07/30/2010 05:13 pm ET Updated May 25, 2011

Uniquely Crafted Business Plans Are Needed to Raise Capital

Some pundits claim that there is little President Barack Obama and Congress can do to stimulate the creation of permanent jobs. They say that it is best left to market forces.

Others believe that well-placed tax credits, and pumping money into community banks, with less than $10 billion in assets, will create jobs. That's because community banks are more dependable small-business lenders. And small businesses, at least the larger ones with over 100 employees, are more apt to expand and hire workers.

But whether or not we get government help, now is the time to think about dusting off your old business plan as the economy improves -- especially if you will need capital to expand.

A business plan is required to obtain a loan or venture capital. It is uniquely designed as a sales tool to get financing. Because that is its goal, the emphasis is different than one written as a roadmap or a management guide to control your business.

Accordingly, all financial statements should include footnotes with comprehensive narratives depicting how the income and operating-expense projections were derived. The explanations should refer back to historical data and extensive market research, contributing reasonableness to the numbers -- especially projections.

In that way, whoever reads the business plan will be more likely to accept its assertions.

"It's funny how people look for capital and have no idea that a business plan is what they need in order to present their concept/model and the blueprint for building their business," Burke Franklin wrote in an e-mail to me. He is the founder and chief executive of California-based JIAN Software and developed Biz Plan Builder.

"The idea was (and still is) that a good business plan won't sell a bad idea," he wrote. "But a bad business plan could kill an otherwise good idea."

In lenders' parlance, the difference between a good idea and bad idea has more to do with key financial ratios, the borrower's industry-related experience, and how promptly the applicant pays her bills. So unless she is making a substantial cash investment, has management and financial success in the same field, and an acceptable credit score, her application will likely be rejected.

Additionally, the applicant may have to pledge meaningful collateral unless the company has demonstrated several years of adequate cash flow to make debt service payments. Adequate means covering the proposed loan payments with a cushion left over for an unexpected decrease in cash flow.

But telling is not selling, and your business plan has to document your ability to repay the loan.

And to sell anything, the first step is to know your prospect -- the lender or investor. Yet even super salespeople drop into a lender's office and start pitching their proposal without understanding what kinds of deals the bank closed in the past six months and its basic underwriting criteria.

Does the lender make loans to new companies? How much of my own cash investment does it require? Does it lend without real estate collateral? Does it make loans in my industry? Must I already have a depository relationship with the lender? What are its maximum and minimum loan amounts?

You have to ask the right questions and address them in your business plan.

An effective business plan presentation begins with three personalized exhibits; a one-page cover letter, a two-page executive summary and a one-page balance sheet called the "sources and uses of funds." That is sufficient to make a preliminary decision. The rest of the documents affirm what is written in these three exhibits.


I don't know if the JIAN Biz Plan Builder personalizes its business plan. But Franklin, the company's CEO, recognizes that business plans need to be tailored toward the person who will be reading it. "I challenge people to understand their audience and to think like an investor or lender," he says.

Most software-generated business plans are too generic and prevent you from creating a personalized document reflecting the uniqueness of your business. They are difficult to design as marketing tool to sell the distinctiveness of your business to a lender or investor. In most instances you are better off with an outline and doing the heavy lifting yourself.

The U.S. Small Business Administration has a business-planning guide to get you get started. You can also get free help from SBA's business partners, SCORE, Small Business Development Centers and Women's Business Centers in your area.

Keep in mind, however, that extensive market research and personalizing your business plan is the key to landing financing.

Jerry Chautin is a volunteer SCORE business counselor, business columnist and SBA's 2006 national "Journalist of the Year" award winner. He is a former entrepreneur, commercial mortgage banker, commercial real estate dealmaker and business lender. You can follow him at