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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