business plan
Business Plans – The Ultimate Purpose of a Business Plan
October 17, 2011 | 
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The ultimate purpose of a business plan is sometimes misunderstood. First, let’s consider what a common myth about business plans is, and then, how they are actually used:
The purpose of a business plan is not necessarily to secure investment While it is beneficial to get investors to provide funding based on a written plan, it is important for any prospective small business owner to understand that this is not the typical outcome for most business plans. Investors, particularly venture capitalists, see hundreds of prospective business plans in a given year, and can only invest in a few, which are likely to be the best of the best (usually, less than one percent of all the plans submitted). In order to do so, these plans have to have the right combination of a strong, skilled management team, outstanding business model, excellent prospects for a high rate of return on the investment, and relatively low risk (in the sense that those things which commonly can lead to business failure have been anticipated, and minimized). Very few plans will accomplish all of these tasks, and do so well. For all of these reasons, while a business plan can help secure funding, this is hardly its primary purpose. The purpose of a business plan is to serve as management guidance A good plan helps the management of a new venture, by forcing them to put their underlying assumptions down on paper, to check if these are all reasonable, and to create a set of projected (pro forma) financial statements. In turn, these details can quickly reveal whether or not a venture has a good chance of success. If a venture is unlikely to succeed, a good plan should reveal these problems before an entrepreneur invests their time, money, and effort to back a project which can not ever achieve success. Then, after several attempts to refine the business concept further, the best of the bunch can be pursued, which gives the fledgling business the best chance to succeed. Only then, once the business has experienced some early success, is it appropriate to seek outside funding from investors.
In other words, a good plan does not serve just to win over outside investors. Instead, its first purpose is to guide management towards making wise choices which enable the business to flourish. Then, as a business makes it past the initial stages, further refinement of the plan can yield a version which can be used to encourage outside investment, if it is still needed.
Copyright 2010, by Marc Mays
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Business Plan Profit and Loss
The profit and loss statement on your business plan is also known as the income statement. This is a vital piece of the business plan as a whole and lets potential investors see exactly what you expect your business to profit or lose.
Using your profit and loss statement you can spell out exactly what it is you expect your revenues and expenses to be for a certain amount of time. By calculating these numbers you can make a determination whether or not your business will experience a profit or a loss for the resulting time period.
This is important for the potential investors to see as they will then have a better understanding of what it takes to make your business operate and it allows them to form a better opinion of whether or not they want to invest in your venture. Here is what should be included in your business plans profit and loss statement:
Projected Sales: For many businesses, especially start-ups the sales will be projected. Be realistic here but show what you think your sales will be in terms of units sold, the price paid for the units on a retail level, the net price paid, and finally the gross revenue.
Cost of Goods Sold: Include everything that is included in making the units available for sale. Items to include are manufacturing costs, shipping costs, packaging costs, and the like.
Controllable Expenses: This will include any and all business related expenses that can fluctuate and are incurred in order to keep the business running. Items to include here are salaries, benefits, cost of any company vehicles, cost of company utilities, advertising and marketing costs, office supplies, and any repair or maintenance.
Fixed Expenses: These are the expenses that are the same every month and do not fluctuate like the controllable expenses. Items to include are rent, loan payments, insurance, licenses, and any other fixed expenses.
Once you have all your items listed above you will subtract the total of all your expenses, or liabilities, from your total gross income and the resulting number will be your estimated net profit or loss before taxes.
Then be sure to include all of your taxes such as sales tax, property tax, excise tax, etc. Take your total taxes and subtract that number from your estimated net profit or loss and you will have your estimated net profit or loss after taxes.
It is of course better in the eyes of a potential investor if you have an estimate profit versus a loss, but be cautious with your projections as you dont want to come off too unrealistic. Investors are generally savvy people and will expect that you use your best judgment in the preparation of your financials.
In fact it may be to your advantage to be more on the conservative side when it comes to any kind of projections. In the business world it is always a good thing to beat expectations, but not always so good when you miss, especially if you miss by a lot.
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Free Pawn Shop Business Plan for Loans
Obtaining Business Financing
Free Pawn Shop Business Plan for Loans
When obtaining a business loan for a pawn shop or related pawn brokering business, it is imperative that you have a properly structured business plan that will assist you in showcasing how you intend to operate your pawn 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 pawn 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:
Pawn Shop, Inc. (“the Company”) is seeking a business loan of $100,000 in order to launch the operations of a pawn brokering business 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 Pawn Shop will provide general pawn brokering services to the general public, which includes providing small collateral loans to individuals based on the value of the property that they bring into the Company’s store. The business will specialize in making loans that are specific to jewelry.
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 Pawn 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 Pawn 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 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:
Pawn Shop Store Establishment – $50,000 Inventory – $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 pawn 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 Pawn 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 Pawn Shop to a third party for a significant earnings multiple. Pawn 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:
The Pawn Shop will specialize in making small collateral loans to individuals that will last two weeks. On each item brought in by the customer, the Company will grant a loan equal to 10% to 20% of the saleable value of the item. The customer, should they return to receive their item back, will be required to pay back the loan amount plus a fee equal to 20% of the loan amount. On every item accepted for pawn brokering by the Company, the business will follow all applicable state laws regarding the acceptance and handling of merchandise. Additionally, the business will generate secondary revenues among people that do not return for their merchandise. In this event, the Pawn Shop will resell the item to the general public or to a used goods wholesaler.
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, Pawn Shops typically operate with a strong state of economy stability as these lenders are often used as a last resort among borrowers that are in need of quick loans or do not have the ability to sell the merchandise that they can use as collateral. As such, the business should be able to remain profitable and cash flow positive in any economic environment.
The Pawn 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 Pawn Shop industry, despite the current economy climate, has remained strong despite the fact the general economy has suffered. Within the United States, there are 20,000 businesses that operate in a pawn brokering capacity. On a yearly basis, these businesses generate revenues of $6 billion and provide jobs to more than 100,000 people. The total payrolls paid by the pawn shop industry has exceeded $1.4 billion on an annualized basis over the past five years.
At this time, there is currently no pending legislation or changes to the economy that are expected to change the nature of how the Pawn Shop Industry conducts business.
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 pawn 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 a pawn shop.
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 Pawn 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 Pawn 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 Pawn 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 intot he Company’s targeted demographics. The business will also regularly take out advertisements in localized newspapers that showcase the Company’s hours of operations, pawn shop and pawn brokering services, and specials that are occurring within the store on a regular basis.
The business will also maintain a highly informative website that showcases the Pawn Shop’s services, its hours of operation, collateral and lending information, 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
Pawn 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 Pawn Shop Cash Flow Analysis for the Pawn Shop Balance Sheet for the Pawn Shop Business Loan Amortization Tables