A simple cover sheet for the proposal that identifies:
- Name and address of the business
- Name, address and telephone number of the owners
- Date of the proposal or loan request
- Identification of the owner, or who prepared the plan
The Executive Summary serves to give a loan officer, investor, or employee a thumbnail sketch of the business and the purpose for writing the business plan.
Introduction: Tell them what you want:
ABC Hardware seeks a $100,000 seasonal line of credit to augment cash flows during cyclical constructuon periods. Line to be secured by inventory, accounts receivable and certificate of deposit.XYZ Technologies seeks a $200,000 installment loan to purchase two programmable milling machines to service a long term production contract for the Department of Defense. Loan to be secured by equipment and contract proceeds.The introduction tells the reader the purpose for this document. It helps put them in the proper frame of reference to read the rest of your plan. If you are requesting a loan, state how much you will invest, how much you need to borrow, and what you will use the money for.
Business description: Company or entrepreneur name, address, and phone number. Contact person, position, phone number if defferent from the company's. A few lines on the nature of the business operations, market served, whethera start-up, expanding business, or existing of current operations.
Market Analysis: One or two paragraph description of the market to include size, capacity, trends.
Management Description: One or two sentences about the management team. Concentrate on the team's industry experience.
Key Reasons for Success: Explain to the reader why this business will be successful. Reasons may include an under served market, a new product line, a unique delivery system, etc.
I. Description of the Business
Company or entrepreneur name, address, and phone number. Contact person, position, phone number if different from the company's. Explain how the name was developed and any information relevant to the name of the business; this begins to personalize your company to the reader. A few lines on the nature of the business operations, market served, and whether a start-up or expansion of current operation.
A. Information on the Business
Type of business and Product or Service- Explain clearly what type of business you are in. Explain what your product or service. When the reader is finished with this section, a clear understanding of your basic business should be evident. This portion of your plan should also include the company's three or four mission statements. The mission statements should define who the company is and state what the company wants to do within the next three years and should be quantitative.
If this is a start-up business, it will not have a history. Instead, use this section to review your own accomplishments, experience, training, and education. Remember, this is being written by you so that the lender will have a better understanding of how you will accomplish the successful operation of your business. If the business has a history, tell it. Explain when and why the company was started. Provide sales and profit history. Show how the company faced problems and what wads done to solve them.
C. Operational Hours
Explain when the business will be open and why. Include opening and closing times for both the weekdays and the weekend. If you are a service or manufacturing company with multiple shifts, explain why the additional shifts are planned.
D. Inventory, Supplies, Suppliers, and Equipment
This section of the business plan explains how you will hold in inventory, whay type of supplies you will keep on hand, what suppliers you will use and what type of equipment you will need to operate the business. If your company will hold inventory, you should explain: (1) what your starting inventory will be and its cost, and (2) the average inventory turn for your industry. A review of your inventory will also be helpful. You should provide information on your vendors and how you selected them as well as any terms you have with them. Explain any supplies you will need to operate. Include how often you will use them up and what dollar amount of supplies you will need to operate. Any equipment which your company will need to operate should be fully explained in this section; how the equipment will be used, how it will benefit the company, how much it will cost and who it will be purchased from. Any literature which will help explain complicated equipment or processes can be added to the business plan as a supplement.
E. Future Plans
No company can survive without change and growth. You should have two plans at all times. First, a short term plan to accomplish the company's mission statements. Explain fully how the company will accomplish the mission statements and how this accomplishment will be measured. Second, the company would have a long term plan for growth and survival for five to ten years in the future. Explain what the company plans to do. The more comprehensive a picture you can paint of your company's future, the more confidence your lender will have in the venture.
II. Market Analysis
The Market Analysis is one of the most critical aspects of the business plan. It identifies and defines the environment in which the business will operate. It names competitors who may impact the operations of the business; identifies pricing or technical innovation strategies where appropriate. It should review business cycles and practices that may be unique to the industry. It also identifies key features of the product or service offered. that is, those features product buyers consider important.
If relying on industry experience, you may have decided upon a product or service that the business can furnish to a specific group of buyers you have already identified. If new to an industry, you will have to do some extensive work in both product and buyer identification.
- Which specific products or services do you intend to furnish?
- Which specific buyers do you intend to sell your products or services to?
- What is the buying cycle? Periodic? Seasonal?
- What are the pricing practices?
- What are the characteristics of the market? Growing, steady, declining? Aging? Relocating?
- What are the external influences on the market? Regulatory? Fad or Fashion conscious? Hurt or helped by government or industry changes?
- What is the entrepreneur's DIFFERENTIAL ADVANTAGE? Why should the market purchase from instead of the competition?
- What are you communication plans to reach your target market? What will be your primary message?
This is just a brief list of marketing information the entrepreneur must consider. Depending on the product and market selected, the entrepreneur can look forward to spending much time and energy to evelop answers to the above questions. The market analysis is the most important part of a business plan because it establishes the base upon which the business will be constructed. All other parts of the business plan should support the entrepreneur's plan to service and communicate to the target market.
A. Product/Service Mix and Competition
Products or Service- Describe as completely as possible what product lines you will produce and sell. If providing a service, tell what it is and how it will be accomplished.
B. Comparison to Competitor's Products
Make a complete comparison to your competitor's products. Point out how the product is different and what it is about your product that is going to make customers want to purchase it. If you are in retail or wholesale, compare your store and services to the competition. Again, what are you going to do to capture market share. "Me Too" business do not, as a rule, do well.
III. Marketing Strategy
A. Promotion Strategy
This is an area where many new business firms suffer. They do not have a promotions strategy. This can be caused by several things, the most common, a belief that "word of mouth" is all the promotion the business will need and a lack of understanding concerning the importance of advertising. Your promotion strategy should be based on your market analysis. If in retail, determine when peak shopping periods are during the year. In manufacturing, determine when demand occurs for your product. Develop an advertising budget and allocate the advertising dollars so that they will provide the most effective delivery of your message. Determine what mediums you are going to use, how much money will be spent with each and how often your business will be advertised. Support this decision using information that you provide concerning your target market. Don't guess-find out from advertising salespeople what your advertising is going to cost. Show in your business plan how you arrived at your prommotional budget.
B. Pricing Policy
Demonstrate your pricing policy. If in retail or wholesale, indicate what your markup will be and why. If in manufacturing or service, develop a cost analysis of your product and indicate how you arrived at the costing as well as the markup.
C. Sales Strategy
Demonstrate in your business plan that you know it takes more than a good oproduct to make a sale. Discuss how you plan to make sales. If sales will be made, indicate what type of presentation will be used. If sales are dependent upon in-store sales personnel, discuss how they will be trained.
IV. Management Plan
- Directors and Officers- List names and positions of all directors, officers, and key employees in your firm.
- Owner/Investors- Describe your financing to date as it relates to the people involved: Indicate the name, amount of investment, and percent of ownership of each investor.
- Professional Help- List names of all lawyers, accountants and insurance agents who will support your business.
A. Organization Chart and Responsibilities- Provide a chart showing the organizational structure of the business. Indicate who the key individuals are and what areas they will be responsible for.
B. Resumes of Key Personnel- attach resumes of yourself and key employees. This will assist you in showing your lender that you and uour staff have the experience and training to operate the business profitably.
C. Staffing Plan- Indicate the number of employees you will have and the positions they will hold. Provide information on pay rates and benefits. It can be very helpful to develop a payroll budget at this point. Indicate any expected additions during the first three years of operation.
Careful preparation of the financial reports will provide the lender(s) with a clear perspective of the financial feasibility of the venture.
I. Financial History
A. Existing Statements
For an existing business, you should present the last three years CPA prepared financial statements and the most recent interim statement. If you do not use a CPA, copies of the federal tax returns should be included. Personal financial statements current within 90 days on all owners should be presented along with the company statements.
B. Financial Projections
The financial projections you provide with your business plan and loan proposal should be complete, but more importantly, realistic. Do not maie the mistake of attempting to make the projections rosy. Doing this will not positively influence the lender and will not help you. Base your projections on actual expenses and what you really think you can do in sales. No pie in the sky numbers! You should include the following projections with your plan.
1. Source and use of loan and equity funds statement.
2. Projected balance sheet for opening day (if start-up).
3. 3-year income statement projections
4. 3 year cash flow projections.
5. Information on the assumptions supporting your projections.
Your income statement and cash flow projections should be done on a monthly basis for the first year. A summary sheet for each should also be included. The summary sheet will show the total sales, expenses and net profit for each of the years projected. The projected balance sheet for a new business should be complete and in the proper format. The source and use of loan and equity funds statement should be based o nactual costs and be supported by documentation if needed. Again, do not guess- find out what it is going to cost you to go into business. Plan how you are going to use your money! You will find a sample cash flow, profit and loss and balance sheet in the Resources section on this page. Using them will assist you in presenting your idea in the proper format.
C. Source and Application of Funds; Collateral
Summary chart of the sources of all funds required for the start-up or expansion planned. Identify source, amount of funds from each source, terms or conditions, and status of commitment.
Collateral (hard assets that the bank can sell in the case of business failure to recover their investment) must be provided by the business, or the business and the owners. Even for a corporation, owners must provide personal financial statements (assets and liabilities) to the bank and may have to personally guarantee the loan.
D. Capital Equipment List
A listing of the specific equipment to be purchased, including the model or other description, cost per unit, source or supplier, whether new or used, anticipated useful life if not common knowledge, and other information to justify expense and need for funds.
For existing business additional financial history (past three years) will be needed:
- Income (P&L) Statements
- Balance Sheets - latest no more than 45 days old
The following list suggests some of the other documents that might be included in a loan request or investor proposal:
- Resumes of key personnel
- Credit information for existing businesses
- Quotes or estimates for equipment or construction
- Letters of intent / contracts from potential customers
- Lease or purchase agreements
- Maps showing location and market information
- Photographs of products, equipment or buildings
- Charts and graphs to support marketing data
- Articles / reports to support industry trends data
- Other legal agreements (patents, license to manufacture, employment contracts, etc.)
Here are errors in business plan preparation that almost certainly will result in denial of a loan application by a bank:
- Submitting a "rough copy", perhaps with coffee stains and crossed-out words in the text. This tells the banker that the owner doesn't take his idea seriously.
- Outdated historical financial information or industry comparisons will leave doubts about the entrepreneur's planning abilities.
- Unsubstantiated assumptions can hurt a business plan; the business owner must be prepared to explain the "why" of every point in the plan.
- Too much "blue sky" - a failure to consider prospective pitfalls - will lead the banker to conclude that the idea is not realistic.
- A lack of understanding of the financial information is a drawback. Even if an outside source is used to prepare the projections, the owner must fully comprehend the information.
- Absence of any consideration of outside influences is a gap in a business plan. The owner needs to discuss the potential impact of competitive factors as well as the economic environment prevalent at the time of the request.
- No indication that the owner has anything at stake in the venture is a particular problem. The lender may expect the entrepreneur to have up to 30 percent equity capital invested in the business.
- Unwillingness to personally guarantee any loans raises a question: If the business owner isn't willing to stand behind his or her company, then why should the bank?
- Introducing the plan with a demand for unrealistic loan terms is a mistake. The lender wants to find out about the viability of the business before discussing loan terms.
- Too much focus on collateral is a problem in a business plan. Even for a cash-secured loan, the banker is looking toward projected profits for repayment of the loan. The emphasis should be on cash flow.