Planning For A Successful Loan Application

crazydiamond

A bunch of us guys have been getting together for years to kick around business problems and new ideas. One of the most common arguments has been how to get the new ideas off the ground. And this always comes back to how much money we`re prepared to risk to establish feasibility .
The optimists in our group always underestimate how much money they need for the startups. Cash crunches for expanding receivables and inventory as well as how much pressure rapid growth puts on their wallet led the pessimists to develop a planning tool to model these cash issues.
We`re making available our spreadsheet models for startups, along with our 135 page illustrated how-to-use-it guide to the entrepreneurial community. You can download it at The Free Startup Spreadsheet Model. We also have download links for free OpenOffice.org Calc spreadsheet software with installation/use instructions.
It`s a bottom-up approach from detailing your product lines (5 of them), your distribution channels (3 for each product line), and your facilities. We also have 9 different debt facility structures including fully amortized loans and mortgages.
It will generate 5 year projections and year-over-year presentation statements for balance sheets, income statements, and cash flow statements.
We can routinely, in two hours, establish the feasibility and cash requirements for a new business idea - so can you.
Your cost - nothing.
Feel free to respond with any feedback and from us to you, good luck!

Menoz

Downloaded the spreadsheet for Calc.
This was the first spreadsheet, for this purpose, that I`ve gotten my hands on (quite thorough).  I`ve already started using it. at first I was concerned with how much information and time I would have to put into it, but after about 30mins I was surprised with how much I had already finished. I really like the guide, It`s very detailed but not too complex for me (no college edu).
Nice work, I`m sure it will be helpful to others... Thanks for the contribution.

crazydiamond

Hey Menoz
Glad you have found the model to be some help to you. It looks a little overwhelming when you first load it up, but a lot of it is common-sense, and we tried to take as much of the calculation and transfer of information out as possible.
We had the model in use (in modified form for a variety of businesses), but the guide was more a collection of notes and instructions. It took some time to pulll that stuff together to make it easy to work with - nice to hear that it isn`t overkill. We weren`t sure who would be using it, so tried to make it helpful to a wide range of experience and so on.
Let us know if you run into any snags - we`ll keep an eye on the thread !
You mention that you grabbed the Calc version. If you don`t mind my asking, are you an experienced spreadsheet`er? We are wondering how people without a lot of spreadsheet experience find it, and whether we need to give more instruction on spreadsheet techniques? We think it is fairly easy to navigate, but its hard to tell when you do a lot of this anyway...
Anyway, thanks for the positive feedback!

Menoz

excel at work, OO at home. I`ve been using spreadsheets for many different projects for about 41/2 years now.... wasn`t hard to find on your site.
   

theyounger

Hey crazydiamond
I just downloaded the business spreadsheet model and i was amazed at the amount of detail that there is on it. It had a bit of a learning curve, but like Menoz said, I was surprised when i looked at it after an hour or so and how much I had gotten done. Keep up the good work, this is a very cool little tool!

crazydiamond

Glad you like it theyounger . . .Yeah, we find that we can get results pretty fast, at least as a rough cut. It is though, a process - one in which you get the first results, and start to ask what if we could do this differently? What if we come under price pressure? how long can we put off making the investment in new plant or equipment, or adding a new management role. When is the best time to open a new facility?
This feeds back into more research, which changes the thinking behind the plan, which changes the numbers in the model, which raises new questions . . . Do I really need that extra equity injection this early? What if I brought in a partner with this key skill of those contacts - could I generate greater value earlier, or reduce a risk factor considerably? Would it be a better plan to buy that competitor out, and bring the principal and the other key guy into my shop? Or should we fight it out to the death?
So the results come early, yeah, but then comes the real meat - improving your operation, and making better decisions - Have fun...
By the way, we didn`t unload the full marketing model in this version! We figured this would get most folks started, and be enough to digest. as the business grows and becomes more complex, the models become more complex too! Not to be taken as a threat...
Thanks for the feedback
Mikecrazydiamond1/9/2008 10:24 PM

jimballu

Is Crazydiamond still around? My father was told to come here by his banker, because he is working on a business plan for his sports store. He is not that comfortable with computers so I have been drafted. We downloaded that file you linked to, and unzipped it. We are working on the spreadsheet (we use Excel). I took a business intro course that did spreadsheeting in it, so I know a bit about about working with it, but I am not sure how to proceed with the product parts of it. We sell a large number of items, ranging from skiis to footwear, to helmeted sports gear. Read the guide, but I could use some help.
Kurt

crazydiamond

Yes I am still around, just been a bit busy though. Pleased to hear that you got the download, and have it loaded up. You don`t mention what area you are having trouble with, so I am going to guess on this. You may be having trouble with grasping the idea of a product line. Lets take skiis. The model does not handle a particular make or model of skiis, it expects to handle all of them. So typically, you call the product skiis, and the unites would be two skiis, a pair of boots, and a pair of poles ( a set). On the segment page, if all of your sales take place within the store, then there is only one segment. If you also sell them on consignment at the local ski hill, then that would be a different segment, since different sales costs are likely to be involved. For price, use the average price of a set of equipment. On the inventory page, use the average cost of a set (which you can get by using the markup policy and the selling price).As for the other product lines, proceed similarly. Remember that this model only handles five products, product lines, or product classes. This means that you have to review your sales profile, and decide how to class your items. If foortwear is 40% of your sales, that`s one product class. If helmeted sports gear is 20% of your offerings, that might be another. Skiis might be a third. You would then have two left for miscellaneous small items, and one for, I dunno - clothing?Try to keep a picture of the business in your mind as you proceed - that is the reality check that business planning requires.Have funMike

jimballu

Thanks for the help, that is a bit clearer to me. I have done as you suggested, we have five working groups of product that we sell now. On the financial debt schedule, we are applying for a 5 year amortized loan to cover the inventory increase for a new product line of clothing we are adding. Do we show that loan in the model, or since it doesn`t exist, or do we leave it out.
Appreciate the help!
Kurt

crazydiamond

My pleasure (the help)!
Umm, you mentioned that it was for a bank, right? So, you are trying to demonstrate to them that you can service the debt, right? You need to present a model that adds the product line into your sales figure, and to be consistent, you must also model the loan! otherwise, no money, no inventory, no sales, OK?
It also says to them that the loan will be coming from somewhere, assuming that the numbers support it, and so it says to the bank - if you want the business from us, grant the loan!
Model both, and check the debt servicing ratios for your negotiating position. See the sections in the guide that talk about making presentations to loan officers and credit committees. As for the business performance without the new product line and the loan, the business must have financial statements from prior periods, right? That is what the bank needs for that history. The model is preparing what is called a pro-forma projection (what happens if we do this, that, and the other in the future).
The business plan is typcially a write-up of the planned actions and objectives, what the keys to competitive success are, and the numbers that that scenario will produce.
Oh, and keep it short and to the point. Readable in ten minutes, no more.
Mike

crazydiamond

Not for me to advise you guys on what form of debt you are going after, snce I don`t know much about your specific business or your circumstances. But in general, Marshall`s point is a good one in that the flexibility of the revolving line can be cheaper. And often, inventory can collateralize a fair chunk of loan, say as much as 60% of the cost value of the inventory...
By the way, you mentioned that your banker suggested you com here to get the model, so I am curious - any idea how he knew about it?
Anyway, keep me posted!
Mike

jimballu

Crazy
We have finished the basics for the business plan spreadsheets, and have the projected statements. We went over the monthly sheets though, and we think that the numbers are just a little too aggressive. What is particularly a problem is the sales of seasonal product lines out of season. I read over the guide material, but am wrestling a bit with it. See the inventory bounces well in advance of sales, and needs to taper off sharply part way through the seasons (thinking winter gear mostly). There are also close-outs of inventory at price reductions and so on that go on at those times. Any guidance here you can give me. Think we are getting close though, at least we have a most of the questions  and some of the answers. I`m enjoying this, although I`m not sure my father is!
Anyway, thanks for the assistance so far.
Kurt

crazydiamond

Kurt, if you are still checking in, here are some pointers on seasonality...
There are multiple sources of seasonality. Periods of several months based roughly on the climate and weather. There are recurring distortions, such as an annual holiday. There are seasonalities within weeks. Take the worst one for handling. Suppose you have a business that does a lot of its business on Saturdays (a bar perhaps). In order to compare periods properly, you need to determine how many Saturdays in the month. Suppose March last year had 5 Saturdays, and this year, March has only 4 Saturdays. The results for the month will be very different in comparing one year to the next. now if you are trying to determine what growth looks like year over year, if you do not take this into account, you will have a problem.
Deciding whether to use weeks or months is something you need to do up front. Many businesses make do just fine tracking seasonality on a monthly basis. Only if you have peculiar circumstances should you need to use weeks. The fact is that since most small businesses reporting systems are from accounting, and since accounting tends to use months, you are best to stick to months. In some businesses, though very few, every month has an equal share of the years sales. Most show some consistent variance. Now you are trying to model a retailer of sports related consumer items. All sports are seasonal (except perhaps swimming and workout gear). I would guess that if you are selling hockey gear, the season for retail would start about in September, show a peak in October, and decline around January, before completely dying in April. So instead of a straight 8.3% per month every month, you have 4 months without any sales. That means the average of the other months would be 100% divided by 8 months, or 12.5%. But we also are guessing that September is twice as good as the other months - (25%), while January is about 25% below average - (10%), and February through April is about 50% of normal - (6.25%). That leaves about 47% for October through November, more about 15.4% for each. Your seasonality would look like, from January through December, 10%, 6.25%, 6.25%, 6.25%, 0%, 0%, 0%, 0%, 25%, 15.4%, 15.4%, 15.4%.  
Lastly, obviously each line of sports stuff will have a different seasonality curve - to check your numbers, check your sales of stuff last year if you have it broken down by product. If you don`t, check your purchases instead, and adjust for the inventory holding period.
It is important that you do this exercise, because it has a big impact on your cashflow, and since you are working on funding, the lender will want to know about seasonal fluctuations. You want them to know, too, since you don`t want them freaking out if you don`t sell a lot of water-skiiing gear in January.
Hope that helps.
Mike

jimballu

Thanks for the info crazydiamond. we finished the spreadsheets and the plans  on Monday, and he took them up on Tuesday to the banker. Oh, by the way, you asked about the banker knowing about the model, and apparently he had another client that used it, so he told us about it.
Anyway, the meeting went really well. They have agreed to extend us the amortised loan for the refixturing for the new line, and have also agreed to provide a revolving line based on a floor, plus a percentage of inventory.
They really liked the operating stats and the cycle stuff. All we needed to give them was the model excerpts that you reccommended in the guide, 2 years of statements, and the description of the new product line. It only took 2 days to get it approved. I just earned a lot of brownie points for working on this.
By the way, I stopped off and talked to the guy that runs the business course I took. He is also interested in using it for his classes - would there be any problem if he did that. I told him that it would be valuable?
Anyway, thanks for all of the assistance
Kurt