SBM 175 FINANCING PROJECT OUTLINE

The following business is seeking financing from a local bank, and you are to help them with a financing proposal to the bank.  Their business plan is shown below.  From it, help them prepare a three page summary proposal for the bank.  Include the following:

I. FINANCING PROPOSAL OUTLINE

A. Statement of Purpose

1. The purpose of the business is to [overall goal for enterprise – why do you want to start the business?]

2. Specific request of the plan

a. Loan Requested

i. Loan Amount?
ii. Purpose (need)
iii. Repayment source - primary & secondary
iv. Collateral
v. Sources & Uses of Funds
Sources of funds for financing are as follows for:
Equity by owner/investors $
Loan secured by TOTAL SOURCES $___________
Uses of funds are as follows:
Purchase Land $
Construction Costs
Fixtures, Furnishings & Eqmt
Startup Expenses TOTAL USES $ ___________


b. Investor Support

i. Capital requirement
ii. Long term repayment source(s)

3.  What are the strengths of the proposal as you see them?

4.  What are the weaknesses of the proposal?

5.  What recommendations would you make to the business to improve their chances of getting a loan?

6.  If you were the bank would you approve or decline the loan?  Why?
 

BUSINESS PLAN SAMPLE

BUSINESS PLAN FOR

ABC OIL CHANGE

Proposed by:
Raymond Smith


I. EXECUTIVE SUMMARY

A. Statement of Purpose

1. The purpose of the business is to provide: To provide preventive maintenance services for the public, governmental & tribal entities in the Window Rock/Ft. Defiance area.

2. Mission statement: To provide high quality maintenance services, done fast and efficiently, at a fair cost.

3. Specific request of the plan: (a) To request site lease from the Navajo Nation, including 24 month development period (waiver of GMAR lease payments), and (b) To request $150,000 term loan to finance the construction of the building.

B. Description of the Business

1. Overall Purpose of the Business: To provide an income and living for Raymond Smith and his family.

2. Specific purpose of the business: To provide vehicle maintenance services, including oil change, lubrication, safety checks, tire pressure check, differential & transmission fluid changes, and winterization.

C. Marketing Strategy

1. Overall, our marketing goals are to obtain market share in the industry from other businesses by actively promoting our service as a local option, the only such business to specialize in the maintenance services described above. Our mission statement captures the primary advantages to our service, which is quality of service, speed and efficiency, and all at a fair price.

2. The primary marketing tools include:
a. Paid advertising
b. Signage
c. Direct marketing
d. Yellow page advertising
e. Direct Mail
f. Client referrals
g. Word of mouth


D. Production Process

1. Management and Operations will be provided by Raymond Smith and his three sons. They will be able to handle day-to-day operations and oversee the business.

2. The hours of operation will be Monday through Saturday from 8 a.m. to 6 p.m. During the summer we will extend our hours until 8 p.m. due to the larger volume of activity expected during peak tourist season for the area.

E. Management Team

1. The business is owned and operated by Raymond Smith and his family. He has three sons that will be active in the business, and they will be able to open the hours necessary to make this business an attractive alternative to other local businesses providing the same service.


F. Financial Considerations

1. Anticipated profits (before owner draws) for the first three years of
operations are as follows:
a. Year 1 $80,195
b. Year 2 94,446
c. Year 3 104,386

2. Sources of funds for financing are as follows for:
a. Equity by owner/investors $ 25,000
b. Loan secured by building & eqmt 150,000 TOTAL SOURCES $ 175,000

3. Uses of funds are as follows:
a. 2 Bay Building (metal prefab) $ 145,000
b. Installation costs 5,000
c. Fixtures, Furnishings & Equipment 12,000
d. Signage 9,000 e. Working Capital 4,000
TOTAL USES $ 175,000



4. The Projected Key Balance Sheet Ratios for the next three years will be as follows:

Year 1 Current ratio: 6.75
Debt to Equity ratio: 3.21
Return on Equity ratio: 1.69
Year 2 Current ratio: 13.9
Debt to Equity ratio: 1.76
Return on Equity ratio: 1.20
Year 3 Current ratio: 21.3
Debt to Equity ratio: .71
Return on Equity ratio: .93



II. PRODUCTS AND SERVICES

A. We will offer the following products, services and amenities:

1. Oil changes will be our primary service. We use Exxon fluids, charging $24.95, for full service. This includes chassis lubrication, checking & topping off fluids, tire air pressure check, and safety check.

2. Other services will include transmission flushes, filter changes, differential oil changes, manual and transfer case oil changes. We are not including income from these services in our initial projections, due to unknown demand. Over time we expect these services to represent a significant income to the owners.


B. Proprietary Features

1. As an Exxon distributor, we will primarily handle their products. Exxon is a good brand name with ready customer identification and a good reputation in the petroleum industry. Their recent merger with Mobil Inc. will add to their reputation and strength.


C. Future Products and Services

1. As an Exxon distributor, we can expand into oil distribution to other entities in the area. For instance, we could sell oil tribal, BIA and other fleet management entities on the Navajo Nation. This business has a good markup, and with Exxon products we would be competitive in price and quality to what these entities are currently buying off the reservation.





III. INDUSTRY ANALYSIS

A. Industry Profile

1. Overall description of industry: The petroleum industry is one of the largest businesses in the world and United States. It is a profitable and stable industry, as reflected by Robert Morris Associates industry data sheet attached.

2. The quickchange oil business is a rapidly growing, profitable part of the overall industry. In today’s economy, the need for services that enable consumers to get things done quickly is often more important that the cost factors. In this business, we anticipate quickly acquiring market share from other auto repair businesses based on this factor, as well as hours of operation and lower cost.

B. Market Definition

1. Who is the customer? Our typical customer is an owner of an automobile or pickup that wants quick service and at a fair price. Our concept is simple, yet not available within a thirty mile radius of our business. The Ft. Defiance region (including Window Rock) has a 1998 population of 13,435, and is a major population area for the Navajo Nation.

2. Secondary customer groups would consist of governmental and tribal entities, who do not currently have fleet management facilities, or can see cost savings from having this service outsourced. The Navajo Nation Tribal Headquarters are located in Window Rock, and they maintain fleet vehicle operations, along with school district and other governmental agencies. Also, the tourist market can be significant, especially during the summer months when their numbers are great in the area.

C. Competition

1. The local competition is primarily made up of repair facilities that change fluids as only one service of many. The two firms in the area are Firestone Tire Store (in Window Rock) and So’Sila Repair (in Tse Bonito, NM). Outside primary service area would be competition from two dedicated quick change businesses and up to eight various service stations in Gallup, NM. Gaining market share from local residents, agencies, and tourists will be the primary goal for this business. The convenience is the primary factor, yet pricing for this business is competitive with operations in Gallup (ie: JiffyLube in Gallup charges $26.95 vs. Ray’s at $24.95).

3. Strengths:. Firestone: more employees, good location, more equipment, in the area a long time. So’Sila: Larger facility with separate bay for lub, more employees, good location, next to Napa Auto Parts.

4. Weaknesses: Firestone: Primarily a tire store, management changes frequently, longer wait for oil change. So’Sila: No brand affiliation, older store, more run down, longer wait for oil change.

D. Major Influences on the Business and the Industry

1. Government. Regulation by Navajo EPA for proper handling of lubricants and spillage/cleanup. These facilities have not been the target of over-regulation, especially a modern facility such as proposed here.

2. Business cycle: Some seasonality is expected due to tourism being higher during the summer months. Year around population should prove to sustain this business well without the added needs from tourists.



IV. MARKETING PLAN

A. Marketing Overview

1. Overall goal and objectives of our marketing plan is to obtain market share in the industry from other businesses by actively promoting our service as a local option, the only such business to specialize in the maintenance services described above. Our mission statement captures the primary advantages to our service, which is quality of service, speed and efficiency, and all at a fair price.

2. The primary marketing tools include:
a. Paid advertising
b. Billboards
c. Direct marketing
d. Yellow page advertising
e. Client referrals
f. Word of mouth
g. Promotions



V. THE PRODUCTION PLAN

A. Facility Requirements

1. The basic design and schematics are included as attachments to the plan. We are using the basic Exxon building, with two bay design.

2. Furnishings, Fixtures and Equipment are shown in cost cost estimate attached.

3. Labor is included in installation costs, which represent a small portion of the total project costs, due to prefab building.



VI. COMPANY STRUCTURE

A. How Company Will be Structured

1. Ownership: The business is to be started as a proprietorship, owned by Raymond Smith, with plans to incorporate soon after the business is started.

B. Business Advisors

1. Accountant: To be selected.

2. Business Consultant: Small Business Development Center
P.O. Box 610, Holbrook, AZ 86025
Phone (928) 532-6170

3. Lawyer: To be selected.

3. Banker: To be selected.



VII. THE FINANCIAL PLAN

A. Summary: We used Robert Morris Associates

B. Projected Financial Proformas - see attached

1. Profit and loss
2. Break-even analysis
3. Balance sheet
4. Cash Flow
5. Operating Budgets
6. Ratio Analysis

ABC Oil Change
Assumptions to Projections


Depreciable years for Fixed Assets 12
Loan Amount 150000
Interest Rate Assumption 10.00%
Amortization in Years 15
Payment (Principal & Interest) $1,611.91

Year 1 Year 2 Year 3 Year 4 Year 5
Gross Revenues (1) $226,500 249149 274065 301472 331619
Revenues Percent Increase 10% 10% 10% 10%
General Expense Percent Increase 5% 5% 5% 5%
COGS Percent 25% 25% 25% 25% 25%
Marketing Expense Percent 7.0% 5.0% 5.0% 5.0% 5.0%
Total Payroll Tax Percent 10.75% 10.75% 10.75% 10.75% 10.75%
Returns & Allowance Percent 0.0% 0.0% 0.0% 0.0% 0.0%
Income Tax Percent 30% 30% 30% 30% 30%
A/R Turnover Days 0 0 0 0 0
A/R Turnover Percentage 0% 0% 0% 0% 0%

(1) Revenues based on first years sales of 30 oil changes per day x 302 days per year x $25.
This is actually conservative, based on Exxons estimate for the market of 50 cars per day.
(2) Rent based on 2% of sales for Navajo tax, plus $2,500 estimated GMAR
(3) There are no underground storage tanks or costs associated with such
(4) Salary expense is 60 hours of part time labor at $6.00 per hour. Owner salary is shown
as draws on cash flow page.