Jennifer Wilkins had a dream. She wanted to start her own body shop.

Working as a painter’s helper at a shop in Norfolk, Va., she was learning the ropes of running a collision repair business. Besides the business courses she’d taken while attending college two years before enrolling in a trade school, Wilkins had seven years of collision repair industry experience. Though her resources were limited, she had plenty of desire and some techs who were willing to go with her if she could get her own shop up and running.

To get started, Wilkins began her research at the Small Business Administration (SBA) Web site (www.sba.gov). There, she learned what her first step needed to be: Create a business plan.

“I found much-needed information [on the SBA Web site],” says Wilkins. “There’s a step-by-step guide for anyone interested in being an entrepreneur.”

With some help from a CPA friend, Wilkins began to work on her business plan.

Through her research, Wilkins learned what many seasoned body shop owners already know – a business plan is an invaluable tool.

“I think the key to a successful collision repair business is to always be looking at the past and projecting the future,” says Frank Jandura, co-owner of Crebassas Body Shop in San Rafael, Calif., for the past 22 years. “Keeping a business plan that you can refer to throughout the year is vital. It ensures the continued success and growth of an organization.”

Jandura should know. He and his partner have maintained an ongoing business plan since they first opened their doors.

Whether you’re trying to start your own shop like Wilkins or you’re a veteran shop owner like Jandura, you need to maintain an ongoing business plan to ensure your shop is as efficient and productive as possible.

So what are the basic points of an effective business plan? Let’s take a look.

Keep It Short & Sweet

If you’re using your business plan to attract bank financing, you don’t have to attempt to write a “War and Peace” length document to get it. Just the opposite actually. Most bankers don’t abide by the credo, “the bigger, the better.” Succinctness is critical in preparing an effective plan that’ll appeal to the lender.

“Our bank is big on bullets of information,” says Bill Holt, an executive with Wachovia Bank, based in Charlotte, N.C., and one of the leading small-business lenders in the Southeast. “We’re looking for a good, concise summary, not a thesis. In fact, bankers prefer to see the facts presented one by one rather than in a paragraph format. We’re making a factual decision, so we want facts, not fluff.”

For instance, when providing industry background for a shop, a concise page or two of facts will be much more effective than a 15-page dissertation on the entire body shop industry. If yours is a direct-repair shop, explain the difference between a DRP shop and a non-DRP shop and why you’ve chosen the DRP route.

“It’s important to make your words count in the plan,” says Charles Canaday, chief lending officer for Mid Carolina Bank in Burlington, N.C., who says the average business plan only gets about 15 minutes of review.

According to Canaday, the most critical section of the narrative content may be the executive summary. “First impressions are critical,” says Canaday. “The executive summary provides the lender with the first impression of the business.”

For this reason, don’t use the summary simply to introduce the business idea. Use it to provide a synopsis of the key reasons why the idea will work – or why it already works. A well-organized summary usually will entice the banker to read on. A poorly conceived summary will likely lead the loan officer to move on to the next request.

Wilkins followed this quality-over-quantity approach. Her plan is only 12 pages in length, plus financial projections. Says Wilkins: “I used a combination of narrative and bullet points when writing the plan. I used the bullet points to stress key points to the reader.”

Writing a Plan? Get Help!

You don’t have to go it alone. Many entrepreneurs try to prepare a business plan themselves because they think seeking outside help would demonstrate weakness to the banker. But that’s simply not the case. In the eyes of most lenders, a borrower who seeks input and counsel from knowledgeable sources generally is seen as having put his idea to the test before going to the bank.

Seeking third-party help doesn’t have to be costly either. Some CPA firms offer low prices in preparing business plans. In addition, free counseling services are available in many communities through the Service Corps of Retired Executives (SCORE), Small Business Development Centers and the SBA. Some colleges, including community colleges, also have entrepreneurial and other small-business assistance programs.

Outside resources were critical for Wilkins’ business plan, which she says took seven months to construct. From the SBA Web site, she learned about SCORE and was paired with mentors (retired successful business owners) who volunteer their time to educate would-be entrepreneurs.

“I used SCORE from the beginning,” says Wilkins. “You tell them of your plans and goals, and they help you get started. They also explained to me what bankers look for. They pass out a lot of SBA brochures. Since it was free, it was a good resource. The Center for Community Development also had a seminar about their micro-loan program. Their organization offered technical assistance to writing a solid business plan.” Wilkins also recommends a software package called Business Plan Pro.

The BodyShop Business Web site (www.bodyshopbusiness.com) also is a good outside resource, providing excellent industry information. For instance, the average shop has been in business for 24.9 years, has 6.7 employees, $580,000 in annual sales and an average ticket of $1,810. A good deal of information also is provided for DRP versus non-DRP shops. This kind of information will impress your banker. It’ll also help you run your shop more profitably.

5 Questions to Ask (Before Your Banker Does)

Bankers are trained to be pessimists when underwriting a loan request. Consequently, if the shop owner fails to address the potential hurdles to success, the loan officer will do it for him.

“A business plan that’s filled only with good news immediately sends up a red flag for me,” says Brent Priddy, a senior vice president with National Bank of Commerce in Greensboro, N.C. “Not considering the potential problem areas in the plan tells me that the prospective borrower really hasn’t thought through the idea. If he hasn’t been thorough enough to address the pitfalls, then why should I take the chance of making the loan?”

According to Holt, many business owners have only a Plan A: “This product or service is so great or creative that no one can afford not to have it.”

Unfortunately, they ignore the hard questions that must be asked. Among them:

1. 1. What happens if my prospective customers don’t catch on to the need as quickly as I think they will?
   2. What if they catch on too fast?
   3. What if they aren’t willing to pay my price?
   4. What if my job costing is off and the service costs more to provide than I had planned?

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1. What if a competitor with deeper pockets and a more established reputation enters the market?

Addressing the prospective pitfalls can be tricky. Omit the possible hurdles, and the loan officer may think you have unrealistic expectations. On the other hand, you don’t want to devote the entire plan to potential obstacles. You need to achieve a delicate balance where you explain why the idea will work – even if things don’t proceed as planned. In effect, you must be able to call the proverbial glass of water, both half full and half empty.

For this to occur, the business plan needs to address both short- and long-term goals.

“Our plan always includes short-term goals such as the equipment we think we’ll need, marketing plans, changes in employee benefits, recruiting new employees and expansion,” says Jandura. “Our plan also addresses long-term goals three to five years out. You have to write them down and then constantly review the plan. It’s not a static plan and is always changing as frequently as month-to-month.”

For example, Jandura says he and his partner’s business plan included a planned upgrade of dental insurance benefits in 2002. But because the economy remained flat during the year, they decided to wait.

“We’re in the process of doing the upgrade [now],” Jandura says. “It’s a great benefit, but the business had to be able to support the upgrade.”

Are You Good for It?

The key question for every loan officer is: How will the bank be repaid?

For a body shop owner, the answer ultimately depends on cash flow. So what’s the bottom line? Prospective profits. Hence, financial projections in the plan are critical.

“Frankly, I usually start with the projections and work backward,” says Canaday. “If the projections reflect an insufficient cash flow level or if they’re unrealistic, there’s no need for me to waste my time or the borrower’s by reading and discussing the rest of the plan.”

The financial section is where many a business plan goes awry. Bankers are looking for no-nonsense numbers that are adequately backed up by reasonable assumptions. The problem is that many shop owners provide only the best-case set of projections reflecting nearly impossible marks for sales and net income.

“When the projections are too high, I lose confidence in the owner,” says Priddy. “Unrealistic projections lead me to begin to wonder if the borrower is still trying to convince himself about the viability of the business.”

Like most loan officers, Priddy says he prefers to see three different sets of projections – best-case, worst-case and most-likely-case scenarios. This demonstrates to the banker that the owner has considered all possible risks. Looking at three different cash flow scenarios also will help the entrepreneur better understand his working capital needs.

The term “working capital” is used in a lot of different contexts, but here it refers to the basic level of cash needed to keep the doors open on a day-to-day basis. But rapid sales growth and the corresponding major expansion of accounts receivable and/or inventory (even under very profitable conditions) can affect those needs just as much as extended losses can. One of the cardinal sins when starting or growing a shop is underestimating the need for working capital.

“I like to see a borrower complete a projected balance sheet as well as an income statement,” says Canaday. “Without doing a pro forma balance sheet, there’s no way to really analyze the effects of growth on working capital. When a company experiences sales growth, trading assets will also increase. It’s critical that the business owner understand this correlation before he proceeds with the endeavor.”

You may be intimidated by the prospect of trying to predict your shop’s financial future. Or maybe you feel unqualified to create the income statement, balance sheet and cash flow worksheets because you never got past Algebra I in high school. But you don’t have to be a mathematician to produce financial projections, and your assumptions don’t have to be perfect.

If you aren’t sure where to start when it comes time to prepare the financial projections, get some help from your CPA. You can also find books on business plan preparation at your local library or bookstore.

With some assistance from her CPA friend, Wilkins used industry numbers from www.bodyshopbusiness.com and her own knowledge of the Norfolk market to put together a projected income statement and balance sheet. The projections first proved to Wilkins that her idea to start a shop was viable. Later, the projections were instrumental in her successfully obtaining financing.

Don’t Forget the Loan Request

Along with a business plan, you should submit a specific loan request. Bankers prefer that you list the requested amount, along with the proposed loan components (purpose, term, interest rate, collateral, etc.).

Don’t worry if your terms aren’t accepted as proposed. They’ll at least provide a starting point for negotiation. And by including a complete loan proposal with your plan, you’re demonstrating to the lender that you understand not just the need for financing but also why the funds are needed to make the venture work.

After studying several shops in the market for several months, Wilkins pinpointed what she needed in terms of equipment, inventory and working capital to start her shop. She included the following details in her business plan:

New spraybooth:	$8,000
Pulling post, air compressor, welder, dent-removal system:	$10,000
Renovations for building:	$5,000
Working capital & inventory:	$30,000
TOTAL:	$53,000

For Wilkins, working capital includes licenses and taxes, office furniture, wiring for and assembly of the spraybooth, advertising, legal fees, closing costs, paint booth supplies, office supplies and three months of operating capital. Had Wilkins not taken the time to prepare a detailed line-item budget for her loan request, she could’ve very easily underes-timated her financing need.

Don’t Give Up!

The first bank Wilkins went to turned her down for financing – due to start-up risk. Refusing to give up, she went to the Norfolk Center for Community Development to apply for a Micro-loan. After meeting with members of the organization’s loan committee, Wilkins was rewarded for her time and effort with a $20,000 Micro-loan.

Why? The loan committee sighted her business plan as a key reason for the approval.

Wilkins then put in about $10,000 of her own savings and was able to obtain financing from vendors for the spraybooth and other equipment.

After years of dreaming and planning, Wilkins opened her own shop in November 2002.

“My business plan was instrumental in helping me get into business,” says Wilkins. “It’s sort of like a recipe for your business that I still have to refer to even though I’m already in business. I use it to gauge my progress and to make sure I fully execute what’s been outlined in the plan.”

Bankers and shop owners agree – the preparation of a business plan is essential not only for a loan request for the start-up or expansion of a shop, but also to the long-term success of a shop.

“In the successful body shop and in other successful businesses I see, someone is preparing a business plan and is reviewing it and revising it on a regular basis,” Jandura says. “Every business needs a formula for success with a plan to back it up. Without a business plan, all you really have is just a wish.”

Contributing Editor J. Tol Broome Jr. is a financial expert who’s been in the lending business for more than 15 years.