creating a credible business plan - uga sbdc · fast casual restaurant business, healthy smoothie...

Creating A Credible Business Plan

Combining Real-World Experience, Research, and

Best Practice Observations

September 27, 2016

UGA SBDC in Gwinnett

Your Facilitator Today

Benny StaRomana (last name pronounced “Santa Romana”)

• Business Consultant, UGA-SBDC in Gwinnett

• Owner, Management Consulting business for 5 years

• Grand Prize winner of Gwinnett Chamber’s 2011 “Amazing Entrepreneur” Business Plan competition

• 15+ years in management and professional positions Panasonic USA, Lucent Technologies, Exxon Asia, and medium-sized companies

• MBA, MPM (Project Management), BS Business Administration, BA Behavioral Science

• Specialization: Strategic Planning, Process Improvement, Project Management, Marketing & Sales

Reasons A Business Plan Is Critically Important

To Prove to Lenders, Investors, and the Business Owners Themselves that They’ll Get Compensated

for the Risks They’ll Take

To Provide A Roadmap for the Business Owner

Before Our Business Plan “Deep Dive”

Assess Your “Fit” with the

Business You Have in Mind

Experience

Knowledge

Business Connections

Resiliency

The All-Important First 2 Questionsabout Your Business

What Problem or Opportunity are People Willing to Pay for

to be Addressed ?

Why Would those People Choose My Product or Service

Over the Alternatives ?

Our Approach Today

Executive Summary

Company Description

Financial Projections

Risk Management

Management

Operations Plan

Production Plan

Marketing & Sales Plan

Strategic Position

Competition Analysis & Trends

Market Analysis & Trends


Steps & Tips

Goal: Prove that a need, problem, challenge, or opportunity is being experienced by people willing to pay for a solution, which is your product or service. In short, you are proving that demand exists for your product or service.

How: By providing research findings from authoritative, credible sources• Industry associations• Research organizations• Own surveys

Techniques:• Use your favorite search engine to find information on the web• Add “pdf” to keyword search to locate white papers, articles• Use complimentary, paid research tools or “DIY” methods like

• “Reference USA”• Survey Monkey• “Mall Interviews”

Steps & Tips

Example

According to a February 2016 article by fastcasual.com, a publication reporting on thefast casual restaurant business, healthy smoothie beverages are increasing in demandas meal replacements.

Tropical Smoothie Café, a national franchise focusing on the smoothie product line,reported same-store sales growth of 11.5% in 2015 versus 2014, and has signed newfranchise agreements for 199 in multiple states.

In Gwinnett County, there are approximately 57,264 persons who – per ReferenceUSA’s 2016 demographic profile – are interested in “health/diet/fitness.”

There are 10 trends predicted for the healthy smoothie business: 1) Build-Your-Own, 2)Healthy Boosters, 3) Smoothie Meals On The Go, 4) Smoothie Bowls, 5) SugarAlternatives, 6) Colorful Veggies, 7) Global Inspiration, 8) Low-Profile Liquirds, 9) Spices& Herbs, and 10) Adult Smoothies (w/alcohol)


Steps & Tips

Notes on Example

• Search keywords used: smoothie trends, healthy smoothie demand, healthysmoothie restaurant association of america

• Websites found:• http://www.blendtec.com/blog/blendtec-predicts-top-10-smoothie-

trends-2016/• http://robeksfranchise.com/research-robeks/a-growing-industry/• http://www.pdxmonthly.com/articles/2015/8/7/what-are-the-next-big-

trends-in-smoothies-and-juice• http://www.fastcasual.com/articles/now-trending-10-ways-the-

smoothie-is-evolving-in-2016/• http://www.prnewswire.com/news-releases/tropical-smoothie-cafe-

announces-new-restaurants-in-houston-300282685.html• Paid but affordable resource: http://www.gwinnettpl.org/digital-resources/


http://www.blendtec.com/blog/blendtec-predicts-top-10-smoothie-trends-2016/

http://robeksfranchise.com/research-robeks/a-growing-industry/

http://www.pdxmonthly.com/articles/2015/8/7/what-are-the-next-big-trends-in-smoothies-and-juice

http://www.fastcasual.com/articles/now-trending-10-ways-the-smoothie-is-evolving-in-2016/

http://www.prnewswire.com/news-releases/tropical-smoothie-cafe-announces-new-restaurants-in-houston-300282685.html

http://www.gwinnettpl.org/digital-resources/


Steps & Tips

Goal: Demonstrate awareness and familiarity with market forces that will be competing with your business. This will provide support for how the business will be positioned in terms of product offerings, unique benefits, pricing, etc.

How: By visiting competitors’ websites and researching market feedback on the competition.

Techniques:• Use your favorite search engine to find information on the web

• Enter “customer feedback” as search words• Add “Facebook” to the search phrase• Go to “Yelp”

• Use complimentary or paid research tools , especially “Reference USA”

Searches: • https://www.facebook.com/Body-by-Juice-1426195430939315/reviews/• https://www.yelp.com/biz/smoothie-king-snellville

https://www.facebook.com/Body-by-Juice-1426195430939315/reviews/

https://www.yelp.com/biz/smoothie-king-snellville

Steps & Tips

Example


Your Business

Competitor A

Competitor B

Competitor C

Competitor D 87

5 53

Clean, Pleasant

EnvironmentReasonable Price

45 4

Suppliers' Ability To Meet Buyers' Expectation (1 to 5 score where 5 = Excellent)

Research Info

Made Available

1075

3 4 4 5 3

73

98

5 5 5 5 5 115

3 2 4 5 2

4 5 5 4 3

5

Fresh IngredientsFriendly

Customer Service

COMPETITION ANALYSIS

Total Score

5 5Weight

Customers' Expectations

Some Questions to Ask Ourselves:

• Where is Competitor C located?• Should I challenge Competitor C or not?• What can I say about my pricing?

Strategic Position

Steps & Tips

Goal: Convey a logical conclusion from the market and competitionanalysis in the way that the business will be at maximum advantagein terms of product, price, promotion, and place.

How: By referring to the scores generated by the competition analysis,and selecting the best possible mix of product, price, promotion,and place.

Techniques:• Use “Reference USA”• Engage a commercial real estate broker to help if the business

has a physical location• Are you the best in only one or a few of the customers’

expectations? Then, stress and leverage those characteristics!

Tip: This part of planning needs to be deliberate and sure-footed. Donot rush. Remember to “measure twice, cut once.”

Strategic Position

Steps & Tips

Additional Notes: Product/Service Mix & Pricing

• Based on previous market and competition research

• Create your “product line” or “service line” enumerating the productsand services in demand by the target customers

• Depending on the strategic position of the business (nicheprovider/segment leader, market challenger, market leader), developpricing that

• Conveys the desired level of quality• Attracts first-time customers to try the product or service

• Please note!

• Your positioning of the product and the business itself influences themarket price!

Strategic Position

Steps & Tips

Example

Green Smoothie Café will locate its first store in zip code 30017 servingmostly the city of Grayson GA due to the lack of healthy juice and smoothieestablishments serving a population of 1,898 health-conscious persons in thearea.

The store location will serve, in addition to the city residents, commutertraffic and the city’s elementary and high school students numbering 1,038and 2,500, respectively.

Green Smoothie Café will offer regular and premium products to create pricelevels that appeal to different budgets. The business will introduce DIYSmoothies and Adult Smoothies (alcohol-infused) to broaden its market base;these smoothie variants are product evolutions reported by blendtec.com.


Steps & Tips

Goal: Describe the who, what, and how of communicating the sales pitchor “value proposition” of the business. It includes methods offacilitating the decision process of prospective customers.

How: By referring to the scores generated by the competition, andisolating areas where the business excels. Develop a concisemessage that’s fresh, truthful, and inspirational.

Techniques:• Create a “marketing matrix” per example that follows• Draw from both good and bad examples from competition and

other unrelated businesses.

Tip: This part of planning needs to be deliberate and sure-footed. Donot rush. Remember that marketing companies harness peopleand spend the time necessary to create just the right message.


Steps & Tips

Example

Millennials 18-34 x x x

Generation X 35-50 x x x x

Boomers 51-60 x x x x x

Corporate, Institutional n.a. x x x x x x

Social

Media

Target Audience Age Group

Marketing Vehicles

RadioCo-

Marketing

SEO-Enabled

Website

Mailbox

Postcards

Direct

Mail

Personal

Selling

The Message

The First DIY Smoothie Bar in Grayson !

The Marketing Matrix


Steps & Tips

Must-Do

• Promote the business ahead of actual opening to build buzz andexcitement• Minimum rule-of-thumb: 30 days before opening

• Call vendors and compare quotes

• Work best quotes into the marketing & sales budget• These numbers will go into the financial projections!

Production Plan

Steps & Tips

Goal: Define how the business’ product or service will be made anddelivered that meets or exceeds customers’ expectations in quality,timeliness, and price.

How: By researching processes, policies, and best practices ofcompetition and improving upon them. Employ yourself with acompetitor if possible for a first-person appreciation of thebusiness.

Techniques:• Search for existing business plans• Get employed with a competitor• Investigate outsourcing options• Engage help from an experienced professional familiar with the

operation of the business

Operations Plan

Steps & Tips

Goal: Define how the different functions of the business will be managedto meet or exceed customer expectations, at the same timemaximizing profit opportunities and managing risks inherent in thebusiness.

How: Refer to the provided image of the “3-Legged Stool of BusinessViability” and develop a corresponding organization chart tographically represent the functions of the business. Documentprocesses and procedures and organize into an operations manual.

Techniques:• Search for existing business plans• Get employed with a competitor• Engage help from an experienced professional familiar with the


Operations Plan

Steps & Tips

The “3-Legged Stool of Business Viability”

Legend

Operations Plan

Steps & Tips

The Organization Chart

Owner & Managing Member

Bookkeeper Legal Services

Insurance Digital Marketer

Shift Supervisor

Associate 1 Associate 2

Direct Hire

Outsourced

Management

Steps & Tips

Goal: Define the skills, knowledge, experience, education, and otherattributes of the business owner or executive that directly relate tothe critical management requirements of the business. It isimportant to note that the management function requires theability to anticipate future events that may affect the business andto lead the business accordingly.

How: Refer to the Marketing & Sales, Production, and Operationssections of the business plan and determine if you can capablyhandle those functions on your own if you had to. If not, engage aresource who can.

Techniques:• Search for existing business plans• Get employed with a competitor• Engage help from an experienced professional familiar with the


Management

Steps & Tips

Example

• Michael Johnson, Owner & Managing Member• 25 years in the restaurant business• 2 years college, Business Administration• District Manager for national fast casual chain, 2008 to 2015• Physical fitness and healthy lifestyle advocate

• Caroline Johnson, Co-Owner & Business Manager• 15 years in financial management, utility company• Degree-holder, BS Finance• Physical fitness, healthy lifestyle, and yoga advocate

Risk Management

Steps & Tips

Goal: Convey acceptance of risks inherent in the business, their intensityand probability of occurring, and a plan to mitigate them.

How: Consult with insurance agencies, lawyers, and accountants inaddition to internet research.

Techniques:Use the provided “Risk Management Plan” format.

Risk Management

Steps & Tips

Example of a “Risk Management Plan”

Impact Probability

High Low

Medium Medium

High Low

MitigationRisk

Owner Incapacitation

Competitive Incursion

Financial Collapse

Cross-Training, Mentoring of Co-Owner

Service Mark Registration of Business Name & Tagline

Personal Savings, Strict Financial Monitoring by Co-Owner


Steps & Tips

Goal: Demonstrate the ability of the business to satisfy financialobligations to all stakeholders and show profitability that makes it adesirable and sustainable investment.

Define clearly for lenders or investors how the business will befunded and for what purpose.

How: Engage a professional if necessary to develop financial projectionsthat are widely accepted by lenders and investors. MinimumRequirements: Cash Flow, P & L, and Balance Sheet


Steps & Tips

Examples Follow

• Cash Flow• Profit & Loss• Balance Sheet• Sources & Uses of Funds

Grayson HJB LLC Grayson HJB LLC

Projected Cash Flow Statements Projected Cash Flow Statements

For the 12 Months Ending For the 12 Months Ending

Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

Beginning Cash 100,000 16,628 306,897 1,008,811 1,998,806 3,233,044 4,546,475 5,853,862 7,183,539 8,512,712 9,828,284 11,141,716

Operating Inflows:

Sales (& Collections) 264,336 831,707 1,277,077 1,588,639 1,839,201 1,920,535 1,920,535 1,936,277 1,936,277 1,920,535 1,920,535 1,920,535

Operating Outflows:

Current Operating Expenses 52,675 54,111 61,573 66,295 67,429 66,295 67,429 67,429 66,295 67,429 66,295 67,429

Cash Purchases - CGS 295,033 211,469 245,577 253,762 245,577 253,762 253,762 245,577 253,762 245,577 253,762 253,762

Payments of A/P Balance 0 236,026 228,182 238,755 252,125 247,214 252,125 253,762 247,214 252,125 247,214 252,125

Paymnent for Aquired Assets 1,729,614

Cash Flow: Operations (1,812,986) 330,101 741,746 1,029,826 1,274,070 1,353,263 1,347,218 1,369,509 1,369,005 1,355,404 1,353,263 1,347,218

Financing/Investing Inflows:

LT Debt Proceeds 1,729,614 0 0 0 0 0 0 0 0 0 0 0

Equity Proceeds 0 0 0 0 0 0 0 0 0 0 0 0

Line of Credit Proceeds 0 0 0 0 0 0 0 0 0 0 0 0

Financing/Investing Outflows:

Fixed Asset Additions 0 0 0 0 0 0 0 0 0 0 0 0

Dividends / Distributions 0 0 0 0 0 0 0 0 0 0 0 0

Line of Credit Payment 0 0 0 0 0 0 0 0 0 0 0 0

LT Debt Principal Payment 0 32,625 32,761 32,898 33,035 33,172 33,310 33,449 33,589 33,729 33,869 34,010

Interest 0 7,207 7,071 6,934 6,797 6,660 6,521 6,383 6,243 6,103 5,963 5,822

Cash Flow: Finance/Invest 1,729,614 (39,832) (39,832) (39,832) (39,832) (39,832) (39,832) (39,832) (39,832) (39,832) (39,832) (39,832)

Total Cash Flows (83,372) 290,269 701,914 989,994 1,234,238 1,313,431 1,307,386 1,329,677 1,329,173 1,315,572 1,313,431 1,307,386

Ending Cash 16,628 306,897 1,008,811 1,998,806 3,233,044 4,546,475 5,853,862 7,183,539 8,512,712 9,828,284 11,141,716 12,449,102


Projected Income Statements Projected Income Statements

For the Months Ending For the Months Ending

Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17 Year 1

Total Revenue 1,057,344 1,212,141 1,626,682 1,889,051 1,952,019 1,889,051 1,952,019 1,952,019 1,889,051 1,952,019 1,889,051 1,952,019 21,212,463

Cost of Goods Sold 274,909 315,157 422,937 491,153 507,525 491,153 507,525 507,525 491,153 507,525 491,153 507,525 5,515,241

Gross Profit 782,434 896,984 1,203,745 1,397,897 1,444,494 1,397,897 1,444,494 1,444,494 1,397,897 1,444,494 1,397,897 1,444,494 15,697,223

Advertising / Promotion / PR / Marketing. % of Sales: - - - - - - - - - - - - -

Amortization - - - - - - - - - - - - -

Auto Expense - - - - - - - - - - - - -

Bad Debts - - - - - - - - - - - - -

Bank Charges 19,032 21,819 29,280 34,003 35,136 34,003 35,136 35,136 34,003 35,136 34,003 35,136 381,824

Consultants - - - - - - - - - - - - -

Groundskeeper, Exterminator 260 260 260 260 260 260 260 260 260 260 260 260 3,120

Delivery & Shipping - - - - - - - - - - - - -

Depreciation 6,430 6,430 6,430 6,430 6,430 6,430 6,430 6,430 6,430 6,430 6,430 6,430 77,161

Dues / Publications / Subscriptions - - - - - - - - - - - - -

Equipment Rental / Lease 35 35 35 35 35 35 35 35 35 35 35 35 420

Legal Services (Self-Funded, Set Aside Each Month) 100 100 100 100 100 100 100 100 100 100 100 100 1,200

Graphics / Printing / Copier 20 20 20 20 20 20 20 20 20 20 20 20 240

Insurance 417 417 417 417 417 417 417 417 417 417 417 417 5,000

Interest on Loans - 7,207 7,071 6,934 6,797 6,660 6,521 6,383 6,243 6,103 5,963 5,822 71,703

Laundry & Linens - - - - - - - - - - - - -

Accounting 250 250 250 250 250 250 250 250 250 250 250 250 3,000

Licenses & Permits 150 - - - - - - - - - - - 150

Maintenance & Repairs 120 120 120 120 120 120 120 120 120 120 120 120 1,440

Miscellaneous - - - - - - - - - - - - -

Office Supplies & Postage 25 25 25 25 25 25 25 25 25 25 25 25 300

Operating or Shop Supplies - - - - - - - - - - - - -

Payroll 26,883 26,883 26,883 26,883 26,883 26,883 26,883 26,883 26,883 26,883 26,883 26,883 322,600

Payroll Taxes & Benefits 4,033 4,033 4,033 4,033 4,033 4,033 4,033 4,033 4,033 4,033 4,033 4,033 48,390

Refunds / Cash Short & Over - - - - - - - - - - - - -

Rent - - - - - - - - - - - - -

Research & Development - - - - - - - - - - - - -

Royalties - - - - - - - - - - - - -

Taxes - - - - - - - - - - - - -

Telephone & Internet 100 100 100 100 100 100 100 100 100 100 100 100 1,200

Training - - - - - - - - - - - - -

Travel - - - - - - - - - - - - -

Uniforms 1,200 - - - - - - - - - - - 1,200

Utilities - - - - - - - - - - - - -

Security System 50 50 50 50 50 50 50 50 50 50 50 50 600

- - - - - - - - - - - - -

- - - - - - - - - - - - -

Total Expenses 59,105 67,748 75,074 79,660 80,656 79,385 80,380 80,241 78,969 79,962 78,688 79,680 919,549

Profit (Loss) 723,329 829,236 1,128,671 1,318,238 1,363,838 1,318,512 1,364,114 1,364,253 1,318,929 1,364,532 1,319,209 1,364,813 14,777,674


Projected Balance Sheets Projected Balance Sheets

Beg. Bal. Jan-17 Feb-17 Mar-17 Apr-17 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

Current Assets

Cash 100,000 16,628 306,897 1,008,811 1,998,806 3,233,044 4,546,475 5,853,862 7,183,539 8,512,712 9,828,284 11,141,716 12,449,102

Deposits 0 0 0 0 0 0 0 0 0 0 0 0 0

Accounts Rec. 0 793,008 1,173,441 1,523,047 1,823,459 1,936,277 1,904,793 1,936,277 1,952,019 1,904,793 1,936,277 1,904,793 1,936,277

Supplies 0 0 0 0 0 0 0 0 0 0 0 0 0

Inventory 0 315,157 422,937 491,153 507,525 491,153 507,525 507,525 491,153 507,525 491,153 507,525 507,525

Current Assets 100,000 1,124,793 1,903,276 3,023,012 4,329,789 5,660,474 6,958,793 8,297,663 9,626,711 10,925,030 12,255,714 13,554,033 14,892,904

Long-Term Assets

Office Equipment 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000 2,000

Furniture & Fixtures 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000 200,000

Leasehold Improvements 57,840 57,840 57,840 57,840 57,840 57,840 57,840 57,840 57,840 57,840 57,840 57,840 57,840

Machinery 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000 100,000

Vehicles 0 0 0 0 0 0 0 0 0 0 0 0 0

Buildings 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

Land 575,000 575,000 575,000 575,000 575,000 575,000 575,000 575,000 575,000 575,000 575,000 575,000 575,000

Accum. Depr. 0 (6,430) (12,860) (19,290) (25,720) (32,150) (38,581) (45,011) (51,441) (57,871) (64,301) (70,731) (77,161)

Organization Costs 0 0 0 0 0 0 0 0 0 0 0 0 0

Accum. Amortization 0 0 0 0 0 0 0 0 0 0 0 0 0

Long-Term Assets 1,934,840 1,928,410 1,921,980 1,915,550 1,909,120 1,902,690 1,896,259 1,889,829 1,883,399 1,876,969 1,870,539 1,864,109 1,857,679

Total Assets 2,034,840 3,053,202 3,825,256 4,938,561 6,238,909 7,563,164 8,855,052 10,187,493 11,510,110 12,801,999 14,126,254 15,418,142 16,750,583

Current Liabilities

Accounts Payable 0 295,033 270,475 287,870 302,878 296,329 302,878 304,515 296,329 302,878 296,329 302,878 304,515

Line of Credit 0 0 0 0 0 0 0 0 0 0 0 0 0

Current-LT Debt 366,447 400,598 402,268 403,944 405,627 407,317 409,014 410,718 412,430 414,148 415,874 417,607 419,347

Current Liabilities 366,447 695,631 672,743 691,814 708,505 703,646 711,892 715,233 708,759 717,026 712,203 720,484 723,861

Long Term Liabilities

Long Term Debt 1,363,167 1,329,016 1,294,721 1,260,284 1,225,704 1,190,979 1,156,110 1,121,095 1,085,934 1,050,627 1,015,173 979,571 943,821

Total Liabilities 1,729,614 2,024,647 1,967,464 1,952,098 1,934,208 1,894,625 1,868,001 1,836,328 1,794,693 1,767,653 1,727,376 1,700,055 1,667,682

Owner's Equity

Stock / Owner Capital 305,226 305,226 305,226 305,226 305,226 305,226 305,226 305,226 305,226 305,226 305,226 305,226 305,226

Ret. Earnings 0 0 0 0 0 0 0 0 0 0 0 0 0

YTD Earnings 0 723,329 1,552,566 2,681,237 3,999,475 5,363,313 6,681,825 8,045,939 9,410,191 10,729,120 12,093,652 13,412,861 14,777,674

Total Equity 305,226 1,028,555 1,857,792 2,986,463 4,304,701 5,668,539 6,987,051 8,351,165 9,715,417 11,034,346 12,398,878 13,718,087 15,082,900

Total Liabilities &

Equity 2,034,840 3,053,202 3,825,256 4,938,561 6,238,909 7,563,164 8,855,052 10,187,493 11,510,110 12,801,999 14,126,254 15,418,142 16,750,583

For the 12 Months Ending

A. Uses of Funds

Equipment $25,000

Furniture, Fixtures $15,000

Build-Out $60,000

Beginning Inventory $6,000

Beginning Working Capital $9,000

TOTAL $115,000

B. Sources of Funds

Owner's Equity Infusion (20%) $23,000

Bank Loan $92,000

TOTAL $115,000

USES & SOURCES OF FUNDS


Steps & Tips

Example of Summary

The Cash Flow projections of the business indicate that strong revenues fromthe first quarter of operation combined with deferred compensation of thebusiness owners during the same period will allow the business to generatepositive cash flows of $53,145 at the end of the first 12 months of operationand $189,213 by the 36th month.

The company’s profitability likewise is positive throughout the first 3 years,attaining $49,125 in the first year and culminating at $154,339 at the end ofthe 3-year period.

The Balance Sheet of the business shows a current ratio of 0.7:1.0 at the endof the first year due to loans taken out for start-up, but this improves to1.8:1.0 by the end of year 3 as cash build-up improves due to sustainedprofitability.

Company Description

Steps & Tips

Goal: Define the legal structure of the business in a way that depicts thecompany’s ability to protect its owners’ personal assets frombusiness liability, accept investors, and address its tax obligations

How: Consult with a knowledgeable professional such as a businesslawyer, accountant, or business counselor.

Company Description

Steps & Tips

Example

Grayson HJB, LLC is a for-profit business registered as a Limited LiabilityCompany in the state of Georgia for purposes of providing food services toinclude serving “smoothie” and like juices, including complementary snacks andother food items.

The company is owned and operated by Michael Johnson and his spouse,Caroline Johnson.

Executive Summary

Steps & Tips

Goal: Facilitate quick understanding of the business by a lender, investor,and other stakeholders who may have interest in some form oranother in the company.

How: Extract, organize, and present key messages from each section ofthe business plan in a manner that stimulates interest andfavorable impressions of the business.

Tips: Do this section last ! The content of this section will come and flowalmost naturally after accomplishing the other sections of thebusiness plan.

Executive Summary

Steps & Tips

Example

Grayson HJB, LLC’s entry into the healthy smoothie business is expected to generate ascendingprofits from $49,125 on its first year to $154,339 on the third year of operation, with cash flowreaching $189,213 by the 36th month.

This growth is supported by a national trend for almost all demographic groups that favor healthysmoothies as a meal replacement.

The company’s selection of its first store in Grayson GA resulted from a county-wide analysis ofcompetition that indicates the city as a significantly underserved area. The market potential isestimated at 1,898 “health & fitness advocates” and 3,538 elementary and high school students perstatistics provided by Reference USA.

The business will be aggressively promoted 30 days prior to opening to create buzz and excitementamong its target market. The local Chamber of Commerce will be requested to “cut the ribbon” onopening day. A multi-media marketing strategy will be employed to reach the store’s targetcustomer segments.

The founder and owner of the business, Michael Johnson, has 25 years’ experience in the fast-casual restaurant industry while his spouse and business co-owner Caroline Johnson is a successfulfinance and administration professional who will devote full time to the business as will herhusband.

Recap

Executive Summary

Company Description


Risk Management

Management

Operations Plan

Production Plan


Strategic Position



Open Forum

How To Engage the Services of a UGA SBDC Consultant

Complete your business plan draft.

Then call to begin one-on-one consulting sessions.

Contact:Ms. Helen Sutherland

Administrative Associate

(678)[email protected]

What’s Your Score?

Presenter:Rosemarie A. Drake

Lender Relations Specialist SupervisorGeorgia District Office

About the SBA

Established in 1953 Independent Federal

Government Agency

SBA’s Mission

Capital

Contracts

Counseling

SBA Loan Data

YTD Loan Volume for SBA Loan ProgramsOctober 2015 thru June 2016

Georgia

7a loans= #1,411

Totaling $943,845,300

504= #113

Totaling= $87,143,000

$1,030,988,300 YTD FY16

compared to

$928,217,800 YTD FY15

National

7a loans= #47,475

Totaling $17,422,472,643

504 loans= 4,199

Totaling=$17,422,472,643

$20,765,271,643 YTD FY16

compared to

$19,121,746,300 YTD FY15

5

Breakdown of Georgia Loans by IndustryFY 16 FY 15

Industry # % # %

Accom. Food Serv. 269 17.65% 229 16.80%

Admin/Supp 56 3.67% 42 3.08%

Agric/Forest/Fish 84 5.51% 88 6.46%

Arts/Entert/Recr. 37 2.43% 34 2.49%

Construction 85 5.58% 90 6.60%

Educational Serv. 28 1.84% 33 2.42%

Fin. & Insur. 30 1.97% 24 1.76%

Health Care/Soc. 142 9.32% 135 9.90%

Information 17 1.12% 9 0.66%

Mgmt./Comp. 0 0.00% 0 0.00%

Manufacturing 76 4.99% 77 5.65%

Minning 0 0.00% 0 0.00%

Other Serv. 161 10.56% 116 8.51%

Prof/Sci/Tech/Serv. 140 9.19% 129 9.46%

Public Admin. 0 0.00% 0 0.00%

Real Estate/Rent. 24 1.57% 29 2.13%

Retail Trade 244 16.01% 229 16.80%

Transport/Ware. 62 4.07% 36 2.64%

UNK 0.00% 0.00%

Utilities 0 0.00% 1 0.07%

Wholesale Trade 69 4.53% 62 4.55%

Grand Total 1,524 100% 1,363 100%

6

Georgia 7a Loan Breakdown by $

7

Loan SizesFY 16 FY 15

7(A)#

%#

%

< = to $50,000 320 22.68% 186 14.70%

$50.01K - $100K 73 5.17% 87 6.88%

$100.01K - $150K 146 10.35% 161 12.73%

$150.01K - $250K 122 8.65% 99 7.83%

$250.01K - $350K 129 9.14% 146 11.54%

$350.01K - $500K 112 7.94% 116 9.17%

$500K - $1M 200 14.17% 203 16.05%

$1.01M - $2M 194 13.75% 157 12.41%

$2.01M - $2.5M 39 2.76% 50 3.95%

$2.501M - $3M 25 1.77% 20 1.58%

$3.01M - $4M 23 1.63% 24 1.90%

$4.01M - $5.5M 28 1.98% 16 1.26%

Grand Total 1,411 100% 1,265 100%

Georgia 504 Loan Breakdown by $

8

What’s in my FICO Score

A credit risk measures for consumers.

Score Range

300-850

Equifax, Experian,

Transunion

FICO Score Breakdown

5 Categories

FICO does not take into consideration

Ethnicity

Age

Gender

Religious affiliation

Residence

Interest rate charge

Certain Types of inquires*

How Does My Personal Credit Impact My Business Credit?

Global cash flow

Character

Personal Guarantee

5 C’s of Credit

• Industry and/or management experience. Credit historyCharacter

• Borrower’s equity into the business (generally non borrowed)Capital

• Measures the ability to repay the loan. Business and/or personal. Reviews credit (NW)Capacity

• Assets to secure debtCollateral

• Overall economy and borrower. Industry, competition, etc. What are the terms and purpose of the loanConditions

Why the 5 C’s?

• Lenders are assessing your ability to pay them back

• Partly an assessment of your business; partly an assessment of you, the owner

• Uniform formulas, tools and data sources

• Judgment comes in amount of risk lender is willing to take

• Ask yourself: would you loan a lot of money to a friend with the same qualifications as you are presenting?

CHARACTER

• FICO Score

• DUNS (Data Universal Number System

• Personal vs Business Credit

• SBA –Personal History

CAPITAL

• Equity Injection (cash (*) not collateral)

• Secondary source of repayment

• Personal debt service

CAPACITY

Repayment ability (historical or future)

– Business Cash Flow

– Personal Cash Flow

– Global Cash Flow

– Projections (with assumptions)

CAPACITY

• Cash Flow – does the business reliably generate enough cash to make the monthly loan payment?

– Debt service coverage ratio at least 1.25

– Net Operating Income > 1.25

Loan Payment (Principal & Interest)

o Net Operating Income = Net Income + (Depreciation & Amortization)

o Example:

oNOI = $4,000

oLoan payment = $2,500

oRatio = 4,000/2,500 = 1.60 so this would meet the requirement

• Other sources of income

Traditional Cash Flow

Earnings Before Interest, Tax, Depreciation and Amortization (EBITDA)

Net Income (loss)

+Interest Expense

+Tax

+Depreciation

+Amortization

=Net cash available to service debt

Sample IRS 1040 Schedule C&

Debt Service Coverage Ratio

COLLATERAL

All Available Assets (Business & Personal)

Collateral vs Equity

Collateral Valuations

COLLATERAL

• Assets pledged by borrower to lender as security for a loan (“secured loan”)

• Lenders like all assets to be listed; but may not use all for collateral

• Collateral vs. lien

– Collateral is the asset, the property; lien is the legal claim on the property

– There are many types of liens: tax, judgment, mechanic, etc.

– Uniform Commercial Code (UCC) lien filing gives lender legal right to seize and sell an asset

– Sometimes one collateral asset may be pledged more than once and have multiple liens (cross-collateralization)

• Personal guarantee may also be required

– Allows lender to pursue personal assets, not just business assets

CONDITIONS

Purpose

Uses and sources of proceeds

Market Condition

• Industry

• Competition and competitive advantage

Other Factors

Lender’s Risk – Portfolio

Lender’s Role

Application DecisionClosing &

DisbursementServicing

Collection (i.e.

liquidation)

24

Preparation for a loan requestBASIC

Financial statements

3 years business, affiliate business

and personal federal tax returns

Financial projections with

written assumptions

Personal financial statement*

Business plan/executive summary

Overview of business, &

management

Loan purpose: use of proceeds (C’s of

credit)

Market demographics,

competition

SBA FORMSStatement of

Personal History (912)

SBA borrower application (1919)*

Personal Financial Statement (413)

*PERSONAL GUARANTY*

Are you Ready for Financing?Recap

Know your numbers

Mitigate the deficiencies

Completed application with support documents

LINC

27

https://www.sba.gov/tools/linc

Access:

https://www.sba.gov/tools/linc

Rosemarie A. Drake

SMALL BUSINESS FINANCING

Presenter: Amber Bennett

Business Consultant UGA SBDC at Gwinnett

GeorgiaSBDC.orgSBDC Credit School

Access To Capital - The Process

Needs AssessmentAlternative Sources

of CapitalTraditional Sources

of Capital


Types of Financing Available

Commercial Bank Loans

Lines of Credit

Trade Credit

Micro Lenders

SBA Loan Programs

your business strenghtEstablisha srongbond with your bank before requesting a loan. "The most important thing you have with your bank is not money: it's the relationship you have with the bank," Improve your chances

Traditional Sources



Crowdfunding

Friends & Family

Investors

Factoring

Seller Financing

Leasing Equipment/Supplies

Bootstrapping

of your business strenghtEstablisha srongbond with your bank before requesting a loan. "The most important

thing you have with your bank is not money: it's the relationship you have with the bank," Improve your chances

Alternative Sources


Crowdfunding


Equity Financing via Investors

Money raised by a company in exchange for a share of

ownership in the business.

Allows a business to obtain funds without incurring debt, or

without having to repay a specific amount of money at a

particular time.

Most small or growth-stage businesses use limited equity

financing. Equity often comes from non-professional investors

such as friends, relatives, employees, customers or industry

colleagues.


Equity Financing – Angel Investors

Former entrepreneurs or executives who cashed out and

retired early from ventures that they started and grew into

successful businesses..

Generally SEC accredited investors

Seek companies with high growth potentials, strong

management teams, and solid business plans.

Typically invest in ventures involved in industries or

technologies with which they are personally familiar.

Seek active involvement in the business, such as consulting and

mentoring the entrepreneur.


Factoring (on AR)

Factoring

Type of financial service whereby a firm sells or

transfers title of its accounts receivable (all or part) to a

factoring company which then acts as principal, not as

agent. Receivables are sold with or without recourse, i.e.

the factor cannot turn to uncollectible.


Other Alternate Options

Merchant Cash Advances

Merchant cash advance companies provide funds to

businesses in exchange for a percentage of the

businesses daily credit card income, directly from the

processor that clears and settles the credit card payment.


Seller Financing

A loan provided by the seller of a property or business to

the purchase. Usually, the purchaser will make some sort

of down payment to the seller, and then make installment

payments (usually on a monthly basis) over a specified time,

at an agreed-upon interest rate, until the loan is fully

repaid.



Crowdfunding

Friends & Family

Investors

Factoring

Seller Financing

Leasing Equipment/Supplies

Bootstrapping

of your business strenghtEstablisha srongbond with your bank before requesting a loan. "The most important

thing you have with your bank is not money: it's the relationship you have with the bank," Improve your chances

Alternative Sources


Alternate Financing

Questions?



Commercial Bank Loans

Lines of Credit

Trade Credit

Micro Lenders

SBA Loan Programs

your business strenghtEstablisha srongbond with your bank before requesting a loan. "The most important thing you have with your bank is not money: it's the relationship you have with the bank," Improve your chances

Traditional Sources


Debt Financing

Borrowing money that must be repaid over a period of time,

usually with interest.

The lender does not gain an ownership interest in the business,

and debt obligations are typically limited to repaying the

loan with interest.

Short-Term: Repayment due in less than one year.

Long-Term: Repayment due over a period greater than one.


TypTypes of Financing Available

Strong Credit History

Established Business

Banking Relationship

History of Profitability

Experienced Management Team

Commercial Bank Loan



Specific Reason – Trade Credit- Seasonality

Strong Credit History

Established Business

Not Generally Available to Start Upsof your business strenghtEstablisha srongbond with your bank before requesting a loan. "The most important thing you have with your bank is not money: it's the relationship you have with the bank," Improve your chances

Line of Credit



Supplied by Vendors

Could Make Loan Request Smaller

Usually a Gradual Build Up 7, 15 , 30 days

Generally Discount for Fast Pay (i.e. 2%

discount if pay by 10 days)

Trade Credit


Traditional Financing (Part 1)

Questions?

OVERVIEW OF SBA LOAN

PROGRAMS Georgia District Office

Rosemarie A. Drake

Lender Relations Specialist Supervisor


Small Business Administration

U.S. Small Business Administration (SBA) guarantees a

large percentage of loan value for specific loans to

banks and commercial lenders on the premise that the

loan might not be made without the guarantee.

The SBA does not make loans directly to borrowers

(with the exception of specific emergency cases in

flooded or other distressed areas).


Grants

Beware of the common myth:

“There is a lot of government grant money through the

SBA for my business.”


Benefits to the borrower

Longer terms (up to 25 years for CRE)

No balloon payment

Mitigates insufficient collateral

Less down payment (in some instances)


SBA Loan Programs

7(a) 504

Micro


SBA Loan Programs

Be an Operating Business

Be Organized for Profit

Be Located in the United States

(includes territories & possessions)

Be Small (as defined by SBA)

Demonstrate a Need for the Desired Credit

Basic Eligibility


SBA’s 7(a) Loan

Loan originates at local institution

SBA guarantees a % to bank

Loan payments are made to bank

Up to $5,000,000

Interest Rates: Prime Rate +

Lengthy application and underwriting


7(a) Proceeds

Land and building

acquisition

Inventory purchase

Machinery and equipment

Working capital

Refinancing

Non-Profit Organizations

Developer/Landlord Deals

Financial Institutions

Religious Institutions

Real Estate Company

Use of Proceeds Ineligible Uses


504 Loans

The 504 Program provide small businesses with long-term,

fixed-rate financing to acquire major fixed assets for

expansion or modernization

A Certified Development Company (CDC) is a private, non-

profit corporation which is set up to contribute to economic

development within its community

Economic Development-Oriented (must create one job for every

$65,000 borrowed)


504 Loans

Maximum loan $5,500,000

Loan Terms 10- or 20 years

Lengthy application and underwriting

Must be 51% owner-occupied


Seeking a SBA Guaranty Loan

What the Lender / SBA is looking for… A Solid Business Plan with 3 Years of Projections

A Strong Personal Credit Score*

Personal Financial Statement*

Showing Personal Assets / Liabilities

Minimum of 10% Contribution (a.k.a. Down

Payment)

Direct or Transferrable Experience

Personal Guarantee** For everyone identified as

owning 20% or more of the

business.


Loan Package (Both 7a and 504)

Lender’s loan application

Business plan

Financial Projections (3 Years)

Start-up costs

Individual tax returns

Personal financial statements

Support exhibits ex

Lender’s loan application

Business plan (updated)

Financial projections (1 Year)

Business Financial Statements

Individual & Business tax returns

Personal financial statements

Support exhibits

New Businesses Existing Businesses


Microloan Programs

Microloan Programs provide small, short-term loans to small

business

Usually the maximum loan amount is $50,000. Average loan

amount is $13,000.

Microloans may be used to purchase inventory or supplies,

furniture and fixtures, equipment and working capital

Shorter application and underwriting process


Micro Lenders

Lenders usually are community-based organizations with

experience in lending as well as management and technical

assistance.

Albany Community Together, Inc. (ACT)

www.albanycommunitytogether.com

Access to Capital for Entrepreneurs (ACE) –

www.aceloans.org

Atlanta Micro Fund – www.atlantamicrofund.com

DeKalb Microenterprise Institute – www.debco.org

istance Corporation – Savannah

http://www.aceloans.org/

http://www.aceloans.org/

http://www.atlantamicrofund.com/

http://www.debco.org/


Questions Your Lender Will Ask

Can the business repay the loan?

Can you repay the loan if the business fails? (Is collateral sufficient to repay the loan?)

Does the business collect its bills?

Does the business pay its bills?

Does the business control expenses?

Are the officers committed to the business?

Does the business have a profitable operating history?

Are sales growing?

Are profits increasing as a percentage of sales?

What is the future of the industry?


Traditional Financing (Part 2)

Questions?

THANK YOU…

Amber Bennett

Business Consultant

[email protected]

www.georgiasbdc.orgIn Partnership with the U.S. Small Business Administration

creating a credible business plan - uga sbdc · fast casual restaurant business, healthy smoothie...

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