Business Plan Workbook: A Step-by-Step
Business Plan Workbook: A Step-by-Step
Business Plan Workbook: A Step-by-Step
A Step-by-Step
BUSINESS PLAN
WORKBOOK
The Plan will help you:
Move ideas from head to paper in an organized, clear, convincing manner
Avoid the most common mistakes Keep your focus on key points
Small Business
Development Centers
Tennessee Small Business Development Center Network Lead Center
Middle Tennessee State University, PO Box 98, Murfreesboro, TN 37132
Toll Free: 877-898-3900 Phone: 615-849-9999 Fax: 615-893-7089
Greetings
from the Governor
Dear Friends:
The Tennessee Small Business Development Center (TSBDC) program headquartered at Middle Tennessee
State University continues to contribute to the development and growth of our small and medium-sized businesses. Small
businesses in Tennessee represent 85% of all businesses in Tennessee, providing a substantial number of jobs, and
contributing to the economic well-being of the state.
We continue to see positive signs of economic recovery throughout Tennessee. The TSBDCs 14 office locations
provided 20,859 businesses with counseling and training services. These business clients reported hiring 886 new
employees and retaining 1,025 employees. In addition, the TSBDCs clients are successful in securing $53,364,770 in
financing for working capital and fixed asset purchases. These achievements were realized through the collaborative
efforts of the Tennessee Board of Regents, our institutions of high education, the business community volunteers and the
U.S. Small Business Administration.
The development and growth of the Tennessee businesses profiled in this report exemplifies the economic
recovery experienced by many small businesses that the TSBDC assisted in 2011. I appreciate the contributions all
businesses make to the states economy and congratulate the business owners featured in these report for investing in
their businesses and employees.
Warmest regards,
Bill Haslam
Fellow Tennesseans:
Middle Tennessee State Universitys Tennessee Small Business Development Center program is but one example of
higher educations role in increasing economic development throughout the state. Higher education benefits business
by increasing the quality of Tennessees workforce and positioning business to compete in the global economy. Success
in business retention and recruitment requires or states residents possess essential job skills that can only be obtained
through post-secondary education.
According to the U.S. Department of Labors Bureau of Labor Statistics - Occupational Outlook through 2018, occupations
requiring post-secondary education are expected to experience high rates of growth than those in an on-the-job training
category. Specifically, occupations in the bachelors and doctoral degree categories are expected to grow by about 17
percent each while occupations in the on-the-job training categories are expected to grow only by 8 percent. Of the
projected 50.9 million job openings through 2017, professional and related occupations are projected to have the largest
number of total job openings at 11.9 million.
Higher education working in tandem with state government, business and industry is striking to increase graduation rates
to enhance opportunities for greater employment stability and upward mobility for out citizens to obtain well-paying jobs
here in Tennessee.
Sincerely,
Sidney A. McPhee
President
Middle Tennessee State University is an AA/EEO employer and does not discriminate on the basis of race, color,
national origin, sex, disability or age in its program and activities. The following person has been designated to
handle inquiries regarding the non-discrimination policies: Executive Director of Institutional Equity and Compliance,
1301 E. Main Street, CAB 220, Murfreesboro, TN 37132, 615-898-2185.
The Plan
A Step-By-Step
Business Plan
Guidebook
I nt r o d u c ti o n
Planning is your map to success
starting or buying
a business
financing or refinancing
your business
raising debt or
equity capital
of your business.
It is important that you write
your business plan. Why? You
will gain in-depth knowledge
about your business which will
make it easier to answer lenders
Design: NewGround Publications. (Phone: 800 207-3550) All rights reserved. Photocopying any part of this book is against the law. This book may not
be reproduced in any form including information storage and retrieval systems, without prior permission in writing from the publisher. 0213
How To
Use This
Workbook
Divide your business plan into
sections that match the contents
outline shown on the next page.
There is no set length for your
answers they will range from a
paragraph to a few pages long.
Once its written, your business plan
will need editing. Ask other people to
read and critique your plan. Include
a statement on the inside cover that
says its contents are condential, and
making copies is prohibited.
Your business plan should be neat
and organized to make a professional
impression. After your text is written,
use a spelling and grammar check
feature to be sure your work is error
free. For nancial data, use a spreadsheet program.
Make sure the lender is looking for loans of your size and type.
Make an appointment.
C o n t e n ts
Ask that your lenders decision be sent in writing, even if you received
the decision on the phone.
Follow up with a thank you letter and a phone call, even if your
loan request was rejected.
The Appendix
The Appendix comes at the end of your business plan and includes
all details and documents that support the plan.
Financial Statements
Formulas
Ratios .......................................... 28
Formulas ..................................... 30
EXE C U T I V E S U M M A R Y
The Executive Summary (your Cover Letter)
Briefly mention
your markets
and customers.
Include key
facts about your
competition.
Tell the lender
who should be
contacted and
provide a phone
number and
email adderss.
Include all
signature(s) and
typed name(s).
To build
the lenders
enthusiasm,
make references
to whats
included in your
business plan
Ed Rose
Tim Green
7
EXEC UTI V E S U M M A R Y ( Y OUR CO V ER LETTER )
Date____________________________________________________________________________________________________
Your address_____________________________________________________________________________________________
__________________________________________________________________________________________________________
__________________________________________________________________________________________________________
Lenders name, bank name, and address
_____________________________
_________________________________
______________________________________________
_________________________________________________________________________________________________________
_________________________________________________________________________________________________________
__________________________________________________________________________________________________________
Re: Loan Request for $______________ (fill in amount)
Dear (fill in lenders 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 industry we are entering... (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 and email address).
Sincerely,
_______________________ ____________________________
Your signature(s) and printed name(s) here
B U S I NE S S D E S C R I P T I O N
General:
List the business name,
location, mailing address,
telephone, fax, e-mail
and web site address.
Legal Business
Description:
Sole proprietorship, partnership, limited liability,
C or S corporation.
List the state where the
business is incorporated.
Purpose: Describe the
intent of your business.
GENERAL
Name:
MRJ Design
Address: 21 Longwood Drive, Orlando, Florida 32751
Phone: (407) 123-4567 Fax: (407) 123-4789
E-mail: smith@MRJ.com, Web Site: www.MRJ.com
OWNERS:
Bob Smith: 10 Brookfield Rd., Orlando, FL 32751
Phone: 407-456-7891 Social Security: 367-89-7088
Over 20 years of experience in creative management. Worked
for several design firms. Mr. Smith owns 60% of the business.
Linda Jones: 96 Elm St., Orlando, FL 32751
Phone:407-567-1234 Social Security:234-56-7891
Ten years of experience as manager of large
marketing communications department within
Fortune 1000 corporation. Ms. Jones owns 40% of the business.
Legal Status: Florida S Corporation
Purpose: Produce superior marketing communications material for
other businesses.
Status: Start-Up.
Business Type: Service
Type of business:
Retail, wholesale,
service, manufacturing,
contracting, professional,
importing/exporting.
Goals:
Include both current and
long-term projections.
Owners:
List each owners name,
business title, home
address, telephone number,
email address and social
security number. Include a
brief description of owners
and managers (experience
and credentials in running
the business) and their
ownership percentage
of the business.
Business Status:
New/start up, ongoing,
expansion, or buying
a business. Include the
date your business started
or will start. If buying
a business, include a
detailed business history
in this section.
Reasons for starting,
buying, or expanding
business.
GOALS:
Current: Bring to profitable status that will equal or exceed
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:
Talk about whats going
on in your industry,
including economic
trends, outlook, growth
patterns and forecasts.
Keep this section short.
Explain more fully in
your Marketing section.
Industry:
100 design firms and designers exist in our territory. Advertising
agencies (about 235) are also competitors but their specialty is
not design. Many companies have relocated to Orlando so the
demand for our services is growing. The number of start-up
companies numbered 6,000 last year...etc.
PROFESSIONAL RELATIONSHIPS:
Accountant:
Larry Stuart, CPA, 123 Main St., Winter Springs,
FL 32751. Ph: 407-678-9012, Fax: 407-678-7890
Attorney:
Linda Johnson of Johnson and Smith, 456 Elm St.,
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
Professional
Relationships:
Include name, address,
and telephone/fax
numbers and email
address for your
accountant, attorney,
banker, insurance agent,
and professional
advisor(s).
B U S I NE S S D E S C R I P T I O N
General
Owners
Business name_________________________________________________
Location______________________________________________________
Name________________________________________________________
Mailing address________________________________________________
Business title___________________________________________________
Phone number___________________Fax__________________________
Home address_________________________________________________
Telephone number_____________________________________________
E-Mail address_________________________________________________
______________________________________________________________
Accountant___________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
Attorney______________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
Banker________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
Insurance agent_______________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
Professional advisor(s)__________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
______________________________________________________________
To Do Done
To Do Done
Reasons
Goals
expanding business.
To Do Done
To Do Done
Industry
Provide a summary.
To Do Done
Purpose
Describe the intent of your business.
To Do Done
Keep Track
Use this check box as a
reminder system. Some
10
M ANA G E R S & E M P L O Y EE S
To Do
To Do
Done
Done
Managers
To Do
Done
Employees
How many part-time and full-time employees
team, explain how they will be filled. Lenders also like to see a back-up plan.
(example below).
To Do
Done
keep them?
To Do
Done
Costs
Include managers job descriptions, salaries,
benefits and rsums in the Appendix.
To Do
Done
Finance Manager
Sales/Marketing Manager
Done
Operations Manager
Ground Employee
Administrative Asst.
Ground Employee
To Do
Done
Ground Employee
Ground Employee
Finance
Mike Jones (accountant and owner)
20 years of accounting experience in various industries...
To Do
Done
Lee Myers
10 years of marketing experience. Myers will be responsible for the
sales staff (estimators), customer service, promotional plans...
financial reporting.
To Do
Operations
John Smith
20 years of operational experience in landscaping industry. Smith
will supervise the grounds staff and handle ...
Four full-time grounds employees starting at minimum wage for working Monday- Friday, 7:00 a.m. to 3:30 p.m. A two-day training program
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 ...
Two office staff: One full-time customer service representative and one
full-time administrative assistant. Each will be paid $40,000 annually.
They will receive health insurance, ten paid sick days, paid holidays,
and two weeks of vacation. These benefits will cost ...
General
Done
11
Done
To Do
Done
To Do
Done
To Do
Done
To Do
Done
To Do
To Do
Done
Done
12
M a rk e ti n g
Thinking like a marketer is necessary to attract and keep customers.
The right product and service at the right price is only the beginning.
You also need to create a mix of marketing on and off the internet.
PRODUCT, PRICE, PLACE AND PROMOTION ARE THE TRADITIONAL FOUR PS OF MARKETING.
But dont forget to add one more, important element PLAN.
Product
What are the benefits of your products and services?
Is there a demand?
Who are your customers and what do they want? Think
about their age, income, gender, education, marital
status, and lifestyle. If youre selling to businesses, learn
about the companies youre targeting.
How are your products and services different from your
competitors? Research their weaknesses, strengths,
pricing, service, creativity and marketing.
Are research and development needed?
What are the licensing requirements and regulations?
What about legal issues? Do you need patents,
copyrights, and trademarks?
Is your business seasonal? How will your business fare
during the rest of the year?
Place
How will you connect your product or service with your
customers? There are many methods for reaching customers
besides retail stores and internet sites. You could sell:
to a wholesaler who buys a large quantity from you and
resells it. or through a manufacturers representatives
who charge you commissions.
by consignment when another company sells
your product and the price is divided between the two
of you.
via business partnerships, even if the other company
is different than yours. For example, a pool cleaning
company sends new customers coupons every month
for free coffee at a local shop. Websites are perfect for
partnerships, since clicking on a link connects people
from one site to another.
Price
Your products and services need to be offered at prices
your market will pay, while providing your desired profit.
Thinking about about your products and services from
the customers point of view is called the perceived value.
What does your customer expect to receive at certain
prices? For example, a company produced a top-selling
light bulb for $2 and then raised the price to $3 and sales
went down. Study the benefits, convenience and quality
of your products and services, factoring in your companys
image and reputation.
Promotion
How will you create awareness of your products and services? Make it your business to know what your audience
is looking for, and gear your promotion accordingly. See
pages 13 -15 for ideas.
Plan
Without a marketing plan, your efforts could become
scattered and your results not measurable. You should include money for marketing in your annual budget. Think
of marketing as an investment, not an expense. Industry
trends, consumer sentiment and the economy are always
changing, so your marketing plan should grow, adjust and
evolve. Include detailed plans and costs in the Appendix.
13
M a rk e ti n g
You need professionals to make you look and sound your best. A graphic
designer will create your logo, packaging, signage and website, working
closely with your website programmer/developer/host. A copywriter
can create copy to help your website, ads and other promotional material
get noticed.
Y OU R I MA G E
Name Getting customers to remember your name is a
mighty hurdle! Think about standing out. If you repair
computers, The Mouse Trap is a better choice than JB
Computer Repair.
Logo The symbol or type treatment that represents your
business should be memorable. Choose colors and use
them consistently. Your logo belongs everywhere, from
business cards to signage to emails, and it can be used,
unchanged, for years.
Tagline Your company tagline should be short, catchy
and, in some cases, functional. If your company is called
Ocean State Restoration, its unclear what you restore. So
a tagline like New Life for Old Boats serves an important
purpose. Your logo and tagline should be inseparable.
Packaging A beautiful gold watch in a rumpled brown
bag will never be given the same value as that same watch
presented in an elegant velvet box. Presentation and packaging is branding, so everything customers see from
bags to menus represents you.
Printed Material If its on paper, it matters. Ads, direct
mail and brochures represent your image, so never compromise when it comes to being sure they look polished
and professional. Even emails, invoices and letters to your
customers should be given attention.
T R A D I T I O NAL T O O LS
In addition to your website, traditional marketing tools are
still vital to your overall marketing mix. It may take a little
time to find the combination that works best for you.
Advertising can take the form of print ads in local or
trade publications, or media ads on radio and TV. If youre
unsure where to advertise, consult with professional
organizations. Talk to your local radio and TV stations
about affordable packages. Analyze websites that make
sense for advertising your product or service. For example,
online banner ads are more effective on websites that
attract your target audience.
Direct Marketing uses traditional mail, email or phone
to contact prospects directly. Be focused in choosing
your method. Measuring response is crucial, because it
will help you determine which lists are best and the cost
of gaining an order or client. You can buy databases or
develop your own list from customers and leads. Keep a
book for customers to sign, ask them for business cards or
send emails that request feedback.
Public Relations is a great way to build a brand
identity, and to influence the attitudes of your audience.
If you make all-natural sunblock, you could sponsor a
sandcastle contest at the beach. To create a buzz, send
press releases to area newspapers, online publications,
radio and TV stations.
Trade Shows offer a chance to meet customers, introduce products, get leads and write orders. Networking
with others in your industry and sharing information
can uncover unexpected insights and connections.
14
M a rk e ti n g
A website in todays world is as basic as a business card. If you build
it, they will come doesnt always apply to websites, which are dynamic
(changing constantly) and not static (do it and youre done). Directing
traffic to your site and giving visitors a reason to come back is the goal.
W E BS I T E S
Internet Marketing Youll find that maintaining a vital
Internet presence does require some time and effort, so
put limits and practical guidelines in place. You dont
want customers browsing in your retail business while you
remain behind the counter, updating your site. Here are
some other basics:
Virtually visit your competition and other websites in
your industry on a regular basis. What do you like about
the experience, and what dont you like? Is the copy
boring or interesting? Is the site easy to negotiate?
Whats the balance between words and pictures? This
will help you develop a more tangible idea of what you
want your website to be or not be.
Working with a web designer/developer and a copywriter pays off, making you look polished and professional. Once your site is live, youll need a host.
A good one will be able to help you create traffic,
measure activity, collect data and insure security.
Be sure that you have a system in place, so you can
go in yourself and update your website information.
Theres nothing that gives website visitors a worse
impression than to see you promoting an event that
happened last month.
15
M a rk e ti n g
Social media sites are two-way expressways, where people contribute to,
interact with and participate in your online presence. These sites help you
gain new customers and engage existing ones. Another advantage of
social media is your ability to measure results. Your posts and updates can
also be shared across many social media sites.
soci a l M e di a
Blasting is sending one email out to a large audience
made up of active, interested recipients. After signing
on at your physical site or your website, your A-listers
should be romanced with special offers that are exclusive
to them, as a thank you for allowing you into their
inboxes. Sign yourself up on multiple email lists, from
the local nursery to big retailers and see how they do it.
Companies that specialize in email marketing can make
your emails look great and compile valuable data
on effectiveness.
Blogging is keeping an online journal (web + log =
blog). Start by subscribing to relevant blogs, especially
from competitors. Blogs with high readability are fairly
short, and feature no scroll posts. Determine the content
your audience wants, and write to it. Keep your tone
positive and chatty and always end by asking for the
readers feedback or comments. Blogging with regularity
will help move you higher up in search results ranking.
Ask your website developer to incorporate a blog into your
website, or check out sites that let you set up a blog.
Facebook is the social media go to site the place
where the world meets. This open forum can be a
marketers dream, an easy way to get a message out, talk
about promotions, get feedback and generally engage
customers. Check out how other companies are handling
their postings.
LinkedIn is the site that means business, where professionals post rsums, network and read industry news.
You should establish profiles for yourself and your staff,
and dont be afraid to brag a little. It is a good site to find
vendors and resources, too.
Twitter is a microblogging network, where messages
called tweets are sent out to only those readers who
follow you. This isnt the place for long messages,
as tweets are limited to just 140 characters. The word
immediacy captures the essence of Twitter; its a
buzz generator.
YouTube is the worlds TV channel. Its easy to start your
own network where you can post videos that will educate, inform, market to and entertain your audience. And
YouTube has made cross promoting as simple as possible.
Vlogging is video blogging, plain and simple. Suppose
youre celebrating your 10th year in business, or you want
to show off what your new printing press can do for your
customers. A short video no more than 2 or 3 minutes
can be posted on your website, or other sites like Facebook
or YouTube, and reach a bigger audience than you ever
thought possible!
16
B U Y I N G A B U S I NE S S
Questions that need answers:
Why is the business for sale?
What is the value of the business?
What are the companys products and services?
Who started the business? What is the history
of the business? Where is it located and where
are its customers located?
Has the competition increased or changed?
(see page 15.)
What sales and marketing plans have you seen?
What are the business sales trends? How will
you increase sales?
Will you hire new employees and managers
or use the existing staff?
C H e ck l ist
for buying a business
To Do
Done
To Do
Done
To Do
Done
To Do
Done
To Do
Done
17
B U Y I N G A F R AN C H I S E
Buyer, Be Aware
A franchise is a legal business relationship between a
franchiser (Burger King, for example) and the franchisee (you). The franchiser owns the right to the business
name, and sells that right to you. In return, you sell
products and services supplied by the franchiser.
The advantages of buying a franchise can be appealing. You get an established business presence. And since
many of the decisions and products come from the
franchiser, your risks are reduced. You are also provided
with a range of support services, such as site selection,
training, supplies and advertising/marketing plans.
The Disclosure Document:
Read It Carefully
The Federal Trade Commission (FTC) requires sellers
of franchises and other business-opportunity ventures
to provide a Disclosure Document to prospective buyers.
In it, you should find detailed information that explains
how business between you and the franchiser will be
conducted.
It is crucial that you read this document very carefully,
as many times as you need to, because it contains
important information audited financial statements,
your start-up and ongoing costs, and locations of other
franchises. It will clearly explain the responsibilities of
the buyer and the seller. Have your attorney read
through it as well.
The Disclosure Document must be given to you in
advance so you can gather and consider any and all
information you need to be sure your decision is an
informed one.
18
L O AN R E Q U E S T
How much will you need?
You must invest 25% - 50% of your own money.
Show how much and where
your money will come from.
Amount Needed
Also provide information
Amount Requested
about money coming from
Owners Investment
investors. Show how much
Other Investors
money you are requesting
Total
from the lender.
Use of funds
Inventory
Working Capital
Other
Real Estate
Total $
Repayment
Period: _________ years
Source: Business Cash Flow
Collateral:
- Accounts Receivable
- Inventory
- Other
Total $
19
F I NAN C I AL S
F our F i n a n ci a l S t a t e m e n ts a r e i n c l ud e d i n t h is s e ctio n :
1
Personal Financial
Statement
Your own personal
nancial health will be
carefully examined by
the lender. See page 20.
2
Balance Sheet
This is a snapshot
of your business.
A moment frozen in
time. See page 22.
3
Income Statement
Think of this as your
business report card
over a period of time.
See page 24.
4
Cash Flow
Statement
This will show how
much money comes in
and how much goes
out. See page 26.
Accounting
Methods
Accrual
vs.
Cash
accrual or cash.
1. The cash method means
you dont record a sale until
you collect money, and you
dont record an expense
until you pay for it.
20
Life Insurance:
In the Appendix, provide face
amount and cash
surrender value
of policies, name
of insurance
companies and
beneficiaries.
Other Property:
Describe in the
Appendix. If
any is pledged as
security/collateral,
include name
and address of
lien holder, lien
amount, and
payment terms.
Notes Payable:
In the Appendix,
include the name
and address of
the noteholder,
original loan
balance, current
balance, payment
amount, and what
collateral is used
for security.
$ __________________________________
Savings Accounts
$ __________________________________
Retirement Accounts
$ __________________________________
$ __________________________________
$ __________________________________
$ __________________________________
$ __________________________________
$ __________________________________
Other Property
$ __________________________________
Other Assets
$ __________________________________
Total ASSETS
$ __________________________________
$ __________________________________
Notes Payable
$ __________________________________
$ __________________________________
$ __________________________________
$ __________________________________
$ __________________________________
Unpaid taxes
$ __________________________________
Other liabilities
$ __________________________________
Total Liabilities
$ __________________________________
$ __________________________________
$__________________________________
Real Estate:
The total is
included here. In
the Appendix,
include type of
property, date
purchased,
original cost,
and the present
market value.
Also include
the mortgage
account number,
balance, and
monthly
payment.
Unpaid taxes:
The total is
included here.
In the Appendix,
specify the type of
tax, who its owed
to, when its due
and whether there
is a lien on any
property
21
$ __________________________________
D
ividends, Interest, Investment income
$ __________________________________
$ __________________________________
Other Income
$ __________________________________
Annual Expenses:
Multiply your monthly
expenses by 12.
Contingent liabilities:
Are you an endorser,
co-maker or guarantor
of other loans? If so, are
there any legal actions
or contested taxes?
Annual Expenses:
Mortgage/Rental payments
$ __________________________________
$ __________________________________
$ __________________________________
Insurance premiums
$ __________________________________
$ __________________________________
Tuition
$ __________________________________
Medical Exp./Insurance
$ __________________________________
Contingent liabilities
$ __________________________________
$ __________________________________
22
BALANCE SHEET
In the APPENDIX,
include fiscal yearend statements for
the last three years,
and an interim statement not more than
three months old.
Start-up companies:
Include an opening
Balance Sheet (what
the balance sheet will
look like the day after
the loan closes).
Depreciation:
Except for land, assets
wear out. The value
goes down and can be
deducted. Values for
assets are presented
via a reserve for depreciation. Market value
the price you could
sell it for will differ
from this figure.
Owners Investment:
Also called capital
or common stock in
a corporation
Total Capital:
Also called net worth
Liabilities
How much the company owes
Current Liabilities
Liabilities due within one year
Current Portion of
Long-Term Debt
One years worth of loan payments
Note Payable
Due within one year
Balance Sheet
Assets
Current Assets:
C
ash................................................................. 10,000
Accounts Receivable......................................... 75,000
Inventory (ending).......................................... 85,000
T
otal Current Assets...................................................... 170,000
Non-Current Assets
F
ixed Assets.................................................. 140,000
Less Accumulated Depreciation...................... (25,000)
F
ixed Assets (net)......................................... 115,000
Advances to Owners....................................... 6,000
Total Non-Current Assets.............................................. 121,000
Total Assets (170 + 121)................................................. 291,000
Liabilities
Current Liabilities
C
urrent Portion of Long-Term Debt.................. 6,000
Note Payable.................................................. 100,000
Accrued Taxes................................................. 3,000
Accounts Payable(A/P).................................... 41,000
T
otal Current Liabilities................................................ 150,000
Long-Term Liabilities
L
oan Payable.................................................. 54,000
T
otal Long-Term Liabilities............................................ 54,000
Total Liabilities (150 + 54)............................................... 204,000
Capital or net worth
O
wners Investment ....................................... 20,000
Retained Earnings ......................................... 67,000
T
otal Capital..................................................................
87,000
Assets
Liabilitie
Assets
Liabilities + Capital
These
numbers should
be the same.
23
$
$
$
$
$
$
Total Assets............................................................................................. $
Liabilities
Current Liabilities
Current Portion of Long-Term Debt.......................... $
Note Payable........................................................... $
Accrued Taxes......................................................... $
Accounts Payable(A/P)............................................ $
Total Current Liabilities.................................................................... $
Long-Term Liabilities
Loan & Notes Payable.............................................. $
Total Long-Term Liabilities...................................... $
Total Liabilities.................................................................................. $
Capital OR NET WORTH
Owners Investment ................................................ $
Retained Earnings .................................................. $
Total Capital
These
numbers should
be the same.
24
INCOME STATEMENT
YOUR INCOME STATEMENT includes THE FOLLOWING:
Sales
Net Sales
Revenue or income. Gross sales
is before returns and allowances. Net
sales is after returns and allowances.
L ess Cost of Goods Sold
Cost to make products including
materials and labor.
Beginning Inventory
Comes from the Ending Inventory
of the previous year.
Purchases
Used to make product.
Labor
Used to make product only. Other
labor-related expenses are included
in the Operating Expenses section.
Expenses
Selling Expenses
Salaries and expenses related
to sales only.
perating Income
O
(or Loss)
Shows how the business performed.
Interest Expense
Subtract interest expense.
Profit
Income Statement
Net vs. Gross Sales
Gross sales is the amount
before adjustments like
returns and allowances.
After these adjustments you
have Net Sales.
Operating Income:
Gross Profit less Selling
Expenses and General/
Administrative Expenses.
In the Appendix,
include three years fiscal
year end statements plus
an interim statement
(not more than three
months old).
Start-up companies:
Project month by
month for the first year,
quarterly for the second
year and one whole year
for the third year.
Sales
Net Sales................................................................. 900,000
Less Cost of Goods Sold:
Beginning Inventory........................... 75,000
Purchases.......................................... 350,000
Labor.................................................. 200,000
Total .................................................. 625,000
Less: Ending Inventory..................... (85,000)
Cost of Goods Sold (625 less 85)............................ 540,000
Gross Profit (900 less 540)............................... 360,000
Expenses
Operating Expenses:
Selling Expenses............................. 90,000
General & Administrative............ 170,000
Total Expenses........................................................ 260,000
Operating Income (360 less 260)........................... 100,000
Interest Expense ..................................................... 20,000
Profit
Net Profit before taxes (100 less 20)........................ 80,000
Less: All Income Taxes............................................. 27,000
Net Profit (80 less 27)............................................. 53,000
25
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
WHATS THE
BIG IDEA?
The Cash Flow Statement is your
cash register. It shows money that
comes into the business and what
goes out. Profits do not guarantee
positive cash flow. You need to know
or estimate income and expenses
based on the direct and variable
costs of your products or services.
Cash must be available to pay bills on
time and for day-to-day activities.
This statement will also show an
important figure, the breakeven
point, when cash income equals the
cash outflow (see page 30).
ips for preparing
T
Cash Flow Statements:
Numbers in the Cash Flow Statement will also appear in the Income
Statement. However, the Cash
Flow Statement differs because
it records when cash is received,
when cash is paid, and how much
cash you have reserved.
Begin with income at the top,
followed by expenses and repayment
of the loan.
Show realistic assumptions. If sales
increase 80% every year, this may
seem unrealistic. Prove assumptions
and include them in the Appendix.
Cash jumps up from year one to two,
because start-up costs are large in
the first year.
Negative balances are common in
the first year. They must be covered
by providing more cash (loans or
owners investments), or by reducing
expenses.
Name of Business
A. CASH ON HAND
(Beginning of month)
B. CASH RECEIPTS
1. Cash Sales
2. Gross Wages
7. Advertising
11. Telephone
18. Subtotal
H. CASH POSITION
(End of month, D minus G.
Becomes cash on hand for next month)
5. Monthly Depreciation
Start-Up
Costs
Month 1
first months
revenue
Month 2
Month 3
Month 4
27
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 ve items shown at
the bottom of the Cash Flow
Statement can be kept
separately and included at
the bottom of your monthly
cash ow projections. They
are important planning
and cash f low projection
tools.
1. Accounts Receivable
Previous unpaid credit
sales, plus current months
unpaid credit sales.
2. Bad Debt
Should be deducted from
the month. This gure 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 depreciation value is established
by your accountant
(as allowed by the IRS).
28
RATIOS
Ratios are your business scores. Even though ratios
are not included in your business plan, they will be
calculated by lenders to make decisions.
Liquidity Ratios
Working Capital
Number Source: Balance Sheet (pg. 22)
Current
Assets
(pg. 22)
Subtract
Current
Liabilities
(pg. 22)
$170,000
- $150,000
$20,000
Working
Capital
This example shows an excess amount after paying all current liabilities. The answer must be positive. More money is
needed to meet expenses if the answer is negative.
$27,375,000
$900,000
30.4
It takes
30 days
to collect
bills
$150,000
Total
Current Liabilities (pg. 22)
.56
Inventory Turnover
Current
Inventory
Figure
($85,000 on
pg. 22)
x 365 days
$31,025,000
$540,000
Total
Current
Assets
(pg. 22)
57.4
57 days to
turnover
or sell the
inventory
Total Current
Liabilities (pg. 22)
$170,000
$150,000
1.13
The answer
should be 1
or more. In
this example,
the answer,
$0.56, is less
than 1. The
company
could not pay
all its current
liabilities
without
selling some
inventory.
Number
of times
you can
pay current
liabilities
29
RATIOS
$204,000
$87,000
2.34
VIR
Very rtant
o
Imp
o
Rati
The
company
is leveraged
2.34 times
$14,965,000
$350,000
Purchases
(pg. 24)
42.75
Net Sales
(pg. 24)
$900,000
$53,000
Accounts
Payable
are paid
every
43 days
Y our B usi n e ss :
R a tio A n a l ysis
Liquidity
Debt
Prot
The profit
margin is
5.9%
.0588
of sales. If the profit margin is too low, the prices are too low,
the cost of goods is too high, or expenses are too high. Compare the profit margin to previous years (if the business is over
three years old). New businesses may compare the profit margin to those published in RMA studies or by trade associations.
$63,000
$6,000
VIR
10.5
For every
dollar of
debt, $10.50
is available
to pay it
=
Inventory Turnover =
Working Capital =
Quick or Acid Test =
Current =
Leverage (or Debt-to-Worth) =
Accounts Payable Turnover =
Profit Margin on Sales =
Cash Flow to Current Maturities =
Accounts Receivable Turnover
(Debt Service)
Very rtant
o
Imp
o
t
a
R i
YOUR ANSWER
Assets
30
F O R M U LA S
Breakeven Point
When a company has neither a profit nor a loss, it is the breakeven point. It is 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).
100%
60% (540K/900K)
+ 10% (90K/900K)
70% (630K/900K)
100%
- 70%
30% or .30
$170,000 Fixed Expenses (this number comes from page 24 General & Administrative)
.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.
T h e 1 - 2 - 3 m e t h od for l o a n d e cisio n s
Use the 1-2-3 method to pre-qualify and calculate your maximum loan amount.
discounted
collateral
Also called
COLLATERAL
COVERAGE
explanation
EXAMPLE: ABCCompany
Example:
Inventory
Fixed Assets
Accounts
Receivable
Total
the ability
to repay
Also called
DEBT SERVICE
COVERAGE
equity
Also called
DEBT-TO-WORTH
or LEVERAGE
Market
Value
$30,000
$50,000
$20,000
ANSWER
Discount Discounted
Percentage Value
50%
50%
25%
$100,000
$15,000
$25,000
$15,000
Maximum
loan
based on
discounted
collateral is
$55,000
$55K
The Loan
Decision
The lowest of
the three answers
calculated here
Maximum
loan
based on
the ability
to repay is
$36.5K
$75K
is the maximum
loan size. The
maximum
loan size for
ABC Company
is $36.5K.
31
To Do Done
To Do Done
To Do Done
SMALL BUSINESS
DEVELOPMENT CENTERS
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member of the National Association of Small Business Development Centers and funded in part through a cooperative agreement with the U.S. Small
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