Jimmy John’s Financial Projection Template

January 14, 2018 by Adam Hoeksema Leave a Comment

In 2017 Jimmy John’s Gourmet Sandwiches was the #4 fastest growing franchise according to Entrepreneur.com. There are now 2,657 Jimmy John’s franchises in the U.S. and 84 new stores were added in the last 12 months alone.

In order to open a Jimmy John’s franchise you are likely going to need financing, and often times the bank will require financial projections for any loan for a new startup franchise.

To help you complete your financial projections “freaky fast” we have developed a financial model template specifically for Jimmy John’s within our ProjectionHub web app.

This blog post is going to help explain how to use ProjectionHub to create financial projections for your 1st or 50th Jimmy John’s unit.

Signup Instructions

Feel free to learn more about ProjectionHub in general before signing up.
You can sign up for a free trial by selecting the “Jimmy John’s” template here.
If you have any questions about the model as you go, please email support@projectionhub.com

General Business Info

Once you sign up and confirm your account you will be asked to complete some general business info as seen below:

Adding the Jimmy John’s Business Model

Once you save the general business info, you will be able to add a business model. If you don’t already see a Jimmy John’s Business Model added on this page, you can click the add Business Model button as seen below to add your first Jimmy John’s unit.

Jimmy John’s Revenue

Next you can click the orange button to Add Revenue to get started with your sales projections.

You will now have 2 options as you see in the image below:

You can click “Add Revenue” which will give you the ability to add projected revenue numbers for each month for your store.
Or you can click “Add Google Sheet Revenue” as circled in red above. We have created a special Google Spreadsheet template specifically for Jimmy John’s franchises that will give you more control in terms of adding assumptions for your average ticket price and number of customer orders each month.
If you decide to utilize our Google Sheet template please see this guide on how to enable the Google Sheet Integration. You can see a screenshot of the Google Sheet below:

As you are working on your revenue projections the following article may be helpful – according to CNN Money the average Jimmy John’s franchise has annual sales of $1.2 million and profit of $280,000. This will vary greatly based on your location, so you may need to make some adjustments based on your specific market.

Jimmy John’s Expenses

Once you complete your revenue projections you can move on to your expenses. There are 2 primary types of expenses:

Startup Expenses
Ongoing Operating Expenses

If you are creating a set of projections for a startup Jimmy John’s location, this list of startup expenses and ranges comes directly from Jimmy John’s. Some of the items listed as startup expenses should be entered as expenses on month 1 and some are actually cash spent on assets like:

Leasehold improvements
Equipment
Buildings

If you have any of these types of expenses you will want to add them later as an “Asset” instead of an “Expense” on this page.

Jimmy John’s Operating Expenses

On the Expenses page in ProjectionHub you will be able to add/update your operating expenses. You will notice that the Expense page will come with a number of standard expense line items along with a default monthly expense for most of the line items. Obviously you can change any of these default expenses to reflect your specific situation.

Some expenses will be a % of your total sales, instead of a fixed monthly amount.

So as you see in the image above you can click the check boxes next to those expense categories and then in the drop down box with a red circle around it you can select “Apply Industry Ratios” and then click “Apply”

ProjectionHub is assuming the following % ratios for the following expenses:

Advertising – 4.5%
Royalties – 6%
Food Costs – 30%
Labor Costs – 25%

So when you click “Apply Industry Ratios” the system will take your projected sales and multiply by 6% to come up with your royalty expense for example. See how this should work below:

Jimmy John’s Assets

Next you can move on to the assets section. You will notice that the Assets page comes pre-loaded with the default assets that you might have as a Jimmy John’s franchise owner.

To add an asset, hover over the row, see the 3 dots on the left of the asset name, hover over, and click edit.

Next you will be able to add your Kitchen Equipment as an example.

You can enter in the details of your assets as seen below:

Jimmy John’s Loans

Next you can move to the Liabilities page and add a loan. If you are going to borrow to help fund your startup costs, you can “Add a Liability” as seen below:

Jimmy John’s Investors

Next you can add any personal investment you will be making as well as investment from outside investors. One common situation may be that you pay the $35,000 franchise fee with your personal investment. In the example below I assumed that you paid the $35,000 franchise fee as a personal investment, and I selected that the investment was pre-existing which means that the projections will assume that you already paid the $35k prior to the projections starting, so this will show up on your opening balance sheet as equity.

Reports

Once you enter in all of your assumptions you will be able to review a number of reports. Here is a sampling of some of the reports, tables below:

On the Dashboard page you will be able to download your projection Income Statement, Balance Sheet and Cash Flow projections to share with your lender or investor.

Adding Multiple Jimmy John’s Units

Finally, let’s assume you want to add another Jimmy John’s store in the future. All you need to do is go back to the “Business Model” page and add another “Jimmy John’s” business model. You can then label it Jimmy John’s Unit 2 and you can repeat the process. You can add as many units as you would like over time.

Again, you can get started by creating a ProjectionHub free trial account today.

As you complete your projections please don’t hesitate to reach out to us with questions at support@projectionhub.com

Good luck!

Financial Projections for E-2 Visa Applications

August 11, 2017 by Adam Hoeksema Leave a Comment

The E-2 Treaty Investor Visa is a nonimmigrant classification that presents a way for business owners or entrepreneurs to live in the United States and conduct business. It initially provides a two-year stay but the recipient can make repeated requests of 2-year extensions. The visa is growing at a fast rate, largely due to its level of acceptance compared to other types of visas.

E-2 Visas	Issued	Refused	Total Applicants	Percentage Increase in Applicants
2013	35,272	8,178	43,450	N/A
2014	36,825	9,782	46,607	7.27%
2015	41,162	10,970	52,132	11.85%
2016	44,243	13,370	57,613	10.51%

A major benefit includes the fact that treaty investors may be accompanied by spouses and unmarried children who are under 21 years of age. The spouse is also able to work in the U.S. with this visa. This site lists out many of the details that are part of the process.

In analyzing E-2 Treaty applications, the government is looking for some specific qualifications for the business and investor. The qualifications for the applicant include:

Be a national of a country with which the United States maintains a treaty of commerce and navigation
Have invested, or be actively in the process of investing, a substantial amount of capital in a bona fide enterprise in the United States
Be seeking to enter the United States solely to develop and direct the investment enterprise

Business Plan- Financials

A key part of the application process is creating a substantial business plan for the enterprise. The plan can be as long as 35 pages long, so it is worthwhile for an applicant to seek professional help in creating it. The plan includes five year financial projections, which can be a challenging portion to create. Often the government looks for:

Break-even analysis
Income statements
Balance sheets
Cash flow statements
Financial assumptions
Industry comparisons

Here at ProjectionHub, we have experience in creating proforma financial projections for customers. Visit our services page to fill out a short form to start the process of obtaining financials for your business!

Qualifications

Let’s break the qualifications for an E-2 Visa down.

Be a national of a country with which the United States maintains a treaty of commerce and navigation

This means that the country in which the applicant is a citizen of must be a “treaty country” or a country with which the United States maintains a treaty of commerce and navigation. This site is a list of countries that qualify: https://travel.state.gov/content/visas/en/fees/treaty.html. The following chart breaks down the 2016 E-2 Visa Issuances by region:

2016 E-2 Visa Issuances by Location
Africa	160
Asia	17,364
Europe	18,469
North America	5,752
Oceania	415
South America	2,081
No Nationality	2

(Excel spreadsheet)

Have invested, or be actively in the process of investing, a substantial amount of capital in a bona fide enterprise in the United States

The investor must hold a significant stake in the business in his or her application. The low-end of investments typically range from $100,000 to $150,000, so the more money invested, the more likely the application will be accepted. Another important consideration to note is that the capital must be subject to partial or total loss if the investment fails, signifying that the investor really did have a stake in the business. As long as the business is operating, the E-2 Treaty recipient can retain his or her status in the the United States. The USCIS (United States Citizens and Immigration Services) typically only accepts applicants who have already made the investment and are “irrevocably” committed to the business before application.” The capital must be invested in a business, not simply in a bank account in the U.S. Some evidence of a business being “bona fide” includes:

Notice of assignment of an Employer Identification Number from the Internal Revenue Service (IRS)
Tax returns
Financial statements
Quarterly wage reports or payroll summaries (i.e., W-2s and W-3)
Business organizational chart
Business licenses
Bank statements, utility bills, and advertisements/telephone directory listings
Contracts or customer/vendor agreements
Escrow documents
Lease agreement

http://www.immi-usa.com/e2-visa-requirements-for-investors/

Be seeking to enter the United States solely to develop and direct the investment enterprise

This refers to the fact that the investor is an invaluable part of the business, either by ownership, executive management position, or possesses qualifications that are integral to the business. These qualifications include: the degree of proven expertise in the employee’s area of operations, whether others possess the employee’s specific skills, the salary that the special qualifications can command, and whether the skills and qualifications are readily available in the United States. The USCIS looks to accept businesses that will impact the economy and are not just “marginal” businesses. This means they add jobs and are sustainable.

If you have interest or want to learn more about how ProjectionHub can help you create a business plan for your E-2 Investment Visa, email adam@projectionhub.com. You can also fill out a form to contact us at https://projectionhub.com/services to start the process!

An Example Restaurant Financial Projection for an SBA Loan Application

June 30, 2017 by Adam Hoeksema Leave a Comment

If you are looking for a bank loan or SBA loan for your restaurant concept, the bank is probably going to ask you to provide financial projections for your company. If this is a startup restaurant and you don’t have historic financial results to base your projections on this can be a daunting task!

At ProjectionHub, thousands of business owners have used our app to create their own financial projections like our brewery financial plan, coffee shop sales projections, food truck templates, and more. What we have found is that thousands more are overwhelmed at the thought of creating their own projections without some help.

So we have started to provide some basic consulting to help clients create a custom financial projection model for their restaurant. Here is an example of one of our recent projects, so that you can get an idea of what the finished product looks like.

There are 3 key things that the bank is looking for in your restaurant projections:

You have an understanding of your finances, not just food.
Your projections are realistic – they might look at some financial ratios and compare to industry averages like these.
Do your projections show sufficient cash flow to repay the loan.

If you would like some help developing a financial model for your restaurant that will meet the standards that the bank expects to see, tell us more about your project here.

Best of luck!

Photo by Anna Tis from Pexels

Financial Projections for a Startup Medical Practice

January 30, 2017 by Adam Hoeksema Leave a Comment

If you are looking to start your own medical practice you probably have a lot of questions. There are a number of great resources on the web that will help guide you through the process of starting up or writing a business plan:

In this blog post I am going to focus solely on how to create realistic financial projections for your practice. If you are looking to secure a business loan or investor, you will probably be asked for a set of financial projections. Rather than going to get an MBA, my hope is this post will get you through the basics of projections to satisfy any lender or investor.

The Goal of Projections

The purpose of your financial projections is not to perfectly predict exactly how many patients you will have, what your expenses will be and how much money you will make. The purpose of your projections are often to help convince yourself, lenders and investors that investing in your practice will provide a return on investment and that you won’t go Bankrupt!

So what should be Included

You should have the following statements for at least 3 years in my opinion:

A projected profit and loss statement
A projected balance sheet
And a projected cash flow statement

Getting Started

We created a Medical Practice financial model and home health care financial model for you to use with our financial projection software tool – ProjectionHub. I will use this model to demonstrate how to create financial projections for your business.

Revenue Forecast

The first step in the process of creating a financial forecast is to project your revenue/billings. This article is very helpful in explaining the details behind what doctors can earn per patient and how many patients can be seen per hour etc.

As an estimate the above article suggests that you can bill and receive approximately $35 per patient, so the primary leverage point is how many patients you can see per hour. The average doctor meets with 4 to 5 patients per hour, and can meet with patients 7 hours a day, 4 days a week.

Let’s say you can meet with 4.5 patients per hour.

4.5 patients x 7 hours x 4 days per week x 4 weeks per month x $35 per hour = $17,640 in revenue per month x 12 months = $211,680.

That is your total revenue before taking into consideration any of your expenses.

That total revenue amount is probably not too enticing for many primary care docs, so in reality what ends up happening is that many docs work more hours and spend less time with patients in order to increase revenue.

Expenses

Once you have your revenue projected, you can enter your expenses into ProjectionHub as well. We have included a pre-set list of expenses in the financial model that should be useful for you. Here is an example of the input screen:
general-expenses-screenshot

Startup Costs

According to this article, you can expect startup costs of $70,000 to $100,000, your startup costs will include:

Furniture
Equipment
Copiers
Computers
Telephones
Practice Management Software

Loans and Investors

If you need some capital to cover some of your startup expenses of the first few months of operating expenses, you might either seek investment from friends and family, or other doctors, or you could apply for a small business loan.

Some of the larger national banks have specific areas of focus for medical practice loans like Bank of America. You can add a business loan or investment into your projections as well:

Friends and Family Loan for Photography Startup

Cash Flow is King for Medical Practices

I think the most important thing to remember with a startup medical practice is that cash flow is king! It is going to take a lot of cash to get a startup practice off the ground because you will have your startup expenses, but then once you start seeing patients there will likely be a 90 day cycle before you get paid. You will see a patient, bill insurance or Medicare/Medicaid etc and then you can expect to wait a few months before you start getting paid. You might read that it should take a lot less time, and it probably should, BUT I have seen so many similar businesses wait and wait and wait to get paid the first time by Medicare or Medicaid, so just expect a long wait. That means you need to have the cash to operate the business, pay your rent, employee payroll, utilities, etc for 3 months while you wait to get that first reimbursement for services, so make sure you have plenty of cash as a contingency.

Reviewing your Projections

Once you enter all of your projection information in you can download your Profit and Loss, Balance Sheet and Cash Flow Projections from the Dashboard and determine whether you should give this a go or not.

Profit and Loss at a Glance

Is it Worth It?

So the question is, is it worth it? Should you start your own practice, or should you work for someone else? Here are some of the most recent stats on what doctors can make working for someone else. I think the answer is that you might be able to make more money working for yourself, but it is also a lot more risky, so you shouldn’t make your decision based on money you should make the decision based on all of the intangibles. This article is excellent at outlining the pros and cons of owning your own medical practice.

Best of luck!

Of course, if you have any questions at all, please email us at support@projectionhub.com and we will be happy to help.

Startup Phone and Tablet Repair Company – A Financial Model Example

December 28, 2016 by Adam Hoeksema Leave a Comment

The phone and tablet repair business is a hot business to get started in right now. It came in as #4 on the list of Best New Businesses to Start according to Business News Daily. There are also a host of chains and franchise stores popping up around the country like:

In this article I am not going to teach you how to start a phone and tablet repair business, there are plenty of great articles that already do that like this one.

Financial Projections for a Startup Phone and Tablet Repair Company

Instead I am going to focus this article on the financial model and what projections might look like for your startup based on your proposed business model. I will be using our app ProjectionHub to create financial projections as we go, you can sign up for a free trial here.

Revenue Projections

We will start with your sales projections. The great thing about this industry is that there are a ton of revenue opportunities. I am going to briefly talk through the different types of revenue that are most common as well as the most common channels in which to sell.

Repairs vs. Device and Accessories Sales

There are basically 2 primary sources of income in the phone and tablet repair industry.

Repairs – You can repair devices and bill customers for the parts and services.
Devices and Accessories – You can sell refurbished devices and/or sell accessories like cases to keep devices from breaking in the future.

Customer Segments

There are 3 primary segments of customers. In my experience the best companies in this space are able to sell in all 3 of these segments and each segment can actually help your succeed in another segment.

Retail – You can open a retail shop where customers with broken phones and tablets can walk in for repair services
Corporate – You can sell repair services to schools or corporations that often have a fleet of devices that will require repairs and servicing
Online – You can acquire devices that may be broken, fix them, and resell online via Amazon or eBay

Typical Steps to get Started

I think a good model to follow to start in this industry is

Start by purchasing some broken phones online, try to fix them and resell online.
Once you are comfortable and have some built in revenue from repairing and selling devices, you could look to open a retail store.
The retail store will provide an opportunity for walk in repair customers, but it will also allow you to buy broken devices from customers that you might want to fix yourself and sell online.
Once you have a local presence with your retail location you can approach the local schools or larger companies that have fleets of devices and look to establish a repair services relationship or contract with that organization.

Revenue Example

So now I am going to use ProjectionHub to create some year 1 projections for a phone and tablet repair startup. Here are my key assumptions:

I am assuming that you only buy broken devices, fix them and sell them online for the first 6 months
In month 6 I assume that you will open a new store, take out a $20,000 loan and build out a store

Here is a sales projections graph for the first 12 months of a phone and tablet repair business:

sales-projections-phone-repair-company

Projected Expenses

I added minimal expenses for the first 6 months since you can buy broken phones online, at home, and fix them and sell them again online. It isn’t until month 6 and 7 that expenses really start to kick in when you open your first store. Here are my projected expenses for the first year:

phone-repair-business-expenses

Projected Profitability

In the first 12 months I am projecting a profit of approximately $10,000 before any owner’s draws. So if you want to pay yourself in year 1 you should subtract your salary from $10,000. I project just under $60,000 in sales for the first 12 months. phone-repair-business-ratios

I wanted to make sure that you didn’t think you would get rich in the first 12 months, but I have seen a number of these companies become highly successful over a period of several years.

If you have any questions please email me at adam@projectionhub.com

Financial Projection Basics #3: What Should Financial Projections Include?

June 4, 2016 by Adam Hoeksema Leave a Comment

This is the 3rd blog post in my series of posts on financial forecasting modeling basics. You can check out the first couple of posts below:

In this post I want to discuss what should be included in financial projections.

What to Include in Financial Projections?

Financial projections should include the following:

3 years of Projections – Generally, an investor or lender will ask for 3 years of financial projections as a standard.
Projected Income Statement – Your projections should include an Income Statement, also known as, a profit and loss forecast. You can see examples of the 3 standard projected financial statements here.
Projected Cash Flow Statement – A cash flow statement will help you determine whether you will run out of cash. It is possible, even common, to be profitable but to run out of cash. For example, your customers might pay you well, but they might wait to pay for 90 days, that is a recipe for trouble if you haven’t planned well. Forecasting your cash flow will help with this process.
Projected Balance Sheet – A banker is going to be interested in your projected balance sheet. They will look to make sure that your balance sheet ratios show that you can afford to repay the loan and that you have sufficient collateral to cover the loan.
Key Assumptions – It is important that your financial projections are built on a set of assumptions that can be easily understood and changed if needed. I always recommend that you add a narrative document with your projections that just outlines a list of all of your assumptions and what those assumptions are based on. I wrote a blog post that outlines how to build realistic projections with bottom up based assumptions.

Here is an excerpt from that blog post that gives an example of what your assumptions might look like:

“A bottom up approach for a coffee shop might look like this:

Our coffee shop is at the intersection of the 2 busiest streets in town with daily traffic of approximately 15,000 vehicles.

We know that only 15% of people purchase coffee at coffee shops

All of them already purchase from a different coffee shop, so we will have to convert them as customers

Because most customers are loyal to their coffee shop we estimate we might be able to convert 10% of the total number of coffee drinkers

We will start by running local tv and radio commercials as well as placing c0upons in the local newspaper.

We think these advertising efforts will convince (15,000 vehicles x 15% coffee drinkers x 10% potential customers) 225 customers to try our coffee during the first week.

Because we are a local store with high quality coffee at a convenient location we believe we can convert 50% of those customers into returning customers.

So our first month sales we estimate at (225 customers x 50% x $3 x 30 days) = $10,000 in sales month 1.”

That’s it! These are the key ingredients in a solid set of financial projections. Our software tool – ProjectionHub – can help you create these required documents to keep your banker, investor, or partner happy. Give ProjectionHub a try for free.

Share your Financial Projections with Investors, Lenders, Accountants, and Partners

April 20, 2016 by Adam Hoeksema Leave a Comment

We just released a new major feature for ProjectionHub. You can now easily share your financial projections with your business partners, accountant, investors or lenders. This will ensure that these users always see the most up to date set of financial projections instead of worrying about version control. Here is how it works:

Add Users that you Want to Share Projections with:

Click your company name and then click “Users”

Add Users to ProjectionHub

Share your Projections with as Many Users as you Want to

Sharing Reports

Users you Invite will get an Email Request

Invited Users will get to See Your Projected Financial Statements

You can Revoke your User Access at Any Time

Revoke User

So, if you haven’t already started creating your financial projections, you can do so now with a free trial here.

Small Business with a Big Budgeting Problem?

April 4, 2016 by Adam Hoeksema Leave a Comment

Let’s face it: big businesses have some big advantages. They have the advantages money can bring, including budget space for advertising, better equipment, and more employees. Your budget may be straining just to keep normal operations going. Common wisdom says to cut costs, but there may actually be nowhere left to cut. It may actually take a different way of looking at things by seeing exactly where the budgeting problems arise.

Budgeting - ProjectionHub

Cash Flow

This is a problem that can happen in personal budgets, as well. Imagine you have expenses, but those expenses are due at a certain time. Unfortunately, you’re not going to get any revenue until significantly after the due date, incurring fees or worse. You’ll definitely have the money, just not soon enough for those who want it. It’s probably not so difficult to imagine such a scenario, since this is the case with almost everyone.

Part of your financial planning should also include a cash flow statement, before you fall into that spiral. This is more than a budget. It details not only how much money and where it’s going, but when you expect to have the revenue on hand and when you’ll need it for necessary expenses. The only way to keep ahead is through thorough planning.

Many businesses make the mistake of assuming profitability is all that’s necessary. In truth, the exchange of funds and/or goods often takes time. Even when everything is electronic, the actual transfer is not instantaneous, which is why a number of recent payments will read “pending” on your electronic bank statement. What makes this important is that it’s all too easy to spend money that hasn’t exactly been cleared yet, resulting in rejected payments. It can all be avoided with some planning beforehand.

Deficits

It may be the case that you simply don’t have enough money to run even or at a profit all year. This is especially true in businesses that have a seasonal basis yet must remain open all year long. If this is your situation, it may look difficult to overcome, but it isn’t impossible. In fact, the people who work with you may understand your situation and be willing to accommodate your special circumstances. Talk to everyone involved, including creditors, vendors, landlords, and others who may expect regular payments and see if you can’t make some arrangements in the form of payment terms.

When out of season, it may be a good idea to cut costs then, as much as possible, even if it means selling your old inventory at a loss. Do everything you can to cut overhead during the off-season. You might even have to raise prices. It all depends upon your particular business.

Not Enough Planning

Everyone knows enough to have a budget planned. It’s a good and necessary part of any business. Yet, a simple budget is not quite enough. Most business have many different parts and each of them need to be specifically called out in the budget, so you can see exactly where you’re doing well, and exactly where you need to do a little work to catch up. For instance, it’s easy for overhead costs to sneak beneath notice, even though they’re no less important than the costs you incur for making your product or having your service available. Utilities, rent, and insurance still have to be paid.

Likewise, keep detailed track of production costs. This may not seem like it would be helpful at first glance – you probably already have a good idea of what you’re spending and what you’re taking in. It may be that you can sell a certain item for more, or need to cut the price of something else. You might find you need to focus on promoting something that can really make a difference, or you might have to discontinue a product entirely. Budgeting software with the proper details can help you determine all this, and more.

Remember the Tax Man

This is a big one. Many self-employed people fall into the trap of forgetting to budget for taxes. Or if they don’t forget, they file annually instead of quarterly, which can take a much larger chunk out of the budget than anticipated. The money that goes to the government in income and sales taxes might appear as profit at first, but in truth they don’t belong to you – so make sure you’re not counting them in your budget, at least not as holdings. Always account for your taxes to avoid a possibly fatal over budgeting mistake.

Budgets are always a concern for businesses, no matter their size. One of the benefits to a small business with a correspondingly smaller budget is the ability to more easily find where you can shore things in and make sure your finances are running smoothly before your budget, and difficulties that come with it, become much larger.

Laura O’Donnell writes smart content on behalf of the budgeting software experts at True Sky. As an avid writer and learner, she loves to use her skills for engaging others in important topics in creative and effective ways. When she is not working, she loves meeting new people, traveling, and bringing her Pinterest dreams to life. Find her on LinkedIn.

What Does the Bank Want to See with your Cash Flow Projections?

March 25, 2016 by Adam Hoeksema Leave a Comment

Small business owners looking for a business loan from a bank will often be asked for a set of cash flow projections, but what exactly is the bank expecting to see in your projections?

There are 3 things that the bank wants to see in your forecast:

Do your projections pass the “sniff test”?
Are your projections in line with historic performance?
Do you have some wiggle room?

Let’s dig into each of these a bit more.

The Sniff Test – One of the first things a banker is going to look at when reviewing your financial projections is whether your projected gross profit margin and net profit margins seem to be within the realm of possibility. A good way for you to check whether your projections are realistic is by using a tool called BizStats. Using BizStats you can look up average margins for your industry. For example, for a restaurant or bar, the average gross profit margin is around 27% and the average net profit margin is around 6% according to BizStats data. If you are projecting 60% gross profit margins, the banker is going to know that your projections are unrealistic.

Historic Performance – The next thing that a lender will look at is your historic performance. If you have historically sold $10,000 per month and now you are projection to sell $100,000 per month you better make sure that you can back that growth up with reasonable assumptions. Likewise, they will look at your historic gross profit margins and if those are very different from your projected margins that will raise red flags.

Wiggle Room – Finally, the bank is going to test your projections to see how much wiggle room you have. For example, what happens if you lose your largest customer that represents 30% of sales. Can you still make your loan payment? What happens if your customers pay you late, do you have another source of cash flow to make your payments? They might look at things like Debt Service Coverage Ratio which is a banking term to determine whether you have some room for things to go wrong and still make your payments.

It all comes down to cash flow, do you have the cash flow to repay the loan, but these 3 tests should help you understand the mind of a banker when looking at your cash flow projections. Good luck! Now give ProjectionHub a try to create your cash flow projections.

The Danger of Daily Payment Business Loans

February 27, 2016 by Adam Hoeksema Leave a Comment

Over the last 5 years I have managed an SBA Microloan Program at a non profit in Indiana. Our microloan program helps startups and small businesses that are unable to secure traditional bank financing. Recently I have watched the explosion of daily payment loan products offered by alternative, online lenders like:

OnDeck Capital
Kabbage
SnapCap
Square
And many, many more

What are Daily Payment Loans?

First, a daily payment loan is just what it sounds like. Many of these online lenders might offer a business $20,000 that they can apply for and access within 48 hours. These loans typically have short terms 3 to 18 months, and the business makes a small payment every single day, or maybe every day the business is open. The interest rates on these loans are typically high, but you are paying for a very quick turnaround and a unique repayment structure with daily payments.

Why Daily Payment Loans can be Great?

These loans can be great for small businesses. For example, let’s say you are a restaurant and your walk-in refrigerator dies, you have to shut down the business. You must act fast, you can’t afford to shut down for a month while you apply for a traditional loan from a bank. You are losing business, momentum and profit every day you are shut down. In this situation a daily payment loan is perfect. You can get cash fast, and you can pay it off each day over the next 12 months with a small payment. This works well for a restaurant because a restaurant generates sales each day, so coming up with a small payment each day actually matches the cash flow of the business.

Why Daily Payment Loans can be Dangerous?

Now recently I have noticed some of my clients who do not have daily cash flow businesses, taking out daily payment loans. For example, let’s say you are a contractor and you get paid in big chunks as you complete projects. It is very dangerous to take out a daily payment loan because you don’t generate cash each day. What if your customer pays you a little bit slower than normal? You might not be able to make your payment each day. I have noticed that some of the smaller, unknown alternative lenders are making daily payment loans to businesses that don’t have daily cash flow. This seems very dangerous for the lender and very dangerous for the business owner.

Understand your Cash Flow Projections

As a business owner you must be careful not to simply take out a loan that doesn’t fit your business cash flow just because it is fast and easy. That is a great way to go out of business. These online lenders will likely take all business assets as collateral and if you stop making those daily payments because a customer is paying you 30 days late, the lender may come in and start taking their collateral.

My suggestion – Spend some time with ProjectionHub and create a cash flow projection and play around with different scenarios, will you be able to make your loan payment even if customers pay you late?