Your SlideShare is downloading. ×
Business Plans  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.
This book is dedicated to the brave, visionary people who start and run the businesses that power                         ...
Contents at a Glance   Part 1:       Getting Started                                                  1              1 Acc...
14 Executive Summary                                              169             What you’re going to tell them in this c...
Contents Part 1: Getting Started                                                                                  1      1...
vi      The Complete Idiot’s Guide to Business Plans               EDA ......................................................
Contents   vii   Obtain Assistance ........................................................................43   Iterative ...
viii The Complete Idiot’s Guide to Business Plans             Price Comparisons .............................................
Contents   ix   Defining Business-to-Business Customers ................................92     Type of Business and Owners...
x   The Complete Idiot’s Guide to Business Plans           Budgeting Your Resources .........................................
Contents   xi     Location and Traffic ................................................................133     Potential f...
xii   The Complete Idiot’s Guide to Business Plans           Licenses .......................................................
Contents xiii           Identifying Improvements ........................................................191           Pre...
Foreword  I have written dozens of business plans. I have read thousands of them. After almost  20 years of building compa...
failure by being inflexible. Write your plan, and revisit it regularly to change what’snot working. Too many small busines...
Introduction    There’s no feeling like starting your own business. Opening a fresh box of business    cards with “Your Na...
xviii The Complete Idiot’s Guide to Business PlansWhat You Need to Know Before You Start     The Complete Idiot’s Guide to...
Introduction      xix    Appendixes: This isn’t your garden-variety “stuff at the back of the book.” Our last    section i...
xx    The Complete Idiot’s Guide to Business Plans             Back Office Secrets                                        ...
Introduction      xxi   She would like to extend special thanks to Bill Harnden and Vicki Lynne Morgan for   their time an...
1Part                                Getting Started  Here’s what you need to know before you begin drafting your plan, in...
According to Plan                                                         Chapter                                         ...
4        Part 1: Getting Started       in the United States, according to the Small Business Administration (SBA). Of thos...
Chapter 1: According to Plan        5Securing Financing or Investors    Plans with financial goals place heavy emphasis on...
6    Part 1: Getting Started    Writing a business plan enables you to assemble all of the components of your busi-    nes...
Chapter 1: According to Plan     7    goals that were set, then it’s a sure sign that you either need to ramp up some of t...
8         Part 1: Getting StartedThorough Research        The process of writing a business plan will mean that you’ll nee...
Chapter 1: According to Plan     9Your USP    In the context of your business plan, you also need to show your unique sell...
10     Part 1: Getting Started      send surveys in the mail after the client buys from you, as you’ll get more reliable d...
Chapter 1: According to Plan   11    your writing skills and feel like you need someone to edit your plan before it goes t...
12    Part 1: Getting Started                 Red Zone                 If you hire a writer to complete your plan, he or s...
Chapter 1: According to Plan   13      ◆ Business Plan 12.0 by Out of Your Mind … And Into the Marketplace         (www.bu...
Figuring Out the Financing                                                    Chapter                                     ...
16     Part 1: Getting StartedUnderstanding Debt and Equity     As you examine the capital needs of your business, and con...
Chapter 2: Figuring Out the Financing   17Grants    Despite some infomercials that tout the availability of grants for vir...
18    Part 1: Getting Started     Home-Equity Loans or Lines of Credit     A number of entrepreneurs have borrowed against...
Chapter 2: Figuring Out the Financing   19Loans   You’ve probably taken a loan for something—to finance your education, to...
20    Part 1: Getting Started                                      Micro-loans      Back Office Secrets             A micr...
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
The complete-idiots-guide-to-business-plans
Upcoming SlideShare
Loading in...5
×

The complete-idiots-guide-to-business-plans

24,403

Published on

Published in: Business
0 Comments
8 Likes
Statistics
Notes
  • Be the first to comment

No Downloads
Views
Total Views
24,403
On Slideshare
0
From Embeds
0
Number of Embeds
0
Actions
Shares
0
Downloads
524
Comments
0
Likes
8
Embeds 0
No embeds

No notes for slide

Transcript of "The complete-idiots-guide-to-business-plans"

  1. 1. Business Plans by Gwen Moran and Sue Johnson A member of Penguin Group (USA) Inc.
  2. 2. Business Plans by Gwen Moran and Sue Johnson A member of Penguin Group (USA) Inc.
  3. 3. This book is dedicated to the brave, visionary people who start and run the businesses that power our nation’s economy.ALPHA BOOKSPublished by the Penguin GroupPenguin Group (USA) Inc., 375 Hudson Street, New York, New York 10014, USAPenguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario M4P 2Y3, Canada (a division ofPearson Penguin Canada Inc.)Penguin Books Ltd., 80 Strand, London WC2R 0RL, EnglandPenguin Ireland, 25 St. Stephens Green, Dublin 2, Ireland (a division of Penguin Books Ltd.)Penguin Group (Australia), 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of PearsonAustralia Group Pty. Ltd.)Penguin Books India Pvt. Ltd., 11 Community Centre, Panchsheel Park, New Delhi—110 017, IndiaPenguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore, Auckland 1311, New Zealand (a division of PearsonNew Zealand Ltd.)Penguin Books (South Africa) (Pty.) Ltd., 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South AfricaPenguin Books Ltd., Registered Offices: 80 Strand, London WC2R 0RL, EnglandCopyright © 2005 by Gwen Moran and Sue JohnsonAll 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. Nopatent liability is assumed with respect to the use of the information contained herein. Although every precaution hasbeen 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.ISBN: 1-4406-9085-5Library of Congress Catalog Card Number: 2005928079Note: This publication contains the opinions and ideas of its authors. It is intended to provide helpful and informativematerial on the subject matter covered. It is sold with the understanding that the authors and publisher are not engagedin rendering professional services in the book. If the reader requires personal assistance or advice, a competent profes-sional should be consulted.The authors and publisher specifically disclaim any responsibility for any liability, loss, or risk, personal or otherwise,which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book.Publisher: Marie Butler-Knight Copy Editor: Jan ZoyaProduct Manager: Phil Kitchel Cartoonist: Jody ShaefferSenior Managing Editor: Jennifer Bowles Book Designer: Trina WurstSenior Acquisitions Editor: Mike Sanders Indexer: Heather McNeillDevelopment Editor: Ginny Bess Munroe Layout: Becky HarmonProduction Editor: Megan Douglass
  4. 4. Contents at a Glance Part 1: Getting Started 1 1 According to Plan 3 How your plan can help you 2 Figuring Out the Financing 15 Understanding your business’s financial needs 3 Business Writing Basics 29 Tips and pitfalls to consider while writing your plan Part 2: Putting Together Your Plan 37 4 Ready, Set, Write 39 Putting your business ideas on paper 5 Getting Down to Business 47 How to put your best business foot forward 6 Industry Overview 61 Describing your industry and its climate 7 Who Are You? 75 Your people are your primary asset; how to showcase your dream team 8 Analyzing Your Business in the Market 87 Explaining how your business will perform in the market 9 Getting the Word Out 105 Positioning and promoting your business for the best possible results 10 Sales Plan and Forecast 119 Explaining how you’ll sell your stuff 11 Operation Success 129 Making the most of your day-to-day business activities 12 Money, Money 141 Financial statements you’ll need to know for your plan 13 Show Your Documents 159 Supporting your claims with all the right backup documents
  5. 5. 14 Executive Summary 169 What you’re going to tell them in this critical part of your planPart 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 16 Using Your Plan as a Management Tool 189 How your plan can help everyone in the business get on the same page 17 Keeping Your Plan Current 205 How to keep your plan up to date and relevantAppendixes A Business Terms Glossary 215 B Sample Plans 221 C Resources 301 Index 307
  6. 6. Contents Part 1: Getting Started 1 1 According to Plan 3 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
  7. 7. vi The Complete Idiot’s Guide to Business Plans 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
  8. 8. Contents vii Obtain Assistance ........................................................................43 Iterative Process ..........................................................................44 Staying Updated ........................................................................44 Analysis ....................................................................................44 Annual Meeting ........................................................................455 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 ........................................................................596 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
  9. 9. viii The Complete Idiot’s Guide to Business Plans 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
  10. 10. 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 ..........................................................1039 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
  11. 11. x The Complete Idiot’s Guide to Business Plans 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
  12. 12. 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 ........................................................13912 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 ..................................................................................15613 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
  13. 13. xii The Complete Idiot’s Guide to Business Plans 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
  14. 14. Contents xiii 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 ..........................................................................212Appendixes A Business Terms Glossary 215 B Sample Plans 221 C Business Resources 301 Index 307
  15. 15. Foreword 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 plan- ning document is almost always meaningless. That’s right. The final written product we call “the plan” is actually almost worthless. As a serial entrepreneur and angel investor, every business plan I ever read says the same thing: “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 “con- servative.” Let’s face it. These are both lies. If publicly traded companies are unable to unfailingly predict the financial goals they are able to hit next quarter, how can the new business owner predict what business will be like in year two? 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’s operations is useless. In business, as in most of life, things almost never happen the way we plan them. However, the actual process of considering all of the possibilities is critical. It teaches you essential survival techniques at all phases of your business. Stop searching for the perfect business plan format. There are no absolutely right answers. Don’t look for magic in pricey consultants. You need to write the first draft yourself because the process is a key learning step. Focus on the guidelines in this book 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 your product or deliver your service. How will you acquire new customers? How much business can you expect per customer? When you consider these questions, is your new 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 constructed the 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 people who might be real customers and are in a position to buy your product or service today. Are they willing to part with their cash to solve a problem they have? What is the Unique Selling Proposition (USP) you can offer prospective customers? You will not 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. If you create your plan and stick by it no matter what, you could doom your business to
  16. 16. failure by being inflexible. Write your plan, and revisit it regularly to change what’snot 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 well-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.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.comChicago, IllinoisJune 2005
  17. 17. Introduction There’s no feeling like starting your own business. Opening a fresh box of business cards with “Your Name, Owner” on them, or sitting in your brand-new office for the first 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. Because you’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. Whether you’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 that you’ve set for your business by documenting the goals, resources, and processes that will propel your business forward. There’s an old adage that says, “Failing to plan is planning to fail.” That is never more true than when it is applied to a business plan. We have seen this phenomenon firsthand, consulting with and counseling scores of businesses. Those ventures that operate without a solid game plan in place are much more at risk to fail than those that take the time to plan. Because we’ve both been in the trenches as entrepreneurs, we know how valuable your time is. As we’ve written this book, we assume that you know the basics—how to choose which business is right for you, how to structure it, how to staff it, and the like. We’ve written 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 make that 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 using your 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.
  18. 18. xviii The Complete Idiot’s Guide to Business PlansWhat 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 because you 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 you through 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 for fulfilling them, on paper, you vastly increase the chances of achieving those goals and objectives. That’s what we’ll help you to do. While we recommend a format and order for the information, you may find that mix- ing up that order works best for your business. That’s fine. You’ll see in the sample business plans that business plans come in many forms and formats. Write the plan that feels most comfortable for you and fulfills the purpose you need to achieve.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 sec- tions that you’ll write out of order, we mention them within the sequence and then pay more attention to them when you’re at the point at which you need to write it. The book has four sections: 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’ve also included a chapter on business-writing basics that will help you with some of the common issues of structure, composition, grammar, and punctuation that often plague those 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 goals for your plan and how to write it to achieve those goals. Throughout, we’ve woven sections 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 your plan an important part of your business, how to keep it updated, and how to use it to obtain financing.
  19. 19. Introduction xix 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, rang- ing from retailers to consultants to manufacturing firms and more. Our glossary will brief you on the terms you need to know, and our list of business resources will show you where to turn for help, information, and advice. Together, these four sections will tell you just about everything you need to know about 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 will also 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 busi- ness plans. You can also head online to examine other sample business plans to choose the format that works best for you and your business. Once you’re familiar with the content, use the book as a guide to help you write your plan. By tackling each of the parts in this book, you can then use the order that we suggest, or reorganize the information the way that you see fit, or in the way that’s required by your lender, investors, or consultants. Either way, this book will help you get 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 is worthwhile if it just sits in a desk or on a hard drive. We show you how to make your plan 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, warn- ings, secrets, and money-saving tidbits. These notes may be short in format, but you’ll find great value in how they can shorten your learning curve and boost your bottom line! Bottom Line Booster Red Zone Because time is money, these In business, mistakes tips will help save you both as can cost you. These sidebars will you write your plan. give you fair warning about potential pitfalls to avoid.
  20. 20. xx The Complete Idiot’s Guide to Business Plans Back Office Secrets Biz Buzz In these sidebars, we’ll make you privy to the tips, tricks, and little- The world of business known facts that will help you and writing business plans can be write your plan and run your confusing. These sidebars provide business. definitions for the trickier terms.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 if this 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 produc- tion team. Thanks to our agent, Bob Diforio, for all of his help, support, and constant contact through his Blackberry! Gwen would like to thank her family and friends for their support, advice, and assis- tance in writing this book. Thanks to her parents, Thomas and Jeanice Moran, who raised 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 of business advisors. And thanks to Joseph Raymond, who taught Gwen about the things that are possible when we choose our own paths. 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 never cease to inspire her. And special thanks to the entrepreneur who shares her home address—her husband, Henry Nonnenberg Jr.—and their daughter, Abigail. Sue would like to thank her mother and late father, Susan and Albert Mahalske, for always encouraging her by saying, “You can accomplish anything you want by putting your mind to it.” Thanks also to her loving husband, Bob Johnson, for supporting her through all of her crazy and wonderful ideas, ventures, and businesses, as well as to her two sons, Bobby and Chris, for all of their love and for being the wonderful young adults that they are.
  21. 21. Introduction xxi She would like to extend special thanks to Bill Harnden and Vicki Lynne Morgan for their time and input to some of the material in this book. Bill is the Assistant Director of the Small Business Development Center (SBDC). After a long and distinguished career in finance, he is currently employed at Raritan Valley Community College pro- viding financial counseling to many small businesses through the SBDC. Vicki Lynne owns Animal Brands, a marketing and sales representation agency, as well as Russmor Marketing Group, which focuses on private consulting, counseling, mentoring, and coaching for businesses, and is an SBDC counselor. Thanks to the great people she works with at SBDC and RVCC, especially Bill Harnden and Allison O’Neil for their team efforts and contributions, to their local SBDC, in assisting small businesses. Thanks, also, to the many wonderful small-business owners she has met and has had the opportunity to assist in their journey of pursuing their dreams. 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 Domenick Celentano and Stellar Academy started by two sisters, Mary Matthews and Dr. Margaret Buley—who have allowed us to use their business plans (modified for confidentiality) in this book to benefit and assist other future small-business owners. Through the Small Business 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 being trademarks or service marks have been appropriately capitalized. Alpha Books and Penguin Group (USA) Inc. cannot attest to the accuracy of this information. Use of a term in this book should not be regarded as affecting the validity of any trademark or service mark.
  22. 22. 1Part Getting Started Here’s what you need to know before you begin drafting your plan, includ- 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, we discuss plan basics, such as how your plan can help you run your business as well 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 you understand the financing needs of your business. Chapter 3 gives you a head start on business writing basics to help make the process of writing much less intimidating.
  23. 23. According to Plan Chapter 1In 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 perhaps you decided that you’ve just had enough of the commuter lifestyle and want to start a business of your own, closer to home. Whatever the reason you’re starting or acquiring a business, you’re already further ahead than most 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 a number 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 side- line operations. In 2003, there were approximately 23.7 million businesses
  24. 24. 4 Part 1: Getting Started 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, including start-ups, acquisitions, and franchises. Major factors that determine whether a company remains viable include an ample supply of capital, sizable enough to have employees, the owner’s education level, and the owner’s reason for starting the business in the first place, such as Biz Buzz freedom for family life or the desire to be one’s own An entrepreneur is boss. The companies that had the clearest sense of someone who launches a for- purpose—and a solid plan for survival—are the ones profit venture or business. that are still open today. The plan for survival is most effective when it takes the form of a written business plan. 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. Some other 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 plan before making loans available to your business. In the upcoming chapters, we help you present your business in the best possible way, which can make the difference when 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 writing the plan before you begin. A business plan can range from about 5 pages to 60 or more pages, 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 and filled with more documentation than if you’re using it as an internal management tool. The length and form of your business plan depends on you and your goals for your business. The following sections look at some of the common varieties of busi- ness plans.
  25. 25. Chapter 1: According to Plan 5Securing Financing or Investors Plans with financial goals place heavy emphasis on the business numbers—what are its sales, assets, projected revenue and income growth, and other factors that make the business 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, emphasizing your 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 and services are delivered, and how the company markets itself. That way, you can fully outline 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 streamline operations and find flaws that might make your business less attractive to potential buyers. If your business is a partnership, you have to Biz Buzz clearly lay out your expectations for the sale A partnership agree- of the business, including the selling price ment is a document that outlines and how the proceeds are to be divided. It’s a the terms and conditions of two good idea to consult an attorney to execute a persons or entities entering into a partnership agreement or buy/sell agreement business 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 common challenges 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 extremely important tool for any business. It can be used to provide analysis and milestones for the business owner. It serves as a means of communication with accountants, attorneys and others, and as preparation for financial needs and loans. It also acts as an iterative process of a working plan for your ongoing business.
  26. 26. 6 Part 1: Getting Started Writing a business plan enables you to assemble all of the components of your busi- ness together and document them. This process will ensure that you’ve considered the major 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-term outlook 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’s progress. With constant review and updates of the plan, it will give you a solid basis on which to make decisions, implement changes, and take action. As your business progresses, you will continue to learn more facts that can be implemented into your plan. Some of the purposes that your business plan can serve are discussed in more detail 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 that through 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 origi- nally set for your business. All too often, businesses get sidetracked from their core missions, leading to a slowdown in growth because resources are diverted to other efforts. Your business plan can serve to remind you of exactly how your goals should be focused.Setting Goals and Benchmarking Success Your business plan will help you set the short- and long-term goals that will bench- mark the progression of your business. By putting these goals down on paper and explaining how they will be accomplished, you map out the steps you need to take to make your business successful. Your business plan will also have projections about growth, revenue, and accomplish- ments. You can use these projections as measurements, to determine how well your business is performing. If you find that your business consistently fails to meet the
  27. 27. Chapter 1: According to Plan 7 goals that were set, then it’s a sure sign that you either need to ramp up some of the sectors of your business or you need to take a look at the measurement mechanisms you’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 busi- ness, or how it will work. Who will be responsible for various business functions and how will the work get done? Outlining these responsibilities on paper may show you where improvements could be made, where you can save money and time, and if you’re overlooking a key component of how your business will get its tasks done.Fiscal Fitness As noted earlier, another key factor of a business plan is to obtain money from debt (lenders) or equity (interest in the company) funding. Your business plan is your key to convincing a lender that you have a viable business idea in which they should invest. These money gatekeepers look for research—facts, figures, and demographics. However, they also look for intangibles, such as ingenuity, dedication, and manage- ment experience. So it’s critical that you include all of your assets, knowledge, and expertise in this document. The more complete the business plan, the more likely you will obtain funding. Your business plan can also serve as a working budget, to ensure that income is spent properly. Sure, it would be great to rent prime space and spend thousands on luxe décor for your new office. And when you get a fat check from a lender, it can be tempting to splurge on a few things. However, by outlining the cash flow that will be the lifeblood of your business, you’ll be less tempted to take money that should go toward 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, and you 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 best interest of growing your venture.
  28. 28. 8 Part 1: Getting StartedThorough Research The process of writing a business plan will mean that you’ll need to do the necessary homework. That means researching your business idea and the marketplace to see if they’re a good fit. Research can take many forms and range from studying data from trade associations to conducting your own market research by talking to potential customers, vendors—and even competitors. If you ignore the research component of starting your business, you do so at your peril. A business plan that saves you from a business that fails because it was never viable 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 word out about your business, products, and services. Beyond that, your marketing plan will determine how your product is positioned, priced, and distributed, relative to your 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, where the market for your products and services will be, and, overall, how feasible your business 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 Expansion Biz Buzz Your business plan will explore how and when you Many people use rev- will grow your business, including the staff, facilities, enue and income interchange- and revenue that you’ll need to do so. ably, but they are actually two different things. Revenue is your gross income, before any deduc- tions. Income refers to the amount Exit Strategy of money that remains after your Because no one can run a business forever, good business expenses, but before business plans also include exit strategies—game income taxes are paid. plans for leaving the business or selling it. Investors need to know the business will have longevity after the entrepreneur leaves for any reason.
  29. 29. Chapter 1: According to Plan 9Your USP In the context of your business plan, you also need to show your unique selling propo- sition, or USP. Focusing on developing a USP isn’t a new concept, but it’s a critical one. 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 company and 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’ll find yourself often competing on price or constantly having to settle for customers that might not be the best fit for your company (or the selling cycle—the time frame in which you sell your products or services—will be vastly 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 prod- ucts or services in your sector, then you have a strongly unique selling point. ◆ Convenience: Does your offering save people time or effort? If your product or service is more convenient to use or provides some savings of time or effort, that can be a strongly unique selling point. ◆ Specialization: Is your product or service better for a specific niche of the mar- ketplace? For instance, are your widgets manufactured for industrial use or is your service better suited toward more established businesses? ◆ Better quality: Do you do what you do better than the competition? Quality consistently ranks ahead of price in surveys of why customers buy. So if your product is more durable, your service more reliable, or you’re otherwise head and 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 in business, is to ask your customers. Institute some mechanism, such as a survey that determines their level of satisfaction, to gather their feedback and ask them why they buy from you. It’s usually better if you gather the information through some sort of anonymous means. For instance, you can conduct surveys at checkout counters, or
  30. 30. 10 Part 1: Getting Started send surveys in the mail after the client buys from you, as you’ll get more reliable data that way. Some ways to do this include the following: ◆ Sending a survey to customers with an incentive to return the survey, such as a discount 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 anonymous form on your website. Another idea is to teach employees to make note of anecdotal feedback that customers relay. 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 in which 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 be more effective. Look for ways that you interact with your customers and try to integrate short, non- invasive methods of information gathering. The key to successful gathering of feedback is to keep questionnaires and surveys to a manageable length. This varies depending on your type of business, but the general rule is that shorter is better—five to six questions is ideal. Use a format of both multiple- choice and open-ended questions for best results.Doing It Yourself or Getting Help? There are a number of business-plan writing services out there, as well as business-plan template 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. The Bottom Line Booster process of writing your plan is an exercise that will If your plan needs an editorial help solidify the direction of your business. By going once-over, hire a business or through the process yourself, even if you’re not a communications student to help good writer, you’ll be forced to think through various you fine-tune it. The student will get valuable resumé fodder scenarios and learn more about how your business will and you’ll get the benefit of a run, market, staff, and grow. By hiring someone to do budding wordsmith who can put that for you, you’ll lose out on the benefits gained your ideas into captivating prose. from that process. However, if you’re not confident in
  31. 31. Chapter 1: According to Plan 11 your writing skills and feel like you need someone to edit your plan before it goes to lenders 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 provide free and confidential counseling with assistance and review of your business plan, as well as many other free counseling services to existing and beginning businesses. These services cover marketing, financing, and much more. Visit www.asbdc-us.org for the center nearest you. ◆ Call SCORE (Counselors to America’s Small Business), which offers free coun- seling to start-up or established business owners. Find out more at www.score.org. ◆ 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 in Spanish. ◆ 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 associa- 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.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 freelance writer or marketing consultant, rather than a management-consulting firm. In most cases, 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 or freelance writer to polish up the grammar and language.
  32. 32. 12 Part 1: Getting Started Red Zone If you hire a writer to complete your plan, he or she should have business plan experience, 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 other plans that he or she has written. However, the writer should be able to produce at least two appropriate writing samples. In this case, it really pays to check references. Other tips for hiring providers include the following: ◆ Seek recommendations. Ask other business owners who they would use or call your local Chamber of Commerce or business association. ◆ Interview a few. Speak with more than one provider to get a sense of pricing and service 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 the references 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 be able to share other plans (be wary if he or she does). However, you should still look 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 work looks 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. These packages will lead you step-by-step through the process of writing your plan. Some of the 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)
  33. 33. Chapter 1: According to Plan 13 ◆ Business Plan 12.0 by Out of Your Mind … And Into the Marketplace (www.business-plan.com) ◆ Anatomy of a Business Plan by Linda Pinson (www.business-plan.com/ anatomy.html) This list doesn’t constitute an endorsement, and we think that you can write your business plan just fine without spending the money on software. However, these pro- grams do make formatting convenient by providing step-by-step, fill-in-the-blank templates for writing a plan. The trouble is that your plan will look like that of every- one else who used the software. The choice is yours—it may save you some time, but only you will know whether the software is worth it. 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 those that do not. ◆ Revenue is not the same as income. ◆ A business plan can help you secure financing, grow your business, or accom- plish other goals. ◆ Write your business plan yourself to get the most out of the process. Hire some- one to help you clean up the prose later—for much less expense than writing it from scratch. ◆ 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 before you spend your money.
  34. 34. Figuring Out the Financing Chapter 2In 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 will realistically take to start or acquire your business, as well as how much money you’ll need to sustain it until it becomes profitable. It’s easy to underestimate the amount of money you’re going to need—and that’s a major reason why many businesses fail. Undercapitalization will constrict your cash flow and limit the opportunities you have to grow your business. You will also need enough money on the personal side to carry you through the start-up phase. Sometimes business owners run out of cash to cover their own expenses even when the business is viable. In later chapters, we discuss the specific financial statements that you’re going to need to develop. In this chapter, we address the broader strokes of making your plan appealing to financiers.
  35. 35. 16 Part 1: Getting StartedUnderstanding Debt and Equity As you examine the capital needs of your business, and consider using your plan to obtain 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 rate and term and then have to repay a set amount that includes interest and any fees that have 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 of your business.Equity Equity financing is when an investor purchases a part-ownership of your business in exchange for a certain amount of money. The investor and the business owner usually decide 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 con- trol over what you thought was your business. Just be careful with the negotiations. In addition, the investor usually maintains a percentage ownership stake in the busi- ness, and may be entitled to a percentage of profits from the business, which is the investor’s return on investment. The investor usually wants a buyout point that is stated up front, because they are looking for a return on their investment over a certain period of time. The period of time 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 of options available, depending on the type of business you want to start, the collateral you 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.
  36. 36. Chapter 2: Figuring Out the Financing 17Grants Despite some infomercials that tout the availability of grants for virtually any business, grants for garden-variety ventures such as hair salons or restaurants are actually rela- tively rare. Sometimes you can find special one-time grants online, if you regularly search around, but that may require more than a bit of luck. Still, if you find a grant that matches your business venture, by all means apply for it. Grants are terrific because they don’t need to be repaid as long as you fulfill the obli- gation that you set forth when applying for the grant. The searching and applying can be time-consuming, however, and often grant matches are not found. More commonly, grants are available for bio- life science and high-tech businesses, often Back Office Secrets offered through various states to cultivate Because navigating the government- those types of businesses. Federal grants for grant process can be tricky, you these types of companies are offered through might want to seek help from your the Small Business Innovative Research local Small Business Development (SBIR) and Small Business Technology Center (SBDC). SBDCs throughout Transfer (STTR) programs. Both govern- the nation have consultants who can assist you with the application ment programs seek innovative and unique process. For SBDC locations near ideas. If your business qualifies, it could you, go to their national website receive a grant for as much as $750,000 for at www.asbdc-us.org. the start-up phase and up to $1 million for the growth phase.Personal Resources Most lenders and investors want to see that you’ve invested some of your own resources in the business. After all, if your money is on the line, you’re more likely to be cautious about risking that investment. The following sections discuss some of the personal resources that bootstrapping entrepreneurs have used to start and fund their ventures. Savings Personal savings, including money in savings and checking accounts, CDs, mutual funds, and other investment vehicles, are often tapped for new ventures. The benefit is that there is no interest due on this money, but you also want to be careful that you don’t jeopardize your ability to pay personal expenses, such as mortgage, car, credit card, and other payments, not to mention having a few bucks left over for groceries, clothes, and other essentials.
  37. 37. 18 Part 1: Getting Started Home-Equity Loans or Lines of Credit A number of entrepreneurs have borrowed against their largest assets—their homes— in order to fund their businesses. This is a surefire way to get cash, and the interest may be tax-deductible; however, you need to be sure that you’re going to be able to repay this additional loan on your home, or you could end up losing it. A home-equity loan is just that—a loan for a fixed amount of money against your home, up to a certain percentage of the amount of equity you have in your home. A home-equity line of credit, on the other hand, operates much like a credit card. You have a maximum amount that you can borrow at any given time, and you can use checks or a charge card to access the funds, which you can then repay in installments or in full, depending on your ability and inclination to do so. Both have interest rates, which are usually a bit higher than conventional mortgage rates. Credit Cards You can also access your personal credit cards to tap cash to meet your business expenses, either by using them to charge items for your business or by taking cash advances. Be aware that this is usually a very expensive way to borrow for your business, depend- ing on the interest rates on your cards, and running up big balances on multiple cards could also impact your personal credit rating. However, if your borrowing options are limited, credit cards can provide a means to get the money and financial flexibility you need, especially for the short term. Family and Friends If all else fails, you can go hat-in-hand to your family members and friends for finan- cial assistance. Although conventional wisdom says that it’s not a good idea to borrow money from your loved ones, it could be an option if there are no others. The key to successfully borrowing money from family or friends is to treat the trans- action as you would with a stranger. Draw up paperwork that spells out the terms of the deal, how much is being borrowed, and how and when the principal will be repaid. You should also agree upon a fair rate of return. Then, stick to the payment plan. Nothing will sour a relationship more quickly than a money deal with a friend or family member gone bad.
  38. 38. Chapter 2: Figuring Out the Financing 19Loans You’ve probably taken a loan for something—to finance your education, to buy a home, a car, or some other big-ticket item—so, it’s pretty clear how they work. You apply for a certain amount of money and, based on a number of criteria, the lender decides whether you’re a good financial risk. Depending on how your profile shapes up, the lender decides how much to lend you, on what terms, and at what interest rate. Red Zone Beyond those basics, loans start to differ. Collateral is often re- Some of the options available for financing a quired, but keep in mind that business include commercial loans, a line of IRAs, 401Ks, and other types of credit, micro loans, and SBA-guaranteed retirement investments are not loans. allowed to be used as collateral for business loans, so don’t count on them to strengthen your appli- Commercial Loans cation. Commercial loans are granted from a bank or other lending institution. They are extended based on the lender’s evalua- Bottom Line Booster tion of the borrower’s credit and credentials. Fees and interest rates on loans Sometimes, closing, application, and other are often negotiable. Ask for fees are associated with these loans, so be fees to be waived and also sure to get a full disclosure of any fees and ask for a better interest rate. You could save hundreds or charges that are associated with the loan thousands of dollars. before you agree to the terms. Line of Credit A line of credit, as described previously, is much like a credit card. You have a maxi- mum amount of funds that you can borrow. You can access any of the funds or the entire amount through provided checks or an associated credit card. You then pay back a minimum amount, the total balance, or any amount in between. You accrue interest on the outstanding balance. Lines of credit offer great flexibility during low cash-flow periods. After you are approved for a line of credit, the money becomes available whenever you need it, but if you do not take it, you do not pay interest on it (like you would with a commercial loan).
  39. 39. 20 Part 1: Getting Started Micro-loans Back Office Secrets A micro-loan is an SBA-sponsored program offered through an intermediary lender that offers up to The SBA has a list of micro- lenders throughout the U.S. gov- $35,000 to small businesses, including start-ups. ernment, which can be found Micro-lenders are often more flexible than commer- at www.sba.gov/financing/ cial lenders and are willing to offer financing, even if microparticipants.html. you already have other debts, such as a first loan from a commercial lender. SBA-Guaranteed Loans One of the most misunderstood concepts in lending is that the SBA lends money. It doesn’t. Instead, the government organization guarantees loans made through lenders. If a commercial lender is balking at lending you money because your enterprise may be too risky, you can apply for an SBA guarantee of usually between 75 to 85 percent of the loan. This guarantee will ensure that the loan will be repaid to the lender even if you fail to do so. The lender, then, has less risk and is more likely to approve a loan. Not all banks offer SBA loans, but the vast majority of them do. Some banks have SBA preferred-lender status, meaning that the lender can approve the loan internally without processing it through the SBA, giving borrowers shorter turnaround time on the loan approval. The two most common SBA loan programs are the 7(a) loan guarantee and the 504 loan program. The 7(a) loan is the most common SBA loan and can be used for most business purposes, such as working capital (maturity of up to 10 years) and fixed assets (maturity of up to 25 years). The maximum loan amount is $2 million to the small business with an SBA 50 percent guarantee to the lender (there are higher SBA guarantees of 75 to 85 percent on loans under $1 million). The 504 loan is also referred to as a CDC—Certified Development Company— because they are the SBA intermediary who offers these types of loans. These loans are usually for major fixed assets such as land and buildings. Usually 50 percent of the loan amount or project cost is from a lender, 10 percent of the loan amount is from the business itself, and 40 percent of the loan amount is from the CDC, thus lower- ing the risk to any one lender. The maximum amount of an SBA-guaranteed loan is $1 million.

×