Spell out your plans in detail in order to get startup financing.
For startup ventures, a well-written business plan will play an important role in the success of the business, but also will be required by banks to consider financing. The business plan basics should provide the bank with an overview of the company, market and competition, along with financial projections.
I highly recommend that entrepreneurs work with a certified public accountant to draft the financial projections. A CPA with experience in your type of business or industry can provide valuable insight on various factors impacting revenues and costs that will be needed to put together your company's balance sheet and income statement. This, along with footnotes and supporting documentation on how you arrived at your figures, will play a vital role in helping banks determine if the projections are achievable. Not providing this detail will make it almost impossible for a bank to consider your financing request, so take the time and spend the money to make sure your projections are realistic and supported by industry data.
A good business plan should consist of eight sections.
* Section 1: The executive summary should provide a succinct explanation of your business and its activities, with an overview of your key objectives and business goals.
* Section 2: The business description should describe your perception of the company, and discuss how your business will grow and make money.
* Section 3: The market and competition section should acknowledge competitors and explain how your company is different from other providers.
* Section 4: The product and service section should describe the core of your business.
* Section 5: The section on marketing/selling should explain how you will access the marketplace. Will you advertise and by what instrument (newspapers, billboards, website, trade publications, trade shows, etc.)?
* Section 6: This section focuses on management and personnel, and should explain how you will staff and manage your business. It should include one-paragraph profiles of you, partners and any other key team members.
* Section 7: The financial data section should contain the balance sheet, profit and loss statement, break-even and cash flow analysis.
* Section 8: Include such appendices as testimonials from potential customers, research clips and anything else relevant to your business.
In addition to your business plan, include your last three years of personal tax returns and an updated personal financial statement, which breaks out your assets, liabilities and net worth. Banks must review and analyze the business owner/owners to determine if they have outside income and assets to assist with startup expenses or to pledge as collateral for loans.
It is important to note that due to the inherent risk associated with startup businesses, banks will likely use a government enhancement program to mitigate the risk. These programs are administered through the Small Business Administration and come in the form of a guaranty up to 85 percent, or a loan. Having the U.S. government guarantying the loan or collaborating with the bank with financing the new venture will provide the bank an incentive to take on the additional risk because it reduces exposure of loss.
You can get free assistance from a number of nonprofit sources, including SCORE “Counselors to America's Small Business” and local Small Business Development Centers. You can visit SCORE at www.score.org to find the chapter nearest to you.
Steve C. Kring is LaPorte County market president at Horizon Bank in Michigan City.
