Small Business Facts
and Financial Particulars

ABOUT SMALL BUSINESSES

• Small businesses account for more than 50% of all employment.
• Small businesses account for 50% of our gross national product.
• Commercial Banks account for over 90% of small business short-term financing and 70% of their long-term financing.
• Net worth's of these companies are generally between $250,000 and $550,000 and the sales are in the $1,000,000 to $10,000,000 range.
• Many companies are generally classified as closely held via single owners or family type ownership.
• 80% of all new businesses fail in the first 10 years due to mismanagement or inexperience of the owners.

PURCHASING OR STARTING A SMALL BUSINESS REQUIRES PREPARATION AND INVESTIGATION.

Preparation
It is helpful for you to know how you'll act or react in a business situation. Many local colleges offer testing to determine suitable kinds of businesses based on the persons life experiences, personality, and training.

• Is you personality and health suited to owning a business due to long hours that must be endured.
• Are you an administrator
• Are you an organizer
• Are you a laborer

Investigation
Educate yourself and check out the industry through vendors, sales people, customers, bankers, C.P.As and attorneys.

• What are the good or bad factors.
• Talk discreetly to people in similar businesses.
• Possibly work in the business for a period of time.

SOURCES OF CAPITAL

• Banks, Equity, Venture Capital, Family, Friends, Suppliers, and Governmental Agencies are all business funding sources.

BUSINESS PLANS
Purpose

• Business plans are a road map telling us where we are; where we came from; and where we are going.
• Plans force the owner to look at the "Big Picture" and are essential in aiding the Bank in understanding the business approach and the needed financing.

Components of a Business Plan

• Long Range Plans (3-5 years)
  - Goals and objectives of owner.
  - External environment to include:
  • Technology
  • Social Trends
  • Political Environment
  • Regulations
  • Economy
  - Internal environment to include:
  • Physical Capacity
  • Personal Capabilities
  • Financial Strength
  - Goals and objectives for the company:
  • Growth Rate
  • Return on Investment
  • Market Share
• Product Mix
  - What are the high and low growth and profit?
• Short Range Plan (1 or 2 year). Examine:
  
  • Sales Levels and Trend
  • State of the Economy
  • Competition
  • Population Growth
  • Financial Constraints
  • Personnel Availability
  • Pricing Policies
  • Trends and Styles

SUBMITTING YOUR BUSINESS PLAN
Loan request to include:

• Purpose
• Amount
• Term
• Source of Repayment
• Collateral Available

Nature of Your Business

Management

• Your age, experience, and education
• Do You have other key advisors

General Information

• Products
• Market Area and Distribution
• Customers
• Suppliers
• Competition
• Facilities
• Employees and Unions

Financial Information

• Three years spread sheets on balance sheet and income statement (if applicable)
• Three years tax returns (if applicable)
• Personal Financial Statement
• Pro forma Income Statement
• Pro forma Balance Sheet
• Cash Budget

DEALING WITH YOUR BANKER
Discussion to expect include:

• Risk Analysis
• Sources of Repayment
  -Cash Flow
  -Earnings
  -Personal Guarantee
• Education
• Communication
• Salesmanship

Major factors used in a Banker's evaluation of your loan request:

• Character - Can you be trusted?
• Capacity - What is your financial strength?
• Capital - How much of your money is invested?
• Collateral - What is available to support the primary source of repayment?
• Conditions - Are your economic projections accurate and reasonable?

Do:

• Make an appointment and allocate enough time
• Give good and bad assessment of your overall plan
• Be prepared
• Ask questions
• Be flexible
• Negotiate rates after you've presented your loan request.

Don't:

• Make promises you can't keep
• Ask "how much" you can borrow. Show the lender how much money you'll need
• Negotiate interest rates over the telephone
• Ever surprise your banker
• Spend money before you get it.

For more information on all of the above, visit the Getting Started area.

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