Two years ago I wrote Technacraft's first business plan. It never saw the light of day and when I re-read it recently, I was amazed at my naivete and ridiculous assumptions. Two years of doing business in a new market with a new product with new people sure can make one smarter about the realities of one's new enterprise.

Because of our growth and the Christmas buying projections of some major accounts, we find ourselves in the position of needing some short-term funding for material and wages. Actually, if all of our receivables showed up in the P.O. box tomorrow, we might not need additional funds, but the odds of this happening are about the same as me winning the Lotto this week. We thought we could update our business plan, take it to friendly bankers, and get a line-of-credit against our receivables. Fairly straightforward.

I scrapped all but the title page and mission statement from the old plan, laughing all the way. I simplified a lot and re-did the balance sheet and the cash flow projection. I stayed conservative on the sales forecast and was realistic about when we would receive payments for our goods. The numbers showed that we could make a small but very real net profit barring some catastrophe or parts shortage. And our short term debt would be all paid up.

I made appointments with four banks to present our plan and invite them out to our plant. The first thing that I learned is that the business plan is a must but so are tax returns on the corporation and major stockholders for the past two years. Off to the copy machine, then back to the banks. It's been two weeks and we have been turned down by two of the four to date. I expect it to be "4 for 4" soon. Why the pessimism? Still too small and risky according to banks 1 and 2 and I have no reason to expect banks 3 and 4 to be any different. I'll be talking to the SBA soon.

Writing a business plan forces you to sit down and do the analysis on your business and do sufficient research to have it make sense both to you and to prospective lenders. This is tough to do if you are entering unfamiliar territory like we did two years ago. With two years of business experience and a solid year of serious marketing and manufacturing, our new business plan is based on history and projections from customers who have experience with the product and know how many they can sell. Now the wild guesses become informed projections.

To convince someone to loan you money, your cash flow needs to show that you actually can make a profit by shipping your product! (And I thought we were just doing this for the sheer pleasure of sleepless nights.) So how much does it cost to build your widget?

Next to guesstimating sales, the hardest part to plan and account for is cost to deliver the product. It is simple enough to compute what the material costs but beyond that things get a little fuzzier. How many man hours does it really take to put a good unit in your customer's hands? Have you included scrap, rework, shipping damage, non-productive but totally essential activities, utilities, rent, phone, perishable tools, etc? Don't forget shipping supplies, printing costs, computer/office supplies, postage, insurance, deadbeat accounts, sales commissions and TAXES!!!

All of these things, when analyzed properly, will tell how many widgets you must sell to make a profit. There are many books that describe how to write a "winning" business plan. Many of these are geared toward generating big investment dollars from people who will own some or most of your company. This is different from our situation. We want to own the company and convince lenders to loan us money. I suspect most small startups want to maintain ownership. I think a business plan geared toward banks should be simpler and more conservative than one seeking investor dollars. Investors want to cash out and make large profits in a few years. Banks want to know they'll get repaid in a timely fashion.

We have survived and worked through our ignorance and naivete regarding our market and building our product. We are now in the process of working through our naivete regarding bank loans and other financing. Our education in this very real school of business continues.