The Complete Idiot's Guide to Business Plans

The Complete Idiot's Guide to Business Plans, helps new and existing entrepreneurs create clear, comprehensive, and compelling business plans by walking them through all of the decisions they'll need to make before writing their plans, and then helping them structure and execute their plans to achieve their specific business goals.

by Gwen Moran and Sue Johnson

A member of Penguin Group (USA) Inc

Business Plans

by Gwen Moran and Sue Johnson

A member of Penguin Group (USA) Inc

Business Plans

ALPHA BOOKS

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Copyright © 2005 by Gwen Moran and Sue Johnson

All rights reserved No part of this book shall be reproduced, stored in a retrieval system, or transmitted by any means, electronic, mechanical, photocopying, recording, or otherwise, without written permission from the publisher No patent liability is assumed with respect to the use of the information contained herein Although every precaution has been taken in the preparation of this book, the publisher and authors assume no responsibility for errors or omissions Neither is any liability assumed for damages resulting from the use of information contained herein For information, address Alpha Books, 800 East 96th Street, Indianapolis, IN 46240.

THE COMPLETE IDIOT’S GUIDE TO and Design are registered trademarks of Penguin Group (USA) Inc Library of Congress Catalog Card Number: 2005928079

Note: This publication contains the opinions and ideas of its authors It is intended to provide helpful and informative

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ISBN: 1-4406-9085-5

Contents at a Glance

How your plan can help you

Understanding your business’s financial needs

Tips and pitfalls to consider while writing your plan

Part 2: Putting Together Your Plan 37

Putting your business ideas on paper

How to put your best business foot forward

Describing your industry and its climate

Your people are your primary asset; how to showcase your

dream team

Explaining how your business will perform in the market

Positioning and promoting your business for the best possible results

Explaining how you’ll sell your stuff

Making the most of your day-to-day business activities

Financial statements you’ll need to know for your plan

Supporting your claims with all the right backup documents

What you’re going to tell them in this critical part of your plan

Part 3: Putting Your Plan to Work 175

15 Financing Considerations to Include in Your Plan 177

How to use your plan for investment or lending purposes

How your plan can help everyone in the business get on the same page

How to keep your plan up to date and relevant

Business Owner Basics .3

Types of Business Plans .4

Securing Financing or Investors 5

Strengthening Operations .5

Preparing for a Sale .5

How Can a Plan Help? 5

Establishing a Vision and Direction .6

Keeping on Course 6

Setting Goals and Benchmarking Success .6

Outlining Operations .7

Fiscal Fitness 7

Checking the Ego .7

Thorough Research .8

Marketing Plan .8

Feasibility 8

Future Expansion .8

Exit Strategy .8

Your USP .9

Finding Your USP Through Feedback .9

Doing It Yourself or Getting Help? 10

Finding Free or Low-Cost Help .11

Hiring Help .11

Getting Soft .12

2 Figuring Out the Financing 15 Understanding Debt and Equity .16

Debt 16

Equity 16

Money Sources .16

Grants 17

Personal Resources .17

Loans 19

Selecting a Lender .21

Angel Investors .21

Other Funding Sources .22

EDA 22

Community Development Centers .22

Trade or Business Groups .22

What Lenders and Investors Want .23

Capacity to Repay .23

Capital to Invest .23

Collateral .24

Conditions of Use of Money .24

Character of Owners .24

Credit Rating .24

Credit-Reporting Bureaus .25

Your Credit Score .26

Assessing Your Report .26

Increasing Your Score .27

Beware of Quick Credit Fixes .28

3 Business Writing Basics 29 Effective Business Writing .29

Targeting Your Audience .30

Language and Tone .30

Grammar 31

Cutting the Fluff .32

Avoiding Clichés .33

Presenting Your Information .33

Capitalizing and Punctuating Properly .34

Writing, then Rewriting .35

Avoiding Writer’s Block .35

Speaking and Writing Well .36

Part 2: Putting Together Your Plan 37 4 Ready, Set, Write 39 From Dream to Document .39

Being Organized 40

Knowing Your Stuff .40

Supporting Your Claims .41

Getting to the Goal .41

Obtaining Financial Assistance .41

Attract Business Partners .43

Operation Benchmark .43

Obtain Assistance .43

Iterative Process .44

Staying Updated .44

Analysis 44

Annual Meeting .45

5 Getting Down to Business 47 Getting Off on the Right Foot .48

Title Page .50

Table of Contents .52

Confidentiality Agreement 52

Executive Summary .55

Purpose 55

Business Description .55

Structure 55

Owners 56

Location 56

Hours of Operation .56

Season’s Greetings .56

What Is It? .57

We’re on a Mission 57

Mission Statement 58

Vision Statement 58

Values Statement 59

6 Industry Overview 61 Industrial Strength .61

Understanding Market Research .62

Interviews 63

Surveys 63

Focus Groups 63

Online Focus Groups .64

Observation 64

Understanding the Industry .64

Industry Life Cycle .64

Industry Economics and Trends .66

Opportunities and Obstacles .67

Innovations 67

Regulations 68

Economic Factors 68

vii

Price Comparisons .69

Location 69

Competition 69

Business Performance 71

7 Who Are You? 75 Internal Assets 76

Owners and Partners .76

Staffing 77

Management Team .77

Outsourcing and Consultants .79

Employee or Contractor? 79

Who Is an Independent Contractor? 80

Who Is a Common-Law Employee? .80

Who Is an Employee? .81

Statutory Employees .81

Statutory Nonemployees 82

Organizational Chart .82

Salaries 83

Strategic Partners .83

Professional Resources .84

CPA 84

Attorney 84

Bank 84

Insurance Professionals .84

Other 85

8 Analyzing Your Business in the Market 87 Getting Down to Strategy .88

Targeting Your Customers .89

Demographic Profiles 90

Income and Spending Habits .90

Personal Characteristics 90

Standard of Living .90

Household Characteristics .91

Getting Psychographic .91

Opinions and Values .91

Political Views 91

Style and Taste .92

Contents ix

Defining Business-to-Business Customers .92

Type of Business and Ownership 92

Sector 92

Geography 93

Psychographic Characteristics 93

Who Is Your Perfect Customer? .93

Why Do They Buy? .95

Do They Need It or Want It? Can They Afford It? .95

What’s Important to Them? .95

For Whom Are They Buying? .95

Who Are Your Customers’ Influencers? .95

Are They Brand Loyal or Price Driven? .96

How Do They Buy? 96

Creating Profiles 96

Innovators 97

Thinkers 97

Achievers 97

Experiencers 98

Believers 98

Strivers 98

Makers 99

Survivors 99

Why You Shouldn’t Service Every Customer .99

Evaluating Market Segments .100

Defining Your Market Strategy .101

The SWOT Approach .101

Strengths 101

Weaknesses 102

Opportunities 102

Threats 102

Predicting Market Share .103

9 Getting the Word Out 105 Positioning Your Business in the Market 105

Explaining Your Marketing Strategy .106

Price 107

Place (Distribution) 107

Promotion 107

Putting Together the Marketing Plan .113

Being Clear About Goals .114

Planning the Action .114

Budgeting Your Resources .115

Creating a Marketing-Cost Matrix 115

Timing Your Projects 116

10 Sales Plan and Forecast 119 Selling Yourself .119

Your Channels 120

Direct Selling .120

Manufacturer’s Representatives .120

Wholesalers 120

Retailers 121

Catalogs 121

E-tailing 121

Affiliate Programs .121

Sales Tools 122

Database 122

Technological Tools .122

Trade Shows .122

Territories 123

Finding Prospects .123

Referral Systems .123

Vendor Contacts .123

Expanding Existing Customers .123

Joining In .124

Offering a Better Price .124

Sales Cycles and Strategies 124

AIDA 125

Sales Cycle .125

Sales Forecast .127

Outlining Your Assumptions .127

Considering Your Marketing Reach .127

Past Sales or Similar Industries 127

11 Operation Success 129 Business Operations .129

Equipment 130

Technology Needs .131

Equipment Leases 132

Building Leases .132

Price 132

Length of Lease .133

Contents xi

Location and Traffic .133

Potential for Growth .133

Utilities and Services .134

Production/Service Provision Methods 135

Quality Control .135

Inventory and Supply .136

Managing Inventory .136

Purchasing Policies .137

Suppliers 137

Handling Orders and Deliveries .137

Vendor Agreements or Letters of Intent .138

Customer-Service Policies .139

12 Money, Money 141 Start-Up Costs .142

Creating an Operating Budget 143

Source and Use of Funds .144

Managing Cash Flow .145

Creating a Cash-Flow Statement 145

Understanding Profit-and-Loss Statements .147

Understanding the Balance Sheet .149

Determining Profitability with Financial Tools .151

Are You Profitable? .151

Break-Even Point .152

Outlining Repayment/ROI .152

Analysis of Financial Facts .153

Determining How Much Financing Is Needed .153

How Much Owners Are Investing .154

Insurance Needs .154

Cover Me .155

Prove It .156

13 Show Your Documents 159 Back Me Up .159

Resumés or Bios .160

Personal Financial Statements and Tax Returns .162

Business Structure (Articles of Incorporation) .162

Loans 163

Credit Reports .163

Franchise or Acquisition Agreements .163

Leases or Mortgage .164

Licenses 164

Letters of Intent .165

Market Analysis 166

Other 166

14 Executive Summary 169 In Summary .169

What’s in the Executive Summary .170

Selling in Your Summary .171

Company Overview 171

Operations Overview 171

Market Overview .172

Financial Overview 172

Paring It Down .173

What Not to Put in the Executive Summary .174

Part 3: Putting Your Plan to Work 175 15 Financing Considerations to Include in Your Plan 177 The Money Plan 178

Who’s Got the Cash? .178

What Lenders Want to See .179

Knocking a Lender’s Socks Off .180

Negotiating Your Financing 181

Types of Loans .182

Transaction Loans .182

Line of Credit .182

Term 182

Government-Secured Loans 183

Lease 183

What to Expect During the Loan Process .183

Finding Investors .185

Money Online 186

What Investors Want .187

Other Financial Uses for the Plan .187

16 Using Your Plan as a Management Tool 189 Planning to Run .189

Planning Findings 190

Solidifying Your Philosophy .190

Developing a Strategic Vision .190

Identifying Improvements .191

Preventing Distractions .191

Avoiding Misunderstandings .192

Implementing Your Plan .192

Providing Strong Leadership .192

Stating Clear Expectations .193

Creating Actionable Steps .193

Being Ready for Barriers .193

All Aboard .194

Creating an Advisory Board .194

Identifying and Building Relationships 196

Strategic Partners .196

Staffing Up .198

Keeping Them Motivated .198

Creating Employee Incentives .199

Getting Employees Onboard with Your Plan .201

Managing the Future .202

17 Keeping Your Plan Current 205 Keeping It Going .205

Measuring Your Company’s Success .206

Getting Information .207

Your Financial Statements 207

Your Customer Database or Sales Figures .207

Your Employees .208

What Do Customers Really Think? .209

Using the Information You Find .210

When It’s Time to Go, It’s Time to Go .210

Going Forward .212

Appendixes

xiii

I have written dozens of business plans I have read thousands of them After almost

20 years of building companies, I have come to realize that the actual business ning document is almost always meaningless That’s right The final written product

plan-we call “the plan” is actually almost worthless

As a serial entrepreneur and angel investor, every business plan I ever read says the samething: “We get rich in year five.” Each plan states that this new company addresses a

“billion dollar untapped market” and furthermore, its financial projections are servative.” Let’s face it These are both lies If publicly traded companies are unable tounfailingly predict the financial goals they are able to hit next quarter, how can thenew business owner predict what business will be like in year two?

“con-However, the process of researching and writing a plan for your business is valuable and essential to building a profitable company President Dwight Eisenhower said, “I have always found that plans are useless, but planning is indispensable.” A business plan that is not

properly researched or that is not regularly revisited and integrated into the company’soperations is useless In business, as in most of life, things almost never happen theway we plan them However, the actual process of considering all of the possibilities iscritical It teaches you essential survival techniques at all phases of your business.Stop searching for the perfect business plan format There are no absolutely rightanswers Don’t look for magic in pricey consultants You need to write the first draftyourself because the process is a key learning step Focus on the guidelines in thisbook as best you can Write simply Leave the cool buzz words and fancy jargon out.Build your projections from the ground up Figure out what it will cost to make yourproduct or deliver your service How will you acquire new customers? How muchbusiness can you expect per customer? When you consider these questions, is yournew business even feasible? These are some of the most valuable questions to answer!The work you do to find the answers is what matters, not how perfectly constructedthe final plan is

After you have worked hard to put together the best plan you can, stop typing,researching, and surveying Instead, get out of your chair and actually talk to peoplewho might be real customers and are in a position to buy your product or servicetoday Are they willing to part with their cash to solve a problem they have? What isthe Unique Selling Proposition (USP) you can offer prospective customers? You willnot know the real answer until you ask someone to buy what you are selling

Although planning is essential, premeditated business can be a dangerous thing Ifyou create your plan and stick by it no matter what, you could doom your business to

not working Too many small business owners set a goal and try to reach it no matterwhat Sometimes, that tenacity is the backbone of their success But sometimes, whenthey fail to see the signs that the goal might not be the best direction for the business,that lack of flexibility can be a business death sentence.

What do businesses need most? Not a perfectly written business plan, but a researched plan Companies need enough cash to grow and thrive, which a good plancan help land They need to manage that cash through constant analysis of cash flow.They need a management team that can execute the plan They need a marketing anddistribution component so prospects can access the product or service Finally, theyneed repeat customers and referrals

well-Read this book Write your plan Keep talking to customers And then modify yourplan to make the most of what’s working and to stop wasting effort on what’s notworking These are the steps that will get your business off to a great start

—Barry Moltz, www.moltz.com

Chicago, Illinois

June 2005

There’s no feeling like starting your own business Opening a fresh box of businesscards with “Your Name, Owner” on them, or sitting in your brand-new office for thefirst time—it’s heady stuff and an achievement about which many only dream.But you’re different You’ve taken the plunge, or are making the plans to do so Becauseyou’re holding this book in your hands, you’re also more likely than the average start-

up to succeed

Why? You’ve realized the critical importance of creating a business plan Whetheryou’re in need of financing, or simply need a road map to guide your business, a well-prepared and properly targeted business plan will help you to achieve the goals thatyou’ve set for your business by documenting the goals, resources, and processes thatwill propel your business forward

There’s an old adage that says, “Failing to plan is planning to fail.” That is nevermore true than when it is applied to a business plan We have seen this phenomenonfirsthand, consulting with and counseling scores of businesses Those ventures thatoperate without a solid game plan in place are much more at risk to fail than thosethat take the time to plan

Because we’ve both been in the trenches as entrepreneurs, we know how valuable yourtime is As we’ve written this book, we assume that you know the basics—how to choosewhich business is right for you, how to structure it, how to staff it, and the like We’vewritten this book to show you how to take the facts about your business and put them

on paper in a way that will interest lenders, business partners, or other decision-makers,and how to create a plan that will become a critical management tool for your busi-ness So we’re going to dive into the nuts and bolts of crafting your plan (If you do

need to brush up on start-up basics, be sure to read The Complete Idiot’s Guide to Starting Your Own Business, Fourth Edition, by Edward Paulson.)

And, again, because we have been entrepreneurs like you, we’ll share the best tips,secrets, and tactics that we’ve learned on our own We know the amount of courage,resolve, and commitment it takes to do what you’re doing We want to help you makethat investment pay off

Who This Book Is For

The Complete Idiot’s Guide to Business Plans is for anyone who is starting or acquiring a

business and wants to go the extra mile to ensure its success Whether you’re usingyour plan to map out management and marketing strategies or going after big bucks,we’ll show you how to put the best possible words and numbers on paper

What You Need to Know Before You Start

The Complete Idiot’s Guide to Business Plans assumes that you’ve got basic business

knowledge We won’t explain the nuts and bolts of how to run your business becauseyou already know the difference between a balance sheet and a budget

We assume that you have a solid business idea or prospect in mind This book takes youthrough the process of extracting the information you need in an acceptable business-plan format to secure financing or to strengthen your business operations, management,and marketing Anytime you put a series of goals and objectives, as well as a plan forfulfilling them, on paper, you vastly increase the chances of achieving those goals andobjectives That’s what we’ll help you to do

While we recommend a format and order for the information, you may find that ing up that order works best for your business That’s fine You’ll see in the samplebusiness plans that business plans come in many forms and formats Write the planthat feels most comfortable for you and fulfills the purpose you need to achieve

mix-What You’ll Find in This Book

The Complete Idiot’s Guide to Business Plans is organized to walk you through the process

of writing your business plan in a step-by-step sequence Because there are some tions that you’ll write out of order, we mention them within the sequence and thenpay more attention to them when you’re at the point at which you need to write it.The book has four sections:

sec-Part 1, “Getting Started”: This is where we give you the basics, a few facts that you’ll

need to know, and a briefing of what you’ll need to write your plan more easily We’vealso included a chapter on business-writing basics that will help you with some of thecommon issues of structure, composition, grammar, and punctuation that often plaguethose who don’t regularly write for a living (and that sometimes plague those who do)

Part 2, “Putting Together Your Plan”: Here is where the majority of the book’s

focus lies We’ll walk you through the planning process, including how to set goalsfor your plan and how to write it to achieve those goals Throughout, we’ve wovensections of real-life business plans to show you how it’s done

Part 3, “Putting Your Plan to Work”: Once you’ve put your plan together, don’t

just put it on a shelf or in a drawer! In this part, we’ll show you how to make yourplan an important part of your business, how to keep it updated, and how to use it toobtain financing

Appendixes: This isn’t your garden-variety “stuff at the back of the book.” Our last

section is chock-full of sample business plans from various types of businesses, ing from retailers to consultants to manufacturing firms and more Our glossary willbrief you on the terms you need to know, and our list of business resources will showyou where to turn for help, information, and advice

rang-Together, these four sections will tell you just about everything you need to knowabout writing a knock-their-socks-off business plan And while we know that follow-ing these directions will leave you with a solid plan, it is our sincere hope that it willalso leave you with a better understanding of and vision for your business

So let’s get ready to write

How to Get the Most out of This Book

To get the most out of this book, read it through first and examine the sample ness plans You can also head online to examine other sample business plans to choosethe format that works best for you and your business

busi-Once you’re familiar with the content, use the book as a guide to help you write yourplan By tackling each of the parts in this book, you can then use the order that wesuggest, or reorganize the information the way that you see fit, or in the way that’srequired by your lender, investors, or consultants Either way, this book will help youget to the heart of the most important information more quickly

In Part 3, we also address the issues of using your plan as a tool No business plan isworthwhile if it just sits in a desk or on a hard drive We show you how to make yourplan into a real tool for your business, as well as how to integrate it into your opera-tions to keep it current and relevant to your business

Pay particular attention to the sidebars and margin notes, which include tips, ings, secrets, and money-saving tidbits These notes may be short in format, butyou’ll find great value in how they can shorten your learning curve and boost yourbottom line!

warn-xix

Because time is money, these

tips will help save you both as

you write your plan

Bottom Line Booster

In business, mistakescan cost you These sidebars willgive you fair warning aboutpotential pitfalls to avoid

Red Zone

Let Us Know What You Think

For updates on the book and additional information about small-business resources,visit Gwen Moran’s website (www.gwenmoran.com)

We welcome your feedback and success stories If you have suggested resources or ifthis book has helped you, let us know at gwen@gwenmoran.com or sue@njwest.com

Acknowledgments

We’d like to thank the folks at Alpha Books, including the amazing team who worked

on this book: Mike Sanders, Ginny Bess, Megan Douglass, Jan Zoya, and the tion team Thanks to our agent, Bob Diforio, for all of his help, support, and constantcontact through his Blackberry!

produc-Gwen would like to thank her family and friends for their support, advice, and tance in writing this book Thanks to her parents, Thomas and Jeanice Moran, whoraised four individuals who are unafraid to open the door when opportunity knocks.Thanks to her brothers, Shaun, Brian, and Eric Moran, who are a great group ofbusiness advisors And thanks to Joseph Raymond, who taught Gwen about the thingsthat are possible when we choose our own paths

assis-Thanks, also, to the many business owners Gwen has taught, with whom she’s worked,and about whom she’s written over the years—their spirit, tenacity, and energy nevercease to inspire her And special thanks to the entrepreneur who shares her homeaddress—her husband, Henry Nonnenberg Jr.—and their daughter, Abigail

Sue would like to thank her mother and late father, Susan and Albert Mahalske, foralways encouraging her by saying, “You can accomplish anything you want by puttingyour mind to it.” Thanks also to her loving husband, Bob Johnson, for supporting herthrough all of her crazy and wonderful ideas, ventures, and businesses, as well as toher two sons, Bobby and Chris, for all of their love and for being the wonderfulyoung adults that they are

The world of businessand writing business plans can beconfusing These sidebars providedefinitions for the trickier terms

Biz Buzz

In these sidebars, we’ll make you

privy to the tips, tricks, and

little-known facts that will help you

write your plan and run your

business

Back Office Secrets

Thanks to the great people she works with at SBDC and RVCC, especially Bill Harndenand Allison O’Neil for their team efforts and contributions, to their local SBDC, inassisting small businesses Thanks, also, to the many wonderful small-business ownersshe has met and has had the opportunity to assist in their journey of pursuing theirdreams Thanks, also, to Gwen for reaching out to her to co-author of this book!

A special thanks go to two very special businesses—Let’s Eat! started by owner DomenickCelentano and Stellar Academy started by two sisters, Mary Matthews and Dr MargaretBuley—who have allowed us to use their business plans (modified for confidentiality) inthis book to benefit and assist other future small-business owners Through the SmallBusiness Development Center, Sue Johnson had counseled with each of these businesses

Trademarks

All terms mentioned in this book that are known to be or are suspected of beingtrademarks or service marks have been appropriately capitalized Alpha Books andPenguin Group (USA) Inc cannot attest to the accuracy of this information Use of aterm in this book should not be regarded as affecting the validity of any trademark orservice mark

xxi

Here’s what you need to know before you begin drafting your plan, ing the financial and basic company information you should have on hand.This part also includes a few tips on business writing basics In Chapter 1, wediscuss plan basics, such as how your plan can help you run your business

includ-as well includ-as give you an overview of what you can expect during the process

In Chapter 2, we give you an overview of financing options and help youunderstand the financing needs of your business Chapter 3 gives you ahead start on business writing basics to help make the process of writingmuch less intimidating

Part

Getting Started

According to Plan

In This Chapter

◆ Entrepreneurship in the United States

◆ How your business plan can help you

◆ Your Unique Selling Point

◆ Do it yourself or get help?

You’re finally acting on that great idea you’ve had for ages Or perhapsyou decided that you’ve just had enough of the commuter lifestyle andwant to start a business of your own, closer to home Whatever the reasonyou’re starting or acquiring a business, you’re already further ahead thanmost because you understand the importance of a good business plan.Your business plan can be an invaluable management and financial tool,keeping your business on track and helping you to grow But there are anumber of things you need to know before you start writing So let’s dive in

Business Owner Basics

Entrepreneurship is a big part of the American dream, and more people than

ever are starting up their own enterprises as full-time ventures or as line operations In 2003, there were approximately 23.7 million businesses

side-Chapter

in the United States, according to the Small Business Administration (SBA) Of those,572,900 were brand new.

In fact, each year, hundreds of thousands of businesses open their doors, includingstart-ups, acquisitions, and franchises Major factors that determine whether a companyremains viable include an ample supply of capital, sizable enough to have employees,

the owner’s education level, and the owner’s reasonfor starting the business in the first place, such asfreedom for family life or the desire to be one’s ownboss The companies that had the clearest sense ofpurpose—and a solid plan for survival—are the onesthat are still open today The plan for survival is mosteffective when it takes the form of a written businessplan

Beyond the organizational benefits, business plans can offer a financial benefit as well.More than 75 percent of small firms use some form of credit in their start-up or opera-tions Companies use many different sources of capital, including their own savings,loans from owners’ family and friends, and business loans from financial institutions.Credit cards, credit lines, and vehicle loans are the most common types of credit Someother business owners turn to commercial banks, who are the leading suppliers of credit,followed by owners and finance companies Some businesses turn to venture capital.Whatever the form of financing, the lender will want to see a solid business planbefore making loans available to your business In the upcoming chapters, we helpyou present your business in the best possible way, which can make the differencewhen you’re trying to secure financing or credit for your business

Types of Business Plans

Business plans come in several varieties, and it’s important to know why you’re writingthe plan before you begin A business plan can range from about 5 pages to 60 or morepages, although an average business plan usually falls in the range of 20 to 30 pages

If you’re writing a business plan to attract capital, then your plan may be longer andfilled with more documentation than if you’re using it as an internal managementtool The length and form of your business plan depends on you and your goals foryour business The following sections look at some of the common varieties of busi-ness plans

An entrepreneur is

someone who launches a

for-profit venture or business

Biz Buzz

Chapter 1: According to Plan Securing Financing or Investors

Plans with financial goals place heavy emphasis on the business numbers—what are itssales, assets, projected revenue and income growth, and other factors that make thebusiness a good financial risk? Lenders and investors want to be sure that their invest-ment will be worthwhile, so you’ll want to put your best foot forward, emphasizingyour management strengths, financing plan, profit margins, and potential sales growth

Strengthening Operations

If your plan will be used as an internal tool to help you grow your business, you’ll want

to spend more effort examining how the business is structured, how products andservices are delivered, and how the company markets itself That way, you can fullyoutline and measure the success and growth of your business, beyond the bottom line

Preparing for a Sale

If you are looking for a way to sell your company, a business plan can help you streamlineoperations and find flaws that might make your business less attractive to potentialbuyers

If your business is a partnership, you have to

clearly lay out your expectations for the sale

of the business, including the selling price

and how the proceeds are to be divided It’s a

good idea to consult an attorney to execute a

partnership agreement or buy/sell agreement

that spells out these details

How Can a Plan Help?

The good news is that a thorough business plan can help you avoid many of the commonchallenges that new businesses face How? A business plan is a road map of your busi-ness, both in context and in financial terms A written business plan is an extremelyimportant tool for any business It can be used to provide analysis and milestones forthe business owner It serves as a means of communication with accountants, attorneysand others, and as preparation for financial needs and loans It also acts as an iterativeprocess of a working plan for your ongoing business

5

A partnership ment is a document that outlinesthe terms and conditions of twopersons or entities entering into abusiness agreement

agree-Biz Buzz

Writing a business plan enables you to assemble all of the components of your ness together and document them This process will ensure that you’ve considered themajor aspects, expenses, and revenue potential of your business, as well as the staffing,location, and other needs it will have It will also help you determine the long-termoutlook and help you decide whether this is an endeavor that will fit your lifestyle.After you have written a business plan, it can serve as a guide for your business’sprogress With constant review and updates of the plan, it will give you a solid basis

busi-on which to make decisibusi-ons, implement changes, and take actibusi-on As your businessprogresses, you will continue to learn more facts that can be implemented into yourplan Some of the purposes that your business plan can serve are discussed in moredetail in the following sections

Establishing a Vision and Direction

Your business plan requires that you document what your vision is for your business.It’s a blueprint that takes the resources with which you’re starting, adds the experience

of the key players and the strategy for making the business work, and filters all of thatthrough the financial realities of the business Done right, it’s a way to test the business

on paper before making a significant investment of time and money in a new venture

Keeping on Course

Your business plan can also act as a compass, keeping you on the path that you nally set for your business All too often, businesses get sidetracked from their coremissions, leading to a slowdown in growth because resources are diverted to otherefforts Your business plan can serve to remind you of exactly how your goals should

origi-be focused

Setting Goals and Benchmarking Success

Your business plan will help you set the short- and long-term goals that will mark the progression of your business By putting these goals down on paper andexplaining how they will be accomplished, you map out the steps you need to take tomake your business successful

bench-Your business plan will also have projections about growth, revenue, and ments You can use these projections as measurements, to determine how well yourbusiness is performing If you find that your business consistently fails to meet the

accomplish-Chapter 1: According to Plan

goals that were set, then it’s a sure sign that you either need to ramp up some of thesectors of your business or you need to take a look at the measurement mechanismsyou’ve put in place to determine if they are realistic

Outlining Operations

A large portion of your business plan will be devoted to the operations of your ness, or how it will work Who will be responsible for various business functions andhow will the work get done? Outlining these responsibilities on paper may show youwhere improvements could be made, where you can save money and time, and ifyou’re overlooking a key component of how your business will get its tasks done

Your business plan can also serve as a working budget, to ensure that income is spentproperly Sure, it would be great to rent prime space and spend thousands on luxedécor for your new office And when you get a fat check from a lender, it can betempting to splurge on a few things However, by outlining the cash flow that will bethe lifeblood of your business, you’ll be less tempted to take money that should gotoward growth rather than spend it on a too-lavish grand-opening party

Checking the Ego

Starting your own business can be a heady experience Suddenly, you’re the boss, andyou may have employees who rely on you to be their leader You’re the one responsi-ble for decisions for a business that is largely the result of your talent and ability.With so many people turning to them for answers, many entrepreneurs get caught up

in thinking that they know it all A business plan helps you to understand the realities

of your business and helps you stay focused on what needs to be done in the bestinterest of growing your venture

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Thorough Research

The process of writing a business plan will mean that you’ll need to do the necessaryhomework That means researching your business idea and the marketplace to see ifthey’re a good fit Research can take many forms and range from studying data fromtrade associations to conducting your own market research by talking to potentialcustomers, vendors—and even competitors

If you ignore the research component of starting your business, you do so at yourperil A business plan that saves you from a business that fails because it was neverviable in the first place is also a successful plan

Marketing Plan

The marketing component of your plan will set a clear course for getting the wordout about your business, products, and services Beyond that, your marketing planwill determine how your product is positioned, priced, and distributed, relative toyour competition’s, giving you more insight into how your business will be successful

Feasibility

Throughout your plan, you’ll be reinforcing why your business is a good idea, wherethe market for your products and services will be, and, overall, how feasible yourbusiness really is While some businesses simply hang a shingle and call themselves

launched, your plan will force you to think through exactly how your business will be successful and exactly why people or businesses will want to become your customers.

Future ExpansionYour business plan will explore how and when youwill grow your business, including the staff, facilities,

and revenue that you’ll need to do so.

Exit StrategyBecause no one can run a business forever, goodbusiness plans also include exit strategies—gameplans for leaving the business or selling it Investorsneed to know the business will have longevity afterthe entrepreneur leaves for any reason

Many people use

rev-enue and income

interchange-ably, but they are actually two

different things Revenue is your

gross income, before any

deduc-tions Income refers to the amount

of money that remains after your

business expenses, but before

income taxes are paid

Biz Buzz

Chapter 1: According to Plan

Your USP

In the context of your business plan, you also need to show your unique selling sition, or USP Focusing on developing a USP isn’t a new concept, but it’s a criticalone Setting your business apart from the competition means having a strong plat-form to do so If you can’t articulate why customers should buy from your companyand not your competitors’, then you’re going to run into problems in selling yourself.Without a strong differentiation that makes your company the clear choice, you’llfind yourself often competing on price or constantly having to settle for customersthat might not be the best fit for your company (or the selling cycle—the time frame

propo-in which you sell your products or services—will be vastly propo-increased!)

So what qualifies as a unique selling point? Following are some qualifications:

◆ New: If you’re first to market, then you have a unique selling point by default—

no one else does what you do

◆ Improved: If you can clearly state how you’ve improved upon the existing ucts or services in your sector, then you have a strongly unique selling point

prod-◆ Convenience: Does your offering save people time or effort? If your product orservice is more convenient to use or provides some savings of time or effort, thatcan be a strongly unique selling point

◆ Specialization: Is your product or service better for a specific niche of the ketplace? For instance, are your widgets manufactured for industrial use or isyour service better suited toward more established businesses?

mar-◆ Better quality: Do you do what you do better than the competition? Qualityconsistently ranks ahead of price in surveys of why customers buy So if yourproduct is more durable, your service more reliable, or you’re otherwise headand shoulders above the competition, let your customers and prospects know

Finding Your USP Through Feedback

A good way to determine what your unique selling points are, if you’re already inbusiness, is to ask your customers Institute some mechanism, such as a survey thatdetermines their level of satisfaction, to gather their feedback and ask them why theybuy from you It’s usually better if you gather the information through some sort ofanonymous means For instance, you can conduct surveys at checkout counters, or

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send surveys in the mail after the client buys from you, as you’ll get more reliable datathat way Some ways to do this include the following:

◆ Sending a survey to customers with an incentive to return the survey, such as adiscount coupon or chance of being entered into a drawing for a worthwhile gift

◆ Including a short questionnaire with monthly invoices

◆ Creating a suggestion box—this could be a physical drop-box or an anonymousform on your website

Another idea is to teach employees to make note of anecdotal feedback that customersrelay For instance, if a customer says that a new display or service works really well,have a method of capturing that information It could be as simple as a notebook inwhich these sorts of comments can be recorded For more technical-savvy businesses,

an e-mail report or entry into a shared database or contact management program can

Doing It Yourself or Getting Help?

There are a number of business-plan writing services out there, as well as business-plantemplate software Should you hire someone, or use software to write your plan for you?

We don’t think so—at least not for the first draft Theprocess of writing your plan is an exercise that willhelp solidify the direction of your business By goingthrough the process yourself, even if you’re not agood writer, you’ll be forced to think through variousscenarios and learn more about how your business willrun, market, staff, and grow By hiring someone to dothat for you, you’ll lose out on the benefits gainedfrom that process However, if you’re not confident in

If your plan needs an editorial

once-over, hire a business or

communications student to help

you fine-tune it The student will

get valuable resumé fodder

and you’ll get the benefit of a

budding wordsmith who can put

your ideas into captivating prose

Bottom Line Booster

Chapter 1: According to Plan

your writing skills and feel like you need someone to edit your plan before it goes tolenders or equity partners, it’s fine to hire someone for the final draft

Finding Free or Low-Cost Help

If you are still skittish about tackling your business plan on your own, you may want

to consider getting some help There are a number of resources to which you can turn

to get that help for free (or almost free) If your plan needs just a bit of a kick-start,there are plenty of low- or no-cost resources to turn to for help Try one of the fol-lowing:

◆ Check out your local Small Business Development Center, which can providefree and confidential counseling with assistance and review of your businessplan, as well as many other free counseling services to existing and beginningbusinesses These services cover marketing, financing, and much more Visitwww.asbdc-us.org for the center nearest you

◆ Call SCORE (Counselors to America’s Small Business), which offers free seling to start-up or established business owners Find out more at www.score.org

coun-◆ Visit the U.S Small Business Administration online at www.sba.gov for a variety

of small business information, suggestions, and tips offered in English and inSpanish

◆ Contact your local college If you can offer a meaty assignment, you may be able

to attract a business student to intern with your company in exchange for credit

or a small stipend If not, see if the college has a business club that can help

◆ Virtually all industries and professions have trade associations These tions offer assistance, statistics, and research that can help you refine your busi-ness plan ideas Visit the association’s website or call for help

associa-Hiring Help

In addition to low-cost help, there are others who can help you write a business plan.Remember that bigger isn’t necessarily better Don’t be seduced by a “big name” con-sulting firm, especially if your business is small Instead, consider hiring a freelancewriter or marketing consultant, rather than a management-consulting firm In mostcases, the soloist’s fees will be more affordable than hiring a company with lots of over-head To save even more money, write the first draft yourself and hire a copyeditor orfreelance writer to polish up the grammar and language

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Other tips for hiring providers include the following:

◆ Seek recommendations Ask other business owners who they would use or callyour local Chamber of Commerce or business association

◆ Interview a few Speak with more than one provider to get a sense of pricing andservice levels

◆ Get and check references Don’t just settle for an impressive list of clients—choose specific companies from that list to call, instead of just settling for thereferences that are offered And do call—you’ll sometimes be surprised at what

the references really have to say!

◆ Review samples Business plans are proprietary, so the professional may not beable to share other plans (be wary if he or she does) However, you should stilllook at the provider’s portfolio Does it suit your style? Oftentimes writing will

be somewhat subjective—if you don’t like how the provider’s previous worklooks or reads, chances are that you won’t like what he or she will do for you

Getting Soft

There are a number of business-plan software packages on the market today Thesepackages will lead you step-by-step through the process of writing your plan Some ofthe more popular packages include these:

◆ Business Plan Pro 2005 by Palo Alto Software (www.businessplanpro.com)

◆ Plan Write by Business Resource Software (www.brs-inc.com)

◆ Biz Plan Builder by Jian Tools for Sales (www.jian.com)

If you hire a writer to complete your plan, he or she should have business planexperience, as well as a thorough understanding of how a business plan is constructed.Because business plans are proprietary, the writer may not be able to show you otherplans that he or she has written However, the writer should be able to produce at leasttwo appropriate writing samples In this case, it really pays to check references

Red Zone

Chapter 1: According to Plan

◆ Business Plan 12.0 by Out of Your Mind … And Into the Marketplace

In this chapter, we covered the basics of why you need a plan As we move forward,we’ll walk you through the process of putting the plan together Take a deep breath—and let’s go!

The Least You Need to Know

◆ Businesses that have a solid business plan succeed more frequently than thosethat do not

◆ Revenue is not the same as income

◆ A business plan can help you secure financing, grow your business, or plish other goals

accom-◆ Write your business plan yourself to get the most out of the process Hire one to help you clean up the prose later—for much less expense than writing itfrom scratch

some-◆ Business-plan software can be a great convenience or an unnecessary expense,depending on your writing skills Check out whether it will work for you beforeyou spend your money

13

Figuring Out the Financing

In This Chapter

◆ Equity versus debt financing

◆ Types of financial resources available

◆ Types of lenders and investors

◆ What lenders want

◆ Understanding credit

Whatever the purpose of your plan, the financing portion will be an

important part of it You’ll need to figure out how much money it willrealistically take to start or acquire your business, as well as how muchmoney you’ll need to sustain it until it becomes profitable

It’s easy to underestimate the amount of money you’re going to need—andthat’s a major reason why many businesses fail Undercapitalization willconstrict your cash flow and limit the opportunities you have to grow yourbusiness You will also need enough money on the personal side to carryyou through the start-up phase Sometimes business owners run out ofcash to cover their own expenses even when the business is viable

In later chapters, we discuss the specific financial statements that you’regoing to need to develop In this chapter, we address the broader strokes

of making your plan appealing to financiers

Chapter

Understanding Debt and Equity

As you examine the capital needs of your business, and consider using your plan toobtain that capital, you’ll first need to understand the two primary forms of financing:debt financing and equity financing

Debt

Debt financing means that you obtain money from a lender at a certain interest rateand term and then have to repay a set amount that includes interest and any fees thathave been added to the principal amount When you borrow money, the lender has

no ownership stake or say in the decision-making processes, and you keep control ofyour business

Equity

Equity financing is when an investor purchases a part-ownership of your business inexchange for a certain amount of money The investor and the business owner usuallydecide on the parameters of ownership rights to which the investor will be entitled.The biggest concern here is that investors usually want substantial control and input

in the business to ensure that the business will be successful and get the type of return

on their investments that they anticipate Of course the negative is that you lose trol over what you thought was your business Just be careful with the negotiations

con-In addition, the investor usually maintains a percentage ownership stake in the ness, and may be entitled to a percentage of profits from the business, which is theinvestor’s return on investment

busi-The investor usually wants a buyout point that is stated up front, because they arelooking for a return on their investment over a certain period of time The period oftime can differ between businesses and industries, but frequently it is less than five years

Money Sources

When you’re looking for money to launch your business, there are a number ofoptions available, depending on the type of business you want to start, the collateralyou have, and the amount of money you wish to borrow These include grants, per-sonal resources, savings, credit cards, and several different types of loans