Business plans are becoming more and more recognized as a necessary tool to compete in today’s economy. There are two basic reasons for creating a business plan: one is for personal use, to improve your business, and the other is to obtain a bank loan from new or existing lenders. Both types of business plans will contain information pertinent to their purpose.
Business Plan for Personal Use
Creating a business plan for use in your dealership or marina involves the following items which are foundational to creating a plan for a bank loan. In other words, do the personal business plan for your own use, and then formalize it, as discussed later, if you need to apply for a bank loan.
The items needed in the business plan for personal use are as follows:
1. Proforma budget or strategic profit plan – Here you will project your annual income by department and all expenses for the next year, then break each item down to monthly projections. It is very helpful to get input from the sales people and department managers in this process.
2. Cash flow projections – The bottom line of the proforma budget is the top line of the cash flow statement. Add back noncash expenses, such as depreciation, and subtract cash consuming items that do not show on the profit-and-loss statement, such as prepaid expenses and expected accounts receivable balances. Do these for each month so you (and the bank) can better determine your cash needs during the year.
3. Action list – Have a place to put ideas down as you are building the budget. It is invaluable to capture ideas that come to you during this process. Place them in one document, and then create an action list to check off as you complete the tasks. This is one of the most valuable documents that will come out of this process.
4. Marketing plan – Project how much you will spend on the different categories of marketing and when you plan to spend it. This is the basis for your marketing plan for next year. Work with a calendar to create a timeline to prepare for each event. For example, how many months prior to a boat show do the boats need to be ordered, and the booth space secured, brochures ordered, etc.
5. Create a way to monitor the projected budget as compared to the actual results each month. If you need help here, I have a new Online Budgeting Service that enables this one to easily be done for a small monthly fee.
It will help to place these documents in a ring binder with dividers for each of the main categories. Put the action list on top, budget/cash flow next, then expense categories such as personnel, marketing, inventory/floorplan interest, semi-fixed, fixed and non-operating income and expenses. The binder is easy to reference during the year.
Business Plan for Existing Lenders
If you are applying for a loan with an existing lender rather than a new lender, use the proforma budget and cash flow mentioned above then create an Executive Summary as the first page. In this summary, address any significant changes in the financials (sales, gross margins and/or expenses) for last year; then state your plans for improving the upcoming year. Also, address how much non-current inventory you did have and (hopefully) how little of it you currently have on hand. Please don’t underestimate the value of this one page. It is your chance to set a positive tone to offset any negatives with which you may be dealing.
Business Plan for New Lenders – SBA
Bank loans, especially floor plan loans, are dealers’ most common concern today. I will list the items that should be included in a bank presentation for non-SBA type floorplan loans. To apply for an SBA loan, approach a bank that is very familiar with the process or use a specialist as a consultant, such as Bill Thompson of Cardinal Points Network (see Thompson’s business plan article on p. 22). It takes someone who is familiar with the requirements and nuances of federal government programs to efficiently work through their red tape. Most individuals would waste a lot of time trying to do this on their own.
Business Plan for New Lenders, Non-SBA
The best chance of getting a non-SBA floorplan loan is to approach a local or regional lender with four or more branches that has money to lend. Numerous dealers report that they have gone through the lengthy process of applying for a loan but were turned down, not because they were a poor credit risk, but because the bank did not have the money to lend. Typically the way this plays out is the lender either gives you a direct turn down or makes the requirements too extreme for any prudent business person to accept. When first approaching a bank, ask if they have money to lend and watch for the non-verbal communication. If they are hesitant in their response, you may want to move on.
When you have selected a lender to apply to, invite the president of that bank to visit your operation. Sometime during the visit, ask the banker why you should be choosing their bank to do business with. It is likely they will want all your banking business, especially your business checking account(s), so ask questions about how they do things here as well.
The items needed in the business plan for a new lender are:
1. Executive summary (one page maximum) – This is the most important part of the business plan. It is a brief summary of everything in the plan. It also states your request in regards to the loan: the amount, terms, interest rate, etc. It should include a brief dealership history: where you have come from, your current situation, and what you want to do with the money.
Be sure to address any negatives evident in the financial statements which will be included in the plan. You will need to explain why sales or gross margins were down (or up) and, if you were unprofitable, what are you doing to turn it around. Also address any non-current inventory, especially if that is the reason why margins were down last year. It is smart to address negatives up front, because the lender will discover them eventually. This approach allows you to present your situation in as positive a way as possible.
2. Proforma budget – This is where you detail where you are going if you get the loan. Make sure you have worked the budget to the point that it shows you making more money than you made last year. Lenders do not want to fund losses. Be prepared to answer questions justifying any improvements in next year’s projection.
3. Cash flow projection – Follow the guidelines above for this one.
4. Marketing plan – Detail here what you intend to do over the next fiscal year to ensure that sales reach the targets projected. Include items such as boat shows, Internet, Boat Trader, billboards, etc. This could be as simple as a spreadsheet showing how much and when you plan to spend your marketing dollars in the upcoming year.
5. Most current financials – Include the most recent financial statements, both profit and loss and balance sheet, business and personal.
6. Last year’s financials – Include both profit and loss and balance sheet for the last fiscal year for business and personal.
7. Tax returns – Include copies of most recent business and personal tax returns.
8. Brochures and story about your primary vendors – Tell why you represent these products and what you like about them. Be brief – one or two short paragraphs for each vendor is adequate.
Compile the Business Plan/Loan Application into a ring binder with a cover and dividers for each category. Create a simple cover insert for the ring binder that will allow the banker to quickly recognize the plan/application.
Creating a business plan, whether for a bank loan or for your personal use, requires planning and diligence that will pay off by improving your chances that 2010 will be a success!
David Parker – Parker Business Planning, Inc.