making business plans easy - small business...
TRANSCRIPT
Making Business Plans Easy
Dan Gillingham – SCORE Mentor - Woodlands Office
www.SBizWiz.comThese Slides Can Be Downloaded From
Characteristics of a Successful Entrepreneur
Courage / Confidence – At risk are money, ego, and a substantial amount of time.
Work Ethic / Perseverance – Starting and running a small business is a LOT of work! You must be willing and able to leave your comfort zone, fail and learn.
Creativity / Insight – Solve a problem better than your competition. Don’t be addicted to your comfort zone. Aim ahead of the curve.
Leadership – Lead in the areas you are expert. Delegate areas less critical. Listen (seek first to understand). Learn.
Organized – Budget time, hold yourself and staff accountable; use metrics.
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Product / Services:
Sales PitchMaintenance
Warranty ServiceCustomer Support
Product/Service Knowledge
Business:
LegalPricing
MarginsFinancingMarketingEmployeesRegulations
Sales/Fed Taxes
Be Prepared For Business Time Demands
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Questions Before the Business Plan
• Do you need a business plan?• First test the feasibility of the business
• Who is the customer for the business plan?• Investor / Loan Officer?• Board of Directors?• Yourself?
• What type of business plan do you need?• Sales pitch to convince banks/investors it is low risk• Documentation of structure, procedures and authority• Project plan, strategies, and metrics• All of the above
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Initiative:
OptimismHard WorkExcitement
DeterminationNever Discouraged
Pragmatic:
PatienceTest Marketing
Realistic ProjectionsOpenly Listen to FeedbackRecognize / Accept Failure
Mental Balance
Components of a Business Plan
Business Idea Feasibility Test
Market Analysis Marketing Strategy
Executive Summary
Ownership & Authority
Legal Structure
Licensing,Permits,
Certifications
Cash Flow Projections
Funding
Facilities & Equipment
Suppliers & Shipping
Employees, Contractors, Responsibilities
Sales Terms, Transactions & Invoicing
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Tips For Getting Started
• You have to write stuff down• What you write will be wrong. Get over it!
• Don’t worry about structure in the beginning
• There will be several revisions. You will get it right
• Shed your insecurities; have courage• You don’t have to be an expert
• Think of it as telling a story
• Have discipline• Set yourself a reasonable time line and stick to it
• Get a mentor (SCORE) who will help guide you and encourage you
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Make your mistakes on paper
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BUSINESS IDEA:
Products & Services
Detailed list of
- what you will and will not sell
- what pricing model will be used
- how you will sell (online, store, etc.)
Customer Profile /
Buyer Persona
Detailed analysis of
- customer demographics (business/
consumer, age, location, language..)
- their challenges and goals
- how many customers are available
in your target demographics?
Competitor Analysis
Detailed analysis of
- competitors who sell some or all of
our products & services
- does demand exceed what they sell?
- what do they do well? poorly?
- SWOT analysis
Business Idea Feasibility Test
Competitive Advantage
An honest analysis of
- how your products & services are
different (avoid “better, faster, cheaper”)
- how many customers can you
realistically “steal” from your
competitors?
Market Capacity?
Competitive?M
ark
eting S
trate
gy
Yes No
Revise Idea
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Summarize Core Business• Products / Service
• Details about what you are selling including costs, features, limitations, etc.(see appendix for list of questions to answer)
• Summarize:ABC Company provides [describe your product or service you perform]
for [describe the group you perform your services for]so they [describe the results they expect]
• Customer Demographics & Buyer Persona• Detail the location, age, income and other demographics
(see appendix for some demographics sites)• Describe the problem they have from their perspective and how your business solves those problems
• Competitor Analysis• List your competitors or categories of competitors if too many to itemize• Provide a fair and accurate assessment of why they are successful, their strengths and weaknesses• Estimate if possible the market share / sales they have obtained
• Competitive Advantage• Describe your “secret sauce”; Avoid “Better”, “Faster”, “Cheaper”• Respect the reader; you must describe a compelling reason customers will leave the comfort of their current vendor (or doing it
themselves)
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Small Business Hurdles
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Customer Attention Span
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Market Analysis (Invest Time Here!)
• Use the Internet – Search patents, industry trends, market size, spending statistics, law suits, competitor sites, review sites, articles, blogs, etc.
• Be a Customer – Shop your competition as yourcustomers would shop you. Capture features,services, prices, terms, policies, etc.
• Know the Product/Service – If you don’t, considerworking for someone who runs a similar business first.
• Call a Peer in Another Market – Leverage their ego! Ask for tips, best practices, things to avoid, etc.
• Determine Who the Buyer is – Who makes the buying decisions? How do you reach them?
• Summarize Key Points – Convince the reader that there is demand for your product / service and you know how to reach them.
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Marketing Strategy
• Determine Your Budget – How much can you afford to spend to get each customer .. early & sustained?
• Establish Metrics – Verify every dollar invested returns more than a dollar (cost of customer acquisition)
• Your Identity – Logo, web site, social media, tag lines, brochures, etc.
• Where Are They? – Determine places your customers frequent. (Web Sites, Blogs, Trade Shows, Conventions, Publications, Organizations, TV Stations, etc.)
• Inventory Options – Create a list of all reasonable marketing options and prioritize. (Digital Marketing, Trade Booth, Billboards, TV, etc.)
• Summarize Strategy – Budget, Metrics, Locations / Groups, Marketing Tools18
Search Engine Marketing
• SEM is the purchase of ads that appear when selected keywords are searched (Mostly Google AdWords).
• Impressions = Number of times your ad is displayed
• Clicks = Number of times customers click on your adGood = 2% or more
• Conversions = Number of clicks that result in salesGood = 2.5% or more
• Why SEM?
Click-through Rate
Conversion Rate
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Search Engine Optimization
• SEO is a set of rules and features that help improve the rank (position) of your web site in Google search results.
• Why SEO?
• Alternative? Use existing optimized sites (e.g., Etsy, Amazon, etc.)
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Social Media Marketing
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• Facebook, Instagram, Pinterest, YouTube, Twitter, LinkedIn, Yelp, and many more are today’s marketing tools for most businesses.
• Advantages:• Reach thousands of potential customers
• Target ads to very specific demographics
• Disadvantages:• Competing with thousands of others trying to do the same
• Trust is low unless you have a “following”
• Followers are hard to earn
• Recommendations:• Start early; Establish following
• Provide value; This is the age of FREE (free recipes, free shipping, free games, etc.); Called “Freemium”
• Keep it simple and focused
• Attract, Convert, Wow, Repeat(Attract strangers to visit; Convert visitors to customers; Wow your customers; Repeat)
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Ownership & Authority
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• Determine Ownership:• Single owner vs partners; investments from each
• Male or female ownership? See SBA’s “A Guide to the Women Owned Small Business Program”
• Minority ownership? See SBA’s “8(a) Business Development Program”
• Veteran ownership? See SBA’s “Office of Veterans Business Development”
• Details including names, % ownership, partner type (full, limited, silent, etc.), stock ownership, etc.
• Partnerships:• Determine ownership percentages. Avoid equal partnerships if reasonable.
Who breaks the tie?
• Develop partnership agreement. Family or friend = even more detailed!
• Authority:• Clearly document responsibilities & authority
• Authority includes signing contracts, bank account access, check writing limits, access, etc.
• Summarize Owner Information. Authorities are for internal use.
Legal Structure
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• SOLE PROPRIETORSHIP• When to use: If you are just starting up a very small company with no outside funding and the risks of liability are very low. Your personal assets are not protected from
creditors or lawsuits (damages).
• Restrictions: One individual owns the business; Owner is personally liable for all debts and risks (damages); Limited to the life of the owner; Non-transferable
• GENERAL PARTNERSHIP• When to use: Very similar reasons to a Sole Proprietorship except there are 2 or more individuals who own the company.
• Restrictions: Partners are personally liable for all debts and risks (damages); An Employer Identification Number (EIN) must be obtained; Assumed Name Certificate must be filed with the county clerk
• LIMITED LIABILITY COMPANY• When to use: When owner(s) want to limit liability to personal assets and there are no tax incentives to establish a corporation.
• Restrictions: Certificate of Formation with a unique company name must be filed with Secretary of State
• LIMITED PARTNERSHIP• When to use: When there are multiple owners of the business with some playing an active role in the business and others are simply investors.
• Restrictions: Certificate of Formation with a unique company name must be filed with Secretary of State; An Employer Identification Number (EIN) must be obtained
• S CORPORATION (S Corp)• When to use: When it is advantageous to issue stock to multiple shareholders with freedom to transfer shares and when there is a tax advantage for higher profits. S-Corps
are often used by start-up companies to allow losses to be passed-through to individual tax returns.
• Restrictions: No more than 100 shareholders (owners); Owners must be US citizens/residents; Cannot be owned by C Corps or trusts; The corporation can have only one class of stock; The corporation must be registered with the Secretary of State
• C CORPORATION (C Corp)• When to use: When the company is likely to retain earnings and it is desirable to have the company bear or share the burden of income taxes vs the owners
• Restrictions / Differences from S-Corp: Unlimited shareholders, however once the company has $10 million in assets and 500 shareholders, it is required to register with the SEC; Foreign nationals have a right to own or invest in a C corporation; The owner (majority shareholder) of a C corporation has the option of issuing different “classes” of stocks to different shareholders with different voting privileges (e.g., common and preferred stock)
Licensing, Permits, Certifications
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• Federal:• Agriculture, Alcohol, Aviation, Firearms, Transportation across state lines, etc.• Contact: State agency for government licenses (e.g., Texas Alcoholic Beverage Commission)
• State:• Auto mechanics, plumbers, electricians, building contractors, collection agents, insurance agents,
real estate brokers, personal services (i.e., barbers, cosmetologists, doctors and nurses), etc.• Contact: State government web site (e.g., Texas.gov)• Sales tax permit (https://comptroller.texas.gov/taxes/permit/)
• Local (City / County):• Building (New or Renovation), New Occupancy in a commercial building, Pools, Irrigation,
Plumbing, Mechanical (e.g., AC, Heat), Electrical, etc.• Contact: City / County web site (e.g., MontgomeryTexas.gov); Call the county clerk.
• Summarize Costs of Licenses, Permits & Certifications for Cash Flow
Bonus: Intellectual Property
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Copyrights• Protect original works of authorship, such as literature, music, artistic works, and computer software.
A copyright exists from the moment the work is created, so registration is voluntary.
• More info: www.Copyright.gov
Patents• A patent grants property rights on inventions, allowing the patent holder to exclude others from making, selling or using the invention.
• There are 3 types of patents: utility, design and plant. For a utility patent, the invention must be novel, non-obvious, and useful.
• More info: The US Patent & Trademark Office Website (www.USPTO.gov). Search for existing patents on Google at www.google.com/patents
Trademarks• A trademark is a word, phrase, symbol, or design that distinguishes the source of the goods of one business from its competitors.
• Although rights in trademarks are acquired by use, registration with the USPTO makes it easier to enforce those rights.
• More info: The US Patent & Trademark Office Website (www.USPTO.gov).
Trade Secrets• A trade secret is a formula, process, device, or other business information that companies keep secret to give them an advantage.
• Examples are: soda formulas, customer lists, and computer algorithms. You can't obtain protection by registering your trade secret.
• Businesses use non-disclosure agreements, post-employment restrictive covenants, and other security practices to maintain trade secrets.
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Facilities & Equipment
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• Location Considerations• Location of competition, proximity to suppliers, direction of traffic, zoning laws, convenience, etc.
• Building Details• Required space, lease costs, lease terms, renovation costs, security, parking, lighting, signage, etc.
• Equipment• Vehicles, Computers, POS Terminals, Refrigeration Equipment, Furniture, etc.
• Supplies• Core business supplies (food, bowling shoes, etc.), stationary, bathroom supplies, coffee, etc.
• Summarize estimated startup and recurring facility and equipment expenses
Suppliers & Shipping
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• Suppliers• Before negotiations:
• Research your options both domestic and international
• Determine what your competition pays if you can
• Research all possible terms and conditions; have an idea of what is reasonable & customary
• Assess reputations and stability of potential suppliers
• Estimate cost of supplies and goods for cash flow
• Shipping• From suppliers:
• Costs, risk of backorders, lead times, etc. (Objective: minimize costs & inventory)
• To customers:• Cost of packaging, pick-up, shipping, etc.
• This is the age of FREE SHIPPING; Look for ways to reduce shipping costs (e.g., flat rate package, bulk, pre-sorted)
• Estimate cost of shipping for cash flow (% of total)
• Summarize estimated startup and monthly supplies/goods as well as shipping costs
Employees, Contractors, Responsibilities
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• Employees• Current & Planned; Full Time / Part Time; Salaries / Hourly Wages• Hiring process: Screening, Background Checks, Testing, NDA, Non-compete, etc.• Payroll: Internal, outsourced, pay interval, etc.
• Must have EIN; Proper forms (W-4, W-2, I-9, etc.); Worker’s Compensation Insurance; Benefits, Post Proper Notices, etc.
• Establish and maintain comprehensive records!
• Independent Contractors• Current & Planned; Follow rules (“direction or control”) that permit “Independent Contractor”• Hiring process: Direct or 3rd Party (Contract)• Compensation: Direct, through 3rd party, 1099 contractors
• Responsibilities• Employees: Detailed, documented and trained• Contractors: Typically task/job driven with acceptance criteria
• Summarize estimated cost of staff for cash flow & responsibilities
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Sales Terms, Transactions & Invoicing
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• Sales Terms• Price, delivery, warranties, liability for defective goods, etc.
• Estimate cost of warranties & liabilities for cash flow (as % of total)
• Transactions• Payment Methods Accepted: Credit / Debit cards, Purchase Order, Checks, Cash, Gift Cards, etc.
• Discounts: Volume, On Sale, Coupons, Loyalty Rewards, etc.
• Estimate costs of fees and promotions for cash flow (as % of total)
• Invoicing• Terms: Payment due, Penalties, Incentives, etc.
• Collections: Define how you will minimize overdue receivables
• Summarize Terms and Estimated Fees
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Cash Flow (also need Balance Sheet and P&L)
Required Funding
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• Determine Start-up Costs• Down payments, legal, web site, pre-marketing, equipment, vehicles, inventory, etc.
• Estimate Operating Costs Till Break-Even• Monthly losses until gross sales exceed expenses
• Add Contingency• Estimate between 15 – 25% depending upon risk & confidence in estimates
• Subtract Your Investment
• Summarize Required Funding
Bonus: Types of Loans
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• The Small Business Administration Doesn’t Loan Money• They guarantee portions of bank loans for qualifying businesses
• 7a Program – Most Popular• New & Expanding Small Businesses• For Start-up, Equipment, Inventory & Working Capital• More efficient application process for Minority, Women, Veteran and Lower Income / Rural Areas• To qualify: Business must be for-profit, sell in USA, have reasonable owner equity & owner assets
Traditional Bank Small Business Loan
Chase, Capital One, and many others
Other Small Business Lenders
LiftFund (Non-Profit), smartbiz, and many others
How to your SBA loan approved from banks
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• Build credit scores• FICO Credit Score:
• 65%:• your payment history• the amounts owed on credit cards and other debt
• 35%• how long you’ve had credit
• types of credit in use (e.g., revolving / line of credit, installment) – mixture is better• recent credit inquiries
• Know the lender's qualifications and requirements
• Gather financial and legal documents
• Develop a strong business plan
• Provide collateral
Bonus: Other Funding Sources
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• Bootstrapping (self-financing)
• Family & Friends (w/ really good relationship or if you really don’t like them)• Loan or investment for % of business
• Crowdfunding (w/ product/service that is unique, stirs interest, or serves a cause)• For helping a cause, for early product access, for investment; Example: KickStarter
• Factoring / Invoice Advances• Loans based on outstanding invoices to help with cash flow
• Angel / Venture Capital Investors (w/ very large growth potential)• Usually for large equity in the business (20-25%)
• Grants (bottom line: very unlikely)• SBA: “The federal government does NOT provide grants for starting and expanding a business.”• Check out contests (e.g., SCORE/Sam’s Club American Small Business Championship, Capital One Getting
Down to Business, etc.)• Check out www.grants.gov to search grants that are available
Compiling the Business Plan
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Executive SummaryA brief introduction to your business. This section should be clear, concise and to the point. This should be the last part that you complete. The key elements of an executive summary include descriptions of:
• Your company• Products or services you sell• Your audience and ideal customer• Future of your business (goals) and your industry• Loan amount you are seeking (if applicable) and how that money will be used
High-level Review of your BusinessHelps readers and potential investors understand your business model. Elements include:
• Owners and business legal structure• Key employees of the business (CEO, President, VP, etc.); summarize their expertise, credentials, qualifications and responsibilities• Mission statement (define success)• Summarize the products or services your business will provide• Qualities that will make your business a success• What are the applicable regulations, required permits and certifications
Market ResearchHelps readers and potential investors understand your business model. Elements include:
• Describe the industry• Define the target market (customer demographics, buyer persona)• Share research about competitors (who they are, market share, what they do right & wrong)• Detail your company’s differentiators (competitive advantage) avoiding “better”, “faster”, and/or “cheaper” if possible
Compiling the Business Plan
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Products / ServicesDescribe in detail what your product or service is and how it will meet the needs of your customers. Explain the benefits of your product or service, the advantages it has over the competition, and its current development stage (e.g., idea, prototype). :
• Details about products and/or services the company will provide; areas specialized, areas avoided, etc.• Describe the pricing model including profit margins • Share other key details about your products / services (life cycle, intellectual property, research & development, etc.)
Sales & MarketingDescribe how your company will focus on its customers through its marketing and sales strategies. Elements include:
• How will you sell your product / service?• How will you reach your customers. Describe your marketing strategy and associated timeline.• What is the company’s growth strategy?
FinancialsThis section is the most important for investors and lenders because it shows that your company is built on a solid foundation. It also illustrates how your business will be able to meet financial obligations, while maintaining a positive cash flow balance. Elements include:
• Profit and Loss ProjectionShows your company's ability to generate a net profit, or your bottom line. This is also known as an income statement. See SCORE template: https://s3.amazonaws.com/mentoring.redesign/s3fs-public/Profit_and_Loss_Projection_1yr_March_2018.xls
• Cash Flow ProjectionDisplays the operating, investing, and financing activities of your company by detailing the money coming in to and going out of your business . See SCORE template: https://s3.amazonaws.com/mentoring.redesign/s3fs-public/12-Month-Cash-Flow_0.xls
• Projected Balance SheetEstimates resources your business will need, where they will be needed, and how they will be financed. See SCORE template: https://s3.amazonaws.com/mentoring.redesign/s3fs-public/Balance-Sheet-Projection.xls
• Breakeven AnalysisShows when your business will be able to cover all of its expenses and begin making a profit. See SCORE template: https://s3.amazonaws.com/mentoring.redesign/s3fs-public/Breakeven_Analysis2_1.xls
Questions?
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SBA Recommended Spreadsheets
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Cash Flow Balance Sheet Break-even Analysis