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  • Business Planning Guide Making your business dream a reality Copyright Colonial Savings 2007
  • Your Business Plan
    • If you’ve been dreaming of beginning your own business, the
    • planning has already begun and Colonial Savings is here to
    • help. With the right idea and the perfect plan, you can launch
    • your dream right into success.
    • This Business Planning Guide is the first step in the right
    • direction to establishing your business. This plan will analyze
    • your business proposal, develop a plan specific to your
    • business and develop financial projections with coherent
    • assumptions.
  • Why is a business plan important?
    • The process of developing a business plan forces us to look with an objective and critical eye on our intended business.
    • It is a way to communicate our ideas in written form and the basis for our financing proposal.
    • The product of this process should help us manage a successful business.
    The key to success is to plan and to follow what we have planned.
  • Organizing a Business Plan
    • Your business plan should unfold the details of your intended
    • business and provide purpose.
    • Cover:
    • - Should identify the business and the document
    • - Should provide contact information
    • - Should identify who prepared the business plan
    • - Must be clean, attractive and brief
  • Organizing a Business Plan
    • In a brief and practical way, establish your business Purpose
    • by specifying the intended purpose for the document.
    • If it is being used as a loan proposal:
    • 1. Who is requesting the loan?
    • 2. What type of business organization is it?
    • Partnership, Corporation or Sole Proprietorship
    • 2. What is the size of the loan request?
    • 3. What is the purpose of the loan?
    • 4. How will the business benefit?
    • 5. How will the loan be repaid?
    • 6. Why is this a reasonable proposal?
  • Organizing a Business Plan
    • The contents of your business plan should include details
    • about your business, financial information and supporting
    • Documentation. Begin by establishing your business objectives
    • that will constitute the written policy for the business.
    • 1. What is, or will be, the business?
    • 2. What market does it serve? (size, market share)
    • 3. What are your competitive advantages?
    • 4. Why this location?
    • 5. Who will be your management and personnel?
    • 6. Why will this loan or investment help the business?
  • Organizing a Business Plan
    • Describe your business completely by answering these
    • questions as a guideline:
    • Is it a retail, manufacturing or service business?
    • Is it new, an expansion or the purchase of an established business?
    • What legal form of business organization is being used?
    • Why will it be profitable?
    • When do you plan to establish the business?
    • How do you plan to operate? (hours, seasons)
  • Organizing a Business Plan
    • For a new business:
    • Why will you succeed?
    • What experience do you have?
    • Do you know other similar businesses?
    • What makes it special? (comparative and competitive advantages)
    • What do you know about suppliers? (supply chain, credit terms, assistance)
    • Terms of contracts? (lease, franchise or licensing)
    • What credit terms will you offer your customers?
  • Organizing a Business Plan
    • Purchasing a new business:
    • By whom and when was it started?
    • Why are they selling now?
    • How did you arrive at the price?
    • What is the current sales trend?
    • If a downward trend, how do you plan to reverse it? Why will you succeed?
    • How will you improve profitability?
  • Organizing a Business Plan
    • Other considerations if you are purchasing a business:
    • - Have you examined the inventory?
    • - Have you met with creditors?
    • - How old are the accounts receivable?
    • - How liquid are the investments?
    • - How ages is the equipment?
    • Is the equipment in good condition or obsolete?
    • - Will you assume responsibility for incurred liabilities?
    • - Are there any tax or IRS obligations?
  • Organizing a Business Plan
    • Establish your market by answering these questions:
    • What is your market?
    • What is the real size of that market?
    • What market share can you grab and when?
    • What potential for growth is the market?
    • As the market grows, will your share of it grow or shrink?
    • How will you serve the market?
    • How will you determine the prices or fees to be competitive and still make a profit?
    • How will you attract and retain market share?
    • How will you grow?
  • Organizing a Business Plan
    • Market continued:
    • What prices do you intend to charge? Are they competitive?
    • Why will a customer bay them?
    • Are they profitable?
    • Do you have advantages that will allow you to charge a higher price?
  • Organizing a Business Plan
    • An important topic to include is the credit terms for your
    • customers:
    • Will you offer credit?
    • Is it required?
    • How will you make the credit decision?
    • Can you afford to provide financing?
    • Can you withstand credit losses? Do you expect any?
  • Organizing a Business Plan
    • Establish who the competition is by stating:
    • Who are the main competitors?
    • How will your business be better than theirs?
    • How are their businesses doing?
    • Why?
    • How are they like your business and how are they different?
    • What have you learned about how customers interact?
  • Organizing a Business Plan
    • Location is key in business success and rent is a function of
    • space and advertising.
    • What to do?
    • - Don’t always take the lower price
    • - Consider access to the target markets
    • - Analyze traffic studies
    • - Consult business development organizations
    • - Examine census data
    • - Analyze available economic reports
  • Organizing a Business Plan
    • Location continued
    • - What is the address?
    • Describe the building or space
    • Will you own or lease?
    • Are improvements required? If so:
      • Plans and specifications
      • Cost estimates and time required
      • Contractors and bids
    • How is the neighborhood?
    • Zoning and permit issues
    • Why was this location chosen?
    • How will location impact the business and its operating expenses?
  • Organizing a Business Plan
    • Management incompetence 45%
    • Experience mismatch 20%
    • Management inexperience 18%
    • Inexperience in business type 9%
    • Negligence or inattention 3%
    • Fraud 2%
    • Disaster 1%
    • Total 98%
    Management incompetence is the number one reason for business failure.
  • Organizing a Business Plan
    • You must consider five factors in making decisions about
    • Management:
    • 1. The resume of the owners or principals
    • 2. Experience relevant to the business
    • 3. Duties and responsibilities
    • 4. Salary and compensation
    • 5. Resources available to the business
  • Organizing a Business Plan
    • The personal history of management should be included on
    • their resume and discuss:
      • What is their knowledge of the business
      • Prior management experience
      • Formal and informal education that may be relevant to the business
      • Personal information such as why they are pursuing this business, special aptitude for the business and why they expect to be successful.
  • Organizing a Business Plan
    • Their relevant experience of management should include:
      • Direct experience in the type of business
      • Direct experience managing this type of business
      • Management or administrative experience acquired elsewhere
  • Organizing a Business Plan
    • Duties and responsibilities should reinforce the strengths and
    • mitigate the weaknesses, but never lie. Make time to plan and
    • to review those plans.
    • The most important jobs are:
      • Purchasing
      • Sales
      • Personnel
      • Production
      • Logistics
    • Planning
  • Organizing a Business Plan
    • Salary and Compensation
    • All members of the management team must have a salary
    • This wage must be fair and allow them to cover reasonable family expenses
    • Once proposed, all should adjust to this income
    • The reward will be received when the profits
    • are distributed and business is successful.
  • Organizing a Business Plan
    • When establishing your personnel ask yourself these
    • questions:
    • - What are the current needs?
    • - What are the needs in five years?
    • - What skills must they have?
    • - Are they available in the market?
    • - Do you need full-time or part-time employees?
    • - Do you need salaried or hourly workers?
    • - What benefits will be offered?
    • - What are the training needs?
  • Organizing a Business Plan
    • You can outline your required investments using this as a
    • guide whether you are considering a loan or will finance it
    • yourself.
    • Make a list for each and determine the ideal mix:
    • The required minimum necessary
    • The reasonable What can be achieved.
    • Some new, some used.
    • The ideal What you would get if there
    • were no money issues and profits were not relevant.
  • Organizing a Business Plan
    • Answer the following questions about your investment:
    • How will the money be used?
    • What must be purchased?
    • Who will supply it?
    • What price will be charged?
    • What model and how many? (a list of equipment is useful)
    • What related expenses must be incurred?
    • Compare leasing and purchase options.
    • How will this help make the business more profitable?
  • Organizing a Business Plan
    • In your summary, review the discussed ideas, integrate the various parts of the document and leave the reader with a concise and convincing memory that backs your request.
  • Organizing a Business Plan
    • The financial information section should cover:
    • Sources and uses of cash
    • Critical equipment needs
    • Statement of financial condition (balance sheet)
    • Break-even analysis
    • Pro-Forma Income Statement
    • Pro-Forma Cash Flow Analysis
    • Deviation Analysis Actual vs. Budget
    • Historic Financials for an on-going business
  • Organizing a Business Plan FUNDS MANAGEMENT Net Income New Debt Sale of Assets New Equity Investment Debt Repayment Asset Purchase Dividends Equity Distribution CASH Collected Sales Less $ paid to suppliers, workers, inventory, taxes, services, etc. Net Operating Profit
  • Organizing a Business Plan
    • Sources and uses of funds
    • In-Flows:
      • Cash Beginning Balance
      • Collected sales
      • Cash from other sources
      • Cash from accounts receivable collected
      • Cash from sale of assets
      • Cash from equity investment
      • Cash from new loans
      • Cash from recovered charged-off accounts
      • Cash from sundry other sources
      • = Total Available Cash
  • Organizing a Business Plan
    • Sources and uses of funds
    • Out-Flows:
      • Purchase of inventory
      • Salaries, wages and benefits paid
      • New equipment purchased
      • Insurance, services and fees paid
      • Advertising
      • Allowance for uncollectible accounts
      • Transportation and delivery
      • Taxes and duties paid
      • Interest and principal paid on debt
      • Dividends paid
      • Reserve for contingencies
      • = Total Cash Out-Flows
  • Organizing a Business Plan
    • Sources and uses of funds
    • Total Available Cash
    • - Total Cash Out-Flows
    • _____________________
    • Ending Cash Balance
  • Organizing a Business Plan
    • A list of critical equipment is absolutely necessary for the
    • business and should include accessories and critical parts
    • and supplies.
    • - Auxiliary Equipment: those that help the business
    • function better
    • - Other Equipment: vehicles, delivery and warehouse
  • Organizing a Business Plan
    • Statement of Financial Condition
    • Assets Liabilities and Equity
    • Cash Current Liabilities
    • Accounts Receivable Long Term Liabilities
    • Inventory Total Liabilities
    • Fixed Assets Stockholders’ Equity
    • Accumulated Depreciation Total Liabilities and Equity
    • Net Fixed Asset
    • Total Assets
  • Organizing a Business Plan
    • Analysis of Financials
    • Working capital
      • Current Assets (turn to cash in less than 1 year)
      • Current Liabilities (to be paid in less than 1 year)
    • Compare year to year
    • Ratio Analysis
      • Current Ratio (current assets/current liabilities)
      • Quick Ratio
      • Leverage (total liabilities/stockholders’ equity)
  • Organizing a Business Plan
    • An increase in sales does not necessarily
    • imply an increase in profits.
    • Break-even Analysis will help you evaluate
    • where you need to be in your sales to produce a profit.
    • Fixed Costs
    • + Variable Costs
    • Break-even Point in Sales
  • Organizing a Business Plan
    • Fixed Costs:
      • Remain Constant
      • Are incurred regardless of sales
      • Are distributed among all units sold.
    • Variable Costs:
      • Fluctuate directly in proportion to sales
      • Include:
        • Direct labor
        • Cost of goods sold
        • Sales commission
  • Organizing a Business Plan
    • Fixed costs for business
    • Gross profit as a
    • percentage of sales
    • =
    • Break-even Point
    Break-even Point Unit Price = Break-even Point in number of units
  • Projections or Pro-Form Financials
    • Please consider the following:
    • They must be realistic.
    • You should project the first year on a monthly basis and 5 years going forward.
    • They should not be overly optimistic, neither should they be pessimistic.
    • You should not project chance events, or those uncertain as to date or amount.
    • You must take into consideration the reality of similar businesses.
    • Your assumptions should be based on your market analysis.
    • You must consider your cost estimates.
    • You must take into account the break-even point calculated previously.
    • Everyone working in the business should have a salary and it must be included. Then they must adjust themselves to it.
    • You must include an allowance for unforeseen events.
    • Make sure you include debt service and any payments committed to investors.
    • Your should clearly state your assumptions.
    • Be pessimistic on costs and expenses.
    • Be conservative in projecting sales.
    • If you are evaluating an existing business, compare your projection against historical figures and justify any differences.
  • Your Business Plan
    • Good planning is the key to business success
    • Your planning must be done in an objective and serious manner.
    • You should take time to compare the possible performance against the planning budget.
    • You must regularly take time, away from pressure and telephone interruptions, to review and actualize the plans.
  • The Loan Proposal
    • Two Major Risks:
    • - The lender that will not turn down the proposal, but
    • cannot provide adequate financing.
    • - The banker that provides the wrong financing for the
    • right reasons.
  • The Loan Proposal
    • Types of Loans
    • Short term loans
    • - Repaid within the current year
    • - Finances working capital needs
    • - Is documented through notes that are cancelled in less than 1 year
    • - Finances cash needs of short duration
    • - May be structured as a line of credit
    • Medium term loans
    • - Repaid within 1 and 5 years from profits
    • - Finances equipment purchases
    • - Can finance working capital for a business experiencing fast growth
    • - Requires collateral to support it
    • - Should only be used when the need is evident and suitable
    • Long term loans
    • - Requires more than 5 years to be fully repaid from profits
    • - Finances fixed asset purchase
    • - A faster repayment may weaken the business
    • - Requires collateral support
    • - Requires disciplined performance
  • The Loan Proposal
    • Some words of advice:
    • Anticipate financial needs.
    • Be clear and concise in your statements.
    • Don’t request more than you need and can use.
    • Analyze the need and how it will be repaid.
    • If the banker does not agree; listen and analyze their reasoning, but never accept a repayment schedule that you cannot meet.
    Good planning is the key to success in business. Copyright Colonial Savings 2007