship with the debtor.
2. Third-Party Agencies: Independent agencies contracted by creditors to collect debts on their behalf. They usually get involved after the debt has been overdue for a more extended period, typically 90 days or more.
3. Debt Buyers: These agencies purchase delinquent debts from original creditors at a reduced price. Debt buyers then attempt to collect the full amount owed from the debtor, making a profit from the difference.
4. Collection Law Firms: These are specialized law firms focusing on legal approaches to debt recovery.

In addition to explaining the type of debt collection agency you will operate, the company overview needs to provide background on the business.

Include answers to questions such as:

• When and why did you start the business?
• What milestones have you achieved to date? Milestones could include the number of customer contracts won, the number of cases with total debt collected, reaching X number of debts collected, etc.
• Your legal business Are you incorporated as an S-Corp? An LLC? A sole proprietorship? Explain your legal structure here.

Industry Analysis

In your industry or market analysis, you need to provide an overview of the debt collection agency industry.

While this may seem unnecessary, it serves multiple purposes.

First, researching the debt collection agency industry educates you. It helps you understand the market in which you are operating.

Secondly, market research can improve your marketing strategy, particularly if your analysis identifies market trends.

The third reason is to prove to readers that you are an expert in your industry. By conducting the research and presenting it in your plan, you achieve just that.

The following questions should be answered in the industry analysis section of your debt collection agency business plan:

• How big is the debt collection agency industry (in dollars)?
• Is the market declining or increasing?
• Who are the key competitors in the market?
• Who are the key suppliers in the market?
• What trends are affecting the industry?
• What is the industry’s growth forecast over the next 5 – 10 years?
• What is the relevant market size? That is, how big is the potential target market for your debt collection agency business? You can extrapolate such a figure by assessing the size of the market in the entire country and then applying that figure to your local population.

 

Customer Analysis

The customer analysis section of your debt collection agency business plan must detail the customers you serve and/or expect to serve.

The following are examples of customer segments: healthcare organizations, financial services businesses, retailers, and government agencies.

As you can imagine, the customer segment(s) you choose will have a great impact on the type of debt collection agency you operate. Clearly, retailers would respond to different marketing promotions than government agencies, for example.

Try to break out your target customers in terms of their demographic and psychographic profiles. Consider the specific demographics of target customers, including a discussion of the ages, occupations, locations and income levels of the potential customers you seek to serve.

Psychographic profiles explain the wants and needs of your target customers. The more you can recognize and define these needs, the better you will do in attracting and retaining your customers.

Competitive Analysis

Your competitive analysis should identify the indirect and direct competitors your business faces and then focus on the latter.

Direct competitors are other debt collection agency businesses.

Indirect competitors are other options that customers have to purchase from that aren’t directly competing with your product or service. This includes in-house debt collection, or selling debts. You need to mention such competition, as well.

For each direct competitor, provide an overview of their business and document their strengths and weaknesses. Unless you once worked at your competitors’ businesses, it will be impossible to know everything about them. But you should be able to find out key things about them such as:

• What types of clients do they serve?
• What type of debt collection agency are they?
• What is their pricing (premium, low, etc.)?
• What are they good at?
• What are their weaknesses?

With regards to the last two questions, think about your answers from the customers’ perspective. And don’t be afraid to ask your competitors’ customers what they like most and least about them.

The final part of your competitive analysis section is to document your areas of competitive advantage. For example:

• Will you specialize in a niche market such as medical or student debt?
• Will you offer products or services that your competition doesn’t?
• Will you provide better customer service?
• Will you offer better pricing?

Think about ways you will outperform your competition and document them in this section of your plan.

 

Marketing Plan

Traditionally, a marketing plan includes the four P’s: Product, Price, Place, and Promotion. For a debt collection agency business plan, your marketing strategy should include the following:

Product: In the product section, you should reiterate the type of debt collection agency company that you documented in your company overview. Then, detail the specific products or services you will be offering. For example, will you provide contingency collection, early-out receivables, portfolio acquisition, or other services?

Price: Document the prices you will offer and how they compare to your competitors. Essentially, in the product and price sub-sections of your plan, you are presenting the services you offer and their prices.

Place: Place refers to the site of your debt collection agency company. Document where your company is situated and mention how the site will impact your success. For example, is your debt collection agency business located in a a business district, a standalone office, or purely online? Discuss how your site might be the ideal location for your customers.

Promotions: The final part of your debt collection agency marketing plan is where you will document how you will drive potential customers to your location(s). The following are some promotional methods you might consider:

• Advertise in journals or trade magazines
• Reach out to websites
• Distribute flyers
• Engage in email marketing
• Advertise on social media platforms
• Improve the SEO (search engine optimization) on your website for targeted keywords

Finish Your Business Plan Today!

If you’d like to quickly and easily complete your business plan, download Growthink’s Ultimate Business Plan Template and complete your plan and financial model in hours.

Operations Plan

While the earlier sections of your business plan explained your goals, your operations plan describes how you will meet them. Your operations plan should have two distinct sections as follows:

Everyday short-term processes include all of the tasks involved in running your debt collection agency business, including answering calls, customizing payment solutions, contacting deliquent accounts, etc.

Long-term goals are the milestones you hope to achieve. These could include the dates when you expect to win your Xth contract, or when you hope to reach $X in revenue. It could also be when you expect to expand your debt collection agency to a new city.

 

Management Team

To demonstrate your debt collection agency business’ potential to succeed, a strong management team is essential. Highlight your key players’ backgrounds, emphasizing those skills and experiences that prove their ability to grow a company.

Ideally, you and/or your team members have direct experience in managing debt collection agency businesses. If so, highlight this experience and expertise.  Also highlight any experience that you think will help your business succeed.

If your team is lacking, consider assembling an advisory board. An advisory board would include 2 to 8 individuals who act as mentors to your business. They  help answer questions and provide strategic guidance. If needed, look for advisory board members with experience in managing a debt collection agency or successfully running a financial services company.

 

Financial Plan

Your financial plan should include your 5-year financial statement broken out both monthly or quarterly for the first year and then annually. Your financial statements include your income statement, balance sheet, and cash flow statements.

Income Statement

An income statement is more commonly called a Profit and Loss statement or P&L. It shows your revenue and then subtracts your costs to show whether you turned a profit or not.

In developing your income statement, you need to devise assumptions. For example, will you contact 100 delinquent accounts per day, and/or offer customized solutions? And, will sales grow by 2% or 10% per year? As you can imagine, your choice of assumptions will greatly impact the financial forecasts for your business. As much as possible, conduct research to try to ground your assumptions in reality.

Balance Sheets

Balance sheets show your assets and liabilities. While balance sheets can include much information, try to simplify them to the key items you need to know about. For instance, if you spend $50,000 on building out your debt collection agency business, this will not give you immediate profits. Rather, it is an asset that will hopefully help you generate profits for years to come. Likewise, if a lender writes you a check for $50,000, you don’t need to pay it back immediately; that is a liability you will pay back over time.

Cash Flow Statement

Your cash flow statement will help determine how much money you need to start or grow your business, and ensure you never run out of money. What most entrepreneurs and business owners don’t realize is that you can turn a profit, but run out of money and go bankrupt.

When creating your Income Statement and Balance Sheets, be sure to include several of the key costs needed in starting or growing a debt collection agency business:

• Cost of equipment and office supplies
• Payroll or salaries paid to staff
• Business insurance
• Taxes
• Other start-up expenses (if you’re a new business) like legal expenses, permits, computer software, and equipment

 

Appendix

Attach your full financial projections in the appendix of your plan along with any supporting documents that make your plan more compelling. For example, you might include your office location lease or a list of contracts you’ve won.

Summary

Putting together a business plan for your debt collection agency will improve your company’s chances of success. The process of developing your plan will help you better understand the debt collection agency market, your competition, and your customers. You will also gain a marketing plan to better attract and serve customers, an operations plan to focus your efforts, and financial projections that give you goals to strive for and keep your company focused.

Growthink’s Ultimate Business Plan Template is the quickest and easiest way to complete a business plan for your real estate investing business.

 

Debt Collection Agency Business Plan FAQs

 

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