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FORTUNE Small Business:

A business plan that will get you a loan

An entrepreneur seeks advice on writing a business plan that will land a bank loan.

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Get small-business intelligence from the experts. Here's a chance for YOU to ask your pressing small-business questions, and FSB editors will help you get answers from the appropriate experts.
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(FORTUNE Small Business) -- Dear FSB: I need a $300,000 bank loan; no outside investors are involved. How detailed must my business plan be?

A second question: How do I decide my growth rate? I'm starting a PVC regrind company. We have already built up a small customer base locally but there is a big demand internationally. How do I apply the theory of "true profit" to all of this?

- Avi Toor, Vancouver, Canada

Dear Avi: Whether you need a small loan from a bank or an investment in the millions from a venture capitalist, your business plan should be thorough.

Getting all of your ideas down on paper will help you to identify the core aspects of your business, including your competition and the existing marketplace for your product or services.

"The real value of the business plan from a business owner's perspective is the process of writing it," says Beth Goldstein, CEO of Marketing Edge Consulting Group and author of The Ultimate Small Business Marketing Toolkit. "Your business plan will be a document that you can follow like a road map."

The best way to construct your business plan is to start with a detailed five-to-eight-page summary, according to Joyce Durst, co-founder of Growth Acceleration Partners in Austin.

"It is important that you explain up front 'here is the problem that we are solving and here is what people need to know about the company,'" Durst says.

The next 30 to 50 pages should detail your plans for execution of the business, including an analysis of the strengths and weaknesses of your company, both internally and in the marketplace. Point out what your company offers that is worth the consumer's investment. Durst and Goldstein both said that the most common pitfall in business plans is the exclusion of competitors. And yes, even if your company is unique, you will have competitors!

When seeking a loan from a bank, use spreadsheets to clearly demonstrate the financials of the company, your intended use of funds, and statistics pertaining to your company's market opportunity. Include information on how you propose to pay back loans, the assets and patents that your company owns, the receivables that the company has and the milestones it will reach.

Your company's growth rate can be calculated in several ways - most commonly in revenue growth (how much you're selling) and profit growth (how much you're making).

The most important consideration when calculating growth rate is cash, according to Growth Acceleration Partners co-founder Brett Bachman.

"With banks and any outside investors, it's important to be conservative," he says.

Calculating growth rate can be complicated; Bachman recommends consulting an accountant who can both calculate growth rate and also prepare you for your interactions with the bank. Durst notes that in addition to a company's financials, banks are interested in the financial history of the owner.

"They will see exactly how you lived your life financially," she says.

If you're contemplating a move to an international market, Goldstein and Durst both recommend conducting extensive research on the customer base, distribution channels, marketing, international accessibility of your product, and global exchange rates. Expanding abroad can be risky, so hire someone experienced in international development.

Bachman suggests taking advantage of growth opportunities in the markets you are already serving. "Expanding outside borders is much riskier and has a longer payback," he says. To top of page

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