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Business Plan Financials

Business Plan Financials. Mike S. Reyes, MBA Sr. Certified Business Advisor UTSA Institute for Economic Development Small Business Development Center. Agenda. Brief review of business planning process Analyze Market to arrive at Sales Projections Financial Analysis The Credit Process

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Business Plan Financials

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  1. Business Plan Financials Mike S. Reyes, MBA Sr. Certified Business Advisor UTSA Institute for Economic Development Small Business Development Center

  2. Agenda • 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

  3. SBDC Mission • Promote • Growth • Expansion • Innovation • Increased Productivity • Improved Management

  4. UTSA SBDC Services Training • Feasibility • Business Plan • Internet • IRS Tax Education • QuickBooks Pro Accounting • How to Market Your Business • Money Management for Small Businesses

  5. UTSA SBDC Counseling Services Counseling • Confidential, by appointment only • Business Startups and Existing Businesses • Analysis of Business Operation • Financial Analysis-Format • Human Resources • Recordkeeping • Marketing • Research Information

  6. Business Plan Development • Feasibility Analysis • Funding Needs • Loan Proposal Structuring • Lender Evaluation • SBA Eligibility/Credit

  7. Business Plan Tips • Purpose • Your “reader” • Content vs. length • Organized information gathering system • Financial proposal

  8. Business Plan • Cover letter • Executive Summary • Table of Contents • Definition of Product or Service • Operations Overview • Market Analysis

  9. 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.

  10. Market Research • Market Research • Industry trends • Description of total market • Competitive analysis • Demographic information • Documentation of demand for product or service

  11. Research Strategies Free Small Business Resources Online SBDC National Information Clearinghouse http://sbdcnet.utsa.edu Links of interest for entrepreneurs. Of particular interest is the Industry Research section. SIC/NAICS U.S. Census Bureau http://www.census.gov/epcd/www/naics.html Identify the SIC and/or NAICS code for your line of business

  12. Industry Trends BizJournals http://www.bizjournals.com/ Search Business Journals to find relevant business articles. Free site, requires registration. Searchable by industry and market (i.e. city). FindArticles http://www.findarticles.com/ Search for articles from numerous leading academic, industry and general interest publications. Industry Links http://www.irs.gov/businesses/small/industries/index.html Competitors/Suppliers SuperPages http://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. Research Strategies

  13. Research Strategies Wage Setting Information U.S. Department of Labor - Bureau of Labor Statistics http://www.bls.gov/bls/blswage.htm Identify wages for specific occupations on a national, regional, state, or Metropolitan Statistical Data (MSA) level. America’s Career InfoNet http://www.acinet.org//acinet/select_occupation.asp?stifips=&next=occ_rep Wages and trends by occupation and state. Demographics American FactFinder from the U.S. Census Bureau http://factfinder.census.gov View demographic information by a state, county, city, or zip code level.

  14. Startup Costs

  15. Profit & Loss Statement (Income Statement) • 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.

  16. 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 Key Elements of the Income Statement

  17. Income/P&L Statement

  18. Cash Flow Projections • 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

  19. CASH 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 Inflow Outflow

  20. Cash Flow Reasonable assumptions Aging of accounts receivable Seasonality

  21. Balance Sheet • 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.

  22. 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) Key Elements of the Balance Sheet

  23. Personal Financial Data • Personal Balance Sheet • Resources • Obligations • Dependence on business • Credit Report

  24. Financing Needs Purpose & Types of Loans

  25. 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

  26. 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

  27. 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

  28. 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

  29. Types of (long term) Loans • Installment • Principal & interest • Self amortizing • Balloon payment • Real estate • Interim • Permanent

  30. Forecasting Techniques • Existing Businesses • Historic Information • Past three year trend analysis • Start-up Businesses • Market Share • Analyze Competition • Production Capacity

  31. 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

  32. Factors to Consider when Targeting the Right Price • Industry related factors • Competitor related factors • Customer related factors • Other factors • Economy • Regulations • Etc.

  33. Pricing Characteristics • Elasticity of demand • Competitors price range • Perceived image • Intangibles • Quality • Service • Added value • Convenience

  34. Lender Evaluation

  35. The Expectations of the Banker

  36. A Banker ... …is not a venture capitalist. …is not a private investor. …is not a microloan lender. When developing your business plan and loan proposal, remember to address the needs of your reader. …wants reasonable assurance of repayment ability from the cash flow of the business.

  37. Six C’s of Credit • Character • Honesty • Reliability • Trustworthiness • Credit History • Past payment record • Public records • Capacity • Financial strength • Ability to manage business

  38. 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

  39. 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)

  40. Borrowing Reality • Owner Injection: 25-30% for startup • Existing: 20-25% equity • Good Credit • Collateral • Repayment ability

  41. 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)

  42. SBA Programs & Eligibility

  43. Benefits • Reduces Risk to Lender • Longer Terms • Lower Interest • Supports Start-up Position

  44. 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

  45. 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 Most Common Ineligible Businesses or Situations

  46. Loan Purposes • Working Capital • Machinery &Equipment • Inventory • Furniture & Fixtures • Leasehold Improvements • Expansion • Renovations

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