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Lessons in Lending - Business Plan Fundamentals

M Mallaber
Michael Mallaber
Senior Vice President, Director of Commercial Services
[email protected]
(585) 419-0670 x50649

November 3, 2009

Reprinted with permission of The Daily Record ©2009

Are you considering starting a small business?

Maybe you were one of the many employees downsized recently as a result of your company's forced cut-backs.

Perhaps you have been thinking about starting a business venture for years, but just didn't have the courage or guidance to get it off of the ground. How do you move forward?

It's time to develop a business plan.

To begin, put all of your thoughts and ideas down on paper. Business owners may argue that the marketplace changes too quickly for a business plan to be useful or they just don't have enough time, but just like a builder wouldn't begin construction without a blueprint, anxious business owners shouldn't rush into business without a formal plan.

Many entrepreneurs have wonderful ideas but lack the skills needed to organize their ideas into a workable plan. Consider not only the content of your business plan, but why one is needed, and the resources available to help you prepare it.

In my experience as a commercial lender for more than 20 years, I have seen my fair share of business plans. Some were very well put together; others left much to be desired. Hopefully I can guide you through the process so you can develop a sound plan that will become the foundation of your future business success.

What is a business plan?

Simply put, a business plan is a comprehensive document that outlines and defines your specific business - a resume of sorts. The plan should support the notion that the business concept is viable and eventually can be a profitable enterprise. A business plan is a work-in-process that changes as your business changes. Even successful, growing businesses should maintain and update a current business plan.

When you begin compiling your thoughts on what your business would look like, don't be quick to put pen to paper. The real value lies in the process. The act of planning can help you to think things through clearly, so taking more time in the initial stages can minimize costly mistakes later. Developing a well thought out business plan allows you to demonstrate you have considered various obstacles and roadblocks, and established potential alternatives before actually launching your business.

One of the valuable resources entrepreneurs have in the Greater Rochester area is the New York State Small Business Development Center at the SUNY Brockport. Business-minded individuals going through the process of developing a business plan can receive helpful advice from the SBDC's staff, comprised of business professionals who have real world experiences. They can provide first-hand insight on business dealings that can't be learned from a handbook. The service is provided at no cost to clients. For more information, call (585) 395-8410.

When developing a business plan, also consult a reputable accountant and attorney. Commercial lending officers also may be a good source for information on what they like to see in a business plan, especially if you plan to request financing.

The development of a business plan can take several weeks, even months, depending on the complexity of your business. The extent and detail of a plan also depends on your financial needs and the size of your business.

Some thoughts on what might be included in a plan, and brief descriptions of what may be included within each content area, follow:

Executive summary

The executive summary is the most important section of your business plan. Some experts recommend preparing the section last as it represents a summary of the entire plan.

The section should appear first in any business plan, however. It is your opportunity to give a great first impression. Some potential investors or lenders may not get past this section if you fail to articulate your business model and just it will be successful.

Be brief, as you can refer readers to the content and supporting data in a later section rather than including those details in the summary.

General company description

Define the nature of your business and the industry in which you will compete.

A mission statement, company goals and objectives, as well as the legal ownership structure all may be included.

Management and organization

Describe the management team and what they bring to the business by way of background and expertise.

An organizational chart may be helpful if there will be many employees, especially if those employees will be involved in key management roles. It also might be worthwhile to include resumes from each owner or key employee.

Products and services

Describe the products and/or services you will bring to the marketplace. The section also may be a good area in which to highlight your competitive advantages. Outline the pricing and fee structures of your product and/or service.

Capitalization and funding needed

Here is where you should detail how your company will be capitalized - equity - and the amount of debt - borrowed funds - that will be needed. Explain how the funds will be used, and how any debt will be repaid.

Financial statements

A personal financial statement from the business owner(s) who would guarantee any bank debt should be included.

This also is where financial projections and cash flow statements, showing how any bank debt will be repaid, should be included. A monthly profit and loss break down for the first full year of operations, with a minimum three-year projection, is recommended. Also include an opening balance sheet with details on the equipment being acquired.


Here is where to list documents that can be provided to investors or lenders upon request. Examples include letters of reference, detailed market studies, legal documents, contracts and more.

Justifying the business model to yourself is critical and the process of developing a business plan should help to substantiate - to yourself and others - that your business can be profitable.

Given today's uncertain economic climate, it seems as though fewer and fewer banks are willing to finance small businesses. A comprehensive business plan may set you apart from other ventures. Take the time to educate yourself and remember, "Those who fail to plan, plan to fail."

Michael S. Mallaber is the Vice President, Commercial Services of Canandaigua National Bank and Trust. He can be reached via e-mail or at (585) 394-4260, ext. 50649.