If you’re hoping to borrow money to buy or start a business, you’ll probably need a business plan.
A business plan, which projects 3-5 years ahead, is your road map for your business. It outlines how a company plans to reach yearly milestones, including revenue projections. A well-thought-out plan also helps a business focus on its key elements and helps the owner make good decisions, according to the Small Business Administration.
Serial entrepreneur Alejandro Cremades, author of The Art of Startup Fundraising, says you “should have a plan in order to get yourself organized, to ensure you have some type of viable commercial potential, you have focus and hopefully aren’t going to run out of money or starve before you get going.”
The SBA’s Business Plan Tool is a free resource that guides you step-by-step to create the plan. Not only can you save your plan as a PDF file, you can also update it at any time, making this a living plan to which you can often refer. You can also use your completed business plan to discuss next steps with a mentor or counselor from an SBA resource partner such as SCORE, a Small Business Development Center (SBDC) or a Women’s Business Center (WBC).
All of your information entered into this tool can only be viewed by accessing your account using the password you have specified.
You can complete each section of SBA’s Business Plan Tool at your own pace, save your work at any time and pick up where you left off the next time you log into the tool. Your information will be saved for up to six months after your last login date.
Writing for Forbes, Cremades says that traditional business plans can be massive, expensive, time-consuming projects. If “you don’t plan to raise money, apply for loans and don’t intend on bringing in partners, then you certainly don’t need a 25lb manuscript. Keep it simple.” Brian Chesky, founder of Airbnb, is famous for his one-page business plan for global domination.
Harvard Business Review (HBR) says some business plans “end up nothing more than a fable.” That because HBR says “the real key to succeeding in business is being flexible and responsive to opportunities. Entrepreneurs often have to pivot their business once it becomes clear that their original customer is not the right customer, or when it turns out that their product or service fits better in an alternate market.”
HBR also wrote that:
- The “most successful entrepreneurs were those that wrote their business plan between 6-12 months after deciding to start a business. Stating that this “increased the probability of venture viability success by 8%.”
- Chances of success rose by 12% for those that spent no longer than three months on their plan. Spending more time than that was futile.
- Startups chances of venture viability rose by 27% if the plan was created at the same time that founders were talking to customers and preparing marketing.
According to Entrepreneur.com and Rule’s Book of Business Plans for Startups, founders should be considering these factors when creating their plan.
- How the business will be vested
- Main objectives
- Mission statement
- Keys to success
- Industry analysis
- Market analysis
- Competitor analysis
- Core strategies
- Marketing plans
- Organizational structure
- Key operations
- Projections and pro formas
- Break-even analysis
- Financial needs
SCORE, an SBA partner that provides free business mentoring and education, offers templates with instructions for each section of the business plan, followed by worksheets.
- Executive Summary
- Company Description
- Products and Services
- Marketing Plan
- Operational Plan
- Management & Organization
- Startup Expenses & Capitalization
- Financial Plan
For more help with getting business financing, consult one of the GABB’s professional SBA lenders who can advise you on what you need to get funding for your business.Read More
By Peter Siegel, MBA, Founder and President of BizBen.com.
Almost everyone who owns a company wants to put it up for sale sooner or later. And if the owner doesn’t have employees or family members ready to put up the money and take over the business, the owner must find a buyer in the business-for-sale market. Sadly, only one-third of the hopeful sellers in this market will be successful.
That means two-thirds of owners unable to connect with a buyer will ultimately have to close the business or give it away. The problem may be that the business simply is not desirable. But just as frequently, the reason an owner can’t make a sale is because he or she is one of the many seller types who inevitably will fail.
If the seller can identify what type of seller they are, they can gauge their chances of successfully selling their business.
1. Make a Killing Mike: Also known as “Make a Million, Mike,” this individual believes his business is worth more than any sensible buyer will pay for it. There are a number of ways Mike justifies the asking price. A popular idea is that a similar business recently sold for the price Mike wants. But no two businesses are alike, and Mike doesn’t understand that the “similar” business is much more profitable and in a better location. The market may not reward Mike if he should eventually lower the price to a figure close to its value. Buyers often are not interested in investigating a business that has been on the market for a long time – whatever the reason.
2. Clarence Can’t Carry: An important selling feature of most any business offering is the willingness of the seller to “carry back” part of the purchase price. Along with a cash down payment, the seller receives a promissory note usually secured by the business assets, to be paid off by the buyer over a period of time. It’s reassuring for a buyer when the seller is willing to help finance, because it demonstrates that the seller believes in the business and in the buyer’s ability to operate it successfully. An offering that can only be purchased with all cash is almost always unappealing compared to other opportunities that come with seller financing.
3. Rita Rosy Picture: According to Rita, her business is about to become as much in demand as this week’s most popular show business celebrity. She has the best inventory in town, the most helpful and loyal employees, and greater prospects for the future than any buyer can imagine. Even a business that does excel in some respects has its problems and disadvantages. Buyers know that and often don’t feel secure about an opportunity that is described only in the most optimistic way. When meeting with a seller who doesn’t come across as honest and credible, many buyers get a negative feeling about the opportunity – the opposite of what the seller intended.
4. Nick Not Ready: Any prospective buyers meeting Nick will wonder how he could be trying to sell his business but not be able to produce current financial information, a list of assets to be included, or a definitive description about the premises lease that the landlord will provide to a new owner. Does the seller have something to hide? Is he really that disorganized? If so, what does that say about the condition of the business? Did he neglect to “get his stuff together” because he doesn’t really believe the business is salable? These are questions that occur to buyers as they decide they aren’t interested in what Nick has to offer.
5. Don’t Worry Dorothy: When Dorothy tells a prospective buyer that he or she shouldn’t worry, the buyer usually worries. Buyers want to know what happens if the customer who accounts for half the company’s income decides to do business elsewhere. They want to understand the consequences if a large competitor moves into the neighborhood. If the seller can’t answer these questions, the buyers really won’t worry about those issues. That’s because they’ll look for another business to buy.
6. Secret Sam: One of the things Sam likes to tell prospective buyers is how much of the company’s income goes directly into his pocket without being recorded on the books. He may be proud of his skimming habit. He may think he’s quite clever at fooling the taxing authorities. He might think the buyer will add the total of unreported cash to the reported income and decide the business is making enough money to justify the asking price. But he’s mistaken. The buyers who investigate Sam’s business soon realize he can’t be trusted and move on to find out about other opportunities.
7. Realistic Ralph: Since he is motivated to sell, Ralph wants to present his business in a way that will generate positive responses from buyers. He understands he needs to be proactive in preparing the business for sale. The asking price accurately reflects market conditions. His books are in order and ready to be investigated by qualified buyers. Ralph met with financial institutions with the help of a niche financial advisor who specializes in business purchase financing. The business has been prequalified for financing. And Ralph is willing to carry back 20% of the price with a note. And he’s hired a professional business broker from the Georgia Association of Business Brokers who can develop a confidential plan to market his business to qualified buyers. His approach is a clear recipe for selling success.
If you identify with any of the first six seller types, you’re limiting your chances of selling your business. But if you assume the characteristics of Realistic Ralph, your business is likely to be among the one-third of business offerings that result in a sale.
About The Author: Peter Siegel, MBA is the Founder and President of BizBen.com. He is a SBA SCORE Counselor, author, consultant/coach (ProBuy, ProSell Programs), and advocate on the topic of buying and selling small to mid-sized businesses in the California marketplace. Having writen three books and hundreds of publication articles he has assisted small business owners/sellers, business brokers, agents, and business buyers for over 25 years. This article was adapted from one that originally appeared on his blog.Read More
The first step towards successfully selling a business is finding a qualified business broker to work with. Sellers should also ask themselves important questions about their motivations for selling. Freelance writer Troy Lambert outlines some crucial questions in an article published recently by Unbound Northwest and the Good Men Project.
1. Are you ready?
Such a simple and powerful question: “Are you ready?” For example, are your financial reports ready to show? If you’re like most businesses, your accounts are set up to provide the best tax advantage, but that usually doesn’t show all the money you make or have the potential to make. To get top dollar for your business, you’re going to have to “recast” your books, usually with the help of your accountant.
2. What’s the business worth?
3. How healthy is my industry?
Prospective sellers should be brutally honest when they answer this question: “How’s the health of my industry?” You’d better believe that your broker, bankers and prospective buyers will be asking this question as part of their due diligence. If your industry is in a transition period, for example, then it might be better to wait until a better time to sell.
4. How long will it take?
Selling a business can take a long time. If you need to sell quickly, you are likely to get less money and less favorable terms. Successfully selling your business may even mean that you have to stay on and work with the new owner during a transition period. The process can take a year or more, so plan for that.
5. Who is my buyer?
You don’t want to waste a lot of time with potential buyers who are simply not a good fit. Professional business brokers understand this and will prequalify buyers, ensuring they have the finances to buy your business and the right skills or certifications to run the business. Finding the right buyer for your business helps to ensure that a deal will be finalized. Brokers also understand the necessity of confidentiality in marketing your business.
6. How will I get paid?
Even if you get your asking price, you may not walk away with a wad of cash. Before you put your business on the market, decide how you want to be paid and how flexible you can be in terms of payment. Are you willing to finance part of the deal? Will you accept sales-based payouts? Balloon payments over time? Payment in the form of stocks or a stake in the business?”
For most sellers, selling a business will stand as the largest financial decision of their lives. With this realization comes more than a little pressure.
Having good advice is critical to a successful sale. A seasoned and experienced business broker understands what it takes to buy and sell a business. Working with a business broker is an easy and efficient way to begin the process of selling your business. Brokers know what it takes to successfully sell a business and can help you answer these questions and many more.
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A business plan, which projects 3-5 years ahead, is your road map for your business. It outlines how a company plans to reach yearly milestones, including revenue projections.Read More
Starting April 1, the SBA is changing its rules for financing partner buyouts, and GABB affiliate Susan Kite has provided a more detailed explanation of the changes. Kite, a Vice President and SBA Business Development Officer at Renasant Bank, says that the new SBA rules are designed to prompt borrowers to put more of their own cash money to finance partner buy-outs. SBA loans are frequently used in the purchase of businesses.
Victor A. Diaz, an attorney who is Managing Partner of Starfield & Smith’s Florida office, wrote in a recent client newsletter that the SBA tweaked its 7(a) lending program “as part of its overall goal of increased oversight and enhanced performance of its portfolio.”
The new rules “require greater use of cash (rather than debt) to finance partner buyouts.” In the regulation labeled SOP 50 10 5 (J), the SBA described “mandatory minimum cash equity injections from borrowers for loans used to finance changes of ownership.”
Earlier, the SBA issued a notice to prevent lenders from financing “more than 90% of the business purchase price or finance the acquisition of a partner’s interest who had not been sufficiently active in the business.” Under SOP 50 10 5 (K) effective April 1, 2019, the SBA has added two requirements before a borrower may finance more than 90% of the purchase price of a partner buyout. The two new requirements, according to Mr. Diaz:
(a) The remaining owner(s) must certify that he/she has been actively participating in the business operation and held the same ownership interest in the business for at least the past 24 months (Lender must include in the credit memorandum confirmation that the Borrower has made the required certification and retain such certification in the file); and
(b) The business balance sheets for the most recent completed fiscal year and current quarter must reflect a debt-to-worth ratio of no greater than 9:1 prior to the change in ownership.
Mr. Diaz writes that “in the event the Lender is unable to document that both (a) and (b) above are satisfied, the remaining owner(s) must contribute cash in the amount of at least 10% of the purchase price of the business, as reflected in the purchase and sale agreement. SOP 50 10 5 (K), page 185.”
Because of this change, “the need for additional cash equity will be assessed not on a forward-looking, pro-forma basis,” Mr. Diaz writes. “Instead, prior to the change of ownership, the business must demonstrate it is not over-leveraged. If the financial evaluation does not meet this threshold, additional cash equity will be required from the borrower in the amount of 10% of the purchase price, which reduces the possibility of the borrower utilizing debt rather than cash to finance the partner buyout.”
The SOP 50 10 5(K) will become effective April 1, 2019, and will apply to all applications received by SBA on or after that date. For more information on changes of ownership, please contact Victor at firstname.lastname@example.org or at 407.667.8811.
Thanks to Susan Kite for updating us on this rule.Read More