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Small Business Banking

Business Plan Workbook


Create your business plan without creating a headache
THE PLAN

I N T R O D U C T I O N

Planning is your map to success THE PLAN helps you find hidden
in the business world. You need to business flaws and makes you
write a business plan if you are: think carefully about each phase
of your business.
• starting or buying
a business
It is important that you write
• financing or refinancing
your business plan. Why? You
your business
will gain in-depth knowledge
• raising debt or
about your business which will
equity capital
make it easier to answer lenders’
Much money is made then lost questions. The process of writing
because one area of a business your business plan will clarify
fails, dragging the positive parts what is involved in making your
down with it. business work successfully.

Design: © NewGround Publications. (Phone: 800 207-3550) Text: © John Nelson & Karen Couto. All rights reserved. Photocopying any part of this book
is against the law. This book may not be reproduced in any form, including xerography, or by any electronic or mechanical means,
including information storage and retrieval systems, without prior permission in writing from the publisher. 0208
How To Business Loan Basics
ASK YOURSELF THESE QUESTIONS:

Use This •

How much money do I need? ______________________________________
What type of lender do I need? (bank, state or federal agency, venture
capitalist firm, or other investor) ______________________________________

Workbook •

What is the lender’s minimum and maximum loan size? ________________
Can the lender meet my present and future needs? ______________________
• What types of businesses will the lender finance? ______________________
Divide your business plan into
• What collateral does the lender accept? ________________________________
sections that match the “contents”
outline shown on the next page.
There is no set length for your LENDERS USE THE EIGHT “C’s” RULE:
answers — they will range from
1. Credit (must be good)
a paragraph to a few pages long.
2. Capacity (ability to repay)
Once it’s written, your business 3. Capital (money going into the business)
plan will need editing. Ask other
4. Collateral (your assets that secure the loan)
people to read and critique your
plan. Include a statement on the 5. Character (you)
inside cover that says its contents 6. Conditions (economy, finances, anything that affects your business)
are confidential, and making
7. Commitment (your ability and willingness to succeed)
copies is prohibited.
8. Cash Flow (can it support the business’ debt and expenses?)
Your business plan should be
neat and organized to make a
BASIC QUESTIONS A LENDER WILL ASK YOU:
professional impression. Write text
in a word processing program that • How much money do you want? ____________________________________
will point out misspellings and • How much are you investing in the business? __________________________
grammatical errors. For financial
data, use a spreadsheet program. • How will the loan be used? __________________________________________
• How long do you need to repay the loan? ____________________________
Once you’re done, make copies • How will the loan be repaid? ________________________________________
for your lender and for others who
• What collateral do you have to offer? ________________________________
are interested in your business.
Make sure all the copies you submit
are readable and include original BEFORE MEETING WITH A LENDER:
signatures. Lenders keep your
presentation even if you are • Call to find out the rules for their business loans.
rejected, so make copies for • Make sure the lender is looking for loans of your size and type.
yourself of everything you submit. • Ask for a loan application.
Number the business plan copies
and make a list of who you’ve • Make an appointment.
given it to. • Rehearse your presentation.
• Remember, the lender is like a customer. You have to convince
It’s a good idea to put your loan
presentation in a 3-ring binder the lender that your business has merit.
with tabs and indexes.
C O N T E N T S
Business Loan Basics
BREAK YOUR BUSINESS PLAN
WHEN MEETING WITH A LENDER:
DOWN INTO SECTIONS
• Bring your business plan, a completed loan
SIMILAR TO THIS BOOK.
application, and any other materials you need.

• Keep the entire presentation to 30 minutes.


Give an overview or outline at the beginning.
Executive Summary . . . . . . . . . . . 6
Know how you are going to end the presentation.

• Invite your lender for a tour of your current or proposed operation. Business Description ..........8

• Answer all negative questions with positive answers.


Managers & Employees . . . . . . . 10
Be willing to back up your answers.

• Find out when you can expect a decision. Operations & Location . . . . . . . 11

• Ask that lenders decisions, made on the telephone, be put in writing.


Marketing . . . . . . . . . . . . . . . . . 12
• Follow up with a thank you letter and a phone call.
Buying a Business . . . . . . . . . . . 16

Buying a Franchise . . . . . . . . . . . 17
The Appendix Loan Request . . . . . . . . . . . . . . . 18
The APPENDIX comes at the end of your business plan and includes
all details and documents that support the plan. F I N A N C I A L S TAT E M E N T S
Throughout this workbook, items that need to be included in the
APPENDIX are mentioned. On page 31, you’ll find a comprehensive General Information . . . . . . 19
list, which you can use as a guide.
The first page of the APPENDIX should be a listing of its contents. Personal Finances . . . . . . . . 20
Be sure to separate and organize the documents logically, perhaps in
the order they are referred to in the plan.
Balance Sheet . . . . . . . . . . . 22
The APPENDIX will grow, so it is a good idea to use a 3-ring binder
with tabbed dividers. Some people prefer using an expandable file.
Income Statement . . . . . . . 24

Cash Flow . . . . . . . . . . . . . . 26
Generally, lenders like to simplify the process
FORMULAS
used to screen loan requests. Take your Ratios . . . . . . . . . . . . . . . . . . . . . 28

business through the same exercise that lenders do.


Formulas . . . . . . . . . . . . . . . . . . 30
The complexity or size of the loan request doesn’t

matter; the basic formula is as simple as 1-2-3.


Appendix . . . . . . . . . . . . . . . . . . 31
6

EXECUTIVE SUMMARY
The Executive Summary (your Cover Letter) The Executive Summary should include:
briefly explains the rest of your business plan • the owners’ names and their credentials
in about one or two pages. • your products or services
• your market(s) and the competition
Page two is the Table of Contents. It shows • the amount of money needed
the lender on which page each section can be • how the loan will be repaid
found (see page 5 for the breakdown of sections). • how long you want the loan to last

YOUR COVER LETTER SHOULD READ SOMETHING LIKE THIS ONE:

Leave off your


return address if December 31, 2008
the letter is on To build the lender’s
The Green Rose
your company’s 456 Oak Street enthusiasm, make
stationery. This Town, USA 67890
references to what’s
Mr. John Nelson included in your
ABC Bank
List the purpose 123 Main Street business plan
of the loan Anytown, USA 12345
(starting, buying,
Re: Loan Request for $300,000
or expanding
a business). Dear Mr. Nelson,
Include owners’ With 20 years of management experience in the residential landscaping
names and expe- business, we are requesting a loan to start our own landscaping business,
rience. Mention called The Green Rose.
your products Mention how much
The climate for a successful landscaping business is perfect. Last year, the
and services. number of new homes built in Pembroke Pines increased by 15%. Just this money you would
quarter, new building permits are up 10% over last year. Of the 45,000 like to finance and
homes in the area, 3,000 were built last year.
the terms (how
Our target market is owners of new and older homes. We plan to reach them many years). List
Briefly mention with focused marketing, which you will read about in our plan. In addition, the source of
your markets we have good working relationships with many building contractors, who re-payment (loans
and customers have indicated they will refer us to their clients. should be repaid by
the business’ cash
Two of our six local competitors have filed Chapter 11. Two are family-owned
businesses who concentrate on commercial contracts. The last two are flow). Also include
Include key healthy competition, though they lack our marketing and management ex- how much you are
facts about your pertise. investing and
competition. where your money
We are investing $75K in savings and are requesting a $300K loan from will come from.
your bank. We would like five years to repay the loan, using the cash f low of
the business. Our secondary source of repayment will be from collateralized
equipment. Our homes and business assets, valued at $300K, are offered as List the secondary
Tell the lender collateral for the loan.
who should be source of repayment.
contacted Our business plan is attached. In it you will find the information you need. This is usually
and provide a If you have any questions or need more information, please contact collateral which
phone number. Mr. Green at (321) 234-5678. includes business
and personal assets
Respectfully submitted,
(see page 18). Also,
Ed Rose Tim Green fill in the equity value
Include all of these assets.
signature(s) and Ed Rose Tim Green
typed name(s).
7

EXECUTIVE SUMMARY (YOUR COVER LETTER)

date______________________________________________________________________________________________________
your address______________________________________________________________________________________________
___________________________________________________________________________________________________________
___________________________________________________________________________________________________________

Lender’s name, bank name, and address


_____________________________
_________________________________
________________________________________________
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
____________________________________________________________________________________________________________

Re: Loan Request for $______________ (fill in amount)

Dear (fill in lender’s name)___________________________:

I (or we) am requesting a loan of____________________________________. The owner(s)


(fill in names) _____________________ have experience in this industry including... (mention
experience in industry or training that would qualify you to run this business).

The market for this business... (include one brief paragraph about the industry and its growth)
________________________________________________________________________________________________________
________________________________________________________________________________________________________
________________________________________________________________________________________________________
________________________________________________________________________________________________________

Our target market is... (include one brief paragraph about your target market/customers)
________________________________________________________________________________________________________
________________________________________________________________________________________________________
________________________________________________________________________________________________________

The competition includes.... (include one brief paragraph about your competition and how
your business will attract their customers)
________________________________________________________________________________________________________
________________________________________________________________________________________________________
________________________________________________________________________________________________________
________________________________________________________________________________________________________
________________________________________________________________________________________________________

We are investing $___________ of our own money. Our collateral consists of business assets
having a fair market value of $__________________ and personal assets (if applicable)
with a value of $__________________

Attached is our business plan which backs up our request. If you have any questions, please contact
(name) __________________ at __________________ (include phone number).

Sincerely,

__________________ __________________
Your signature(s) and printed name(s) here
8

BUSINESS DESCRIPTION
GENER AL Owners:
General:
Name: MRJ Design List each owner’s name,
List the business name, Address: 21 Longwood Drive, Orlando, Florida 32751 business title, home
location, mailing address, Phone: (407) 123-4567 Fax: (407) 123-4789
E-mail: smith@MRJ.com, Web Site: www.MRJ.com
address, telephone number,
telephone, fax, e-mail
and social security number.
and web site address. OWNERS:
Bob Smith: 10 Brookfield Rd., Orlando, FL 32751 Include a brief description
Phone: 407-456-7891 Social Security: 367-89-7088 of owners and managers
Over 20 years of experience in creative management. Worked
(experience and credentials
Legal Business for several design firms. Mr. Smith owns 60% of the business.
Linda Jones: 96 Elm St., Orlando, FL 32751 in running the business) and
Description: Phone: 407-567-1234 Social Security: 234-56-7891 their ownership percentage
Sole proprietorship, part- Ten years of experience as manager of large of the business.
nership, limited liability, marketing communications department within
Fortune 1000 corporation. Ms. Jones owns 40% of the business.
“C” or “S” corporation.
List the state where the
LEGAL STATUS: Florida S Corporation
business is incorporated.
PURPOSE: Produce superior marketing communications material for Business Status:
other businesses.
New/start up, ongoing,
Purpose: Describe the
expansion, or buying
intent of your business. STATUS: Start-Up.
a business. Include the
BUSINESS TYPE: Service date your business started
Type of business: or will start. If buying
Retail, wholesale, PRODUCTS AND SERVICES: Graphic design, illustration, and artwork a business, include a
production. Other services, supplied by vendors/suppliers, include detailed business history
service, manufacturing, writing, photography, printing, and mailing services.
contracting, professional, in this section.
importing/exporting. REASONS: Both partners have over 30 years of industry
experience that will be put to profitable use in our own firm.
The demand for graphic communications is ...etc. Reasons for starting,
buying, or expanding
business.

Goals: GOALS:
Include both current and CURRENT: Bring to profitable status that will equal or exceed
long-term projections. current income levels. Create relationships with clients.
Build ...etc.
LONG-TERM: In four years, we will have 50-100 clients.
Hire administrative person ... etc.

Industry: INDUSTRY:
Talk about what’s going 100 design firms and designers exist in our territory. Advertising
on in your industry, agencies (about 235) are also competitors but their specialty is
including economic not design. Many companies have relocated to Orlando so the Professional
demand for our services is growing. The number of start-up
trends, outlook, growth Relationships:
companies numbered 6000 last year...etc.
patterns and forecasts. Include name, address,
Keep this section short. PROFESSIONAL RELATIONSHIPS:
and telephone/fax
Explain more fully in ACCOUNTANT: numbers for your
your Marketing section. Larry Stuart, CPA, 123 Main St., Winter Springs, accountant, attorney,
FL 32751. Ph: 407-678-9012, Fax: 407-678-7890 banker, insurance agent,
ATTORNEY: and professional
Linda Johnson of Johnson and Smith, 456 Elm St., advisor(s).
Winter Park, FL 32789.
Ph: 407-234-5678, Fax: 407-345-6789
BANKER:
John Nelson, Heritage Bank, 678 Oak St., Orlando,
FL 32908. Ph: 407-123-4567. Fax: 407-0987-6543.
INSURANCE AGENT:
Linda Doe, Doe Insurance, 321 Grove Ave., Winter Park, FL
32789. Ph: 407-432-7654. Fax: 407-876-5432
PROFESSIONAL ADVISORS:
Claire Velleca, Velleca Consultants, 1 Park St.,
Orlando, FL 32701 Ph: 407-222-1456, Fax: 407-419-1989
9

BUSINESS DESCRIPTION
GENERAL OWNERS
Business name ________________________________________________ Provide the following information for each principal in the company.
Location ____________________________________________________ Name ________________________________________________________
Mailing address ______________________________________________ Business title __________________________________________________
Phone number___________________Fax __________________________ Home address ________________________________________________
Tax identification number ______________________________________ Telephone number ____________________________________________
E-Mail address ________________________________________________ Social security number __________________________________________
Web Site address ______________________________________________
Include a brief description of owners and managers (experience and
PROFESSIONAL RELATIONSHIPS. credentials in running the business) and their percentage of ownership
Include name, address, and telephone/fax numbers ______________________________________________________________
Accountant __________________________________________________ ______________________________________________________________
______________________________________________________________ ______________________________________________________________
______________________________________________________________ ______________________________________________________________
Attorney ____________________________________________________ ______________________________________________________________
______________________________________________________________ ______________________________________________________________
______________________________________________________________ ______________________________________________________________
Banker ______________________________________________________ ______________________________________________________________
______________________________________________________________ ______________________________________________________________
______________________________________________________________ ______________________________________________________________
Insurance agent ______________________________________________ ______________________________________________________________
______________________________________________________________ ______________________________________________________________
______________________________________________________________ ______________________________________________________________
Professional advisor(s)__________________________________________ ______________________________________________________________
______________________________________________________________ ______________________________________________________________
______________________________________________________________ ______________________________________________________________

Legal Business Description (sole proprietorship, partnership, corporation, etc.). ______________________________________________

State. What state is your business organized in? What states will you operate in? ________________________________________________

Type of business (retail, wholesale, service, manufacturing, contracting, etc.). ________________________________________________

Business Status. New, ongoing, expanding, or buying a business. ___________________________________________________________

Date your business started or will start. _____________________________________________________________________________________


To Do Done To Do Done

Reasons Goals To Do Done


for starting, buying, or Current goals (within the next year)
expanding business. Long-term (over the next five years)
KEEP TRACK
To Do Done To Do Done
Use this check box as
Products and Services Industry
Provide a summary. Provide a brief summary of what’s going
a reminder system.
on in your industry. Include economic trends, Some answers will
To Do Done
outlook, growth patterns and forecasts. Include be short and some
Purpose
details in the APPENDIX. will be long.
Describe the intent of your business.
10

MANAGERS & EMPLOYEES


Managers Employees
To Do Done To Do Done

• How many departments and managers • How many part-time and full-time employees
do you need? What are their functions? are needed to run the company? It’s a good
To Do Done

• If there are gaps in your management idea to develop an organizational chart


team, explain how they will be filled. (example below).
To Do Done
Lenders also like to see a back-up plan.
• How and where will you find employees and
If you die or can no longer work, who will
keep them?
run the business and repay the company’s
debts? One solution is to buy enough life
To Do Done
Costs
insurance to cover the business debt.
• Include managers’ job descriptions, salaries,
benefits and resumes in the APPENDIX.
To Do Done

• How much are you going


The Good Earth Organizational Chart to pay each employee?
To Do Done

Finance Manager Sales/Marketing Manager Operations Manager


• What are the employee
benefits and their costs?
To Do Done
Bookkeeper Customer Service Rep. Ground Employee
(outsourced) • What employee training is
Administrative Asst. Ground Employee
needed and how much will
Ground Employee
it cost? How will it occur?
Ground Employee
Finance
MIKE JONES (accountant and owner) General
20 years of accounting experience in various industries... To Do Done

• Describe any resources


A bookkeeper will be outsourced.
available from outside the
Sales & Marketing business. For example, you
LEE MYERS may use an accountant for
10 years of marketing experience. Myers will be responsible for the
sales staff (estimators), customer service, promotional plans... financial reporting.
To Do Done

Two office staff: One full-time customer service representative and one • Some functions can be
full-time administrative assistant. Each will be paid $25,000 annually.
They will receive health insurance, ten paid sick days, paid holidays, outsourced. The monthly
and two weeks of vacation. These benefits will cost ...
cost for this service is
Operations
included in the APPENDIX.
JOHN SMITH
20 years of operational experience in landscaping industry . Smith will For example, you can outsource
supervise the grounds staff and handle ...
a direct mail program to a
Four (4) full-time grounds employees starting at minimum wage for marketing firm.
working Monday- Friday, 7:00 a.m. to 3:30 p.m. A two-day training pro-
gram is required before joining the company. Employees will receive
paid health insurance, five paid sick days, paid holidays, and one week
of vacation. These benefits will cost ...
11

O P E R AT I O N S & L O C AT I O N
To Do Done
HOW WILL YOUR BUSINESS OPERATE? of the deed in the APPENDIX. If leased, the term of
• How will the product be produced and sold? the lease must be renewable to match the loan period
To Do Done
How will your services be rendered? you are requesting. Include a copy of the lease (or
• What months, days, and hours will your proposed lease) with terms, conditions, length, and
business be open? Is the business seasonal? cost in your APPENDIX.
If so, show how you will adjust your time, U Are improvements, renovations, furniture,
To Do Done
schedule, inventory, and personnel. fixtures, equipment or machinery necessary?
• What furniture, fixtures, equipment and Show quotes in the APPENDIX.
machinery is needed? Will it be bought, leased, U Retailers:
or rented? Include proposed purchases in your > Research and show traffic patterns in the
APPENDIX. APPENDIX.
> What other businesses are in your
SUPPLIERS immediate area?
U Wholesalers, manufacturers and other businesses:
To Do Done

• If you need suppliers and other companies


to complete your product or service: > Are you located near your customers and suppliers?
U What and how much will you need? > Do you have easy access to major highways,
U Where will you get these products railways, and airports?
and services? • Provide photos and a summary of your location
U How much will they cost? including a floor plan, blueprint or plot plan
U What system will you use for materials (if building) in the APPENDIX.
To Do Done
processing and inventory control?
• Include in the APPENDIX details about
CLOTHES WITH CLASS
your suppliers, including names, addresses,
We are a school uniform shop. Business hours will be from 10 to 5,
products or services supplied, costs/quotes,
Monday through Saturday. Our plan is to purchase fixtures to
delivery/shipping fees and turnaround, terms display uniforms and furniture to create a relaxed retail
To Do Done
of sales, contracts, and a purchasing plan. atmosphere. A computer system to track customer purchases
• If you’ve requested financial, managerial, and inventory will be leased. These costs are included in the
or technical assistance from your suppliers, Appendix.
include details in the APPENDIX.
Our stock will come from three suppliers — two national and one
local. Local supplies will be delivered by truck, with the remainder
LOCATION
To Do Done of goods coming via UPS. Information on our proposed suppliers
• What kind of space does your business need?
U Why is the area and location desirable?
and purchases may be found in the Appendix.

U Does this location affect your costs? The five-year lease we have signed on a 1,500 sq. ft. building

U How much are utilities, taxes, and is included in the Appendix. The building is located within
15 miles of 22 private and parochial schools who
other expenses?
U Is it easily accessible?
require uniforms that we will stock. Our building is on a major
thoroughfare, conveniently located right off Highway 93.
Is public transportation available?
Is there adequate parking? A floor plan of the building is included in the Appendix. We have

U Does your business comply with divided the area into retail space and warehousing/office space.
700 sq. ft. will include retail displays, three dressing rooms,
zoning laws?
U Do you own or lease the building? Include
restroom facilities and two purchasing counters. The remaining
800 sq. ft. will warehouse stock. It includes a delivery receiving
zoning statements from local government in
area, two offices, and a small employee lounge with restroom.
the APPENDIX and approval letters from local The 20-space parking lot is adjacent to the building.
and state inspectors. If owned, provide a copy
12

MARKETING
MARKETING has been defined as “the activity of audience for your dollar. When putting together your
presenting products or services to customers and business plan, include advertising ideas, schedules and
potential customers which makes them eager to buy.” budgets in the APPENDIX.
Especially in today’s crowded marketplace, where • Direct Marketing means contacting prospects by
competition is fierce, savvy small business owners should traditional mail, email or phone. Take, for example, a
never underestimate the power of smart marketing. nature camp company that wants to mail out brochures.
The right product or service at the right price is only the Buying a list of subscribers to an outdoor magazine
beginning. You must also identify your audience, promote seems smart. But measuring results is key. Say you mail
your product and find the best distribution method. 5,000 postcards and get 100 responses. That’s a 2%
response level. Of those, how many turn into orders or
THE PRODUCT OF ALL YOUR HARD WORK become clients? Keeping track of these things helps you
First and foremost, believe in the success potential of determine which databases are best, and how much it
your product or service. Then think about things like: costs to gain an order or client.
• Benefits of your product. If you’re not clear on them, • Public Relations (PR) is more than getting publicity.
no one else will be. It’s a great way to build an image or a brand identity.
• Research and development. Will you need it? If so, Through your business activities, you influence the
include detailed plans and costs in the APPENDIX. attitudes of your audience. For example, your company
• What licensing requirements, restrictions, registrations makes sunblock, so you sponsor a sandcastle contest at
or regulations affect your business? the beach. In order to get publicity — media coverage
• What about legal issues? Are there patents, copyrights or at no cost to you — you send press releases with
trademarks to think about? What are the costs involved? pertinent information well in advance to area
newspapers, radio and TV stations.
THE PRICE IS RIGHT • Promotional/Sales Material rounds out the
Determining just the right price for your product or marketing picture. Items like a logo, a catalog, a price
service is a delicate matter. Keep in mind that: list, and business cards can position you as a polished
• The price will be affected by the quality of your product, marketer, helping the sales process go more smoothly.
customer demand and the competition (see page 15). Think about what promotional materials you’ll need
• The selling price must cover all your operating expenses and what they’ll cost. Include samples, costs and ideas
(materials, labor and overhead) and also include a in the business plan APPENDIX.
margin of profit. To determine what this is, you need • Trade Shows can be a great way to get your product
to calculate your breakeven point (see page 30). in front of people, to get leads and take orders. Shows
can be a great place for your sales force to meet your
PLAN TO PROMOTE, THEN PROMOTE YOUR PLAN customers in person. In addition, it’s a chance for you
Your promotional plan will be implemented with several to talk with others in your industry and share
marketing tools. These days, a web site is an increasingly information. Many times, trade associations are present
important piece of the promotion pie. In addition, there at shows, presenting an opportunity for you to gain
are a handful of proven methods for promoting your valuable insights.
product, such as:
• Advertising tells your target market about your FULL SALES AHEAD
product or service. But how do you approach it, with • Who will sell your products?
so many choices available? Which publications are best? • Can you do it yourself or will you require a sales staff,
Is radio and TV advertising where you should be? reps, agents, brokers or wholesalers?
Researching web sites is a good place to start your • Think carefully about their compensation — will they
advertising plan. Ask professional organizations for work for a salary, commission, or both? Include
referrals when looking for designers and writers to help sales expenses in the APPENDIX.
develop ads. Media buyers help you reach the biggest
13

MARKETING
KNOW YOUR CUSTOMERS
• It is crucial to figure out who is MISS HARRIET’S SOUTHERN KITCHEN
most likely to use your product
MARKET
or service. These important 40,000 potential customers who live and/or work in
group or groups are your market or markets. Chicago’s North End.
• In most cases, slicing your market into smaller groups
CUSTOMER PROFILE
(called segments) is helpful in targeting them. For Male and female, ages 18 – 85, singles, couples and
example, if your product is gourmet dog biscuits and families, household income of $15K and up
you want to do a postcard mailing, you would naturally ABOUT THE PRODUCT
want to narrow your mailing list down to dog owners. Authentic, homemade Southern food cooked by Miss
• How do you get started gathering customer and Harriet herself, who was born and raised in the South.
Menu will consist of only 6 choices, taking the confusion
marketing data? There’s a wealth of knowledge on web out of the decision process.
sites, through case studies, in magazines, newspapers,
DISTRIBUTION
reference books, trade journals and government statistics.
Orders will be filled quickly since the food will be prepared
in the morning and kept hot throughout the day.
QUESTIONS TO ASK YOURSELF
Customers may eat in the restaurant or take food with
• Where are your customers — local, regional, national them. Phone and fax orders will be encouraged, so the
or international? food is ready when the customer arrives. Two employees
• What’s the size or your target market? Is it small (ballet will deliver.

students in Des Moines, Iowa) or large (new parents Location is on a busy, two-way street that is close to a
across America)? major subway stop, making it easy for customers to take
food home.
• When will your product be used — daily, weekly,
monthly? Is there a peak season or will demand be
steady?
• If you’re targeting consumers, what are the demographic
PRICE
similarities? Think about age, income, gender, education,
Our prices will be highly-competitive to similar
type of residence, marital status, profession, lifestyle, take-out / eat-in restaurants in the neighborhood.
hobbies and size of household.
Prices will encourage bulk ordering (5 pieces or more).
• If you’re targeting businesses, what size are you targeting?
Complete meals - a main course and side dish - will be
Know their annual sales, the number of employees and available.
the number of locations. Be sure to identify the decision
ADVERTISING
maker in the business. For example, if you’re sending Small ads placed in local publications will include
a letter to physicians, you should know that generally, discount coupons (costs are outlined in the Appendix).
doctors only get the mail that makes it past the office
PROMOTION
manager’s desk. Menus and fax order forms will be available at the
counter. A menu mailing will be sent three times a year
YOU’VE GAINED A CUSTOMER. NOW WHAT? to area residents (costs are outlined in the Appendix).
Seven local businesses have agreed to place menus and
• How will you get your product to the consumer? coupons in their establishments.
Consider the cost of product storage, packing material,
handling and shipping. PUBLIC RELATIONS
Press releases will be sent to the media, telling the story
• Will you accept credit cards? Determine (1) the cost of of a Southern woman cooking authentic food far away
leasing or buying credit card equipment and (2) the from home. A recipe contest - “Enter Your Best Southern
Fried Chicken Recipe” - will encourage customer loyalty.
percentage paid for credit card sales.
The winning recipe will be featured as a menu item for a
• Who will help customers with information requests, limited time.
new orders, status inquiries and returns?
• Will you allow customers to pay you at a later date?
What are your credit policies (for example, do you
want invoices paid in 30 days)? What is your follow-up
procedure for slow-paying customers?
14

MARKETING: WEB SITES


WHY DO I NEED A WEB SITE?
These days, having a web site is like having a business card.
Even a simple web site will:
• Act as a virtual storefront to sell your product or service
• Make your company more visible to a worldwide audience
• Position you as a resource for information
• Complement your other marketing efforts

SET YOUR SIGHTS ON THESE QUESTIONS


• What will your site name be? What if the name of your company
is already taken?
Web Sites • Who will help develop your site and how much will it cost?
• Will you use an Internet Service Provider (ISP) or host your own site?
Now You’re Clicking • What information will be included on your site?
• Will your product or service be for sale on the site?
Who will handle the transactions and fulfill the orders?
The internet’s World Wide • What security barriers will be in place, to protect your company’s
Web has changed marketing information from outsiders?
• How will privacy be handled once you collect data from site visitors?
forever. These days, it seems How will the data be used?
that “www” is seen and
HOW DO YOU CREATE TRAFFIC?
heard everywhere. For Think about ways you’ll promote your site:
companies large and small, • Will you register with search engines so you come up in a search?
• Will you want a tracking program to monitor how many people visit
the web is a powerful your site?
marketing tool that allows • What about advertising on related web sites? What will the costs be?
• Will you allow other companies to place ads on your site?
your marketing efforts to What will you charge?
• Will you consider exchange links with other sites that complement yours?
reach potential customers
(Visitors to your site can click on a link to their site, and vice versa)
in your city, your state,
INVITE THEM BACK
the country and indeed
Attracting visitors to your site is one thing, but giving them a reason
the world. to return is quite another. Give some thought to these questions:
• How will you make your site “sticky?” — appealing enough so
visitors come back.
• What are the costs for maintaining your web site?
• Who will be responsible for updating the site? How often?
• Who will respond to email inquiries?

NO SITE IN SIGHT?
Even if you don’t have a web site, you can still take advantage of the
Internet by:
• Setting up an email account so you can send and receive information
• Asking other web sites to include your company information on
their “link lists.”
• Paying for ads on web sites that relate to your product or service
15

MARKETING: YOUR COMPETITION


DON’T UNDERESTIMATE THE POWER OF THE COMPETITION
Healthy competition is what makes the marketplace go around. Today’s smart
business owners not only know their competitors, but learn from them. By
knowing what your competitors are offering customers, you can try to do
better. First and foremost, you must
be clear on why a customer would
buy from you rather than one of Competitive Analysis for TAIT’S ALL-NATURAL LAWN COMPANY
your competitors. This is called your Tait’s offers chemical-free, family-safe fertilizers, plant growth and
USP — Unique Selling Proposition. weed-control products. Our products are so safe, customers can let
their children play on the lawn immediately after treatments.
PUT IT ON PAPER
Tait’s All-Natural, with a mix of 20 full-time and part-time employees,
You’d be surprised how a
intends to grow, if you will, with a solid base of homeowners.
competitive analysis can help
In addition, we are prepared to handle commercial contracts.
you understand the competition.
Include as many of your competitors
as possible. Each competitive COMPETITORS:
analysis should show:
Tait’s All-Natural has three competitors in the local area; two are
• How your business is better and
family-owned with over 20 years of experience.
different. Include factors such as
Not one of our three competitors offers natural products, nor do
quality, service, price/value,
they sell plants, bushes and trees grown with natural products.
creativity, flexibility, prestige,
We will be the only business in our category.
knowledge and innovations.
• Ways in which your business is
the same as your competitor. NAME LOCATION COMMENTS
• The strengths and weaknesses of
The Good Earth Memphis, TN Family-owned business, 25 years
your competitors. How are they
old, 30 employees, good location
performing? Are they strong or
weak, and why?
• The pricing differences between Landscapes Unlimited Memphis, TN Medium-sized business, new
you and them. Is a cheaper facility looks clean and modern
product available? If so, why is
yours more expensive? In the
Reggie & Ruth Memphis, TN Twenty-year old company, but their
APPENDIX of your plan, show
small size (only three employees)
products and price comparisons.
prevents them from gaining large
• Ways your competitors promote
projects.
their business. Include ads, events,
sales, web sites and anything
else they use.

KEEP A LEVEL HEAD


When thinking about your competition,
be careful not to put too much
emphasis on “stealing” customers or market share from them. It’s healthy to
know how much of the market you need to gain from your competitors, but
be sure you can meet the demand when you do. This example represents
a pared down version of
a Competitive Analysis.
16

BUYING A BUSINESS
QUESTIONS THAT NEED ANSWERS:
• Why is the business for sale? ORANGE DOT MACHINE
• What is the value of the business?
PRODUCT: machining services for the seller’s railroad product line
• What are the company’s products and services?
• Who started the business? What is the history OWNERS: Jack Reich and Tom Wallis, both of whom want to retire

of the business? Where is it located and where LOCATION: Western Connecticut. The building’s landlord is Reich
are its customers located? Holdings, LLC (see Appendix Section 9, “Business Location”)

• Has the competition increased or changed LEGAL STATUS: S Corporation registered in Connecticut
(see page 15)?
HISTORY: Started in 1982 as a division of a larger corporation.
• What sales and marketing plans have you seen?
What are the business’ sales trends? How will CLIENTS: 200 companies in Connecticut and southern New England.
(Commercial companies: 60%; military-related: 25%; railroad: 15%)
you increase sales?
• Will you hire new employees and managers SALES: $1.4 million in sales last year — a 30% increase over the
previous fiscal year, due to an expanded product line and aggressive
or use the existing staff?


marketing. The quality of the equipment and caliber of the staff
present an excellent growth opportunity.

MARKETING: The addition of a company web site, along with a formal


marketing program, is expected to increase the customer base and
CHECKLIST expand the service area.
for buying a business
PURCHASE PRICE: $500,000 includes $475,000 in assets (see
To Do Done appraisals in the Appendix) and $25,000 in good will. An additional
• Talk to the business’ customers and $50,000 is needed for working capital. Refer to our Loan Request
and Cash Flow Analysis.
To Do Done
suppliers.
• Review financial statements and tax TRANSFER TERMS: As of the closing, all Accounts Receivable and
Payable will be the current owners’ responsibility. Work-in-progress
To Do Done
returns from the last 3 years. inventory will be consigned to the buyer, then completed on a
• Develop a purchase and sale agreement labor-only basis. When the product is completed, future revenue will
be kept by the new owners.
which shows:
U the purchase price components - down LIABILITIES: The assumption of capital lease obligations (see Appendix)
payment, allocation of the price, and
how it will be financed
U how the business will be conducted until purchased
U the liabilities you are assuming including accounts payable, loans, leases,
contracts, taxes, and legal
U the value of the assets your are buying including Accounts Receivable (quality and the age
of the invoices), inventory (value and age), machinery/equipment/furniture/fixtures (age,
condition, and value), patents/trademarks, and real estate.
To Do Done
U that the purchase and sale agreement is subject to financing and inspections
• Know how you will finance the business. Is the seller willing to finance all or any of the business
(especially the goodwill - the difference between the value of hard assets and the business’
To Do Done
purchase price)? What are the terms, rates, and conditions? Develop a Loan Request (see page 18).
• Determine who will pay for closing costs including legal services, points, appraisals and
environmental inspections.

In your APPENDIX, include pictures of the business location, a detailed description and appraised
value of the building, inventory and equipment, assets and liabilities, inspection reports, and any
patents/trademarks. Also include the purchase-and-sale agreement and any legal documents.
17

BUYING A FRANCHISE
BUYER, BE AWARE
A franchise is a legal, business relationship between a
Top Ten Questions To Ask
franchiser (Burger King, for example) and the franchisee Before Buying a Franchise
(you). The franchiser owns the right to the business
name, and sells that right to you. In return, you sell 1 How many franchises are there and how many in
products and services supplied by the franchiser. your area? Don’t be afraid to ask for a list, then to
visit as many as you can. If possible, speak with the
The advantages of buying a franchise can be appealing. owner(s) about some of the real-world realities of
You get an established business presence. And since running the business.
many of the decisions and products come from the
franchiser, your risks are reduced. You are also provided 2 How long has the franchiser been in the industry?
with a range of support services, such as site selection, Ask how long they have been selling franchises.
training, supplies and advertising/marketing plans.
3 How financially healthy is the franchiser?
You have a right to see their financial statements,
THE DISCLOSURE DOCUMENT:
which should be included in the Disclosure
READ IT CAREFULLY
Document. Make sure you are comfortable with
The Federal Trade Commission (FTC) requires sellers
all the numbers.
of franchises and other business-opportunity ventures
to provide a Disclosure Document to prospective buyers. 4 What does your initial cost cover? Discuss things
In it, you should find detailed information that explains like the licensing fee, training, equipment, starting
how business between you and the franchiser will be inventory and promotional fees. Find out if the
conducted. land will be purchased or leased, and whether the
building will be constructed or renovated.
It is crucial that you read this document very carefully,
as many times as you need to, because it contains 5 Will the franchiser help finance the business?
important information — audited financial statements, If so, you still need to develop a business plan with
your start-up and ongoing costs, and locations of other financial projections.
franchises. It will clearly explain the responsibilities of
the buyer and the seller. Have your attorney read 6 What ongoing costs will you pay the franchiser?
through it as well. Discuss royalties, training, insurance and
advertising.
The Disclosure Document must be given to you in
7 Will you be required to buy supplies from the
advance so you can gather and consider any and all
franchiser or their designated suppliers?
information you need to be sure your decision is an
Will prices be competitive?
informed one.
8 Do any restrictions apply when competing with
the competition?

9 What is the length of the partnership? Be clear


about the terms covering renewal rights.

10 Do you have the right to resell the franchise?


18

LOAN REQUEST
HOW MUCH WILL YOU NEED? HOW WILL THE LOAN BE REPAID?
You must invest 25% - 50% The lender wants to see the
of your own money. Show loan repaid from the business’
AMOUNT NEEDED
how much and where your income. If necessary, the
• Amount Requested $
money will come from. lender needs to know that the
• Owner’s Investment $
Also provide information • Other Investors $ loan could also be repaid by
about money coming from Total $ selling an asset or by a cash
investors. Show how much infusion from an investor.
money you are requesting USE OF FUNDS
• Inventory $
from the lender. IF YOUR LOAN REQUEST
• Working Capital $
• Equipment, Machinery, Computers $
IS REJECTED, ASK:
HOW WILL THE • Furniture & Fixtures $ • Why it was rejected.
MONEY BE USED? • Other $ • If you can correct the
Uses include inventory, • Real Estate $ problems and re-submit
Total $
furniture, fixtures, equipment, the request.
machines, repairs and Repayment
• If you should go to another
improvements, and working • Period: _________ years lender or seek alternative
capital (money for the • Source: Business Cash Flow financing.
business’ day-to-day • Collateral:
- Accounts Receivable $ WHAT COLLATERAL
activities). Your business’
- Inventory $
income (and other money) ARE YOU OFFERING?
- Equipment & Machinery $
must cover your expenses. - Furniture & Fixtures $
Collateral is assets the bank
You need more money if - Equity in Real Estate $ has a lien on and will take if
your expenses are more than - Other $ you can’t repay the loan.
your income. Use of funds Total $ Collateral can be personal
must be fully documented (savings, stocks and/or equity
with quotes in the APPENDIX in personally owned real estate)
(include a breakdown of machinery, or business (receivables, inventory, equipment).
equipment, fixtures and furniture).
Lenders require appraisals of your collateral and they
HOW LONG ARE YOU ASKING FOR REPAYMENT? discount the value of your assets. The total discounted
• Short Term (less than a year): Short-term loans are collateral amount must equal the total loan amount
called Lines of Credit (LOC) or Revolvers and work like requested.
EXAMPLE: Market Discount Discounted
a credit card, with a pre-determined amount. Lines of Typical Value Percentage Value
credit are primarily used for working capital and must discounts
• Inventory $100,000 50% $50,000
be paid in full within that year. include: • Fixed Assets $50,000 50% $25,000
• Intermediate Term (1-10 years): Like a car loan, saleable • Accounts $80,000 25% $60,000
payments are monthly. Use for buying the business, inventory Receivable
equipment, or for long-term working capital. at 50% or Total $230,000 $135,000
• Long Term (10 years or more): Like a mortgage, used lower, fixed
to buy commercial real estate, commercial vehicles, assets at 50% or lower, collectable
A maximum loan
and heavy equipment. accounts receivable at 25% or lower, request of $135,000 is
and furniture/fixtures/machinery/ based on the collateral
value of their assets.
equipment at fair market value
Loan Decisions
of book value (in the APPENDEX include the, model,
The “1-2-3 Method” on page 30 helps you
year, serial number and fair market value).
calculate your maximum loan amount.
19

FINANCIALS
F O U R F I N A N C I A L S TAT E M E N T S A R E I N C L U D E D I N T H I S S E C T I O N :

1 2 3 4 ACCOUNTING
METHODS
Personal Financial Balance Sheet Income Statement Cash Flow
Statement This is a snapshot Think of this as your Statement Accrual
Your own personal of your business. business’“report card” This will show how
financial health will be
carefully examined by
A moment frozen in
time. See page 22.
over a period of time.
See page 24.
much money comes
in and how much goes
vs.
the lender. See page 20. out. See page 26. Cash
HINTS FOR DEVELOPING FINANCIALS: There are two ways to handle your
• Make realistic assumptions. Lenders know there are risks, so explain how they accounting - accrual or cash.
will be handled. They like to see business owners who recognize and solve them.
Make a record of your assumptions so you can prove to the lender that your 1. The cash method means you
projections are realistic. don’t record a sale until you
• Show reasonable links between the past (if buying a business), actual, and collect money, and you don’t
future projections. record an expense until you
pay for it.
WATCH FOR THESE COMMON FINANCIAL PROBLEMS:
2. The accrual method, the one
• Limited capital
Capital is just another word for money, and if there’s not enough of it, it can lenders want, means:
lead to insufficient working capital (money for day-to-day activities). Don’t try • Sales are made but payments
to make money stretch too far. Ask for more loan money, or cut down on
are not immediately collected.
liabilities and expenses.
Your customers pay later, which
• Little or no record keeping
You must keep meticulous records for yourself, the IRS, and your lender. creates “accounts receivable.”
• Failure to seek outside help • Business purchases are made,
Consult an accountant, gain business advisors, contact the Small Business but paid for later, creating
Administration/SBA (www.sba.gov) or your state’s Department of Economic “accounts payable.”
Development (look in the phone book or search on the Internet). Your advisors‘
• Assets (like equipment) are
input is valuable but don’t be totally dependent on them. Educate yourself.
You should have a basic understanding of your company’s finances. depreciated over their lifetime.
Know how to read your own financial statements and reports. This is tax deductible.
• Poor management • Net Income does not always
A business needs a good financial manager (within the company or an outside mean cash since money is
advisor). It’s your money, so be very self-disciplined. tied up in accounts receivable
• Reluctance to invest in the business
and inventory.
Why should the lender stand behind you if you won’t invest any of your own money?
You must put a percentage of your own money into the company (usually 25% to 50%).
• Failure to personally guarantee the loan repayment
If the business fails for any reason, the owners must repay the loan. Lenders need
to be assured of your total commitment.
20

1 PERSONAL FINANCIAL STATEMENT


WHAT’S THE Complete a Personal Financial Statement for each person listed in the business plan who
BIG IDEA? will be guaranteeing the loan (partners, officers, stockholders). It’s a good idea to order your
Personal financial health credit report from the three credit bureaus and review it because lenders will scrutinize it.
is carefully examined by Be prepared to explain any negative reports.
the lender or investor.
Most lenders will supply you with their own Personal Financial Statement form,
but the information they usually request is shown in this sample.

PERSONAL FINANCIAL STATEMENT


Stocks & Bonds:
The total is
Date ____________________________________________________________________________ included here. In
Your Name and Address ________________________________________________________ the APPENDIX,
Life Insurance: Business Name and Address ____________________________________________________ include the
In the APPENDIX,
Social Security ________________________ Date of Birth: __________________________ number of
provide face
Phone: ___________________Fax: ___________________________E-mail: ______________ shares, name
amount and cash
of securities,
surrender value
cost, market
of policies, name ASSETS & LIABILITIES value with date.
of insurance
ASSETS (what you own)
companies and
Cash $ _________________________________
beneficiaries.
Savings Accounts $ _________________________________ Real Estate:
Retirement Accounts $ _________________________________ Total included
Accounts & Notes Receivable $ _________________________________ here. In the
Other Property:
Describe in the Life Insurance, cash surrender value $ _________________________________ APPENDIX,
APPENDIX. If Stocks & Bonds (market value) $ _________________________________ list each and
any pledged as Real Estate (market value) $ _________________________________ include: type of
security/collateral, $ _________________________________ property, date
Automobiles (market value)
include name $ _________________________________
purchased,
Other Property
and address of original cost,
Other Assets $ _________________________________
lien holder, lien and the present
TOTAL ASSETS $ _________________________________
amount, and market value.
payment terms. Also include
LIABILITIES (what you owe) the mortgage
Accounts Payable $ _________________________________ account number,
Notes Payable $ _________________________________ balance, and
Residential Mortgage, balance $ _________________________________ monthly
Notes Payable: payment.
Investment Mortgage, balance $ _________________________________
In the APPENDIX,
include the name Installment Loan Balance, auto $ _________________________________
and address of Installment Loan Balance, other $ _________________________________
the noteholder, Unpaid taxes $ _________________________________ Unpaid taxes:
original loan $ _________________________________ Describe in the
Other liabilities
balance, current APPENDIX the
TOTAL LIABILITIES $ _________________________________
balance, payment type of tax, who
amount, and taxes are owed
NET WORTH (assets less liabilities) $ _________________________________
what collateral is to, the amount,
TOTAL LIABILITIES + NET WORTH $__________________________________ when it is due
used for security.
and whether
there is a lien
on any property.
21
PERSONAL FINANCIAL STATEMENT

INCOME & EXPENSES


ANNUAL INCOME:
Salary, Bonuses, and Commissions $ _________________________________
Dividends, Interest, Investment income $ _________________________________
Real Estate Income $ _________________________________
Other Income $ _________________________________
TOTAL ANNUAL INCOME $ _________________________________
Annual Expenses:
Multiply your monthly ANNUAL EXPENSES:
expenses by 12. Mortgage/Rental payments $ _________________________________
Loans and notes payable $ _________________________________
Taxes: Federal, State, Local, Property $ _________________________________
Insurance premiums $ _________________________________
Alimony and child support $ _________________________________
Contingent liabilities: Tuition $ _________________________________
Are you an endorser, Medical Exp./Insurance $ _________________________________
co-maker or guarantor of
Contingent liabilities $ _________________________________
other loans? If so, are
Other Debt or Liabilities $ _________________________________
there any legal actions
or contested taxes? TOTAL ANNUAL EXPENSES $ _________________________________

This statement is true and accurate.


I authorize any inquiries necessary to verify its accuracy.

(your signature and date) _________________________________________

In the APPENDIX, include copies of:


• Assets: life insurance statements, stocks and
bonds, real estate, and personal property.
• Liabilities: notes payable, mortgages on real
estate and unpaid taxes.
• Loans/mortgages: monthly payment amount
and a copy of the last statement.
• Three years of tax returns for each owner.
22

2 BALANCE SHEET
Y O U R B A L A N C E S H E E T INCLUDES T H E F O L L O W I N G :
WHAT’S THE
BIG IDEA? ASSETS Fixed Assets (net) Accounts Payable (A/P)
What the company owns Fixed Assets minus Accumulated Purchases not paid for
The Balance Sheet is Depreciation
Current Assets Total Current Liabilities
like a snapshot of your Can be converted into cash in one year Advances to Owners Total all the Short-Term Liabilities
business, frozen for a Money that owners take out of the busi-
Accounts Receivable Long-Term Liabilities
ness in the form of a loan to be repaid
second. The numbers Sales made but not collected Due for more than one year
Total Non-Current Assets
change every day. Inventory Loan Payable
Add up all the Non-Current Assets
Inventory on hand, waiting to be sold Due after one year’s worth of payments
Total Assets
Total Current Assets Total Long-Term Liabilities
Add Current Assets and Non-Current Assets
Add up all of the Current Assets Total all the Long-Term Liabilities
s
LIABILITIES
Liabilitie Non-Current Assets Total Liabilities
How much the company owes
Add the Long-Term and Current
L
Assets Takes one year or more to turn
into cash Current Liabilities Liabilities
Liabilities due within one year
Think of the balance sheet as Fixed Assets CAPITAL OR NET WORTH
a seesaw. The assets and This includes property, plant, Current Portion of The business’ equity
liabilities alone are out of and equipment Long-Term Debt
balance. Capital, the last weight Owners Investment
you put on the scale, makes One year’s worth of loan payments
Less Depreciation Amount of money owners have invested
a perfect balance. Note Payable
Subtract Accumulated Depreciation
Retained Earnings
Assets Liabilities+Capital Due within one year
Income earned and kept in the business
L Total Capital
Max Computer Company Add Owners Investment and
Balance Sheet Retained Earnings
December 31, 2008
Total Liabilities & Capital
Depreciation: ASSETS Add Liabilities and Capital.
Except for land, assets Current Assets: Equal to Total Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,000
wear out. The value Accounts Receivable . . . . . . . . . . . . . . . . . . . . 75,000
goes down and can be Inventory (ending) . . . . . . . . . . . . . . . . . . . . 85,000
deducted. Values for Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . 170,000 Date:
assets are presented Non-Current Assets Include last three years’
via a reserve for depre- Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . 140,000 fiscal year-end statements
Less Accumulated Depreciation . . . . . . . . . . (25,000) and an interim statement
ciation. Market value, Fixed Assets (net) . . . . . . . . . . . . . . . . . . . . 115,000
or the price you could Advances to Owners . . . . . . . . . . . . . . . . . . . 6,000
(not more than three months
sell it for, will differ Total Non-Current Assets . . . . . . . . . . . . . . . . . . . . . . 121,000 old) in the APPENDIX.
from this figure. Total Assets (170 + 121) . . . . . . . . . . . . . . . . . . . . . . . . 291,000 Start-up companies: Include
an opening Balance Sheet
LIABILITIES (what the balance sheet will
Current Liabilities look like the day after the
Current Portion of Long-Term Debt . . . . . . . . . 6,000
Note Payable . . . . . . . . . . . . . . . . . . . . . . . . . 100,000
loan closes).
Accrued Taxes . . . . . . . . . . . . . . . . . . . . . . . . 3,000
Accounts Payable(A/P) . . . . . . . . . . . . . . . . . . 41,000
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . 150,000
Long-Term Liabilities
Loan Payable . . . . . . . . . . . . . . . . . . . . . . . . . 54,000
Owners Investment: Total Long-Term Liabilities . . . . . . . . . . . . . . . . . . . . . . 54,000 These
numbers should
Also called capital Total Liabilities (150 + 54) . . . . . . . . . . . . . . . . . . . . . . . 204,000
be the same.
or common stock in
CAPITAL OR NET WORTH
a corporation
Owners Investment . . . . . . . . . . . . . . . . . . . 20,000
Retained Earnings . . . . . . . . . . . . . . . . . . . . 67,000
Total Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 87,000
Total Capital:
Also called net worth Total Liabilities & Capital (204 + 87) . . . . . . . . . . . . . . . 291,000
23
BALANCE SHEET

Your Company Name


BALANCE SHEET
date of statement

ASSETS
Current Assets
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . $
Inventory (ending) . . . . . . . . . . . . . . . . . . . . . . . . $
Other Current Assets . . . . . . . . . . . . . . . . . . . . . . . $
Total Current Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

Non-Current Assets
Fixed Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Less Depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . $
Fixed Assets (net) . . . . . . . . . . . . . . . . . . . . . . . . . $
Advances to Owners . . . . . . . . . . . . . . . . . . . . . . . . $
Other Non-Current Assets . . . . . . . . . . . . . . . . . . . $
Total Non-Current Assets . . . . . . . . . . . . . . . . . . . . $
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

LIABILITIES
Current Liabilities
Current Portion of Long-Term Debt . . . . . . . . . . . . . $
Note Payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accrued Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
Accounts Payable(A/P) . . . . . . . . . . . . . . . . . . . . . . $
Total Current Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
These
Long-Term Liabilities numbers should
be the same.
Loan & Notes Payable . . . . . . . . . . . . . . . . . . . . . . $
Total Long-Term Liabilities . . . . . . . . . . . . . . . . . . . $
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $

CAPITAL
Owners Investment . . . . . . . . . . . . . . . . . . . . . . . . $
Retained Earnings . . . . . . . . . . . . . . . . . . . . . . . . $
Total Capital $
TOTAL LIABILITIES & CAPITAL $
24

3 INCOME STATEMENT
YOUR INCOME STATEMENT INCLUDES THE FOLLOWING:
WHAT’S THE
BIG IDEA? SALES Less: Ending Inventory Operating Income
Net Sales This number becomes the beginning (or Loss)
The Income Statement Revenue or income. Gross sales inventory for the next year’s Income Shows how the business performed.
is before returns and allowances. Net Statement.
is your company’s report Interest Expense
sales is after returns and allowances.
card. Expenses are Total Cost of Goods Sold Subtract interest expense.
Less Cost of Goods Sold Compute the Cost of Goods Sold.
subtracted from income, Net Profit before taxes
Cost to make products including
Gross Profit Less: Income Taxes
which gives you the materials and labor.
Sales less cost of goods sold. Tax rates depend on your
business’ financial Beginning Inventory This is your profit margin. business’ legal status.
Comes from the Ending Inventory
performance or net profit
of the previous year.
(or loss) over a period of EXPENSES PROFIT
Purchases Selling Expenses Profit left after all expenses
time. Other names for Used to make product. Salaries and expenses related (including taxes) have been paid.
the Income Statement to sales only.
Labor
are Operating Statement, Used to make product only. Other General and Administrative
labor-related expenses are included All other expenses used to run
Earnings Statement, or in the Operating Expenses section. the company.
Profit and Loss Statement.

Date:
Max Computer Company Represents activity for an
INCOME STATEMENT entire period, at the end
December 31, 2008 of that time period.
Net vs. Gross Sales
Gross sales is the amount SALES
before adjustments (like
Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .900,000 $75,000 was the ending
returns and allowances).
Less Cost of Goods Sold: inventory for the previous year
The adjusted figure is
Beginning Inventory . . . . . . . . . . . . . 75,000 and became the beginning
Net Sales.
Purchases . . . . . . . . . . . . . . . . . . . . 350,000 inventory for 2008.
Labor . . . . . . . . . . . . . . . . . . . . . . . .200,000
Total . . . . . . . . . . . . . . . . . . . . . . . .625,000
Operating Income:
Less: Ending Inventory . . . . . . . . . . - 85,000
Gross Profit less Selling This number is pulled
Cost of Goods Sold (625 less 85) . . . . . . . . . . . . . . 540,000
Expenses and General/ from the Balance Sheet
GROSS PROFIT (900 less 540) . . . . . . . . . . . . . . . 360,000
Administrative Expenses. on page 22.

EXPENSES
Operating Expenses:
In the APPENDIX, Selling Expenses . . . . . . . . . . . . . . 90,000
include three years’ fiscal General & Administrative . . . . . 170,000
Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 260,000
year end statements plus
Operating Income (360 less 260) . . . . . . . . . . . . . 100,000
an interim statement Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . 20,000
(not more than three
Important Note: Compare
months old). PROFIT
numbers in the current year’s
Net Profit before taxes (100 less 20) . . . . . . . . . . . . 80,000
Income Statement with the
Start-up companies: Less: All Income Taxes . . . . . . . . . . . . . . . . . . . . . . 27,000
previous year. For control
Project month by Net Profit (80 less 27) . . . . . . . . . . . . . . . . . . . . . . 5 3,000
purposes, you need to know
month for the first year, if income/profits and expenses
quarterly for the second are going up or down.

year and one whole year


for the third year.
25
INCOME STATEMENT

Your Company Name


INCOME STATEMENT
Date of Statement ____________________________________
SALES

Net Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$

Less Cost of Goods Sold:

Beginning Inventory . . . . . . . . . . . . . . . . . . . . . . . . .$

Purchases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$

Labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$

Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$

Less: Ending Inventory . . . . . . . . . . . . . . . . . . . . . .-.$

Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$

Gross Profit (sales less cost of goods sold) . . . . . . . . . . . . . . . . . . . . . . . $

EXPENSES

Operating Expenses:

Selling Expenses . . . . . . . . . . . . . . . . . . . . . . . . . .$

General and Administrative . . . . . . . . . . . . . . . . .$

Total Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$

Operating Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$

Interest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$

PROFIT

Net Profit before taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$

Less: All Income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$

Net Profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .$
26

4 CASH FLOW STATEMENT


WHAT’S THE Name of Business Start-Up Month 1 Month 2 Month 3 Month 4
BIG IDEA? Costs FIRST MONTH’S
REVENUE

The Cash Flow Statement is your A. CASH ON HAND


(Beginning of month)
cash “register.” It shows money that
B. CASH RECEIPTS
comes into the business and what 1. Cash Sales
goes out. Profits do not guarantee 2. Collections from Credit Accounts
positive cash flow. You need to know 3. Loan or Other Cash injection (Specify)
or estimate income and expenses C. TOTAL CASH RECEIPTS (B1+B2+B3)
based on the direct and variable D. TOTAL CASH AVAILABLE
costs of your products or services. (A + C, before cash paid out)
Cash must be available to pay bills on E. CASH PAID OUT:
time and for day-to-day activities. 1. Purchases (Merchandise)

This statement will also show an 2. Gross Wages

important figure, the breakeven point, 3. Payroll Expenses (Taxes, vacations, etc.)

when cash income equals the cash 4. Outside Services (Outside labor)

outflow (see page 30). 5. Supplies (Office & operating, not for re-sale)
6. Repairs and maintenance
Tips for preparing
7. Advertising
Cash Flow Statements:
8. Car, Delivery and Travel
Numbers in the Cash Flow Statement 9. Professional Services (Accounting, legal, etc.)
will also appear in the Income 10. Rent (real estate only)
Statement. However, the Cash 11. Telephone
Flow Statement differs because it 12. Utilities (Water, heat, electricity, etc.)
records when cash is received, 13. Insurance (on business property & products)
when cash is paid, and how much 14. Taxes (Real estate, sales, inventory, etc.)
cash you have reserved. 15. Interest (on loans)
• Begin with income at the top, 16. Other Expenses (Specify each)
followed by expenses and repayment
17. Miscellaneous (small expenses)
of the loan.
18. Subtotal
• Show realistic assumptions. If sales
F. OTHER OPERATING COSTS:
increase 80% every year, this may
seem unrealistic. Prove assumptions 1. Loan Principal Payment (include equipment)
and include them in the APPENDIX. 2. Capital Purchases (Specify)

• Cash jumps up from year 1 to 2 3. Other Start-up Costs


because start-up costs are large in 4. Reserve and/or Escrow (Insurance, tax, etc.)
the first year. 5. Owner’s Withdrawal (income tax, etc.)
• Negative balances are common in G. TOTAL CASH PAID OUT
the first year. They must be covered (E18 + F1 through F5)
by providing more cash (loans or H. CASH POSITION
owners’ investments), or by reducing (End of month, D minus G.
expenses. Becomes cash on hand for next month)

• Increased sales can cause a cash drain ESSENTIAL OPERATING DATA


(due to increased costs or labor). (Items explained on page 27)
Show how you will overcome this. 1. Accounts Receivable (End of month)

• Show monthly figures in the first year, 2. Bad Debt (End of month)
quarterly figures in the second year, 3. Inventory on Hand (End of month)
and a lump sum or one figure in the 4. Accounts Payable (End of month)
third year.
5. Monthly Depreciation
27
CASH FLOW STATEMENT

Month 5 Month 6 Month 7 Month 8 Month 9 Month 10 Month 11 Month 12 Total


START-UP COSTS
- PLUS -
COLUMNS 1-12

ESSENTIAL
OPERATING
DATA
The five items shown at
the bottom of the Cash Flow
Statement can be kept
separately and included at
the bottom of your monthly
cash flow projections. They
are important planning
and cash flow projection
tools.
1. Accounts receivable
Previous unpaid credit
sales, plus current month’s
unpaid credit sales.
2. Bad Debt
Should be deducted from
the month. This figure is
based on past history or
industry standards.
3. Inventory on Hand
Any products available
for sale at the end of
the month.
4. Accounts payable
Any accounts due at the
end of the month.
5. Depreciation
Assets wear out and lose
value. The monthly depre-
ciation value is established
by your accountant
(as allowed by the IRS).
28

R AT I O S
WHAT’S THE BIG IDEA?
Ratios are your business’ scores. Even
2 L I Q U I D I T Y R AT I O S
though ratios are not included in your
business plan, they will be calculated by
Working Capital
lenders to make decisions. Number Source: Balance Sheet (pg. 22)
Current F O R M U L A
Lenders and investors compare your ratios to: Assets
• acceptable bank ranges (pg. 22) Working
• a company’s prior years
• your business’ history
• other companies in your industry
Subtract
Current
Liabilities
$170,000
- $150,000 = $20,000
Capital

(pg. 22)
Industry averages are found in reference books and on N O T E : Shows if a company has enough cash to pay bills.
the Internet. They include the RMA Annual Statement
This example shows an excess amount after paying all current
Studies, the Almanac of Business and Industrial Financial
Ratios, Dun & Bradstreet, your industry’s associations,
liabilities. The answer must be positive. More money is needed
trade periodicals (magazines and newspapers for your to meet expenses if the answer is negative.
industry), and the Small Business Administration/SBA
(www.sba.gov).
Quick or Acid Test
Number Source: Balance Sheet (pg. 22)
1 A S S E T M A N A G E M E N T R AT I O S Total Current Assets
of $170,000
The answer
should be 1
(pg. 22) less F O R M U L A or more. In
Accounts Receivable Turnover Inventory of this example,

=
$85,000 $85,000 the answer,
Number Source: Balance Sheet (pg. 22) (pg. 22) .56 $0.56, is less
$150,000 than 1. The
& Income Statement (pg. 24) company
Total could not pay
Current Liabilities (pg. 22) all its current
Accounts
F O R M U L A liabilities
Receivable N O T E : Inventory may become no longer useful.
It takes without
($75,000

=
$27,375,000 30 days This ratio eliminates inventory from current assets selling some
on pg. 22)
30.4 to collect inventory.
X 365 days and cash. It’s called “quick” because it includes
$900,000 bills
items that can be turned into cash.
Net Sales Figure (pg. 24)

N O T E : This shows how many days it takes to collect Current


money owed to you. Lower answers are better. Number Source: Balance Sheet (pg. 22)
Total F O R M U L A
Current
Inventory Turnover Number

Number Source: Balance Sheet (pg. 22)


& Income Statement (pg. 24)
Assets
(pg. 22)
$170,000
$150,000 = 1.13
of times
you can
pay current
liabilities
Total Current
Liabilities (pg. 22)
Inventory
Figure F O R M U L A
($85,000 on N O T E : Tests a company’s short-term debt paying ability.
pg. 22) 57 days to
This means there is is $1.13 in cash and current assets
X 365 days $31,025,000
$540,000 = 57.4
turnover
or sell the
inventory
available to pay every $1 of current liabilities.

Cost of Goods Sold ( pg. 24)

N O T E : This formula shows how many days it takes you to


turnover (or sell) your inventory. Lower answers are better.
29

R AT I O S
3 D E B T M A N A G E M E N T R AT I O S 4 P R O F I TA B I L I T Y R AT I O S

Leverage (or Debt-to-Worth) Very rtant


Profit Margin on Sales

VIR
o
Number Source: Balance Sheet (pg. 22) Imp Number Source: Income Statement (pg. 24)
o
Rati
F O R M U L A
F O R M U L A Net Profit The profit
Total (pg. 24)
The
Liabilities
(pg. 22) $204,000
$87,000 = 2.34
company
is leveraged
2.34 times Net Sales
(pg. 24)
$53,000
$900,000 = .0588
margin is
5.9%

Total Capital
(pg. 22)
N O T E : Shows the percentage of net profit for every dollar of
N O T E : Determines if a company has enough equity. sales. If the profit margin is too low: the prices are too low, the
Lower answers are better. Lenders prefer this ratio to be cost of goods is too high, or expenses are too high. Compare
3 or lower. the profit margin to previous years (if the business is over three
years old). New businesses may compare the profit margin to
Accounts Payable Turnover
those published in RMA studies or by trade associations.
Number Source: Balance Sheet (pg. 22)
& Income Statement (pg. 24)
Cash Flow to Current Maturities
Very rtant

VIR
Accounts
F O R M U L A
(Debt Service) Imp
o
Payable at o
Accounts NumberSource:Balance Sheet (pg. 22) Rati
$41,000
Payable
(pg. 22)
X 365 days

Purchases
$14,965,000
$350,000 = 42.75 are paid
every
43 days
& Income Statement (pg. 24)
Net Profit of F O R M U L A
For every
$53,000
(pg. 24) dollar of

N O T E : Shows how quickly a company pays its suppliers.


Lower numbers are better.
(pg. 24) +
Depreciation
of $10,000
(amount
$63,000
$6,000 = 10.5
debt, 10.50
is available
to pay it
created
for this
example). Current Portion of Long-Term Debt (pg. 22). For new
businesses, use one year’s worth of loan payments.

N O T E : Shows your ability to pay term debts after


YOUR BUSINESS: owners’ withdrawals. Lenders prefer 2 or better.
R AT I O A N A LY S I S
YOUR ANSWER

Assets 1 Accounts Receivable Turnover


Inventory Turnover

Liquidity 2 Working Capital


Quick or Acid Test
Current

Debt 3 Leverage (or Debt-to-Worth)


Accounts Payable Turnover

Profit 4 Profit Margin on Sales


Cash Flow to Current Maturities
(Debt Service)
30

FINANCIAL FORMULAS
When a company has neither a profit nor a loss, it is the breakeven point. It is
BREAKEVEN POINT important to determine your breakeven point so you know the sales needed for
your business to be profitable. The numbers for this formula come from your Income Statement (see page 24).

NUMBERS USED IN THIS EXAMPLE COME


FROM THE INCOME STATEMENT ON PAGE 24.

1 Determine your Net Sales $900,000 NET SALES 100%

2
Total your Variable Expenses and divide them by the $540,000 COST OF GOODS SOLD 60% (540K/900K)
Net Sales to calculate the percentages they represent +$90,000 SELLING EXPENSES + 10% (90K/900K)
$630,000 TOTAL VARIABLE EXPENSE 70% (630K/900K)

100%
3
Subtract your Total Variable Expenses from your $900,000 NET SALES
Net Sales to calculate the Margin. -$630,000 TOTAL VARIABLE EXPENSE - 70%
$270,000 MARGIN 30% or .30

4
Divide your Fixed Expenses by the Margin $170,000 FIXED EXPENSES (this number comes from page 24 General & Administrative)
and the answer is your Breakeven Point ÷ .30 MARGIN
$566,667 BREAKEVEN AMOUNT
This company needs sales of $566,667 to break
even. One dollar more and the business is profitable.
One dollar less and the business shows a loss.

1-2-3 METHOD FOR LOAN DECISIONS


USE THE 1-2-3 METHOD TO PRE-QUALIFY AND CALCULATE YOUR MAXIMUM LOAN AMOUNT.
EXPLANATION EXAMPLE: ABC Company ANSWER

This is a common discount formula used with collateral:


1 DISCOUNTED Every $1 borrowed must be
COLLATERAL covered by $1 in collateral. Market Discount Discounted
EXAMPLE:
Also called Lenders discount the value Value Percentage Value
COLLATERAL of assets (collateral) so the
COVERAGE • Inventory $30,000 50% $15,000 Maximum
discounted value must equal
loan
the loan amount. This • Fixed Assets $50,000 50% $25,000
based on
covers the lender in case of • Accounts $20,000 25% $15,000 THE LOAN
discounted
foreclosure. See page 18. Receivable
collateral is DECISION
Total $100,000 $55,000 $55K
The lowest of
For every $2 a business The ABC Company needs to calculate how much they can
2 THE ABILITY the three answers
TO REPAY has in annual cash flow, borrow and afford to re-pay for a seven-year loan:
the bank will allow $1 in • $12K net profit + 3K in depreciation = $15K annual cash flow calculated here
Also called
DEBT SERVICE loan payments. • $15K x 50% = $7.5K the maximum lenders usually allow in Maximum is the maximum
COVERAGE annual payments is half of the annual cash flow loan
• $7.5K/12 months = $625 maximum monthly payment based on loan size. The
• $625/$17.13* = $36.48K rounded to $36.5K the ability maximum
*Monthly payment on a $1000, seven-year loan with an to repay is
loan size for
interest rate of 11% is $17.13 $36.5K
ABC Company

3 EQUITY A business can borrow Assume ABC Company wants to refinance a $75K Maximum loan based
Also called $3 for every $1 invested. loan. The business has assets of $100K, liabilities of on equity is $75K ($25K is $36.5K.
DEBT-TO-WORTH $75K, and Net Worth or Equity of $25K. in equity x 3)
or LEVERAGE
$75K
31

APPENDIX ITEMS CHECKLIST


The APPENDIX comes at The first page of your Appendix should be a listing In general, your Appendix should include:
the end of your business plan. of its contents. Organize the documents in the a) estimates for anything being purchased
It includes all the details and order they are referred to in your business plan. b) estimates on any work to be done
documents that support your The Appendix grows so it’s a good idea to use a c) copies of documents related to loans, mortgages,
business plan. 3-ring binder with tabs or an expandable file. and accounts payable to be refinanced

To Do Done

Page 8 > BUSINESS DESCRIPTION • Patents and trademarks.


• Legal documents filed with your state or municipality • Purchase-and-sale agreement and/or an offer to buy and any
To Do Done
legal documents that apply to the purchase
Page 9 > BUSINESS DESCRIPTION, EXPLAINED To Do Done

• Detailed industry information including economic trends, Page 18 > LOAN REQUEST
growth patterns and forecasts. • The use of loan proceeds: Include quotes and a breakdown of
To Do Done
furniture, fixtures, equipment and machinery.
Page 10 > MANAGERS & EMPLOYEES • Collateral: Make, model, year, serial number, and fair market
• Managers’ job descriptions, salaries and benefits. value of furniture, fixtures, equipment and machinery.
• Monthly cost and explanation of outsourced services or functions. • Cash Flow analysis to prove working capital needs.
• Managers and employees resumes To Do Done

To Do Done
Page 20 > PERSONAL FINANCIAL STATEMENT
Page 11 > OPERATIONS & LOCATION • Stocks & Bonds: The number of shares, name of securities, cost,
• Include proposed rentals, leases or purchases of furniture, market value with the date.
fixtures, equipment and machinery. • Life Insurance policies: Provide the face amount and cash surrender
• Suppliers names, addresses, products or services supplied, value, name of insurance companies and beneficiaries.
costs/quotes, delivery/shipping fees, turnaround, terms of sales, • Real Estate: List each property and include the date purchased, its
contracts, and a purchasing plan. original cost, and the present market value. Also include the mort-
• Details about assistance from your suppliers. gage account number, loan balance, and the monthly payment.
• Provide a copy of the deed if you own the business location. • Other property: Any pledged as security/collateral. Include the
If buying the location, include a purchase-and-sale agreement name and address of lien holder, lien amount, and payment terms.
and related legal documents. An appraisal of the building, the • Notes Payable: Include the name and address of the noteholder,
assets and liabilities along with an environmental inspection, will original loan balance, current loan balance, payment amount,
be done by the lender. and what collateral is used for security.
• If your location is leased, include a copy of the lease • Unpaid taxes: Describe the type of unpaid tax, who taxes are
(or proposed lease) with terms, conditions, and cost. owed to, the amount, when it is due, and whether there is a lien
• Show quotes for improvements and renovations. on any property.
• Traffic patterns if you own a retail business. To Do Done

• Zoning statement from local government. Page 21 > PERSONAL FINANCIAL STATEMENT
• Approval letters from local and state inspectors (building, fire, • Copies of life insurance statements, stocks and bonds certificates,
health, environmental, and occupational safety). and real estate deeds.
• Photos of your location, inside and outside. Include a floor plan, • Copies of notes payable, real estate statements with monthly
blueprint or plot plan (if constructing location). payment amounts, and unpaid tax bills.
To Do Done
• Copies of signed tax returns (past three years) for each owner.
Page 12 > MARKETING To Do Done

• Detailed plans and costs for research and development. Page 22 > BALANCE SHEET
• Advertising and promotional ideas, schedules and budgets. • Existing businesses: Last three years’ fiscal year-end statements
• Compensation (salary, commission, or both) details for sales and an interim statement (not more than two months old).
staff, reps, agents, brokers or wholesalers. • Start-up companies: Include an opening Balance Sheet (balance
To Do Done
sheet the day after the loan closes).
Page 15 > MARKETING • Balance Sheet before new financing and after the financing.
• Product and price comparisons of competitors. To Do Done

To Do Done
Page 24 > INCOME & EXPENSE STATEMENT (or P&L)
Page 16 > BUYING A BUSINESS • Start-up companies: Provide projections month by month for the first
• Pictures of the business location year, quarterly for the second year and one whole year for the third year.
• Detailed description • Existing businesses: Three years’ fiscal year end statements plus an
• Appraised value of the building, inventory and equipment. interim statement (not more than two months old).
• Inspection reports (if available). If not, let the lender order them. • Provide a three-year projected Cash Flow analysis (monthly for
• Copies of tax returns (past 3 years) from the seller and interim the first year, quarterly for the second year, and a lump sum for
(year-to-date) Income Statement and a current Balance Sheet. the third year) to prove the need for working capital.
For more information:

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