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Business Plan Financials
Mike S. Reyes, MBASr. Certified Business AdvisorUTSA Institute for Economic Development Small Business Development Center
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Brief review of business planning process
Analyze Market to arrive at Sales Projections
Financial Analysis The Credit Process Financing Needs-Purpose &
Types of Loans Q&A and Evaluations
Agenda
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SBDC Mission Promote
• Growth• Expansion• Innovation• Increased Productivity• Improved Management
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Training Feasibility Business Plan Internet IRS Tax Education QuickBooks Pro Accounting How to Market Your Business Money Management for Small Businesses
UTSA SBDC Services
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Counseling Confidential, by appointment only Business Startups and Existing Businesses Analysis of Business Operation Financial Analysis-Format Human Resources Recordkeeping Marketing Research Information
UTSA SBDC Counseling Services
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Business Plan Development Feasibility Analysis
Funding Needs
Loan Proposal Structuring
Lender Evaluation
SBA Eligibility/Credit
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Business Plan Tips Purpose Your “reader” Content vs. length Organized information
gathering system
Financial proposal
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Business Plan
Cover letter
Executive Summary
Table of Contents
Definition of Product or Service
Operations Overview
Market Analysis
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Business Plan
Marketing Plan
Management Profile
Financial Analysis
Supporting documents
As you are writing your business plan, keep a running log of all expenditures to make sure the narrative corresponds with the financials.
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Market Research
Market Research
Industry trends
Description of total market
Competitive analysis
Demographic information
Documentation of demand for product or service
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Research StrategiesFree Small Business Resources Online
SBDC National Information Clearinghousehttp://sbdcnet.utsa.edu
Links of interest for entrepreneurs. Of particular interest isthe Industry Research section.
SIC/NAICSU.S. Census Bureauhttp://www.census.gov/epcd/www/naics.html
Identify the SIC and/or NAICS code for your line of business
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Research StrategiesIndustry TrendsBizJournalshttp://www.bizjournals.com/Search Business Journals to find relevant business articles. Free site, requires registration. Searchable by industry and market (i.e. city). FindArticleshttp://www.findarticles.com/
Search for articles from numerous leading academic, industry and general interest publications. Industry Linkshttp://www.irs.gov/businesses/small/industries/index.html
Competitors/SuppliersSuperPageshttp://www.superpages.com/Searchable by keyword by city, state or zip code. Also searchable by distance up to 100 miles from an address. Results can be viewed on a map.
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Research StrategiesWage Setting InformationU.S. Department of Labor - Bureau of Labor Statisticshttp://www.bls.gov/bls/blswage.htmIdentify wages for specific occupations on a national, regional, state, or
Metropolitan Statistical Data (MSA) level. America’s Career InfoNethttp://www.acinet.org//acinet/select_occupation.asp?stifips=&next=occ_repWages and trends by occupation and state.
DemographicsAmerican FactFinder from the U.S. Census Bureauhttp://factfinder.census.gov View demographic information by a state, county, city, or zip code level.
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Startup Costs
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H O W M U C H W IL L IT C O S T Y O U T O A C C O M P L IS H Y O U R P R O J E C T ?
T he se f ig ure s s ho u ld b e re f le c te d in the p re -s ta rtup c o lum n o f yo ur c a s h f lo w s ta te m e nt. A llo w e no ug h w o rk ing c a p ita l fo r e xp e n se s d u r ing the e a r ly p e r io d .
N O T E S :
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DES C RIP T IO N AM O U NT
B u i ld ing 75,000$ L a n d 20,000$ R e m o d e l in g /Im p ro ve m e n ts 30,000$ F ixtu re s & E q u ip m e n t 8,500$ F u rn i tu r e 1,000$ O u td o o r S ig n 1,500$ In ve n to ry 25,000$ D e p o s i ts 5,000$ As s o cia tio n F e e 200$ Ad ve rti s in g 1,800$ L ice n s e , P e rm i ts , In s u ra n c e 500$ O ffic e /O p e ra tin g S u pp l ie s 200$ L o a n Fe e s (4 .5 % ) 6,300$ W o rk ing C a p i ta l 25,000$
T O T A L S T A RT UP C O S T S 200,000$
A . S T A R T U P C O S T S
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N O T E S :
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O f t h e t o t a l p r o j e c t c o s t y o u ' v e i d e n t i f i e d f o r s t a r t i n g t h e b u s i n e s s , h o w m u c h a r e y o u c o n t r i b u t i n g , a n d h o w m u c h c o m e s f r o m t h e f i n a n c i a l i n s t i t u t i o n o r i n v e s t o r ? W h a t i s t h e m o n e y b e i n g s p e n t o n ?
D e s c r i p t i o n L o a n O w n e r T o t a lI n j e c t i o n
I n v e n t o r y 4 , 0 0 0$ 2 1 , 0 0 0$ 2 5 , 0 0 0$ F u r n i t u r e a n d E q u i p m e n t 1 1 , 0 0 0$ 1 1 , 0 0 0$ L a n d 2 0 , 0 0 0$ 2 0 , 0 0 0$ B u i l d i n g 7 5 , 0 0 0$ 7 5 , 0 0 0$ I m p r o v e m e n t s 3 0 , 0 0 0$ 3 0 , 0 0 0$ D e p o s i t s 5 , 0 0 0$ 5 , 0 0 0$ W o r k i n g C a p i t a l 2 5 , 0 0 0$ 2 5 , 0 0 0$ O r g a n i z a t i o n a l C o s t s 9 , 0 0 0$ 9 , 0 0 0$
T O T A L 1 4 0 , 0 0 0$ 6 0 , 0 0 0$ 2 0 0 , 0 0 0$
B . S O U R C E A N D U S E O F F U N D S
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Purpose - to show how money for transactions is accounted for in a given time period.
Indicates revenue, expenses, and resulting profits for that period of time.
Profit & Loss Statement (Income Statement)
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Key Elements of the Income Statement
Gross Sales Cost of Goods Sold Gross Income Operating Costs
General & Admin Rent, Wages Utilities Ad & Promotions Etc.
Depreciation & Amortization Expense
Operating Income Interest Income Interest Expense Income Before
Taxes Income Taxes Net Income
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Income/P&L StatementYear 1
Gross Sales $300,000
Less COGS $218,000
Gross Profit $82,000
Less Operating Exp.
Rent, wages, utilities, etc.
$58,000
Profit before Tax $24,000
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Use assumptions from market research and industry averages
Realistic seasonal sales by the month Method of payment for services
Cash / Checks Credit / Debit cards Credit terms (30 days)
Inventory purchasing Use several different ways to project sales Can the business sustain slow periods
Cash Flow Projections
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Key Elements of the Cash Flow Statement
1) Cash inflow and outflow from operations
2) Cash inflow and outflow from investing
3) Cash inflow and outflow from financing
OutfloOutfloww
InfloInfloww
CASHCASH
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Cash Flow
Reasonable
assumptionsSeasonality
Aging of
accounts receivable
Month 1 Month 2 Month 3
Cash on Hand 25,000 23,000 24,000
Plus Revenues
12,000 19,000 22,000
Available Cash
37,000 42,000 46,000
Less Expenses
14,000 18,000 20,000
End of Month 23,000 24,000 26,0000
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Purpose- to provide a ‘snapshot’ of a business’s financial position at a given point in time.
Illustrates what the business owns, what it owes and what the business’s net worth is at a given point in time.
Total assets should equal the sum of the total liabilities and the net worth.
Balance Sheet
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Key Elements of the Balance Sheet
Current Assets Cash & Cash
Equivalents Accounts Receivable Inventories
Fixed Assets Property, Plant &
Equipment Intangible Assets
Liabilities & Capital /Net Worth
Current Liabilities Current portion of
long term debt Accounts Payable Accrued Payroll
Long term Liabilities Long-term Debt
Net Worth (Equity)
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F. BALANCE SHEET PROJECTION
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Start-up Year-End
Current Assets
Cash 25,000 52,218 23.0%
Accounts Receivable 0 1,350 0.6%
Inventory 25,000 31,706 13.9%
Deposits 5,000 5,000 2.2%
Other Current Assets 0 0 0.0%
Total Current Assets 55,000 90,274 39.7%
Property & Equipment
Furniture & Equipment 11,000 11,000 4.8%
Land 20,000 20,000 8.8%
Building 75,000 75,000 33.0%
Improvements 30,000 30,000 13.2%
Acc. Depreciation 0 -6,018 -2.6%
Total Property & Equipment 136,000 129,982 57.1%
Other Assets
Organizational Costs (Net Amort.) 9,000 7,200 3.2%
Total Assets 200,000 227,456 100.0%
Current Liabilities
Accounts Payable 0 6,033 2.7%
Income Taxes Payable 0 1,088 0.5%
Payroll Tax Payable 0 231 0.1%
Sales Tax Payable 0 0 0.0%
Current LT. Debt (Bank) 4,063 4,510 2.0%
Total Current Liabilities 4,063 11,861 5.2%
Long-Term Liabilities
Long-Term Debt 135,937 131,427 57.8%
Total Long-Term Liabilities 135,937 131,427 57.8%
Total Liabilities 140,000 143,288 63.0%
Capital
Owner's Equity 60,000 60,000 26.4%
Dividend Distributions
Retained Earnings
Current Profit or (Loss) 0 24,168 10.6%
Total Capital 60,000 84,168 37.0%
Total Capital & Liabilities 200,000 227,456 100.0%
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Personal Financial Data Personal Balance Sheet
•Resources
•Obligations
•Dependence on business
o Credit Report
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Financing Needs
Purpose & Types of Loans
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Determining Sources & Uses of Funds
Sources should match Uses
Long lasting (fixed) assets funded by long term or equity funds Ex. Buildings with mortgage loans
Short term (current) assets funded by short or “current” liabilities
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Purpose of Loans (Short term) Short term (< 1 year):
Working capital A/R financing Inventory increases Raw material increases Payroll gaps
Business cycle (Seasonal) loans Peak selling seasons Ag loans
Interim construction loans
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Types of (Short Term) Loans
Term loans (90-180 days) Revolving lines of credit Letters of credit Business Credit cards Interim construction loans(< 1 year) Shareholder (subordinated) loans
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Purpose (long term) Loans
Long term loans (> 1 year) Equipment loans Leasehold improvements Permanent working capital Product development ( R&D) Real Estate
Expand existing facilities Build new facility
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Types of (long term) Loans
Installment Principal & interest
Self amortizing Balloon payment Real estate
Interim Permanent
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Existing Businesses Historic Information
Past three year trend analysis
Start-up Businesses Market Share Analyze Competition Production Capacity
Forecasting Techniques
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Projected Target Market Sales
Total hair salon sales, Your City = $2 mm
Total number of hair salons = 12 Average Sales per salon
($2mm/12) = $167k Projected sales
Conservative $167 x .80= $133k Expected $ 167 x 1.0 = $167k Best case $167 x 1.2 = $200k
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Industry related factors Competitor related factors Customer related factors Other factors
Economy Regulations Etc.
Factors to Consider when Targeting the Right Price
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Pricing Characteristics
Elasticity of demand Competitors price range Perceived image Intangibles
Quality Service Added value Convenience
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Lender Evaluation
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The Expectations of the Banker
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A Banker ...
When developing your business plan and loan proposal, remember to address the needs of your reader.
…is not a venture capitalist.
…is not a private investor.
…is not a microloan lender.
…wants reasonable assurance of repayment ability from the cash flow of the business.
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Six C’s of Credit
Character Honesty Reliability Trustworthiness
Credit History Past payment record Public records
Capacity Financial strength Ability to manage business
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Six C’s of Credit
Capital Cushion for recessionary times Commitment to business Value as investment
Collateral Secondary repayment source Reduces loss to bank (liquidation) Willingness to pledge personal assets
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Six C’s of Credit
Conditions External forces that can affect business (From
Market Research) Economic Social psychographics Regulatory
Poor business cycle timing Competitive environment (Market Research)
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Borrowing Reality
•Owner Injection: 25-30% for startup
•Existing: 20-25% equity
•Good Credit
•Collateral
•Repayment ability
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Choosing a Bank
Talk to your present banker: Knows your business Track record Credit history Help from SBA/SBDC for banker
SBA PLP/CLP bank list (www.sba.gov)
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SBA Programs & Eligibility
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Benefits Reduces Risk to
Lender
Longer Terms
Lower Interest
Supports Start-up Position
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SBA Eligibility/Credit Eligibility
Business size
Type of business
Legal
Non-investment property
Use of proceeds
Credit Analysis
Role as a guarantor
Benefits to obtaining an SBA guarantee
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Most Common Ineligible Businesses or Situations Non-profit Financial Institutions Real Estate Investment (non-owner
occupied) Limited membership clubs Over 1/3 revenue from legal
gambling Default on federal loans Probation/Parole Religious teaching Prurient sexual nature
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Loan Purposes
Working Capital Machinery &Equipment Inventory Furniture & Fixtures Leasehold Improvements Expansion Renovations
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Loan Purposes
Construction of new building Land Debt-refinancing Buy existing business Franchise Home-Based
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SBA Loan Programs Regular 7(a) Loan Guaranty Program
Guaranty up to $1,500,000Specialized MicroLoan <$50,000
Accion & South Tx. Bus. Fund SBA Express up to $350,000 SBA Patriot Express up to $500K
504 Loan Program <$1.MM Debenture CAPLines; Standard Line <$2,000,000
Small Asset Based <$200,000 International Trade & Export Working
Capital >$1.25MM Disaster FEMA LOANS
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SBA Patriot Express-Highlights
Purpose to help vets with Small Business ventures
Service related Veteran Service – disabled vets Reservists & National Guard Current spouses of above Widowed spouse of veteran
See counselor for more details
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SBA Loan Guarantees:Step By Step
Develop a business plan Present to lender, who
screens/recommends Loan Committee decision may stipulate
SBA SBA Loan Officer review SBA approve, withdraw or decline Closing with lender Payments to lender
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Additional Funding Sources Leasing Account Payable A/R Management
Collection policies Borrowing base for RLOC
Factoring Business Angels Venture Capitalists
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Additional Sources - Leasing
Pros Way to stretch funds Use for rapidly
changing equipment Increase level of
equipment
Cons No equity in
equipment Capital lease shows as
liability Negative exit terms
(upside down) Can’t use depreciation
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Non-Traditional Sources (Factoring)
Selling your A/Rs (invoices) As compared to A/R financing Normally younger or weaker
companies Factoring charges & discount fees
Approx. 4-5% Factor looks at debtor credit
worthiness Tries to be transparent to you client
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Factoring Pros
Increased cash flow Immediate funding Approval not based on your credit rating Doesn’t increase your debt to equity
ratio Factor does own collection Non-recourse
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Factoring Cons
Short term cash source Relatively more expensive Factor does not own collection Recourse A/R have some liability to you
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Non-traditional ( Angels & VCs)
Business Angels (apparently) invisible Fleeting Got to be good to find one
Angels are small investor groups More informed in their industry Doctors, lawyer, successful business
people
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Business Angels
Usually prefer technology or bio-techs
Early (intro) stage capital
Equity position Substantial but not controlling Presence on board of directors Size - $100k to 1,000k Usually look for exit plan
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Venture Capitalists (VCs)
Big brother version of Angels Larger investment
$500k to $10mm and beyond Middle and later stage investors Try to get controlling interest Daily management oversight 10 X returns in 5-9 years Popular funding sources for Dot.coms
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The Next Step
o Rough Draft of business plan/financial proposal
o Last three years financial statements (if available)
o Current copy of credit report?o Appointment with SBDC counselor
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Getting Through the Process
Resource: UTSA SBDC
Confidential counseling
Technical assistance
Workshops
Location: 501 W. Durango
Call for appointment: 458-2460
Feasibility Analysis
Business Plan Development
Loan Proposal Structuring
Lender Evaluation
SBA Eligibility/Credit
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Questions & AnswersEvaluation
??????????????EvaluationSpeaker –
Mike Reyes-458-2469