Writing Financial Projections for SBA Business Plans

 Why do I need financial projections with my business plan?

Why do I need financial projections with my business plan?  There are many reasons a business owner may need financial projections. Perhaps your business is expanding, or you have not been in business more than 2 years.  Another reason could be you haven’t been profitable in the last year or two.  Any of these situations may require that your loan package is accompanied with financial projections or a full business plan.

There are several important items to include in the financial projections.  Include projected profit and loss statements by month, not by year, balance sheet projections, cash flow projections, and written assumptions that tell how you arrived at those numbers. We use a program called Liveplan that gives a helpful outline and plug and play financial statements.  You should also include the revenue you expect for your business and show this revenue by month. 

Also include what you can charge. What pricing will the market bear for my industry? Start by calculating your capacity--with all the equipment and resources you will have, how many customers can you service in a month? How many clients do you actually expect the first month? Then how long will it take to ramp up to full capacity--or a percentage of capacity, like 75% or 85%? It is helpful to make these calculations in a spreadsheet.

Additionally, include your costs and expenses. How much does it actually cost to produce this product or service? For example, if you sell HVAC handlers, then what you pay to your manufacturer for the unit is a cost, and the labor to install it is also a cost. Employees that are directly associated with providing the product or service you sell are direct labor. Expenses are also called overhead. What are the expenses to keep your lights on? This can be other, non-direct labor, your utilities, phone bill, rent, software, dues and subscriptions, marketing, and other expenses that may be industry specific.  If you are buying a building, don’t forget to include property taxes. 

If you are securing a loan, it’s important to include those numbers in your cash flow calculation. If using Liveplan (our preferred business plan software), please see the Financing section on the Forecasting tab. Don’t forget to include a written blurb in the narrative describing the size of the loan and any payback terms you may already know.

Another item to include is written assumptions.  Part of your business plan should have a section that is a written narrative describing how you arrived at your calculations. I have included a sample written assumptions section that can guide you

• This sample comes from an after-school athletics business plan:

[start sample] Revenue

Revenue is derived from two different sources - monthly memberships and group coaching classes. The monthly membership pricing can be one of three tiers as listed below:

1. Bronze $75 per month 1-30 minute shooting session per week.

2. Silver $150 per month 3- 30 minute sessions per week.

3. Platinum $250 per month. 3- 1hour sessions or 6 - 30 minute sessions.

With this loan, 904 Hoops will be able to expand from one lane available for memberships to first 3 lanes, then 5 lanes total increasing capacity. Capacity per lane, is estimated to be 12 silver memberships per month that we anticipate being the typical membership choice. There are currently 10 monthly members, as we just opened in October 2020. The financial projections on the following pages show a gradual ramp up from those 10 members to our expected 40 by the end of 2021, then hovering around capacity by mid-2022 and thereafter.

Group coaching will initially be 2 cohorts of up to 10 students each and will be $150 per month per student for 4 group sessions monthly. One will be taught by owner Ray, and another will be taught by a guest trainer. There is an expected ramp up, but after year one, we expect these classes to be very popular and at capacity for the remainder of the 3 years contemplated by this business plan.

Costs

Direct costs include only the guest trainer, and that is a revenue split between owner and the trainer wherein the owner receives 60% of the class revenue and the trainer receives 40%.

Expenses

Regular expenses include:

Rent - $2,100 to be paid until lease ends in September 2021

Cable/Phone $100/mo

Alarm - $100/mo security and cameras

Electric - Much less at existing rental location, increasing due to new air-conditioned facility opening Oct 2021.

Insurance - $800/yr

Is Your Small Business Recession Proof? Guest blog for Supporting Strategies

Recession-Proof Business Planning

A strong economy can mask underlying problems at a small business. When the next recession hits — and historically speaking, it's already overdue — will your business be healthy enough to not only survive, but possibly even thrive? It can be — but only if you have the right plan in place.

Be Ready When Opportunity Knocks
Every small-business owner says they want to grow their company. But how many are really prepared for the challenge?

Often, a vital step in growing your business is being able to raise cash quickly to capitalize on a sudden opportunity. Oddly enough, a recession can present some prime opportunities for growth, as some of your competitors might decide to sell off their assets at an attractive rate when faced with financial distress.

And the first step in raising cash is to have a lender-ready business plan.

SBA Loan Basics
Anytime you apply for an SBA loan, your package must include a business plan that meets the underwriter's requirements. Those minimum requirements include 12 to 36 months of:

• Profit-and-loss projections
• Balance sheet projections
• Cash flow projections

And that's just the financial portion. You'll also want to include an executive summary with notes on market size and demographics.

A word of warning: When writing a business plan or applying for a loan, it’s not a good idea to describe your potential market as "everyone." That's just a sign that you haven't done your homework.

A dentist, for example, could reasonably argue that everyone in the world needs dental services. But the bank could just as reasonably counter that one dentist can't possibly treat everyone in the world. So it comes down to the dentist defining the geographic area their practice will encompass, explaining why that area isn't already saturated with dental-service providers and defining what sets the new practice apart.

A Good Time to Start
A recession can be a good time not only to expand an existing business, but also to start a business from scratch — provided several similar area businesses have failed and created an opening.

If you're starting a new business, your SBA loan application should include much of the same information as an existing business' plan. It should also include a detailed SWOT analysis (strengths, weaknesses, opportunities, threats) and spell out the type of corporate structure you plan to use (LLC, S-corp, etc.). Finally, the business plan must clearly indicate how the prospective owner's career experience is relevant to the new venture.

Take Advantage of the Help That's Available
A number of resources are available to assist small-business owners with business plans. In my area, for example, the University of North Florida has a Small Business Development Center office that offers free coaching on how to start a business, including writing a business plan. That can be very helpful, and their thorough assistance over the course of many months can be vital for the novice entrepreneur.

If a recession hits, you won't have months to respond. That's why it's so important to prepare for one today.

Bethany Barnes, Director of Business Development at Rapid Business Plans, delivered a presentation on recession-proofing at the Business Fundamentals Bootcamp hosted by Pete Denholm, Managing Director of Supporting Strategies | Northeast Florida.

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