The decision to expand your business, purchase a new building or a piece of machinery is no doubt a big decision for a business owner, especially when deciding to use your own resources or borrow from a bank. In today’s regulatory environment, banks are no longer lending based on the collateral; they are focusing more on the business history, the owners, their future plans and how they plan to repay the loan.
“A business plan is an excellent way to tell bankers about the story behind the numbers and let them know you have a good handle on the future of your business,” says Betty Uribe, executive vice president for California Bank & Trust.
Smart Business spoke with Uribe about how to develop a business plan to increase your chances of obtaining a business loan.
Why are business plans important to lenders?
Just as a builder utilizes a blueprint to build a structure, and travelers use a roadmap to get to their destination, business owners must use a well-thought-out business plan to dramatically increase their odds of succeeding. When presenting a loan package to a lender, an organized, well-thought-out business plan can make the difference between getting the loan and getting a decline letter in the mail.
A business plan will:
- Show the lender if the business has a chance of making a profit and in what amount of time.
- Provide a well-thought-out estimate of how much the business needs to grow.
- Convince the lender to fund your business.
- Define the business market, the customers and the percentage of the market the business plans to reach, hereby providing a clear revenue estimate.
- Show the lender potential issues, and how the borrower plans to address them.
What are the steps involved in creating a good business plan?
First, start with an outline and fill in the blanks as you learn more about the process. Keep in mind that your plan should be only as big as necessary for your firm to run smoothly. In fact, the outline alone may suffice, particularly if you are not submitting the plan in a package to obtain financing.
There are many tools to consider when embarking on your business plan. Many seasoned entrepreneurs like to calculate a break-even analysis to predict future viability in their respective fields. In a nutshell, this is a formula based on the relationship between revenue, fixed costs, variable costs and profit. The analysis can show you how much money you must bring in to stay solvent.
Another preliminary tool is a feasibility plan, a basic document that features a summary, mission statement, market analysis and required success factors. It also might include an initial cost analysis addressing pricing and potential expenses. A feasibility study is yet another vehicle to help you determine whether starting a business can work for you.
What resources are available to help business owners develop a business plan?
An abundance of business planning software is available with some programs costing less than $100. Designed to help strategize, sort and calculate related financial data, these products also generate high quality tables and charts with just a few keystrokes. Plenty of free information is available on the Internet, too, but choose this material wisely. When in doubt, consult your business bankers; they will be happy to provide the right resources and guide you through the process.
Agencies such as the Small Business Administration (www.sba.gov) and SCORE, the Service Corp of Retired Executives (www.score.org) offer detailed information on developing a solid business plan.
In additon, through TEAM (Tools, Education, Access, and Mentoring at www.calbank trust.com/team) California Bank & Trust offers a full scope of tools and information to help businesses get started and succeed. Our Business Resource Center (www.calbank trust.sbresources.com) is another valuable source of information for business owners.
How do you get started?
Most experts outline 10 key components for a basic business plan. Key components include:
- Cover sheet
- Table of contents
- Executive summary
- Company description
- Product or service description
- Market analysis
- Strategy and implementation
- Time table
- Management team
- Financial analysis
What should a buisness owner do with the business plan once it’s written?
- Start by recording overall business or long-term goals on a spreadsheet.
- Set the bar high enough to grow.
- Make sure your goals are S.M.A.R.T. Specific, Measurable, Attainable, Relevant and Time-bound. They must be easily identified, quantified and understood by you and your management team or you won’t know when you reach them.
- Set quarterly, monthly, weekly and daily objectives, then record your progress.
- Do not share or discuss goals with negative individuals. They get in the way of progress.
- Regularly ask yourself, ‘Does this decision take me closer to or further from my goal?’
Once the business plan is established, what else can business owners do to help grow their business?
Growing a business takes commitment and systematic planning. Educate yourself. The more you learn about your industry, competitors, finances and time management, the greater your chances of success.
Betty Uribe is an executive vice president of California Bank & Trust. Reach her at email@example.com.
Insights Banking & Finance is brought to you by California Bank & Trust
The beginning of a new year often comes with a sense of endless time and possibilities. We often make aggressive business plans for many months out and then wait to execute because we have so much time.
Every small business owner knows time can easily get consumed by the daily running of the business, leaving you with a well thought out plan that never materializes. As you start the year, now is the time to schedule business coaching sessions with someone who will energize you into action or renewed action on a regular basis. To get the most out of your coach:
Identify the right coach for you. Successful business owners focus on continual innovation to remain competitive. They often seek out and rely on advice from others who are more knowledgeable than they are. Similarly, you should seek a coach who has experienced what you are facing and who has triumphed. In business, they are often outspoken, leaders in industry and trade associations or policy researchers in government and university settings. In life, they are frequently counselors, pastors,and retired volunteers in non-profits organizations. By selecting a coach that fits your need, you are more assured your coach will impart guidance that is based on real business experiences.
Set a goal for each coaching session. Good mentors are invaluable and often in high demand. Decide which one to two items you want to address for each meeting. Determine what one key question you want answered on each topic in advance of the meeting. By being prepared, you will show your coach that you value his or her opinion and time, and you will find your coaching sessions are more productive and useful to your own business plans.
Reach out before you face a crisis. The best way to avoid a calamity is to head it off when possible. Call your coach as you see potential changes developing to strategize on how you might handle the changes, if necessary. Some of the best new ideas come from free-flowing discussions and debate about possible solutions when there’s no pressure to show immediate results.
Periodically reassess your coach. As seasons change, so do family, work and professional relationships. A good coaching relationship offers ongoing useful guidance. If your coach has provided all the support he or she can and seems to be recycling the same messages, consider whether you need to pay closer attention to your coach or if it is time to find a new advisor.
A successful coaching relationship requires careful preparation and opening yourself to critiques. But it is an investment that can help steer your business to greater profitability, exposure and success in 2012.
Patricia Adams is the CEO of Zeitgeist Expressions and the author of “ABCs of Change: Three Building Blocks to Happy Relationships.” In 2011, she was named one of Ernst & Young LLP’s 2011 Entrepreneurial Winning Women, one of Enterprising Women magazine’s 2011 Enterprising Women of the Year Award and the SBA’s 2011 Small Business Person of the Year for Region VI. Her company, Zeitgeist Wellness Group, offers a full-service Employee Assistance Program to businesses in the San Antonio region. For more information, visit www.zeitgeistwellnessgroup.com.
Good news: It’s an ideal time to start a business in Columbus, according to Steve Barsotti, a director with Kegler, Brown, Hill & Ritter.
“The downturn in the economy has sparked a lot of activity in the startup space over the last few years,” Barsotti says. “Some people have started businesses by necessity as other career avenues have been cut off to them. Fortunately, the business community here is very open, with many resources available and a lot of formal and informal support.”
Barsotti emphasizes the importance of having a good business plan along with good records, books and documentation right out of the gate. “It’s critical to talk with good counsel and accountants when you first start out,” he says. “For a relatively small investment, they will help you set up the business in a way that will maximize your opportunity for growth and avoid more expensive problems down the road.”
Smart Business asked Barsotti about key considerations when starting up a business.
How does one determine the best legal structure for his or her startup?
The best legal structure depends on a number of factors, but it’s particularly important for startup companies to structure in a way that allows for flexibility and growth. The limited liability company (LLC) format is typically a good choice for startups because it provides for pass-through tax treatment and also allows the company to bring in different types of investors and structure preferred returns that investors in a start-up will often expect. Again, basic up-front legal and accounting advice can be critical. Oftentimes, new clients come to us and have already set up a structure that is less than ideal.
How important is the business plan?
A good business plan is the key. Without a good plan, there’s really no chance of getting any funding. It’s easy to get stalled. And it’s important to have a plan that is well researched and thought-out, but also builds in some flexibility. In the startup phase, you need the flexibility to improvise and adapt quickly.
Too often an entrepreneur might have a kernel of an idea, but they have not yet gone through the projections and numbers to determine if it would work as a business. The Small Business Administration (SBA) has good online resources for creating basic business plans.
How can an entrepreneur find funding in the present economic environment?
This is the toughest question for an entrepreneur to answer during the startup phase. The answer depends on the business’s capital needs and what is realistic.
A lot of businesses, in particular internet-based businesses, can be boot-strapped because they are not necessarily capital intensive. The owner uses personal savings, home equity, credit cards and ‘sweat equity’ to get the business off the ground. Asking friends and family is another common avenue, but this raises issues of securities compliance and can get pretty hairy if the business fails.
Because traditional bank financing has been difficult to come by, we’re seeing increased activity in private placement of equity investment with angels and accredited investors at an early stage, particularly for entrepreneurs who have a positive track record. Although bank financing is still tight, I always recommend talking with bankers to see what might be available. If nothing else, it can help develop a relationship and the banker can give helpful feedback on the business plan.
How can the owner protect his or her ideas and products right from the beginning?
At the startup phase, you’re trying to set up your business for cost-effective growth. Protecting your intellectual property is critical to that effort, and all startups should have an appropriate IP strategy, which will differ dramatically depending on the nature of the business. For some startups, strategic patent filings have to be made despite the cost in order for the business to have any real chance of success in the long-term. For others, patents may not be an issue, but speed to market or effective brand protection may be more critical. In all cases, you need to be smart and selective about whom you share your ideas with and you need to have basic contractual protections with those involved to protect confidentiality and to ensure that IP ownership is clearly vested in the company. Having template contracts drawn up is a small investment up front, but the consequences of not having them can be devastating and negatively impact the value of the business you’re trying to grow.
This will also help set the expectations of the people you’re dealing with.
What should the entrepreneur be aware of in terms of contracting labor or hiring employees?
Again, have good contracts. Ensure that confidentiality and non-compete agreements are in place and that intellectual property will be effectively transferred to the company. Be aware of regulatory guidelines that will help you determine whether someone is an independent contractor or an employee. If you need to hire employees, make sure you are in compliance with insurance requirements and tax filings. A good payroll service and a good accountant can certainly help avoid problems.
How can the business get additional help?
Columbus has really developed a solid network that supports startup activity. Technology companies (which include more than you may think) can find assistance with the TechColumbus TechStart Incubator, which has a high-profile presence and provides typical incubator support. In addition, the Columbus Chamber of Commerce is actively working to promote startup activity in the community and provides good networking, research and other support services. It can be a terrific resource for entrepreneurs. Many times, the key to success is simply connecting people with the right experience, vision and skill sets.
STEVE BARSOTTI is a director with Kegler, Brown, Hill & Ritter. Reach him at (614) 462-5458 or firstname.lastname@example.org.