THE BUSINESS PLAN:
Whether he/she knows you or not, the prospective lender will want facts about you and your business down on paper. These will include your financial proposals, whether you are seeking money to start a business, to expand or improve the business you now have, or need extra money to smooth out the humps when working capital is short at certain times in your business cycle.
Business plans are much more than a digest of your background and experience, and your current operation or projected business venture: they are analytical tools which can point out danger signals or, conversely opportunities in a business operation. They help keep your goals defined and relevant to your market ( if you are in TV sales and service, you might find that you are doing more repair than selling, and you should rightly be in TV repair service business ).
Excess raw materials or finished inventory will show up on a business plan (and working capital shouldn’t be tied up in storage bins). Perhaps sales are slower than customary for the season, or the production of finished goods has taken a slump, while raw materials have stockpiled. On the other hand, perhaps sales are rising, but actually inventory shortages are slowing manufacturing and delivery and you are losing costumers.
Machine replacement may be imperative and may push you into capital replacement. Can you afford it out of revenues and, if not, what is the best means of financing its purchase? Perhaps leasing is the answer.
The business plan, in short, can provide a platform from which to make a propose changes in your operations and, at the same time, it provides a succinct description for a prospective lender which will help him/her make a sounder judgment of your financial needs, to small business are usually people of experience in the problem faced by such business, they can show ways to improve on your plan, at a saving to yourself. Remember, any reputable lender is conscious of the need for the safety in his lending even though he/she is naturally anxious to make a deal.
The Business Plan Outline
The following business plan outline has been provided as a guide to the person wishing to engage in a small enterprise. It can also be used by anyone engaged in an existing enterprise, who might be considering a business expansion, or the buying out of a competing or related business.
It can apply, with modifications, to individuals involved in retail sales or service occupations as well as those in small manufacturing operations.
It serves, as noted earlier, a three-fold purpose: A Business Plan
- Should help clarify business objectives:
- Will give an indication of potentials strengths or weaknesses in the operation of the business;
- Will provide an analysis by which a potentials lender can make a decisions, providing the plan is accompanied by the relevant financial statements.
Using the headings provided, the business plan should be prepared, incorporating as much detail as is needed, to make your operation clear to a prospective lender.
A. Prepare a brief Summary
(1) A description of the business
(2) The amount of money required and what you are going to do with it;
(3) what security you will pledge
(4) summary of earnings projections.
B. Background Information
(1) Past history of the company (should be brief and concise);
(2) Provide the legal status of the company (indicate whether the business is a sole proprietorship, partnership or corporation). Include dates of commencement or incorporation, and a list of the names and addresses of the owners and what percentage of the business they own. ( see Worksheet 1, page 27)
C. Products and Services
(1) Provide a description of your products and services with an assessment of their strengths and weaknesses;
(2) Patents, trade secrets and other technical advantages;
(3) Technologies used
(4) Discussion of the industry and industry projections
The management and key personnel section of the business plan is considered one of the most important sections, as it provides the reader with the expertise and experience available to manage the business, and determine its success. Sufficient information should be provided to ensure the reader of the competence provided by management:
(1) Organization of the company
(2) Provide brief management biographies of key personnel (include their ages and backgrounds in this type of business);
(3) Management compensation.
- The total market
- Target market
- Your competition (give estimates of the size of the market each competitor holds, give specific names)
- Your marketing advantages relative to competitors
- Your past sales and future projections
- Your pricing policy
- Your selling terms (credit policy)
- Distribution plan
(2) Marketing strategy:
- Promotion plans methods of selling
F. Land, buildings and Equipment
- Give description
- Provide reason for locating where you have
(2) Provide details as the amount of land required, site plan, cost of the land and buildings, including installation of services.
(3) List all machinery and equipment required:
- Indicate costs and installation charges
- Indicate from whom and where purchases are to be made.
(1) Work flow:
- Provide diagrams if applicable
- Quality control procedures to be used.
(2) Inventory control
(3) Supplies and Materials:
- Availability of supplies, cost and terms
(4) Manpower Plan:
- Include informal job descriptions along with organization chart
- Give salary or wage schedules
(5) Manufacturing cost estimates:
(6) Operations Schedules:
(1) Name of bank or others with whom you have had financial dealing;
- Give types of loans, terms, etc. previously help
(2) Name of accountant, lawyer or other professionals with whom you have business relationship
I. Financial Plan
(1) List all capital requirements and sources of financing
(2) Provide profit and loss statements and balance sheets for the present and the preceding three years
(3) Provide projections, cash flow budgets, pro forma income statements, pro forma balance sheet, and a break-even chart (if applicable)
J. Summary of Critical Risks and Assumptions
Supplementary exhibits can also be attached to the application including personnel resumes, community benefits, other supporting documents
Be thorough to support the application, the more likely it is that you will earn the lender’s favor.Next: Internal Financial management