Part one of this series focused on sources of debt and equity, the benefits and costs of each. This section covers what you'll need to show potential lenders/investors.
The key to obtaining money for your business (either debt or equity) requires a solid business plan. You know where you want to go, and you need a road map to help you get there. More importantly, it also shows the third party supplier of funds how you will get there and how they will get the financial return you have promised to them.
How to do it can be both difficult and painful – but essential – and should be a part of your planning where you are looking to borrow money or not. You know what you want to do, but as an entrepreneur, sometimes it is challenging to document the plans. I know how to do a business plan, but walking you through it is an entirely different exercise (see the links listed below for help).
There are outside sources who may be able to assist you, some of which are less expensive than others. Consider partnering with a local business school, as they are looking for ways to give their students real life scenarios. Try SCORE, which is comprised of volunteer retired executives. The SBA might be of assistance. And if all else fails, use an online vendor and follow the template.
Ask your accountant for any guidance and the details (the more the better). However that meter will run on you. Intuitively the content is simple. You are showing others how you plan on running your business, handling your financial affairs, and navigating the challenges you will face.
It will include a cover page with contact information, an executive summary, a company overview, an analysis of our industry (data is available from our trade association, PPAI), customer analysis, competitive analysis, a marketing plan, an operations plan, details about the management team, and most importantly, your financial plan.
The historical financials are fact. Nothing to change, but you might want to add commentary. The cash flow forecasts are critical. If they differ from the historical results, you will need to spend a great deal of effort explaining the variances.
Your cash flow should include both monthly and quarterly analyses. Do you encounter any seasonality? If so, your forecast should incorporate that history.
How do you prepare the cash flow, which may be the single most important section in the plan? Start with your historical results. Then think about how your business will change as a result of the plans you are implementing.
It is important to break it down monthly, or even weekly, as you pay your bills (hopefully) weekly and timely. As your sales increase, your cash flow will lag unless your accounts pay you immediately or very timely. Part of the cash flow will analyze that gap. You might have the best plan, but if you can’t pay your bills properly, your creditors can impact your long term viability.
So part of the cash flow projection is on an accrual basis, but then you need to convert it into a cash basis to maintain sufficient liquidity. You do that by using your historical cycle – how long it takes a client to pay for a sale and how long you have to pay your vendors, your payroll, and all other expenses. This exercise will show you (assuming the assumptions hold true) your cash forecast.
Here are some links that you might find helpful.
www.score.org
http://www.bplans.com/promotional_products_maker_business_plan/executive_summary_fc.php
http://www.ppai.org/Documents/2014PPAISalesVolReportV3_61615.pdf
http://www.ppai.org/inside-ppai/research/Documents/2014SalesVolumeSheet.pdf
You are more than welcome to ask me for some guidance, too. harvey@gempire.com
After graduating from the Wharton School at the University of Pennsylvania, Harvey Macklet enjoyed a 20-plus year career in commercial banking, exercising his “golden parachute” in 1996. He was executive vice president and COO of our commercial finance subsidiary in Manhattan and chairman of the Small Business Banking Unit of the American Banker’s Association. He has served on the board of the acclaimed George Street Playhouse in New Jersey and chair of the Easter Seal Society of New Jersey for two years as well as a captain on his local emergency rescue squad. He acquired GWI Corp in February, 1997 and transformed it to focus on the Supplier/Distributor/End-buyer model, growing the company's sales by 500 percent. He is past chair of the SAAGNY Foundation, current Co-Chair of the PPAF EXPO and past Chair of the Supplier Committee of PPAI.