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by Ron Sturgeon

Ron: I guess we can overstate the obvious and say the first thing bankers don’t want to see is a business plan written on a big yellow pad with a No. 2 pencil.

Greg: True, but at the same time I want to know that the person whom I’m dealing with wrote the plan and understands it.

Ron: So as a banker, what are you looking for in the business plan?

Greg: The first thing I want to know is what you do, and how you do it better than other people.

Ron: I call that a Unique Selling Proposition (USP). When someone tells me they have an idea for a business, one of the first things I ask is, “What’s your USP?” And they’ll start talking about how their service is going to be better or they’re going to have a bigger commitment to quality.

What they don’t understand is that those are features and they’re not unique! I’m not saying that having the best service is a bad USP, but I want them to tell me what makes their service better. Good examples of USPs might include:

•Our machine does something the competing machine doesn’t do (that’s the feature), and that translates into a third less operating expense (that’s the benefit).

•We are going to offer better customer service (a feature). We will accomplish that by making sure that the widgets the client requests will actually fill his need (a benefit); our competitors just sell the client what he asks for with no questions asked.

•Our delivery is faster and more accurate (a feature). We accomplish that by using RFID tags attached to the merchandise throughout the distribution process.

Greg: A lot of times, people think being the lowest-cost provider is their benefit. But when they say that, it’s almost always automatic that I’m not making that loan.

Ron: You almost never want to be the low-cost provider.

Greg: No, you don’t! People don’t realize that if they under-price their competitors, they’re the ones who are going to go away, not their competition. No one wins in a price war. You have to have some kind of benefit that customers are willing to pay a little bit more for.

Ron: So, from a banker’s standpoint, what else do you want to see? You’re expecting their business plan to include what they do, a little bit about their background and their successes – but not too much. They need to make it succinct. Would you say that’s correct?

Greg: Yeah, and I want to know that they have experience doing what they want to do. If they don’t, they need to have a partner that does. The business plan they give me should basically be their loan write-up. It should give the banker enough information to go in front of the loan committee and say, here’s why they need the money. And more importantly, here’s how they’re going to pay it back. I need to know about your background, I need to know good things about you and I need to know if I’m going to read something bad about you in the paper tomorrow morning.

Ron: Yes, the days of lending on “ideas” are over. Experience and a track record of success is imperative. About the business plan, on the other hand, you don’t want too much information.

A business plan should be as succinct as possible, but it should also be as complete as possible. It should have the math – the pro forma math for at least three years and maybe as many as five. If this is an existing business and there’s a history, it should have some math from that. The banker wants to see how the cash flows, and it should include information about the people, their education, their experience, their product or service and the company.

It needs to have an overview of what they’re planning to do and how they’re going to use the money.

The value of the collateral is seen as the weakest source of repayment, because it’s almost always impaired at the time of repossession or foreclosure, so make sure there are other sources of repayment rooted in cash.

I think you always need to include an executive summary that isn’t any longer than four pages and has some excerpts from the math, like charts with the top line and bottom line – a condensed version of the full-blown business plan. That would be my idea of what a banker wants to see.

Greg: We also want to see an outline that has the business description, the name of the business, location, a description of products or services, and management expertise. Then it should go into their own business history. How long have they been in business? What does the ownership look like, and what makes them qualified to run this business? And finally, you need to define your business goals and give a financial summary.

If you can put all that together, you are off to a good start.

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Remember, only you can make BUSINESS GREAT!

Ron Sturgeon is past owner of AAA Small Car World. In 1999, he sold his six Texas locations, with 140 employees, to Greenleaf. In 2001, he founded North Texas Insurance Auction, which he sold to Copart in 2002. In 2002, his book “Salvaging Millions” was published to help small business owners achieve significant success, and was recently reprinted. In June 2003, he joined the new ownership and management team of GreenLeaf. He also manages his real estate holdings and investments. You can learn more about him at WWW.autosalvageconsultant.com He can be reached at 5940 Eden, Haltom City, TX 76117, rons@rdsinvestments.com or 817-834-3625 ext 6#.