The Challenge

This past year has been a difficult one for business owners seeking an exit. Is this the recession, or a reflection of a longer term reality? The answer, it seems, is that exiting business owners will need to engage a new reality for the foreseeable future. According to an article published by Robert Avery of Cornell University in February 2006, “the majority of boomer wealth is held in 12 million privately owned businesses, of which more than 70% are expected to change hands in the next 10 to 15 years.” Only a portion of these businesses will successfully cash out, because of a fundamental oversupply of sellers.

Key Mistakes Sellers Make

Business owners make a mistake when they allow too little time to complete a properly executed business exit strategy. Another mistake owners make is focusing on the price while disregarding the terms and structure of an exit transaction. Other key mistakes business owners make in exiting their companies are:

• selling to the (only) competitor who approaches them
• not using experienced advisors (hoping to save transaction costs)
• setting expectations based on personal needs and without reference to the market
• failing to explore legitimate positioning strategies

Buyers of middle market companies don't buy jobs for themselves in the way that small business buyers do, they “invest” with the expectation of a return commensurate with the risk. Nothing enhances a buyer's perception of value more than:

• evidence of sustainable growth
• a capable management team as the key to managing the risk

The Business owner who engages professional advisors, plans thoroughly, and negotiates to ensure that the wealth transfer mechanism chosen most closely delivers on his goals is the business owner who will have executed the optimal exit strategy.

Characteristics which Appeal to Buyers

If the fundamental laws of risk and reward prevail, only the least risky and most profitable businesses will change hands successfully. With buyers focusing on businesses which represent good investments capable of operating with little or no dependence on their owners, the following characteristics will be seen as desirable:

• Businesses which have scaled beyond a total dependence on the owner
• proprietary products, services or processes
• strong, remaining management
• defensible, differentiated market position
• stable, diverse customer base
• recurring revenue business model
• business growth (opportunities)
• strong operating margins
• manageable business risk
• quality business and accounting systems
• audited annual and timely internal monthly financial statements

Defining the Exit

Exiting is more than Selling
Exit Planning is a process involving the development and execution of a series of systematic steps taken to allow both the owner and the “accumulated wealth” to be extracted from the business, via one or more of the numerous available strategies, including:

• Selling the business to partners, strategic buyers, investors, competitors, international buyers, or the public
• Recapitalizing the business for partial liquidity
• Merging the business to achieve enhance valuation and/or marketability
• Transferring the business to family, management or employees
• Gifting the business to meet personal and/or tax planning goals
• Liquidating or partially liquidating the business

Exiting is a process, not an event.

The Optimal Exit will be achieved through the implementation of a managed process which includes:

• Establishing a business valuation reference point
• Clarifying “Life-after-Business” goals
• Working with a team of specialist advisors
• Preparing a written plan ? Identifying and evaluating the applicable alternative strategies (options)
• Executing any necessary positioning or preliminary strategies
• Executing the selected exit strategy

Exiting is a complex subject with many moving parts. No single advisor is an expert in all aspects, so the process should involve inputs from a team of experienced advisors, and should address the possible need to re-position the business before going to market.

Setting Goals

Clarifying the Endgame
The Exit Strategy begins with the M&A Advisor providing a likely range of the pricing, terms and structure expected from a sale in the current market. The Financial Planner or Wealth Manager then develops a plan to invest the after-tax wealth extracted from the business to meet lifestyle and life-after-business goals. For the majority of business owners, this newly liquidated business wealth will constitute a meaningful portion of the total wealth driving the financial, tax and estate plans. The key, then, to beginning the exit planning process, is to clarify the endgame, taking into account the likely value of extracted business wealth.

• Legacy Goals – what will have been your contribution?
• Lifestyle and Life-after-Business Goals – what do you want from the next phase of your life?
• Estate Planning Goals – how will you ensure that your estate passes to your heirs in the most tax efficient way?
• Exit Strategy Goals – based on all of the above, what are the priorities to be met by your selected exit strategy as to risk, time, wealth and income?

Selecting a Team

Play the “A” Team
The M&A Advisor should assemble and coordinate a team, including existing advisors where applicable, that will ensure:

• access to all appropriate options and opportunities
• being fully informed as to the merits and demerits of proposed strategies
• having expert counsel and representation

The team must include the necessary knowledge, skills and experience in Mergers & Acquisitions, Corporate Law, Taxation and Financial Planning/Wealth Management. It may also include specialists in ESOPs, insurance, personnel and business consulting disciplines.

Writing a Plan

Planning Precedes Execution
Business owners should not expect to exit successfully in the next 10 years without figuring out how best to exit and what preparatory steps should be taken.and should not assume they can wait until they are “ready”. While the critical execution phase will not be a problem for most take-charge entrepreneur business owners, the planning for an exit will be foreign to them as exiting has never been their purpose. Their purpose has been to create and build, and to consider the exit (if at all) a retreat. The M&A Advisor should coordinate a collaborative team effort to prepare a written Exit Plan incorporating a valuation of the business, a statement of goals and objectives, a review of alternative strategies (options), an analysis of the gap between the goals and the options, and strategies for closing the gap.

Reconciling Goals and Options

Once one has established an indication of the Expected Wealth Transfer (the after-tax proceeds from the business exit) on the one hand, and an estimate of the Targeted Wealth Transfer (the wealth transfer required to provide the personal life-after-business goals) on the other, the business owner and the exit team must now reconcile the two before selecting and implementing an exit strategy. Whether or not the expected and targeted wealth transfer values are the same, the owner should review all exit options, and should also evaluate a number of Positioning Strategies for execution prior to implementing an Exit Strategy. Reconciliation or Closing the Gap is an iterative process of evaluating combinations of positioning and business exit strategies that will yield a release of wealth (the Expected Wealth Transfer) compatible, as to quality, time, value and certainty, with achieving the specified goals and the associated Targeted Wealth Transfer. Closing the gap may also involve modification of the Targeted Wealth Transfer. Again, notice that there are two key points of inflection for matching the exit with the personal goals:

1. The ability to vary the value, timing and certainty associated with extracting the business wealth
2. The ability to vary the timing, risk tolerance, estate wealth, living standards and other variables inherent in the personal goals

A key issue business owners face in considering Positioning Strategies is the very central question of the risk – reward paradigm. Positioning strategies cannot be executed entirely without risk, but manageable risk strategies may deserve consideration if they serve to better ensure that the business wealth will be delivered in the context, amount, time and certainty needed to meet the identified personal goals.

Positioning Strategies

Corporate Value Enhancement
The team should look at the corporate structure and governance mechanisms to consider whether the business is optimally positioned for the intended business exit. For instance, an asset sale from a C Corp could result in tax obligations at both the corporate and the individual levels. Conversion to an S Corp may be advantageous, but the tax benefits vest over an extended period of time. The make-up of the Board and any Advisory Board may also have an impact on the value perceived by a buyer. Management strength is considered below. From the standpoints of scale, product or market diversity, management strength or any number of others, the business may benefit from a combination with or consolidation into another business prior to its sale. Alternatively, it may be desirable to spin-off one or more non-synergistic or non-performing divisions to increase profitability or allow greater management focus.

Business Value Enhancement
Business value enhancement strategies generally influence valuation because of their perceived impact on risk, growth or profit margins. At the top of many buyers' lists is the need to see a strong, experienced and motivated management in place. For financial buyers, this often includes the need to be assured that management has skin in the game, typically an equity interest. Improvements in profit margins are strongest when they are reflected in trailing (historical) earnings. More recently effected changes, or even planned changes, can also influence valuation, however, if the benefit of the changes can be quantified and demonstrated. Because of the multiplier effect built into earnings-based valuations, a mm earnings improvement may increase the valuation by, say, mm. It doesn't seem entirely logical that an exiting business owner would have unexplored opportunities available for making improvements to the business. It's a little like living with an outdated kitchen and upgrading just before selling the house. As in the real estate analogy, the stakes are higher at the time of exit, and the focus on marketability and valuation greater, so these opportunities often do exist. Other business value enhancement strategies include:

• Reviewing and revising the revenue and/or business models
• Implementing product / market enhancement plans
• Expanding and diversifying the customer base
• Securing title to patents and intellectual property
• Commissioning of financial and operational audits
• Strengthening or upgrading of systems and procedures
• Documenting or codifying contractual relationships (employees, vendors, customers, debt)

Business Marketability Enhancement
If growth opportunity, managed risk and strong margins are the foundation for building value enhancement strategies, then clarity, transparency and certainty are the engines which drive marketability. Business performance is clearly reported and accounted for, activities and status are transparent to the buyer, and all information portrays a level of certainty about the future. Experienced buyers know that completing acquisitions is a time-consuming and expensive exercise. Buyers will perceive greater clarity, transparency and certainty, and therefore be more motivated to engage, when the seller has:

• Audited financial statements
• A business plan with a clearly defined growth path
• An in-place sector-experienced management
• Current market metrics and analysis

Multi-Step Liquidation Strategies
Reference is made above to the risk-reward paradigm. This fundamental reality plays out in ways too numerous to mention, including strategies elected by business owners to both take cash off the table to reduce risk/exposure as in a re-cap, and assume reasonable risks for an enhanced valuation as in an earn-out structure. Consider:

• The lowest price is an all cash price (not often available in today's market)
• Waiting before selling is risky
• Participating in an industry consolidation or roll-up increases the risks and uncertainty of an exit, but potentially enhances marketability and yields a greater valuation

A classic two-stage exit is accomplished by means of a re-capitalization in which an investor / partner / buyer acquires part of the business with an expectation to either buy the rest of the business or to market the business in cooperation with the remaining owner at a later time and at a greater valuation. The owner takes some chips off the table, but retains a stake, and usually continues to participate in management. Merging the business into one or more other businesses before exiting can lead to increased marketability and even an improved valuation sometimes referred to as multiple bump. Consider a mm revenue business with earnings of mm which commands a valuation of mm (or a 5 multiple). Combining that business into a 0mm business with earnings of mm and which commands a valuation of mm (a multiple of 6), now values the original company's participation at mm, and the consolidation strategy has yielded a mm valuation gain.

Transaction Structuring Strategies
Every step along the complex path of executing an exit strategy demands access to advice from professionals who have been there and who know the opportunities and the pitfalls. Even though the structuring of the exit transaction comes toward the end of the process, structuring is included here as a positioning strategy because it impacts the value of the Expected Wealth Transfer. Key structuring considerations include:

• Considerations of risk and reward
• Tax considerations
• What incomes and expenses are included (i.e. belong to the transacted business)?
• What assets and liabilities are ex/included
• What pre-transaction liquidation, settlement/exclusion opportunities exist?
• What relationships between buyer and seller arise? (employment, advisory, landlord, supplier, partners, etc.)
• Documenting or codifying contractual relationships (employees, vendors, customers, debt)

The majority of middle-market businesses bought and sold derive their valuation, at least in part, from cash flow or earnings. The very key question then arises: “What assets and liabilities are essential to and an integral part of the ongoing enterprise, thereby supporting the established earnings flow?”

Exit Strategies

The business owner should have his M&A Advisor prepare an analysis of the fit and applicability of each of the exit strategy options to the stated goal and objectives. Not all options will fit every business or every set of goals. Individual strategies might include:

• Sale to Partner, Competitor, Strategic Buyer, Financial Buyer, International Buyer, the Public
• Re-Cap
• Merge
• Transfer to Family, Management, Employees
• Gift
• Liquidate

Benefits of a Planned Exit

The primary purpose of approaching a business exit in a systematic, goal-focused and planned way is to dramatically increase the likelihood that the outcome will be optimal to the stated goals. The employment of a team of professional and experienced advisors will add a cost of, say, 3% – 6% of the wealth transferred, but will potentially add considerably more value by:

• mitigating against a failure of the mission
• dramatically expediting the mission
• intermediating the process to eliminate the risks associated with direct negotiations between principals
• increasing the negotiated value of the mission
• reducing the income tax burden
• helping to reconcile the Expected Wealth Transfer to the Targeted

Wealth Transfer

…not to mention providing the knowledge and human resources to navigate a complex and time-consuming labyrinth of decision making and task execution.

Follow these simple tips to create a stronger business plan as you outline and write:

Use a Template

Using a template starts you on the right foot, with a standardized order for a business plan which has been vetted by years of use by entrepreneurs and funders. Standing out by creating a new organization system for your plan is a negative way to stand out and will be a distraction. Keep your creativity to your business and marketing ideas. That is where you must prove to funders that you can excel.

Move From Bullet Points to Text

Start the writing process by getting all of your ideas and notes down on paper in bullet point format. If you begin by writing full sentences you may very quickly become hung up on the quality of your writing, which should be the furthest thing from your mind at this stage. Fill the content of each section with your basic ideas in note format at first. Make sure the ideas are sound before writing them as full sentences and paragraphs.

Consistent Headings

The plan should be easy to navigate through and move back and forth between sections. For this reason, make sure the formatting of the content, section headings, and subsection headings are consistent throughout. There is no reason to create distracting new fonts and colors for each section. The plan must be formal, yet attractive in the use of fonts and headings.

Reading Out of Order

Although the plan's order makes sense and builds the story of the business one piece at a time, you should be prepared for the fact that some funders may read the plan out of order. This may be because they skip ahead to a section they have specific expertise in (such as marketing, operations, or finance) or because their organization has specific requirements which they must see are satisfied before any further consideration. In any case, each section must be able to stand on its own to a certain extent, assuming the reader has covered at least the executive summary and company overview sections.

Creating a business plan is a multi-stage process, the result of which is a multi-faceted document generally built with the twin goals of proving the logic of funding the business and planning what the business will do to succeed. Following these steps will guide you towards creating a plan that works for external funders and your internal management team:

Brainstorm Concepts: Begin by generating additional ideas around your initial basic concept. Come up with list of alternative strategies, variations on the theme, and methods for implementation.

Define What Business You Are In: Make sure you can define what your business will do succinctly, in a short mission statement. Although work and research to come will continue to alter this definition, it is important that it guide you at this point.

Study Feasibility: Do an initial look at the market feasibility of the business (Is there a market for your product or service? Can it win against competitors?), its financial feasibility (Will it be able to produce, market, and deliver the needed product or service at a profit? Will startup costs be beyond what you can afford?), and personal feasibility (Will the business use your talents? Is there a place for you as a manager of this company?).

Create a Business Strategy: Solidify the basic business strategy of what product or service you will sell to what customers through what means.

Market Research: Study the market or markets you may sell the product to, looking at customers, competitors, and industry practices and trends.

Create a Marketing Strategy: Decide on the marketing tactics, including promotion, pricing, branding, and distribution, which will work best based on your strategy and research.

Structure the Company: Choose a legal structure and organizational structure that will work for you and the opportunity. This includes identifying key additional managers for your team and assigning responsibilities and reporting relationships.

Create Financial Projections: Based on your research and your initial feasibility study, spin out your financial numbers into full pro forma financial statements and a projection summary.

Show Your Qualifications: Present the qualifications you and your management team have that make you good choices to launch and run this business.

Finalize the Plan: Complete your plan in document form with graphics, formatting, and proofreading, and also produce a slide deck to go along with the plan for presentations.

Creating the business plan for your spa is a great opportunity to look ahead past the pre-launch and fundraising phase, which is probably all you can think about at the moment. The operations plan requires an understanding of the key operations systems for your day spa. Whether they use software or paper checklists, these are operations systems you should cover.

Sales and Fulfillment System

You should map out the sales and fulfillment process, starting from the moment a customer walks in the door to the completion of the service. Considering the experience from your employee's point of view, but, most importantly, consider the customer's point of view. Plan for situations that are unusual but extremely important – such as when a customer is unhappy with how they are served. The entire system may become a checklist or a manual for employees, but it is only useful if employees understand the reasons for following it and do so.

Inventory System

If a portion of your spa business depends on the sale of products you use in treatments, you will need a way to track what you have in stock to know when to order more and whether items are going missing (called inventory shrinkage). To take inventory, a form should be designed that is laid out in the same order as items on shelves in your spa. Standard accounting systems, like Quickbooks, include inventory management to save this information digitally and convert it into dollars.

Human Resources

A human resources system is more than files for each of your employees with a copy of their ID. The HR system should include the processes for hiring (what questions to always ask and how to make decisions between hires), scheduling employees to work (on seniority?), evaluation (on what terms, how often, and with what results?), and firing (what chances will an employee get to fix problems?). The system can even detail when you will offer raises, creating a more transparent system which may be a great motivator for employees.

Beyond guidance about how to write a business plan and its development process, you need guidance on the physical aspects of a business plan. Follow these tips on how your plan should be physically presented.

Functional, But Not Flowery

The business plan simply does not need to differentiate itself through its outward physical appearance. The appearance must be functional and that function is to make it easy for funders to read the plan. For that reason, use simple binding with a transparent plastic cover and dark, opaque backing. This lets the cover sheet be seen through the front, but protects the plan from spills, accidental marks, and bending of pages. It does not add excessive weight to the plan like a hardcover binder would. Imagine the funder you submit to taking a dozen plans to read at home over the weekend. If yours is the one in a hardcover binder they might choose to leave it at the office for the very reason of weight.

Paper Choice

The choice of paper should also be functional and not distracting. Paper must be strong enough to be handled repeatedly and flipped between by readers, but cannot be hard card stock which would be difficult to turn the pages of. It should not be glossy and you should leave normal margins to allow readers to write notes on the plan itself if they see fit. If they mark up your plan it is a good thing as it shows they are engaged and, at the very least, may offer feedback on how to move forward or adapt the plan. Paper should be white and draw no attention to its color choice. Also, white paper allows for color graphics, logos, and charts to be used to better tell the story of the plan. This is a functional use of color, and not flowery or distracting.

For a small business entrepreneur on a tight budget, working with a business plan consultant may not be in the cards. In these situations, look for a business plan template which can guide you in the process of creating your plan and set you on the right track by focusing you on what funders are interested in seeing. If it is a high quality template, it will indeed serve as a “consultant in a box”, providing you with basic guidance on how to proceed.

Structure and Format

A business plan template will be a great source of information as to the proper structure for your plan and format to use. This is because the template won't simply tell you what to do, but will show you as it provides an example of the full layout of the plan. This means you can move past worrying about the presentation look of the plan and focus on its content (your research and strategy).

Financials

The revenues and costs of your intended business may be relatively easy to estimate, but converting these numbers into full pro forma financial statements may be beyond your ability, at least within a reasonable time frame. A business plan template should include Excel worksheets for financials which only need you to customize certain numbers in order to generate full, consistent financial statements just as funders want to see them. As long as the financial assumptions you enter are reasonable, the entire financial section should be correct. You can then spend more time looking at these statements as an investor or lender would and project what kind of questions they will ask.

Example Text

A business plan template includes not only the general structure and format of a business plan, but may include example text for all of its sections. Having this example text can serve as a great guide to what type of information to include, what questions you must answer, and how to relate the many pieces of the plan to each other.

Follow these four steps to be certain that your business plan will bring you closer to obtaining funding for your startup.

Hone Your Product or Service Concept

Before you even begin to write your plan, take a step back to make sure you have honed your product or service concept sufficiently. If you are still a bit uncertain of the details, do your best to zero in, but know that some details may be developed further as you learn more about the industry, customers, and competitors.

Research Deeply and Completely

Next, you must dig into research on the market opportunity for your concept. Analyze the market size is by estimating the dollars spent by potential customers in your target region on current competitors. Examine a number of the top existing competitors, going deeper than their websites will permit by personally trying their product or service whenever possible. Analyze the strengths and weaknesses of these competitors relative to your own planned product. Study the demographics of your specific customer target markets as well as their specific needs and buying behaviors.

Also study the expected startup and operating costs for the business. Study industry averages to get an overall sense and then research individual expenses one by one by phone, online, or through other means.

Run the Numbers

With the best information you have available, you must now create basic financial projections for the business, including reasonable expectations of revenues, costs, and profit for your first five years of operation. Use Microsoft Excel to produce these projections and make use of a financial template to shortcut the process significantly.

Write a Cautiously Optimistic Plan

Finally, draft the actual plan, using an established outline or template as a guide. Strike a cautiously optimistic tone, meaning that the plan must be generally positive about the business potential but also recognize that very few startups succeed fabulously overnight. The plan should be formal and never appear to oversell the idea with hyperbolic statements (such as “competitors will not stand a chance…” or “the management team is guaranteed to succeed”). Recognize that the funders who will read your plan are aware of business realities and your plan must remain a rational proposal.

Creating a business plan for your spa is hard work, and, while there are ways to shorten the process by working from a template, the work cannot be eliminated. No matter what you find online, a free spa business plan will still need extensive customization to become your spa business plan. Beware that in some cases it may end up being better for you to start from scratch if you're working with a poor sample or template.

If It Looks Too Good To Be True…

If the plan you are downloading says it is ready to use out of the box, it is not likely to help you get funding. Look out for any claims that describe the business planning process as this easy. The problem with this is that every business plan is about a specific company, specific people, and a specific location and market situation. Deep research into the local market, customers, and competitors must be done by someone able to visit their spas and speak with customers directly. There is no alternative to this kind of work, so beware of any claims that say the plan will be ready to go right away.

Also, serious investors want to see original thought in a business plan. If they can find the language of the plan through a Google search, they may question your ability to come up with own ideas specific to your company and situation.

Motives

Finally, remember that business plans are not generally donated. A well-done business plan can help the right entrepreneur achieve funding and success in their business, so why would the creator of a business plan give it away for free? Consider that, if the plan is a really good one, then it would be a bad idea for the spa entrepreneur who wrote it to give it away, allowing their competitors to find it and potentially use the knowledge within against them. If, on the other hand, it was created by someone who never actually started a spa business, then the marketing and operations ideas within the plan have not been tested in real conditions and may be misleading for you to read.

It is not easy for small businesses to get small business loans. Banks and other lenders require them to go through strict and complicated financial procedures with stringent requirements for qualification. After everything, credit approval is not even guaranteed.

Even the financing for loans supported by the Small Business Administration (SBA) cannot meet the needs of the majority of small businesses. Although the amount of credit available for small businesses has reportedly been increased by 25% since March this year, it is not that easy to avail of the said small business loans.

Small businesses seeking small business loans should know how to prepare the right kind of business plans that banks are looking for. To justify the loan, they should be able to show the banks in detail how they intend to use the money in business and how viable their plan is. Experts say lenders have specific points which they scrutinize applications for and applicants should know these points and tailor their submitted business plans accordingly.

It is also said that loan applicants should first establish a strong relationship with the lending bank in order to increase the possibility of having a loan approved. Banks supposedly give more small business loans to businesses they have already known and trusted long term. Since small businesses are usually new businesses, this is quite difficult to do and it cannot be done in a hurry. How can a new small business with financial needs establish a good long term relationship with a bank in time to meet its current needs?

Another requirement of lending institutions from small businesses applying for small business loans is a good credit history score.  A small business should first be deemed credit worthy by the bank before it can even be considered for loan approval. Again, small businesses that are stll young are at an immediate disadvantage here. How can they establish credit worthiness in time?

The US Congress has also placed Congressional restrictions on eligibility for the Small Business Administration loans. Small businesses first have to prove that they are at least two years old and are both struggling and viable at the same time. They should present proof that they have had a positive cash flow in one of those previous two years in business. They should, however, be currently struggling with “immediate financial hardship” with a decrease in income that should not be less than 20 percent. At the same time, they should submit their projections for cash flow for the next two years, proving that they will be able to meet loan payments.

A faster way to get small business loans would be through credit card services.

Any small business should have credit card services. Credit card services enable a company to accept customer payments for goods and services via credit cards or debit cards, whether over the counter in brick and mortar settings, through the phone or online. Credit card services provide the hardware and software for this.

Being able to accept payments through credit cards or debit cards can greatly enhance a small business’ income earning potentials. In addition to that, credit card services can provide the equivalent of small business loans with no need for any collateral. The amount of the small business loans are computed based on the average monthly income of the small business from credit card payments. The small business loans are then amortized through automatic monthly deductions of a certain percentage from the small business’ future credit card revenue. This means small businesses can almost automatically qualify for small business loans through credit card services, and will surely be able to pay such small business loans. Is there a faster way than this?

Free Barber Shop Business Plan for Loans

Obtaining Business Financing

 

When obtaining a business loan for a barber shop business, it is imperative that you have a properly structured business plan that will assist you in showcasing how you intend to operate your Barber Shop, how the business will operate, how you intend to market the business, the anticipated financial results of your company, and how you intend to repay your debt obligations. This sample loan business plan will provide you with the framework that you need in order to acquire a business loan for starting or expanding this type of business.

 

Executive Summary

 

Introduction

 

When obtaining a business loan for a barber shop, it is imperative that your business plan has a clear and concise executive summary that provides an outline of what are seeking to accomplish, how much capital you are seeking to raise, the management biography of the business owner, and an overview of the anticipated profit and loss statements of the business. Here is an example of how the title paragraph should be written:

 

Barber Shop, Inc. (“the Company”) is seeking a business loan of $100,000 in order to launch the operations of a barber shop that will be based in San Francisco, California. The Company was founded in (Insert Year). The business was founded by Mr. John Doe.

 

Products and Services

 

In the next segment of the business loan and business planning document, you should showcase the products and services that you will be providing to the general public. For instance:

 

The Barber Shop will provide its customers with a broad range of barber shop services including traditional hair cuts for men, clean shave services, and sales of hair care products to the general public. The business will employ licensed barbers (as well as licensed independent contractors) that will render these service at the Company’s facilities.

 

Business Loan Terms

 

Now it is time to discuss the anticipated terms of the business plan that you are seeking. An example paragraph of how this is stated:

 

At this time, Mr. Doe is seeking a conventional business loan in the amount of $100,000. The interest rate, loan terms, and loan covenants are to be determined during negotiation. However, this business plan assumes that the business will receive a seven year business loan with a seven percent interest rate due on the outstanding principal balance.

Management Biography

 

Now that the summary of the business has been provided, it is time to provide a brief overview of the owner of the business. An example paragraph summing up the owner is as follows:

 

Mr. Doe is a highly experienced business person that has years of experience regarding the direct ownership and management of business. He will be able to effectively bring the operations of the Barber Shop to profitability while ensuring that the business loan’s payments and its covenants are met at all times.

Financial Statements

 

The most important thing to your lender when applying for a business loan is how you intend to repay the bank. In this section of the business plan, you should provide an overview of the finance’s of the business discussing the anticipated revenues, expenses, and profits/losses. You can also discuss the applicable collateral within the business plan that will be used to secure your business financing.

 

Expansion Plans

 

One of the most important aspects of your business plan is how you intend to expand the business over a three to five year period. Banks and finance companies always want to see that the business will experience a moderate to strong level of growth. This is especially true in business lending because as your business grows the cash flow that secures your business loan will decrease proportionality against your monthly credit obligations. An example of how this is stated is as follows:

 

The Barber Shop will continue to expand through organic means including increasing the Company’s advertising budget via the reinvestment into the after tax cash flows of the business. Additionally, if the business is highly successful then the Company may seek to establish additional Barber Shop locations after the third year of operations.

 

 

The Financing

 

Use of Business Loan Proceeds

 

In this section of the business plan you should focus on how the proceeds of the business loan will be used. An example of this would be as follows:

 

Barber Shop Establishment – $50,000
FF&E – $10,000
Working capital – $40,000

 

Management Equity

In this section of the business plan you should discuss the percentage ownership of the business among the owners of the business. For example:

 

Mr. Doe will own 100% of the Barber Shop.

 

Board of Directors

 

When applying for business financing, the bank will also want to know who serves as the board of directors. For small businesses, usually the owner serves as the director of the business. An example of how this is worded:

 

Mr. Doe will be the sole director of Barber Shop, Inc.

 

Exit Strategy

 

Any bank or financing company is also going to want to know what you intend to do with the business over a set period of time. Many business owners will develop and expand a business with the intent to sell the company to a third party at a later time. When drafting this part of the business plan you should focus on what you intentions are in regards to potentially selling the business. This is often worded as:

 

Mr. Doe would most likely sell the Barber Shop to a third party for a significant earnings multiple. Barber Shops usually sell for approximately one to three times earnings given the financial strength of the business. In this event, the business would be sold by a business broker and the business loan sought in this plan would be repaid according to the covenants of the business loan agreement.

 

Products and Services

 

When developing a business plan that is appropriate for obtaining a business loan or other business credit facility you need to clearly showcase the services or products that you will be offering to the general public. An example of how this section is worded goes as follows:

 

As stated in the executive summary, the Barber Shop will specialize in providing a number of services that are commonly found among traditional barber shops. These services include hair cutting, styling, color treatments, shaves, and other services that are frequently rendered by barbers.

 

The business will also generate secondary revenues from the sale of hair care products.

 

 

Industry and Market Analysis

 

The Current State of the Economy

 

It is important to let your financial institution know that you are well apprised of the financial situation of the general economy when you are applying for a business loan. This is especially true in today’s environment where lending has become more difficult and will remain more difficult in the foreseeable future. Specifically, you should gear this section of the business plan analysis towards the industry that you are operating within. For example:

 

The current economy has remained difficult over the past few years. However, Barber Shops typically operate with a strong state of economy stability as no one has the ability to give themselves a haircut. This, coupled with the low pricing point of the Company’s services, will ensure the continued positive cash flow of the business. As such, the business should be able to remain profitable and cash flow positive in any economic environment.

 

The Barber Shop Industry

 

In addition to providing your business loan officer with an understanding of the general economy, it is important that you showcase that you have an equal understanding of the industry in which you are operating within. As such, you will need to provide you business loan institution of a brief overview of your industry and any potential changes that may affect the way that your company does business. An example of how an industry overview is as follows:

 

The cosmetology industry has a very interesting model of economics and profitability. Prices for haircuts can range from six dollars to six hundred dollars. Haircutters have the ability to enjoy prestige within their profession, and therefore the pricing and branding models can be structured so that two service providers can provide equivocal service and charge vastly different prices. This has caused the industry to have many different pricing models that vary among different target markets.

 

The prices for haircuts have an inelastic pricing model, and haircutters have enjoyed stable job growth and prosperity over the years. The prices of haircuts tend to grow at a faster pace than that of inflation. In 2002 Economic Census report issued by the U.S. Government it was found that from 1992-1997 the barbering and cosmetology industry grew from a ten billion dollar industry to a thirteen billion dollar industry in five years. This corresponds to a 5.3% average growth rate per year.

 

The profitability of barber shops is very good. As it is a service oriented industry, the highest expense is the cost of labor. A study conducted by the management showed that the approximate before tax profit margin of the average barber shop is 35%.

Target Market

 

In this section of the business loan application and business plan analysis, you should focus on the demographics of your localized market (or national market if applicable). This section should discuss how many people live in your area, the anticipated number of people that would require the use of Barber Shops, the median household income of people living in the area, poverty line statistics, and any applicable laws that would apply to your operation of Barber Shops.

 

Competition

 

Many people that are developing new businesses or expanding existing businesses often feel that their business does not have any competition or limited competition at best. However, this is almost never the case. Unless you have re-invented the wheel – you will have competition. When applying for a business loan, you should clearly showcase your competition in your business plan. This is especially important to your banker as they will be able to gauge your ability to be successful in your targeted market. Many business loan underwriters will aggressively confirm that competitive nature of your local market and your local industry.

 

When drafting this section of the plan you should heavily discuss the competitive advantages that you intend to have over your competition.

 

Marketing Plan

 

In addition to all of the above information that we have covered, your business loan officer is also going to want to know how you intend to market your business to the general public. Most people do not quite understand how to effectively market their business outside of prominent signage or flyer distribution. When applying for a business loan (again in this difficult lending climate), your banker is going to want to see that you have a clear methodology of how you intend to market your services or products to the general public. In this section of the business plan – we will overview how to showcase your services/products to the general public.

 

Marketing Overview Example

 

The Barber Shop will place prominent signage on the facility to draw a significant amount of foot traffic.
The business will maintain listings in the Yellow Books.
The Barber Shop will also maintain an internet website that showcases the Company’s operations, hours of operation, and relevant contact information.

 

Marketing Strategies Overview

Additionally, you will be required to further drill down (in your business plan) how you intend to implement your strategies when you launch or expand your business’s operations. In this section of the business loan and business plan documents, you should amplify the bullet points from the section above. For instance:

 

The Barber Shop intends to use a number of strategies that will create instant traffic and customer flow to the Company’s location. These strategies include not only using prominent facility and road signage, but also distributing flyers to people that fall into he Company’s targeted demographics. The business will also regularly take out advertisements in localized newspapers that showcase the Company’s hours of operations, barber shop services, and specials that are occurring within the barber shop on a regular basis.

 

The business will also maintain a highly informative website that showcases the Barber Shop’s services, its hours of operation,  licensure information, and other relevant information in regards to the Company’s services. This website will be listed on major search engines such as Google as many people now use the internet to locate local businesses.

 

The Financial Plan

 

Beyond any other part of your business loan application or business plan, the financials section of these documents are what matters most when applying for a business loan or any other type of credit facility. Ultimately, this section of the business plan showcases not only what your anticipated profitability will be, but also how you intend to repay the funds that you have borrowed through your business financing facility. An example of how this section is structure is as follows:

 

Assumptions

 

Barber Shop, Inc. will have an average annual growth rate of 10% per year.
Mr. Doe will acquire $100,000 through a business loan in order to launch the operations of the business.

 

Proforma Financials for a Business Loan

 

Now it is time to showcase how you intend to repay your loan, generate a profit, and increase the book value of your business over a three to five year period. BusinessPlansForLoan.com has developed an easy to use financial model that you can use when drafting out the financial model for your business plan and business loan application. Through your business loan application, you will be required to have the following:

 

Profit and Loss Statement for your Barber Shop
Cash Flow Analysis for the Barber Shop
Balance Sheet for the Barber Shop
Business Loan Amortization Tables