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A business plan sets out the offer, evidence, risks and figures on a few pages; its use of funds ties every dollar asked for to a use, its coverage ratio shows the cash covers the loan with a margin, and a short pitch ends in a clear ask.
Paper packet. Every task here also exists on screen, where it is checked automatically; answers written on paper are not assessed by Nydus. When you are back at a device, enter your answers there.
You will work out a funding ask, fill in a use-of-funds table, work a coverage ratio, judge whether a plan meets a lender's floor, find the cash a lender needs to see, fill in a food truck's loan request, and find the largest payment a plan supports.
You have worked out a position, a goal, a forecast with its scenarios, break-even, the cash a growth step needs, the risks and a continuity plan. A business plan puts that work on a few pages for someone else to judge — a lender, an investor, a partner — and a pitch says it in a few minutes. This lesson sets out what they contain and works the figures a lender reads first.
| Term | What it means |
|---|---|
| Business plan | A short written case for a business or a step: what it offers, to whom, how, with what money, and what could go wrong. |
| Use of funds | A table showing what every dollar asked for will be spent on. |
| Funding ask | The amount requested: the uses of funds less the owner's own money. |
| Coverage ratio | Cash available to pay a loan divided by the loan payments; lenders call it the debt service coverage ratio. |
| Owner's equity | The owner's own money in the business, which shows a lender the owner shares the risk. |
| Pitch | A few minutes' spoken version of the plan, ending in a clear ask. |
Neighborhood Kitchen's plan for a catering van asks a bank for a loan. The lender turns first to two figures.
The ask, and what it is for. The van and fit-out cost 14,000; the cash plan's low point is 3,400, and the owner wants a 1,600 buffer: 19,000 in all. She puts in 5,000 of her own. The ask is 19,000 − 5,000 = 14,000, and every dollar is tied to a use.
Whether the cash covers the payments. The loan would cost about 430 dollars a month. The forecast shows 600 a month available to pay it, after all other costs and the owner's pay. Coverage: 600 ÷ 430 ≈ 1.40.
$$\text{coverage} = \frac{\text{cash available for the loan}}{\text{loan payments}}$$
Many lenders look for at least 1.25: a quarter more cash than the payments, so a dip in sales does not stop them being paid. At 1.40 the plan passes, and the lender then reads the rest of it to judge whether the forecast is believable. Every figure here rests on stated assumptions about volume, price and cost. It says what follows if those assumptions hold; it is not a prediction, and it is not advice about what any real business should do.
Another way: table
The catering van's use of funds.
| Use | Dollars |
|---|---|
| Van and fit-out | 14,000 |
| Working capital to the low point | 3,400 |
| Buffer | 1,600 |
| Total | 19,000 |
| Owner's money | −5,000 |
| Ask | 14,000 |
Another way: steps
Write the sections. A small-business plan is usually ten pages or fewer: a one-page summary; the offer and who it is for; the evidence of demand; the competition and the business's advantage; how the work gets done; who runs it; the risks and what is done about them; and the figures — a sales forecast with its assumptions, break-even, a twelve-month cash plan and the funding ask.
Build the use of funds. Every dollar asked for goes on a line: equipment, fit-out, opening stock, deposits, and the working capital to reach the cash plan's low point with a buffer. The total, less the owner's own money, is the ask.
Test the coverage. Cash available for the loan — profit plus any non-cash costs such as depreciation, less the owner's pay — divided by the loan payments. Work it in the base case and the low scenario.
Check each figure by sense. The ask can never exceed the total uses; a coverage ratio below 1 means the forecast cash does not even pay the loan, whatever the rest of the plan says.
A lender is repaid from the business's cash, so it reads the coverage ratio, the cash plan and the low scenario closely, and it wants to see the owner's own money in the business. Many small-business lenders also ask for collateral or a personal guarantee. In the United States, the Small Business Administration guarantees part of many bank loans to small firms, through its 7(a) and microloan programs, which makes banks more willing to lend to businesses without a long record.
An investor buys a share of the business instead of lending, and is repaid only if the business grows in value. Investors read the market size, the advantage and the team more closely than the coverage ratio, and they ask how large the business could become. Most small businesses that want to stay owner-run borrow rather than sell shares, for the reasons the lesson on deciding not to grow set out.
The plan persuades through evidence. 'Customers love our food' is an adjective; 'a six-week catering trial took 22 orders, 9 of them repeats' is evidence. A forecast with its assumptions written down — price, volume, conversion, costs — lets a reader test it; a forecast without them asks to be trusted.
Show the risks too. A plan that names what could go wrong and what the business will do about it — the low scenario, the continuity arrangements, the review point — reads as more believable than one that claims nothing can go wrong, because every experienced reader knows something will.
A pitch is the plan spoken in three to five minutes, to a lender, an investor, a landlord or a partner. A common shape: the problem customers have; the business's answer; the evidence it works; why this business can do it better than others; the figures in a sentence or two; and the ask — how much, for what, and what the listener gets in return.
Practice it aloud until it fits the time, and end on the ask, stated plainly. Bring the written plan, because a good pitch leads to questions and the answers are in the figures. Every claim in the pitch should be one the plan can back up.
A plan written only to get a loan is usually filed and forgotten. Kept up to date, it is the owner's own tool: the forecast is compared with what actually happened each month, the assumptions that were wrong are corrected, and the review points are checked on their dates. Many owners find that writing the plan changes their mind about the step it describes, which is the cheapest time to change it.
The coverage ratio depends on what counts as cash available for the loan, and lenders define it carefully. Start from the forecast profit before interest. Add back costs that use no cash, such as depreciation on equipment, because they do not reduce the money on hand. Take off the owner's pay, if the business is a sole proprietorship or partnership and the owner draws from it, because the owner has to live. What is left is the cash available to pay the loan.
Then divide by the loan payments — interest and principal together, since both must be paid. A year's figures are usually used, so seasonal businesses are judged on the whole year, not their best month.
Two errors are common. The first is using sales instead of cash available: a business with 20,000 of sales a month may have only 800 left after its costs, and it is the 800 that pays the loan. The second is forgetting the owner's pay, which makes the business look able to borrow far more than it can, and leaves the owner working for nothing if the forecast is met.
If the plan falls short of the lender's floor, there are honest ways to meet it: ask for less, and put more of the owner's own money in; stretch the loan over a longer term, which lowers the monthly payment; start smaller, so the uses of funds shrink; or wait until the business has built more cash. Inflating the forecast to pass the test is not one of them. Lenders compare plans with what similar businesses achieve, and a forecast out of line with them draws the questions a plan is meant to answer.
A home baker in Tucson, Arizona, selling at two farmers' markets, wanted to lease a small commercial kitchen and sell wholesale to cafés. Her plan listed the uses of the money: 12,000 dollars of ovens and mixers, 3,000 to fit out the kitchen, 1,500 of opening ingredients and packaging, and 6,500 of working capital — the cash plan's low point of 5,000 plus a buffer. The total was 23,000. She put in 5,000 of savings, so the ask was 18,000.
She applied to a nonprofit lender in the SBA microloan program. The loan, over five years, would cost about 370 dollars a month. Her forecast, built from eight cafés that had tasted her bread and three that had signed letters of intent, showed about 620 a month available to pay it: coverage of about 1.68. In the low scenario, with only the three signed cafés, the cash available fell to about 420: coverage of about 1.14, which she showed alongside her plan to keep selling at the markets until more cafés signed.
The lender asked about the letters of intent, the kitchen lease's length and her food-safety certification, and approved the loan with a requirement to meet a business adviser quarterly for the first year. Six cafés were buying from her within four months.
SCORE mentors, Small Business Development Centers and Women's Business Centers, supported by the US Small Business Administration, review business plans and practice pitches with owners at no charge.
A longer plan is a better plan. Ten clear pages with evidence beat fifty of adjectives.
Ask for as much as possible. Tie every dollar to a use; an unexplained ask looks unplanned.
Cash above the payment is enough. Lenders usually want a margin, often a quarter more.
Leave the risks out so the plan looks strong. Naming them and the response makes it more believable.
The plan is finished once funded. Keep it as the owner's working tool.
List the uses of the money.
$2500 + 800 + 700 = 4000$
Tent and tables, stock, buffer.
Take off her own money.
$4000 - 1500 = 2500$
The ask.
Read the monthly payment.
$120$
A small microloan.
Work the coverage.
$200 \div 120 \approx 1.67$
Cash available over payment.
Compare with the floor.
$1.67 > 1.25$
The plan passes.
Add the uses of the money.
$14000 + 3400 + 1600 = 19000$
Van, low point, buffer.
Take off the owner's money.
$19000 - 5000 = 14000$
The ask.
Work the coverage in the base case.
$600 \div 430 \approx 1.40$
Above 1.25.
Work the low scenario's cash.
$600 - 150 = 450$
A fifth fewer catering orders.
Work the coverage in the low scenario.
$450 \div 430 \approx 1.05$
Still pays, thinly.
Show the response.
$\text{the buffer covers a thin quarter}$
Named in the risks section.
State the problem.
$\text{a week's wait for a repair}$
What customers have.
State the answer.
$\text{an apprentice and a second stand}$
What the money buys.
Give the evidence.
$40 \text{ jobs turned away a month}$
From the job log.
Give the figures.
$+900 \text{ a month; low point } 4000$
From the cash plan.
Work the ask.
$4000 + 1000 + 2500 - 2500 = 5000$
Low point, buffer, stand, less her own money.
Work the coverage.
$900 \div 160 \approx 5.6$
Well above 1.25.
Close on the ask.
$\text{5,000 over three years}$
Stated plainly.
Total the uses of the money.
$9000 + 4000 + 2000 + 5000 = 20000$
Equipment, fit-out, stock, working capital.
Take off her own money.
$20000 - 6000 = 14000$
The ask.
Work the coverage.
Neighborhood Kitchen's plan for a catering van needs $16000$ dollars for the van and its fit-out, and its cash plan shows a low point of $3000$ dollars before the catering pays. The owner wants a buffer of $2000$ on top, and will put in $2000$ of her own money. Complete the sentence.
The money is for t dollars in all, so the plan asks a lender for a dollars.
Complete the worked solution: Northside Repairs' plan shows $3600$ dollars a month of cash available to pay a loan, after all other costs and the owner's pay. The loan would cost $2400$ dollars a month. Find the coverage ratio a lender will read.
Multiply the monthly cash available by twelve.
$3600 \times 12 =$ a
Cash available a year.
Multiply the monthly payment by twelve.
$2400 \times 12 =$ p
Loan payments a year.
Divide the cash by the payments.
$(\text{cash}) \div (\text{payments}) =$ r
The coverage ratio.
Compare with the lender's floor.
$\text{often } 1.25$
A quarter more cash than the payments.
Show the low scenario too.
$\text{coverage if sales fall a fifth}$
Lenders ask for it.
Maya's plan for a studio shop lists what the money is for: $12000$ dollars of equipment, $5000$ to fit out the shop, $4000$ of opening stock, and $5000$ of working capital to reach the low point with a buffer. She will put in $7000$ herself. Fill in the table's totals, in dollars.
| Dollars | |
|---|---|
| Equipment and fit-out | |
| Total uses of funds | |
| Amount asked for |
Bright Home Cleaning's plan shows $2100$ dollars a month of cash available for a loan, and the loan would cost $1200$ a month. Its lender looks for coverage of at least 1.25. Does the plan meet it?
Monica's plan asks for a loan costing $4400$ dollars a month, and her lender looks for coverage of at least 1.25. How much cash a month must the plan show as available to pay the loan, in dollars?
Answer:
A food truck starting in Albuquerque writes its plan for a small-business loan. The truck and its kitchen fit-out cost $53000$ dollars; the cash plan shows a low point, with a buffer, of $8000$. The owners will put in $16000$. The loan would cost $800$ dollars a month, and the forecast shows $1600$ a month available to pay it. Fill in the working sheet.
| Amount | |
|---|---|
| Total uses of funds | |
| Amount asked for | |
| Coverage ratio | |
| Cash a month the lender needs to see |
Lesson test: one question per skill, one attempt each, no hints. Your answers are checked when you submit.
Maya's plan shows $3500$ dollars a month of cash available to pay a loan, after all other costs and her own pay. Her lender looks for coverage of at least 1.25. What is the largest monthly loan payment the plan supports, in dollars?
Answer:
You can put a business's case on paper and in a pitch, with the figures a lender reads first. Tell someone why a plan should name its risks. Next: bringing the whole course together in one strategy decision.
17. Your turn: Maya's studio shop, step 3
$550 \div 400 \approx 1.38$
Above the lender's 1.25.