GERRY’S BLOG

 I applied for a business loan but my bank says first I need a business plan ... do I need to hire a consultant to write it?

No, you do not. But let me qualify that.

In most cases, the bank does not care who writes the plan, they just need to be convinced that you can carry out the plan and that they will get their money back.

Think of it this way ... the bank may have used the term "business plan" but what they really want to know is "if we loan you this money, how do you plan to pay us back?".

The larger the loan, the more detail they will require. This is because larger loans carry greater risk for the bank. And I can tell you ... banks don't like to take risks.

For example, if you want to borrow less than, say, $10,000 and you already have a good credit history with the bank, your business plan may be as simple as the draft business plan I discussed a previous blog, with a projection of the first three year's of income and expenses thrown in. If you want to borrow more than that and you do not have a credit history with this bank ... the business plan has gotta be a lot more detailed (and convincing).

So, do you think you can write the business plan yourself?

Many people can. Many people cannot. Most people could - if they had some help.

The good news is that there is lots of help available for people who wish to write their own business plan. This web site offers an excellent business planning framework that you can use for free. There are also many web sites that offer essentially a "fill in the blank" type of format to follow. The choices are endless so this is going to take a bit of research. Is this how you want to spend your time and effort?

Another option is to hire a consultant and give them a small pile of money to write the business plan for you. Perhaps, you think, you should just pay the money and get it done.

Well ... this isn't always the best option either.

I have seen plans that were written totally by consultants. They are generally things of beauty. They have scads of charts and graphs, lots of pictures, and pages and pages of industry stuff. Most have amazingly detailed spread sheets, sometimes covering up to ten years of sales. And to cap them off, they are usually printed by laser on high quality paper and bound using only the best of cover stock.

So, what's the problem? Unfortunately, all too often the entrepreneur does not understand what is in the plan and "where the numbers come from". This can lead to disaster if the banker asks any questions. Trust me ... the banker will ask some questions.

Don't get discouraged. There is a straight forward option for those who feel they need some outside expertise.

I find that a good process is for the entrepreneur to write what they can, using the business plan framework previously noted. The entrepreneur can then meet with a consultant to work through a collaborative process that leads to a business plan that meets the needs of the entrepreneur (and the bank).

Writing the plan is an iterative process. It develops over time as you meet with the consultant. The consultant asks the questions ... you provide the answers.

Now, this might sound like you are still doing a lot of the work. Well of course. It's your plan. Did you really think you could simply hand it off to someone else? Do you really want to?

Don't get me wrong. A consultant can bring huge value to the process. Asking the right questions is far more valuable that answering the wrong questions. A good consultant will also challenge your thinking.

In the end you will have a business plan that fully articulates your business concept. It should help you to assess the viability of your business idea and it should also help to convince the bank!

FAQ: I would like to apply for the New Brunswick Small Business Investor Tax Credit Program but it looks complicated. Is it really worth the effort?

The purpose of the New Brunswick Small Business Investor Tax Credit (SBITC) program is to help small businesses raise equity capital by encouraging New Brunswick residents to invest in them.

This blog is specifically about the New Brunswick program, but some of you may be interested to know that Nova Scotia has a somewhat similar program called “Innovation Equity Tax Credit” program and Prince Edward Island has a program called “Share Purchase Tax Credit” program.

My purpose in this blog is to give you some sense of what the New Brunswick program is about and hopefully encourage you to follow up for more details. You can find the complete description of the program, as well as the various forms (all 10 of them) that you will need, on the NB Department of Finance web site.

The program allows for investment in private corporations and in economic develop corporations. It allows for investors to be individuals, corporations or trusts. However, in this blog I am only going to consider investors who are individuals and who are investing in private corporations.

I will be discussing some of the major requirements but first you should know that if you apply on behalf of your business (which must be incorporated), and are successful, then investors (and you could be one of them) are eligible for a 50% tax rebate on their New Brunswick personal income taxes. This is huge. Frankly, this is very huge!

Another exciting thing about the SBITC program is that all sectors are eligible, so most likely your small business would qualify.

Still, there are 9 specific “Applicant Corporation Eligibility Criteria” that your business must meet. Your corporation probably meets all 9 criteria, but you do need to go through each one just to make sure. Don’t let some of the business jargon throw you off – call or e-mail me if there is something you do not understand.

Once you determine that your corporation is eligible (the 9 criteria) then you need to provide information on 8 specific “Corporation Application Requirements”. The first of these is an investment plan (i.e. how much money you plan to raise, from whom, for what purpose, and what type of shares you will be giving the investors in return). The rest of the 8 requirements mostly deal with financial and corporate documents. This is stuff you should already have.

So, once you know that your corporation is eligible and have met the application requirements, you need to make sure that the “Investor Eligibility” and “Investment Eligibility” requirements are met.

Don’t worry. This is the easy part. This just sets out some of the boundaries.

For example, investors must reside in New Brunswick, be at least 19, must invest at least $1,000 and hold the investment (the shares you get for the investment) for at least four years – this type of thing. The applicant corporation (your company) must raise at least $10,000, have at least three investors and only use the investment money raised to do the things that you put in your investment plan, stuff like that.

Of course, there are some other details you need to be aware of, and some things you need to do each year to keep the government informed. There is significant government involvement here – there has to be a paper trail.

So, is it really worth the effort?  

Look at it this way – you have to produce a product that you plan to sell to a bunch of people you probably don’t know and you intend on being successful. Isn’t it worth a few hours of your time to look further into a program that could substantially reduce your financial risk and provide the capital needed to take your business to the next level?

As they say – you owe it to yourself.