Creating a Business Plan - Fox Valley Score

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Creating Your Business Plan
Social
Media
Legal The Elmhurst Library
and
SCORE FOX VALLEY
PRESENTS
Presented by:
John Benton & Tom Drouin
SCORE Certified Business Mentors

• Working and Retired Corporate Executives and
Business Owners
• Non-profit organization established in 1964
• SCORE is a resource partner with the Small
Business Administration (SBA) & the Small
Business Development Centers (SBDC’s)
• Helping entrepreneurs and the small business
community
o No-fee mentoring
o Confidential business counseling
o Low fee and free educational workshops
About SCORE

• Face to Face Mentoring (usually
in a team of two)
• E-mail Counseling
• Workshops
• Social Media
• Websites – local and national
• Resource Partners
– Referrals – Chambers of Commerce,
etc
– SBDC’s
– Banks
– Libraries
How We Operate

Mentoring Locations
SCORE Fox Valley Chapter
Serving the Western Suburbs
Branches
Aurora Elmhurst
COD/Lisle Joliet
Bloomingdale Naperville
Elgin McHenry
IIT, Wheaton DeKalb
Currently, over 110 members / mentors

The Framework for the Workshop
• A Business Plan is designed to address all of the key issues you
must answer to build a successful business.
• A plan is organized in eight parts, and when complete, is
designed to answer five questions.
1. What am I doing?
2. Why am I doing it?
3. What’s in my way?
4. What will I do about the obstacles?
5. What are my measures for success?

The 5 questions lead you to a
Feasibility/Reality Check...
• Does (Will) your Business Plan Goals
($ profit) meet your Personal Goals
($ & Lifestyle needs)?
• Do you have the experience & skills
needed to succeed?
• Are you willing to commit the time,
energy & financial hardship necessary?
Business Plan

Business Plan
What is a Business Plan
and why do I need it?

Business Plan
It’s a business road map…
• It represents directions to get from
where you are to where you want to be.
• It defines the resources and the
length of time you will need to
accomplish your goals.
• It’s required by financial investors to
receive financing.
• It’s a tool to organize ideas and
information.
• It’s a disciplined process to help
improve your chances for success.

The Plan should be realistic!

The Business Plan
• Should clearly answer:
– Where do you want to go?
– How are you going to get there?
• Is only as long as is essential to
convey the message.
• Is a living instrument – revisions
are ongoing.

Business Plan Structure
1.0 Executive Summary & Mission Statement
• 1.1 Elevator Speech
2.0 Business Description
3.0 Products or Services
4.0 Customers
5.0 Competition
6.0 Marketing Plan/Sales Forecast
7.0 Operations - Management Credibility/Skills
8.0 Financial Projections

Business Description
• Name and location of your
business.
• Products & Services
• Customers (Target Market)
• Channel(s) of distribution
• Geography

Business Description Example
• Smith & Jones Consulting Services LLC, located in Chicago, Il
facilitates strategic planning services and one on one
executive level coaching and mentoring for privately owned
business – to - business industrial manufacturing companies
with sales in excess of $40MM and who’s headquarters are
in the greater Chicagoland area.

Market Description
Sets the framework for defining your
target market.
• Who are your customers?
• Define the industry or customer
characteristics
• Who will you serve? (and not serve!)
• Is your market growing or mature?
• What’s your position in the supply chain?
– Retailer / Wholesaler/ Manufacturer /
Service Provider / Internet / Home Based

• What are they specifically?
• What are the features of your
product or service?
Products or Services
• What advantages do they
offer relative to the
customer’s alternatives?
• What are the benefits to
the customer?
• What IP-patents,
copyrights, or trademarks
are available/necessary?

What’s the emotional element that
will drive you to succeed?
What makes you better?(from the
customer’s point of view)
• Is it quality?
• Is your service better?
• Are you more responsive?
• Do you offer better technology?
• Are you more flexible?
• Do you have more knowledge?
• Is your price lower or better value?
• What does the price say about your
product?
Value Proposition

• Sole Proprietorship
• Partnership
• Limited Liability Company (LLC)
• “C” Corporation (Conventional)
• “S” Corporation (Sub-chapter)
Business Legal Structures

• Who are they?
– B2B or B2C?
– What are their defining
characteristics?
– Demographics, Income, Gender, Etc
– Do you have more than one?
•Consumer? Supply Chain Partner?
– How do your products get to your
customer?
• Where and how many are in your
market or niche?
• What are their buying patterns or
cycles?
Customers

• How often do customers buy?
• Do they buy companion products
or services?
• Why do they buy your products or
services?
• What price will they pay?
• Who makes the final purchase
decision?
•Are there influencers?
• Describe your typical customer.
Customers

Three times to be concerned
about competition:
1. When you are planning to start-
up or buy a business, are in
business, or planning to enter a
new market.
2. When a new competitor arrives
on the scene.
3. All the time.
Competition

Competition
Describe your competition
• Who are they and where are they?
–Think broadly!
• What are their strengths and
weaknesses?
• Who supplies their products?
• How are their products and
services delivered?
• Do they bundle features with their
products? (warrantees, maintenance)
• What are your competitors’ prices?

• Data Resources
- Library (research librarians), Internet,
Market Surveys
• Your Experience
- Sales people, Operator, Competitor,
Direct contact
• Personal Market Research
- Phone inquiries
- Personal visits
- Customer count, ticket price, etc.
• Outside help
- Wisconsin Innovation Center
www.wisc.uww.edu
Researching the Market

Building Your Competitive Position
• Understanding your competitive position is a
cornerstone to building your sales plan and marketing
message.
• There’s three ways to compete
Low Cost Producer
Product Innovation
Customer Intimacy

Building Your Competitive Position
• Analyzing your value proposition, customers and
competitors will help you decide how best to compete.
– Do a SWOT analysis.
S
Strengths Weaknesses
Opportunities Threats

The Marketing Plan
• A cornerstone of the Business Plan
• Defines:
– What methods you will use to reach your prospects
& clients
– What message you will deliver to them
– What resources – people and money – you will use
– What measures you will use to gauge effectiveness
• Marketing Plan Leads to forecasted sales

Key Marketing Questions to Consider
• What is marketing for?
• What can we measure?
• What can we change?
• What promise are we making?
• What is the hard part?
• Should we make trends or follow trends?
• Where is the risk?
• Who is in charge?
• What is money for?
• What is the most important way(s) to spend my time?

The Underlying Appeal in Marketing
• Emotion
– When most “needs” are met, the focus is on “wants”
• Change
– Does your product or service change the person who
buys it?
• Alert
– How do you build the privilege to alert customers to
something?
• Build trust – it’s the way your clients will care about your brand.
• Share
– How can you move your customers to speak on your
behalf?

The Four P’s
• Product (Service)
– What is your product offering to your prospects &
clients?
• Place
– Where does your offering fit in the supply chain?
• Price
– What is your price position to your prospects & clients?
• Promotion
– What is your brand promise?
– What tools will you use to attract & inform prospects &
clients?

Product/Service Strategy
What product(s) or service(s) are you
offering to your prospects and customers?
• Stand Alone
– Can you think of one????
• Augmented: adding value in Packaging, Labels,
Warranties, Support Services, e.g.
– installation, maintenance agreements, user manual, online
resources, applications or content that may be added,
compatibility with earlier models etc.
• Bundles: Levels according to customer need
– Gold, Silver, Bronze
– First Class, Business Class, Coach

Place: Channel Selection
• Who will sell your product?
– Direct Sales? (B2B or B2C)
– Indirect Sales through distributors, dealers or
sales / manufacturers reps?
– Retail
– Print media
– Internet?

• Investing the time to fully understand your costs
and to evaluate your pricing alternatives is very
important. The choices you make affect:
– Your Revenues
– Your Profit
• Sell based on your value differentiation, not low price!
• Alternatives to consider can be dependent on channel
– List less discount
– Mark up
– Contract
– Discount based on: time, volume, delivery, cash / credit
Pricing Strategy

Income (P&L) Statement
Dollars Units (500,000)
Revenue $1,000,000 $2.00
Cost of Goods Sold (COGS):
Materials, Labor, Contractors,
Returns (variable costs)
$400,000 40% $0.80 40%
Gross (Contribution) Margin $600,000 60% $1.20 60%
Fixed Costs (Overhead) $450,000 45% $0.90 45%
Operating Margin $150,000 15% $0.30 15%
Interest & Other income $0 $0
Profit B/4 Tax $150,000 15% $0.30 15%

P&L up 53% if Raise Price 10%
Dollars Units (500,000)
Revenue $1,100,000 $2.20
Cost of Goods Sold (COGS):
Materials, Labor, Contractors,
Returns (Variable Costs)
$400,000 36% $0.80 36%
Gross (Contribution) Margin $700,000 64% $1.40 64%
Fixed Costs (Overhead) $450,000 45% $0.90 45%
Operating Margin $250,000 23% $0.50 23%
Interest & Other income $0 $0
Profit B/4 Tax $250,000 23% $0.50 23%

PROMOTION: Communications
• The practice of how you will attract new
customers and keep existing customers?
– What methods will you use to reach your prospects & clients?
– What message will you deliver to them?
– What resources – people and money – will you use?
– What measures will you use to gauge effectiveness?
The short pneumonic:
Mission, Money, Message, Media, Metric

The Marketing Plan End Products
• The 4 P’s – What Product(s), through what Channel(s),
at what Price, with what Messages, using what tools?
What do you want your prospects and customers to
hear?
– Your value proposition
– Your brand message
– What resources you need to be successful
• The sales and revenue projections that are a key
element to your P&L

Understanding the Market leads to Sales
Forecasting
• Define your target market segment(s):
• What is the size of the market and what are the
growth rates?
• How much of the potential market can you capture?
• When will you capture this business?
• From which competitors will you capture market share
and how?

How to Develop a Sales Forecast
• Traditional Options
– SWAG - units x selling price
– Market share estimates (% of market size of served area)
– Backwards: Start with customer or sales goal at maturity
(3rd year), and project gradually back to launch, then
assess and adjust.
– Client or prospect interviews
– Percentage of prospects in your sales pipeline
• Need multiple ways to calculate
– Three or more lets you cross calibrate for better
estimates

Sales Funnel & Time Commitment
Funnel & Time Commitment
• % of each line successfully
moves to next line:
– 80% of leads are qualified and get a
call;
– 50% of calls  appt.;
– 50% of appts. get proposal;
– 100% of proposals require follow-up;
– 25% of proposals = sales
– ~5% - 10% of leads = sales
• For each activity, how much
time does it take?
• For projected sales volume,
how much time must be spent?
• Do you have that much time?
“Seven touches rule of thumb”

Sales Funnel Leads to: Revenue & Cash Flow
Sales forecasting for revenue and projecting cash
flow are related activities but not the same.
• Estimate the sales cycle: how long to close a deal, from
contact to sale?
– Reflect in lead time required for timing of forecast unit
sales.
• Estimate when how long before payment is received
– Reflect delay or losses in payment after sale
• Terms given or slow pay
• Provisions for bad debt % in your cash flow statement.
Projected & actual revenue are keys to financial docs

What, Who & How?
Purchasing
Manufacturing
Sales & Marketing
Technology
Personnel
Bookkeeping & Accounting
Legal
Banking
Insurance
Describe Operations By Function

People:
How many employees are required?
When and how much will you pay them?
What skill set do your employees need?
Brick & Mortar or Virtual; Both?
What equipment and facilities are required?
•Lease or Own?
What are your hours of operation?
Where should the business be located?
Technology required?
Control:
How and who will keep records or
inventories of products and services?
How will you measure quality?
Defining Your Operations

Money: How Much? From Whom? For What?
• Sources of Capital:
• Formal (Government, Grants, Lenders, & Other
Investors)
• Informal (Owners, partners, friends & family and
retirement and savings accounts)
• Business Associates - Vendors
• Uses:
• Buildings and other real estate
• Machinery, Equipment, Furniture & Fixtures
• Initial operating expenses: marketing, purchase
inventory and supplies, general & admin expenses

Formal Sources of Capital
Community Economic Development
Grants from Foundations
SBA Loan
Bank Loan
Venture Capital
Angel Funding
Seller Financing
Franchise Loan (Sears)
Equity Lease
Earn Outs

Informal Sources of Capital
Tenant Improvement Allowance
Suppliers ( Terms, 60 to 90 days)
Consignment of Inventory
Profits
Partner(s)
Home Equity
401K’s, IRAs, etc.
Savings
Credit Card(s)
Friends, Family & Extended Family

Financial Statements
• Two types of Accounting Systems:
• Cash Basis
• Accrual Basis
• …And four major types of financial
statements:
• Balance Sheet
• Income Statement (or Profit & Loss)
• Statement of Funds Flow
• Statement of Cash Flow

Cash Basis Accounting is like your checkbook:
No transaction is recorded unless cash is involved
. . . No sale is recorded until cash is received
. . . No expense is recorded until the credit card is paid
or a check is issued
Accrual Basis Accounting records each transaction as it occurs -
. . . Sales are recorded when the goods or
services are delivered to the customer
. . . Expenses are recorded when they are
incurred and a liability is created

Balance Sheet
A statement, prepared as of a specific date, that lists:
Your business’s ASSETS - these are things that your
business OWNS: Cash, Accounts Receivable, Inventory,
Equipment and Land
Your business’s LIABILITIES - these are amounts that your
business OWES: Accounts Payable, Customer Deposits,
Credit Card Balances and Short and Long Term Loans
Your business’s NET WORTH or Owners’ Equity - the
amount the Business OWES the owners including YOU:
Capital Contributed by you + Net Income + Additional
Investments by 3rd Parties – Amounts Withdrawn by
Owners or Paid Out to Investors

INCOME STATEMENT
A statement, prepared for a specific period of time
(month/year), that lists:
Your company’s SALES or REVENUE
Less: The COST OF SALES - cost of the products you
sell or the cost of materials, labor, and overhead
if your business is manufacturing or a service
organization
Less: The EXPENSES incurred to generate the sales
and pay for administrative costs
Equals: The NET INCOME (or loss) for the period

Statement of Funds Flow
A statement, prepared for a specific period of time (month/year),
that lists:
• Funds your company generates from operations (net income
with non-cash items, like depreciation, added back)
• Other sources of funds generated by the company through
(increases in bank loans, payables, added owner
investment, or decreases in receivables, inventory or
other assets)
• Uses of funds (to increase inventory, receivables or other
assets and to decrease payables, loans or other liabilities)

Cash Flow
• Is the Measure of the Movement of Money:
(Cash) In and Out of Your Business Over Time
• Cash is :
– Currency ($)
– Deposits that can quickly be converted into currency
– Accounts Receivable that you are 75%-100%
confident will be received in the period
– Does Not Equal Sales or Profits – a Business
Can be Profitable Yet Still Run Out of Cash!

What is not Cash - Why Not?
• Inventory - Needs a buyer who is ready, willing and
able to pay in cash
• Equipment and Other Assets - Needs a buyer
who is ready, willing and able to pay in cash
• Stale Receivables (generally 90 or more days old)
– are doubtful as to collectability within reasonable
time or as to the full amount

Cash Flow Statement
A statement, prepared for a specific period of
time (month/year), that lists:
Your company’s CASH RECEIPTS, such as cash
sales, payments from customers, loan
proceeds and others
CASH PAYMENTS by your company to pay for
inventory, expenses, wages and more
The CASH BALANCES at the beginning and
ending of the period involved

Cash Inflows & Outflows
INFLOWS: OUTFLOWS:
• Payments for goods or
services from customers
• Bank interest on
accounts
• Sale of Long Term Asset
• Receipts of a bank loan
• Investors contributions
to the business
• Purchases of materials or
outside services for final
product or deliverable
• Daily operating expenses –
insurance, rent, payroll,
utilities, etc.
• Cash outlays for equipment,
hardware, machinery, etc.
• Loan repayments
• Payment of taxes
• Distributions to Investors

Indicators You Are Managing Cash Well
• Positive Cash Balances throughout operating period
• Able to make timely payments to suppliers,
vendors, taxing bodies, your staff and yourself
• Customers pay you when expected
• No large cash balances maintained in operating
account
• Able to make buying decisions on best business
terms

Best Practices - Customers
• Closely Monitor Customer Payments
– Chase late payments
– Look for warning signs
• Suddenly paying late
• Consistently paying wrong amount, payment needs to be
reissued
• Unable to speak to you
• Smaller or less frequent orders
• Presence of old/obsolete inventory at client’s site
• Incentivize Customer Behavior
– Discounts for early/prompt payments
– Penalties & Interest for late payments

Best Practice – Vendors & Suppliers
• Pay IRS, IDOR &IDES On-time
• Wait as Long as Possible to Pay Vendors
(delay but don’t pay late)
• Order Less, But More Often
• Ask Suppliers for Extended Terms (i.e. 45
days) or Discount Based on Volume or Early
Payment
• Reduce Fixed Expenses as Much as Possible

Best Practices - Operations
• Run Credit Checks, Credit History, References
• Eliminate Obsolete Inventory – turn it back into cash…and
you don’t have to pay to store it!
• Consider Factoring
– Business sells A/R to 3rd party; receivable is collateral
– Payment is based on value of receivables (70-80%)
• Pro: business gets cash up front; someone else goes
after payment
• Con: amount you get is only a fraction of full A/R
less additional fees

• Leasing vs. Buying
– Leasing creates a fixed predictable expense vs. large
purchase
– Minimizes large outlays of cash
• Scrub and Review All Payment Activities
– Can payment be spread over time?
– Alternate Suppliers?
– Insurance, worker’s comp
– Duplicate or excessive (over) payments in past?
• Consider Outsourcing “Non-Core Competency” Activities
e.g. Payroll

• Printers & Copiers
– Monochrome vs. Color
– What are you spending on toner?
– Avoid unnecessary printing – consider dual screens to
minimize printing
• Monitor Auto-Deductions from Checking Account
• Watch Contracts that Auto-renew e.g. Broadband
• Free/Low cost Services for Conference Calls,
Desktop/Application Sharing

Best Practices - Banking
• Setup On-Line Banking
– Customers can pay with electronic funds transfer to
your account
– Delay timing of payments to supplier and vendors
until just before due dates
– E-scan customer checks to avoid trips to the bank
– Embrace New technology e.g. credit card swiped
directly on mobile devices
– Link to your accounting or bookkeeping system to
avoid duplicate entries

Statements Lenders Want to See
• New Start Ups: Projections for First Year by Month
– Which Case: Best?, Worst?, Average?
– Provide a Believable Projection That Can be Proven
• With Notes to Explain:
– Breakdown of Sales - Cost of Goods Sold
– List of Employees & Salaries - Breakeven Analysis
– List of Assumptions
• Purchases of On-going Business: 3 Years
– First Year: by Month
– Second Year: by Quarter
– Third Year: Annual
• Some Lenders Require Personal Financial Statements For
Borrower and Sometimes Each Investor

Your Loan Request
• Identifies Amount Requested from Lender and Amounts
Contributed by Borrower and Other Investors
– Lenders May Require Life Insurance Equal to Amt of Loan
• Itemizes How Funds Will be Used
– Buy Inventory, Equipment & Machinery, F&F, Real Estate
– Provide Working Capital
• Details How the Loan Will be Repaid, including
– Any Lines of Credit
– Intermediate Term Loans
– Long Term Loans
• Lists the Collateral for Securing the Loan(s)
– Business Assets
– Personal Assets

Loan Request
Example
L O A N R E Q U E S T
Amount Requested from Lender (50%) $250,000
Buyers Investment (10%) $50,000
Other Investors (40% SBA) $200,000
Total $500,000
Use of Funds:
Inventory $30,000
Working Capital (expenses for 1 month) $100,000
Equipment & Machinery $100,000
Furniture & Fixtures $20,000
Other $ 0
Real Estate $250,000
Total $500,000
Repayment Terms:
Furniture, Fixtures Equipment, Machinery: 10 years
Real Estate : 20 years
Collateral (for securing a loan):
Accounts Receivable $ 0
Inventory $30,000
Equipment & Machinery $100,000
Furniture & Fixtures $20,000
Real Estate $250,000
Real Estate Equity in Borrowers Home $150,000
Other including personal assets (savings) $10,000
Total $560,000
Life Insurance- Lenders often require
term life insurance policies equal to
the amount of the loan.
Repayment
•Loan repaid with business income
(see cash flow statement)
•Lines of Credit are used for short
term working capital and must be
retired once a year.
•Intermediate Term loans run 1 –
10 years
•Long Term last more than 10 years
Collateral – The loan will be repaid by
first selling business assets, then
personal assets pledged as collateral
to secure the loan. Any unpaid
balance is still the responsibility of
the borrower.

Executive Summary
• Know your audience & keep it simple. IT’S A SUMMARY!
• What does the reader need to know!
• Explain the opportunity and the objectives of your company.
• Include the top 2 or 3 things needed to succeed.
• And, how you will achieve them.

Mission Statement
• Statement of purpose!
• Why does the company exist?
• Should guide the actions of the organization.
• Examples:
• Disney -“We make people happy”
• SCORE – “We provide expertise to maximize small business
success in the collar counties thru mentoring, workshops &
electronic resources”

Elevator Speech
What is an Elevator Speech?
An Elevator Speech is a couple of sentences that you can deliver
in the space of an elevator ride that expresses the essence of
your unique offer. Keep your message focused; it’s a first step
towards building awareness and trust.

SCORE ELEVATOR SPEECH
SCORE is the premier source for small business advice and mentoring
in America. We provide free confidential mentoring to help
small business entrepreneurs improve or start a business. Our team of
mentors cover the collar counties of Chicago and are former business
owners or executive suite volunteers offering our clients a broad range
of business skills and management expertise. We reach you face to
face, on-line and through workshops presented by topic experts.
WE HELP PEOPLE SUCCEED IN BUSINESS
Example Elevator Speech

Elevator Speech
Steps to developing an Elevator Speech.
• Reflect – What’s your business? What makes it great?
• What quickly and simply defines your business?
• Select Evocative Words – memorable, with impact
• Write the Elevator Speech – there may be more than one version!
• What are you offering?
• Why should they care about your company?
• What problem can you solve?
• What are the benefits to the listener?

30 Second Do’s
•Do: Make your Elevator Speech sound smooth & effortless.
• make it memorable and sincere. Reveal some of your
personality and passion.
• rewrite as many times as necessary to get it right.
• practice as many times as necessary to get it smooth.
• smile as you practice, so it becomes automatic.
• Speak slowly, and make eye contact.
• include examples to support your ideas.
• Show how you can solve their problem.
• have several different versions of your speech for
different audiences.

30 Second Don'ts
• Don’t: read from a script.
• ramble. Keep it logical so can think about what is
next if you get distracted.
• include industry language. Your audience may not
be familiar with those terms.
• focus on yourself. Focus on the clients needs.
• forget to include your competitive advantage. Why
you, and not the competition.
• forget to update your speech when necessary.
New product, service, or technology.

The Last Piece
• Use available samples/examples for comparison.
• Think of your plan as a story that someone can follow from
beginning to end.
• Make certain to touch all the key points we have discussed.
• Concentrate on making the financials realistic, but conservative.
• KISS principle – Keep It Simple! Only as long as absolutely
necessary to get the point across!

Next Steps
Sign up to work with a SCORE Mentor for as long as you
need assistance.
Contact: tomdrouin@gmail.com or
benton2218@comcast.net

Where to Get More Information
• www.Foxvalley.SCORE.org & www.SCORE.org Significant resources
in the form of document samples, document guides, workshops,
etc.
• SCORE Counselors – (630) 942-3775
• Small Business Development Centers (SBDC’s) & the SBA
• Your Customers and Competitors
• Public Library
• Trade Associations
• Consultants, Accountants, Lawyers
• The Internet

Creating a Business Plan - Fox Valley Score

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