The Complete Idiot's Guide to Business Plans

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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 our nation’s economy.

ALPHA BOOKS Published by the Penguin Group Penguin Group (USA) Inc., 375 Hudson Street, New York, New York 10014, USA Penguin Group (Canada), 90 Eglinton Avenue East, Suite 700, Toronto, Ontario M4P 2Y3, Canada (a division of Pearson Penguin Canada Inc.) Penguin Books Ltd., 80 Strand, London WC2R 0RL, England Penguin Ireland, 25 St. Stephen's Green, Dublin 2, Ireland (a division of Penguin Books Ltd.) Penguin Group (Australia), 250 Camberwell Road, Camberwell, Victoria 3124, Australia (a division of Pearson Australia Group Pty. Ltd.) Penguin Books India Pvt. Ltd., 11 Community Centre, Panchsheel Park, New Delhi—110 017, India Penguin Group (NZ), 67 Apollo Drive, Rosedale, North Shore, Auckland 1311, New Zealand (a division of Pearson New Zealand Ltd.) Penguin Books (South Africa) (Pty.) Ltd., 24 Sturdee Avenue, Rosebank, Johannesburg 2196, South Africa Penguin Books Ltd., Registered Offices: 80 Strand, London WC2R 0RL, England

Copyright © 2005 by Gwen Moran and Sue Johnson All 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. No patent liability is assumed with respect to the use of the information contained herein. Although every precaution has been 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: 1-4406-9085-5 Library of Congress Catalog Card Number: 2005928079 Note: This publication contains the opinions and ideas of its authors. It is intended to provide helpful and informative material on the subject matter covered. It is sold with the understanding that the authors and publisher are not engaged in rendering professional services in the book. If the reader requires personal assistance or advice, a competent professional 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 Product Manager: Phil Kitchel Senior Managing Editor: Jennifer Bowles Senior Acquisitions Editor: Mike Sanders Development Editor: Ginny Bess Munroe Production Editor: Megan Douglass

Copy Editor: Jan Zoya Cartoonist: Jody Shaeffer Book Designer: Trina Wurst Indexer: Heather McNeill Layout: Becky Harmon

Contents at a Glance Part 1:

Getting Started 1 According to Plan How your plan can help you

Part 2:

1 3

2 Figuring Out the Financing Understanding your business’s financial needs

15

3 Business Writing Basics Tips and pitfalls to consider while writing your plan

29

Putting Together Your Plan

37

4 Ready, Set, Write Putting your business ideas on paper

39

5 Getting Down to Business How to put your best business foot forward

47

6 Industry Overview Describing your industry and its climate

61

7 Who Are You? Your people are your primary asset; how to showcase your dream team

75

8 Analyzing Your Business in the Market Explaining how your business will perform in the market

87

9 Getting the Word Out Positioning and promoting your business for the best possible results

105

10 Sales Plan and Forecast Explaining how you’ll sell your stuff

119

11 Operation Success Making the most of your day-to-day business activities

129

12 Money, Money Financial statements you’ll need to know for your plan

141

13 Show Your Documents Supporting your claims with all the right backup documents

159

14 Executive Summary What you’re going to tell them in this critical part of your plan

Part 3:

Putting Your Plan to Work

169

175

15 Financing Considerations to Include in Your Plan How to use your plan for investment or lending purposes

177

16 Using Your Plan as a Management Tool How your plan can help everyone in the business get on the same page

189

17 Keeping Your Plan Current How to keep your plan up to date and relevant

205

Appendixes A Business Terms Glossary

215

B Sample Plans

221

C Resources

301

Index

307

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

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 4 Ready, Set, Write

37 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

Contents Obtain Assistance ........................................................................43 Iterative Process ..........................................................................44 Staying Updated ........................................................................44 Analysis ....................................................................................44 Annual Meeting ........................................................................45

5 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 ........................................................................59

6 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

vii

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

Contents 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 ..........................................................103

9 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

ix

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

Contents 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 ........................................................139

12 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 ..................................................................................156

13 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

xi

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 15 Financing Considerations to Include in Your Plan

175 177

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

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 ..........................................................................212

Appendixes A Business Terms Glossary

215

B Sample Plans

221

C Business Resources

301

Index

307

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 planning 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 “conservative.” 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

failure by being inflexible. Write your plan, and revisit it regularly to change what’s not working. Too many small business owners set a goal and try to reach it no matter what. Sometimes, that tenacity is the backbone of their success. But sometimes, when they 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 wellresearched plan. Companies need enough cash to grow and thrive, which a good plan can 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 and distribution component so prospects can access the product or service. Finally, they need repeat customers and referrals. Read this book. Write your plan. Keep talking to customers. And then modify your plan to make the most of what’s working and to stop wasting effort on what’s not working. These are the steps that will get your business off to a great start. —Barry Moltz, www.moltz.com Chicago, Illinois June 2005

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 startup 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 wellprepared 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 business. 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.

xviii The Complete Idiot’s Guide to Business Plans What 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 businessplan 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 mixing 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 sections 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.

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, ranging 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 following 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 business 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 operations to keep it current and relevant to your business. Pay particular attention to the sidebars and margin notes, which include tips, warnings, 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 Because time is money, these tips will help save you both as you write your plan.

Red Zone In business, mistakes can cost you. These sidebars will give you fair warning about potential pitfalls to avoid.

xx

The Complete Idiot’s Guide to Business Plans Back Office Secrets In these sidebars, we’ll make you privy to the tips, tricks, and littleknown facts that will help you write your plan and run your business.

Biz Buzz The world of business and writing business plans can be confusing. These sidebars provide 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 [email protected] or [email protected].

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 production 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 assistance 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.

Introduction

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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 providing 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.

1

Part

Getting Started

Here’s what you need to know before you begin drafting your plan, including 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.

1

Chapter

According to Plan In 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 sideline operations. In 2003, there were approximately 23.7 million businesses

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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 boss. The companies that had the clearest sense of An entrepreneur is purpose—and a solid plan for survival—are the ones someone who launches a forprofit 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 operations. 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 business plans.

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Securing 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 investment 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 clearly lay out your expectations for the sale of the business, including the selling price and how the proceeds are to be divided. It’s a good idea to consult an attorney to execute a partnership agreement or buy/sell agreement that spells out these details.

Biz Buzz A partnership agreement is a document that outlines the terms and conditions of two persons or entities entering into a business agreement.

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 business, 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.

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Part 1: Getting Started Writing a business plan enables you to assemble all of the components of your business 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 originally 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 benchmark 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 accomplishments. 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

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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 business, 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 management 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 responsible 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.

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Part 1: Getting Started

Thorough 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.

Biz Buzz Many people use revenue and income interchangeably, but they are actually two different things. Revenue is your gross income, before any deductions. Income refers to the amount of money that remains after your business expenses, but before income taxes are paid.

Future Expansion Your business plan will explore how and when you will grow your business, including the staff, facilities, and revenue that you’ll need to do so.

Exit Strategy Because no one can run a business forever, good business plans also include exit strategies—game plans for leaving the business or selling it. Investors need to know the business will have longevity after the entrepreneur leaves for any reason.

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Your USP In the context of your business plan, you also need to show your unique selling proposition, 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 platform 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

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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, noninvasive 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 multiplechoice 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?

Bottom Line Booster If your plan needs an editorial once-over, hire a business or communications student to help you fine-tune it. The student will get valuable resumé fodder and you’ll get the benefit of a budding wordsmith who can put your ideas into captivating prose.

We don’t think so—at least not for the first draft. The process of writing your plan is an exercise that will help solidify the direction of your business. By going through the process yourself, even if you’re not a good writer, you’ll be forced to think through various scenarios and learn more about how your business will run, market, staff, and grow. By hiring someone to do that for you, you’ll lose out on the benefits gained from that process. However, if you’re not confident in

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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 following: ◆ 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 business 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” consulting 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 overhead. To save even more money, write the first draft yourself and hire a copyeditor or freelance writer to polish up the grammar and language.

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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)

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◆ 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 programs 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 everyone 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.

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Chapter

Figuring Out the Financing In 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.

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Part 1: Getting Started

Understanding 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 control 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 business, 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, personal resources, savings, credit cards, and several different types of loans.

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Grants 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 relatively 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 obligation 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 biolife science and high-tech businesses, often offered through various states to cultivate those types of businesses. Federal grants for these types of companies are offered through the Small Business Innovative Research (SBIR) and Small Business Technology Transfer (STTR) programs. Both government programs seek innovative and unique ideas. If your business qualifies, it could receive a grant for as much as $750,000 for the start-up phase and up to $1 million for the growth phase.

Back Office Secrets Because navigating the governmentgrant process can be tricky, you might want to seek help from your local Small Business Development Center (SBDC). SBDCs throughout the nation have consultants who can assist you with the application process. For SBDC locations near you, go to their national website at www.asbdc-us.org.

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.

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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, depending 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 financial 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 transaction 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.

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Loans 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 reSome 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 allowed to be used as collateral loans. for business loans, so don’t count on them to strengthen your appliCommercial Loans cation. Commercial loans are granted from a bank or other lending institution. They are extended based on the lender’s evaluaBottom Line Booster tion of the borrower’s credit and credentials. Fees and interest rates on loans are often negotiable. Ask for Sometimes, closing, application, and other fees to be waived and also fees are associated with these loans, so be ask for a better interest rate. sure to get a full disclosure of any fees and 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 maximum 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).

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Part 1: Getting Started Micro-loans Back Office Secrets

The SBA has a list of microlenders throughout the U.S. government, which can be found at www.sba.gov/financing/ microparticipants.html.

A micro-loan is an SBA-sponsored program offered through an intermediary lender that offers up to $35,000 to small businesses, including start-ups. Micro-lenders are often more flexible than commercial lenders and are willing to offer financing, even if 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 lowering the risk to any one lender. The maximum amount of an SBA-guaranteed loan is $1 million.

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Selecting a Lender When it comes to choosing a lender, you have a number of options. We usually recommend that you start with the bank where you have your personal accounts, because you already have a relationship and a good history with that institution. Lenders offer different rates and terms, it’s a good idea to shop around and see what other lenders have to offer before you commit to one. Saving even one percentage point on a loan could mean thousands of dollars over the life of the loan. If you’re going to borrow money, it’s probably going to be from a bank. There are different types of banks—from small community institutions to huge financial conglomerates. They’ll usually have a loan officer Back Office Secrets on site who can tell you about their lending policies, and how much lending they do to The SBA maintains lists of the top small business, and if they lend to start-ups. If lenders of SBA-guaranteed loans to small businesses. You can you find that your local bank isn’t versed in access this list of small businessbusiness loans, it might be a good idea to find friendly banks at www.sba.gov/ one that is—and it may increase the likelifinancing/basics/lenders.html. hood of your loan being approved. Don’t forget to check out reputable online banking institutions, as well.

Angel Investors Angels, as they’re called, are individuals or groups of individuals who provide venture capital to entrepreneurial companies. Different angel investors have different criteria for investing, but they are almost always looking for equity in the company and a return on their investment. Most angel investors have some amount of control within the company in which they are investing. This could be a good thing, in that the inexperienced entrepreneur now has an experienced resource at his or her disposal.

Biz Buzz A business incubator is an organization that fosters the growth of entrepreneurial businesses by providing a range of support services, such as location assistance, financing, management consulting, and others that help small businesses become established and successful.

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Part 1: Getting Started Angel investors will usually look for a five-year exit plan in which they will recoup their money, plus a return. For that reason, it’s often difficult to find a good match. However, it’s worth trying, especially if your business doesn’t qualify for a traditional or SBA-backed loan. To find angel investors in your area, contact your local university, business incubator, or Small Business Development Center.

Other Funding Sources But wait …. There are still more places to find money for your venture.

EDA The United States Department of Commerce has an Economic Development Authority (EDA), and most states have a similar organization. These agencies/authorities often offer loan guarantees and tax incentives for small businesses. To find out more, go to the U.S. Department of Commerce website at www.eda.gov, as well as to your state’s EDA website.

Community Development Centers Many areas have Community Development Centers (CDC) or Community Development Corporations (CDC) that provide basic adult education activities and various developmental opportunities for budding entrepreneurs. These are often affiliated with a community church or religious organization. At times, these organizations will assist with small-business training, which has incentives tied to financing. Check your local religious communities, local business groups, and state business organizations for information about these programs.

Trade or Business Groups Trade groups and associations may also have information or funding programs. Whether it’s a local business group that offers grants to start-ups in economically disadvantaged areas or a trade group that offers funds for businesses to develop and maintain business relationships overseas, contact any local, regional, or state business associations, as well as industry associations, to find out if there are programs that might be financially beneficial to your business.

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Also, check your state department of commerce. These departments provide assistance to foster business in their communities. The United States Department of Commerce information can be found at www.commerce.gov. Also check your local state commerce department for specific business incentives in your state.

What Lenders and Investors Want Beyond the business plan, lenders and investors want to see several things in place when they look at an opportunity for investment. Many lenders prefer that a business has been in operation for at least a couple of years before they’ll lend money, but if a start-up plan meets certain requirements, it may be able to secure a loan for a new venture. We discuss these requirements in the following sections.

Capacity to Repay The people who give you money—whether to be paid back in installments or through profits in the business—will want to see a solid game plan that clearly maps out operations, marketing, growth potential, and financial specifics. You need to show how the business will generate revenue, how much it will generate, how that will translate into income and profit, and how, from that money, the investment or loan will be paid. Be careful not to be too ambitious about projections, however. Experienced lenders and business financiers have a good sense of how quickly a business can realistically grow. If your projections are overly ambitious, then it may make you look inexperienced, which could be a red flag for those considering giving you the capital you need.

Capital to Invest Lenders or investors like to see that the principals of the business have put their money where their mouths are. In other words, they want to see that you’ve invested a substantial amount of your own resources, as well. After all, if a business owner’s personal resources are on the line, or “skin in the game,” as well, the business owner is likely to be more conservative about risking that investment than if he or she has none of his or her own money on the line.

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Part 1: Getting Started

Collateral Biz Buzz Collateral is something of value that can be liquidated and applied to satisfy the debt or to secure the investment. Collateral may take the form of cash, inventory, equipment, or other things of value.

Lenders and investors also want to see some sort of collateral. If your business lacks adequate collateral, you may be asked to sign a personal guarantee. This pledges your personal assets to secure the loan. If you’re asked to sign such a guarantee, remember that the things you own outside the business—your home, your car, your savings—may be subject to seizure should the business fail to meet its obligations, so be very careful about signing such a guarantee.

Conditions of Use of Money Lenders and investors will likely want an assurance or guarantee of how the money is to be used. You may need to provide a detailed list of the equipment that will be purchased and how much it will cost. Money will likely be divided and earmarked for working capital, staffing, and other expenses.

Character of Owners In addition to your financial and business background, the money folks will also want to see that you’re an upstanding member of society. They’ll want personal references, biographical information, and any supporting documentation that shows you’re entering into the business in good faith. If you’re a member of community groups, social and civic organizations, or philanthropic endeavors, include that information in your biography, or resumé.

Credit Rating The lender or investor usually wants to see the credit rating of the owner, partners, and primary shareholders of the company. This gives the lender an idea of how you handle your money and credit on a personal level, which could be a good indicator of how you’ll handle the money and credit in your business. A credit rating is needed for each partner in the business who has 10 percent or more ownership in the business.

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Credit-Reporting Bureaus Credit-reporting bureaus gather information on users of commercial credit, and they use that information to compile reports on each individual’s credit history. The information in these reports includes lines of credit—including loans, credit cards, mortgages, and the like—that you have open, as well as the user’s history in using that credit, including timeliness of payment, amount of debt incurred, bankruptcies, collection efforts and judgments sustained, and so on. Lenders and other entities use the information in these reports to determine whether to extend further credit, how much credit to extend, and at what interest rate. It’s important to obtain a copy of your report from all three credit-reporting bureaus, because errors on one report may or may not show up on all three. So while one report may be clear, other reports may have mistakes or outdated information due to clerical errors, mistaken identity, or even identity theft. Make sure that all three reports are as clean as possible. These three companies dominate the credit-reporting industry: ◆ Equifax

PO Box 740241 Atlanta, GA 30374-0241 Report fraud: Call 1-800-525-6285 and write to the previous address Order a credit report by calling 1-800-685-1111 ◆ Experian (formerly TRW)

PO Box 1017 Allen, TX 75013 Report fraud: Call 1-800-301-7195 and write to the previous address Order a credit report by calling 1-800-682-7654 or 888-397-3742 Experian also offers a website where you can look at your credit report for free: www.freecreditreport.com ◆ Trans Union

PO Box 390 Springfield, PA 19064 Report fraud at 1-800-680-7289 and write to the Fraud Victim Assistance Division PO Box 6790 Fullerton, CA 92634 Order a credit report by calling 1-800-916-8800

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Part 1: Getting Started Back Office Secrets You can obtain a free credit report once a year from www.annualcreditreport.com. Although they will give you your credit information so that you can validate that there are no errors, this free report does not include your FICO credit score. To obtain your FICO credit score, you have to pay a small fee.

Your Credit Score All of the information in your credit report is distilled into a credit score, which may also be called a FICO score. These scores generally range from 300 to 850 and factor in such criteria as your past payment history, amount of debt you owe, length of your credit history, and any new debt incurred, as well as past judgments, bankruptcies, and types of credit extended to you.

Assessing Your Report Review your reports carefully to ensure that the information is correct and up-to-date. Credit reports that contain errors or outdated information can negatively affect your ability to get a loan, reduce the amount for which you qualify, and increase your interest rate. So it’s very important to ensure that your credit report is as accurate as possible. Negative information generally stays on your report for seven years, while bankruptcies can stay on your report for up to 10 years. If you have negative information that is older than those parameters, you can contact the credit-reporting bureau to have it removed. Even if you have some negative credit, that doesn’t mean that you cannot get a loan. Lenders do consider the fact that you are making payments and are working toward correcting the negative situation. If you find late-payment information that’s more than seven years old, you can request that it be taken off your report. Bankruptcies remain on your report for 10 years. If you find incorrect information on your report, you can challenge it by contacting the credit bureau. By law, the bureau must verify the information within 30 days or remove it from your report.

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Different lenders have different cutoffs for how they rank credit scores, but in general this is how they rate: ◆ 720 and above: Excellent—your financial background will be a big plus. ◆ 700–719: Very good—A solid score. ◆ 680–699: Good—Perhaps you’ve had a few late payments in the past, but noth-

ing that should make a lender or investor balk. ◆ 620–679: Adequate—Your interest rate may be a bit higher, or you may find that

you need more collateral to get the loan. If your score is below 620, it may be considered a greater risk, and may affect your interest rate, loan amount, and terms. However, even if you don’t have a very high credit score, there are many lenders who will still take a chance on a solid business idea. And you can try applying for an SBA guarantee to make your loan even more attractive to lenders. Whatever your score, it’s important to keep your credit payments up-to-date in the months ahead. Even a few months of on-time payments can significantly increase your credit score.

Increasing Your Score Besides correcting misinformation and having outdated information deleted, there are several other ways you can increase your score. By reducing new charges, paying off existing debt in a timely manner, and decreasing the ratio of debt you incur to the amount you have, you can have a positive impact on your score. This ratio is important because part of your score calculation is the amount of debt you have versus the amount available to you. So if you pay off a balance, it may not be a good idea to close the card, which will reduce the amount of credit available to you and increase your debt-to-availability ratio. If you’re sure you can be disciplined enough to keep a zero balance, it may be a good idea to keep the balance-free card open. However, if you’ll be tempted to run up new charges, then close the card and continue to pay down your other balances to decrease your ratio.

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Part 1: Getting Started

Beware of Quick Credit Fixes Look out for scam artists offering to fix your credit quickly. They often use a number of tricks, such as sending a flood of bogus challenge letters to the credit-reporting bureau in an effort to get information deleted because the bureau was not able to respond to the massive number of letters within 30 days. Another (illegal) tactic that some use is to create a new tax identification number through the IRS. If you need help cleaning up your credit, contact the National Foundation for Credit Counseling (www.nfcc.org) to find a local not-for-profit credit-counseling bureau in your area.

The Least You Need to Know ◆ To get the money you need, you usually need to incur debt or give up a portion

of ownership. ◆ The SBA does not lend money. Instead, it guarantees loans to banks, enabling

these financial institutions to make loans to riskier ventures. ◆ Lenders and investors usually look for specific criteria, including capacity to

repay, cash to invest, collateral, character of owners, and credit, before they make money available. ◆ Interest rates and fees on loans are often negotiable. ◆ There are ways to increase your credit score without turning to quick-fix scams.

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Chapter

Business Writing Basics In This Chapter ◆ How business writing is different ◆ Keeping your audience in mind ◆ Mastering language and tone ◆ A primer on grammar ◆ Presentation counts

Write?! I’m an entrepreneur, not a writer, you might be thinking. If the prospect of writing an address—let alone a multi-page plan—makes you a bit woozy, fear not. Your business plan doesn’t have to be the business equivalent of great literature. This chapter will share some tips to make the process of writing much less daunting.

Effective Business Writing Writing in a business setting is different than literary writing, promotional copy writing, or other types of writing. A common mistake that business owners make is to use stiff, formal language and corporate-speak in their business plans. Instead of writing clearly and succinctly, misguided business owners use complex sentences and long words to make their writing

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Part 1: Getting Started sound more intelligent. Unfortunately, using this style usually backfires and makes the writing long-winded and more boring than it should be. When writing about your business, you should write clearly, almost the way you speak. Your writing should convey the passion that you have for your business. The following sections discuss ways to make your writing more effective.

Targeting Your Audience There’s one key question that you should keep in mind whenever you’re writing a document: Who is going to be reading this? Always write for your audience and be sure that you’re focusing on the things that matter to the reader. If the purpose of your business plan is to obtain financing, then you need to target lenders or investors, so you need to pay particular attention to the issues of solvency, risk management, and return on investment. If you’re using your business plan as a management tool, however, you may want to pay more attention to potential risk factors and threats so that you can work with employees and advisors to come up with appropriate strategies to tackle them. Again, write for your audience. Why are you writing the document? Are you trying to persuade someone to do something? Are you trying to use the document as a tool for learning about your business or to put your thoughts in writing between partners? Focus on the reason you are creating the document and keep that in mind as you craft your words. As you edit your document, try to put yourself in the shoes of a member of your target audience. Ask yourself whether this document is saying the right things to that audience. What deserves the lion’s share of space in that section of your report? Are there elements that need detailed description? Once you’ve drafted the section, re-read it carefully to ensure that you’ve included the relevant information, explained yourself well, and cut anything that doesn’t really need to be there.

Language and Tone The words you choose in your plan will be almost as important as the information they describe. You want your language and tone to be clear, concise, and professional— not overblown, stuffy, or tired. Your first goal should be to jettison the jargon. Why say “employee on-boarding process” to refer to a job interview? Using jargon and corporate-speak—complex words or phrases to substitute for simpler ones—doesn’t make you sound more professional or

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competent. In fact, the opposite is true—it’s boring and makes it less likely that your message will get through. The more clearly, concisely, and colorfully you write, the more likely it is that your audience will absorb your message. If you must use industry terminology, do so sparingly and give definitions where necessary. Given the choice between lengthy narratives and brief descriptions, it’s almost always better to relay important information as briefly as possible, with backup in an appendix if needed. Biz Buzz Your plan’s tone should be positive and optiJargon is industry mistic. Flat, dull, or negative writing is more terminology that is generally difficult for the reader to absorb. You’re understood within a certain launching an exciting new venture—don’t be group, but not as well known outafraid to let your enthusiasm show through in side of an industry group. your writing!

Grammar Perhaps you haven’t given much thought to grammar since your eighth-grade English tests, but it’s time to brush up on those skills. Good grammar helps make your writing more powerful and lets you communicate your messages more clearly without the distraction of awkward language. Following are some guidelines to keep in mind.

Using Active Voice Active voice means that the person who performs an action in the sentence is the subject, which makes your writing more exciting. In passive voice, the thing acted on in the sentence becomes the subject. This tends to make the writing softer. Following is an example of both active and passive voice: Active voice: Alison Smith will spearhead our marketing efforts. [Here, Alison Smith is the subject. Our first image is of a person who will perform an action.] Passive voice: Our marketing efforts will be spearheaded by Alison Smith. [Here, in the passive voice, the first image is somewhat ambiguous (marketing efforts) and Alison Smith, the person, is buried at the end of the sentence.] Although the passive voice may be considered by some to be more formal, using active voice is almost always a better choice and makes your sentence structure stronger. However, whichever voice you use, be consistent and use it throughout the plan.

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Part 1: Getting Started Back Office Secrets Most word-processing programs have basic spelling and grammar-check functions. That’s a good start, but you should always proofread your document carefully as well, because spell-checks often miss some grammatical or spelling errors. Here’s an example: “Out (Our) business is successful.” This would pass right through the spell-checker.

Using Declarative Sentences You may recall from your third-grade grammar class that, in the English language, there are five types of sentences: ◆ Interrogative—Asks a question. Example: Why use plastic fittings in the

process? That simple adjustment cuts our manufacturing cost by 15 percent. ◆ Rhetorical question—Asks a question that the reader is not expected to answer.

Example: What more could anyone ask? ◆ Exclamatory—A sentence that has an exclamation point at the end. Example: It’s

one of the most revolutionary developments in the history of widgets! ◆ Imperative—Gives an instruction to the reader. Example: Sit back and read

about the next big thing in restaurant management. ◆ Declarative—States a fact. Example: The ACME ballpoint pen is a reliable writ-

ing instrument. By far, the majority of your sentences should be declarative sentences. Imperative and exclamatory sentences can turn readers off, and asking too many questions can be distracting. You need to state the facts and use these other sentence structures to enhance your writing or to reinforce key points.

Cutting the Fluff Don’t overuse hyperbole when describing how wonderful your company is. The fact is that lenders and investors have heard all of this before. Back up your claims with evidence, statistics, and other facts. The more you talk about how “revolutionary,” “innovative,” and “wonderful” your company is without citing specific examples, the less credibility you’ll have.

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For example, a business plan that asserts that “Our company is made up of a dynamic team of top professionals. Our innovative approach is unlike anything else in the marketplace today” is less credible than one that says something like the following: “Four members of our management team have worked for Fortune 500 companies. As a result of independent research that our company has undertaken in the field, we have been able to develop a patented approach to new home construction, which saves the builder approximately 20 percent on labor costs and up to 30 percent on materials costs. This enables our franchisees to price their services lower than other providers in the marketplace, while still maintaining Biz Buzz a higher profit margin.” Hyperbole is exaggeraSee the difference? The first one is all talk. The tion or stretching of the facts to make something seem more than second example doesn’t need any hyperbole— it actually is. the impressive facts speak for themselves.

Avoiding Clichés Clichés are those tired phrases that we’ve all heard hundreds of times—keep your nose to the grindstone, don’t make a mountain out of a molehill, fly in the ointment. Try to avoid using these phrases, which have all but lost their meaning through overuse. Try rewriting them, focusing specifically on what you mean to say.

Presenting Your Information How you structure your writing is also important. Long narratives are usually a no-no in business-plan writing. If you can, separate lengthy paragraphs with many specific points into bullets, which are easier on the eye and enable the reader to more quickly identify the various messages being written. Read the following paragraph: Our online promotions take a number of forms, including online discounts and coupons that can be used by ordering online, or which can be downloaded for use in our brick-and-mortar store. In addition, we use e-mail to communicate promotions, while our regular contests give customers and prospects chances to win something worthwhile to them. Banner advertisements put our messages in places where your customers and prospects are likely to frequent, and often tie in to current giveaways. To add a sense of urgency, we use time-sensitive offers

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Part 1: Getting Started and events, such as a web chats, online seminars, or web casts to attract more customers and prospects to our site. Now read the following: Our online promotions take a number of forms, including these: ◆ Online discounts and coupons that can be used by ordering online, or

which can be downloaded for use in our brick-and-mortar store. ◆ E-mail updates on current promotions. ◆ Online contests, which give customers and prospects chances to win some-

thing worthwhile to them. ◆ Banner advertisements that put our messages in places where customers

and prospects are likely to frequent. ◆ Giveaways. ◆ Time-sensitive offers and events, such as a web chats, online seminars, or

web casts to attract more customers and prospects to our site. The latter version breaks up the text and makes it easier to read.

Capitalizing and Punctuating Properly There are different grammar and punctuation rules depending on the authority you consult. Various style books have largely similar rules, but also have some important differences, such as where to use commas in a list, and other rules. Using one of these style books will give your writing better consistency—and will give you an easy reference book if you find yourself stuck in a tricky grammar or punctuation challenge. You can find most at your local bookstore or at one of the online booksellers. ◆ Strunk and White’s Elements of Style is a great and easy-to-use handbook of

composition rules. ◆ The Chicago Manual of Style, a style guide compiled by the University of Chicago

Press staff, emphasizes consistency and clarity in writing. ◆ The Associated Press Stylebook will arm you with style rules, and give you a primer

on copyright and libel laws. Whichever stylebook you choose, just be sure to apply its rules consistently.

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Writing, then Rewriting No matter how good you think the first draft of your business plan is, plan on doing a rewrite. Put the plan aside for a day or two and then go back to it, ready to tweak, edit, and improve its content. You’ll be surprised at how the words that sounded so perfect just 48 hours ago suddenly have so many areas that can be improved.

Avoiding Writer’s Block There are few things as daunting as a blank page. Just the thought of churning out a 20-page report may make any creative thought in one’s head just evaporate. If you find yourself faced with writer’s block, try these strategies: ◆ Write the easy part first. Look at your outline and pick a section, subsection, or

even a paragraph that you think will be easy to write. Then, dive in and begin writing that section. Choose what you know best about your business—it could be the marketing strategy or the product-development approach. Once you’ve written one small part, you should find that the writing comes more easily. If not, choose another small section that you know well. Keep chipping away at the project in small pieces and you’ll begin to see progress being made. ◆ Create a routine. If you’ll be working on your plan over a series of days or weeks,

create a mini-routine that gets you prepped to write. Clear your desk, grab a cup of coffee, close the door, and begin. These little rituals can do wonders to get you ready to work. ◆ Carry a notepad. You may find that ideas for how to write your plan will strike

at the oddest times—in line at the grocery store, in your car, etc. Keep a notepad or compact voice recorder close by so that you don’t lose these gems. ◆ Eliminate distractions. Lock the door. Let voicemail or your assistant answer the

phone. Then set a timer for 30 or 45 minutes. Write about your topic for that period of time, and do not allow yourself to be interrupted. Don’t worry about the quality of what you’re writing—just do a brain dump onto the page. You can always clean it up later. ◆ Relax. Sometimes, writer’s block stems from anxiety about writing. If you sus-

pect this is the culprit, do some deep breathing exercises or go for a walk to relax yourself. The great thing about working on a writing project like this is that you can edit it, tinker with it, and improve it for as long as you like.

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Part 1: Getting Started

Speaking and Writing Well Another very helpful tactic for nonwriters who wish to write more easily and with more polish is to use a voice recorder to make the job easier. If you find that you can explain your business more easily than write about it, this may be the solution for you. First, use a hand-held voice recorder to discuss each point in your outline. Pretend that you are explaining each component of your business to a friend or a customer, and record that information. Transcribe the tape yourself or have someone else do it. After your plan is drafted, you should also read it aloud to ensure that the language flows easily. It’s much easier to spot typographical, punctuation, and grammatical errors when you’re reading aloud instead of silently. In the latter case, your eye is more likely to compensate for the error because you knew what you meant to say. By reading aloud, you pay closer attention to the structure and style of the document. After you begin to pay more attention to your business writing, you’ll find that other areas of your correspondence, such as memos, sales letters, and so on, benefit as well. Written communication is a powerful representation of your business, so it’s worthwhile to invest some time in ensuring that you’re putting your best foot forward on paper, as well as in the marketplace.

The Least You Need to Know ◆ Write with your audience in mind. ◆ Skip jargon and long, complex language. It doesn’t help your reader and can

usually backfire. ◆ Get familiar with common rules of punctuation and grammar. ◆ Overcome writer’s block by creating an outline, staying organized, and taking a

relaxed approach to the process. ◆ Use a voice recorder to give yourself a head start on the writing process.

2

Part

Putting Together Your Plan

From management to marketing to operations to sales, this part walks you through the various segments of your company that you’ll need to explain and showcase. Whether you’re just mapping out a game plan or going after big-buck financing, we show you how to put your best foot forward. This is the part where we get into the nuts and bolts of writing your business plan, from the overview of drafting your cover letter and title page in Chapter 4; to putting together the meat of your management, operations, and marketing analyses in Chapters 5 through 11; and delivering a primer on financial documents in Chapter 12. Chapters 13 and 14 cover the backup documentation you should have and your executive summary, respectively.

4

Chapter

Ready, Set, Write In This Chapter ◆ Preparing your ideas for paper ◆ Setting goals for your plan ◆ Using your plan for operations ◆ Putting your plan into action

Now that you’ve got the business basics under your belt, it’s time to get ready to write. But before you sit down at your computer to tap out “The Great American Business Plan,” it’s important to get organized and put a bit of thought into what you’re going to write. Having the materials you need on hand as you write, and having a good understanding of what the purpose of your plan will be, will also save you time as you begin to write. Try to develop a clear sense of whether you’re using your plan to attract capital or if it’s solely for your internal purposes.

From Dream to Document Now it’s time to begin the process of creating your plan. Although different plans have different sets of goals and will be structured differently, most plans have similar components. However, there are some constants

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Part 2: Putting Together Your Plan for all plans, including being organized, knowing your facts, supporting your claims with documentation, and getting help with the financial aspects, if you need it.

Being Organized Separate your information into logical sections, including executive summary, operations, industry forecast, marketing, financial projections, and the like. This will help your reader get to the most relevant information quickly.

Knowing Your Stuff Don’t just cite industry statistics from a trade association press kit. You should be able to explain, in detail, every component of your business plan. Remember that this isn’t just a mindless chore—it’s a living document that can help your business to be more successful. So as you do your homework, perhaps reviewing secondary research from an industry association, for example, be sure that you understand the information and statistics that you’re reading and incorporating into your plan. Too often, time-strapped business owners don’t take the time to really pay attention to the information they’re capturing. Instead, they read the information with preconceived notions about their business and its sector. Smart entrepreneurs ask questions and get answers about areas, numbers, or facts which they don’t understand. Keep in mind that the higher the loan amount you’re requesting or the bigger the equity stake you’re offering to a business partner, the more likely it is that the person reading your plan to make a decision about its viability will ask you very detailed, specific questions about your plan’s contents. If you stumble or show that you don’t have a good grasp of what’s written, then you’re going to greatly reduce your chances of sealing the deal.

Back Office Secrets Need help analyzing industry data? Check in with your city or county economic development office or your local Small Business Development Center. These entities are created to help businesses, often with free counseling and advice. You can often get no-cost access to management professionals, economists, and others who will knowledgeably help you decipher statistics and facts that are a bit unclear.

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Supporting Your Claims Just as you should have a high level of knowledge about your business, you should be able to cite documents, studies, statistics, and other sources to support any claims about your industry and its future potential. The more homework you do, the more attractive your plan will be. In Chapter 13, we discuss how to thoroughly support your claims and which documentation you should include in your plan. You want to be thorough in your plan, but busy lenders, investors, and other professionals don’t usually have time to pour over hundreds of pages. Aim to create a report that’s about 20 to 25 pages long (some are shorter) and, if you wish, add additional supporting documentation as an appendix. This should give you plenty of space to state your case, without overwhelming your readers.

Getting to the Goal Business plans can serve many purposes, as we’ve discussed. Your plan’s goals will determine how your document is structured and which information is presented most prominently. First, you need to think about how you will use your plan to determine the goals that are necessary for accomplishing the plan’s purpose. For example, as an internal management tool, your plan will help you create a game plan for moving your business forward. In this type of plan, it’s critical to focus on the mission and vision of your business. This type of plan will be used to keep your business focused on its core purpose, rather than letting it get off-track by pursuing sideline ventures. In this type of plan, you’ll want to pay close attention to the core purpose of your business, its products and services, the competition, and if or how the business will evolve or grow to remain viable while maintaining that business model. The following sections discuss how to “get to the goal” of your business plans.

Obtaining Financial Assistance If your plan will be used to obtain financing, it should be written to persuade, impress, and showcase the strengths of your business. The most important components of this type of plan will be the financial statements, although details about sales, marketing, and management will also be important. The key messages will vary slightly depending on the type of financing you’ll be seeking, as noted in the following:

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Part 2: Putting Together Your Plan ◆ Loans—If you’re using your plan to obtain a loan, you should continually rein-

force the levels of profit and the means you’ll use to obtain them in your plan. Sales and expense projections, as well as identifying any collateral, will be important, as lenders want to see that the business will be able to repay the loan. We cover this more in Chapter 12. ◆ Venture capital—If you’re using your plan to attract venture capital, you’ll want

to focus more on the business profit margins and growth potential. Industry growth specifics, as well as sales projections and methods of controlling expenses to maximize profit, will be most important. Venture capitalists want to see that their investment will pay a return. Your plan should also outline an exit strategy for the money that is invested. In other words, investors want to see a means for how they will recoup their original investment, plus a return, within approximately five years. ◆ Grants—As we discussed earlier, grants are difficult to find. However, when they

exist, it’s usually for a specific purpose or industry, so you’ll want to write your plan to support that purpose. For example, if your business is trying to obtain a grant as part of a community-revitalization project, you’ll want to showcase how your business will contribute to the overall well-being of the area.

Back Office Secrets So you got a grant to start or grow your business. Part of the process likely requires you to document how the money is helping the business—and, in a larger sense, the organization giving the grant—create positive change. Some of the areas on which you’ll likely want to report include: ◆ Jobs created by your business. ◆ Tourism or tax revenue to the community due to your business. ◆ Detailed accomplishment of the specific parameters of the grant. For instance, if

the grant was given to help you restore your headquarters, be sure you report on how the money was used for that purpose. In addition, you’ll want to include any residual effects. If you’re getting much more traffic as a result of restoring your building, document it in your report to the granting agency.

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Attract Business Partners Perhaps your plan is being used to attract new equity partners to your business or to present your business in a way that makes it attractive for a potential merger with another business. In this case, you’ll want to showcase your USP, as well as your operations and management processes. Profitability will also be important in this case, so you’ll want to be sure that your financial statements are strong and accurate.

Operation Benchmark Your business plan can also be used as a management tool to keep your business on track and to ensure that you’re hitting certain goals and milestones necessary for your company to sustain itself. By putting these facts in writing, you have a simple reference that can be reviewed periodically and by which you can measure goals and maximize resources. For example, are you meeting goals that you set for your business? Your business plan can show you where you’re excelling and where your business needs to improve. Are you meeting sales projections? Are expenses being kept in check? Have you staffed your company as you anticipated? All of these measurements of success will be evident when you compare your business to your written plan. By reviewing your plan regularly, you should also see areas where you can consolidate your business operations, cut expenses, or increase your profits. For instance, you may find that you’ve grown to the point where it makes sense to hire a full-time marketing person instead of outsourcing your promotional efforts. Or you may see that outdated equipment is beginning to negatively affect your productivity, so it may be time to purchase the equipment your business needs to make it state-of-the-art. In other words, your plan should be written so that your goal of tracking operations is easily measured.

Obtain Assistance As you write your plan, you’re likely going to want to turn to some of your current advisors for assistance. These may include your accountant or attorney. Turn to your accountant for help with preparing proper financial statements. As a financial advisor, he or she should be familiar with the financial information you’ll need to include in your plan, as well as the best way to present that information. Having an accountant on board from the start is key to accurate record keeping and financial success.

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Part 2: Putting Together Your Plan If you’re looking for investors or are committing to certain responsibilities related to grants or other programs, you’ll want to have your attorney review your plan to ensure that you’re not presenting any information or making any assertions that could get you into a legal bind. Attorneys are also very helpful with structuring your business, creating partner agreements, and with buy/sell agreements, leases, employment laws, and various business contracts.

Iterative Process The iterative process is essential to make your plan an effective tool for your business. This process includes a variety of necessary activities, including staying updated, analysis, and an annual meeting.

Staying Updated Biz Buzz The iterative process is the repeated review and integration of your plan to keep it up-to-date.

Make time regularly to review your plan and ensure that it’s updated on an ongoing basis. Financial statements should be reviewed at least semi-annually, and new processes, information, staff, and other relevant information should be updated in your plan at least quarterly.

Analysis As you review your plan to ensure that it’s up-to-date, take the time to read and review it. Ensure that your goals are still realistic, and evaluate whether they need to be changed based on your business’s growth or market factors. In addition, sometimes the purpose of a business plan changes. You may have originally written your plan to land financing, but now have found that you need it to be more of a management tool. When this happens, re-tool your plan for the needs of your business.

Back Office Secrets As you review your plan regularly, you’ll likely find that some goals or elements are out of date or no longer relevant. Replace those sections with new goals and objectives— those that will help your business grow. For example, if you’ve established your name in the marketplace, it may be time to re-evaluate your marketing budget and focus it on developing new niche markets.

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Annual Meeting As a corporation, you are required to hold a board-of-directors meeting at least once a year. At this meeting you review and document any changes to the business. During the meeting, you take corporate minutes, which are later distributed to the board and inserted into the corporate books. (And with these books you also keep the corporate seal—to use, when necessary, to seal official corporate documents.) This process may sound trivial, especially if there is only one shareholder/owner, but nonetheless it is required. If you do not hold or record annual meetings, or update the corporate books, and there should be a lawsuit, the opposing side could ask to see the corporate books (not updated) and then get Biz Buzz off on a technicality stating that you are not Your corporate seal is a acting like a corporation. This is what is device that engraves the official referred to as “piercing the corporate veil.” A seal of your corporation onto corporate book and seal should be set up if an paper by pressing it between two plates. You receive the seal attorney forms your corporate entity. If you from the state in which your cordo not have this, you can purchase one either poration is filed. Your corporate online or at a business-supply store. books are where board meeting In Part 3, we discuss in more detail how you minutes and other corporate paperwork are kept. can make your plan a critical tool for your business. But, first, let’s move forward on the writing.

The Least You Need to Know ◆ Your plan should be a well-researched, professional-looking document of an

appropriate length—usually about 20 to 25 pages, which can vary. ◆ Organize information according to your plan’s goals, so that you showcase the

most important information for your purpose. ◆ Get assistance from your accountant or attorney if you need it. ◆ Update and review your plan regularly.

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Chapter

Getting Down to Business In This Chapter ◆ Crafting a strong cover letter ◆ Title page and table-of-contents basics ◆ Creating your business description ◆ Writing mission, vision, and values statements

The initial parts of your business plan package are your first impression to lenders, business partners, and others who will see your plan. Your plan should look clean and professional, reflecting the image that you want your business to project. Creating a well-organized plan is also essential to make your document easy to use. While we suggest ways to organize your plan, the truth is that many business plans present information in varying order. It really depends on your business and the target audience. However, whatever form your plan takes, it’s also critical to distill the essence of your business down into a clear, compelling description that shows your knowledge and expertise.

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Getting Off on the Right Foot If your business plan is being used for external purposes, such as seeking financing or investment partners, you’ll need a proper introduction. A cover letter is the document that introduces your plan to its readers. This one-page letter is a brief statement of your business plan’s purpose, as well as what the reader can expect to find in your package. Elements of a well-written cover letter include the following: ◆ The date. ◆ Your name, the name of the company, and contact information. ◆ A salutation that addresses the reader by name (e.g., “Dear Ms. Smith” instead

of “Dear Loan Officer” or “Dear Sir”). ◆ An introductory purpose that states the purpose of the plan and benefits to the

reader. For example, “We’re seeking to obtain ….” ◆ A brief statement of the amount of money you’re seeking, if you’re using your

plan to secure financing, as well as a line or two about your assets and collateral. ◆ A call to action. This means that you state what you wish to happen, as in, “I

hope that we can meet to further discuss financing options,” or “Please advise with a time that will be convenient for you to tour our facilities.” ◆ A statement of enclosures. That will include your business plan, as well as any

supporting documentation you choose to include. Your cover letter, like your plan, should be neat, clean, and free of grammatical errors, spelling mistakes, and coffee stains. You want to look like the consummate professional you are. An example follows:

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ABC Enterprises 123 Main Street Anytown, USA 01234 (555) 123-4567 DATE Mr. John Jones Venture Capital, Inc. 444 Yellow Brick Road Moneytown, USA 45678 Dear Mr. Jones: It was a pleasure to meet you at last week’s Venture Capital America Fair. Based on our discussion, I’m pleased to forward you the enclosed business plan for ABC Enterprises, for which my partners and I are currently seeking $250,000 in financing. ABC Enterprises is a full-service graphic design and printing firm serving the pharmaceutical industry. Led by Eric Ericson, a 20-year veteran of the printing and publishing industry, and Jack Jackson, an award-winning graphic designer, we have designed a state-of-the-art facility that maximizes productivity and minimizes expenses. Please review our plan and feel free to contact me if you have any questions. I hope that we can meet to further discuss our financing proposal and determine how Venture Capital, Inc. can become part of our excellent team of management, investors, and advisors. After you’ve had a chance to review the enclosed plan and additional financial statements, I hope that we can arrange a time for you to tour our facility. I’ll plan on following up with you in three weeks. Thank you for your interest in ABC Enterprises. I look forward to our next meeting. Sincerely,

Jack Jackson President

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Part 2: Putting Together Your Plan Back Office Secrets Be sure to find out if your target audience has specific format requirements. Different lenders or other strategic partners may have guidelines or preferences for business-plan organization or presentation, including what should be included in each segment. Ask your intended reader if this is the case and tweak your business plan format to meet those requirements, if necessary.

Title Page The title page of your document is the first visual image that the reader will have of your company. It should be neat and easy to read. Avoid artsy fonts, unless you are including your logo and it’s made of an artsy font. Your title page should include the following: ◆ Your company’s name or logo ◆ Your company’s physical address, phone number, fax number, e-mail address,

and website address ◆ The name or names of the individual or individuals presenting the plan (usually

the company’s owners, partners, or key shareholders), as well as the titles of those individuals listed ◆ The date that the plan is being submitted

Biz Buzz A notice of confidentiality is simply a statement that informs the reader that the information in a document should not be shared, distributed, or otherwise disclosed.

◆ Optional: a notice of confidentiality, although we

prefer including a separate page that outlines the provisions of confidentiality And that’s it. Don’t clutter your cover page with too much information. It should simply include the who, what, when, and where of your business plan. There’s plenty of room to expand on those topics, and include the why and how inside the plan.

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Sample title page.

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Table of Contents The Table of Contents (TOC) helps your reader navigate your plan more easily. The TOC simply lists the order of subjects in your plan and the pages on which to find them. Your TOC can be as detailed or general as you like. However, we think it’s a good idea to include all of the main sections of your plan, such as Mission and Vision, Operations, Marketing, and so on, as primary headings on your TOC. Then include the various subheads that fall under that section. That way, if a reader needs to refer back to a specific fact, he or she can find it with a quick scan of the TOC, instead of getting frustrated while leafing through page after page of the report. Of course, you should compile the TOC after you’ve written your plan, otherwise you’ll waste time changing it as your plan evolves.

Confidentiality Agreement You’ll probably want to include a confidentiality agreement in the early part of your business plan. Similar to the notice of confidentiality, this document, which is signed by the reader, is an agreement that the reader will not disclose the contents of the business plan to another party without your expressed, usually written, permission. It also includes a place for the reader to sign the agreement, indicating his or her agreement to keep the information confidential. You’ll need to decide whether or not to include this. Sometimes, confidentiality agreements can be off-putting to potential business partners or venture capitalists who may choose to become involved in one of several similar businesses. Signing such an agreement could potentially leave them open to liability if they choose to invest in another similar company. However, if you have a business plan that relies on proprietary information or research, or if you have a product that you are concerned may be copied in the marketplace, a confidentiality agreement may protect you. So weigh your options and include one if you think you need it. This agreement is generally a short one- to two-paragraph statement that includes the following: ◆ The information in the report is confidential in nature ◆ The reader agrees not to disclose this information without prior written consent

from the business owner or plan author ◆ Disclosure of confidential information could harm the business ◆ Agreement to return the business plan to the owner or author when finished ◆ A signature and date line for the reader to indicate agreement

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Sample Table of Contents.

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Sample confidentiality agreement.

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Executive Summary Usually, the executive summary comes next. This is a one- to two-page document that summarizes the key themes of your plan. It targets the reader, basically distilling the business plan down to the most important parts. It’s best if this is written last so that you can easily identify the most important parts of the business plan. We discuss the executive summary in more specific detail in Chapter 13.

Purpose The purpose portion of your business plan quantifies what your business is and its reason for existence. In this early section, you lay out the essence of why your business exists. This should include a business description, a structure, a history, an owners’ section, a location section, an hours-of-operation section, and the Season’s Greetings section.

Business Description The business description includes an overview of what, exactly, your business does. Whether you sell widgets or service whatnots, here is where you will succinctly describe what it is that you do. In this beginning section, avoid hyperbole and stick to just the facts. Your readers don’t want to hear that your business is the best thing since sliced bread—they want to know that you’ve invented a new way to slice the bread. If the company is not a start-up, when was it founded and by whom? Trace the highlights of the company’s history, including any strengths or advantages that have added to its longevity. Your history should be no longer than one page, and less, if possible. Be sure to include the length of time the company has been in business and any background that will showcase its staying power.

Structure In this section, you describe how your business is structured, including whether it’s a sole proprietorship, partnership, or some form of corporation. If there is a compelling reason why you’ve chosen one form of structure over another, you may wish to explain that, as well.

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Biz Buzz A sole proprietorship is an entity in which the owner is personally liable for the debts and obligations of the business. A partnership is a business entity that involves two or more owners, either individuals or entities. Corporation or LLC creates a business that is separate from the individual, and may shield business owners from liability (provided they do not commit intentional fraud).

Owners Although you’ll go into greater detail about the company owners later in your plan, here you should briefly state who owns the company. List yourself if you’re a sole proprietor, or list any partners or other shareholders in the business. Later you will include a resumé or bio in the appendix for each partner, highlighting pertinent past experiences.

Location Describe your location, including the community and the physical space in which your business is located, as well as your rationale for being there. If you did any research that indicated that your current location would be a good one for your business, then include that as well. This description doesn’t need to be long—perhaps a paragraph or two describing the area. However, if there is a reason to go into greater detail—such as a community development program that will support your business and help deliver customers, you certainly can make it longer.

Hours of Operation This is short and simple: what days and hours are you open? If there are specific reasons for your schedule, explain them here.

Season’s Greetings If your business is seasonal, describe the dates that you are open for business. In addition, describe any revenue opportunities for the off-season. For instance, if you own a landscaping company and dabble in snow removal during the winter months, include that information.

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What Is It? You’ve described your business. Now it’s time to get into the specifics of what you sell, produce, or service. Give an overview of your products and services. In addition, you should do the following: ◆ Explain the target market. Instead of going into the specifics of who your cus-

tomers are, which will come later, here is where you describe any niches you intend to fill, as it relates to your product. For instance, if you’re a retailer specializing in children’s furniture, here is where you describe that specialty instead of the profile of the customers who buy children’s furniture. ◆ Explain the edge you have over your competition. In addition, you’re going to

want to give a taste of your competitive edge, or as we discussed in Chapter 1, your USP. Include a brief description of why customers will choose you over your competition. Again, stick to the facts here—don’t use vague hyperbole such as “we’re the best!” That type of fluff will backfire. ◆ Describe key business achievements and assets, if the business has any yet. Finally,

are there significant achievements, awards, media attention, or honors that your business or its personnel have received? Include these; you should also include any supporting documentation in the plan’s appendix.

We’re on a Mission Beyond the day-to-day functions of being in business, there are other reasons why most businesses exist. Companies, like their owners, have sets of passions, values, and priorities. These can be critical assets that serve to drive the business through its life cycle. The part of your plan that breaks down these philosophies includes your … ◆ Mission statement ◆ Vision statement ◆ Values statement

What’s the difference? Well, they are similar, each succinct and about one paragraph in length, but they also have some very distinct differences as described in the following sections.

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Mission Statement This section states why your business exists. Why is the business in existence and what is it in business to accomplish? The answers to these questions may address your market niche, the reason why you founded the business, and profitability, among other principles. Your mission statement should address the overall purpose of your business including a succinct statement of how the business will be carried out. Touch on such issues as your management and staff, resources, and other factors that will be integral to your success. Following is a sample mission statement: AMT is built on the assumption that the management of information technology for business is like legal advice, accounting, graphic arts, and other bodies of knowledge, in that it is not inherently a do-it-yourself prospect. Smart business people who aren’t computer hobbyists need to find quality vendors of reliable hardware, software, service, and support. They need to use these quality vendors as they use their other professional service suppliers, as trusted allies. AMT is such a vendor. It serves its clients as a trusted ally, providing them with the loyalty of a business partner and the economics of an outside vendor. We make sure that our clients have what they need to run their businesses as well as possible, with maximum efficiency and reliability. Many of our information applications are mission critical, so we give our clients the assurance that we will be there when they need us.

Vision Statement A vision statement shows the long-term projections and outlook for the business. This is a marriage of what the organization hopes to accomplish in the future and how the organization can best thrive in the long-term, from the perspectives of growth, purpose, profit, and stability. Think of your vision statement as how your business will operate five or ten years from now. How will it continue its growth? How will it evolve into a stronger organization? Include answers to these questions in your vision statement.

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Following is an example of a vision statement: Hal’s Electronics Warehouse seeks to grow into the largest and lowest-cost provider of electronic components in the tri-state area. Through aggressive cost-cutting across all levels of our organization, we will pass our savings along to our customers and reinvest in our organization as necessary to promote growth.

Values Statement The values statement defines those tenets that the organization holds as most important. What are the core priorities of your business’s culture? Values don’t necessarily have to be selfless. Actually, in the case of a successful business, values may include factors such as profitability, proper staffing, and other factors that will improve the staying power of the business. Some values that a business might have include the following: ◆ Providing a high quality of service at a premium price ◆ Selling a wide variety of merchandise at affordable prices ◆ To reinvest in the business community ◆ To consistently achieve a level of profitability that enables us to grow ◆ To recruit a highly talented staff and retain them through fair treatment, com-

petitive wages, and a pleasant working environment. Remember that ongoing training, recognition, thanks, and praise of your staff are important. A valued staff exhibits energy and quality of work to your customers. Values vary greatly from business to business. The only criterion is that you write the values that truly reflect your business. Following is a values statement: Hal’s Electronics Warehouse values our customers and our commitment to low prices. We have a minimalist approach to our surroundings and amenities, keeping our locations modest in décor and fixtures, while providing helpful sales assistance.

Red Zone Unless you’re a soloist, don’t craft your company’s mission, vision, and values statements on your own. If you have a management team, advisors, or employees, then get their input on these important parts of your business plan to ensure that what’s on paper is shared by the people involved with your business.

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Part 2: Putting Together Your Plan Congratulations! You’re done with the first section of your plan. Now we’re going to dive into the mechanics of your business to show you how to “wow” even the pickiest of business strategists!

The Least You Need to Know ◆ Although they are listed at the beginning of your business plan, write your Table

of Contents and Executive Summary last. ◆ Keep cover pages and cover letters clean and concise. They’re going to make a

first impression on your reader, so you want them to be clear. ◆ Confidentiality agreements are a double-edged sword, which may protect you

but also worry potential investors. Think about whether or not you need one. ◆ Mission, vision, and values statements define your company’s purpose, future,

and philosophy. Be sure that your team agrees with the statements you craft.

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Chapter

Industry Overview In This Chapter ◆ Defining your industry ◆ Understanding market research ◆ Locating information about industry trends ◆ Explaining your business’s role in the industry

Industrial Strength Analyzing your industry requires combining your company’s collective expertise with market research and trend information about the sector in which you’re doing business. This will show your plan’s target audience that you have done your homework and have a solid understanding of the market and its forces. Your industry analysis should be one to two pages and fulfill several purposes, including the following: ◆ Explaining the industry, and whether it’s growing or shrinking ◆ Explaining any trends or significant market factors, such as techno-

logical advancements, relevant legislation, or influencers ◆ Identifying opportunities and obstacles within the industry

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Part 2: Putting Together Your Plan ◆ Acknowledging competition ◆ Analyzing how your business will perform amidst this competition

Overall, your industry analysis is the big picture of your market and its viability. In this section of your plan, you’ll explain to your plan’s target audience why this is an attractive market for your business to court.

Understanding Market Research When it comes to analyzing your business market, knowledge is power. The more information you have about your market, customers, competition, and prospects, the more effective your management and marketing strategies will be. So why do so many businesses ignore the power of even the most basic market research? Many business owners feel that research is either too expensive or that it can’t tell them anything about their business that they don’t already know. Some entrepreneurs take the word of friends, neighbors, and relatives that their idea is great so they overlook the value of market research. However, there are market-research options available to even the smallest businesses—and those who avail themselves of such fact-finding are those who maximize success. Fundamentally, there are two types of research: ◆ Primary research: This is research that is done directly on behalf of an enter-

prise. An example of this would be when a company does interviews or surveys. ◆ Secondary research: This type of research is gathered from sources already in

existence, such as Census data or industry surveys. In addition, research is further defined as qualitative or quantitative. Quantitative research answers basic questions—who, what, when, where, how many, how much, and how often—using statistical analysis of data to draw conclusions. Quantitative studies can benchmark awareness levels for your company, brand, product, or competition and give you a glimpse of what your customers, prospects, and other audiences think of each. This is the more objective of the two disciplines. Qualitative research, on the other hand, is generally designed to answer more open-ended questions, such as “why” and “how.” These studies are used to guide product/service development, the development of marketing programs, advertising messages, direct-mail pieces, etc. There are a number of research mechanisms available to businesses. The following sections discuss some of the more effective mechanisms.

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Interviews Conducted by a trained, independent researcher, the interviewer draws information from the interviewee either in person or by phone. The results should not be biased by preconceptions, emotional attachments, or business pressures. The interviewer is given criteria by which to evaluate prospective interviewees. High-traffic areas like shopping malls, amusement parks, and the like are prime locations for in-person, or “intercept” surveys. Increasingly, interactive kiosks, which allow interviewees to answer questions electronically, are also popping up in high-traffic venues to capture consumer feedback.

Surveys Surveys can be done by mail, telephone, e-mail, or in person. Again, it is important to pay attention to how the survey is worded, to ensure that biased language does not influence results. Surveys can range from one or two questions to multi-page documents. It’s important to be sure that the questions asked in a survey are not leading. You’re going to get very different information from the question, “What are your favorite foods?” than “What healthy foods do you like?” The latter gives the interviewee direction as to what type of answer is expected. Good interviews are more objective in nature and help you capture your customers’ true opinions instead of what they think you want to hear.

Red Zone Tainted data can be hazardous to your business’ health! Basing decisions on faulty data is a sure-fire way to make the wrong decisions. Whether you’re conducting surveys, focus groups or other methods of information collection, take pains to ensure that the data is pure. Don’t inject leading questions. Try not to show a reaction when an interviewee answers or expresses an opinion. By keeping your data collection as objective as possible, you ensure that you’re truly capturing the opinions of your customer, rather than capturing their interpretation of what they think you want to hear.

Focus Groups Focus groups range in size, but generally are most effective with between eight and a dozen participants. Led by a moderator, they are used to encourage free and open

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Part 2: Putting Together Your Plan discussion. Although focus groups generally reveal helpful information, they are vulnerable to the dynamics of the group. A participant with a dominant personality or the perception of a moderator’s bias can drastically influence results. Therefore, be sure that you hire a trained moderator who has experience in or a thorough understanding of your field.

Online Focus Groups Quickly growing in popularity because of their relatively low price, some of the larger chat-based websites are offering online focus group opportunities. Online chat sessions are less likely to be skewed by a dominant participant, as the relative anonymity of the situation may bolster individuals who might otherwise be shy. However, this bravado can also lead to exaggerated responses or enhanced claims by participants. Again, hire a trained moderator who understands the dynamics of the tool—and your industry. Some companies that conduct online focus groups include E-Focus Groups (www. e-focusgroups.com), Qualitative Research (www.decisionanalyst.com), and Good Mind (www.goodmind.net).

Observation More subjective in nature, a number of companies are studying the habits of their buyers by observing them. This can be done by using on-site video surveillance or inperson observation. One company has gone to the lengths of giving subjects disposable cameras that are used to photograph their own usage habits in certain situations.

Understanding the Industry Once you’ve done your research, you need to be able to explain it—and how it is relevant—in your business plan. First, take a look at the industry as a whole. How has it changed over the past five years? Explain whether it has grown or has been shrinking and why. Is it on the rebound? How will these factors affect your business? Also consider how trends and fads will impact your business idea.

Industry Life Cycle Industries, like products, have life cycles. Where the industry is in the life cycle will influence your business and how customers will react to your products and services.

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The four basic segments of an industry life cycle are as follows: ◆ Emerging—Also referred to as the em-

bryonic phase, this is when the industry is brand new. Online retailing was in the emerging stage in the mid-1990s. ◆ Growing—This is when the industry is

expanding, with new products and services being offered. More customers are aware of the segment and are interested in spending their money with these types of businesses. The market for digital music devices, such as iPods and other mp3 players, is growing.

Back Office Secrets The North American Industry Classification System (NAICS) assigns code numbers to various industries to help clarify the business that they are in. These codes have largely replaced Standard Industry Classification (SIC) codes, which essentially did the same.

◆ Mature—At this point, the industry has reached its critical mass and doesn’t

have much room for expansion. Key players generally dominate the market, but there are opportunities, especially for niche businesses. As we mentioned earlier, the soft-drink market as it is today is a good example of a mature market. ◆ Decline—Markets that are in decline are past their prime, and are losing

ground. Markets at this phase of life are generally being replaced by new technology or innovations. For instance, the typewriter industry is in decline, largely being replaced by personal computers. Understand where your industry is in the life cycle. This can often be determined from trade associations and publications and by looking at industry statistics from the government and other sources. Explain how your business will benefit from—or overcome—its industry’s characteristics. Some of these resources might include: ◆ Trade associations. ◆ Your county or state economic growth commission ◆ The Small Business Administration (www.sba.gov) ◆ The Bureau of Labor Statistics (www.bls.gov) ◆ U.S. Department of Commerce (www.doc.gov)

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Part 2: Putting Together Your Plan Back Office Secrets Launching a business in a mature industry—in other words, one that is established and isn’t experiencing much growth—or one that already has many established competitors, isn’t necessarily the kiss of death, but you need to be able to show how your business will secure a profitable portion of the market. For instance, Nantucket Nectars, the highly successful juice and soft-drink company, started with two partners selling refreshments in a small boating community. Today, it’s a multi-million-dollar company, in spite of the fact that they competed against established players like Ocean Spray, Motts, and many other juice makers. They made a difference by setting themselves apart with the quality and flavors of their products. You need to find your exceptional difference from the competitors in your industry and make it clear in your plan.

Industry Economics and Trends As you work on your industry analysis, you’ll need to take the economic temperature of the sector in which you’re doing business and examine any trends or current events that will influence your business. There are many places to find statistics, trends, and other information about various markets. General population information can also give you clues about emerging markets. For example, a baby boom means more demand for childcare and child products in the short-term, and increasing demand for the products and services these children will need as they reach adulthood. Some of the best places to look for excellent secondary information include the following: ◆ Census data (www.census.gov) tells you about population statistics and trends in

the United States, as well as a wealth of business data. ◆ United Nations Statistics Division (www.unstats.un.org/unsd/industry) has

information on the production of major industrial commodities in countries around the world. ◆ BizMiner (www.bizminer.com) houses reports on 16,000 categories of business

in 300 areas of the United States. (They charge a fee for access.) ◆ Minority Business Development Agency (www.mbda.gov) includes many reports

specific to minority business, but also has terrific general information, as well.

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◆ Trade journals and associations. Visit the websites of trade organizations and

publications that cover your industry. If they don’t have archived information on their sites, contact the management offices and publishers to request back issues and additional information you need. ◆ Local and State Government. Contact your state, county, and local planning

boards and, if applicable, business-licensing offices, or state economists’ offices. ◆ Local libraries. Reference librarians are among the best-kept secrets when it

comes to finding facts and figures. Visit your local library’s reference desk, and, in many cases, you’ll be able to access directories, databases, and online research tools that will help your search.

Opportunities and Obstacles As you gather information about your industry, you may begin to identify both opportunities and obstacles. These factors will influence how your company does business. These are discussed in the following sections.

Innovations What new progress, inventions, or ways of doing business have been introduced in your sector? How is your business either incorporating or competing with these developments? Innovation can have a huge impact on how an industry sector performs overall. For instance, the advent of digital cameras has largely changed the way many photographers conduct their business. Photographs can now be seen instantly and proofs e-mailed or posted on a website for review, eliminating the need for costly printing. Identifying these opportunities through innovation will show your audience that you’re not afraid of change and that you’ll keep your business technically current.

Back Office Secrets Identifying obstacles isn’t necessarily a deal-breaker. Lenders and business partners will want to see that you’ve realistically evaluated the marketplace. If you can provide sufficient solutions or ideas to overcome the obstacles, it’s likely that your innovative approach to the matter will impress lenders and potential business partners.

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Part 2: Putting Together Your Plan So how does this relate to your plan? Explain how your business will apply technology or innovation to reduce costs or streamline operations. In the case of a photography studio, for instance, the business owner may include the cost savings enjoyed by using his website to take orders instead of printing photographs. In addition to the positive impact on his financial statement, he can show how this will save him and his employees time in their day-to-day operations, and allow them to deliver their products and services more quickly, effectively, and/or cost-efficiently to customers.

Regulations Government regulations can have devastating effects on businesses. For example, if your business violates environmental legislation or your products include ingredients that are determined to be harmful to its users, you could soon find yourself out of business and facing very significant fines and lawsuits. Examine the regulatory climate surrounding your market sector and explain it to your target audience. Outline your plan for dealing with any potential regulation.

Bottom Line Booster Keeping an eye on regulations that can affect your business is smart business. Explaining these regulations in your business plan is also a smart move, showing readers that you understand the regulatory environment in which your business is operating. For instance, if your business is home-based or located in a residential area, you need to understand the restrictions that are placed on your operations at the local, county, and state levels. Violate these regulations and you could easily be shut down. If your business will use materials that are potentially hazardous or that may damage the environment if improperly used, you should explain how you will take care that your business maintains adequate safety measures in the use and disposal of these products. After all, getting shut down because your business doesn’t play by the rules can be devastating for both you and your investors.

Economic Factors Those economic stats on the evening news aren’t just random numbers—they can significantly impact your business. Explain how your region’s economic climate will impact your business. For instance, a luxury-goods dealer launching during a recession period would likely need to clearly explain why there is a market for those products and how the business will reach that audience to market its wares.

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Price Comparisons Pricing is also an important consideration. In mature markets, pricing is often less flexible than in emerging markets, so you’ll need to provide a brief description of how your prices will fall within the market—most expensive, least expensive, or in between— and determine whether your business can operate properly under those constraints. Polarization in pricing may put middle-of-the-road companies at risk. The cost of doing business in mature markets should, in theory, be less than the research, development, and other costs of a start-up. Therefore, in a mature market, pricing for distribution partners and end users may be actually lower and more flexible.

Location If your business has location issues, such as an unexpected or out-of-the-way location, address that here, too. For instance, you may be located in an urban community that’s undergoing revitalization. Lenders may see an unsavory address and become concerned about crime or other factors. Instead, explain that your business is on the ground floor of an exciting new community-redevelopment program. Include evidence of this statement in your appendix, including news clippings about the effort. Similarly, if there are any features about your physical location that are beneficial, state those. Did you take over an old bank building and plan to use the existing driveup window to offer an innovative new drive-up service for your business? Are you located near an attraction that draws a great deal of foot traffic that will pass by your business? Say so.

Competition Now that you know your business, you need to figure out how it stacks up against the competition, and honestly evaluate how their product, service, or business is better than yours. Because larger competitors generally have large marketing budgets, you need to be creative in how you sell your business’s products or services to new and existing customers. Knowing that you’re strong where your competitor is weak gives you an important advantage that you can use to level the playing field. Conversely, learning where your competitor excels can drive you to make improvements in your business that can sharpen your competitive edge. To get the goods on your competitors, you need to become a sleuth. Find out everything you can about the company so that you can determine where it falls short of your operation. This will provide you

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Part 2: Putting Together Your Plan with important information that you can use to differentiate your company. If you can offer specialized products, knowledgeable service, personalized attention, better atmosphere, or other advantages, this can be your key to maintaining your share of the market. If possible, visit your competitor’s place of business or talk to customers. Also go to the local retail store, restaurant, or other venue that may potentially take market shares away from you. If that’s not possible, read industry publications for information about the company or do some online research. By gathering information about your competitor, you can get a clear picture of how it measures up against your business and which weaknesses you can use to your advantage. Other great places to get the goods on competitors include these: ◆ The company’s website. Look for a background or history on the company, and

its mission or vision, which can tell you where its future plans lie. In addition, employment sections can tell you if the company is staffing up or has lost a key team member. Read news releases or copies of media coverage that are included on the site to get additional insight. ◆ On the wire. If the company’s releasing info about itself, it may be doing so on

one of several press-release distribution services. Most of these are available online, so do a company search on such websites as PRNewswire.com, PRWeb.com, PressReleaseNetwork.com, and Businesswire.com. ◆ As a stockholder. Purchase just a few shares of your competitor’s stock and you’ll

receive a slew of helpful information from the company’s investor relations department. This can give you great insight into strategy, new products or services, changes in direction, and other key information. Or, save a few bucks and contact the investor relations department and request information as a prospective investor. (But if you do invest, you’ll often get information sent to you regularly and automatically.) ◆ Credit report bureaus. For a fee, large credit-reporting bureaus such as Dun &

Bradstreet and Experian will sell you company information that may include number of employees, revenue levels, and other important facts about your competitors.

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◆ Complaint department. Opinion sites such as ePinions.com, as well as more formal

complaint aggregators, such as the Better Business Bureau, may have information about problems that customers have had with your giant competitor. (You should note that it’s almost never a good idea to use complaints about competitors in your marketing. However, complaints that you see over and over again can help you understand some of the weaknesses of your competitor.) ◆ Directory assistance. Check some of the popular business directories, such as

Standard and Poor’s Register of Corporations, Directors and Executives, or Ward’s Business Directory, published by The Gale Group. These directories give information on revenue base, number of employees, contact information, and other basics. ◆ Uncle Sam’s two cents. The Federal Government can be a wealth of information

about your competitor. Check out information from government agencies, such as the Small Business Administration or the Patent and Trademark Office. ◆ Search engines. Type the company’s name into a few search engines—especially

the more inclusive ones such as Google or one of the meta-search engines like Dogpile.com, which also search a number of directories and databases. Scroll through the results and you’ll likely be surprised at what you find.

Business Performance It seems like a great deal of information to cram into two pages, but you’ll need to include one more thing: How your business is expected to perform in the market. Think of your industry analysis as a broad description of the sector in which you’re doing business. Identify its benefits and challenges. Then explain why your business is perfectly suited to succeed in this climate. Again, don’t use a great deal of hyperbole or exaggeration. Simply state, matter-offactly and with supporting documentation, why your business will be successful in this market, which you understand so well.

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4.0 The Market The prospect base for our component products is the hundreds of manufacturers of products that incorporate electrical/electronic components. We have concentrated on the southwestern United States and will be expanding throughout the western United States in the coming year. Our initial thrust has been to manufacturers of "rough usage" products. This continues to be our primary product, but as our reputation for quality components is growing, we are gaining new customers who manufacture "average usage" products. We have also targeted the southwest/western region for Smart-Lite with prospects mainly concentrated in urban areas. The composition of our customer base is projected to be: Some of the prospect base are expected to be customers of our component products. We will concentrate on prospects experiencing good profit margins and have the resources to install and benefit from the use of Smart-Lite. It appears that Smart-Lite has many of the attributes necessary to cause the prospect to purchase it, but the purchase of a product like Smart-Lite is secondary to the prospect's main business. Therefore, we will have to make a strong argument for the cost savings resulting from the use of Smart-Lite.

4.1 Segment Size Market Segment

% of Sales

National Distributors Area Distributors Local Distributors

60 % 30 % 10 %

4.4 Objectives The prospects for our components are usually the purchasing agents of product manufacturers, however, it is often the design engineer who initiates the interest in our products. Their objectives are mainly to improve the reliability of their product(s), thus improving customer satisfaction and reducing maintenance costs. The proven superiority of our components in providing continuous performance under extreme conditions is the reason the prospect wants to purchase from us. The prospect for Smart-Lite falls into two categories, builders of new facilities and managers of existing facilities. In either case the product is beneficial in facilities of medium to large business enterprises or public organizations (schools, libraries, museums, etc.). The prospect's objective is to lower the operating costs of their facilities, which is addressed well by our claims of a 10% to 15% reduction in their electric bills with a full return on their investment in the first year.

Chapter 6: Industry Overview

4.5 Segmentation The major market segment for our component products is the manufacturer of "rough usage" products. There are small secondary market segments of manufacturers of "very close tolerance" products and high voltage video display terminals. We do not sell directly to these manufacturers, but rather to distributors of electrical and electronic components. We have thus far limited our distributor network to the southwest U.S. with plans to expand through the western U.S. in the coming year. We expect the market for Smart-Lite to be quite diverse, as it is beneficial to any enterprise with facilities that have more than twenty offices. This is such a large market that we are not yet sure how to segment it for our initial sales efforts. We are planning on working closely with our distributors in monitoring the response to their initial promotional efforts. This information will help us to focus on more specific market segments for the first one to two years. Due to the nature of our products the majority of our prospects will be commercial businesses located in urban areas with populations of 100,000 or more.

4.6 Size We estimate that there are in excess of 10,000 manufacturers (1) within the U.S. manufacturing more than 30,000 unique products (1) that could be improved by using our components. The annual sales for these products is approximately one billion dollars (2). This is a growing market as more and more products are being manufactured for outdoor work or pleasure uses. There are in excess of 500,000 office complexes (3) in the U.S. that could benefit from Smart-Lite. In addition there are many thousands more buildings such as hospitals, schools, libraries, etc. that are also prospective users of Smart-Lite. Assuming that on the average each of these facilities would use twenty units, this represents a Total Available Market (TAM) greater than ten million units. (1) Manufacturers Digest, April 200x (2) Sales in Review, Summer edition 200x (3) IRS Report # 17633, November 200x

4.7 Environment The trend toward use of more electronic devices for outdoor activities ranging from surveying tools to all weather radios is a positive influence for the sales of our component products. Also military actions such as the Middle East situation creates a demand for more sophisticated "field" devices that require high performance electrical components. Smart-Lite is being introduced as the public is becoming more and more sensitive to the need to conserve energy. A 10% to 15% reduction in the electric bills for 500,000 large office complexes is a major step in the direction of conservation!

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4.8 Alternatives The main reason HiLight Inc was formed was that manufacturers did not have a good alternative to improve the durability of their "rough usage" products. Our components are expensive, but in the long run result in a more cost effective product and a more satisfied customer. Selling the manufacturer on that concept is our major task. Smart-Lite offers reduced electric bills and, to some extent, improved convenience. If the buyer wants to achieve these objectives its alternatives are to use Smart-Lite (or a competitive product) or train their personnel to always turn out the lights when they leave a room. A more expensive solution is to rewire for new, energy conserving light bulbs, or there is now a technique of routing sunlight via fiber optic cables to each office in the complex (very expensive).

Sample Industry Overview and Analysis.

The Least You Need to Know ◆ Your industry analysis explains the sector in which you do business. ◆ You should know your NAICS Code, which is used by lenders and government

agencies to identify your industry. ◆ Primary research is research done especially for your business. Secondary

research is gleaned from other sources. ◆ There are many resources to find trend information and statistics about your

industry. Use these to support your claims and to present your analysis. ◆ Thoroughly research your competition and how they position and market them-

selves. There are many sources to which you can turn for free information and insight.

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Who Are You? In This Chapter ◆ Creating effective job descriptions ◆ Describing the assets of your management and staff ◆ Developing an organizational chart ◆ Hiring employees or contractors? ◆ Describing consultants and strategic partners

A business is only as good as its people. Even if you run a business based primarily on technology or one where machines perform many functions, your people are still the ones who will interact with and sell to your customers. They’re the ones who will navigate challenges with their experience and will develop innovation through their creativity. You’ll want to showcase those human assets in this section of your business plan. Describing the organization and personnel involved in your business is a critical component to inspiring confidence in your enterprise. As you craft your organizational structure, think about how you can build upon it in the future, and be sure that you’re laying a strong foundation for the future.

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Internal Assets Regardless of the type of business, all businesses share one key element of success— the people who are involved in running and operating the company. These internal assets include the management, the employees, and the collective body of knowledge that those individuals bring to the business. Finding the right staff, the best management strategy, and the most efficient organization of these people are key elements in the success of any business, and the inclusion of these will be important components of any business plan. This section of your business plan will explain how and by whom your business will be run, showing lenders the strong leadership and capable staffing that you have in place. If you’re using the plan as a management tool, you can get everyone on the same page as to who does what.

Owners and Partners In this section, you describe the experience, roles, and responsibilities of the people at the helm of the business. Ideally, as the owner or partner of the business, you will have experience in the type of business you’re launching or acquiring. If you owned or were involved in a similar company, or have background in that industry or sector, it’s important to highlight that, as well as any accomplishments you had there, such as employment promotions, the profitability of your previous company, and the like. One gift-shop owner we know began her business after years in shopping-mall management. Although it wasn’t exactly the same type of business, she did know the retail sector very well. She was able to secure financing because lenders saw her previous experience as an asset. If you have other experiences that are relevant, be sure to mention those, as well. For instance, our gift-shop manager was involved in marketing the shopping mall that she managed. That experience was also valuable because it showed lenders that she knew how to promote retail businesses. Even if you’re opening a house-painting business and don’t have experience working for such a company, if you’ve managed a profitable company in the past, have experience in a service business, or have slowly built a small clientele by working weekends, make that clear. The more relevance you can show between your experience and the business you’re launching, the better.

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Staffing If your business is a solo practice or will be run by you and your partner, you don’t need to say much about your staff. However, if you intend to hire employees—or grow your business to the point where you’ll be hiring employees—you need to address staffing issues. If there are weaknesses in your staffing structure, you should address them and describe how you’re going to overcome them. Financial projections are often made for three years into the future. So if you plan on hiring employees in year two, you need to discuss that here and add these numbers to your calculation. Your projected future growth is important for lenders to know as well as for strategic planning for your business.

Management Team Clearly defining your management team is the next step. This section of your business plan usually has a separate listing for each person on the team, with the highest-ranking managers and employees listed first. You should then list the rest of your employees in a pecking order. For example, you might list yourself and your partner first, then your vice-president of sales, director of finance, director of customer service, marketing manager, and so on. Be sure to highlight the relevant experience and the job responsibilities of all of your employees. Look closely at how you intend to run your business and where you’ll need help. Often it’s a good idea to hire managers and employees who supplement weaknesses in the business. So, for instance, if you are terrible at balancing your checkbook or hate working with numbers, you should supplement the financial side of your business with a part-time bookkeeper or an accountant who will handle your payroll and tax paperwork. If you’re going to be spending most of your time working on the inventory and marketing of your new store, you’ll need an employee or two to run the register. If you’re launching an ice-cream manufacturing company, you’ll need people to actually make the ice cream, a team of salespeople, marketing, and package-design staff, as well as a group of office staff to handle orders, returns, and customer service.

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Staff stats.

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Outsourcing and Consultants Sometimes, especially in the early phases of a business, it’s important to keep staffing costs down, and this can be done through the use of consultants or independent contractors. Such individuals are often hired to perform a specific task or provide specific expertise. For instance, you may have an independent contractor who works from home and handles bookkeeping for a number of clients, or you may hire a consultant to oversee your company’s marketing or graphic-design needs. Hiring such talent on a per-diem basis often enables you to tap more specialized expertise than you could afford full-time. An experienced, full-time bookkeeper might cost you $35,000 to $40,000 per year, plus taxes, benefits, and expenses (as well as the additional office space you would need for the bookkeeper). However, you might be able to hire a person with similar experience for $40 to $50 per hour. If you only need to hire her for 10 hours’ worth of work per month, that’s $400 to $500 per month, or $4,800 to $6,000 per year, plus you pay no taxes or benefits. That’s a huge savings and a smart way to run your business. However, before you go out and begin hiring independent contractors left and right, it’s important to understand who is an independent contractor and who is an employee.

Employee or Contractor? The Internal Revenue Service (IRS) uses a series of definitions and criteria to determine whether an individual is an employee or an independent contractor. Generally, if the individual is an employee, you must withhold taxes from his or her pay, and you may be subject to other regulations, depending on the state in which you live. According to the IRS, before you can determine how to treat payments you make for services, you must first know the business relationship that exists between you and the person performing the services. This person could be … ◆ An independent contractor ◆ A common-law employee ◆ A statutory employee ◆ A statutory nonemployee

The relationship often boils down to the degree of control you have in the relationship and the level of independence that the individual has in performing services for you.

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Part 2: Putting Together Your Plan It’s very important that you have a clear understanding of who in your organization is an employee and who, if anyone, is an independent contractor. Incorrectly classifying an employee as an independent contractor could leave you liable for back Social Security, Medicare, and other taxes, penalties, and interest on that withholding. Generally, such taxes are not withheld from the money paid to independent contractors. The following sections describe the IRS guidelines.

Who Is an Independent Contractor? A general rule is that you, the employer, have the right to control or direct only the result of the work done by an independent contractor, and not the means and methods of accomplishing the result. For example, Vera Elm, an electrician, submitted a job estimate to a housing complex for electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2 weeks for the next 10 weeks. This is not considered payment by the hour. Even if she works more or less than 400 hours to complete the work, Vera Elm will receive $6,400. She also performs additional electrical installations under contracts with other companies, which she obtained through advertisements. Vera is an independent contractor.

Reporting Payments Made to Independent Contractors You may be required to file information returns to report certain types of payments made to independent contractors during the year. For example, you must file Form 1099-MISC, Miscellaneous Income, to report payments of $600 or more to persons not treated as employees (e.g., independent contractors) for services performed for your trade or business.

Who Is a Common-Law Employee? Under common-law rules, anyone who performs services for you is your employee if you can control what will be done and how it will be done. This is true even when you give the employee freedom of action, in other words, the ability to determine when and how the work will be done. What matters is that you have the right to control the details of how the services are performed. To determine whether an individual is an employee or an independent contractor under the common law, the relationship of the worker and the business must be examined. All evidence of control and independence must be considered. In an employee-independent contractor determination, all information that provides evidence of the degree of control and degree of independence must be considered.

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Facts that provide evidence of the degree of control and independence fall into three categories: behavioral control, financial control, and the type of relationship of the parties.

Red Zone Make no mistakes when it comes to determining whether an individual is an employee or a contractor! Choose incorrectly and you could be faced with stiff penalties, back taxes, and interest. Carefully review the IRS guidelines available at www.irs.gov and remember that just because someone doesn’t work in your office or works for you only part-time doesn’t mean that the IRS doesn’t consider him or her an employee.

Who Is an Employee? A general rule is that anyone who performs services for you is your employee if you can control what will be done and how it will be done. Here’s an example: Donna Lee is a salesperson employed on a full-time basis by Bob Blue, an auto dealer. She works six days a week, and she is on duty in Bob’s showroom on certain assigned days and times. She appraises trade-ins, but her appraisals are subject to the sales manager’s approval. Lists of prospective customers belong to the dealer. She has to develop leads and report results to the sales manager. Because of her experience, she requires only minimal assistance in closing and financing sales and in other phases of her work. She is paid a commission and is eligible for prizes and bonuses offered by Bob. Bob also pays the cost of health insurance and groupterm life insurance for Donna. Donna is an employee of Bob Blue.

Statutory Employees If workers are independent contractors under the common law rules, such workers may nevertheless be treated as employees by statute (statutory employees) for certain employment tax purposes if they fall within any one of the following four categories, or meet the three conditions described under Social Security and Medicare taxes. ◆ A driver who distributes beverages (other than milk) or meat, vegetable, fruit, or

bakery products; or someone who picks up and delivers laundry or dry cleaning, if the driver is your agent or is paid on commission. ◆ A full-time life-insurance sales agent whose principal business activity is selling

life insurance or annuity contracts, or both, primarily for one life-insurance company.

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Part 2: Putting Together Your Plan ◆ An individual who works at home on materials or goods that you supply and

that must be returned to you or to a person you name, and you also furnish specifications for how the work is to be done. ◆ A full-time traveling or city salesperson who works on your behalf and turns in

orders to you from wholesalers, retailers, contractors, or operators of hotels, restaurants, or other similar establishments. The goods sold must be merchandise for resale or supplies for use in the buyer’s business operation. The work performed for you must be the salesperson’s principal business activity.

Statutory Nonemployees There are two categories of statutory nonemployees: direct sellers and licensed realestate agents. They are treated as self-employed for all federal tax purposes, including income and employment taxes, if … ◆ Substantially all payments for their services as direct sellers or real-estate agents

are directly related to sales or other output, rather than to the number of hours worked. ◆ Their services are performed under a written contract provided that they will

not be treated as employees for federal tax purposes.

Organizational Chart After you’ve done the narrative portion of your organizational chart, it’s a good idea to map out the specifics so that your reader can see the business organization in an at-a-glance format. An organizational chart is a series of boxes, structured in a tiered format, that illustrate the hierarchy of management in the business.

Bottom Line Booster If you hire consultants and they play key roles in the company, they can also be included, showing the person to whom they report. They should, however, be shown as consultants. Generally, if you have a solo practice, or very few employees, an organizational chart is not necessary.

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Salaries If you’re using your plan to secure financing or business partners, you’ll also want to explain the compensation structure for owners, managers, and employees, as well as the rationale for putting that structure in place. Lenders and partners will want to know that you’re not asking for money to fund an inflated salary structure. Plus, in your start-up or early acquisition phase, you’ll want to keep your expenses lower to keep as much cash on hand as possible. Consider using some sort of commission or bonus structure tied to performance of job duties, instead of higher salaries. That’s generally attractive to lenders because it raises the amount paid to an employee only when an employee is positively contributing to the company’s bottom line. Here, you should also note industry standards in salary levels (check with your trade association or use your firsthand knowledge of the area), as well as any special compensation considerations for your geographic area. For instance, your business may be located in an area with a high cost of living, such as the northeast or northwest, where average salaries are a bit higher than they are in other areas of the country.

Bottom Line Booster As the business owner, it’s important that you compensate yourself properly, but that you not overshoot the boundaries of what’s reasonable. A good self-check when deciding how to compensate yourself is to check with trade or professional associations and determine what the salaries traditionally are in your sector. In addition, you can tap salary surveys and calculators like those on www.salary.com or www.salaryexpert.com. Your accountant may also have resources to help you calculate what’s reasonable for your business, its location, and other factors.

Strategic Partners Your business may have special relationships with other businesses or individuals that are assets to its management, operations, or other areas. Be sure to include a narrative description of these alliances or strategic partners. For instance, if you are starting a company to promote an invention and have a contract with an overseas supplier who will produce the product for an excellent price, describe that relationship. If you own a contracting firm and have relationships with other contracting firms that will refer business to you during their busy times, say so.

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Professional Resources In addition to your employees, consultants, and other alliances, you likely have a few more members of your support team whom you should include in your plan. These partners are the mark of a professionally run firm.

CPA Name your accounting firm and its role in your business. For example, if you hold quarterly meetings with your accountant to review business profits and expenses, or if your accounting firm manages your payroll and tax-filing requirements, then you should include that information.

Attorney You’ll likely need an attorney for some of the start-up activities of your business, including incorporation, as well as drafting and reviewing contracts and agreements. Name your attorney, his or her firm, and the role that the firm plays in your business.

Bank It’s a good idea to cultivate a relationship with the manager or managers of your bank. These people can help you secure lines of credit or additional financing for your business. Keep them updated on your business successes, such as expansions, new product lines or services, acquisition of new clients, or significant jumps in revenue. They may also be in a position to refer business to you, so it’s a good idea to keep them in the loop about what and how your business is doing.

Insurance Professionals Regardless of the type of business you have, it’s likely that you’re going to need some type of insurance. If you’ve received professional consultation about the type and amount of insurance you will need, describe that, as well as how this advice is helping you limit your potential liability.

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Other Include any other types of professional advisors or partners. You may have hired a realestate professional to help you choose the right location for your business; include that information. If you have received a loan guarantee from the Small Business Administration, or counseling from the Small Business Development Center or local business development group, include that. If there is a professional who is at your disposal or upon whom you rely for advice, include a brief description of that person and his or her contributions. Now you have a clear vision of your management and staffing structure. It’s time to move on to some of the more external factors that will concern your business.

The Least You Need to Know ◆ Experience in a particular area is a very valuable asset to a business. ◆ Properly showcasing the experience and contributions of your management and

staff is critical to showing lenders how your business will be run. ◆ Use your plan to show how you’ve hired or aligned with employees or consult-

ants to strengthen your business. ◆ Be sure you know the IRS rules about who is an employee and who is a contrac-

tor, or you could leave your business open to big liabilities, including back taxes and penalties. ◆ Create an organizational chart to show your management at a glance.

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Analyzing Your Business in the Market In This Chapter ◆ Analyzing your customers ◆ Understanding demographics and psychographics ◆ Defining your market segments ◆ SWOT Market Analysis

Proper analysis is the key to a good business plan. This will be the first part of your plan where you take the cold, hard facts and use them to paint a picture about your business and the climate within which it will be operating. Here, you’ll explain who your customer segments are and why you’re targeting specific populations. You’ll also get into prioritizing market segments. This chapter also discusses a popular business approach called SWOT analysis. SWOT stands for Strengths, Weaknesses, Opportunities, Threats. This is a valuable tool, and one which you should use regularly to evaluate the state of your business.

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Getting Down to Strategy After you’ve presented the cold, hard facts about your business, you need to put it in some context to help your target audience understand your business prospects. Here, you demonstrate that you not only understand your business, but you also understand the market in which it will operate, and the customers you can expect to attract. When you work on the market-analysis portion of your plan, you can often turn to industry trade associations for facts and figures, which may supplement your efforts. It’s critical that you have a good understanding of the size of your market and how and why your customers will buy from you. This needs to come across loud and clear in your industry analysis. This is also the first part of your plan that should be approached from a strategic, rather than a factual, perspective. That means that you’ll want to analyze information instead of just presenting it as is. For instance, if you’re a florist and know that there are approximately 500,000 people within your geographic target area who are likely to buy flowers at least once a year, you need to present a strategy, a plan of action, designed to accomplish a specific goal, to show how you’re positioning your business as an attractive alternative, and why you believe customers will know about and choose you as their floral provider. External market factors also play a role in how you’ll analyze your market. These can include the economies of your country and the countries in which you do business, legislative issues, changing customer attitudes, innovations in the sector, and other influences that are beyond your control (such as changing technologies). If these concepts seem a little far-reaching, then you need to consider the real-life businesses that have dealt with similar circumstances. One such business is Canada’s Manitoba Harvest Hemp Foods and Oils. They had plans to expand their successful hemp-foods business into the United States. They launched their expansion in September 2001, just ten days before the terrorist attacks. Then, in October of that year, the United States Drug Enforcement Agency announced its plans to ban hemp foods, essentially making Manitoba’s products illegal. This made at least one of the company’s major customers pull the products off of its shelves. The company took part in a lawsuit that eventually overturned the DEA’s decree and made hemp foods legal, but it did cost the company in lost sales and legal fees. Over the long term, the company held hundreds of seminars to educate both customers and consumers about the product and its benefits. That helped Manitoba stay in business and, ultimately, grow.

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Obviously, this is an extreme example. However, it illustrates why it’s important to consider pending legislation and government action, as well as the other big-picture concepts that we’ve discussed.

Back Office Secrets Different businesses have different markets. Business-to-consumer (also called B-to-C or B2C) models sell directly to consumers. Business-to-business models (B-to-B or B2B) sell to other businesses. Each of these strategies employs different approaches to marketing and selling to its respective audience. Consumer markets are often motivated by price, convenience, or other factors valued by an individual. Business customers are often motivated by price as well, but are usually more driven by how a product or service will benefit the overall organization.

Targeting Your Customers Your industry analysis should begin with your target customers. These are the people who are most likely to buy your product or service. Obviously, not everyone can or should be a customer. Even the largest companies with the most mass-market products don’t believe that “everyone” is their customer— there are people who don’t drink soda or who prefer cloth towels to paper towels. Your market is likely much narrower than that of a Fortune 500 consumer-products company. Even if you sell a specific product or service, your business, and your customers, will differ depending on how you position that product or service. For example, your restaurant may be promoted as an affordable place to take the family, or as an exclusive, upscale dining experience for special occasions. Each of these establishments will have very different customer profiles. Whether your company has already been in business for a while, or whether you can glean information from competitors in the area, trade associations, and the like, you still need to determine/identify a profile of who, exactly, your customers are. Understanding the characteristics of people, businesses, or organizations who will be your best, most profitable prospects means that you can pour your marketing dollars into vehicles that reach them and eliminate waste. If you try to be everything to everyone, you will be less profitable.

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Part 2: Putting Together Your Plan That means—get ready for a shock—that you may actually want to turn away business, or, at least temporarily, ignore some of your less profitable markets. It’s a scary proposition, but when you understand that clients who aren’t a good fit may actually be costing you money, it becomes easier.

Demographic Profiles For business-to-consumer business models, the first method of defining your customer base is to turn to demographic profiles. Demographics are objective and quantifiable characteristics of an audience or population. The following sections discuss different demographic points to help you define your customer base.

Income and Spending Habits Will you target a certain customer household income range? It’s not always best to target the highest income brackets and assume that they have the most discretionary income. For instance, if you have a small grocery store, your best customers will likely be in the middle-income bracket (which varies depending on the cost of living in your area). Individuals with very high incomes might not do their own grocery shopping. So be sure that you think carefully about the earning power of the people who will buy from you.

Personal Characteristics What does your customer “look” like? Is your customer generally male, female, or both? What is the age range of your customer base? Does your business appeal to any specific ethnicity or religion, based on your geographic location, product mix, or other factors?

Standard of Living How do your customers live? Are their homes upscale and in exclusive neighborhoods, or are they more modest? Do their children attend private schools? Standard of living is often, but not always, relative to income level. You’ll want to define, as closely as possible, the lifestyle that your prospective customers lead.

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Household Characteristics Consider what the household of your customer looks like. Is it a family with children, a childless couple, or an individual? How does this household run? What is the education level? What products and services does this household need—and who chooses them? Understanding how your target lives is critical to understanding how to market to him or her. Virtually any household or personal characteristics constitute a demographic profile. It’s up to you to determine which of these characteristics is most common among your key customers and how it affects the reasons that they do or will buy from your business.

Getting Psychographic In addition to understanding the demographics of your customers, you also need to understand the psychographics of your customers. The demographics are the physical characteristics and can be measured objectively, whereas psychographics are psychological characteristics and attitudes that affect purchasing behavior. Important psychographic data will vary from business to business, but some of the areas that may be important to know include opinions or values, political views, and style or taste.

Opinions and Values Your target likely has some opinions and values that he or she holds dear. Some customers want to pay for higher quality whereas others want the best possible price, regardless of quality. Some customers value convenience and others value price. Your customers may have strong opinions about what they look for in a landscaper, a restaurant, a gift shop, or a personal service provider. The better you understand what’s important to your customers, the more likely it is that you will be better able to connect with them.

Political Views It may be important to determine whether the majority of your customers are liberal or conservative, and how they feel about certain issues. For instance, a small grocery chain may wish to consider whether it sells alcohol in a very conservative region that may frown upon that product choice.

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Style and Taste Knowing what your customers’ interests are and how they spend their leisure time will enable you to more closely connect with them. You will be able to make appropriate inventory, service, and marketing choices. For example, a music store in a rural southern area might require a different inventory mix than a music store in an urban area with a mix of various ethnicities.

Red Zone Demographics are objective measurements that can be easily quantified (e.g., how much money someone makes, the area of the country in which someone lives), whereas psychographics are a bit trickier. Although they can give important insight into your customers and their preferences, they should be used with caution. Opinions, values, and the like are very fluid and can shift and change, unlike demographics. Psychographics, if analyzed improperly, can lead you to make incorrect assumptions about your clientele.

Defining Business-to-Business Customers Businesses that sell to other businesses can look at similar characteristics to determine their target customers.

Type of Business and Ownership Is your best customer a sole proprietorship with two employees, or a LLC with 200 employees? Each type of business has different needs, concerns, and buying habits. If you’re an accountant, it may be more profitable for you to target companies with 50plus employees that need more accounting services than small soloist or few-person businesses. On the other hand, if you sell copy machines, the size of the business may not matter to you, as long as they have a need for photocopying equipment.

Sector Your customers may do business in one sector or across the board (broad market area). A sector is part of a business area (the manufacturing sector or the private sector). This may impact the type of services they need or the manner in which they require services

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delivered. If you’re doing work for government agencies, you may need to apply for certifications or licenses. If your customers are airlines, you’ll likely have a stringent set of requirements relating to your goods and their manufacture.

Geography Examine where the best prospects for your business are, from a geographic perspective. Are they within a certain distance from your place of business? Or are they located in areas that meet certain geographic criteria? For instance, a gift shop may find its best customers within a 10-mile radius of its store, whereas a manufacturer of snow-removal equipment will target areas where, obviously, it snows during the winter. If you are selling a product on the Internet, then geography is usually not an issue because you can ship your product to anywhere in the world.

Psychographic Characteristics Businesses also have psychographic characteristics. Is the corporate culture conservative or outrageous? Does it position itself as a high-end provider of goods and services, and wants that same mind-set from its vendors? Examine the culture and values of your customers to better serve and communicate with them.

Who Is Your Perfect Customer? How can all of this information help you? By collecting as much data as you can about your customer base, you can better predict their buying habits and preferences. You can profile the individuals or businesses that will be most profitable for you and understand their motivations. That lets you better target your marketing efforts, create messages that are meaningful to these customers, and invest in marketing methods that are more effective. Targeting your marketing becomes easier when you’ve been in business for a while. Then, you can do the following:

Bottom Line Booster As you begin to create profiles of your audience, crafting marketing messages and approaches becomes easier. You may find that you have more than one profile within your customer base. Prioritize them and, if you find that you need to divide your marketing dollars, distribute them according to the respective size of the market they represent.

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Part 2: Putting Together Your Plan ◆ Turn to your database. Track customers’ buying habits. Who are your most

profitable customers—the ones who routinely buy in larger quantities or the customers who are loyal, need little attention or assistance, and continue to do business with you? Do they come from a particular industry? What other characteristics do they have? ◆ Ask your employees. Who do they consider to be their “best” customers and

why? Who do they enjoy working with? ◆ Create your own wish list. Are there customers that you wish you had, but

don’t? What are their characteristics? Where can you find them? What’s the best way to reach them? Take the information you’ve gathered and piece it together to develop a perfect customer profile. A mid-size computer networking company might find that its best customers are on-site information technology professionals in companies with fewer than 100 employees that need simple networks, and are within 50 miles of the company’s headquarters. A restaurant may find that its best customers are the people in local office buildings for weekday lunch business. A small but nationally oriented consulting firm may find that its best customers are Fortune 500 companies in major cities. After you know who your best customers are, you’ll better know where to find them. If your company’s a start-up, then you can find out information about ideal customers by doing the following: ◆ Speaking to similar businesses. Contact people who own the kind of business

you wish to start. If you can’t find local proprietors who will speak to you, you may have to go outside your market area. However, you’ll likely be surprised at how forthcoming business owners are—even with wanna-be entrepreneurs who may end up being their competition. ◆ Consulting trade associations. Industry associations will likely have statistics on

buying trends and may even have customer profiles or analyses. Start with the public relations or membership departments to find out what information is available. ◆ Contacting Small Business Administration Resources. The United States Small

Business Administration offers many resources and will supply you with a list of their affiliates who provide free consulting. Some of the best resources are the agency’s Small Business Development Centers, or SBDCs, which will help you access myriad sources of secondary research. The Centers can put you in touch with consultants who can help you analyze that market data.

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◆ Using your experience. If you’re starting or acquiring a business in a particular

area, it’s likely (and advisable) that you have experience in that area. Use your own experience to define the customers who have been most beneficial and profitable in your past dealings.

Why Do They Buy? In addition to understanding your customers, it’s also critical to understand why they buy. Knowing their motivations, needs, and wants will help you to better position your company to service the market sector that will be best for your business. The following sections describe some of these motivating factors.

Do They Need It or Want It? Can They Afford It? Is this purchase a necessity or is it something that the customer desires, but doesn’t necessarily require? Getting a car serviced when it breaks down is a need. Getting it detailed and buying accessories for an automobile is a want.

What’s Important to Them? What factors do your customers take into consideration when making a buying decision? Price, quality, convenience, selection, brand, prior experience, level of urgency, and availability are all factors that influence the buying decision.

For Whom Are They Buying? Many times, the person who purchases a product or service may be doing so for someone else. For instance, a mother will likely choose everything from clothes to a hair stylist for her children. In these cases, you need to determine how to reach the decision-maker.

Who Are Your Customers’ Influencers? Influencers are the people or entities who influence your customers’ buying decisions. Influencers range from respected authorities, celebrities, and trendsetters to media, and even individuals or family members. For instance, the customer of a small grocery store may be a woman in her 30s, but the type of juice or cereal she buys may be

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Part 2: Putting Together Your Plan significantly influenced by her family members. Similarly, an apparel or music customer may be a young person in his 20s, but his influencers may be celebrities or media who showcase a particular type of clothing or music. You can use your knowledge of influencers by reaching out to your target audience in a way that reinforces the influencer’s impact. In-store signage that reflects a clothing trend or music sampling may enable customers to try the latest hits. You may wish to showcase articles written about the products you carry to further encourage customers to purchase that product. Service businesses can also take advantage of influencers by using them to cultivate referrals.

Are They Brand Loyal or Price Driven? Some customers would rather remain loyal than switch from their favorite brands or service providers. Others will go wherever they can get the best price. If your customers fall into the former category, it’s easier to work on cultivating relationships and high levels of service, and you have some flexibility in pricing. If, however, your customers are price driven, it’s more difficult to compete on factors other than the cost of the product or service.

How Do They Buy? Think about how your customer buys your product or service. Does it require face-toface interaction or does the customer prefer the convenience and relative anonymity of an online transaction. Can the product or service be purchased remotely by phone, fax, or online? Explain the process and how you’ve put systems in place to ensure that you’re meeting the buying preferences of your customer.

Creating Profiles There are many companies that create certain profiles of customers. They group customers according to certain characteristics that research has shown are indicators of certain buying patterns. One such company is SRI Consulting Business Intelligence (SRIC-BI), which types U.S. adult consumers in what they call VALS Types™. These profiles help segment the market and help companies determine the characteristics that they should be looking for. The following VALS Types are excerpted with permission from SRIC-BI, and are a good illustration of how all of this demographic and psychographic information can

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pay off in helping to create detailed profiles of your customers. Which of these types would be the best customer for your business?

Innovators Innovators are successful, sophisticated, take-charge people with high self-esteem. Because they have such abundant resources, they exhibit all three primary motivations in varying degrees. They are change leaders and are the most receptive to new ideas and technologies. Innovators are very active consumers, and their purchases reflect cultivated tastes for upscale, niche products and services. Image is important to Innovators, not as evidence of status or power but as an expression of their taste, independence, and personality. Innovators are among the established and emerging leaders in business and government, yet they continue to seek challenges. Their lives are characterized by variety. Their possessions and recreation reflect a cultivated taste for the finer things in life.

Thinkers Thinkers are motivated by ideals. They are mature, satisfied, comfortable, and reflective people who value order, knowledge, and responsibility. They tend to be well educated, and they actively seek out information in the decision-making process. They are well informed about world and national events and are alert to opportunities to broaden their knowledge. Thinkers have a moderate respect for the status quo institutions of authority and social decorum, but are open to considering new ideas. Although their incomes enable them many choices, Thinkers are conservative, practical consumers; they look for durability, functionality, and value in the products they buy.

Achievers Motivated by the desire for achievement, Achievers have goal-oriented lifestyles and a deep commitment to career and family. Their social lives reflect this focus and are structured around family, their place of worship, and work. Achievers live conventional lives, are politically conservative, and respect authority and the status quo. They value consensus, predictability, and stability over risk, intimacy, and self-discovery.

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Part 2: Putting Together Your Plan With many wants and needs, Achievers are active in the consumer marketplace. Image is important to Achievers; they favor established, prestige products and services that demonstrate success to their peers. Because of their busy lives, they are often interested in a variety of timesaving devices.

Experiencers Experiencers are motivated by self-expression. As young, enthusiastic, and impulsive consumers, Experiencers quickly become enthusiastic about new possibilities but are equally quick to cool. They seek variety and excitement, savoring the new, the offbeat, and the risky. Their energy finds an outlet in exercise, sports, outdoor recreation, and social activities. Experiencers are avid consumers, and spend a comparatively high proportion of their income on fashion, entertainment, and socializing. Their purchases reflect the emphasis they place on looking good and having “cool” stuff.

Believers Like Thinkers, Believers are motivated by ideals. They are conservative, conventional people with concrete beliefs based on traditional, established codes: family, religion, community, and the nation. Many Believers express moral codes that are deeply rooted and literally interpreted. They follow established routines, organized in large part around home, family, community, and social or religious organizations to which they belong. As consumers, Believers are predictable; they choose familiar products and established brands. They favor American products and are generally loyal customers.

Strivers Strivers are trendy and fun loving. Because they are motivated by achievement, Strivers are concerned about the opinions and approval of others. Money defines success for Strivers, who don’t have enough of it to meet their desires. They favor stylish products that emulate the purchases of people with greater material wealth. Many see themselves as having a job rather than a career, and a lack of skills and focus often prevents them from moving ahead. Strivers are active consumers because shopping is both a social activity and an opportunity to demonstrate to peers their ability to buy. As consumers, they are as impulsive as their financial circumstance will allow.

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Makers Like Experiencers, Makers are motivated by self-expression. They express themselves and experience the world by working on it—building a house, raising children, fixing a car, or canning vegetables, and they have enough skill and energy to carry out their projects successfully. Makers are practical people who have constructive skills and value self-sufficiency. They live within a traditional context of family, practical work, and physical recreation and have little interest in what lies outside that context. Makers are suspicious of new ideas and large institutions such as big business. They are respectful of government authority and organized labor, but resentful of government intrusion on individual rights. They are unimpressed by material possessions other than those with a practical or functional purpose. Because they prefer value to luxury, they buy basic products.

Survivors Survivors live narrowly focused lives. With few resources with which to cope, they often believe that the world is changing too quickly. They are comfortable with the familiar and are primarily concerned with safety and security. Because they must focus on meeting needs rather than fulfilling desires, Survivors do not show a strong primary motivation. Survivors are cautious consumers. They represent a very modest market for most products and services. They are loyal to favorite brands, especially if they can purchase them at a discount.

Why You Shouldn’t Service Every Customer In the hustle and bustle to get new business, many small businesses collect customers that are, at best, undesirable and, at worst, costly. Although it’s important to attract revenue to sustain your business at the start, be careful of collecting a customer base that is made up of customers that don’t fit your “perfect” customer profile—or who don’t even come close. Check your customer base against your perfect profile periodically by the following steps: ◆ Checking your invoice records or database. Do you have customers who consis-

tently pay late or don’t pay until you threaten them? Customers who take up more time than can be recouped from the profit you make from them?

100 Part 2: Putting Together Your Plan ◆ Asking your employees. Are there customers who are consistently troublesome

or who are even abusive to your staff? ◆ Looking around you. Who are the people coming into your place of business and

placing orders? Do these people match your perfect customer profile?

Bottom Line Booster It’s possible that certain customers are actually costing you money. If a customer is very difficult to service, constantly returns items or asks for credit, and yet keeps coming back to your business for more, you could actually be losing money on that customer’s transactions. Certain big-box retailers have started tracking such “difficult” customers and, after they exceed their return limit, place restrictions on their transactions. If you have a customer who is costing you money, you may need to take similar action, or politely suggest that the customer find a new provider.

Evaluating Market Segments After you determine the profiles of your various customers, you can begin determining whether each of these market segments is worthwhile to pursue. This will depend primarily on how many customers are in each market segment and how you can reach them. How many of this type of customer are there? Consult the industry and local population statistics that we discussed earlier in this chapter. You may find that doctors who own poodles are a great market for your product or service. However, if there are only a few of them, it may not be worth the time and expense to actively market your business to them.

Biz Buzz A market segment is a portion of your prospective customer base defined by demographic or psychographic means.

In addition to establishing the number of people or businesses within a market segment, you must determine whether you can reach them. Are there mailing lists for physicians who own poodles? Magazines? Television shows? How will you reach this audience to let them know about your products or services? If you can’t do so relatively easily and with little waste of time and money, it’s likely that this won’t be a good segment to pursue.

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Defining Your Market Strategy Now that you have a clear vision of your customers and market segments, you’ll need to decide the strategy that you’ll use to attract them to your business. Some of the questions you’ll need to consider include the following: ◆ Will you focus on one primary market segment, or target several equally? ◆ How will you use your USP to set your business apart and serve those markets? ◆ How will you position your business to serve those markets? ◆ How will you reach these prospects and customers? ◆ What are some of the potential barriers to your success? ◆ Why will customers buy from you?

The SWOT approach is one of the methods that you can use to define this market strategy in language that lenders and other business partners will understand.

The SWOT Approach SWOT stands for Strengths, Weaknesses, Opportunities, Threats. This is a common analysis approach used in business. The S and W are internal processes that determine what makes your company unique, whereas the O and T components of the process detail external factors that can come into play.

Strengths Obviously, your strengths are the areas in which your business, product, or service excels. For example, one New Jersey hardware store survived when a retail mass merchant moved in next door, by marketing how knowledgeable his staff is. The fact that everyone in the store is a hardware expert—versus the more generalist employees at the larger retailer—was a significant strength and appealed to do-it-yourselfers who may need advice about which types of products and tools are best for the job at hand. Other types of strengths may include unique features of your business, your location, staff, product mix, or service offerings. In this part of the analysis, discuss the things that make your business special.

102 Part 2: Putting Together Your Plan Back Office Secrets When you’re considering the strengths of your business, it’s important to understand the difference between benefits and features. Benefits are the tangible or intangible assets that the customer will gain. Features are the elements of the product. For instance, when purchasing a computer, the hard drive and internal components are features. The fact that the buyer will be able to work at a higher speed is a benefit. People tend to buy benefits, instead of features.

Weaknesses What are the challenges within your business? These can be things such as financial constraints, lack of awareness in the marketplace (a common issue for start-ups), limited staff, poor location, or other potential pitfalls. It’s important to deal with your weaknesses in an upfront manner, and provide explanations of how you’ll overcome them.

Opportunities Earlier, we discussed external market factors. These can also be benefits. What are the market factors that are working in your favor? Are you introducing a product for which there is an emerging demand (e.g., MP3 players) or are you capitalizing on new technology (such as opening a new radiology clinic with the latest innovations in the sector)? Is the local economy doing well or do you have exceptional supplier agreements? If so, outline them to show how your business is well equipped to handle challenges that come its way.

Threats Just as you were upfront about your business’s weaknesses, you should honestly evaluate threats to your business. Is the market heavily saturated with competition? Are price increases or pending legislation going to make it difficult for your business to conform to its pricing structure? Discuss these potential threats and the solutions you’ll use to ensure that they don’t derail your business.

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Predicting Market Share Your research will help you determine what share of the market you can expect to capture, which can then help you better estimate your revenue projections. For example, if you are opening a childcare center, you might determine that there are 5,000 families in a 10-mile radius of your center who have children under the age of five, who would likely need childcare. Through your research, you determine that there currently are four other childcare centers serving the same area, and you are now number five. You then hypothetically have a one-fifth share of the market for childcare in your area. However, just because you now have 1,000 potential families in need of daycare, that doesn’t mean that all 1,000 will become your customers. There are many other factors, including personal preference, price, and location. However, let’s say that you calculate that you need 100 children enrolled in your program to meet expenses. Then you have more than enough market share to be successful. If you were in an area where there were 100 other childcare centers serving the 5,000 families, you could estimate that each center would have 50 children, and you would not reach your 100 child break-even point. The market in that area would be saturated. The following chart will help you to concisely present and determine how your business stacks up to the competition. Your Business Competitor #1 Competitor #2 Competitor #3

Product/service Price Value Branding Location Uniqueness

104 Part 2: Putting Together Your Plan The Least You Need to Know ◆ Get to know as much as you can about your customer so that you can communi-

cate and serve him or her better. ◆ Create market segments that can be evaluated for viability. ◆ Understand why your customers buy, and then position your business to address

those motivational factors. ◆ Analyze your business in the marketplace using the SWOT approach—

Strengths, Weaknesses, Opportunities, Threats. ◆ Create a matrix that compares your business to your competition.

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Getting the Word Out In This Chapter ◆ Your market position ◆ Explaining your market strategy ◆ Tools you can use ◆ Steps to creating your marketing plan

You might have the greatest business in the world, but unless you have a solid plan in place for promoting it, you’ll surely be out of business quickly. Lenders and investors know that all too well and will want to see that you have a solid plan in place for promoting your business.

Positioning Your Business in the Market After you understand your target market, you can begin to explain how you will reach these targets, and what messages you’ll use to get customers reasons to spend money at your business. In other words, you need to explain your marketing plan. For example, two restaurant owners may take vastly different approaches to attracting customers to their locations. One may decide to go for an upscale, exclusive image, whereas the other may decide that the market really needs a more informal, home-style dining establishment.

106 Part 2: Putting Together Your Plan The upscale restaurant owner may want to approach his or her local restaurant writer to discuss how the restaurant is creating low-fat gourmet cuisine, or the owner may wish to send out richly designed mailers to local businesses. The family-style restaurant owner may hold coloring contests for children who dine in the restaurant and may want to start a birthday club for families, offering discounts or free food to families who celebrate Biz Buzz at the restaurant. Marketing is the process Understanding the act of properly targeting a cusof developing pricing, promottomer segment is critical because investors will want ing, and distributing goods or to know that you have a game plan for reaching out services to reach an appropriate to your audience. If you can’t show them that you base of prospective customers. understand how to reach the universe of people who The purpose of marketing is to create brand identity, build trust, are likely to buy your product or service, they will and give people reasons to buy likely be nervous about how you will attract and susyour products and services. tain business, especially in the start-up or new acquisition phase.

Explaining Your Marketing Strategy In addition to your analysis of your customers and what they want, your marketing strategy primarily involves four areas of discussion: ◆ Product ◆ Price ◆ Place (distribution) ◆ Promotion

The product section of your marketing strategy relates to the features and benefits of your product or service. It should answer the following questions: ◆ What is it? ◆ Why will customers want it? ◆ What is special about it? ◆ Why is it better than other similar products or services on the market?

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Price You also need to discuss pricing as part of your marketing strategy. Are you going to offer the upscale, more expensive option or the low-end, high-volume option? Or will you fall somewhere in the middle? Explain your choice and why you think it is the best option for your business.

Place (Distribution) Place means different things to different businesses. If your product isn’t readily available in a particular area (for instance, you will not sell many snow shovels in Florida), it doesn’t make sense to waste money on marketing there. When you consider how this element figures into your marketing strategy, you’ll want to consider such questions as these: ◆ Where is my product or service available? ◆ Do I want to promote it in all the places it is available, or focus on specific areas

at specific times? ◆ Are there benefits or opportunities that my location, distribution mechanism, or

other means of providing products or services provide?

Promotion The promotion component of your marketing plan is important for showing your audience how you intend to let people know about your business. After all, the best business in the world will fail if no one knows about it. Promotions should be focused on the target market and measured to determine if they are working. The sequence of your promotions is important. There are very cost-effective marketing tools to consider, especially if there is lack of a substantial marketing budget. Before deciding upon any marketing tool, the business owner needs to determine what his or her goals are before deciding exactly what tools are best. The big question is whether the target market will actually be influenced by a particular marketing tool. Without this approach the marketing investment may not pay back the rewards. Also, continuity, consistency, and multiple exposures in the marketing message/ endeavor is needed for it to take effect. Here you need to explain which of the many marketing tools you will use to get the word out. The following sections describe the most common promotional tools.

108 Part 2: Putting Together Your Plan Advertising Although advertising is sometimes used as a synonym for marketing or promotion, this definition is actually not correct. Advertising is the specific action of purchasing space or time in or on a media vehicle and creating messages, artwork, or broadcast productions in or on that space. So if you purchase an advertisement in a magazine, you are buying the space in that magazine and creating the ad to fill that space. There are a number of types of advertising, of which you might want to be aware: ◆ Print: Print advertising includes advertising in magazines, newspapers, newslet-

ters, and other periodicals. ◆ Broadcast: Broadcast advertising includes messages played on radio or television. ◆ Outdoor or transit: This includes ads placed on vehicles, on billboards, build-

ings, or other outdoor spaces. ◆ Banner: Banner advertising is done on websites.

When deciding which type of advertising will best meet your needs, find out what your advertising choices will cost. You may then change your mind about certain choices, but more importantly, these numbers will be needed later in the financial section of your business plan.

Point-of-Purchase Advertising With point-of-purchase advertising, you can take advantage of “impulse shopping” habits that make people purchase your products or services when they see them in specialized displays or in on-site signage and other vehicles. Point-of-purchase advertising is most effective at the checkout counter, but other point-of-purchase displays include floor stands, display bins, and window displays. Many manufacturers will create and provide you with point-of-purchase displays when you sell their products at your business location. Generally, they’ll also compensate you with discounts for using their displays. These may include the following: ◆ Displays ◆ In-store signage ◆ Shelf “talkers” (small cards or signs that affix to shelving units) ◆ Banners ◆ Window décor

Chapter 9: Getting the Word Out 109 Promotions can also be used to draw attention to the business, such as special offers, grand openings, seasonal discounts, and so on.

Collateral Materials Collateral materials are the print materials that are used to communicate information about your business to customers. These are some of them: ◆ Logos ◆ Sales sheets

Bottom Line Booster If there is something inherent about your business that will afford your business greater visibility or better service, include information about that in your marketing plan as well as your location description. For instance, if you’re located at a busy venue that lets your signage reach a vast audience, mention this in the marketing section of your business plan.

◆ Stationery and business cards ◆ Newsletters

Direct Mail Direct mail includes a variety of advertising messages mailed directly to your targeted customers and business prospects. Highly targeted and measurable, this form of communication can be very effective. Brochures, letters, fliers, and other forms of collateral can be used as direct-mail pieces. In your direct-mail pieces, you should include some type of offer that will generate a response or ‘call to action’. With direct mail, you want your recipients to take action: You might want them to place an order or request more information about your products or services. Or you might want them to visit your business location. Here are some examples of direct mail: ◆ Letters ◆ Postcards ◆ Packages

Direct Marketing Direct marketing encompasses all forms of advertising that sell your product or service through media that provides direct contact with prospective customers, such as mail order, televised infomercials, telemarketing, package inserts, and door-to-door selling. Direct marketing is a measurable form of marketing and includes the use of

110 Part 2: Putting Together Your Plan lists and databases. The lists and databases are often targeted to include a select geographic area or demographic (type of prospective customer). Here are some tools for direct marketing: ◆ Infomercials ◆ 800-numbers ◆ Direct response-websites ◆ Trade shows and business expos

Public Relations and Publicity Although it is often confused with publicity, public relations include many more activities. Publicity is a component of public relations, or PR, which also includes creation of events, conducting media tours, creating audience outreach, and other tactics. Public relations, on the other hand, is the practice of interacting with and communicating to different stakeholders, such as customers, employees, shareholders, community members, and others. Tools used in PR may include the following: ◆ Meetings and events ◆ White papers, which analyze a particular topic ◆ Surveys and polls ◆ Trade shows ◆ Speaking engagements

When a story in a publication or on a broadcast or website mentions you or your business, this is called publicity. It differs from advertising because you don’t pay for that mention. In fact, it is unethical to pay for publicity, unless it is clearly labeled as an advertising supplement or “advertorial.” Some tools used in publicity include the following: ◆ News or press releases ◆ Media alerts ◆ Feature stories ◆ Radio and television scripts

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◆ Fact sheets ◆ Media lists and directories

Bottom Line Booster Publicity is a great way to build credibility. When your business receives positive coverage in a story, you receive an unspoken third-party endorsement. After all, the writer wouldn’t have quoted you unless you were the expert, or written about your business unless it was a good example to support the story, right? So be sure to develop relationships with the journalists who are likely to cover your business in key media outlets.

Community Relations Community relations play an important role in your marketing program. By sponsoring and participating in community events, you can increase your exposure in your local community, create goodwill, and boost sales. Align your business with charities and causes that have meaning for yourself and/or your target market. Volunteer your time and expertise to local community efforts and be prepared to reap the benefits. Including information about your community relations efforts will show readers that you understand your business’s role in its community and that you’re interested in fostering relationships that will benefit both the reputation of your company and the loyalty your customers feel toward your business. Here are ways to develop community relationships: ◆ Meetings with community leaders ◆ Sponsorship of local events and charities ◆ Support of community efforts, from posting signage about upcoming events, to

participating in drives, to making donations.

Employee Relationships It’s always a good thing to keep your employees informed about, and involved with, your marketing efforts. Happy employees can be a great advertising tool, increasing “word-of-mouth” opportunities and enhancing your business efforts. Depending upon your business, you can use a variety of media in your employee communication efforts. These include the following:

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Part 2: Putting Together Your Plan ◆ Newsletters informing employees of specials, events, and so on ◆ Motivational advertising specialties for employees only ◆ Company intranet or e-mail updates

Online Marketing Online marketing includes the use of websites and e-mail to forward your advertising messages to prospective customers. Many businesses use online marketing to build brand loyalty while increasing sales of their products or services. If you want your online marketing efforts to be effective, you should integrate the advertising messages with content that is useful or of interest to your potential customers. Some tools include these: ◆ Websites ◆ E-mail marketing campaigns ◆ Banner advertisements ◆ Online publicity

Red Zone Unsolicited commercial e-mail is called spam. Spam is illegal unless you’re sending it to someone who has requested information about products and services like yours or unless you’re contacting someone with whom you have had an existing business relationship. To be sure you’re keeping within the boundaries of the law—and to avoid big fines for improper use of e-mail, get familiar with the CAN-SPAM Act of 2003. You can find more information about compliance from the Federal Trade Commission (www.ftc.gov).

Network Marketing Relationship marketing is different from public relations because it involves interacting one on one with customers. Some of the disciplines of relationship marketing include the following: ◆ Networking—Networking means actively seeking out and meeting others in

your business community. For many small businesses, this is the easiest and most

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effective way to market your business. The purpose of networking is to make contacts who may bring you business or who may be able to assist your business efforts in some other way, by providing either services or information. Through networking your opportunities to ask for and receive qualified referrals. By networking and helping other business people, you gain the visibility and trust you need to grow your business. For many small businesses, this is the easiest and most effective way to market your business. No form of promotion is more powerful than a face-to-face introduction of your business and its products or services. Generally, people prefer to do business with, and refer others to, those professionals whom they know and trust. Ask other business owners about professional groups. ◆ Stakeholder meetings—Stakeholders are people who are directly affected by

your business. These could include customers, community members, neighbors, partners or shareholders, or employees, among other groups. Holding small gatherings to address their concerns, or addressing them one on one, is a great example of relationship marketing. ◆ Cultivating referrals—Don’t assume that just because customers are happy with

your service they’re going to refer you to others. They may not think of it or they may think you’re too busy already, especially if you’re always talking about how swamped you are. Inspire customers to act as your sales force by giving them an incentive to bring you new customers. This may include a discount off their next service, a small gift, or credit on their account. Be sure to ask new customers where they heard about your business so that you can track referrals and the effectiveness of your marketing endeavors.

Putting Together the Marketing Plan Oh no, more planning, you may be thinking. Well, putting together a marketing plan is much more specific than putting together your overall business plan, but it’s critically important. Just as a winning football team always goes onto the field with a solid game plan, your business needs to have an outline of how to reach out to prospective customers in order to succeed. Because you’ve already done much of the homework necessary to complete your marketing plan, such as defining your target audience and segmenting your markets, the process will be easier than if you were starting from scratch. Of course, having a clear plan of action when it comes to promoting your business will be something that investors will want to see when they read your plan.

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Being Clear About Goals Now that you have a sense of where you are, you can decide where you want to go. Ask yourself what you are trying to accomplish with this plan. Do you want to increase sales? Change the perception of your business among target audiences? Generate more store traffic? Do you want to enter a new market where you may not have much experience? The right marketing tools can help you in a variety of ways. Outline each of your goals, being as specific as possible. Although you should be optimistic, use a healthy dose of realism to keep you grounded. Remember that the best marketing plan in the world is not likely to increase sales 80 percent by next year unless there are special circumstances, such as an outstanding new product introduction or the sudden disappearance of your competition. Although it’s fine to have multiple goals, be sure to prioritize them so that you can create a realistic plan for achieving them.

Planning the Action This is the heart of your game plan. For each goal that you have outlined, you need to create a strategy, key messages, and a series of steps that will help you accomplish the goal. You have many tools at your disposal. It’s best to create a spreadsheet for one year that clearly identifies each marketing tactic and the timing for each. As you examine each of your goals, conduct a mini-brainstorming session. Consider what the best vehicles for your message may be. You may decide to use newspaper, radio, television, magazine, or outdoor advertising; you might also use direct marketing programs, including postcards, sales letters, flyers, business-reply cards, newsletters, 800-response numbers, etc; public relations elements such as publicity, events, speaking engagements, sponsorships, opinion polls, and the like are also useful. Perhaps you can accomplish your objectives and cut your costs by teaming up with related, noncompeting businesses for in-store promotions or cross-promotional outreach. Online promotional opportunities are more abundant than ever, and you may want to consider designing a website or uploading information into a newsgroup or special interest forum. For each step you plan, keep asking yourself, “Why should I do this?” Don’t get trapped into big, splashy promotions just for the sake of doing them. It’s much more effective to have smaller, more frequent communications if your budget is limited. For example, a small accounting firm wanted to increase publicity in local newspapers. The owner made a $10,000 donation to a local charity’s annual gala, believing that this would make a great news story. Although the gesture was greatly appreciated by

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the charity and its supporters, that money represented the majority of the firm’s annual marketing budget. In return, the owner got one small story in the local newspaper. If the organization’s goal was to become more philanthropic, the donation would have been an effective gesture. However, because the original goal was to increase publicity, the money would have been better spent on a diverse program with more components. Finally, be sure that the promotions project the right image. If your audience is conservative, don’t create an outrageous promotion. Similarly, if you need to project a cutting-edge image, be sure that your efforts are smart and sophisticated.

Budgeting Your Resources Some business owners believe that marketing is an optional expense. This is one of the most tragic myths in business. Marketing expenses should be given a priority, especially in times of slow cash flow. After all, how are you going to attract more business during the slow times if you don’t invest in telling customers about yourself? Take a realistic look at how much money you have to spend on marketing. Although you do need to ensure that you are not overextending yourself, it is critical that you allot adequate funds to reach your audiences. If you find that you do not have the budget to tackle all of your audiences, then try to reach them one by one, in order of priority. For each of your tactics, break out each expense. For example, a brochure’s costs include the writing, photography, graphic design, film, printing, delivery, and so on. Outline the estimated cost of each. Then you can beef up or pare down your plan, depending on your situation.

Red Zone Just as you budget your money, budget your time, too. Many marketing campaigns fall by the wayside because the owner underestimated how much time it would take to complete. (People don’t realize that certain campaigns are long-term projects, while others simply get bored or distracted.) Start small or hire help for bigger projects.

Creating a Marketing-Cost Matrix Just as you created a matrix that compared your business to its competition, you can use the same sort of grid to compare the costs of different marketing options. The following chart shows you an example.

116 Part 2: Putting Together Your Plan Sample Cost Matrix Marketing/Advertising Method

Cost

Phone book/Yellow Pages Mailed coupons (two times/year) to local zip code Brochure Business cards Stationary Start-up website development Total

$400 $500 $600 $200 $250 $1,500 $3450

Timing Your Projects Now that you have identified and categorized the steps involved in each activity, allot a segment of time and a deadline to each. Again, be sure that you are not overextending yourself or you may get burned out. It’s better to start with smaller, more consistent efforts than to begin with a program that is overly ambitious and then discarded a few months later. What you now hold in your hands is probably the most effective “to-do” list that you will ever write. You have prepared a document that will help you reach your audience segments from a point of knowledge and expertise instead of from “shoot-from-thehip” hunches. Don’t put the marketing plan on a shelf and forget about it. Your marketing plan should be a living document, which grows and changes over time. As your business reaps the benefits of your initial marketing strategies, you may want to increase the scope of your marketing. We discuss more about how to keep your plan updated in later chapters. Again, your marketing plan will show your target audience how you’re going to attract business, and the costs associated with doing so. So use the best tools available to get the word out.

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The Least You Need to Know ◆ Decide how your business will be positioned and create your marketing mes-

sages accordingly. ◆ Remember that marketing is about more than just promotion. It also includes

your pricing, distribution, and the overall features and benefits of your product or service. Marketing creates exposure to get noticed to create brand identity, build trust, and to attract and keep customers. ◆ Have clear goals for your marketing plan: How many people do you need to

reach? What is the time frame for execution? Think about what you want to accomplish and craft your plan accordingly. ◆ Get familiar with the laws governing marketing and advertising in your business

sector, especially new laws regarding electronic marketing, by visiting the FTC website or contacting your industry association. ◆ There are many tools that you can use to promote your business. Tools should

be integrated, with a theme and continuity in the message. Before you start using them, be sure you understand how they will reach your key audience and your budget. ◆ Budget your time as well as your money to ensure that you won’t end up aban-

doning your marketing process because it is too time-consuming. Consider this an investment in your business.

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Chapter

Sales Plan and Forecast In This Chapter ◆ Why sales plans and forecasts are important ◆ Understanding channels ◆ Your sales strategy ◆ Creating your sales forecast

The sales process is how you actually complete the process of getting your products and services to your customers. Sometimes this is done directly and sometimes it’s done through third parties. Regardless of who handles it, your sales and sales figures will provide the backbone of your financial plan. Here, we’ll discuss how to arrive at those figures and how to best communicate your approach through your business plan.

Selling Yourself Regardless of the business that you’re in, you’ll need to explain how you will sell your products and services to new and existing customers. In addition, your target audience will want to see some sort of prediction of sales performance, based on a set of circumstances or assumptions. This forecast

120 Part 2: Putting Together Your Plan Biz Buzz A forecast is a prediction or estimate, based on a particular set of circumstances or criteria.

will be the backbone of your financial statements, predicting revenue levels and profit margins. The more information you have, the more likely your sales forecast will be on target, whether your business is a start-up or has been a player in the marketplace for some time.

Your Channels Channels are the avenues by which you deliver your products or services to the marketplace. Depending on the type of business you have, you may have one channel or multiple channels. It’s important to spell out each of these distribution and delivery methods, as well as what they mean for your business and your sales activities so that your plan’s readers see how you intend to get your products out into the marketplace. The following sections detail some channels that you should include.

Direct Selling If you have an in-house sales force that handles sales, give specifics on the size of the team and what their responsibilities are. How do you divide territories or accounts? How do you compensate these salespeople to maximize their performance?

Manufacturer’s Representatives If you don’t have salespeople on staff, or if you wish to beef up the coverage of your sales effort, you may wish to hire a manufacturer’s representative. These companies or individuals operate independently of your business, and represent a number of products or services within a particular sector. They are often, though not always, paid on commission, so you pay them when they sell products or services for you.

Wholesalers Wholesale distributors buy your product at a discount and re-sell it, often to small, independent businesses that will offer the product or service at a retail price. Wholesalers can be an excellent way to reach myriad small businesses that might not be profitable targets individually. Explain any wholesale relationships and how they expand your reach into the marketplace. For example, if your company will produce bath products that you’ll sell through day spas, specialty boutiques, and direct sales

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both online and through home parties (think Tupperware), then you should explain each of those venues and how it will contribute to your overall sales picture.

Retailers Another means of distribution, especially for products, is through retailers. These may range from small, independent shops to big-box operations like Home Depot, Best Buy, or other national chains. Having your product sitting on the valuable real estate that is the shelves in these retailers is an excellent way to attract financing. If you don’t have wide retail distribution yet, explain how you’ll achieve it, if that is part of your sales strategy. Include information on any commitments or orders from retailers in your sales summary.

Catalogs Print or interactive catalogs generally sell directly to the consumer, enabling him or her to browse from among a number of products or services, comparing prices or offers. If your company has a relationship with a catalog company or will be printing a catalog of its own, explain the rationale for doing so.

E-tailing As more people become comfortable doing business on the Internet, you may wish to have a sales function as part of your online presence. Depending on your agreements with retailers or other distributors, consider offering an order and payment function on your website and explain that as part of your sales component.

Affiliate Programs Look for businesses that may profit from offering your products or services on their menu. This may be through subcontractor agreements or consignment. Consulting firms, for example, will routinely hire smaller operations with a specific area of expertise. The larger firm promotes the individual’s skill set as part of its overall offerings. Look for larger fish that can promote your business to a bigger audience, and be sure to highlight these relationships in your sales plan.

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Sales Tools Your sales efforts will rely on a variety of different tools. The more developed these tools are, the more they become valuable assets to your business, and are worthy of mention in your sales plan.

Bottom Line Booster There are many affordable customer information management software options on the market today. Even a simple contact management database like ACT! or Goldmine can help you store valuable information, predict trends, and monitor buying patterns. If such a database isn’t appropriate for your type of business, consider a point-of-sale software package that will enable you to capture sales information at the register and will give you similar buying trend information, although not necessarily by customer.

Database Do you have in-house or access to a database of customers or prospects? Explain how this has been compiled or accessed and what role it plays in your sales efforts.

Technological Tools Explain any technological tools available to your sales force. Do you have inventory management systems? Do your salespeople have laptops or personal digital assistants that enable them to connect to your inventory system and to place orders? Does your retail establishment use traffic counters to help determine the busiest times of the day?

Trade Shows Do you participate in industry events, such as trade shows? Even if you can’t afford the booth space, you can often walk the floor for much less and reap many of the same rewards. Visit from booth to booth, distributing your informational materials and networking with prospective customers and contacts. Explain how you put these events to use in your sales approach.

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Territories If your company is national, it’s likely that your sales areas will be divided into territories. These territories may be geographic, such as the northeast, a state, or a locale within a state. Territories can also be divided by type of account, with some salespeople handling large national accounts and others managing regional accounts, or they can be further divided by industry. However you divide your territories, be sure to explain them clearly and how they are specifically relevant to the type of sales in which your company engages.

Finding Prospects Another thing that lenders, business partners, and investors will want to know is how you find your prospects. There are several immediate ways that can be included in your plan.

Referral Systems One of the quickest ways to generate more business is to cultivate referrals from existing customers. It’s been said many times that satisfied customers can act as a free sales force for your business. However, it’s important to remind customers that referrals are welcome because sometimes people don’t make the connection on their own. You can do this by offering an incentive to refer new business or by simply reminding customers to refer business your way. Be sure to include information about how you do this in your plan.

Vendor Contacts Look to the people who provide products or services to you to suggest referrals. Accountants, lawyers, bankers, suppliers, and others may be in a position to refer you business. Ask them to do so.

Expanding Existing Customers If you’re a copywriter working for the marketing department of a large company, find out if the human resources department needs help with newsletter development or if

124 Part 2: Putting Together Your Plan the CEO needs help with speechwriting. Then ask your customer to forward your information along with an endorsement. This way, you’ve leveraged your relationship with one initial customer contact and turned it into new sales opportunities within the same company.

Joining In Rotary Clubs, Chambers of Commerce, or business networking groups at the local or national level can be great places to find more customers and influencers. Local groups are helpful if you draw your customers and resources from a regional pool, and some groups are specifically designed to generate leads for each other and only allow one of each type of business to join their ranks.

Bottom Line Booster More nationally focused businesses may be better off looking for a good trade association and attend their regular meetings or conventions to connect with prospects, vendors, and other important contacts. These types of connections also show that you’re establishing yourself and your business as leaders in the community, so be sure to include information in your plan.

Offering a Better Price It’s usually not the best idea to sell on price against a big competitor, as it can often backfire. Still, if you do have legitimately lower prices, this can be a valuable tool in attracting price-conscious customers. Perhaps you’re able to deliver your service more economically because you keep your overhead low. After careful evaluation, if you reach the decision that price promotion should be part of your marketing strategy, you can do so effectively through advertising, point-of-purchase displays, publicity, or direct mail.

Sales Cycles and Strategies It is also important to include information on sales cycles and any strategic approach you’re taking to selling your products and services. So if your business has big seasonal jumps, such as a landscaping business or a wedding boutique might, it’s clear that your sales cycle is supposed to vary and that lower numbers in certain months aren’t a sign that the business is in trouble.

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AIDA Most first-year business students learn the four components of buying behavior by the acronym AIDA, which stands for … Attention: To get a prospect interested in your product or service, you need to get their attention. This means breaking through the clutter of competing sales messages and finding ways to get your product or service in front of the customer in a way that is meaningful and memorable. Interest: After you’ve gotten the prospect’s attention, the next step is to capture their interest. You generally have only a few seconds, so your sales pitch or materials should be compelling. This is where your research about your customers’ and prospects’ buying behavior and motivations will pay off. You should be able to succinctly define why they should want or need your product or service. Desire: If your messages and tactics are successful in capturing your prospects’ interest, you will create a desire or want for the product or service. This is the third phase of the buyers’ behavior. Action: If the desire is strong enough and there is no compelling reason not to take action, you have achieved the final phase of buying behavior, with the goal of having the prospect purchase the product or service.

Sales Cycle The AIDA analysis of buying behavior can take place in a matter of seconds or a matter of months or even years, depending on the sales cycle of the particular product or service. Here is where you need to know how your customers buy, as well as why they buy. Some impulse items, such as small novelties offered at retail checkout counters, can generate the entire process in a matter of seconds. The sales cycle for real estate, however, is much longer and the entire process may take months. Use your plan to explain how your customers go about their decision-making process.

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Sales We currently have a staff of 3 personnel who are responsible for interfacing with our distributors. They create all promotional materials and provide them to the distributors. We will be adding two more personnel during the year as the Smart-Lite promotions get under way. Presently there is no marketing manager, the personnel report to the president. This will probably continue until sometime next year. Our personnel do not receive sales commissions.

Distribution We currently have one large wholesale distributor who offers nationwide service and several hundred local or regional distributors for our component products. They are all located in the southwestern part of the United States. We plan to expand to distributors throughout California, Oregon, and Washington this year. Our discounts range from 40% to 65% for these distributors based on order volume or committed sales volume. All of our component sales occur through the distributor channel. The majority of our sales are COD, although if a distributor can pass a very stringent credit review we will ship with an invoice. Smart-Lite will also be sold through distributors. However, less than 50% of our current distributors handle "assembled" products. We expect to enlist many new local and regional distributors for Smart-Lite, but do not expect to establish a relationship with a nationwide distributor until next year. We expect that about 20% of our sales will be "direct" this year dwindling to 5% within two years.

Logistics After several years of operation we are able to predict demand for our component products fairly well and usually have product in stock at the time of order. We have defined reorder points and quantities for each component based on past order experience. Warehousing space is adequate to handle our projected finished goods inventory for this year. We use UPS delivery service to deliver product to our distributors. Our normal shipping mode is "blue label" which assures two day delivery. The distributor may request overnight delivery at an extra cost. The service has been quite satisfactory to date and we expect to continue in this manner for both component products and Smart-Lite.

Sample sales plan.

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Sales Forecast Although it’s important to explain how your company sells its products and services, it’s even more important to create a sales forecast that predicts, based on a set of assumptions or criteria, how much revenue your business will generate over specific periods of time. This will be the basis for most of your other financial statements and will provide the basis upon which budgets and future financial projections are created. Pay close attention to your sales forecast. It’s important that you be clear about the factors contributing to the sales figures that you project, because lenders and investors will be looking closely at those criteria and the corresponding numbers. If they don’t look reasonable, that could ruin your credibility and your chances of getting the cash. To avoid any misunderstanding, you should define your assumptions and consider your marketing reach and past sales.

Outlining Your Assumptions Be clear about the criteria upon which you based your forecasts. For instance, if you’re assuming that you’ll have a certain number of salespeople or employees or that a particular increase in demand will spike your sales, explain why. For example, if you own an ice-cream shop, it’s fair to assume that your sales will spike in the summer months. However, if you base your sales projections on the productivity of five employees and you only have two employees working, your numbers could be vastly skewed.

Considering Your Marketing Reach How expansive your marketing effort is will also have an impact on your sales forecast. How many targets do you anticipate reaching? After you consider that, you can begin to determine how many of those targets will choose to buy from you instead of from your competition.

Past Sales or Similar Industries If you’re in a new market or your business is new, you can look at the performance of similar businesses in a particular geography or industry. For instance, you might be opening a small deli in a downtown area. Perhaps there are no statistics on how delis have traditionally performed in that particular area, but you might be able to find out how other restaurants or grocery stores have performed and extrapolate your information from there.

128 Part 2: Putting Together Your Plan Industry Associations Your industry associations might be able to give you insight as to how a particular type of business may fare in various geographic areas.

Market Factors Examine the characteristics of the market, including how the economic climate is among your target audience members, how willing they are to consider new providers, and how much competition there is for their business. The stiffer the competition or the poorer the economic climate, the more conservative your sales projections should be.

Trends It’s advisable to create several sales forecasts, including one as a best-case scenario and one based on much more modest factors. This will show your target audience that you’ve considered what will happen if you don’t meet the most ambitious goals and that your business is viable even if initial sales are more modest.

The Least You Need to Know ◆ You may need several different channels to properly sell your products and ser-

vices. ◆ Lenders and investors will want to see the specifics of your sales strategy, so lay

out all of the tools at your disposal. ◆ Create territories based on the parameters that make sense for your business,

either geographically or by type of account. ◆ Be careful when you create your sales forecast. Creating a forecast that is not

accurate or well supported with documentation can call the rest of your plan into question. ◆ It’s a good idea to create more than one sales forecast, depending on different

sets of circumstances.

11

Chapter

Operation Success In This Chapter ◆ Crafting an organizational plan

◆ Outlining your equipment and technology needs ◆ Managing inventory ◆ Implementing appropriate quality control and customer-service policies

Putting your operations on paper will help you to map out, precisely, what your business will need to perform daily functions and produce the products and services at the volume and level of quality that you need. For management purposes, this section will help you to identify weaknesses in your game plan, because lenders and investors will need to see a solid operational plan in place before they fork over the dough.

Business Operations The next part of your plan will address your operations and include information and documentation about how and where your business operates. This demonstration of your infrastructure will assure your target readers that your business has made provisions for its day-to-day performance, as well as its future.

130 Part 2: Putting Together Your Plan If your business has a highly technical or unusual method of delivering its products and services, you may wish to break the following segment out into a separate operational plan. Otherwise, addressing them clearly and thoroughly under their individual subheads should be sufficient. In either case, it’s important that you demonstrate stability in each of the following areas. In addition, whenever you have the opportunity to show how these operational components and activities support your short- and long-term business goals, you should do so.

Equipment What equipment does your business need to succeed and to deliver products and services most effectively? In this section, you’ll want to show your audience which machines, gadgets, and gizmos are necessary to keep your business efficient and effective. Explain what your business will need, both now and for the foreseeable future. Obviously, this will differ greatly depending on the type of business you’re starting. A rough equipment list for a start-up public relations firm may look like this: ◆ Five computers ◆ Five desks ◆ Server ◆ Local area network

Biz Buzz When you write your plan, you’ll need to know the difference between equipment, which is machinery, technology, or other permanent fixtures that you need to run your business, versus supplies, which are the disposable, expendable, or easily replaceable items that are used in the operation of your business.

◆ Word-processing and spreadsheet programs ◆ Fax machine ◆ Photocopier ◆ Five telephones ◆ Postage meter ◆ Digital camera ◆ Document binding system ◆ Postage scale

The rough equipment list for a small ice-cream manufacturing company may be much more complex:

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◆ Two computers with high-speed modems ◆ One laptop with wireless modem ◆ Four desks ◆ Word-processing and spreadsheet programs ◆ Fax machine ◆ Photocopier ◆ Postage meter ◆ Postage scale ◆ Five telephones ◆ Five large refrigeration units ◆ Seven commercial ice-cream makers ◆ Three refrigerated delivery trucks ◆ Packaging system ◆ Three hand trucks

Of course, you would be much more detailed in your list, including the specific features of the equipment in your business. If you’re writing your plan to secure financing for the equipment and other areas, you may even need to include the vendor from whom you will purchase the equipment as well as the cost. If any of the equipment will make your company especially productive or more efficient, be sure to state that. If you have plans to upgrade a facility or create a state-of-the-art workspace, you should discuss why that’s necessary and how it will differentiate your company from the competition. Back Office Secrets

Technology Needs In addition to your equipment needs, it’s also likely that you’ll need specific technology for your business. This can be incorporated into your overall equipment outline, but you should specify those needs, as well as their accompanying costs.

Don’t overlook the basics when you’re investing in equipment, such as a computer backup system. If your computer hard-drive crashes and you did not back up your data, this could be devastating, costly, and possibly put you out of business.

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Part 2: Putting Together Your Plan Additionally, you should explain the current technology standards in your industry and the needs of your business. If you aren’t using the latest technology, explain why that isn’t a detriment to your business, or how you’ll be upgrading your systems to meet industry standards and the time frame you have for doing so.

Equipment Leases Chances are that you won’t purchase all of your equipment, but that you’ll lease some of it. This may be true for vehicles, computers, or other equipment that is likely to become outdated on a regular basis. Leasing can provide you more flexibility, and enable you to keep more of your cash liquid. If you do have or plan to have equipment leases, include copies of the lease or lease information in the operations section of your plan.

Building Leases If you’ve secured a location for your business, or have one in mind, this is the place to discuss it. For existing locations, you’ll want to include a copy of your signed lease; or, if you’re purchasing or own your location, then include the deed, loan agreement, or annual tax bill for the property. In this section of your plan, you’ll want to highlight the facts and benefits about your location. Issues that lenders and investors will want to know about include price, the length of your lease, the location and traffic, and growth potential.

Price Are you paying a fair price for your rent or purchase? Commercial real-estate prices are often described in price per square foot. For rentals, this is translated into monthly rent by multiplying the price per square foot by the number of square feet that you’re renting, and dividing the total by the number of months in a year. For example, if a property is $22.00 per square foot, and the office you’re renting is 2,400 square feet, your monthly rent would be calculated this way: $22.00 × 2,400 = $52,800 (your annual rent) $52,800 ÷ 12 = $4,400 (your monthly rent)

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If you’re purchasing real estate, you calculate the total figure. For instance, the purchase price for a 2,000-square-foot office offered at $100 per square foot would be as follows: 2,000 × $100 = $200,000 (the purchase price of the unit) You’ll want to show that your rent/purchase price is comparable to similar rents/sales in the area. In addition, this will be a key figure as you calculate your expenses. Depending on the type of business you have, Bottom Line Booster your rent or mortgage could be one of the largest expenses. Sometimes landlords will make improvements to the building, at their own cost, to meet your Length of Lease business needs, such as upgrading a bathroom, putting up a If you’re renting, show the length of your wall for an extra office, or buildlease. Lenders and investors will want to see ing a front reception counter. Be that you have a stable location for a fixed sure to negotiate this into your period of time. Many leases will also offer a lease. A better layout will surely renewal option, albeit often at a higher rent, have a positive effect on your so include that information as well. business.

Location and Traffic This is also a good area to further discuss your location and how it benefits your business. If you’re in the heart of downtown, where the foot traffic of many potential customers will be passing your door and bringing in business, it’s worth paying a bit more for your location. Are there other sites nearby that will attract potential business?

Potential for Growth Discuss how the location will accommodate the growth of your business. As your operations expand, can the property provide you with increasing amounts of space? If you anticipate great growth in your business, consider the cost of moving those operations, or the expense and reduced productivity of having to house your business in multiple locations. If the property you’ve chosen can’t accommodate the growth you anticipate, you need to explain how you will overcome that handicap or why it’s worthwhile to house your business in this facility for a period of time as it grows.

134 Part 2: Putting Together Your Plan If there are specific benefits to the location, such as special redevelopment programs that give you tax incentives, proximity to other businesses that will feed into your own, or property attributes that will enhance your business, then be sure to state them.

Utilities and Services Your rent or mortgage isn’t the only location expense that you’ll need to consider and factor into your financials. You’ll need to include information about the utilities and services that will be necessary for your business and how much those will cost. These may include the following: ◆ Electricity ◆ Gas ◆ Internet connectivity ◆ Water ◆ Sewer ◆ Garbage pickup

There may also be common area maintenance (CAM) fees required in your lease. These are items outside your physical space but are needed for business operations, such as: signs, roof, snow removal, garbage pickup, and landscaping. Often these fees will be assessed by the landlord and may be adjusted every few months. The CAM fees are certainly something to inquire about and plan for in your budget. In addition, depending on the type of business you have and the services you wish to offer your employees, you may need the following: ◆ Cleaning ◆ Cable television ◆ Drinking-water delivery ◆ Coffee service

As you itemize these expenses, explain their validity. Such seemingly superfluous items as coffee service could go a long way toward building morale, so state those goals along with the expenses.

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Production/Service Provision Methods Your equipment list won’t give the whole picture when it comes to how you deliver your products and services, so you’ll want to explain that here. How have you developed your systems so that your business is most efficient? How do you train your employees to be effective? How do you ensure that your operations run smoothly and without interruption? If you own a company that makes something, describe the production process, from the intake of raw materials to the finished product. What machinery or method of assembly is used? Who does it? How do they learn to do it? If your company provides a service, you need to answer many of the same questions: How is the service delivered? Who does it? How do you teach your employees to deliver the service to your expectations? Similarly, for retail or distribution businesses, you need to explain how your business acquires the products it will sell and how it ultimately delivers them to the marketplace.

Quality Control A key component of your operations is quality control. Without some assurance that your products or services are being constructed or delivered each time at the same level of quality that customers come to expect, you could potentially lose customers because they won’t be able to rely on you for consistency.

Biz Buzz Quality control refers to the measures that your business takes to ensure that you’re consistently delivering your products and services to an acceptable standard.

How will you ensure that you regularly meet the level of satisfaction that customers demand? This might be done through regular inspections of the manufactured product, or it could be addressed through regular training and continuing education of your staff. Overall, it’s easier to ensure that a manufactured part or product is delivered consistently. You can see it, you can test it, you can taste it—if it meets an objective standard, your quality level remains intact. However, if you’re delivering a service or running a retail store, ensuring quality can become trickier. In cases like these, it’s a good idea to turn to external monitors, such as so-called “secret shoppers” that visit your establishment or sample your service anonymously and give feedback on the experience. If you make use of such outside services or consultants to regulate the quality of your service or the customer’s experience, be sure to say so. This is an excellent way to show your audience that you’re serious about making your business the best it can be. However

136 Part 2: Putting Together Your Plan you go about making sure that your business delivers its products and services to acceptable standards, you should outline these measures in your business plan.

Inventory and Supply Many service businesses don’t need to worry about inventory beyond ensuring that they have enough staff and resources on hand to meet customer demand. However, for most other types of businesses, managing inventory and suppliers is an essential part of keeping their businesses running smoothly. It’s important to include information about inventory management in your plan, since it’s such an integral part of a well-run business. If you don’t maintain enough inventory, you have nothing to sell and customers will be dissatisfied when they cannot get what they need from you. If you have too much inventory, you unnecessarily tie up valuable assets. Inventory that sits too long may become obsolete, or may become undesirable or unable to be sold for a variety of reasons. You need to show lenders and investors that you have a system in place to ensure that you maintain the most appropriate inventory levels for your business. Explain how you will properly manage your inventory so that investors, lenders, business partners, and other stakeholders can be confident that you’re investing your inventory dollars wisely.

Bottom Line Booster There are many technological innovations that can help you easily—and affordably— manage your inventory, from point-of-sale software that connects your cash register or accounting system to your stock, to radio frequency identification tags that can actually track how long your inventory has been sitting on the shelves. It’s worthwhile to contact your industry association or read trade magazines to get recommendations about what types of programs are available and appropriate for your business.

Managing Inventory Describe how you manage your inventory. How do you monitor levels to ensure that you’re properly stocked? Do you have point-of-sale software that tracks levels? Or do you manually check your stock at regular intervals? How do your salespeople know if there is enough inventory to fill an order? Explain your inventory management methods and systems in this section of your plan.

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Purchasing Policies When inventory starts to decline, how does your company purchase the new products or materials necessary to replenish your stock? Explain the authorization procedures and the individuals who are responsible for ordering these materials. How do you ensure that there is clear communication between the individuals responsible for inventory monitoring and the individuals responsible for purchasing supplies, materials, or products? Is there a system of checks and balances to ensure that only one individual is ordering materials? Explain your purchasing policies, including how you work with your staff to compare pricing and to keep the cost of your materials down. If one individual is responsible for this function, then explain how you have a backup plan if that person is somehow unable to perform that essential duty. This is a key component of managing your inventory—the purchasing process should be well organized and efficient.

Suppliers Good suppliers are valuable assets. If your suppliers continually fail to deliver the goods and services you need to operate your business effectively, eventually your products and services will begin to suffer. Outline your key suppliers and explain the impact that they have on your business. These may be the people who supply the raw materials for your business, the companies to whom you outsource key functions (for instance, the printing company of a small publisher), or the companies with whom you partner to deliver your products and services (e.g., the trucking company you hire to deliver the large appliances you sell). Give specifics about their areas of responsibility, any warranties, and other relevant parameters of your agreement.

Handling Orders and Deliveries After you order materials or supplies to replenish your inventory, what happens next? You’ll need to explain how orders are tracked to ensure timely delivery and how they’re handled once they arrive. In addition, if your business needs to fulfill orders and make deliveries, explain how you handle those functions. Who is responsible for that? How do you ensure that the products or services were delivered? How do you ensure that customers were happy with the result? Give details about your system and the individuals responsible for making it run.

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Vendor Agreements or Letters of Intent Sales agreements make lenders and investors happy. If you have customers, that means that you’ve successfully been able to sell your product. The more of these agreements you have, generally, the happier lenders and investors are to consider your requests for financing. So if you have standing agreements or a solid customer base, include that information in your operations segment. If you’re a start-up and don’t have such agreements, but have strong prospects who will use your service or order products from your company, include letters from those organizations. Following is a sample letter of intent: ABC Manufacturing 555 Main Street Holiday, Ohio 00055 (111) 222-3333 Date To Whom It May Concern: This is a letter of intent which is nonbinding and does not constitute a contract. However, we feel that HiLight, Inc.’s products are superior in the marketplace and our company would purchase in bulk from them (as they provide a quality product and a cost savings to us). We anticipate purchasing 500 cases of their product each month at a bulk rate of $250 per case. We anticipate this understanding to take place once a mutually beneficial contract is in place within six months of the date of this letter of intent. We are a current customer of HiLight, Inc., and use their products throughout our manufacturing facility. To date, the company has been a reliable provider of products and services to ABC Manufacturing. We anticipate a continued business relationship with HiLight in the future. Sincerely, Jim James Purchasing Director

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Customer-Service Policies Without a clear customer-service policy, the satisfaction that people experience with your business is likely to be as uneven as if you lack a quality-control system. You should be clear about what levels of customer service are important for your business, and develop systems that support those values. For instance, if you have an online business and your profit margin requires that you keep your customer-service staff to a minimum, you might need to direct your customers to rely on a series of online answers to their questions that is available on your website. Still other businesses will require more no-holds-barred approaches to customer service. One family-owned jewelry shop in Maryland actually gave a customer a new watch worth several thousand dollars when the watch the customer purchased wasn’t operating properly and wasn’t covered by the warranty. The gesture cost the shop several thousand dollars, but it preserved the relationship with the valued customer and gave the retailer an excellent reputation for service, which attracted more business through referrals and word of mouth. How will your business handle customer service? Explain your philosophy, and how your customer-service methods will foster repeat business, if that’s your goal. Explain how you track customer satisfaction and address customer complaints or problems. Whatever your customer-service approach, be sure that it reinforces the overall goals and objectives of your business.

Bottom Line Booster It may surprise you that not all businesses should adopt a “customer is always right” policy. If you run a business based on deep discounts or where you sell clearance items, you may need to adopt a final-sale policy where you don’t allow returns.

The following is an example of a customer service policy: Our component line has a 90-day tolerance specification warranty and a one-year “materials integrity” warranty. No maintenance is required, only replacement. Currently, any returns are handled by our shipping department. Smart-Lite will have a one-year warranty on parts and workmanship. We will have a customer support group (four personnel) for Smart-Lite which will also take responsibility for components support. There will be a product repair function for Smart-Lite which will be free, except for shipping/handling costs, for products under warranty.

140 Part 2: Putting Together Your Plan Repairs for products out of warranty will be on a “for profit” basis. The repair shop will have to inventory enough spare parts to assure rapid turnaround on repair jobs. Because customers will also be ordering their own supply of spare sensors these will have to be stocked as well. Reorder points and quantities will be determined as we gain experience. Clearly explaining your operating procedures will give your target audience a good idea of how smoothly and effectively your business will function. This area should be tied closely to your staffing and management overview, ensuring that they correspond and that you have sufficient labor to implement the operation systems that you’ve outlined in this section of your plan.

The Least You Need to Know ◆ Complex or unusual systems of operation should be clearly explained in your plan. ◆ Outline equipment lists and specialized technology that your business will need

to run effectively. ◆ Explain how you monitor and manage inventory and purchasing, specifically with

an eye toward keeping costs low and inventory at levels that don’t tie up assets. ◆ Describe your quality-control and customer-service objectives. Are they ori-

ented toward premium pricing and high levels of service, or are they low-price, low-service models? ◆ Be sure that your operational plan reflects the employee levels you described in

your management and staffing section. A disparity here could lead lenders and investors to believe that you don’t have a good handle on how to staff your company. Consistency is important!

12

Chapter

Money, Money In This Chapter ◆ Initial cost of starting your business ◆ Preparing and understanding a budget ◆ Preparing key financial statements ◆ Using financial analysis tools ◆ Financing needs ◆ Insurance coverage

Planning, understanding, analyzing, and managing your businesses finances are among the most important factors in your business’s longterm success. It’s critical that you have a realistic handle on the money coming in and going out of your business, as well as how that money can be best managed and invested to grow your business. One of the most frequent mistakes that entrepreneurs make in their business plans—and in their businesses—is to be overly optimistic about sales figures and costs. As a result, they overspend and, when the money doesn’t roll in as planned, they find that they’re financially strapped. Similarly, there is danger in being overly conservative in your estimates because you won’t be able to spend the money necessary to hire staff, upgrade equipment or resources, or otherwise invest in your business.

142 Part 2: Putting Together Your Plan As you create your budget and estimate your revenue, it’s important to be conservative in those estimates. However, if the numbers are too low, review whether you’re being too conservative or whether your business is truly viable.

Start-Up Costs Your start-up costs are one-time costs that are incurred before and during the initial phase of opening your business. For example, if you paid an attorney to have your business entity formed as an LLC (Limited Liability Corporation), this cost would be included as a start-up cost. Here are some examples of start-up costs: ◆ Legal/accounting/professional start-up fees ◆ Trade-name/entity-formation costs ◆ Security deposits for leases, rents, utilities, and so on ◆ Installations and deposits ◆ Initial equipment/fixtures ◆ Licenses/permits ◆ Initial training ◆ Remodeling/improvements to your location ◆ Interior and exterior signage ◆ Starting inventory ◆ Supplies ◆ Initial insurance ◆ Initial advertising costs

If you’re acquiring a business, or starting a franchise, you may have similar costs, which you’ll call acquisition or franchise costs. Regardless of whether your business is brand new or brand new to you, be sure to research what expenses your business is likely to incur prior to and in the early days of opening its doors with you at the helm. The more accurately you define these expenses and account for these costs at the onset of your business, the more accurately you can project your financial needs as well as your future profits.

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Creating an Operating Budget Your operating budget, also called a working capital budget, reflects the costs associated with your day-to-day operations and the income that you will need to cover these expenses. Depending on the type of business you are starting or acquiring, you should include enough money to cover the first three to six months of operations in your plan. Examples of operating expenses include the following: ◆ Advertising ◆ Auto expenses ◆ Depreciation ◆ Personnel costs ◆ Rent ◆ Supplies ◆ Miscellaneous expenses ◆ Depreciation ◆ Loan repayment ◆ Insurance ◆ Inventory ◆ Legal/accounting/professional fees ◆ Utilities ◆ Dues/subscriptions ◆ Travel and entertainment expenses ◆ Telephone ◆ Salaries ◆ Payroll expenses ◆ Repairs/maintenance ◆ Taxes

144 Part 2: Putting Together Your Plan Biz Buzz Depreciation is when you allocate cost of an asset, such a piece of equipment, real estate, a computer, a phone system, or the like, over a period of time for accounting and tax purposes. It takes into consideration the decline in the value of a piece of property due to general wear and tear or obsolescence.

Again, the more research and detail you put into calculating these expenses, the more accurately you can reflect your businesses profits. Many of these numbers should be obtained from prior sections of your business plan. For example, in Chapter 9 we mentioned advertising. At that point, you should have determined what method of advertising your company will pursue, find out the associated costs, and create a matrix table with this information. All you need to do is copy that number here into your financial statements (your detail backup is already in the prior section).

Back Office Secrets The information written in your business plan in the business and marketing sections should tie into the financial section. At the same time, the business and marketing sections should be a verbal description and detail of the numbers reflected in the financials.

Source and Use of Funds The Source and Use of Funds statement is a simple document that outlines where the money to start or acquire your business will come from and how it will be allocated for the business. A common Source and Use of Funds statement would contain the following items: Sources of start-up or acquisition capital include these: ◆ Owner’s investment ◆ Bank loan ◆ Private investors ◆ Other sources

Uses of start-up or acquisition capital include these: ◆ Building/land purchase ◆ Capital equipment

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◆ Beginning inventory ◆ Working capital

Managing Cash Flow Cash is the most important thing to have if you want your business to survive! The number-one reason that businesses fail is poor cash flow. We’ve all heard the phrase “Cash is king.” It’s truest when it pertains to the cash flow of a business. Many times, business owners look at their profits instead of the cash on hand or the revenue coming in on a regular basis. Owners will often look at their sales minus their expenses, which equal their profits; if their profits are large, they feel that they are doing well. Instead, business owners need to look at what point their sales are being received and that they have enough money to cover the expenses that need to be paid at that particular time. You may have a great customer who’s placing large orders. However, if that customer takes 120 days to pay his or her bills, and you’re left carrying the cost of the sale for that time with little other revenue to cover your operating expenses, such problematic cash flow can bring your business to a screeching halt.

Creating a Cash-Flow Statement To monitor this important element, you’ll need to create a cash-flow statement. This statement, like the asset that it records, is a crucial financial-planning tool. It will show you how much money you need, when you need the cash, where the money will be coming in from, and at what point in time. It will also show you what expenses need to be covered at a particular point in time. Biz Buzz Pro forma cash-flow statements generally cover a three-year period. The first year’s revenues should be mapped on a monthly basis, and the following two years should be projected on a quarterly basis.

Pro forma means “projected,” or an estimate of what will come in the future, based on the circumstances in the present.

146 Part 2: Putting Together Your Plan Cash-Flow Projection

Sample cash-flow statement.

For each line item, you need to project your best estimate of what each of the cash and the expenses will be on a monthly basis, and you should note that they usually increase over the months as the business grows. Use footnotes to explain the details of your assumptions and how you arrived at each of the numbers. For example, if you own a childcare center and during the first month of operations you only have 50 children enrolled, but by the sixth month you expect to have 100 children enrolled, then your sales should reflect this cash increase in the sixth month of operations. Of course your expenses will increase, too, with additional supplies, teachers, and so on, so you should account for that as well.

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Red Zone Take note that there is a line item on the cash-flow statement for “loan payment.” If you are borrowing money, one of the first places that the lender will look is at the loan payment line. They want to determine that they will be getting their money back, that you have accounted for it, and that you have the means to repay your loan. If they don’t like what they see, your application and business plan may be rejected before it has a chance to dazzle them.

The cash from your business mainly comes from your sales. But when do you receive the cash? If you offer credit or payment terms, then you do not receive the cash at the time the sale is made. By the time you invoice the customer, then they have 30 days to pay (assuming that they pay on time), and you would not receive the cash from that sale for 60 to 90 days after the sale. You need to take into consideration whether you can really afford to “loan” them the value of the sale for that period of time.

Back Office Secrets A critical component of your sales and revenue figures will relate to your pricing. If your products or services are priced too high, you’ll price yourself out of the market. Price them too low, and you might not cover your expenses, including materials and supplies, transportation, labor, overhead expenses, and company profit goals. Make sure that you benchmark your prices against the competition. If you have a better-quality product or some reason to warrant a higher price, be sure that’s how your business is positioned. If you are selling high volume, you can afford to have lower prices, but, again, that’s how your business should be positioned.

Understanding Profit-and-Loss Statements The profit-and-loss statement, also referred to as the P&L statement or the income statement, shows the business revenue minus the expenses yielding net profit (or loss) for your business. This statement differs from the cash flow in that it projects only income and deductible expenses. In other words, it only reflects expenses that are deductible on your tax returns. Now, here comes the accounting lesson: If you are repaying a loan and for one year the principal and interest are $5,000, the full amount would be deducted on the cashflow statement (because you have to pay the full amount—remember: cash flow shows

148 Part 2: Putting Together Your Plan what is being paid out). However, only the interest portion is shown on the income statement because that is the only portion that is deductible on your tax returns. This is why it’s a good idea to hire an accountant or bookkeeper to keep track of your financial statements, not to mention the ever-changing tax law. However, you should also be on top of your company’s finances! Like the cash flow, the P&L is also a pro forma (projected) statement on a monthly basis for the first year, and on a quarterly basis for years two and three. Profit and Loss Statement

Sample profit-and-loss statement.

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Understanding the Balance Sheet Cash-flow and profit-and-loss statements project trends in your business over a period of time, whereas a balance sheet is a snapshot of your business at a particular point in time. A balance sheet is usually prepared at the start of a business and also at the end of a reporting period. It literally only reflects the state of your business for the moment in which it was prepared, and reflects the assets, liabilities, and net worth of the business. Assets are what you own, like cash on hand, equipment, and so on. Liabilities are what you owe, like accounts payable, loan repayment, and so on. Net worth, also referred to as owner’s equity, is the worth or value of the business at that point in time. In other words … Assets – liabilities = owner’s equity or Assets = liabilities + owner’s equity The two sides of a balance sheet must balance and be equal. Within the asset section there are current assets and fixed assets. Current assets are items that are or can be easily turned into cash or used within one year. These include accounts receivable, inventory, and prepaid expenses. Prepaid expenses are items that are paid in advance, such as insurance premiums. Fixed assets are permanent and include things like land, buildings, fixtures, and equipment (minus accumulated depreciation). Within the liability section there are current liabilities and long-term debt. Current liabilities are debts that will be paid within a one-year period. These are items such as accounts payable, accrued expenses (like payments owed for salaries), taxes payable, and short-term notes payable. Short-term notes payable is the current (one-year) portion of the long-term debt. Long-term debt is the balance of a loan that is owed, after you subtract the one-year portion that is included in short-term debt.

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Balance Sheet

Sample balance sheet.

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Determining Profitability with Financial Tools In the financial and accounting world, there are many financial tools, ratios, and analyses that can be calculated. These calculations are computed for many reasons, such as a guideline to industry comparisons, to assist in business management operations, to let investors know if your company is on a profitable track, etc. Following are a few key financial tools that should be included in your business plan to assist a lender as well as for analysis of your own business operations.

Are You Profitable? There are key financial ratios that will assist you in determining if your business is profitable. One such ratio is the gross profit margin on break-even points. This shows the percentage of each sales dollar that is left after the cost of goods is accounted for, but before the rest of the expenses are considered.

Biz Buzz In analyzing a company’s gross profit margin you want to look at the operation efficiencies from its production, distribution, or sales processes. When a company shows a higher gross profit margin than its competitors, this means that they are operating more efficiently and that they should be able to make a good profit, provided that overhead costs are kept down. Gross profit margin is gross profit/net sales. Gross profit is the profit before expenses or net sales minus cost of goods sold. Gross profit shows how much money a business will make purely on the business aspect of the operation, before other expenses, such as salary and rent. Net sales are the gross sales minus returns and allowances.

Another key ratio is the operating profit margin. This is where you divide the income from the operation by the sales. This will give you just the operating profits and does not take into account the taxes and interest. This is the number that is the main source of your cash flow and should reflect growth from year to year.

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Break-Even Point The break-even point is a financial analysis tool used to determine at what point in your business your expenses exactly match your sales, without showing a profit or a loss. Simply put, how many widgets do you need to sell to cover your costs? Break-even point in dollars: Break-even = total fixed costs/gross profit margin Fixed costs are costs that do not vary from month to month, such as rent, and do not change no matter how much sales you have. Break-even point in units of sales: Break-even = total fixed costs/selling price–variable cost (per unit) Determine your selling price per unit and subtract that from your variable costs. Variable costs are costs that are directly related to the product and vary proportionally to the sales amount. For example, direct labor and material to produce the product. The more you sell, the more you need to produce. and therefore, the more materials and labor you need.

Red Zone There’s an old saying that goes, “Anyone who controls the purse strings controls the business.” This is absolutely true, and that’s the reason why it is important to have your hand in the business finances and have an understanding of the information, even if you are not a financial wizard. Don’t blindly hand over the finances of your business to someone else. If you do have an employee or outside entity cutting the checks, you should routinely check the books to be sure that everything is being managed properly. At the very least, have your accountant or an auditing firm review your firm’s payment practices.

Outlining Repayment/ROI If you, as the owner, put money into your business, you will want to know what return you are getting on the money invested. Your return is the rate of interest on your investment or the rate at which the value of your investment is otherwise growing.

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This calculation is even more important if you have investors who are willing to invest in your business. One of the first things they will want to know before forking over their cash is what their return on investment (ROI) will be and how long it will be before they are repaid. This helps them weigh whether your business is a good investment or whether their money should go into another investment opportunity instead. The following is the ROI calculation: Return on Investment (ROI)–Net Profit/Total Assets

Analysis of Financial Facts The financial statements and ratios listed in the prior sections are some of the key elements used in the planning and analysis of your business. There are many more financial tools to use depending on your type of business. However, the key point is to use these financial tools to compare where you stand in relation to industry standards and your competitors. It’s important to analyze the information and use it to assist you in making the proper decisions to increase the profitability and success of your business. It’s critical to plan, forecast your financials, review them regularly, compare them to the actual numbers, revise your plan, and continue this recurrent process to keep your business on track.

Determining How Much Financing Is Needed The first step in determining how much financing you’ll need is to complete the financial statements we’ve reviewed. This will show you how much money you’ll need to operate your business. Depending on the type of business and the amount of money the owners have to invest in their own business, financing is not always necessary initially, although you may find that you need a later infusion of cash to properly grow your business. Cash from operating profits is, of course, the best way to finance your business. However, a start-up business does not always generate enough cash flow to carry it through its early months, or even years, of operation. This is when financing is needed. The following is a process to follow to determine how much cash is needed: 1. Prepare an initial monthly cash-flow statement without the loan amount in it. 2. From your initial monthly cash flow, determine which month you have the least amount of cash available, to determine the most amount of money in a given month that you will be short.

154 Part 2: Putting Together Your Plan 3. Multiply that number by 125 percent. In other words, increase what you may need by an additional 25 percent to be conservative (or in case there are other circumstances that you overlooked). This is the monthly amount that you should come up with. Part of this will be your own investment money (usually a minimum of 20 percent) and the rest you would look to borrow (maximum 80 percent). 4. Take the 80 percent dollar amount that you just calculated and multiply that by an average interest rate (for today’s terms) of 10 percent, and multiply that by an average term of 7 years. This is your monthly principal and interest that you may need to borrow. 5. Next recalculate your cash-flow statement but include a new line, “loan repayment.” In the revenue section, be sure to include the total loan amount in the month that you anticipate receiving it.

How Much Owners Are Investing An owner’s investment in his or her own business is imperative. Owners almost always infuse some of their own money into their businesses, especially during startup, because it’s usually the quickest and easiest form of start-up capital. The amount of money an owner invests depends on the type of business and the financial needs determined in its financial statements. If the owner does not have enough money to invest and needs to go to a lender, the lender will require that the owner invest a minimum of 10 to 20 percent of the loan requested (depending on other criteria mentioned later in Chapter 15). A lender will want to know that the owner has some of his or her own “skin in the game,” or has put some of his or her own assets on the line as a measure of belief in the business. Why should the lender be the only one taking a risk on the business venture?

Insurance Needs Small-business owners often ask what type of insurance coverage they need for their businesses. This should also be addressed in your plan, especially if it’s being used to secure financing, because lenders and investors will want to see that you’ve taken precautions to safeguard the business operations and assets. There is a variety of insurance coverage that you could obtain for your small business, such as property, liability, business interruption, errors and omissions, auto, bond,

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worker’s compensation, malpractice, and health insurance to name a few. Businesses are classified differently in the insurance field, and each small business has different requirements and different premiums. For instance, worker’s compensation coverage will be far less for a business that employs clerical workers than it will be for a business that employs construction workers, where injuries are more common. Therefore, it is important to discuss your business position with an insurance agent before you make any insurance purchases.

Cover Me Basic insurance coverage for most small businesses includes the following: ◆ Liability is very important and covers alleged negligent acts. In other words, it

covers actions for which your business is legally responsible, including people acting on your behalf. This would cover wrongful performance, which resulted in property damage or bodily injury, as long as the employee was operating within the scope of his or her duties. This protection might also cover injuries or issues that arise as a result of negligence—if a florist leaves a hose on and a customer slips and falls; service liability—a contractor installs a new bathroom sink and after he leaves, the pipes leak; product liability—the Tylenol scare. ◆ Professional liability, or Errors & Omissions insurance, covers liability that

results from mistakes or negligence. For example, it may cover an employee of a consulting firm erroneously wiping out client data, or a home inspector failing to notice a problem with a home before a buyer purchases it. Items to be sure that are included in a liability policy are legal defense costs, coverage for both W-2 employees and 1099 subcontractors, and personal injury such as libel, slander, or false arrest. ◆ Property insurance is one of the most basic types of insurance, and covers your

business property against physical loss or damage to the assets (contents of the business location) and/or the building by theft, fire, or other means. What is covered under property insurance varies in each policy, as does the amount of protection. Be sure to consider automobile insurance, because there is a likelihood that your personal auto policy will not cover claims arising from business activity. ◆ Worker’s compensation insurance may also be required if you have employees.

This insurance provides both medical and disability insurance for job-related injuries or sicknesses, and coverage is provided for all employees.

156 Part 2: Putting Together Your Plan If your state requires worker’s compensation coverage, it’s likely that a worker’s compensation representative or auditor will contact your company each year to verify the actual number of employees and payroll versus the number of employees and payroll that you have reported. If there is a difference and the payroll is higher than that reported originally, you will be charged an additional premium. Likewise, if the payroll is lower than originally reported, a return premium will be sent to the business owner. Home-based small businesses should consider insurance coverage as well. Operating out of the home, the owners often think that they are covered by their individual homeowner’s policies. Many homeowner policies have specific limits and often exclude coverage for many small-business aspects.

Prove It If you are working for a large corporation, they will often ask a business owner for a certificate of insurance prior to signing a contract agreement. This is a form supplied by your insurance company or agent, which shows what type of insurance, the limit amounts, and the effective dates of your business coverage. The client may also ask to be a certificate holder, to assure that your insurance coverage is not changed and that if it is, they will be notified. This means the client’s name is on the certificate to ensure that he or she will be contacted if the insurance coverage should expire. Insurance coverage varies widely, and it is difficult to say how much insurance you should have. Most clients request a minimum of a million dollars each for liability, including bodily injury and property damage, and verification of worker’s compensation coverage. This information gives you a high-level idea of the more common types of business insurance to consider. On all insurance coverage, you should try to obtain at least two quotes. Different insurance carriers sometimes offer slightly different premium rates. Also, premiums are not always determined the same way, which leaves room for interpretation and therefore variances in rates. Consulting with an insurance agent is important, because he or she will be able to tailor the coverage to fit your specific needs.

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The Least You Need to Know ◆ Your financial statements are a critical component of your business plan. ◆ Use your research to create educated estimates of what your expenses and rev-

enue will be. Estimate too high and you could overspend. Estimate too low and you won’t be investing properly in the growth of your business. ◆ An operating budget is essential to help you understand how much it costs to

run your business. ◆ A cash-flow statement is a pro forma—or projected—look at when money will

be received by your business. Too little cash flow kills many businesses, even when they’re profitable. ◆ A balance sheet shows a snapshot of a business’s assets and liabilities at a specific

point in time. ◆ Evaluate your insurance needs carefully, and be sure to check with the require-

ments imposed by your state, county, or municipality.

13

Chapter

Show Your Documents In This Chapter ◆ Writing your summary ◆ Narrative versus segmented ◆ Paring down the information

Throughout your plan, you’ve made a number of projections, assumptions, and educated guesses to assert how successful you believe your business will be. That’s great. But how will the reader of your business plan know that what you’re saying is accurate? This chapter shows you how to prove what you say.

Back Me Up Backup documents add credibility to the case you make. Although you don’t want to overwhelm your reader with paper, proper backup will reassure nervous investors and lenders that you’ve done your homework and that what you’re saying is reasonable. What backup material should you include? And where should it go? It will likely depend on your business plan, but include anything that will back up assertions that you’ve made, as well as items that are likely to impress your audience. All of the information you include should help you put your best foot forward.

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Resumés or Bios Of course, you’ll want to include information about the background of the ownership and management team of your company. A resumé can be a good way to do this, but a narrative bio can sometimes paint the picture more clearly and can help you highlight strengths or experiences over many different aspects of your career—not just a chronological order of one job after another. A resumé can also be included in the appendix if your job history is exceptional and shows a track record of success and experience related to your business. Avoid including a resumé if there are gaps or many periods of short employment, which may be frowned upon by some lenders or investors. You want to paint an image of a reliable, committed management team. If the resumé is spotty, opt for a longer, narrative bio that explains the person’s strengths and achievements, instead of using a resumé format that will shine a spotlight on periods of unemployment or jobs that didn’t work out. Bios and resumés of partners are needed as well. Also, if there are any key employees with significant backgrounds or consultants that you want to use, include those bios, too. Your bio or resumé should sell the reader on your strengths. It’s not just a laundry list of jobs that you’ve held. Rather, the document should highlight the areas where you’ve made a difference, and that relate to your business. Even if you don’t have lengthy academic credentials, you can create a great bio. For instance, if you started a promotion program Biz Buzz that increased sales in a particular category, mention it. If you worked your way up through the ranks at a An appendix is the section at the back of your plan particular company, earning increased levels of that includes supplementary and responsibility, tell that to your reader, since that supporting information, facts, shows that you know the business and that you forms, and other materials. impressed your former employer enough to be promoted. Following is a sample biography: John Smith, …. John Smith is HiLight, Inc.’s founder, president and CEO. He was educated at Andersen University, receiving B.S. and M.S. degrees in electrical engineering. He began his business career with Jacobsen Engineering where he was involved in the development of several new product concepts, which increased the company’s sales in the industrial sector by 20 percent over five years. He left Jacobsen to become the general manager

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of Apex Electrical, a multi-million-dollar electrical components business. During his tenure with Apex, the company’s revenues tripled and their PBT percentage was up more than 50 percent. Mr. Smith left Apex in late 2004 to found HiLight, Inc. Mr. Smith has established the following objectives for the coming year: ◆ Successful incorporation of “assembled products” into the business. ◆ Acquiring a patent on the Smart-Lite circuitry. ◆ The establishment of a formal strategic analysis and business planning program

for top management. ◆ The installation of a computerized “prospect tracking system.”

Following is a sample resumé for John Smith: John Smith 123 Main Street Anytown, USA 12345 (555) 555-1234 Objective: To use my experience in the industrial lighting industry to launch HiLight, Inc. Industry Experience: 1997–2004: General Manager, Apex Electrical ◆ Oversaw all operations of a multi-million dollar-electrical components

business. ◆ Tripled company’s revenue in seven years. ◆ Spearheaded development of eight new product lines, including the best-

selling Widget Wonder. 1992–1997: Manager, Jacobsen Engineering ◆ Participated in the development of three new product concepts, which

increased the company’s sales in the industrial sector by 20% over five years.

162 Part 2: Putting Together Your Plan ◆ Promoted from assistant level to management level in five years ◆ Received annual Employee Excellence award three of five years for exhibit-

ing innovative ideas and dedication to the company. Education: M.S. Electrical Engineering, Andersen University, 1992 B.S., Electrical Engineering, Andersen University, 1989 Other Education: July 2004: Elements of Starting a Business Course, Jackson Community College January 2005: Streamline Your Computer Systems, Jackson Community College

Personal Financial Statements and Tax Returns If you’re interested in lining up financing, and your business is a start-up, then it’s likely that you’ll need to provide personal financial statements and personal tax returns. Because the lenders have nothing else to go on but your written business plan, they need to see how financially sound your personal background is. You will need to include the past three years of your personal financial statements and income-tax returns. Your financial statements should include a balance sheet reflecting your personal assets and liabilities, and your W2’s or 1099’s showing your current income. Of course the lender will run a credit report, so be sure that your credit is good and if you do not have good credit, be honest and give explanations. The lender will expect the same information from each partner holding more than 10 percent interest in the business.

Business Structure (Articles of Incorporation) Among other supporting documentation you’ll need is the structure of your business. If you’re a sole proprietor (one-person business owner who has registered your business name with your local county clerk’s office), include copies of that paperwork. If your business is incorporated (chapter S) (one or more owners register the business with the state—has limited liability over that of a sole proprietor), include the articles of incorporation. If your business is an LLC (one or more owners also register the business with the state and also has limited liability over that of a sole proprietor) include the

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member documents. If you have partners you should have a buy/sell agreement or a partnership agreement, and these documents should be included as well. This information is generally put in the plan’s appendix, with other supporting documentation that isn’t integral to the narrative of the business plan. It’s usually not a good idea to place this documentation into the body of the plan because it can interrupt the flow. So, when you mention the structure of your business, you can refer your audience to the additional information in the appendix of the plan.

Loans Got loans? Better mention them. Lenders will want to know if your business has other outstanding long-term debts, so address them, and explain the need for additional funding. If you’re using your plan to attract investors or partners and you have a loan commitment, be sure to include that as well. If your business is a start-up, you probably don’t have other financial obligations, but will focus on what your financing needs are. We covered the details of venture capital funding in a previous chapter, but you’ll also want to disclose any funding that you received here, how much the funding was, and any terms, such as equity interest and conditions of the funding.

Credit Reports Again, if your business is a start-up applying for financing, then your personal financial history is going to be a factor in whether you get a loan, as well as how much you’ll get and at what interest rate. So, as we discussed, be sure your credit report is as clean as possible. You probably won’t include a copy of your credit report if your plan is a management tool. However, when you formalize your presentation to lenders or investors, they may want to see a copy to get a better understanding of how you have handled your finances in the past.

Franchise or Acquisition Agreements Whether you’re purchasing a franchise or an existing business, you’ll want to be sure to include copies of the sale or acquisition agreements in your plan’s appendix. These

164 Part 2: Putting Together Your Plan Biz Buzz An acquisition agreement is an agreement that outlines the merger of two companies or the sale of one company to another.

agreements generally include information about the structure of the business, as well as any long-term compensation that is due to the seller and that will impact your business’s profitability or franchise fees, training requirements, and conditions.

Leases or Mortgage Whether you’re renting or purchasing your property, you’ll need to include copies of the lease or mortgage documents to show both that you have a place from which your business will be run and also that you have a stable base. If your business is in the concept stage and you don’t have such documentation, you could consult with a Realtor to obtain an estimate of the size of the facility in your area as well as an estimate of the rent or market value of the facility you will need to house your business.

Licenses Depending on the type of business you have, you may need state or municipal licenses or may have other registration requirements. Some areas impose a licensing or registration requirement as well as a tax levy on all businesses in the town or city, regardless of the type or size of business. In New Jersey, for instance, all businesses that do business with the state, county, or local government agencies need to be registered with the state. In certain states, construction companies and contractors are required to be certified to conduct business. The best way to determine which regulations apply to your business is to check with your state or county economic development office. Local Small Business Development Centers are also likely to have the information you will need. Be sure to include copies of any required licenses, registrations, or certifications you will need as backup.

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Letters of Intent If you have companies that are interested in doing business with you when your company is up and running, or if you have an established business and have existing customers who will increase their orders when your business expands, include letters of intent—an explanation from these customers or prospects that they do intend to do business with you and, if possible, the revenue value of those orders. Even if you have a small business, letters of intent can be powerful. Here are some examples: ◆ A sandwich shop may present letters from area businesses that would use its

catering services. ◆ A public relations agency may present letters of intent from prospective clients

or even from other agencies that intend to subcontract work to the agency. ◆ A real-estate appraiser may solicit letters of intent from mortgage companies or

banks that will use the service. When lenders and investors can see that you’ve already got business lined up, they generally feel that their money is safer than if you’re starting your business cold. An example of a letter of intent follows: ABC Manufacturing 555 Main Street Holiday, Ohio 00055 (111) 222-3333 Date To Whom It May Concern: This is a letter of intent which is non-binding and does not constitute a contract. However, we feel that HiLight, Inc.’s products are superior in the marketplace and our company would purchase in bulk from them (as they provide a quality product and a cost savings to us). We anticipate purchasing 500 cases of their product each month at a bulk rate of $250 per case. We anticipate this understanding to take place once a mutually beneficial contract is in place within six months of the date of this letter of intent.

166 Part 2: Putting Together Your Plan We are a current customer of HiLight, Inc., and use their products throughout our manufacturing facility. To date, the company has been a reliable provider of products and services to ABC Manufacturing. We anticipate a continued business relationship with HiLight in the future. Sincerely,

Jim James Purchasing Director

Market Analysis Some municipalities and consultants will conduct a market analysis for your business, using local economic indicators to determine whether your business would do well in a particular community. It takes into account the type of business that you have as well as the local business mix, market size, the size of the target market that exists within the community, and whether the business is local, as well as a financial feasibility component.

Bottom Line Booster Sometimes, downtown development organizations will prepare feasibility studies free of charge or for a nominal fee in order to attract new businesses to the community. These studies will often include a detailed look at other businesses in the community, potential competition, and estimated demand for the products and services of a particular business, among other information. If your community does not offer such a service, then contact your municipality or county office of economic development, which will likely be able to refer you to a consultant who can do that kind of work.

Other If you have other compelling information, such as information about awards or honors in your industry, high-profile media coverage, new research that applies to your product or service, patents, trademarks, or other information about other intellectual property assets, then you should also include that in the plan’s appendix. Having your backup in order will make your plan stronger and will likely answer most questions that your readers have.

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The Least You Need to Know ◆ You should include backup material for any assertions you make in your plan. ◆ Document anything that gives your company a competitive edge, including

information about management and staff, location commitments, and highprofile media coverage. ◆ Use your plan’s appendix as a holding area for backup information so that it

doesn’t interrupt the flow of the plan. ◆ Put lengthy supplements and backup materials in an appendix at the back of the

plan. This will help preserve the document’s flow, while giving the reader access to additional information he or she may wish to review. ◆ Include any indicators that bode well for your business, including letters of

intent, new research about your field, or a market analysis that indicates your business would be a great fit for the location you’ve chosen. ◆ Check with your state, county, or municipality to see if they offer free or low-

cost market analyses. This may save you a great deal of legwork in determining the best location for your business.

14

Chapter

Executive Summary In This Chapter ◆ Writing your summary ◆ Narrative versus segmented summaries ◆ Paring down the information

You’ve heard the old saying that you never get a second chance to make a first impression? Never is that more true than with your business plan’s executive summary, which appears at the beginning of the plan’s narrative. The summary is where you distill the essence of your plan down into a “just-the-facts” document of two to three pages. This summary should really sell your plan—why your business idea is so likely to succeed and thrive—so that the reader will be interested in continuing on to read the entire document.

In Summary You are now at the point at which you need to write your executive summary. Now that you have almost completed your business plan and have better insight into your business operations, market, finances, and needs, you are in a better position to summarize the whole plan. Your executive summary is a synopsis of the key points and what the reader will find in

170 Part 2: Putting Together Your Plan the pages that follow it. Usually between one and three pages in length, the executive summary explains the key points of the plan.

Red Zone Your executive summary shouldn’t run excessively long. It’s rare that an executive summary needs to be more than three pages. Choose your most exciting information to include. Your executive summary is a sales piece—you’re selling readers on why they should continue perusing your plan.

What’s in the Executive Summary The executive summary introduces your company … while the rest of the plan includes the details. Your executive summary is a highly abridged version of your business plan. It should have a just-the-facts tone, but also should highlight the elements that will get the reader excited about your business. In it, you’ll want to include a brief description of the business, including the concept, what makes your business different (uniqueness or niche), the business entity, and whether it’s a start-up or established business; summarized financial projections and needs; market information, including statistics supporting viability of the marketplace; and information on the owners and key employees. Your executive summary can be written one of two ways: the narrative format or the segmented, topic-driven format. A narrative format will simply be straight text, moving from one point to another with no breaks. This format can be effective because it keeps the reader engaged. However, if your text is dry or if you fail to excite the reader, he or she may stop reading—the kiss of death when it comes to securing financing or investors. See the sample plans in Appendix B for examples of executive summaries.

Back Office Secrets Often, lenders and investors will review the executive summary first—and if they don’t like what they see, they might not read any further. So it’s very important to make your case by writing clearly and succinctly to capture the reader’s attention.

The other format you can choose to use when writing your summary is the segmented, or topic-driven, format. This takes the components of your summary and divides them into clear-cut sections. The benefit here is that the reader can skim each section for key information, saving time. This type of summary is usually two to three pages long, and is simply separated by subheads. Either format will work—it depends on what you feel comfortable writing.

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Selling in Your Summary Whichever way you write your plan, it will include similar information. If you write a segmented plan, you’ll divide your information according to topic. Some of the topic areas may include the company overview, products or services, an operations overview, a market overview, and a financial overview. A narrative plan will have all of the same information, but it is not separated into sections. Instead, it reads as one continuous document covering all of these topics, but without subheads.

Company Overview The business overview is probably the shortest section. It should include a brief snapshot of your business, including the location, type of business, date founded, and other identifying details. Include a brief overview of your company’s products and services. If necessary, you can break the product and service overview out into a separate section, but keep it short—one or two paragraphs is enough. You’ll have plenty of space to explain in more detail later in your plan.

Creative Car Consultants Company Overview Creative Car Consultants provides car buyers with excellent customer service and time and cost savings involved in the procurement of new and used vehicles. We will offer hands-on personal service, as well as service through our Internet website. Backed by eight years in the automotive sales business, Creative Car Consultants knows the ins and outs of the costs involved with dealership vehicle procurement.

Operations Overview This section should give the reader a glimpse into how your company does business. What is its competitive edge? How does it deliver its products and services? Here, you should highlight the strengths of how your company is structured, including any special expertise brought to the operation by the owner, managers, or employees. This is where you sell the structure of your business as solid and well founded. Pay particular attention to any aspects of your business that will control costs, streamline systems, or make your business run more profitably and efficiently. Again, here’s a good example from Creative Car Consultants.

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Part 2: Putting Together Your Plan Creative Car Consultants Operations Overview Our expansive knowledge will be key in brokering deals for prospective customers of the company. Our target customer base will primarily involve upscale, busy professionals who earn $75,000 and up per year who do not have time to spend in an automobile dealership haggling over the cost of a vehicle, arranging financing and getting the automobile titled properly. Our secondary target market/audience includes, but is not limited to, single females with annual income of $45,000. Research shows female car buyers have felt they were compromised during a past vehicle-buying experience. We will also target individuals who are seeking a positive used car-buying experience.

Market Overview The market overview tells the reader why you’ve chosen to do business in this particular sector. To strengthen this section, you should include some of the secondary research about the marketplace that you used in your marketing section. Don’t go overboard with the statistics, but use two or three of those to support your position that this is a viable market in which to do business.

Creative Car Consultants Market Overview With more than 1 million residents in a five-county area, metropolitan Jacksonville, Florida, is the growing, thriving economic center of Northeast Florida. Data from the U.S. Census Department in 1999, the most recent we could find, shows Duval County alone has a median income of $40,703, compared to the state median income of $38,819. Meanwhile, neighboring Clay County has a 1999 median income of $48,854 and St. Johns County has a median income of $50,099. Based on this data, we have determined the area can support such an innovative business model. This section is also where you give a brief overview of how you intend to reach out to the market, including a mention of any special marketing activities you intend to use.

Financial Overview In the financial overview, you should give a brief description of the projected revenue and profit of your business, as well as a description of the financing needs your business

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will have, if any. Clearly, the finances of your business are complex, so you need to focus on the broad strokes. Answer such questions as the following: ◆ How much revenue can the business expect to generate in a particular period of

time? ◆ When will the business be profitable and by what margin? ◆ How have you worked to control expenses? ◆ What safeguards are you putting in place in case you don’t meet your projected

revenue goals? If you are looking for financing, you should also mention how much money you are looking for, what collateral you have, how much money you are investing into the company, and how and when you will pay the lender back.

Creative Car Consultants Financial Needs Creative Car Consultants is seeking $25,000 in short-term financing that will be used to cover start-up costs, purchase needed equipment and provide working capital until the business becomes self-supporting.

Paring It Down So how do you boil 20 or so pages down to one or two? You need to think carefully about the essential information that your audience needs to know. Be sure to address “what is in it” for the reader to keep his or her interest. Often, you are not in front of Back Office Secrets the person reading your business plan to be As you prepare to write your able to explain it further, so you have to make summary, it may be helpful to sure that what you wrote is going to “catch” take a hard copy of the plan the reader’s interest to want to explore your you’ve written so far and highidea further. What would you say about each light the most important informaof these subject areas if you only had 60 section. That will help you organize onds to do so? the best information to appear in the summary, instead of trying to Once you’ve written your summary, it’s a pare down 20 or so pages of good idea to get objective feedback on it from text, which can be unwieldy. trusted colleagues and advisors. Run it by

174 Part 2: Putting Together Your Plan your accountant and your attorney for feedback. Would they invest in this business? Does the summary leave any important questions unanswered? Is it clear and easy to read? If you find that you’re having trouble focusing on the essence of your business by paring it down to one or two pages, it may be an indication that you need to spend more time honing the focus of your business. Those who have a clear vision and understanding of what their business is, how it will run, and what its needs are can usually state those needs succinctly. Writing your summary is an excellent exercise to indicate whether your understanding of your business is at the level that it needs to be.

What Not to Put in the Executive Summary Because the executive summary emphasizes the highlights of your business plan, there should not be a lot of detailed descriptions. It should simply summarize each of the key points listed in the previous sections. Therefore, one section should not dominate the details of the other sections. On the one hand, you do not want to repeat word for word what is in later sections, but on the other hand, you don’t want to tell the reader to go look at a particular page for the information; you want to take the key point from that page and restate it accurately here in the executive summary. If your business is a technology or scientific business, be sure not to include terminology that the layperson would not understand. Keep it simple. See Appendix B for an example of an executive summary.

The Least You Need to Know ◆ Write your executive summary last. ◆ Use a narrative approach if you’re good at weaving the facts together in an

engaging way and your business is easy to understand. ◆ Use a segmented approach if your business is complex or if you’re not sure of

your organizational and writing skills. ◆ If you have trouble boiling down your business plan to create the executive

summary, it could be an indication that you need to streamline the focus of your business. Spend some time thinking about the key elements and whether you need to sharpen your vision of how your business will run.

3

Part

Putting Your Plan to Work

Your plan can be a tool for running and growing your business—or it can be a stack of paper lying useless in a drawer. In this part, we show you how to use your plan to land financing, manage your business better, attract investors, and more. We also discuss how you can make your plan a living, breathing part of your business. Chapter 15 covers the specifics of using your plan to get financing, while Chapter 16 discusses how it can be put to work as an important management tool. And because no plan is worth the paper on which it’s written if it isn’t current, we wrap up with Chapter 17, which includes great ideas for keeping your plan up-to-date.

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Chapter

Financing Considerations to Include in Your Plan In This Chapter ◆ Benefits of a financial plan ◆ Where to find money ◆ What lenders want ◆ Types of loans ◆ What investors want

At this point you have created a major portion of the business plan. The following information about financing and the various types of loans will be very helpful. If you are in need of financing from the onset, the following information will help you determine what source of financing will best meet your needs. If you are not in need of financing at this point, the following information is good to know for future reference. You never know when your business may be in need of financing. For example, when your business is growing and capital equipment may be needed or just from business growth additional employees may be needed, as a business owner, you can obtain a loan to allow your business to growth and be able to financially stay afloat.

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The Money Plan Throughout the course of writing this plan, you’ve prepared financial statements, run budget numbers, and by now you should have an excellent understanding of how much money you will need to start and to operate your business. Once you have prepared this information, you should also know what amount of money you need to borrow. In figuring out how much money you need in loans or investment, you should consider two scenarios—a minimum amount and a maximum amount that you need. You also need to figure out the time period over which you will need the additional financing because this will make a difference in the financing available to you and the repayment schedule.

Who’s Got the Cash? Financing can come from variety of sources, and businesses often tap more than one. These sources might include the following: ◆ Personal assets ◆ Family and friends ◆ Credit cards ◆ Home equity ◆ Lines of credit from suppliers or lenders ◆ Credit unions ◆ Banks ◆ Borrowing against insurance/investments ◆ Equipment leasing programs ◆ Commercial lenders ◆ Government loan programs ◆ Grants ◆ Investors ◆ Factors ◆ Venture capitalists

Chapter 15: Financing Considerations to Include in Your Plan So if your business needs $80,000 in financing for the first year of business, you might assemble a package that includes the following: ◆ Personal resources: $15,000 ◆ Supplier lines of credit: $10,000 ◆ SBA Micro-loan: $35,000 ◆ Loans from families and friends:

$10,000 ◆ Business credit card: $5,000 ◆ Factor financing: $5,000

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Biz Buzz A factor (as in accounts receivable factoring) is a business that purchases an existing business’s accounts receivable. This provides the business with guaranteed cash, although the accounts are sold to the factor for less than the full value of the amount due. But then it is the responsibility of the factoring company to collect all debts owed.

Be sure, however, that you estimate your financing properly for the period in question. If you find that you’ve run through $80,000 in six months when you estimated that it would see you through a year of operations, then you may have trouble convincing lenders that you have an accurate grasp of the needs of your business, which may mean that they won’t see you as a good risk to lend additional resources to. Again, it’s important to remember the difference between debt versus equity financing as discussed in Chapter 2, to determine if you are going to borrow money from a lender (debt) or from an investor (trading cash for equity in your business).

What Lenders Want to See In Chapter 2, we discussed the five c’s of lending: credit, collateral, capacity to repay, character of the borrower, and conditions that may impact the ability to repay. Those are the main criteria that lenders will look for when they review your business plan. The bottom line is their bottom line: They want to be sure that your business is a good investment risk. Lenders are also looking for your equity investment into the business—generally 10 to 20 percent of the amount you are seeking to borrow, depending on the type of business and your other criteria. These, along with the amount of collateral you have, will give the lender a solid picture of the financial stability of the business. In addition, lenders want to see how you have repaid credit extended to you in the past as evidenced by your credit rating. If there is a blemish in your credit, a lender will often still work with you providing that you have …

180 Part 3: Putting Your Plan to Work ◆ been honest and disclosed this up front. ◆ shown that you can remedy your past issue.

Finally, the lender will look for the “uses of the proceeds.” They want to ensure that the money is used for the direct operation of the business and the purposes for which it was borrowed, such as start-up expenses, working capital, building, land, leasehold improvements, equipment, and inventory. Often research is necessary to obtain quotes for verification which will back up the costs that you are listing as uses of the proceeds of the loan.

Knocking a Lender’s Socks Off Keep in mind that the loan officer’s job is to make loans. Banks do want to lend money, especially to those ventures with limited risk. The loan officers are often analytical people. Because the loan officer makes recommendations to the committee, it is the loan officer who you want to impress, provide information to, and work with closely through this process. If you don’t have the collateral, the credit, and the capacity to repay, no amount of razzle-dazzle is going to pry open a lender’s purse strings. However, if you have the basics in place, you can seal the deal by doing the following: ◆ Be organized. Have your loan package in order. Your application should be

typed or neatly printed, and your supporting materials and business plan should be clean and look professional. ◆ Show growth potential. Demonstrate that your business has staying power and a

market that’s just waiting to be cultivated and grown. ◆ Demonstrate a solid strategy. What’s your game plan? Don’t keep your lender

guessing about whether you’re the groundbreaking market leader or a savvy entrepreneur who has spotted a growing market and is diving in. Be clear about how you will approach your positioning, pricing, and marketing. ◆ Diversify or dedicate. Will your business diversify its holdings so that it’s less

exposed to market changes? Or will it focus on vertical integration so that it is deeply entrenched in a market and can withstand economic downturns? Show why you think one approach or the other is the best idea. ◆ Understand your numbers. It’s critically important, when you speak with your

lender, that you fully understand how you arrived at your projections for sales,

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revenue, expenses, and the like. If you falter here, the lender may find that you lack sufficient understanding of the economics of your business and do not represent a good risk. Know where the numbers came from and why you think they’re accurate. ◆ Leadership. Your business may be following in the footsteps of others, but the

people leading it should be strong. A business with capable, experienced leadership is far more likely to succeed than one where the owner is diving into a sector about which he or she knows nothing. So shine a spotlight on the abilities of your top team members. Of course you’ve already done this in your owner and key management’s resumés that you have attached to the business plan. Show energy, enthusiasm, and professionalism when it comes to your business. Your attitude may be the final factor that gets you the money you need to succeed.

Negotiating Your Financing Although it sometimes may feel like seeking financing for your business leaves you at the mercy of lenders, that’s a very dangerous attitude to project. It’s important to remember that, when it comes to financing, you are the customer. Lenders are in business to find good investments and to make loans when those investment opportunities are available. If you don’t believe that your business is a great investment opportunity, then you shouldn’t be seeking external financing. So when you start your search for financing, approach it with the attitude that you have a great opportunity for the lender. If you have a solid plan, with adequate collateral, experience in the industry or another track record of success, and a good credit rating, it’s likely that lenders will be tripping over themselves to lend you money for your business. The more fully you meet the five c’s of lending, the more leverage you have when it comes to negotiating a better deal on your loan. What many borrowers don’t realize is that loan fees and interest rates are often negotiable. As you shop for your business loan, compare the packages that are being offered—which has the best interest rate or the lowest fee structure? Some have a shorter approval or turnaround times than others. Try to reduce loan restrictions and criteria, negotiate lower interest rates, and reduce or waive fees. Also, don’t assume that larger lending institutions are the best bets. Sometimes, your local bank can give you a better deal than a large commercial lender, who may be more interested in super-size businesses.

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Types of Loans Just as there are different types of lenders, there are also different types of loans. Understanding the financial needs of your business is critical to understanding the type of loan for which you should apply.

Transaction Loans A transaction loan is usually extended for a period of less than a year, giving the borrower a short-term infusion of cash. It’s called a transaction loan because it’s usually satisfied in one transaction at the end of the loan. Sometimes, that single payment covers principal and interest accrued over the term of the loan. Other times, the interest on the loan is Biz Buzz deducted from the amount made available to the borA loan’s maturity, or rower, and the borrower then repays the face value of maturation date, refers to the the loan plus interest at the maturation date. This end of the lending term, or the type of financing is usually used for working capital, date by which the loan needs to financing inventory that will be sold before the matube paid off. ration date of the loan, and other short-term needs.

Line of Credit A line of credit is an amount of money made available to a borrower, and it works much like a credit card. The borrower may access any portion of the loan, up to the maximum amount available, and then can pay off the loan in installments or in one lump sum. Some lines of credit require that the line be paid off entirely at least once a year. This type of financing is ideal to supplement periodic cash flow issues or to finance short-term needs.

Term A term loan is much like a car loan or a mortgage—a predetermined amount is borrowed in full, and paid off in equal installments that total the principal and interest of the loan over a predetermined period of time. This type of loan is better for borrowing larger sums that may be more difficult to pay off in a short period of time, especially to purchase assets, such as real estate, large equipment, and the like.

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Government-Secured Loans Government-secured loans are generally term loans that are backed by the Small Business Administration or other government agency. In other words, the lender has a guarantee from the government agency that, should the borrower not pay back the loan, the lender will be reimbursed for the loan amount, thus decreasing the risk involved in lending money to, especially, small or start-up ventures.

Lease A lease is a form of financing where you pay for the use of a piece of equipment or real estate, but don’t actually own it at the end of the term. The benefits of leasing are, in the case of equipment, that you generally reduce your liability if something goes wrong, and that you can usually upgrade your equipment under a new lease once the previous lease is expired. Often, leases make big-ticket items more affordable and may have certain tax advantages, depending on the item you are leasing. However, in the case of real estate, for example, leasing does not help you build equity. It is often best for items that will depreciate over time. You should consult your accountant before making a lease or purchase decision to see which option will be better for you.

What to Expect During the Loan Process While the terms, conditions, and other aspects of lenders will vary from institution to institution, their general requirements during the application process are often quite similar. Most loan packages require the following: ◆ Bank application and fee—Each bank has its own application, which must be

filled out in full. Some banks have an application fee, although some do not (and others will waive it if you ask them to do so). ◆ A business plan—A complete and professional business plan required for a

start-up business can make or break your loan application. This document provides a lot of insight into you and your business, and lenders will place a great deal of emphasis on how the plan is executed, whether projections seem realistic, how the management team is structured, and the track record of the business, if it’s existing, or the individuals at the helm, if it’s a start-up. Of course, as we discussed in Chapter 13, the executive summary has to be captivating, because if you lose the lender there, they often will not read any further. Lenders are also looking for industry stability and statistics to support your business, a strong

184 Part 3: Putting Your Plan to Work management team, accomplishments, marketing, reach of customers, growth and expansion plans, good credit rating, and detailed financial statements (cash flow, profit and loss, and balance sheet) showing assumptions, and of course their eye will focus on the “loan repayment line.”

Back Office Secrets Business ratios provide a way for lenders to use the data from your financial statements to compare your firm’s strengths and weaknesses with your competitors, both large and small. As these ratios shift over time, they can also act as indicators about your company’s performance, for better or for worse. Lenders will obtain balance-sheet and income-statement information from your firm and compare them with the same information from your competitors, if they have access to that information; or they will consult guides, such as the Almanac of Business and Industrial Financial Ratios, Industry Norms, and Key Business Ratios, or RMA Annual Statement Studies, which examine data from hundreds of industry groups.

◆ Tax returns—Personal tax returns of the company’s owners are often required

for the most recent three years. Business tax returns are also required, if your business has existed that long. ◆ Credit history—Although the lender will run their own credit check on each

partner in the company, it is best to truthfully inform the lender up front as to what you anticipate them to find on your credit report. It is also important to check your own credit report from all three credit bureaus, prior to going to the bank. Sometimes the credit bureaus have made an error and have mistakenly reflected bad credit under your name (especially if you have a common last name such as Johnson).

Back Office Secrets Remember that you are entitled to one free credit report each year from each of the three credit bureaus (Experian, Equifax, and Trans Union). Access that report by visiting www.freecreditreport.com.

◆ Income and assets—Your bank will likely ask

for income verification, in the form of pay stubs, employer verification, or copies of bank statements, as well as a list of your personal and business assets and investments. ◆ Leases—If you have leases on buildings, equip-

ment, or vehicles, the lender is going to want to review the terms of these as well.

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◆ Insurance—Usually the bank will ask for insurance verification, especially if

there is real estate involved, as well as a property appraisal. The lender wants to make sure that if there is a fire in the building and you are no longer in business, at least you will receive an insurance payment and you can then pay off the debt you owe to the bank. The loan turnaround time depends on the type of lender you are approaching, as well as the size loan you seek. For example, if you are applying for an SBA-guaranteed loan through an SBA “preferred” commercial lender, that means that the lender has passed prior SBA criteria and can make the loan decisions in-house. If the lender is not an SBA “preferred” lender, then the loan needs to go back to the SBA for processing and decision-making, and this adds time as to when you will hear back if your loan is approved. Often if you are applying for a smaller loan amount, the turnaround time is quite quick, versus a larger loan that needs more review and scrutiny from the lender, because this is a bigger risk for the lender. Depending on your loan circumstances, you can expect to hear back from the lender in anywhere from a few days to a few weeks, on average.

Finding Investors We’ve already been through the debt versus equity financing distinction (in Chapter 2), so you know that investors are going to want a slice of your business in exchange for their money. There are billions of dollars available through angel investors (a specific type of venture capitalist, usually a wealthy individual who has money to infuse into businesses through equity financing) and venture capitalists (who are often companies, but could be individuals who will invest money and management advice in return for an equity stake in your company—they often raise their investment money from a pool of private and individual sources). However, it is sometimes difficult to locate these investors, because it’s not like they take out full-page ads in the business section and advertise, “Get your money here!” Instead, they often have networks within which they operate. Usually a lender, an accountant, a friend who has already been in touch with investors, trade shows, and even investor meetings and seminars are the best ways to get in touch with these investors. You might also consider talking to other companies in your industry, suppliers and customers of the same type of goods or services. As with any thing else, there are really good investors out there and there are some not so knowledgeable investors. So you really have to “shop” around by being inquisitive. Remember,

186 Part 3: Putting Your Plan to Work investors are selective as well. They are looking for the best return on their money with the least risk. So just because you have found an investor with a great reputation, the next step is having a great business plan to convince them that your business is the one they should invest in! In summary, finding a professional investor is all about networking. Of course you could visit your local Small Business Development Center (SBDC) or their technology commercialization centers in most states. They often have contacts with many investors.

Money Online Although many investors are not the easiest to connect with, there is some Internet research that can be done to assist in the search for investors. There are a variety of websites such as the National Venture Capital Association (www. nvca.org), and Clickangel (www.clickangel.com), the online angel investor network. There are also lists of venture capital firms and ventures, at www.vcfv.com/ venture-capital-associations.asp, and on the SBA’s website: www.sbaonline.sba.gov/ INV/liclink.html. There are also some published magazines such as the Venture Capital Journal to subscribe to. This is a useful magazine when you are looking for financing through investors. Each month there is information such as investor featured articles, viewpoints, funds, initial public offering (IPO), and investor conferences.

Red Zone Some companies will offer unsecured loans to start-up businesses, but they often carry a hefty price tag in the form of loan-shark-like interest rates. In addition, cash-strapped small business owners are often bilked out of funds for the promise of a loan that’s “guaranteed” once a processing or other fee is paid. Once the business owner sends the fee, which can total up to several thousand dollars, the loan never materializes. So it’s important to be sure you’re dealing with reputable lenders, and never send an advance fee for a loan.

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What Investors Want Often, angel investors and venture capitalists, like lenders, will also look for a viable company with minimum risk. Of course, the investors will closely review the business plan and financials, too, looking for companies with growth potential. Although investors often look at those companies in traditionally fast-growth areas, such as science or tech companies, or those organizations with a unique idea that is truly revolutionary to the marketplace, there are also investors who specialize in particular industry sectors. Investors also look at the management team and their level of experience and involvement. They will also be interested to see if the management team has their “skin” invested, too. When you secure financing from investors, either venture capitalists or angels, you do not have to make monthly loan payments. However, the investor will seek a return on investment and usually participates in how the business is run to ensure that it will be successful. Investors, through their stake in the company (now part ownership), usually take an active role in working with the company to make it grow. Sometimes business owners will say, “I started this business because I wanted to run it and make the decisions.” When you take on investors, you are no longer the only one making the decisions. On the other hand, successful investors will usually provide seasoned management experience and a network of resources and expertise to guide your company to success. They’ll often put these assets at your disposal because of their vested interest— the return on their money! Investors are usually invested in a company for an average of five years, and seek an average of 34 percent per year return on their money. That may seem high, but they’re also taking a big risk—if your company doesn’t succeed, they lose their money entirely. That’s the first rule of lending and investing—the bigger the risk, the higher the return should be.

Other Financial Uses for the Plan In addition to attracting investors and lenders, you might also use your financially focused plan for internal growth to measure your progress and goals. The financial statements in your plan will enable you to analyze your cash flow, and to determine “what-if scenarios”: What will happen if you can produce more product? How many

188 Part 3: Putting Your Plan to Work more employees can you afford to hire? Do you have the finances to cover these scenarios? Or do you again have to borrow money? In addition, your financial plan will be written in a language that your accountant speaks. Armed with a copy of your plan, your accountant may be able to identify areas where your business finances can be strengthened, or help you to identify ways to become more profitable or ways to diversify your assets so that your company is more stable during tough financial times. Of course, when there are multiple partners, it is imperative to have everything documented for all to review, so that all partners have a meeting of the minds and do not perceive business information differently. Now it is all in writing and all partners are “on the same page.” In addition to having all business goals and ideas clarified in the business plan, it is also a good idea to have a buy/sell agreement or partnership agreement between the partners. This type of document spells out the terms of the business, how the profits and losses are shared, if the partners’ shares can or can not be transferred, an exit strategy, and any other terms that are important to the partners. Creating a thorough plan that has clear and positive financials provides you with an important tool for the financial well-being of your business. Even if you don’t need money now, having this plan in your pocket gives you an important component of a loan package, so that you can expand your financial options if needed.

The Least You Need to Know ◆ Know the minimum amount of financing that your business needs, as well as a

maximum “wish list” amount, before you begin the borrowing process. ◆ Be organized, knowledgeable, and professional to impress both lenders and

investors. ◆ Different types of financing are right for different types of business needs. ◆ Negotiate your financing deal just as you would any other business transaction.

It may save you money and decrease your obligations over the long run. ◆ Deal with reputable lenders and investors, and never pay up-front loan fees,

which could be a sign of a scam. ◆ Investors may take an ownership stake in your company in return for their

money, but they may also make new resources, knowledge, and experience available to you.

16

Chapter

Using Your Plan as a Management Tool In This Chapter ◆ Your plan as a management tool ◆ What you may discover through your plan

◆ Getting the right people onboard with your plan ◆ Finding and motivating employees ◆ Managing for the future

Your plan can be a valuable management tool, creating a virtual handbook for running your business. Because it has forced you to do your homework about virtually every area of your enterprise—from structure to operations to marketing to competition to future prospects—you have been required to analyze factors and functions that you may have previously taken for granted.

Planning to Run A management plan differs from a plan created to attract financing because it usually has a greater focus on operations, marketing, and management—the

190 Part 3: Putting Your Plan to Work internal workings of your organization. Obviously, revenue and sales projections, as well as expense estimates, are also important. However, they are considered more of a function of how your organization is run. In a plan used to secure financing, the operations, marketing, and management are usually treated as the infrastructure that will deliver the anticipated financial gains. Management plans, on the other hand, tend to pay a bit more attention to the inner workings of the organization and may spend more time on details such as the rationale for management structure, finding and motivating exceptional employees, examining how to configure the company’s location to make it the best possible work environment, and other areas that are of more concern to the people who work at your business than the people who want to give it money. These people will assume that you’ve got a good handle on all of those inner workings. They don’t really want to know about the details unless those details are integral to turning a profit or growing their return on investment. After facts and figures about your business have been committed to paper, business owners often find that they learn a few things about themselves.

Planning Findings After you’ve committed your plan to paper, it’s not uncommon to come away with an entirely new view of your business. It’s likely that through the rigorous research and analysis that you’ve had to undertake to complete the plan, you’ve been forced to question a few of your assumptions about your business, and you may have even learned a thing or two.

Solidifying Your Philosophy By drafting your mission, vision, and values statements, you’ll likely have a better understanding of those elements that are most important to running your business. Business owners often find that by distilling their company’s reason for existing into a few brief sentences, they can more clearly make decisions about what’s best for how that company is run.

Developing a Strategic Vision It’s likely that creating your business plan has given you better insight into your business’s strategic vision. Companies often pay lip service to strategic thinking, but do they really know what it means?

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If you’re thinking strategically and designing your business in a strategic manner, it means that every decision your organization takes and makes is done in accordance with its desired outcome in mind. It may mean that you’re willing to downsize part of your business while pursuing more lucrative segments, instead of chasing every rabbit that passes by. It may mean that your business values its employees as much as its cusBiz Buzz tomers, so you create a work environment that reflects that philosophy. It means that A strategy is a course of you run your business within the framework action or series of steps designed to achieve a desired result. of its philosophy, goals, and objectives, and are not distracted by short-term opportunities that do not benefit your business.

Identifying Improvements Like any document, a business plan gets better with revision. However, the revisions, edits, and additions you make to your business plan are often those that you’re making to your business’s operations and overall well-being, also. By writing down your unique selling proposition and how you will set yourself apart from your competition, you have discovered ways that you could improve upon your competitive edge. By describing, in a narrative format, how your business will be run, you may have identified key areas that you missed or even found ways to streamline your staffing and management.

Preventing Distractions Your business plan is also a touchstone. As you solidify your philosophy and the way that you do business, you also create a point of reference for when you may be tempted to veer off into other areas. Pittsburgh, Pennsylvania, entrepreneur Anita Brattina, in her excellent book Diary of a Small Business Owner, relays how she got sidetracked into a publishing venture in the early years of forming her company, Direct Response Marketing. The venture, although it taught her much, funneled time, resources, and money away from her core business, which was telemarketing. Similarly, you’ll likely encounter opportunities along your entrepreneurial route that will seem interesting, although perhaps a bit unrelated to your business. When this happens, reviewing your business plan can help you decide objectively whether this is an opportunity that moves you closer to your goals and objectives, or whether it’s

192 Part 3: Putting Your Plan to Work simply a red herring that will only serve to divert you from growing your business in the manner you wish.

Avoiding Misunderstandings Red Zone Don’t get into a multipleowner mess. It’s especially important for businesses with multiple owners to get their plans on paper. Such a plan literally gets everyone on the same page and helps each party come to an agreement on how every area of the business will be managed.

It’s also not uncommon, especially with businesses that have multiple owners, to find that a written business plan uncovers a few differences of opinion about how the business should be run, or should approach various sectors of the business. For instance, one partner may believe that it’s critical to have deluxe office space and a prime location, whereas another partner may believe that a sub-prime office in the best possible location is a better option. One of the owners may believe that sales increases of 10 percent per year are likely, whereas another may think that the reality will be half of that.

Implementing Your Plan It’s one thing to go through the process of creating your plan. That could be considered the easy part. A plan that sits unused, on a hard drive, in a desk, or on a bookshelf is worthless. After you’ve created your plan, it’s essential to put it in place, especially the improvements that you’ve identified. How do you do that?

Providing Strong Leadership Recently, Gwen had a bad experience with a rude employee at a local video store. She asked to speak with the owner, who was almost as rude. It quickly became clear that the negative attitude of the clerk had trickled down from the top level of the business. For better or for worse, your influence will affect how your company and your employees perform. Therefore, it is essential that you provide strong leadership. That doesn’t mean ruling with an iron fist or using the yell-and-scream management style. Rather, it means that you’ve committed to a course of action, and you provide an unwavering example for your management and staff of how the company achieves those objectives.

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Stating Clear Expectations As you begin to put your plan into action, you must be clear about the accompanying expectations you have of others involved. This includes partners, managers, staff, consultants, and other individuals or entities who will be an integral part of creating your plan. Don’t assume that the people involved know what they need to do. As you begin to execute your plan, put important expectations in writing and distribute those documents to those involved. Examples include detailed job descriptions, employee manuals, letters of agreement, and the like.

Creating Actionable Steps It’s virtually impossible to effectively implement your plan unless you take the time to break your objectives down into actionable steps, especially in the areas of sales, marketing, and operations. What are the actions that you will take to get everyone closer to those goals and objectives that you set early on? Break them down, put them in order, and assign deadlines to each. Then monitor those deadlines to ensure that they are being met. You’ll soon see remarkable progress.

Being Ready for Barriers Many times people are uncomfortable with change. If your business is an established entity with longtime employees, and you’re suddenly asking them to employ a new way of doing things, then you may find yourself facing resistance. Start-ups aren’t exempt from barriers to change. Communities that may not be willing to accept a new service provider, or customers who aren’t used to the innovations you’ve made to a particular type of business, may prove to be more challenging than employees who are set in their ways. Try to anticipate these possible challenges and work on ways to solve them. We discuss more about getting employees onboard later. However, if you need to invest in educating your customers or create ways to reach new markets that will be more receptive to your brand or way of doing business, then map out possibilities for doing so.

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All Aboard Unless you run a one-person shop, putting your plan in place will require the buy-in of a number of entities to make the process run smoothly. Using your plan to build relationships and using the value of those ties for the benefit of your business are smart management moves. Ways that you can do this include creating an advisory board, identifying and building relationships, and finding strategic partners.

Creating an Advisory Board An advisory board is a team of professionals who have various areas of expertise that complement your business. This board exists for the purpose of sharing their collective wisdom and advice to benefit your business.

Formal vs. Informal Advisory boards can be formal or informal. Sometimes entrepreneurs form small support groups where they can air their concerns and work out some of their challenges with a trusted group of colleagues. One northern New Jersey group of female smallbusiness owners gets together for dinner once a month. They each share their business goals and hold each other accountable for making progress toward them. They also share their challenges and concerns about their businesses. Because they’ve developed a deep level of trust among them and none are in businesses that compete with each other, they find that this is an excellent way to help each other in a nonthreatening environment. That may suit you well. However, if you need more intensive guidance or input than that, you may wish to convene a formal advisory board. A formal advisory board is more structured and includes professionals chosen for their various levels of expertise. It has guidelines and usually involves some form of compensation to its members, but it can truly deliver a wealth of resources and invaluable advice to the business.

Convening a Formal Board On formal boards, there is usually some form of compensation for the members who, in turn, share their expertise. If you are lucky, reimbursement for travel, meals, and accommodations will be enough compensation. Usually, though, this may be an hourly rate or a formal stipend, and you should be prepared to shell out anywhere from several hundred to a few thousand dollars per person, depending on how many advisory board members you have and how much time and effort will be required of them.

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On your board, you’ll want to handpick advisors who can address every area of your business. A board can vary from about five members to as many as a dozen, depending on the size of your business. Such boards generally meet in person at least twice a year, with regular conference calls or other forms of communication in the interim, whereas others meet more frequently. Who should be on your advisory board? Generally, you want individuals who don’t have an obligation to your business, with the exception of your attorney and accountant. It’s a good idea to start with a smaller board and then add various experts as you need them. Here’s a quick cheat sheet of professionals you may wish to include: ◆ Your attorney ◆ Your accountant ◆ A sales and/or marketing expert ◆ A public relations consultant ◆ One or two entrepreneurs who have experience in your type of business ◆ A financial planning expert ◆ A distribution expert ◆ A technology expert ◆ A banking or loan officer, or venture capitalist ◆ A member of the local Small Business Development Center

Certainly, there may be other areas of expertise that you’ll seek to create your own dream team. In addition, some of these individuals may have areas of expertise that overlap. For example, you may find someone who not only is a successful entrepreneur but also has a venture capital background, or your accountant may also be a financial-planning expert.

Back Office Secrets Be sure that your board members are independent, so that they have no conflict of interest when it comes to telling you the hard truth about your business. It’s important to include your attorney and accountant, however, because they are intimately familiar with your business and will be able to help you distill the advice you receive in light of your business’s realities.

196 Part 3: Putting Your Plan to Work Aim high when you assemble your board. You may be surprised at the generosity of some very well-known and successful entrepreneurs when it comes to giving advice to up-and-coming businesses. Often, they’ve benefited from the generosity and advice of others and are happy to pay it forward.

Identifying and Building Relationships Because no successful business exists in a vacuum, you’ll also find that your business plan helps you solidify the relationships that you need to succeed. It may seem odd that a document can do that, but by clarifying your business needs, you’ll see where you need to invest time and resources to help your business. In addition to defining roles and partners, your business plan will identify win/win situations for various entities. For instance, if you’re trying to start a bakery, you likely will look for a location that doesn’t have one nearby, or that doesn’t have a provider of the type of baked goods that you will provide. That’s a win/win: you win because you’re providing something new to the market, and the market wins because it now has easier access to something it wants or needs. Your plan can also help you build relationships with those who can help your business by charting a clear course for working together. For instance, when Renfro Foods was looking for ways to expand its customer base, the 64-year-old family-owned manufacturer of gourmet salsa, sauces, and relishes, run by five members of the family’s second and third generations, found such an opportunity by teaming up with the El Paso Chile Company, another Texas-based family-owned business that was only four years old at the time. El Paso needed manufacturing support and Renfro needed expanded distribution. The alliance served both needs so well that it has now been going strong for 20 years, growing each of the companies to approximately $10 million in annual sales, and weathering various challenges, including El Paso’s near-bankruptcy. That’s the benefit of a well-planned alliance.

Strategic Partners The Renfro Foods–El Paso Chile Company alliance is one example of the strategic partnerships that can take your business to the next level. You may find that there are strategic partners that can benefit your company. These may come in the form of suppliers, consultants, or other complementary companies.

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Suppliers One New York woodworking company farms out some of its projects to a smaller supplier in the area. This enables the company to increase its inventory during its busy consumer show season without adding the expenses of additional staff, equipment, benefits, and other expenses that must be borne year-round. Whether your suppliers provide raw materials or finished products, it’s critical that you cultivate relationships with reliable vendors who consider keeping your business a priority.

Consultants Hiring the appropriate consultant for a short- or long-term engagement can also provide you with the experience and expertise you need to address specific business challenges. When hiring consultants, it’s critical to choose the best fit for you. One area where small companies often let their egos get in the way of judging a good consultative fit is when they’re choosing marketing or advertising providers. Often, it’s assumed that by choosing big-name providers, the company is ensuring quality. The truth is that many big providers don’t consider small clients a priority. Sure, they’ll take your money. However, unless you’re spending $10,000 or more per month, you’re not likely to get the attention that you would from a smaller provider, who might only charge $4,000 for a similar level of service, because of a lower hourly rate. We’ve seen many times when a smaller provider was able to provide equal or better service much more affordably than a larger-scale counterpart.

Complementary Companies Companies that complement your business, whether they’re organizations to whom you can subcontract or businesses with which you can team up to provide better service, are a critical part of your team. These companies may be influencers, who are in a position to send business your way (such as bank officers, accountants, or consultants), or they could be companies whose products or services will also benefit your customers (a paint-supply store and a flooring company, for example, may be able to refer their remodeling customers to each other). So as you identify these complementary businesses, add them to your plan, and find ways to cultivate these relationships.

198 Part 3: Putting Your Plan to Work Red Zone As you begin to look for companies to participate in referral exchanges or to which you will refer business, be sure that you check them out with the local Better Business Bureau and even a few references. Referring your customers to a business that may not treat them well will reflect badly on your business, washing away your hardearned credibility.

Staffing Up You hear, time and time again, that employees are the backbone of your business. It’s true. Building a great team is important, but keeping them well trained and motivated is even more so. So where can you find these dynamos who will bring your business to the next level? Within your community, there are several options: ◆ Staffing agencies, either temporary or permanent, can provide access to pools of

qualified applicants for a fee, which is usually based on the applicant’s annual salary. ◆ Your own employees can provide referrals and recommendations of other poten-

tial employees. Often, employees will be reluctant to refer someone who isn’t a good worker, fearing that doing so will reflect poorly on him or her. Provide an incentive for such internal head-hunting. ◆ Your local or regional newspaper is a great venue for placing ads and getting loads

of responses, although a good percentage of them will often not be qualified. ◆ Your website is a 24/7 recruiting tool. Be sure to include information on the

jobs that you have open, the skill sets and qualifications you require, and how individuals might apply.

Keeping Them Motivated Keeping employees motivated during tumultuous times can be the difference between weathering a storm and being left with a skeleton crew to navigate difficult waters. In tough times, many businesses need to make difficult choices about cutting staff, yet layoffs can be damaging to the productivity and to the rate of turnover of the remaining

Chapter 16: Using Your Plan as a Management Tool 199 employee base. Employees are often deeply affected, not only by the threat to their own livelihoods, but also by the job loss of their co-workers. The last thing that you want to do when you’re dealing with a challenge in your business is to lose key staff members who can be instrumental in helping you turn things around during these times. It’s important to make use of marketing tactics internally to minimize the damage of layoffs. By treating employees as a marketing audience, you can often minimize the damage of challenging periods and bolster morale at the same time.

Red Zone Motivation issues don’t only crop up when business is bad. Periods of high growth—when employees are taxed because of an influx of work, or when they must adapt to new procedures brought about by rapid growth—can be just as damaging to morale, leaving employees tired, confused, and feeling negatively about the business. Look for signs of flagging morale or employee burnout and act quickly to find new ways to motivate or relieve the pressure on your staff.

Creating Employee Incentives Some managers immediately assume that the way to motivate employees and inspire loyalty is to throw more money at them. In fact, this isn’t the case. Studies have proven that other factors have more value to employees than money, including the following: ◆ Meaningful work ◆ Recognition for work performed ◆ Learning and development opportunities ◆ A choice in how work gets done ◆ Feeling competent and having a sense of contribution to important results ◆ A respectful and appreciative workplace

That’s not to say that your employees will work for free or that money can’t work as motivation in specific circumstances. Money rewards may go toward paying the electric bill, but other incentives may be remembered for years. Cultivating an environment where your employees like their work, like their environment, and have some

200 Part 3: Putting Your Plan to Work control over their day-to-day activities can make the difference between an employee base that stays and one that goes away. When putting together a motivational plan for your employees, consider what will truly matter to them. Consider programs that recognize the value of their time, such as these: ◆ Offer flexible work schedules. ◆ Provide a telecommuting option when appropriate. ◆ Allow volunteerism on company time (let employees volunteer their time on

“your time”). ◆ Give extra time off (maybe their birthday or other special day—and don’t count

the day toward their regular vacation time). ◆ Give extra time off during summer months (1⁄2-day Fridays, and so on). ◆ Creating employee awards and opportunities for public and peer recognition. ◆ Develop contests or incentives to encourage innovative ideas (anything to help

provide better service, or develop a better product, or make the workplace a better place to be). Award prizes and public praise for adopted ideas. ◆ Say “thank you” for their efforts. ◆ Encourage feedback and interaction by conducting regular performance reviews. ◆ Promote an “open-door policy” where employees are comfortable coming to

you with any issues or ideas. ◆ Review your own management style and see where you can improve your skills

to become a better boss. ◆ Address employee needs and provide the things that they require to do a good

job for you, such as medical benefits, daycare subsidies, on-site physical fitness facilities, or credits for membership. ◆ Offer training, education, and personal development opportunities, such as con-

tributing to continuing-education efforts or offering skills-improvement classes at the office or on site (computer training, time management, financial advisement, and so on). ◆ Sponsor a company retreat, taking your employees away from the office for a

day or two to interact in a different, hopefully relaxing environment.

Chapter 16: Using Your Plan as a Management Tool 201 ◆ Encourage employee interaction, socializing, and team building by hosting cor-

porate outings or events, and pay for everything (e.g., shopping excursions, baseball games, fishing trips, “dinner-and-a-movie night,” family picnics, and so on). ◆ Provide financial incentives, such as referral commissions when employees bring

in new business, stock options, or profit sharing, if possible. Clearly, not all of these ideas will be feasible or appropriate for your business. However, you should take the training, motivation, and retention of your employees seriously. Without an excellent team in place, your business will most certainly suffer. Building an infrastructure of good people will only add to the stability and success of your business. Your employees are your greatest asset!

Getting Employees Onboard with Your Plan Whether your employee base is brand new or established, you should keep your finger on the pulse of their concerns. A great way to do this is to put together an employee advisory board. These boards are made up of employee representatives from all areas of the company and can help you mine great ideas while keeping the lines of communication open between you and your staff. Employee advisory boards should be made up of a cross-section of employees who can give you feedback and help you gauge the motivation level of your employee base. Invite employees from various levels and try to keep everyone in the advisory council on a level playing field. Share your business plan with your advisory council. If it’s not appropriate for your business to share specific financial information, then edit that out and, instead, focus on how the business is run. What are areas that the business does well? What are areas that need improvement? Often, you’ll find that, because many of these people are on the front line, they see small changes that can lead to big improvements in efficiency, effectiveness, and customer satisfaction. Sometimes, it’s best to hire an outside facilitator to moderate the group and ensure that responses aren’t influenced by whomever is leading the group. It’s also easier for an outsider to be more impartial and ensure that each member of the group is participating equally. Such moderators can be found through some management-consulting firms or even through your local Small Business Development Center or chapter of the Service Corps of Retired Executives (SCORE). See Appendix C for contact information to locate a center or chapter near you.

202 Part 3: Putting Your Plan to Work Encourage the employee advisory council to address specific challenges that the business is facing, as well as encourage them to come up with solutions to more ethereal problems like improving morale and making the workplace more pleasant. Hold brainstorming sessions where all ideas—no matter how off-the-wall—are encouraged. You can always whittle the list down to the more reasonable later. However, allowing employees to stretch their minds and think big may lead to little changes that can make a difference.

Red Zone Try not to have individuals who report directly to one another on the advisory council. If that’s not possible, make it clear that, although one individual may report to another in the day-to-day office scenario, in the advisory council everyone is equal. This will increase morale and give employees the comfort to speak openly. That camaraderie will spill over to other times when the same employees interact.

Managing the Future Finally, your plan can help you manage your business by helping you to identify the needs for the future, whether that includes equipment, staffing, or even response to possible regulatory changes. Your business will encounter many changes in its life cycle, from shifting economic factors to changes in staffing, and perhaps even changes in the products and services you offer. Your plan, if you continue to update it and treat it as the heart of your business, will help you adapt to these changes more readily and will help you to stay the course in even the most choppy waters.

The Least You Need to Know ◆ As a management tool, your plan will focus more on the inner workings of your

business than a financial plan will. ◆ A plan that sits unused is worthless. Take the steps you need to take to effec-

tively implement your plan. ◆ A detailed business plan can help you to avoid bumps in the road, such as mis-

understandings with partners, unclear goals and objectives, and other ambiguous operations approaches that can become problematic in the future.

Chapter 16: Using Your Plan as a Management Tool 203 ◆ Your plan can also help you to identify the people and businesses that will be

essential to your success. Be sure to include an approach for cultivating these relationships. ◆ Internal and external advisory boards will help you to tap many of the resources

that you need to grow your business. Use them to shore up the expertise you need. ◆ Treat your employees with respect and always “listen” to their input, which can

be very valuable.

17

Chapter

Keeping Your Plan Current In This Chapter ◆ Keeping it going ◆ Reviewing your plan ◆ Getting information ◆ Creating an exit plan

The key to making your business plan an essential part of your business is to review and update it regularly, and incorporate its elements into your business. That’s easier said than done, but as we’ve said before, a business plan that sits in a drawer is useless.

Keeping It Going A business plan that is frequently referenced but not used to implement action is a waste of paper. One small publishing company’s owner pored over his business plan at least weekly. However, when revenue fell and cash flow became nonexistent, he never took action to correct the situation, such as focusing on how sales could be increased. Instead, he spent all of his time in his office, trying to rework the numbers so that he could keep his business afloat. He declared bankruptcy within 13 months of

206 Part 3: Putting Your Plan to Work opening his doors, losing most of his investment and all of the money that was entrusted to him by investors.

Biz Buzz Iterative process refers to the act of doing something repeatedly to achieve a desired result, usually coming closer to the desired result or improving the process with each completion of the process. As applied to business plans, it means reviewing, updating, and improving your plan on a regular basis.

So as you continue to consult your business plan, comparing the “real world” numbers to those which you have projected, always ask questions: Are the numbers different? Why? Are they higher or lower? Why? What’s working? What’s not working? How can we change and be better? Taking your business for granted, even after a period of success, is a dangerous thing. Instead, use an iterative process to look for ways to use your success to create an even higher level of success. This continual challenge will ensure that you never get caught resting on your laurels.

Measuring Your Company’s Success To compare your company’s success to others’, you’ll need to find ways to regularly capture information about what’s going on in your business to compare with your plan. There are a number of ways that you can do this. This process of comparison is called benchmarking. As you begin to put your processes in place, look at how often you realistically can and should review and update your plan. If your business is a start-up or in a fastgrowth mode, then you should review your plan at least quarterly and may wish to do so monthly or bi-monthly to be sure that your estimates are on track. If your business is established and stable, once or twice a year might be enough. Biz Buzz You’ll also need to decide how you will structure Benchmarking means those reviews. Will you hold a formal meeting with measuring progress against a set your advisory board? Will you host a retreat with of determined parameters. This your top management team? Or will it simply be you, could be measurement against holed up in your office, reviewing the plan and makthe success of competition or measurement against specific ing adjustments when necessary? Different methods goals and objectives. will work for different businesses. It’s your job to decide the best fit for your business.

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Getting Information How will you go about establishing systems to capture the information you need and deliver it to you? Your company has a number of information sources that you can tap, including financial statements, customer database, employees, and customer feedback.

Your Financial Statements Your accountant will work with you to determine which financial indicators are most relevant to your business. Then you can put processes in place to generate reports that deliver that information to you, keeping your finger on the financial pulse of your business. Such reports may include sales figures, cash flow, expenses, and the like. Be sure to check these on a regular basis—at least monthly—to ensure that your numbers are on track. Take your eye off the financial ball and you might end up being hit in the face with a big, unpleasant surprise when it comes to your business’s fiscal well-being.

Your Customer Database or Sales Figures As you establish your business and develop a customer base, you may begin to see cycles or rhythms in your sales and expense figures. Depending on the type of business you own, you may wish to keep computerized data files on your customers, or use a point-of-sale system that will report the types of sales being generated at a particular time. For instance, a small financial services firm may find that it’s getting a great deal of inquiries about retirement planning from individuals in their early 40s, and that is a profitable market segment. If this runs contrary to an earlier business strategy to target younger investors, it could mean changing the entire marketing and sales plans of the business. Similarly, if the business is a small retail floral shop, it may not be feasible to keep customer profiles on everyone who walks through the door. However, a simple pointof-sale (POS) program that can capture simple sales information may provide key information about why people buy. For instance, if May through July is prime wedding season, the florist may also find that many customers buy flowers for wedding anniversaries during this time. Many inexpensive POS programs can help identify buying patterns.

208 Part 3: Putting Your Plan to Work Back Office Secrets Many management experts agree that an effective point-of-sale (POS) or bookkeeping/ accounting system is essential for many companies, depending on the type of company that you run. These systems have fallen in price in recent years, and now they’re within the financial reach of most businesses. But before you buy, make sure that your system has the essential features it needs to serve you well, including: ◆ Inventory monitoring. You should be able to check stock levels through your system and it should automatically update your inventory levels when you make a sale. ◆ Electronic scanning. If you sell products with bar codes, you should be sure to

incorporate scanning capability into your system. A simple handheld device or infrared scanner will save time by letting your system “read” the items sold instead of keying in every one. ◆ Report generation. Your system should allow you to run the sales reports you need, including categorizing data by time period, SKU number, or other criteria that your business might need. Some systems also allow you to cross-reference your inventory by UPC, SKU, distributor number, or other ways. A sophisticated bookkeeping system will allow you to generate estimates and some will even track time or work with various time-tracking software programs to allow you to find out where how your employees’ time is being spent.

Your Employees We said it before, but it bears repeating: Your employees are on the front lines of your business and they’re often full of terrific information and ideas. In addition to setting up an employee advisory council that will help you identify opportunities and problems, you should also provide venues for employees not on the advisory committee to better help you run your business better. These may include providing incentives for good ideas or setting up a suggestion box for anonymous complaints and problems. In addition, you should train your employees to capture feedback from customers. Simple questions, such as asking “Where did you hear about us?” can show you what’s working well in your business’s marketing. Train employees to make note of anecdotal feedback that customers relay, as well. For instance, if a customer says that a new display or service looks great or made him or her interested in coming into the store, have a method of capturing that information. Surveys, questionnaires, and suggestion boxes are also good ways for you and your employees to gather feedback. It’s usually best if the customer is given some incentive to respond, whether it’s entry into a drawing or a chance to win a prize or discount.

Chapter 17: Keeping Your Plan Current 209 The key for you or your employees to successfully gather feedback is to keep questionnaires and surveys to a manageable length. This will vary depending on your type of business, but the general rule is that shorter is better—five or six questions is ideal. Use a format of both multiple-choice and open-ended questions for best results.

What Do Customers Really Think? We all think we know what people think about us, but we can often be mistaken. Everything from the décor of your place of business, to the appearance of your employees, to the stationery on which you do your outreach reflects upon your business. Are you sending the messages you wish to send? Or are you taking shortcuts that may be reflecting poorly on your image? To take your image temperature, consider the following: ◆ Does your place of business “look” like the image you wish to project? Is it cool

and hip or is it more conservative? ◆ If you do business from your home, do you take proper measures to project a

professional image, such as installing a separate phone line with voicemail so that business calls aren’t answered by your three-year-old? ◆ Are the correspondence and marketing materials you send out current and up to

date? Do they look professional and reflect the image of your company? ◆ Do you and your employees dress appropriately?

All of these factors can influence how people view your business, so it’s important to pay attention to the details. It may be difficult to hear negative information about your business, but try not to take it personally. The more honest customers are, the more likely it is that you’ll hear about something they don’t like. Entrepreneurs are usually so emotionally invested in their businesses that hearing criticism is like hearing criticism about their child. Don’t fall into the trap of getting defensive. If you repeatedly hear that your employees need to be friendlier or that your store is laid out in a confusing way, look for ways that you can address those issues without taking them personally.

210 Part 3: Putting Your Plan to Work

Using the Information You Find Update, update, update and analyze, analyze, analyze! After you review your business plan and update the financial forecast budgeted numbers with the actual numbers, do a comparison of budget versus actual. Then analyze and determine where the numbers are increasing (the good things that you are doing in your business—keep doing them) and where the numbers are decreasing (determine why they are decreasing and how you can change that for improvement). With the use of various financial ratios, you should compare the efficiencies within your business as well as to industry standards. Although a few of the financial ratios were explained in prior chapters, the financial ratios are almost endless. One place to find a list of many of the ratios is on the SBA Women Business Center online website at www.onlinewbc.gov/docs/ finance/fs_ratio1.html. Of course, work with your CPA when analyzing your financials and planning for future direction and success.

When It’s Time to Go, It’s Time to Go We’ve discussed how your business plan can help you build your business and make it successful. However, what happens when it’s time to let someone else take the reins? Do you have a plan for that? Planning for a successful transfer of business ownership is also an essential part of your overall business planning. Although it might not be a part of your business plan, a succession plan is an important tool that will provide for the longevity of your business.

Biz Buzz A succession plan, also called an exit strategy, is a document that outlines future ownership of the company. It includes how the company will be transferred, including any buy-out agreements or remuneration that is to take place upon transfer of ownership.

Your succession plan discusses what will happen when you are no longer willing or able to run the company. Hard as it may be to believe, you may get to the point where you want to try your hand at other ventures, or you may want to retire. It’s also important to remember that sometimes the unthinkable happens and business owners become incapacitated or otherwise unable to run the business. In these cases, as in most, it’s important to have a plan. By putting your intentions for transfer of ownership in writing, you eliminate—or at least greatly reduce— the potential for conflict about future ownership.

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Your succession plan will cover several key areas, including: ◆ Ownership—Your succession plan will clearly outline who owns the company.

This will include your current ownership stake, as well as that of any partners or equity investors. It will also include how you wish the transfer of ownership to take place in your company. For instance, you may wish for your spouse to take over your share in the company. If you have an equal business partner who owns 40 percent of the company and the two of you have sold a 20 percent ownership stake to an outside investor, then your spouse will own 40 percent of the company. Your succession plan should spell out such intricacies of ownership structure.

Red Zone Think carefully about who should take your place in the company before drawing up your succession plan. Making your spouse or another relative your de facto successor could be a bad idea. If you’re retiring or taking on other ventures, your spouse may wish to join you in those endeavors, and you may find that your children aren’t as enthusiastic about taking over the reins as you might like them to be. Instead, look for the best possible win-win. That may mean grooming an ace employee for eventual ownership, giving him or her an incremental equity stake in the company tied to compensation or performance. You’ll also want to consider the wishes of your business partners, if you have any. After all, the partner may be the one left running the company with your successor. If he or she doesn’t believe that person is a good fit, it could make for a rocky road ahead. It may make the most sense for a partner to buy out your share of the company. That can be a difficult decision, but it can be a better one than trying to make a match between two parties who will have difficulty working together.

◆ Infrastructure—Your succession plan should also outline the infrastructure of

your company—the hierarchy of management and employees that gives your company stability. Many small companies don’t withstand the exit of the founder because the company is largely driven by the founder’s vision and commitment. It should be your goal to create a company that can operate without you. That is an essential ingredient in creating a company that has lasting value. Explain the reporting structure of your company, and which sectors are responsible for the activities that keep your company running smoothly. ◆ Finances—Include the compensation that is tied to relinquishing your owner-

ship. Some owners receive structured buyouts over time and gradually transfer their responsibilities, acting in a consultative capacity for as long as several years.

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Part 3: Putting Your Plan to Work You’ll want to include provisions for compensation to your estate in the case of untimely demise or incapacitation. It’s a good idea to enlist the help of a skilled accountant to determine the value of your company prior to drafting your exit strategy. An accountant will be able to help you value such esoteric assets as name recognition and brand value, especially if you’ve done a good job building a solid reputation in the marketplace. If you do have business partners, you’ll both need to agree—in writing—to the financial terms of the agreement. ◆ Timeline—Your succession plan should also include the timeline under which

you’ll remove yourself from the company. You may work there full-time for a year and then offer two years of part-time assistance or consultation. Your exit may take as little as six months, or in some rare cases, may be immediate. Be sure that your attorney reviews your exit strategy to ensure that your rights are protected and that the document is legally binding. The last thing you want is an unpleasant surprise when it’s time to say “good-bye.”

Going Forward Now you’re armed with the tools you need to create an effective business plan—one that can help you start, finance, and grow your business. We wish you the best of luck in your new venture, as one of the many entrepreneurs that join the ranks of business owners. There is something about owning a business of one’s own that provides a sense of satisfaction and fulfillment unlike any other. We wish you the best with your business. May your careful planning, energy, and perseverance create a great return on investment for you!

The Least You Need to Know ◆ Use an iterative process to frequently update your plan and integrate it into the

management of your business. ◆ Make it a point to regularly measure, or benchmark, your company’s success

against other companies or a set of goals.

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◆ Find information from unlikely sources, including financial statements and cus-

tomer databases, or by finding ways to effectively capture customer feedback. ◆ Use surveys, questionnaires, and other incentives to encourage customers to give

you honest feedback about your business. It’s the best way to improve. ◆ Have a game plan ready for the time when you’ll leave your business, whether

you plan to sell your company or find yourself unable to run it. ◆ Enjoy your business. Being an entrepreneur can be one of the most satisfying

feelings there is.

A

Appendix

Business Terms Glossary

1099 form An income-tax reporting form required by the U.S. government for many types of payments made to persons and noncorporate entities. accounts payable

Money owed to suppliers, vendors, and other creditors.

accounts receivable other entities.

Money owed to your business by customers and

accrual method An accounting method in which income is reported and expenses deducted in the year to which they relate rather than the year when they were paid. amortization The gradual reduction and elimination of a liability, such as a mortgage, through a series of regular payments, covering both principal and interest, over a specified period of time. It also relates to writing off an intangible asset investment over the projected life of the assets. assets Items of value owned by a business, including real estate, equipment, cash, and other items that can be sold for cash. Some intangible items, such as a well-known logo or trade name, can also be considered assets. audit Review of a company’s financial and accounting records and supporting documents by a professional, such as a Certified Public Accountant. This also refers to an examination of an individual’s or corporation’s tax returns to verify accuracy.

216 Appendix A balance sheet A financial document that shows a “snapshot” of a business’s or individual’s assets, liabilities, and equity at a particular date. benefits Various methods of employee compensation, in addition to wages. In addition to those required by law, such as Social Security, unemployment compensation, and worker’s compensation programs, employee benefits also include health and other insurance coverage, paid vacation, retirement programs, and other compensation to the employee. bio A narrative document that outlines the experience or professional background of an individual. Also called a CV (curricula vitae). bootstrapping Working within a very narrow budget. This often refers to start-up businesses that have self-financed and have done so with limited financial means. business-to-business Refers to a marketplace where a company’s products and services are sold to other businesses. business-to-consumer Refers to a marketplace where a company’s products and services are sold to consumers. capital Assets, especially cash, available to invest in a company to further its production or growth. cash flow The amount of revenue received by a business in a specific period of time. The cash coming in should be more than the liabilities owed. cash method A method of accounting in which income is added and expenses deducted when they are received or incurred. C-corporation A business that is a completely separate entity from its owners, unlike a sole proprietorship or partnership. Company owners are called shareholders and generally have limited liability for the actions of the business. collateral Items of value used to secure a loan. If the loan is not paid, the lender has the right to seize these items and liquidate them for payment. consultant An individual with specific expertise who is called upon to provide counsel in that area of expertise. Consultants are external entities and not employees. contract

A written, binding agreement between two parties.

CPA Certified Public Accountant is a designation given to an accountant who has passed a national uniform examination and has met other requirements; CPA certificates are issued and monitored by state boards of accountancy or similar agencies.

Business Terms Glossary

217

credit Either an account in which the value of goods and services can be charged and paid later, or the issuance of a refund for a product or service. CV debt

curricula vitae (See bio.) Money owed to another party or organization.

demographic A profile based on a series of objective characteristics, such as location, income level, gender, and so on. depreciation The allocation of the cost of an asset over a period of time for accounting and tax purposes. A decline in the value of a property due to general wear and tear or obsolescence; opposite of appreciation. dividend A portion of a company’s earnings paid to shareholders, usually paid quarterly. employee An individual who performs work for a business and is subject to withholding taxes and other payroll deductions or organizational benefits. An employee is generally under the direction and supervision of the business owners and/or managers. equity The positive difference between the value of an asset or business and the amount that is owed relative to that asset or business. exit strategy A plan for the existing owner or management of a company to successfully hand over control of the company to a successor. financial statement A document that records a specific element of a business’s or individual’s assets, income, debt, money owed, and other aspects of the entity’s financial situation. gross income income industry

Total income before taxes and revenue are deducted.

The financial gain accrued over a period of time. The business sector in which a company operates.

insurance A policy that is underwritten by an insurance carrier and protects a business or individual against specific liabilities. interest The amount of money paid as a return on money borrowed or credit extended. interest rate

The percentage of return on money borrowed or credit extended.

investor An entity that trades money or other value in exchange for an ownership stake or other measure of value in a business.

218 Appendix A iterative liability

A process in which an operation is performed repeatedly. Money owed or the state of being legally responsible for a situation.

liability insurance An insurance policy that protects the policy owner against specific risks, such as an injury on the policy owner’s property, losses due to theft, or other exposures. license A legal document that grants a business or individual permission to conduct business or perform some other function. LLC Limited liability corporation: A form of corporation that requires fewer filing requirements than other forms and that has certain tax advantages for some businesses. loss

A decrease in an asset’s value that equals less than the amount invested or earned.

market

A universe of customers that will purchase a product or service.

market strategy A plan for approaching a market and encouraging those prospects to buy from a company or individual. marketing The process of bringing a product to the universe of potential customers who are likely to buy it. NAICS code North American Industry Classification System used by North American businesses to identify the market sector in which they do business. net worth

The value of all assets minus liabilities.

outsource

To assign a task or function to an entity outside of your company.

principal The original amount of debt on which interest is calculated, or the leader or owner of a company. profit Also called net income, this is calculated by subtracting expenses from revenue. The remaining amount is profit. pro forma A projection of future circumstances, based on what has happened in the past or what is expected to happen in the future. psychographic The profile of characteristics of prospects and customers that detail their attitudes, opinions, and lifestyle preferences. resumé

A document that details an individual’s work history.

return on investment (ROI) The amount of money that is earned by an investor when he or she trades money for shares or other interest in an asset or business.

Business Terms Glossary revenue risk

219

The money that is earned by a business.

The possibility of incurring a liability or exposure to asset losses.

S-corporation A corporation that is organized and taxed under Subchapter S of the Internal Revenue Code. SIC code Standard Industry Classification is a method of classifying business sectors. It was replaced by NAICS. sole proprietor partnership.

An individual who operates as a business without incorporation or

SWOT Strengths, Weaknesses, Opportunities, Threats: A method of analyzing a situation or business to determine whether it’s viable. USP Unique Selling Proposition: The aspect or element of a product or service that makes it different from the competition. worker’s compensation insurance Insurance that is carried by an employer to protect a worker from lost wages if he or she is injured while performing work duties and rendered incapable of working.

B

Appendix

Sample Plans

The business plans incorporated in this section are sample plans to provide you with an idea of what some actual business plans contain. Although every business plan will be different and your business plan will include your specifics, the three key areas included in all plans are: ◆ Information about your business product or service and management ◆ A description of the sales and marketing of your business ◆ Your business’s financial documents

Remember, a business plan is written primarily for yourself as a road map of your business, even if you’re using it to attract investors or business partners, so it should be continually reviewed and updated to keep you on track. If you need additional assistance in writing your business plan, you can find help from local business organizations and business plan software packages available. Check Appendix C for a list of such resources. Good luck with crafting your business plan. We wish you much success with your business endeavors.

222 Appendix B

© ©2005 2005 Car CarConsultants. Consultants.All Allrights rightsreserved. reserved.

Sample Plans

© 2005 CarCar Consultants. AllAll rights reserved. © 2005 Consultants. rights reserved.

223

224 Appendix B

© 2005 Car Consultants. All rights reserved.

Sample Plans

© 2005 Car Consultants. All rights reserved.

225

226 Appendix B

© 2005 Car Consultants. All rights reserved.

Sample Plans

Stellar Academy Partners: Mary Matthews Margaret Buley Equity: $ Collateral: Business assets, $ Amount of Funding Requested: $

© 2005 Stellar Academy. All rights reserved.

227

228 Appendix B

Table of Contents Executive Summary ............................................................000 The Business ......................................................................000 Description of Business ............................................................................000 Market Research ......................................................................................000 Industry Trends ......................................................................................000 Competition ............................................................................................000 Demographics ........................................................................................000 Competitive Advantage ..........................................................................000 Market Plan ..............................................................................................000 Promotion ..............................................................................................000 Pricing ..................................................................................................000 Monthly Sales Assumptions and Forecast ................................................000 Operations ................................................................................................000 Non-Personnel Costs ..............................................................................000 Personnel Costs ......................................................................................000 Management ............................................................................................000 Management Compensation ....................................................................000

Financial Data ....................................................................000 Cash Flow Statement by Month Year 1 (First Half) ..............................000 Cash Flow Statement by Month Year 1 (Second Half) ..........................000 Cash Flow Statement by Quarter Year 2 ................................................000 Cash Flow Statement by Quarter Year 3 ................................................000 Income Projection Statement by Month Year 1 (First Half)..................000 Income Projection Statement by Month Year 2 (Second Half)..............000 Income Projection Statement by Quarter Year 2....................................000 Income Projection Statement by Quarter Year 3....................................000 Balance Sheet First Day of Operations ..................................................000 Application and Expected Effect of Loan................................................000

Appendix A. Assumptions/Unusual Risks ................................................................000 B. Supporting Documentation ................................................................000 C. Personal References ............................................................................000 D. Resumés ..............................................................................................000 E. Start-up Expense Detail Report..........................................................000 © 2005 Stellar Academy. All rights reserved.

Sample Plans 229

II. Executive Summary The goal of Stellar Academy is to provide high-quality, center-based childcare learning to the Bridgewater/Branchburg area. DYNAMIC, DIFFERENT, DEDICATED, AND IN DEMAND … STELLAR ACADEMY!

Dynamic Stellar Academy’s competitive edge is its unique view of children and their developing minds. Our Education Director, Margaret Buley, has a Ph.D. in education with an expertise in brain-based learning and child development. She has won many accolades for her knowledge of and dedication to children. She has been named Teacher of the Year and chosen to be a member of USA Today’s All U.S. 2000 Teacher Team. Dr. Buley has studied at Harvard, Princeton, and Rutgers Universities. She believes that school readiness can be greatly enhanced during the early childhood years. She knows that learning occurs as the brain rewires itself with each new experience. Presenting the appropriate experiences at the right time is essential. At Stellar Academy, the child is immersed in interactive experiences that are both rich and real. Stellar Academy’s ideology is based on the latest research in ‘brain-based’ learning and the current understanding of the emotional and social development of children. This cutting-edge perspective puts Stellar Academy at the forefront of childcare providers.

Different (Proprietary information deleted.) This cutting-edge perspective puts Stellar Academy at the forefront of childcare providers.

Dedicated A dedicated staff sets Stellar Academy apart from other childcare providers. Our teachers realize that everything they do or don’t do affects the child. A knowledgeable staff is a top priority and we offer ongoing development to all employees. Because we are committed to keeping and rewarding teachers who demonstrate our high standards, we offer the best salaries in the area. Stellar Academy is an excellent place to work and © 2005 Stellar Academy. All rights reserved.

230 Appendix B offers a professional environment that is challenging, rewarding, creative, and respectful of ideas and individuals. We are also dedicated to keeping our parents “stress free.” We offer a secure website that enables parents to access web cams, e-mails, and online digital photographs of their child’s day of learning. We offer classes to educate our parents on the best techniques to promote their child’s mental well-being and growth. The knowledge and skill of our management team is unsurpassed. Dr. Buley is dedicated to creating an environment for the children that will set the stage for a lifetime of learning. Ms. Matthews, Stellar Academy’s Business Director, was Chief Operating Officer for a successful data-processing consulting firm. Having been involved with that company from its infancy, she knows the dedication and commitment necessary to create a successful organization. Above all, everyone at Stellar Academy knows that the early childhood years are crucial to the growth and development of the child. This cutting-edge perspective puts Stellar Academy at the forefront of childcare providers.

Demand In 2001, Americans spent approximately $38 billion on licensed childcare programs. Expenditures on licensed care will be even higher in 2002, likely exceeding $41 billion. The National Child Care Association has forecasted that by the year 2010, the four-and-under population will increase over current levels by 6 percent, or an additional 1.2 million children. By that same year, upwards of 85 percent of the labor force will consist of working parents. According to industry analyst Roger Neugebauer, “The factors that drive the demand for childcare continue to be strongly positive. Mothers continue to seek employment, mothers’ commitment to work is increasing, family size remains small, the popularity of center-based care as an option continues to rise, and the population of young children will remain high. These observations lead me to conclude that the future is bright for the childcare profession.” In 2000, New Jersey ranked highest of all states with a preschool enrollment rate for three- and four-year-olds of 79 percent. There are approximately 3,725 children between the ages of 0 and 6 in need of childcare in the Bridgewater/Branchburg target area. Licensed childcare capacity in that area is currently only 1,724. This means that there are 2,001 children in the target area in need of childcare. There is ample demand for limited capacity, and the majority of center-based providers in the area currently have a waiting list. © 2005 Stellar Academy. All rights reserved.

Sample Plans

231

We anticipate a high demand for the services provided by Stellar Academy and intend to expand our business beyond our initial center. This will be accomplished by utilizing our unique curriculum and environment in future centers. Experts agree that today’s parents are becoming more informed about the benefits of high-quality childcare learning and are seeking “the best” for their children. Steller Academy is “the best” learning environment for children.

III. The Business A. Description of Business Stellar Academy is a new company that provides high-level expertise in the education of preschool children. We provide learning from 7 A.M. to 7 P.M., Monday through Friday. Stellar is the Latin word that means “a gathering of stars,” and we feel our cutting-edge teaching philosophy and environment will provide our children with a firm foundation upon which they can build a bright future. Stellar Academy provides excellent value to its customers, timely payback to its creditors, and fair reward to its owners and employees. Stellar Academy is a New Jersey S corporation based in Bridgewater Township, Somerset County, owned by its principal investors and principal operators.

B. Market Research Industry Trends Results of a study released by The National Child Care Association titled, “The National Economic Impacts of the Child Care Sector,” include the following findings: In 2001, Americans spent approximately $38 billion on licensed childcare programs. Expenditures on licensed care will be even higher in 2002, likely exceeding $41 billion. As a result, the sector creates enough income to support approximately 2.8 million direct and indirect jobs. In addition, the sector generates almost $9 billion in tax revenues. The licensed childcare industry directly employs more Americans than public secondary schools. Childcare provides an essential infrastructure, which enables mothers and fathers to be employed outside the home, to earn necessary income. By making © 2005 Stellar Academy. All rights reserved.

232 Appendix B it possible for parents to work, the formal childcare sector enables Americans to earn more than $100 billion annually. By the year 2010, the four-and-under population will increase over current levels by 6 percent, or an additional 1.2 million children. Unless the formal childcare sector adds sufficient capacity, parents will not be able to fully participate in the U.S. economy. By that same year, upwards of 85 percent of the labor force will consist of working parents. Parents, and women in particular, are an increasingly critical part of the economy, especially in the technology sector. Childcare is a fact of life in America today. More than two thirds of all children under the age of five are cared for on a regular basis by someone other than a parent. Childcare can be provided in five ways: 1. Care given by a relative is called “Kith and Kin” and is generally used as a last resort when other arrangements cannot be found or when cost is an issue. 2. Care given by a nanny or baby-sitter represents a small percentage of the market. This method is usually utilized by high-income families and generally consists of a live-in nanny providing 24-hour care. 3. Family home care is daycare performed in the provider’s home. A family home-care provider is limited to six children. In New Jersey, family home care is not licensed. 4. Employer childcare is performed at a site provided by the employer. It is generally within a reasonable distance of the workplace. It is usually employer subsidized. Its growth has slowed considerably after a surge in the mid-1990s. Employer childcare capacity increased by 6 percent in 2001 and 4 percent in 2002, compared with an annual rate of more than 10 percent for the previous five years. With the economy and the stock market in the doldrums, employers are reluctant to move forward with new work/life initiatives. 5. Center-based childcare is daycare performed at a specified place, open to all. Center-based care has evolved from the least-popular form of nonparental care in the 1960s to the most popular today. In 1965, one in four three-, four-, or five-year-old children was enrolled in a part-day or full-day preschool, whereas by 2002, two in three children took advantage of an early childhood program (National Center for Education Statistics). © 2005 Stellar Academy. All rights reserved.

Sample Plans

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Demand for high-quality care is growing and parents are willing to pay the higher costs associated with this care. Approximately 50 percent of children born today are the first or only child in their family, compared with 25 percent of the baby-boom generation. This, combined with the shift to delayed childbearing, results in more couples with two well-established incomes to spend on one or two children. These parents are educated to the benefits of high-quality care and are seeking “the best” for their children. Many parents feel that daycare is essential to their child’s future academic success. “In many communities around the country, kindergarten is no longer aimed at the entry level,” says Dominic Gullo, professor of early childhood education at the University of Wisconsin. “And the only way Mom and Dad feel they can get their child prepared is through a pre-kindergarten program.” In 2000, 79 percent of New Jersey’s threeand four-year-olds were in preschool. This resulted in New Jersey being ranked highest of all the states in the nation. Not only is childcare considered important, but quality childcare is receiving significant emphasis. The existing research clearly suggests that childcare quality matters. Martha Zaslow in her article “Child Care Quality Matters” states, “Although safe, clean surroundings and appropriate space and equipment are certainly important to the quality of childcare, they aren’t enough. At the heart of high-quality childcare is the nature of the interactions between children and caregivers. Research shows that children develop best if the relationships with their caregivers are warm, supportive, responsive, and cognitively stimulating.” Dr. Marion O’Brien, Professor of Human Development and Family Studies at UNC, goes on to state, “Another aspect of quality that the April 2001 study from the National Institute of Child Health and Human Development has identified is the level of stimulation provided in the care environment. When children have challenging toys and organized activities available to them in childcare, they perform better on tests of vocabulary, short-term memory, and attention. In addition, care settings that are stimulating and well organized lead children to get along well with their peers.” The benefit of high-quality childcare is getting significant press.

State Regulations Childcare and learning centers in New Jersey are regulated by the Manual of Requirements for Child Care Centers issued by the Department of Human Services. The state sets levels for everything from square-footage requirements per student to studentteacher ratios. When compliance is met, the Division of Youth and Family Services will issue an operating license. © 2005 Stellar Academy. All rights reserved.

234 Appendix B

© 2005 Stellar Academy. All rights reserved.

Sample Plans

235

The target area currently has 17 licensed childcare facilities. Student capacity ranges from 15 through 181 at each facility. Total child capacity for ages 0-6 in the target area is approximately 1,724. According to the 2000 census, the target area has approximately 6,406 children age 6 and under. The target area has approximately 21,287 housing units with an average family size of 3.14 and 3.19. According to the 2000 Demographic Profile of Somerset County, there are 169,600 jobs in the county.

There are approximately 3,725 children requiring childcare. Licensed center-based childcare capacity is currently at 1,724; therefore, parents of 2,001 children in the target area must find alternative means of childcare. As previously stated, researchers feel that the trend in childcare is toward a high-quality, center-based environment. This is exemplified by the majority of center-based providers within the target area having a waiting list prior to enrollment. Limited capacity is a problem, and Stellar Academy is the solution for high-quality, center-based childcare.

© 2005 Stellar Academy. All rights reserved.

236 Appendix B Competitive Advantage Stellar Academy offers the following competitive advantages: ◆ Cutting-edge curriculum written by an expert in the field of education utilizing

the latest advances in brain-based learning ◆ Innovative environment (Proprietary information removed) ◆ Child-centered philosophy ◆ Technology-enhanced communication network ◆ Highly trained and knowledgeable staff ◆ Experienced, goal-oriented management team

Cutting-edge curriculum—The latest research in how the brain functions has created a new understanding in how we learn. We have learned more about the brain and its capacities in the last 10 years than in the 100 years preceding. Using technologies such as magnetic resonance imaging and positron emission tomography, scientists are capable of watching the human brain as it performs tasks and learns. This research, in addition to giving us a blueprint of the brain, has tremendous implication on how humans learn. The brain “makes itself work” by constantly changing its structure and function in response to experiences coming from the outside. This ability is called the “plasticity factor.” The outside world helps to shape the brain’s architecture. When this new understanding of how a person learns is applied to teaching, it is called “brain-based” learning. At Stellar Academy, we are committed to offering this latest advance in early childhood learning. Stellar Academy’s competitive edge is derived from its unique view of children and their developing minds. The early years are the most important years in developing a child’s future potential. All activities that our children engage in are constructed to foster their emotional, social, and intellectual prowess. Innovative environment—A principle ideal of brain-based learning states, “teachers need to orchestrate the immersion of the learner in interactive experiences that are both rich and real.” At Stellar Academy, we offer an environment that is unmatched in that ideal. (Proprietary information deleted.) Child-centered philosophy—We also realize that nurturing can only take place in an environment of love and security. Stellar Academy strives for a “stress free” environment for our children. The child’s emotional well-being is our top priority. We create a loving and fun-filled sanctuary that makes learning automatic. Security sets the stage for exploration, and that exploration leads to self-esteem. Children are © 2005 Stellar Academy. All rights reserved.

Sample Plans

237

encouraged to recognize their own feelings as well as those of others. This is called “Emotional Capacity (measured by a person’s Emotional Quotient [E.Q.]).” EQ is believed to be a more accurate measure of success than I.Q. or S.A.T. scores. Experts believe that people who possess a high degree of emotional capacity are very successful. The nurturing of emotional capacity will be a top priority at Stellar Academy. Technology-enhanced communication network—We are also deeply aware of the emotional well-being of our parents. An anxious parent is not conducive to a “stress free” environment. At Stellar Academy, we use the latest technologies to help parents “stay in touch” with their child. We offer a secure website that enables parents to access web cams, e-mails, and online digital photographs of their child’s day of learning. We offer a comprehensive breakdown of their child’s activities and accomplishments. If parents wish, we provide a time to talk by phone to their child. We also make our environment parentfriendly. We incorporate seating and areas for parents to “hang out” if they wish to stay with their child or participate in their activities. Stellar Academy feels an obligation to its parents to disseminate the latest information regarding advances in child development. This will be accomplished through on-site information sessions, newsletters, and an informative website. Our operating hours are also an advantage to our parents. By remaining open until 7 P.M., parents need not feel stressed if they are caught in traffic or stuck at the office. Stellar Academy is parent-friendly. Highly trained and knowledgeable staff—In order to create the optimum environment for our students and their parents, we must have teachers who are dedicated to the emotional and intellectual health of each child. Our teachers realize that everything they do or don’t do affects the child. Our teachers are held to a very high standard. Therefore, they are paid above the norm. Childcare teachers in New Jersey earn between $X per year with no benefits. (Stellar Academy wishes not to release this information) At Stellar Academy, our starting salary is $X. We also maintain a high level of training for our teachers in the latest advances of brain-based learning and child development. Stellar Academy is an excellent place to work; it is a professional environment that is challenging, rewarding, creative, and respectful of ideas and individuals. Experienced, goal-oriented management team—The philosophy of Stellar Academy is to create an environment that fully immerses children in a nurturing experience. Our curriculum is written by a Ph.D. in Education who fully understands child development and the most effective methods to foster cognitive and emotional growth. Our business director is a former Chief Operating Officer for a data-processing consulting firm and is highly experienced in creating a quality work environment and organizing a staff to get the job done. © 2005 Stellar Academy. All rights reserved.

238 Appendix B Eric Jensen, author of the book Learning Smarter, states, “Because the brain is so highly adaptable, it can adapt to ineffective teachers or schools, but the result might be a bad adaptation. Such students might learn to sit in the back, never volunteer, and only cause trouble or disconnect. Until we give kids an absolutely great environment for learning, we will never fulfill their potential.” Stellar Academy is that great environment.

C. Market Plan Promotion Stellar Academy must communicate its competitive advantages to prospective clients. If the parent hears and understands these advantages, they are more likely to use our services. This education will be done with professional marketing materials, on-site tours, and lectures on the benefits of “brain-based” learning. We will also use a combination of newspaper advertisements and press releases. Program literature will be available, with the consent of the establishment, where children or parents congregate (local office buildings, dance studios, libraries, hospital maternity wards, etc.). Name recognition will be helped by membership in these trade organizations: ◆ The National Child Care Association (NCCA) ◆ The National Association of Child Care Resource and Referral Agencies

(NACCRRA) ◆ The local Chamber of Commerce ◆ Other similar associations

Quality of program will be verified by accreditation from these organizations: ◆ State of New Jersey—Division of Youth and Family Services ◆ The National Association for the Education of Young Children (NAEYC)

The education of our prospective clients can also be done with the use of an Internet website. The website can communicate the advantages of enrollment in our program.

© 2005 Stellar Academy. All rights reserved.

Sample Plans 239 Pricing Stellar Academy’s fee schedule will be comparable to other major center-based facilities.

© 2005 Stellar Academy. All rights reserved.

240 Appendix B Monthly Sales Assumptions and Forecast Stellar Academy’s operating capacity will be 180 students, to be reached by the end of the first year. This capacity will be approximately 21 full-time infants, 130 full-time children, and 29 part-time children.

© 2005 Stellar Academy. All rights reserved.

Sample Plans

D. Operations

Personnel Costs Personnel Costs TABLE 10 - Monthly Personnel Costs at Full Enrollment Position Head

Salary + Benefits (15% of salary)

Monthly Cost

1@$

$

1@$

$

Teacher Office Assistant Teachers*

7@$

$

Teachers’

2600 hours per month @ $ (10 aids @ 12 hrs day @ 260 days per year)

$

Aids* Total

© 2005 Stellar Academy. All rights reserved.

$

241

242 Appendix B Nonpersonnel Costs

© 2005 Stellar Academy. All rights reserved.

Sample Plans 243

Let’s Eat!

© 2005 Let’s Eat! All rights reserved.

244 Appendix B

Nondisclosure Agreement The undersigned acknowledges that LET’S EAT! by Domenick Celentano LLC (“LEDC”) has furnished to the undersigned potential investor (“investor”) certain proprietary data (“confidential information”) relating to the business affairs and operations of LEDC for study and evaluation by investor for possibly investing in LEDC. It is acknowledged by investor that the information provided by LEDC is confidential; therefore, Investor agrees not to disclose it and not to disclose that any discussions or contracts with LEDC have occurred or are intended, other than as provided for in the following paragraph. It is acknowledged by Investor that information to be furnished is in all respects confidential in nature, other than information that is in the public domain through other means and that any disclosure or use of same by Investor, except as provided in this agreement, may cause serious harm or damage to LEDC, and its owners and officers. Therefore, Investor agrees that Investor will not use the information furnished for any purpose other than as stated above, and agrees that Investor will not either directly or indirectly by agent, employee, or representative disclose this information, either in whole or in part, to any third party, provided, however, that (a) information furnished may be disclosed only to those directors, officers, and employees of Investor and to Investor’s advisors or their representatives who need such information for the purpose of evaluating any possible transaction (it being understood that those directors, officers, employees, advisors, and representatives shall be informed by Investor of the confidential nature of such information and shall be directed by Investor to treat such information confidentially), and any disclosure of information may be made to which LEDC consents in writing. At the close of negotiations, Investor will return to LEDC all records, reports, documents, and memoranda furnished and will not make or retain any copy thereof. This document contains confidential and proprietary information belonging exclusively to LET’S EAT! by Domenick Celentano, LLC. This is a business plan. It does not imply an offering of securities. Throughout this document, the reader will see certain text and certain actual dollar amounts replaced with the words “(proprietary information).” This is done to keep some aspects of the contents of this actual business plan confidential.

© 2005 Let’s Eat! All rights reserved.

Sample Plans 245

Table of Contents Summary ..........................................................................................000 Keys to Success ................................................................................000 Foodservice Operation Summary ....................................................000 Products and Services ......................................................................000 Menus ..........................................................................................000 Food For Later ..............................................................................000 Catering ........................................................................................000 Cooking School ..............................................................................000 Food For Now ................................................................................000 Location............................................................................................000 Floor Plan......................................................................................000 Sales and Marketing Strategy ..........................................................000 Objectives ......................................................................................000 Positioning (Against Target Audiences) ..........................................000 Key Messages ................................................................................000 Generating Awareness ....................................................................000 Advertising ....................................................................................000 Promotions ....................................................................................000 Strategic Alliances ..........................................................................000 Management Summary....................................................................000 Organizational Structure..................................................................000 Market Analysis ................................................................................000 Competition (Local) ......................................................................000 Financial Plan ..................................................................................000 Concept Tuning—Phase 2................................................................000 Appendixes ......................................................................................000 Index ................................................................................................000

© 2005 Let’s Eat! All rights reserved.

246 Appendix B

Summary The Business LET’S EAT! by DOMENICK CELENTANO is a neighborhood retail preparedfoods destination providing “FOOD FOR NOW … AND FOOD FOR LATER.” Our customers are busy individuals, soccer moms and dads, shoppers, and local business employees who desire restaurant-quality, fresh-prepared meals at a modest price. Customers experience an innovative convergence of retail formats packaged in a small footprint, a hybrid neighborhood deli and all-day café providing a dynamic retail environment with convenience.” Professionally trained chefs and knowledgeable staff provide meal solutions in three ways: 1) take-home prepared foods at a sit-down, all-day café and food bar; 2) catering to home or office; and 3) an on-site cooking school. The LET’S EAT! format thus provides a diversity of revenue sources. The brainchild of Domenick Celentano, LET’S EAT! is a “fast-casual” retail prepared-foods concept that combines the top attributes of several fresh-food operations into one cohesive business. Situated in “lifestyle” retail centers and open malls, the LET’S EAT! experience delivers great-tasting food with everyday appeal and true convenience. Each location will be in a small footprint format providing a dynamic retail environment with “PURPOSEFUL THEATRE and convenience.” LET’S EAT! by DOMENICK CELENTANO is creating the next generation of food retailing with the CELENTANO name. The CELENTANO name is synonymous with fresh and delicious Italian foods. LET’S EAT! by DOMENICK CELENTANO leverages a proven Italian brand and reputation in a format that matches the needs of today’s suburban consumers. A convergence of consumer and demographic trends is unfolding, presenting unique opportunities for well-executed prepared-food formats. LET’S EAT! capitalizes on the convergence of trends. This convergence coincides with a social shift: Americans are less and less being fed by “Mom.” Instead, they are fed by restaurants and, more frequently, by retail environments such as gourmet take-home emporiums and boutiques. The LET’S EAT! design and experience presented in this business plan is a reflection and outgrowth of these trends making meal purchases more exciting, easier, and better tasting. © 2005 Let’s Eat! All rights reserved.

Sample Plans

Management Domenick Celentano: During the past 26 years, Domenick held key executive positions of Celentano Bros., Inc. His experience is what will make LET’S EAT! work: • Retail Take-Home (Food for Later): In addition to operating the four Celentano sites, Domenick introduced the “Food for Later” concept to the supermarket channel through the development of a fresh prepared line of upscale meal solutions products (known in the industry as Home Meal Replacement) for leading supermarket chains, such as Kings, Genuardi’s, and Gourmet Garage. • Branding: Domenick developed Celentano into a $30 million business, creating the second-largest national brand in the Italian prepared-foods category. • Restaurant (Food for Now): He developed and managed the commissary operations for Pastabilities™ by Celentano, an early leader in the nowburgeoning fast-casual sector. • Marketing/Promotion: He developed a successful marketing campaign around Celentano’s unique Clean Room manufacturing system, generating national television and print exposure. Theodore Heisler: Finance. Ted has extensive experience in private equity, mergers/ acquisitions, and management consulting. He is part of an investment group that is the regional franchisee for TGI Friday’s in a dozen countries in Western and Central Europe, and Russia. Ted co-founded and managed Tyn Group, a private equity investment company in Prague. He also held positions with Kidder, Peabody & Co. in New York as an investment banker and with Andersen Consulting developing information systems. He received his MBA in finance with honors from Rutgers Graduate School of Management.

Market According to the NASFT (North American Specialty Food Trade Assoc.), U.S. retail sales of gourmet/specialty foods reached $20.0 billion in 2000, up from $15.3 billion in 1996. Sales are projected to grow at 6.7 percent compound annual growth rate (CAGR) over the 2000–2005 period to surpass $27.6 billion in 2005. Additionally, Italian is currently the leading international cuisine among specialty food buyers. © 2005 Let’s Eat! All rights reserved.

247

248 Appendix B The near-term territory for LET’S EAT! is the NJ/NY/CT tri-state region, with an emphasis on Northern and Central NJ. This area, part of the Mid-Atlantic (MA) region as defined by NASFT, is the number-two region for specialty foods sales nationwide. Affluent suburban consumers, defined as having annual household incomes exceeding $75,000, are the leading purchasers of specialty and prepared foods. Communities or clusters of communities with an abundance of this kind of demographic are the targeted locations for LET’S EAT! retail sites. LET’S EAT! has currently identified four such communities using Market Insite™ and CACI™ data.

Competition The competition is broadly divided into two categories: (1.) Foodservice, what we call FOOD FOR NOW, is composed of QSR (fast food), fast casual, casual, and upscale/white-tablecloth restaurants. (2.) Retail, what we call FOOD FOR LATER is composed of supermarkets, convenience stores, and specialty retailers. FOOD FOR NOW AND FOOD FOR LATER each require special skills to properly deliver to the consumer. The competition in the LET’S EAT! target market includes supermarkets with developed take-home prepared-foods departments, take-home specialty foods retailers, and fast-casual eating establishments. Ironically, there currently is not a regional or national Italian fast-casual retail competitor in today’s marketplace even though Italian is the number-one international cuisine for specialty food purchases. However, three competitors/comparables to take note of include the following: “A well known chain” Its 183 stores in 1999 grew to 478 in 32 states through 2002, with about 70 percent owned by franchisees. “A well known chain’s” success is tied to what Chairman and CEO Ron Shaich long has preached: Increasingly sophisticated diners crave fresh sandwiches, bagels, salads, soups, and pastries as alternatives to fast-food fare … “the nutritional essence of manufactured.” As one customer comments, “I’m not a fast-food gal, and I prefer this because it’s fresher.” “A well known chain” is more of a breakfast and lunch concept; their dinner business is relatively small. “Another well known chain” developed the concept of a place specializing in ready-to-eat, restaurant-quality meals when he noticed the high volume of take-out orders at another concept he developed …. Founded in 1996 “this well known chain” has grown to four stores; Dallas, Houston, Atlanta, and Rockville, MD. Average store revenues © 2005 Let’s Eat! All rights reserved.

Sample Plans 249 range from $13 to $18 million per site, with approximately 25 percent derived from catering. New management team has 30 new sites planned over the next five years. “Another well known chain” is a relatively small, 65-store, family-held supermarket chain. It does more than $3 billion in sales each year, with stores in New York, Pennsylvania, and New Jersey. Its fans are loyal and legion. The stores are hardly typical—they’re much larger than most supermarkets (up to 120,000 sq. ft.), and they offer specialty shops such as huge in-store cafés, cheese shops with some 400 different varieties, and French-style pastry shops with exotic desserts.

Investment/Use of Proceeds Phase 1—Two Sites Phase 1 will consist of two retail sites. A tri-state area site will require approximately $ (proprietary information) to render it fully equipped, ready to open and provide an adequate cushion of working capital. Initial capital infusion will be by Domenick Celentano, Ted Heisler, Scott Darling (LET’S EAT! board member), and other “friends and family.” LET’S EAT! has obtained a Letter of Intent for a $350,000 term loan backed by the Small Business Administration. Several supplemental sources of financing are being tapped as well. These include some combination of equity, developer build-out allowance, etc. The second LET’S EAT! site will be opened approximately one year after the first site opening. Funding will come from internal cash plus $ (proprietary information) of external equity, debt, lease, or a combination. An Indicative Terms of Placement and related materials are available to interested investors for review. Through fiscal year-end 2004, the company will be an LLC structure providing tax-loss pass-throughs for investments placed as equity.

Phase 2—Tri-State Roll-Out A phase-2 cash investment of $ (proprietary information) will be considered in approximately two years after the opening of the first site. The phase-2 investment will support the roll-out plan for an additional 14 sites in the (proprietary information) area for years two through five. The additional site openings are planned at the rate of one per quarter thereafter into 4Q 2008, for a total of 16 LET’S EAT! sites after five years. © 2005 Let’s Eat! All rights reserved.

250 Appendix B Phase 2 will be partially funded by additional bank lines of credit with the remaining support through institutional money or private money, which may have an impact on whether the company continues as an LLC entity or is converted to a C-corporation.

Phase 3—Regional/National (Not a part of this business plan.) No specific plan has yet been developed for phase 3. However, it is envisioned that an accelerated regional or national roll-out can be accomplished via corporate lines of credit, proceeds from an IPO, or a combination of the two. In addition, creating master franchise licenses in various territories will also be considered.

Financial Projections The financial projections presented in the business plan are considered by management to be the minimum reasonably achievable. Moreover, LETS EAT! has retained retail foodservice consulting firm (proprietary information) and has received independent validation of certain key financial drivers including daily sales, COGS, and same-store sales growth of comparable companies. Key drivers of profitability at the site level include, among others, the number of opened sites, the number of daily patrons, average ticket price, and food costs. A modest amount of corporate overhead and staff is gradually layered into the projections starting in early 2005, after several sites have been opened. Management believes that the Phase-1 proof of concept site has the capacity and the market position to achieve an annualized run rate in excess of $ (proprietary information) per day, or $ (proprietary information) in sales for the first fiscal year, with minimum 6 percent annual same-store growth forecasted over the following four years. Revenue forecasts are based on well-grounded demographic buildups, comparisons to other similar chains, and they cross-tabulate favorably with NASFT specialty retail per square foot sales data for retail locations in the 3,000 to 5,000 sq. ft ranges. Subsequent site openings are deemed to have a similar financial and operating profile.

Comparable Sales to Strategic Buyers “A known chain” is a leader in the emerging fast-casual segment of the restaurant industry with a superior quality position in serving fresh, flavorful Mexican food. The restaurants are contemporary and offer quality food to eat in or take out at both lunch and dinner with fast counter service and no waiters. “A known chain” operates 76 company restaurants and has 93 franchised restaurants. Net © 2005 Let’s Eat! All rights reserved.

Sample Plans revenues were $78 million in 2001 and grew at a compounded annual average growth rate of 61 percent since 1998. Average unit volumes are $1.5 million and average check is $7.50.

Cash Flow Break-Even The business is projected to achieve cash-flow break-even sometime during the second quarter of 2006, shortly after the opening of the sixth site.

Exit Domenick Celentano, as the projected largest shareholder, is prepared to facilitate an exit for all investor/shareholders at the conclusion of phase 2. An exit is anticipated in approximately five years via an IPO or a trade sale to an industry buyer. The exit will be timed for when LET’S EAT! has approximately 15 to 18 retail outlets open in the region, giving LET’S EAT! a demonstrated operating history. By this time, it is expected that the business will be financially self-sufficient for purposes of continued modest development, for example, new site openings will be made from internal funding sources, or from a modest amount of bank debt. The investor/shareholders can anticipate an exit multiple of 7x EBITDA or higher. This is supportable based on recent sales statistics of small but growing fast-casual chains (some of similar size to LET’S EAT!) to publicly traded entities. With significant regional or national growth prospects occurring, the attractiveness of LET’S EAT! to the capital markets or to a trade buyer should be reflected in a favorable exit price.

Keys to Success Concept: A well-planned mix of offerings that serve the needs of the Chester, New Jersey, community and the surrounding communities of Bedminster, Mendham, Gladstone, Long Valley, etc. Product: Italian FOOD and excellent value

FOR NOW

…

AND FOOD FOR LATER

with outstanding quality

Service: Friendly, knowledgeable, and quick customer service Marketing: Targeted marketing to key resident and business demographics Management: Knowledgeable, experienced management team that will do the following: © 2005 Let’s Eat! All rights reserved.

251

252 Appendix B • Develop proof of concept, executing FOOD FOR NOW … AND FOOD FOR LATER with replicable PURPOSEFUL THEATRE, maximizing different day parts with appropriate product offerings • Capitalize and position CELENTANO name in a format for today’s busy lifestyle • Manage food costs • Execute five-year roll-out

Foodservice Operation Summary As our lives get busier and more complex, the food business does, too. The line between food retailers and restaurants has blurred completely—with the advent of a new category of restaurant, fast-casual, and the proliferation of convenience and specialty stores that offer so much more than their names imply. In that growing center zone is a unique opportunity to serve both sides of our everyday food needs—to provide FOOD FOR NOW … AND FOOD FOR LATER consumption. LET’S EAT! is a unique fresh food emporium that is designed and located to serve great food to busy people. This LET’S EAT! mission addresses four busy lifestyle needs: 1. Great-tasting food. The customer will experience a wide variety of meal solutions made with high-quality, fresh ingredients and nothing else. This exciting atmosphere creates a uniquely enjoyable experience through the execution of PURPOSEFUL THEATRE. 2. Convenience. Not the same as just fast! Convenience means that LET’S EAT! offers a menu that can be enjoyed on-site in our comfortable seating area (FOOD FOR NOW), or ordered to go for desktop dining or dinner-table entertainment (FOOD FOR LATER). 3. Everyday appeal. Foods that satisfy customers’ desire for home-style, comforting dishes that please all members of the family and their wider circle of friends. 4. The stuff that memories are made of. The CELENTANO name is familiar in these parts, especially to the late baby-boomer and older local tri-state residents. Knowing that the CELENTANO family is behind LET’S EAT!, coupled with the chefs’ interactions with customers, will bring back memories of delicious Italian family favorites and enable customers to build memories with their own children. © 2005 Let’s Eat! All rights reserved.

Sample Plans

Products and Services Menus A sample of the prepared foods that would be sure sellers in this market offered at LET’S EAT! are illustrated in the menus in Appendix G. Products and services are defined as the following: FOOD FOR LATER is food purchased in the store and consumed at home or at work. FOOD FOR LATER is broken into two subcategories: 1. FOOD FOR SLIGHTLY LATER is intended to be consumed within a 24-hour period and is purchased in the bulk-service cases. These items will be closer to preparation and presentation of restaurant food. 2. FOOD FOR LATER is refrigerated and/or frozen entrées in a grab-and-go configuration and have a longer shelf life. This enables the consumers to have some stock-up items for consumption when they do not have time to visit LET’S EAT!, and it allows LET’S EAT! to service more of the customers’ meal needs. FOOD FOR NOW is food consumed in our café or food bar.

Food For Later Prepared Foods Why Cook? Customers will be able to watch our chefs as they work in our showcase open kitchen, the focal point of LET’S EAT! preparing over 50 entrées, side dishes, and tantalizing appetizers. Our “foodies” (what we call our affable culinary staff) will invite the customer to enjoy time-tested family favorites or the newest culinary trends. Our ready-to-serve foods will be continuously prepared, fresh, throughout the day and available in a variety of formats. FOOD FOR SLIGHTLY LATER will be featured in bulk-service cases, showcasing platters of entrées and side dishes in magnificent display-ware. LET’S EAT! foodies will interact with the customer offering samples of delicious main courses and side dishes to increase the incidence of purchase and offer creative meal-planning advice. Customers will be invited to call ahead, when they have no time to shop. Our foodies will do the work for them! © 2005 Let’s Eat! All rights reserved.

253

254 Appendix B FOOD FOR LATER will include grab-and-go sections that will feature many of the prepared foods seen in the service case. These prepackaged meals in single- and multi-serving sizes, for the customer in a hurry, will be labeled with this distinctive LET’S EAT! by Dom Celentano trademark to continuously reinforce the purchase decision at the point of consumption, either at home or at the office. FOOD FOR LATER will also be a line of traditional Italian frozen single and familysize offerings providing the customer high-quality meals for their stock-up needs when they can’t visit LET’S EAT! frequently. Additionally, a large selection of traditional favorites will be available in half-steam table (4 to 5 lb.) catering sizes. Customers who desire to have our high-quality offerings for larger, “last minute” gatherings or who prefer to integrate a selection of our offerings into their own party meal preparation will be able to do so with convenience and value.

Deli The LET’S EAT! deli will offer traditional and classic European-style provisions, including a wide selection of prosciutto, sopressata, fresh mozzarella, capicolla, Reggiano, Parmigiano, and other Italian favorites. Our foodies will constantly offer samples of favorites such as Penne Pasta and Sun Dried Tomato, Mozzarella and Cherry Tomato, Wild Rice with Citrus Vinaigrette, and Chicken Tarragon, to name just a few.

Catering From sandwich platters to off-premises catering, our professionals will offer personalized attention to customers. Most customers view catering as a stressful endeavor. They do it infrequently and are dazzled by the myriad of decisions in selecting foods that complement each other for a successful menu. The vast majority of LET’S EAT! competitors offer a potential customer a confusing list of à la carte items, from which the customer must perform the vast majority of the work. To make the purchase decision easier and shorten the closing cycle on a catering order, LET’S EAT! will have a wide array of themed menus eliminating the confusing selection process for the customer. This streamlined sales process will increase the incidence of a closed sale, vastly improving the revenue potential of the catering unit. LET’S EAT! senior management will be corporate sales specialists and will also offer many business function packages, similar to the consumer-themed menus, geared to today’s corporate budget constraints, once again streamlining the sales process and aiding in the rapid closing of a sale. In all cases, custom-designed catering programs for business or personal needs will be offered. © 2005 Let’s Eat! All rights reserved.

Sample Plans

Cooking School The cooking school will be an operational as well as theatrical technique and is not considered as a separate revenue stream. As part of the PURPOSEFUL THEATRE, this creates a great opportunity to bond with customers and to position the LET’S EAT! culinary staff as experts in their field, which of course they are! Recognizing the cooking as entertainment phenomenon, the “food bar,” bordering the open kitchen, will be subtly designed to create main dishes and side dishes that will mirror the items available in the prepared-foods take-out section, furthering the purchase of LET’S EAT! products.

Food For Now Café With all this great food around, as well as the exciting shopping at Chester Commons Mall, customers need a comfortable place to sit and enjoy the offerings. The café is a fast-casual format and will work in harmony with a food bar that will enable customers to watch the kitchen work while sampling their results. Fast-casual is commonly defined as an innovative dining category that is a cross between traditional quick-service and casual dining. The distinct characteristics of fast-casual are as follows: modest, but not rock-bottom prices; fresh, often handmade food; distinctive design; and fast, but attentive service. Fast-casual takes advantage of the convergence of the consumers’ fast-paced life and their reluctance to sacrifice their more sophisticated palates to a regular diet of fast food. LET’S EAT! has chosen the fast-casual format for three reasons: • The LET’S EAT! menu closely matches the fast-casual offerings of higherquality and healthier menu selections and are significantly differentiated from the fast-food outlets that surround the Chester Commons Mall. • LET’S EAT! will offer a price point between $7 and $8 that is less expensive than most of the casual-dining restaurants in the area. The national per-person average is $10, although this is skewed lower than what customers are currently paying in the (proprietary information) area due to the region’s higher cost of living. • The fast-casual segment is growing at six times the rate of fast food and twice the rate of full-service restaurants. © 2005 Let’s Eat! All rights reserved.

255

256 Appendix B Generation X-ers (college-educated consumers born between 1961 and 1972) and baby boomers represent the single largest demographic in the trade polygon area (46 percent) and both are now the best customers for fastcasual restaurants. They are more sophisticated about their food choices, and fast food no longer appeals to them; the more baby boomers age, the more they opt for more healthful and flavorful food; their longer work hours make them more time-conscious but they are unwilling to sacrifice quality food for convenience. Datamonitor, a British consulting firm, reported that the fast-casual food market will expand more rapidly than either fast food or full-service sectors, and is expected to grow by 6.28 percent per year. For the same period, the fast-food industry is expected to grow by only 1 percent per year, while fullservice restaurants are expected to expand by 3.2 percent per year. The café will be a hybrid of two authentic Italian “fast-casual” concepts. A (“hot table”) serves a wide variety of hot and chilled foods that a customer can order for take-out or eat at one of the tables located either inside or at the food bar. A ROSTICCERIA, which is similar to a TAVOLA CALDA, but specializes in roasted meat and poultry, serves items that are priced by the portion and prices that are quite reasonable. Of course the café menu will also feature great sandwiches (the sandwiches make a great spin-off for box-lunch catering), salads, and soups from the LET’S EAT! deli. TAVOLA CALDA

There is no fast-casual concept in the trading polygon, the closest being “a certain chain” and café located in (proprietary information), well over 10 miles away and outside of the trading-area polygon. A café of this type is needed in the area. The LET’S EAT! café is well positioned to deliver the quality, healthful meals sought by the demographic that will frequent (proprietary information).

Location Location, location, location! Here are the specific attributes of a great location: • Demographics • Lifestyle segmentation • Consumer expenditure • Traffic counts and ease of access/parking • Quality high-draw neighboring businesses © 2005 Let’s Eat! All rights reserved.

Sample Plans The initial location for LET’S EAT! is the (proprietary information), currently under development by Fidelity Land Development Corp. The LET’S EAT! market concept and the center have a perfect synergy for the following reasons: Good for LET’S EAT! • Neighboring Businesses: (proprietary information) has a premier tenant list including Bath & Body Works, Chico’s, Domain, Express, Pier 1 Imports, Talbots, Talbots Kids, Talbots Petites, Talbot Woman, Victoria’s Secret, and Williams Sonoma, to name but a few. The nearest malls with any stores approaching the caliber of these is (proprietary information) over 10 miles away and (proprietary information) over 12 miles away. These first-class retailers will market to a similar demographic as LET’S EAT! thereby augmenting the natural demographic flow for LET’S EAT! • Lifestyle Segmentation: LET’S EAT! offers the perfect meal solution for time-starved shoppers … these same shoppers who are part of the demographic group with an “aversion to the mall.” (proprietary information) Mall, as a Lifestyle Center, was designed with inherent curb appeal, funneling the consumer in a manner to naturally gravitate toward the center and LET’S EAT!’s location within (proprietary information). • Demographics/Traffic Count: (proprietary information) is at the confluence of excellent site selection, demographics, and the lack of credible competition, which makes this an excellent location for a meals-to-go establishment. The mall is at the confluence of (proprietary information), having average daily traffic counts of 18,000 and 14,000 respectively. This high-traffic volume will generate many visit possibilities, either after shopping, on the way home from work, or elsewhere. Almost 70 percent of the households in the seven-mile trading circle have an estimated household income in excess of $75,000, which perfectly aligns with NASFT data on heavy users of specialty foods. • Business: The (proprietary information) to the north, located in adjacent (proprietary information), is a 684-acre, 7-million-square-foot (proprietary information) development. This mixed-use project accommodates offices, distribution, light manufacturing, retail, and hotels. With additional expansion planned, this is a growing customer segment for LET’S EAT! With a time-starved working population commuting to and from the (proprietary information), this natural business traffic flow will be sure to frequent LET’S EAT! (proprietary information) to the south hosts a variety of Fortune 500 companies, as well as growing regional corporations primarily in the Pluckemin district. AT&T, Pfizer, Verizon Wireless, Advance Realty, and Development are © 2005 Let’s Eat! All rights reserved.

257

258 Appendix B examples of companies with corporate headquarters located in the district. Here, too, is a time-starved working population commuting to and from (proprietary information), again a natural business traffic flow that will be sure to frequent LETS EAT! Good for (proprietary information) • LET’S EAT! adds another dimension to shopping experience with its planned “PURPOSEFUL THEATRE.” This dovetails with the major progressions in the business cycle, which is moving up the value chain from the service to an experience economy. Many business leaders believe that the experience economy is the next big wave of business. • Adding a dining option lengthens customers’ shopping experience and provides an on-site location for workers at the mall. There is no need for the customer to leave the shopping environment during any of the daypart meal occasions. Increasing the length of the customer on-site shopping experience increases the probability of a purchase occasion in the mall. The ability to lengthen customers’ shopping experience is why LET’S EAT! will be an attractive tenant for future target locations. This desirability will facilitate the phase-2, five-year roll-out of 17 locations. Additionally, LET’S EAT! will offer a tenant discount for café and prepared-foods purchases, providing a valuable incentive for tenant hiring and providing a modest productivity gain to the tenant by offering employees a convenient and value-added shopping opportunity. • LET’S EAT! FOOD FOR NOW … AND FOOD FOR LATER offerings mean more frequent trips into the center. Shopping trips to the mall for other purchases will generate incremental traffic for LET’S EAT! The consumer will frequent LET’S EAT! on a weekly or more frequent basis, thereby creating incremental traffic for other stores. Other than the proposed Horn & Hardhart coffee location, LET’S EAT! is the only location attracting the consumer on a weekly (or more frequent) basis. Branded concept future development: Upon validation of the proof-of-concept unit at this location, this ability to add incremental shopper traffic will attract regional developers into a strategic partnership with LET’S EAT!, again strengthening the five-year, 17-unit roll-out. Based on discussions with (proprietary information), they feel the concept would be appropriate for other premier holdings in the Fidelity portfolio. © 2005 Let’s Eat! All rights reserved.

Sample Plans 259

Floor Plan LET’S EAT! will have a design that is a stunning presentation of excitement that will assault the senses with the sounds and aroma of great food being prepared in direct view of the consumer … this is what we call PURPOSEFUL THEATRE. The following pages are examples of the current mall-site plan, the proposed LET’S EAT! floor plan, and an illustration of how the LET’S EAT! concept could be laid out in the desired space.

Sales and Marketing Strategy Situation Analysis Prevailing consumer behavior would indicate a decline in home-cooked meals because of work and life commitments. People fondly remember how it used to be, being fed by Mom with the whole family sitting down together to share their meal and their day. While the desire for that experience remains, time constraints have made those memories a distant reality, with most Americans fed by restaurants, fast-food take-out, and frozen entrées, all trying to recapture and deliver on the home-cooked meal. LET’S EAT! not only makes the promise, it delivers. With an opportunity, in its premier franchise, to showcase the future of meals, LET’S EAT! offers a unique package of food, entertainment, and memories that recaptures, and takes to a new level, the family meal. With six decades of excellence in food behind the name, CELENTANO is synonymous with fresh and delicious meal offerings. LET’S EAT! capitalizes on the desire for busy families and individuals to fit a healthy and delicious meal into their schedule. Whether at home, through take-out, or on-site, LET’S EAT! offers a home-dining experience in an age of fast-food dominance. A solid marketing campaign spearheaded by a focused PR/Advertising effort will ensure that LET’S EAT! generates awareness, educates, and captures the local consumer and business audiences. LET’S EAT! is a retail food experience that has a perfect product connection to the demographic profile of the areas it has targeted for location, as well as the new lifestyle malls it will inhabit. The following marketing overview will highlight the tactics necessary to ensure success for LET’S EAT! in each market.

© 2005 Let’s Eat! All rights reserved.

260 Appendix B Objectives • Generate local awareness for LET’S EAT! • Educate consumers on what LET’S EAT! is, the various services offered, and the difference between them and any actual or perceived competition • Encourage trial • Develop long-term relationships with area residents • Continually focus with high-frequency campaigns the PURPOSEFUL THEATRE, open kitchen, and food bar as a unique shopping experience. The Lifestyle Center will attract storylines regarding the unique and convenient shopping experience. LET’S EAT! will piggyback on the articles featuring the opening of Chester Commons

Positioning (Against Target Audiences) • Experts in the area of food preparation and meal solutions • A resource for all your cooking and meal needs • Diversity in food consumption offerings; providing FOOD FOR LATER consumption

FOOD FOR NOW

…

AND

• Contemporary specialty foods establishment with PURPOSEFUL THEATRE

Key Messages Consumer • LET’S EAT! is where you can see, touch, and taste the difference • LET’S EAT! is the stuff that memories are made of • LET’S EAT! offers a multi-faceted, upscale environment that features catered, on-site, or take-home meals, as well as the entertainment and education provided by an on-premise cooking school • It offers easy-to-create great meals at home using the LET’S EAT! product lines • When you think of great Italian food, you think LET’S EAT! • Designed and located to serve great food to busy people © 2005 Let’s Eat! All rights reserved.

Sample Plans • LET’S EAT! offers FOOD FOR NOW …

AND

FOOD FOR LATER

• A unique Food Bar … bringing food to the customer and the customer to the food Business • LET’S EAT! provides numerous business-oriented services designed to meet the customer’s budget and custom meeting needs • The LET’S EAT! cooking school is a unique experience and great teambuilding opportunity • LET’S EAT! is centrally located and easily accessible to the regional business centers located in Mount Olive and Bedminster Township

Generating Awareness LET’S EAT!, being a truly unique retailing concept, along with the CELENTANO name, will be a significant story, thereby creating a host of public-relations opportunities, that will ensure benefits to the mall. Additionally, Dom Celentano, having built significant brand penetration and recognition of the Celentano name in the New York metropolitan area, will be an additional and important factor in developing press opportunities. LET’S EAT! will take advantage of Domenick’s past experience in creating impactful and successful press campaigns.

Tactics • Wage an aggressive and tactical media-relations campaign that combines a mixture of feature, product, and possibly by-lined story placements in local media in order to generate increased brand and product-line awareness in both consumer and key business audiences. • Utilize proactive media relations as a means of enhancing the overall image of LET’S EAT! as an industry leader and innovator. • Create newsworthy story angles about different aspects of LET’S EAT! and the specific services offered to generate news that appeals to a broad range of media. • LET’S EAT! opening—A convergence of consumer and demographic trends is unfolding, presenting unique opportunities for well-executed preparedfoods take-out formats. LET’S EAT! is the culmination of these trends, providing FOOD FOR NOW … AND FOOD FOR LATER in a hybrid neighborhood © 2005 Let’s Eat! All rights reserved.

261

262 Appendix B deli/fast-casual environment with the centerpiece being the large open kitchen encircled with the food bar providing an exciting shopping environment through the use of PURPOSEFUL THEATRE. • The CELENTANO story—A strong brand name in NJ, the opening of LET’S EAT! provides an excellent opportunity to focus on how Domenick Celentano, a local resident, is bringing his family’s heritage and expertise to this exciting new venture. The focus will be around the following: Business started in Newark as retail deli and expanded to four stores. Business grew from retail to consumer-branded product in supermarkets. LET’S EAT! took the CELENTANO reputation back to its roots in retail. Dom cut his teeth in the business as a kid in retail. • Future of restaurants—The line between food retailers and restaurants has blurred completely, with the advent of a new category of restaurant, fastcasual. LET’S EAT! brings the future to Chester in a meal/retail environment that offers great food, entertainment, and education. • Cooking school—A truly unique and fundamentally different aspect of LET’S EAT! The school offers an opportunity for media to do a first-person story as a student. The media is always looking for a new angle to report on. Cooking school will grab their interest and will be a vehicle to host the media and immerse them in the PURPOSEFUL THEATRE. Since this is the only retail concept with a cooking school in the trade area (except Kings), the cooking school, integrated with the open kitchen and food bar, will be a media attention grabber. • Target media—We would seek to publicize the above story angles in media outlets, such as the following: Print: (proprietary information) Broadcast: (proprietary information)

Advertising • Flyers • Coupons (both stand-alone mailers and as part of coupon packs) • Print, local radio, and cable spots © 2005 Let’s Eat! All rights reserved.

Sample Plans 263

Promotions • Local radio/print: Win a cooking class or week of prepared foods • Tie-ins with other tenants (e.g., bring in Victoria’s Secret receipt for 10 percent off) • Offer classes at the cooking school through local schools, adult continuing education, or as a tourist highlight through the Chamber of Commerce

Strategic Alliances LET’S EAT! will seek out developers with a portfolio of current and future lifestyle retail centers. The ability to add incremental shopper traffic will be attractive to regional developers to consider entering into a strategic partnership with LET’S EAT! The focus will be identifying site-appropriate opportunities in the developer’s portfolio and illustrating how future units would “fit” into these appropriate sites, and highlighting the success of the Proof of Concept in (proprietary information). A strategic developer relationship will strengthen the five-year (17-unit) roll-out by leveraging developer assistance in build-out allowances, demographic and traffic count information, site plan approval, and other buildout steps that are better facilitated with a developer/partners. Based on discussions with (proprietary information), a partnership is feasible. It is anticipated that there will be a future mix of products and services that may be better serviced by outside vendors. For example a floral department could be subcontracted to a local florist. There are no plans for the proof of concept to include any strategic alliances. If any are considered prior to opening, they would only have consideration if they enhance the focus or profitability of the concept.

Pricing In order to be successful in the (proprietary information) market, items must be competitively priced to similar menu offerings at competitor locations. However, customer-perceived premiums such as uniqueness, quality, and atmosphere can raise the price threshold. Since several of the specialty foods stores in the trading areas (Kings and Shop Rite, primarily) offer prepared foods items as well, attention needs to be paid to like items to ensure that comparison-shopping cannot be made. © 2005 Let’s Eat! All rights reserved.

264 Appendix B

MANAGEMENT SUMMARY The LET’S EAT! concept needs strong retail management to ensure success. Domenick Celentano as CEO has the capacity, food retail experience, and in particular, his management approach, articulated as follows, to make the concept a success: “People are a company’s greatest asset. A good manager or entrepreneur is able to cultivate this great talent and use the team’s collective talents to run the company, keep it healthy, and to propel it forward. In business, the word “I” is overused; “WE” is fundamental in a manager’s vocabulary. Recognizing good people, motivating them to new heights, having empathy when needed, prodding when appropriate, and inspiring the team to succeed while having fun—these qualities have characterized my managerial style throughout my professional career. This, above all, is what differentiates me from others.” —Dom Celentano For the past 26 years, Domenick has held key executive positions of CELENTANO Bros., Inc, the company best known for the CELENTANO brand of Italian Frozen Pastas and Prepared Meals (its flagship product, the round Ravioli). As Vice President and then President, he developed and managed a team, creating the second-largest national brand in the Italian prepared foods category. He has also received numerous business and civic awards from New Jersey Business and Industry Council, The Food Marketing Institute, and the Bedminster Township Governing Committee. He has appeared at Bob Messengers Top Gun Roundtable, a United States Senate subcommittee hearing on the Nutritional Labeling and Education Act, and has been a guest speaker at St. Joseph’s University and various Food Marketing Institute Conferences. Domenick is very active in Somerset County community services. For the past seven years he has been a member of the Bedminster Township Planning Board, a graduate of the class of 2002, Leadership Somerset, a program sponsored by the Somerset County Board of Chosen Freeholders, a member of Le Tip International, and the Somerset County Chamber of Commerce. These community and business ties will bring early momentum to LET’S EAT! in sales and public relations. The LET’S EAT! concept is slated for 17 store roll-outs over the next five years, with a forecasted revenue of $35 million. Domenick recognized the need for an individual with strong, multiunit operational experience. © 2005 Let’s Eat! All rights reserved.

Sample Plans 265 Theodore Heisler: Finance. Ted has extensive experience in private equity, mergers/acquisitions, and management consulting. He is part of an investment group that is the regional franchisee for TGI Friday’s in a dozen countries in Western and Central Europe, and Russia. Ted co-founded and managed Tyn Group, a private equity investment company in Prague. He also held positions with Kidder, Peabody & Co. in New York as an investment banker and with Andersen Consulting developing information systems. He received his MBA in finance with honors from Rutgers Graduate School of Management.

Organizational Structure Duties in a retail foodservice organization of this type are usually divided between food production and service. The chart below represents a typical structure for this type of organization.

Personnel Plan Proper staff utilization is a key component in any business, but is particularly relevant in this business model. This is necessary when managing diverse day parts, being able to move from department to department. This staff management, along with being able to move food and other resources around the facility, is what makes the business model feasible. Please refer to the chart below for an assessment of the costs associated with the amount of labor necessary to staff such an operation. Site-Level Staffing

General Mgr Assistant Manager Catering Manager Head Chef Chef Hourly Worker

Number FTEs 1 2 1 1 2 18

Avg. Annual Salary/Wage $75,000 $45,000 $40,000 $75,000 $45,000 $18,000

Total Annual Salary/Wage $75,000 $90,000 $40,000 $75,000 $90,000 $325,000

Total Pre-Taxes/Benefits

$695,000

Taxes/Benefits Total

$95,000 $790,000

The above figures reflect a total labor cost of 37% of site operating revenue. Regional multi unit operators, such as Panera Bread currently run at 30.5% making the labor figures in this forecast conservative. An extended version of the above chart can be found in Appendix D.

© 2005 Let’s Eat! All rights reserved.

266 Appendix B

Market Analysis The LET’S EAT! concept proves further to be a perfect fit in the (proprietary information) center in light of the outstanding demographic profile of the surrounding communities. Affluent suburban consumers are clearly the leading consumers of specialty and prepared foods. This statement is clearly evident when local demographics are compared side by side with recent industry statistics released by the North American Specialty Food Trade Association (NASFT). The following is from the report “NASFT Today’s Specialty Food Consumer”: “An impressive 56 percent of American households made a purchase of at least one specialty food category in the past six months. Half of those qualify as “medium” or “heavy” consumers by purchasing four or more categories.” The chart below compares the Chester Commons seven-mile demographic to “heavy” consumers of specialty foods as detailed in the NASFT report. Category

NASFT Study 2

ChesterCommons Region1 nd

Region

Mid Atlantic

2 highest region and 10% above average

Income

Median Household Income $86,515

Household incomes over $50,000 - 83% above average

82% of households with income above $50,000 Age

46% 30-59

35-44 23% above average

Marital Status

66% Married

Education

Bachelors Degree 24%

42% above average

Graduate Degree 14%

73% above average

77% White Collar

White Collar workers 32% above average

45-54 14% above average

Profession

Married couples 6% above average

As the chart confirms, the (proprietary information) demographic proves that LET’S EAT! is a perfect fit in the marketplace. Appendix F has detailed excerpts from the NASFT study and Appendix E has detailed trade polygon maps and data. According to the NASFT, U.S. retail sales of gourmet/specialty foods reached $20.0 billion in 2000, up from $15.3 billion in 1996. Sales are projected to grow at 6.7 percent compound annual growth rate (CAGR) over the 20002005 period to surpass $27.6 billion in 2005. Driving the interest in specialty foods are various contributors such as TV Food Network, and the proliferation of food magazines such as Gourmet, Saveur, and Bon Appetit. Additionally, Italian is currently the leading international cuisine among specialty food buyers. © 2005 Let’s Eat! All rights reserved.

Sample Plans 267

Competition (Local) Competition within an eight-mile radius of (proprietary information) has been divided into two categories, supermarket and specialty food. Within the supermarket category, only “a certain chain,” at the outer fringe of the eight-mile ring, would be considered in the “above average” category in providing a modicum of prepared foods. The vast majority of the competition in the specialty category was uneventful deli/general-store formats, providing little or no prepared foods and certainly no knowledgeable culinary staff. The marketplace was the only establishment that has a modicum of take-out/prepared offerings. What follows is a detailed competitive analysis and pictorial, clearly illustrating the lack of credible competition and the opportunity to generate significant revenue for LET’S EAT! within the seven-mile trading area.

Specialty Stores These can be defined as having a small selection of deli and prepared foods, mostly American sandwiches and prepared salads (the standard fare of macaroni, potato, coleslaw, etc.). Some are combination general-store and liquor-store formats. Most lack adequate on-site parking or have difficult ingress/egress.

Supermarkets Typical supermarket prepared and deli offerings. There is minimal on-site preparation with most foods prepared off-site in commercial kitchens. There is no instore theatre and no help with a culinary background.

Competition (Regional) As the LET’S EAT! concept expands, regional competitors will be encountered. Some of these are in the fast-casual dining segment; others are specialty foods or other food retailers. Overall, all of the operators market to the demographic that LET’S EAT! seeks. Following is a brief synopsis of a selection of these competitors:

© 2005 Let’s Eat! All rights reserved.

268 Appendix B

Company

Panera Bread

Headquarters

Richmond Heights, Missouri

Geographic Region

National

Number of Locations

478 (EOY 2002)

Description of Operations

Panera Bread is a national fast casual chain specializing in the sandwich /salad segment. Panera’s offering is built around their store-baked breads and pastries, which all benefit from excellent merchandising. The business’ primary focus is on in-store and take-out meals, although most stores do have an offering in carryout catering platters.

Company

Cosi Inc.

Headquarters

New York, New York

Geographic Region

Northeast, Midwest

Number of Locations

80+ (EOY 2002)

Description of Operations

Another fast-casual segment leader, the Cosi concept is based on a flexible format that can service all day parts. The stores change from an espresso/pastry shop in the morning, to a fast casual sandwich/pizza spot at lunch, to a table service restaurant with full bar in the evening. The menu is built around brick-oven breads that are turned into sandwiches, pizzas and accompaniments for salads. Catering is marketed as a portion of the business with complete event consultation offered. Catering offerings include most items from the menu, as well as appetizers and platters.

Company

Sutton Place Gourmet

Headquarters

Bethesda, Mar

Geographic Region

NY, D.C., MD, VA, CT

Number of Locations

13 (EOY 2002)

Description of Operations

Sutton Place Gourmet is a retail chain based on the European market model, specializing in specialty foods. Their stores range in size from 3,000 to 20,000 square feet. In the 1990’s, Sutton Place acquired the Hay Day Farm Market chain in Connecticut, as well as the venerable Balducci’s market in New York City. The company operates a central commissary in Maryland that serves the stores, as well as supporting the catering component. Sutton Place could be viewed as the largest small-format specialty chain in the region.

© 2005 Let’s Eat! All rights reserved.

Sample Plans 269

Company

Dean & Deluca

Headquarters

New York, New York

Geographic Region

NY, NC, D.C., KS, CA

Number of Locations

5 Full-Service Stores, 6 Cafes

Description of Operations

Dean & Deluca is a premier specialty retailer that first opened in New York City’s SoHo district in 1977. A retail expansion occurred in the 1990’s establishing the brand in new markets. The mail order component of the company is large and has an international presence. Catering is offered at most locations. Stores average approximately 10,000 square feet in size. Although, Dean & Deluca has only a handful of stores, with slow expansion planned, the brand is considered a market leader in the specialty foods division.

Company

Whole Foods

Headquarters

Austin, TX

Geographic Region

National

Number of Locations

126

Description of Operations

Whole Foods is the national leading retailer of natural and organic foods. The concept has expanded over the years into a destination for specialty and well-merchandised prepared food offerings. Most stores have a catering component specializing in pick-up and drop-off service. The company also has an excellent offering of upscale private label products, as well as natural body care. Most stores average 40,000 square feet, with several existing and in development in the LET’S EAT! Phase 2 business region.

Company

Wegmans Food Markets

Headquarters

Rochester, NY

Geographic Region

NJ, NY, PA

Number of Locations

67

Description of Operations

Wegmans is a 90-year-old family supermarket chain that, for many in the industry, has grown into the standard in large-format upscale food retailing. The stores feature exotic produce, multi-cultural prepared food offerings that support considerable in-store dining as well as takeout. Top-quality merchandising along with extensive offerings in pastry, bread, and cheeses make Wegmans a retailer that many operators have tried to emulate. The stores also feature a sizeable catering business, primarily in pick-up and drop-off platters and meals.

© 2005 Let’s Eat! All rights reserved.

270 Appendix B

Financial Plan The development of the LET’S EAT! business model and the associated investment will occur in a phased format as outlined below. Detailed financial projections and other related information are attached as Appendix A.

Investment/Use of Proceeds Phase 1—Two Sites Phase 1 will consist of two retail sites. A tri-state-area site will require approximately (proprietary information) to render it fully equipped, ready to open, and provide an adequate cushion of working capital. The first site therefore requires (proprietary information). Of this, (proprietary information) is currently circled as follows: by Domenick Celentano, Ted Heisler, Scott Darling (LET’S EAT! board member), and other “friends and family.” LET’S EAT! has obtained a Letter of Intent for a $350,000 term loan backed by the Small Business Administration. Several supplemental sources of financing are being tapped as well. These include some combination of equity, developer build-out allowance, etc. The second LET’S EAT! site will be opened approximately one year after the first site opening. Funding will come from internal cash plus (proprietary information) of external equity, debt, lease, or a combination. An Indicative Terms of Placement and related materials are available to interested investors for review. Through fiscal year-end 2004, the company will be an LLC structure providing tax-loss pass-throughs for investments placed as equity.

Phase 2—Tri-State Roll-Out A phase-2 cash investment of (proprietary information) will be considered in approximately two years after the opening of the first site. The phase-2 investment will support the roll-out plan for an additional 14 sites in the NY/NJ/CT area for years two through five. The additional site openings are planned at the rate of one per quarter thereafter into 4Q 2008 for a total of 16 LET’S EAT! sites © 2005 Let’s Eat! All rights reserved.

Sample Plans after five years. Phase 2 will be partially funded by additional bank lines of credit with the remaining support through Institutional money or private money, which may have an impact on whether the company continues as an LLC entity or is converted to a C-corporation.

Phase 3—Regional/National (not a part of this business plan) No specific plan has yet been developed for phase 3. However, it is envisioned that an accelerated regional or national roll-out can be accomplished via corporate lines of credit, proceeds from an IPO, or a combination of the two. In addition, creating master franchise licenses in various territories will be considered.

Financial Projections The financial projections presented in the business plan are considered by management to be the minimum reasonably achievable. Moreover, LET’S EAT! has retained retail foodservice consulting firm Solganik & Associates and has received independent validation of certain key financial drivers including daily sales, COGS, and same-store sales growth of comparable companies. Key drivers of profitability at the site level include, among others, the number of opened sites, the number of daily patrons, average ticket price, and food costs. A modest amount of corporate overhead and staff is gradually layered into the projections starting in early 2005, after several sites have been opened. Management believes that the phase-1 proofof-concept site has the capacity and the market position to achieve an annualized run rate in excess of (proprietary information) per day, or (proprietary information) in sales for the first fiscal year, with minimum 6 percent annual same-store growth forecasted over the following four years. Revenue forecasts are based on wellgrounded demographic buildups and comparisons to other similar chains, and they cross tabulate favorably with NASFT specialty retail per-square-foot sales data for retail locations in the 3,000 to 5,000 sq. ft. ranges. Subsequent site openings are deemed to have a similar financial and operating profile.

Start-Up Summary Start-up cash expenses for the initial facility are estimated below. Tenant fit-out and kitchen build-out are estimated at $65.00 per square foot and depreciated over a specified period in the P&L. The start-up requirements also include estimates for equipment, staffing, marketing prior to opening, inventory, and working capital. The estimated build-out schedule is for four months. The detail for kitchen equipment and retail fixtures can be found in Appendix C. © 2005 Let’s Eat! All rights reserved.

271

272 Appendix B The following daily sales figures are the basis for the forecast calculations in the sales analysis and build-up in Appendix A. Sales in the first year are forecasted to reach $ (proprietary information). For comparison, in the most recent retail studies by NASFT, median sales per square foot of 40 comparably sized stores averaged $10.14 per week. If applied to the (proprietary information) location at 3750 sq. ft. × (proprietary information) would yield (proprietary information)/week, or $ (proprietary information)/year. LET’S EAT!’s location, management team, and concept-rich PURPOSEFUL THEATRE, even without inclusion of cooking school revenues, will exceed industry norms for revenue per location. Model Site at Inception

Sales Growth Sales-growth projections are based on a samestore growth rate of 6 percent annually.

Retail Sales per day Catering Retail per day Café per day Cooking School per day Daily Sales per site Weekly Sales per site (7 days) Site Space sq ft.

$3,000 $1,000 $2,000 $0 $6,000 $42,000 3,750

Following is the result of research regarding same-store sales growth rates for foodservice and retail operations that share a similar offering, positioning, or customer demographic to the LET’S EAT! concept. Most publicly available information is for established companies in the maturity phase of their growth cycle. Therefore, it is reasonable to assume that the LET’S EAT! model could attain slightly higher growth rates during the initial years of the start-up phase.

Food Costs Cost of goods calculations and expense-line items are based on management’s in-depth experience as well as industry standards. Cost of goods for a typical foodservice operation is typically calculated in terms of food cost. Food cost is, in general terms, calculated in the following manner: Opening food inventory–Ending food inventory= Food Cost Value © 2005 Let’s Eat! All rights reserved.

Sample Plans Food cost is often judged in terms of a percentage of revenue. The food cost percentage that is perceived as acceptable can be different for different sectors of the industry. What this means for LET’S EAT! is that relative to the retail price of an item, the food cost of that item may have a different target percentage based on what revenue stream that item is sold through. This variance in percentage usually has to do with the amount of labor associated with delivering a given product to the customer. Different products will have different food cost percentages based on this, but a department or operation as a whole will have an overall food cost based on the preceding formula. The chart below outlines high and low industry averages for food cost for the LET’S EAT! departments, along with a comment about the amount of labor necessary to deliver the item to the customer. Segment

Labor

High

Low

Catering

30%

24%

High

Café

34%

26%

Average

Retail

37%

28%

Low

For purposes of these financial forecasts, LET’S EAT! is assuming that its retail sales COGS percentage will be in the low 30s for retail sales; high 20s for catering retail sales; and low 30s for café sales, all showing modest improvement over time during the phase-2 build-out. These are on the conservative end of the spectrum as compared with the foregoing. Detailed COGS figures are shown in Appendix A.

Economies of Scale: Food Costs As the LET’S EAT! concept grows from a single operation to a multiple-location regional chain, some economies of scale will be experienced in terms of purchasing power, as well as labor efficiencies. These economies could mean significant savings and increased profitability to the chain as expansion grows. Assumptions with respect to such improvements in the cost structure are embodied in the financial forecasts in Appendix A. Food purchasing is done through local, regional, or national distributors. Distributors have fixed costs in employees, infrastructure, fuel, etc. As foodservice operators purchase more products, their fixed costs remain the same, and they are able to reduce their wholesale prices to the operator. Distributors usually establish pricing based on a percentage above their cost. There are several tiers of percentages available to operators based on their order size. The SYSCO Corporation, the © 2005 Let’s Eat! All rights reserved.

273

274 Appendix B largest foodservice distributor in North America, shared some information regarding its pricing structure, which is reflected below: Type of Operation

Weekly Corporate Purchasing Volume

% Above Distributor Cost

Single Unit

$1,000 - $3,000

17% - 25%

Small Chain

$5,000 - $25,000

12% - 17%

Larger Chain

$30,000 +

8% - 11%

In real dollars as it could relate to LET’S EAT! moving from the lowest tier to the highest tier could mean as much as 4 percent to 5 percent in food-cost savings. Fifteen stores generating (proprietary information) each at 32 percent food cost is (proprietary information). At 28 percent, that same food cost is (proprietary information), or a $1.2 million savings. A key element to these kinds of contracts is that distributors will want minimum drops, shorter payment terms, and to offer incentives for using “house” brands. Overall, a good partnership with a distributor is a necessity for the success of this size of operation.

Central Production Another way that profits can be maximized as a company grows is through centralized production of some products. In a centralized model, often referred to as a commissary, products are produced in a single location and then distributed to all the locations in the chain. This method achieves some of the following advantages: • Improved consistency—It is very difficult to train 15 cooks in 15 different locations to prepare lasagna the same way. Central production ensures the same food product every time regardless of location. • Labor savings—In the same lasagna scenario, you now have 2 people making lasagna instead of 15. In effect, store-level labor can be reduced. • Purchasing power—Distributors would much rather deliver one pallet of crushed tomatoes for tomato sauce to one location than 3 cases each to 15 locations. The distributors will pass that savings on. Central production is a commitment to the above issues as well as a commitment to controlling a business’s food path, instead of relying on outside manufacturers to determine the quality of products. Regarding profitability, in a recent study by Solganik & Associates, one retailer commented that production © 2005 Let’s Eat! All rights reserved.

Sample Plans costs were reduced by 25 percent when they adopted centralized production, mostly based upon shipment quantities. Perhaps the best example of savings in a central kitchen is the sandwich kit. Sandwiches are sliced and portioned at the store level in most operations. A 15-unit operation may each serve 20 Italian subs a day, or 108,000 subs a year. If each sub has an average overage of 1⁄4 ounce at $4.50 a pound, an additional food cost of $7,593 has been incurred. That is just 1 sandwich out of 10 varieties sold. The solution to this could be a sandwich kit, in which the meat would be sliced and accurately portioned centrally, and then distributed to the stores. Overall, there is a strong argument for central production once an organization grows beyond five or six stores. The method’s strengths lie not only in profitability, but also in increased control of the organization.

Concept Tuning—Phase 2 Products and Services. Each location will be tuned to adjust the mix relevant to the location’s demographics. Some locations will be more “Food For Now” centric and others will be more “Food For Later” centric. Some of this information will come from the developer. A strategic relationship with a developer makes the acquisition of this information easier as well as giving Lets Eat! leverage to negotiate what other food tenants are allowed. Location. Site selection for future stores will leverage the marketing success of the well-known retail brands that populate Lifestyle Centers; this tenant list will be replicated in future Lifestyle Centers, centers LET’S EAT! will be in as well. Proof of Concept will clearly show that the addition of a dining option lengthens customers’ shopping experience and provides an on-site location for workers at the mall. There is no need for the customer to leave the shopping environment during any of the day-part meal occasions. Increasing the length of the customer on-site shopping experience increases the probability of a purchase occasion in the mall. The ability to lengthen customers’ shopping experience is why LET’S EAT! will be an attractive tenant for future target locations. This will be the roll-out map for future site selection.

© 2005 Let’s Eat! All rights reserved.

275

276 Appendix B

Appendix Index Appendix A • Sources/uses • Annual financial statements • Monthly financial statements • Corporate costs/overhead • Per-site drivers • Set-up costs • Depreciation Appendix B • Consumer retail forecast • Café forecast • Catering forecast Appendix C • Labor analysis Appendix D • Demographic analysis • Claritas™ trade area demographics, 1-to-7-mile radius, population, households, age, marital status, income; courtesy of fidelity land management • Claritas™ trade area demographics, 1-to-7-mile radius, occupation, transportation, travel time, retail trade potential; courtesy of fidelity land management • Average daily traffic counts; courtesy of fidelity land management Appendix E • Bank term sheet

Appendix F • Research Solganik & Associates “And a Meat Loaf to Go”; February 23, 2004, by Jerry Adler; Newsweek “Wrap It Up, We’ll Take It”; February 25, 2004, by David L Harris; The Boston Globe “Connecting with the Specialty Food Consumer”; Food Marketing Group; Richard Kochersperger; Courtesy of Food Marketing Group “The Mall Without the Mall”; The New York Times, July 25, 2002 “Now, This Is Shop-at-Home,” North Jersey News Group, Thursday, August 14, 2003, By Laura Fasbach, Staff Writer “Plucky Little Competitors”; Time Magazine, October 21, 2002 “Fancy Food Selling Like Hotcakes”; Seattle Times Business & Technology; “Fast Casual Shifts into High Gear”; Food Product Design, August 2002 “Tropic of Groceries”; Dallas Observer; August 8, 2002, Courtesy of Food Marketing Group Appendix G • Menus Appendix H • Landlord Letter of Intent Appendix I • Public relations portfolio example Appendix J • Investor term sheet

© 2005 Let’s Eat! All rights reserved.

Sample Plans

Monkey Muffins, Inc. Monkey Muffins, Inc. 47 Lydecker Street Nyack, New York, 10960 Phone: (845) 348-4700 [email protected]

This plan has been prepared by Rarrick Business Solutions, Inc. Nyack, NY (845) 358-7263 © 2005 Monkey Muffins. All rights reserved.

277

278 Appendix B 1.0 Executive Summary Monkey Muffins, Inc., is a new company based out of Nyack, New York. We develop and market wholesome mini-muffins made from all-natural ingredients, supplying parents with a healthy snack alternative for their families. These muffins are known as Monkey Muffins. The company is managed by its founders, Lisa Coates and Robin Rarrick, who developed the recipes out of a desire to serve their children delicious snacks that were free of artificial colors, artificial flavors, and preservatives. This plan will serve as a living document of our growth, and will be updated quarterly.

1.1 Objectives 1. To have product available in stores to public by 9/1/2003 2. Sales exceeding $10,000 in 2003, $300,000 in 2004, and $700,000 in 2005. 3. Net loss not to exceed 15 percent in 2003. Net profits of 5 percent or greater in 2004 and 10 percent or greater in 2005.

1.2 Mission Monkey Muffins will provide a wholesome snack alternative for nutrition-conscious adults and their families. We will use only the finest, freshest ingredients combined with colorful innovative packaging to deliver a superior muffin.

1.3 Keys to Success 1. Uncompromising commitment to quality muffins made from only the finest and the freshest ingredients. 2. Successful grass-roots marketing: Our focus will be the specialty deli and grocery market as well as natural-food stores. 3. Low cost of goods without sacrifice in quality enabling a healthy bottom line to be achieved. © 2005 Monkey Muffins. All rights reserved.

Sample Plans 279

2.0 Company Summary Monkey Muffins, Inc., is a new company located in Nyack, New York, that develops and markets specialty baked goods for health-conscious adults and their families. The company’s primary product is a mini-muffin made with all-natural ingredients that appeals to children.

2.1 Company Ownership Monkey Muffins, Inc., is a privately held S-corporation. Its founders, Lisa Coates and Robin Rarrick, are the primary shareholders and managers.

2.2 Start-up Summary Our start-up costs come to $21,800, which is mostly packaging and label design, stationery, legal costs, and expenses associated with marketing and R&D. The start-up costs are to be financed by direct owner investment. The assumptions are shown in the following table and illustration.

© 2005 Monkey Muffins. All rights reserved.

280 Appendix B Start-up Requirements Start-up Expenses Legal Stationery, etc. Brochures/Website Development Insurance Research and Development Label and Package Design Baking Equipment Total Start-up Expenses

$500 $500 $1,000 $300 $1,500 $15,000 $3,000 $21,800

Start-up Assets Needed Cash Balance on Starting Date Other Short-term Assets

$18,200 $0

Total Short-term Assets

$18,200

Long-term Assets Total Assets Total Requirements

$0 $18,200 $40,000

Funding Investment Lisa Coates Robin Rarrick Other Total Investment

$20,000 $20,000 $0 $40,000

Short-term Liabilities Accounts Payable Current Borrowing Other Short-term Liabilities Subtotal Short-term Liabilities

$0 $0 $0 $0

Long-term Liabilities Total Liabilities

$0 $0

Loss at Start-up

© 2005 Monkey Muffins. All rights reserved.

($21,800)

Sample Plans

2.3 Company Locations and Facilities Monkey Muffins operates from a home office in Nyack, New York. All baking takes place at a commercial bakery/food-production facility in Poughkeepsie, New York. As the company grows and additional staff is needed, larger office space will be acquired.

3.0 Products Monkey Muffins, Inc., develops and markets specialty baked goods, specifically wholesome mini-muffins for health-conscious adults and their families. All their products are made from all-natural ingredients and feature colorful, innovative packaging that is popular with children and parents alike. Monkey Muffins are available in three varieties: Banana, Chocolate Chocolate Chip, and Pumpkin. Plans have been laid to develop additional seasonal flavors as well. Currently the company is in R&D to produce an Apple Muffin. Monkey Muffins come packed with four 1⁄2-oz. muffins to each package. A case contains 12 packages.

3.1 Competitive Comparison At this time, there is no known competition in this specific market. There are several large corporate food manufacturers in the market who mass-produce minimuffins that contain artificial colors, artificial flavors, and preservatives. The proper placement of Monkey Muffins in the specialty foods marketplace will be critical in separating our product from what could be the perceived competition of these large companies.

3.2 Sales Literature Sales literature for Monkey Muffins can be obtained by contacting the company at (845) 348-4700.

3.3 Sourcing Monkey Muffins, Inc., will develop the recipes, market the products, and assist its distributors in establishing new accounts. They will not directly participate in production of muffins. © 2005 Monkey Muffins. All rights reserved.

281

282 Appendix B Muffins will be manufactured by third-party co-packer/bakeries who specialize in private label production. Monkey Muffins will participate in R&D (recipe development), and oversee the quality of the packaging. All ingredients will be sourced and inventories maintained by the co-packers. Product will then be shipped from the bakeries to regional distribution centers. At the time of this writing, deals with both bakeries and distributors are pending while the company’s management interviews various prospects. It has yet to be determined who will manage the transportation of product to the distributors. The management will, however, maintain some inventory of product to use as samples while establishing new retail accounts.

3.4 Future Products There are plans to develop additional flavors of mini-muffins as well as potentially developing some non-muffin products. These will be further explored in year two. Additionally the company is developing a package containing six packs of muffins that can be purchased in your grocer’s freezer section. These packs will thaw in less than 30 minutes, making them ideal for children’s lunch boxes.

4.0 Market Analysis Summary The primary role of Monkey Muffins, Inc., as a company is to effectively market our products to select target demographic groups. Our customers primarily are parents who purchase our products for their children. In fact, the company was founded by two parents concerned with the snacks that they served their children. As a result of this concern, the Monkey Muffin was born. More specific information about our customers is included in this chapter. The consumers of Monkey Muffins will typically acquire our products at specialty food stores/gourmet delis, health-food stores, coffee houses/espresso bars, and food-service environments such as school cafeterias and corporate dining and vending. Our customers are not people who would choose a mass-produced product containing artificial ingredients. They are prepared to pay a premium price for the quality and assurance that an all-natural product provides. As Monkey Muffins, Inc., is a New York-based company, it may be assumed that in the early stages the company will be supplying its product principally to the New York/New Jersey area. There has been a steady 4 percent growth in the wholesome/organic-foods/health-foods industry in the Northeast per year over the past decade, most notably with parents of children 2 to 12 years of age. © 2005 Monkey Muffins. All rights reserved.

Sample Plans 283 The subject of our market segmentation analysis will focus on our retail outlets rather than on our end users. While our consumer stays quite constant, the method of end-user delivery is quite varied with our retailers.

4.1 Market Segmentation In support of the information in the market-analysis table, the following must be noted. a. The table applies to various retail outlets within a 50-mile radius of Nyack, New York. b. The segmentation analysis does not differentiate the end user but rather the retail outlets who are our primary customers. c. The end-user profile is as follows. Monkey Muffins are principally purchased by woman ages 25 to 45. Of this group, 90 percent have one or more children ages 2 to 12, and 50 percent own a home. d. Data concerning segment growth was supplied by D&B Million Dollar Database, U.S. Government Census and trade publications related to each of the markets mentioned herein.

Table: Market Analysis Market Analysis Potential Customers Specialty Food Stores/Gourmet Delis Supermarkets Coffee Houses/Espresso Bars Food Service Total

Growth 15%

2003 100

2004 115

2005 132

2006 152

2007 175

CAGR 15.02%

2% 25% 8% 11.01%

300 150 200 750

306 188 216 825

312 235 233 912

318 294 252 1,016

324 368 272 1,139

1.94% 25.15% 7.99% 11.01%

© 2005 Monkey Muffins. All rights reserved.

284 Appendix B 4.2 Target Market Segment Strategy Monkey Muffins, Inc., will focus on the following markets: specialty food stores/ gourmet delis, coffee houses/espresso bars, health-food stores, food-service establishments and supermarkets, and schools, each of which have indicated a need for a wholesome alternative to mass-produced baked products.

4.2.1 Market Needs Our customers’ food needs are critical to our business survival. We are creators of wholesome mini-muffins for people who care about the quality, content, and image of what they consume. Our customers will happily pay the required price premium for knowing that the foods they consume are prepared with care, completely natural, and fun. Our customers want foods that do not contain artificial colors, artificial flavors, or preservatives. Our customers are parents buying the best snacks for their children, snacks they can feel good about serving. Our customers are well informed and careful. They mistrust national brands, packaging, and food processing. They would mistrust us if we changed too much or too quickly, or adapted more economic packaging processes.

4.2.2 Market Growth Currently the whole-foods and organic-foods industry are experiencing a rapid growth phase, and account for just over 10 percent of the $300 billion food retail industry. This growth has achieved a rate of 4 percent annually since 1998 and shows no signs of slowing.

4.3 Industry Analysis The packaged baked goods and retail foods industry is a major industry worth $300 billion per year, according to CNN Business News. It includes some of the largest and most powerful manufacturers in the world, major national grocery chains, tens of thousands of stores, thousands of vendors, and, of course, hundreds of millions of buyers. The health-foods industry is similar in basic structure, channels, costs, and distribution. Additionally, the wholesome-foods industry is the fastest-growing segment in food retail, accounting for just over 10 percent of annual sales in 2001. © 2005 Monkey Muffins. All rights reserved.

Sample Plans 285

4.3.1 Competition and Buying Patterns The purchase decision in our business is based more on the customers’ trust in our process and our integrity than on any other single factor. In our segment, the key is our label. To our customer, our label means the assurance that the product inside is processed correctly, has only natural ingredients, and can be trusted. There is also great “eye appeal” in our label with children. The competition and buying decision certainly isn’t about price, because what we sell tends to be 20 to 30 percent more expensive than the national packaged brands selling similar or substitute products. The most frequent reason for choosing another brand, according to the store owners, is simply buyers’ habits and the hesitancy of some consumers to try new products.

4.4 Promotion Strategy Our promotion strategy is comprised of several key elements: ◆ Public Relations—Monkey Muffins will retain the services of a PR firm

specializing in the food and beverage industry. We will focus our efforts at first to secure placement in trade publications that publish to our key market sectors. We will also look to secure business profiles in consumer publications and newspapers. We feel that a well-executed PR campaign will be the most critical element to our promotion strategy. ◆ Trade Events—We must attend all prominent trade events, particularly

the Fancy Food Show. This will help ensure that our brand has continuous exposure to distributors and other industry participants. ◆ Advertising—While advertising will not play a prominent role in our ini-

tial phase due to associated costs, we will look for opportunities, particularly in trade publications, where print advertising will work in our favor. ◆ Community Events—We will work locally and regionally with organiz-

ers of community events such as street fairs, farmers markets, and fundraisers to build local awareness of our product. ◆ Website—Our website will be a key promotional tool that will include

both fun activities for children and product information for adults. Our URL is on all of our labels and promotional materials, which should help to drive traffic to our site.

© 2005 Monkey Muffins. All rights reserved.

286 Appendix B 5.0 Web Plan Summary www.MonkeyMuffins.com will be utilized as an electronic business card for the company as well as a vehicle to increase community awareness and participation. We will run coupon specials on our site, as well as potentially have a section for children’s online gaming, featuring the monkey from our label. We will also include a current events page, describing where our products can be purchased and any special promotions we will be taking part in. Monkey Muffins online will also feature a store where customers can purchase logo apparel and collectables. At this time there are no immediate plans to sell our mini-muffins via the Internet, but that option may be explored at a later time.

6.0 Management Summary Monkey Muffins, Inc., is owned and operated by its founders Lisa Coates and Robin Rarrick. It is a small company with minimum command hierarchy and a maximum of community spirit and cooperation. There are no plans to hire additional personnel other than a driver until 2004, or when the company exceeds $400,000 in annual sales, at which time the company’s needs will be re-examined.

6.1 Management Team Lisa Coates Lisa was born in Brooklyn, New York, and raised in Connecticut. She attended Moore College of Art and Design in Philadelphia where she received a BFA in printmaking. She has taken her art background in a noble direction working in the art therapy field with adults with learning disabilities. Most recently, Lisa managed a group home for ARC in New City, New York, which assists mentally retarded adults in their everyday needs. Lisa has always had a knack for baking. Her skills have won her Child’s Magazine “Best Brownie Award” for 2000. “I came up with the first recipe for Monkey Muffins in my kitchen one afternoon,” says Lisa. “I was looking after a bunch of kids and wanted to make a snack they would like that wasn’t overly sweet.” After dozens of variations, she realized she was on to something very big. Among Lisa’s many responsibilities at Monkey Muffins are recipe development, quality control, customer relations, and art director. Lisa currently lives in Nyack, New York, with her husband John and their two children, Parker and Halle. © 2005 Monkey Muffins. All rights reserved.

Sample Plans 287 Robin Rarrick Robin was born in Monticello, New York, but has been a longtime Rockland County resident. She attended New York University and City College at Brooklyn where she received her degree as an optician. She worked as Senior Optician and Product Manager for Brenner Optics in New City, NY, for 13 years. She has served as Treasurer of Nursery School of the Nyacks and has extensive bookkeeping skills. At Monkey Muffins, Robin is responsible for marketing, advertising, product and account management, and bookkeeping. Robin is also a resident of Nyack where she lives with her husband John and their children, Max and Emilyrose.

6.2 Personnel Plan As the following table shows, salary and compensation increases are projected in line with growth in sales and profits. Salary increases are roughly similar to growth of the company and cost of living. There are only plans for two salaried employees in 2004 (those being the principal managers), and there will be no salaries prior to that time by the management. Additional payroll will be included for transporting product to the distributors. Nearly every other service (art, legal, accounting, marketing, etc.) is outsourced. Table: Personnel (Planned) Personnel Plan Robin Rarrick Lisa Coates Part-time Driver Other Total Payroll Total People Payroll Burden Total Payroll Expenditures

2003 $0 $0 $0 $0 $0

2004 $40,000 $40,000 $14,400 $0 $94,400

2005 $60,000 $60,000 $19,200 $0 $139,200

3 $0 $0

3 $14,160 $108,560

3 $20,880 $160,080

7.0 Financial Plan ◆ We want to finance growth mainly through cash flow. We recognize that this

means we will have to grow more slowly than we might like. ◆ Collection days are very important. We do not want to let our average collection

days get above 45 under any circumstances. This could cause a serious problem with cash flow, because our working capital situation is chronically tight. © 2005 Monkey Muffins. All rights reserved.

288 Appendix B ◆ We must maintain gross margins of 45 percent at the least, which enables

us to focus more capital into marketing and promotion.

7.1 Important Assumptions The financial plan depends on important assumptions, most of which are shown in the following table. The key underlying assumptions are as follows: ◆ We assume a slow-growth economy, without major recession. ◆ We assume that there are no unforeseen changes in the strong segment

growth of natural foods. ◆ We assume access to equity capital and financing sufficient to maintain

our financial plan as shown in the tables. Table: General Assumptions General Assumptions Short-term Interest Rate % Long-term Interest Rate % Tax Rate % Expenses in Cash % Personnel Burden %

2003 10.00% 10.00% 30.00% 5.00% 15.00%

2004 10.00% 10.00% 30.00% 5.00% 15.00%

2005 10.00% 10.00% 30.00% 5.00% 15.00%

7.2 Break-even Analysis Our break-even analysis maintains the following assumptions: Each unit = one package each with four 1⁄2-oz. muffins. Per-unit costs associated with production: ◆ Ingredients = $.10 ◆ Labor (contract) = $.20 ◆ Packaging = $.08 ◆ Total COGS = $.38

Total overall operating costs will remain low mainly as a result of minimal payroll requirements in years one and two.

© 2005 Monkey Muffins. All rights reserved.

Sample Plans 289

7.3 Projected Profit and Loss We expect aggressive growth in years two and three with virtually no increase in operating costs. This is due to careful planning and management of operating capital and by not underestimating our cost of doing business. Additionally, the primary management has agreed to take only a nominal increase in pay until the company reaches its sales benchmark in 2005. This is how we are able to show profits by the third year and continue on a steady growth plan.

© 2005 Monkey Muffins. All rights reserved.

290 Appendix B

© 2005 Monkey Muffins. All rights reserved.

Sample Plans

© 2005 Monkey Muffins. All rights reserved.

291

292 Appendix B

Table: Profit and Loss (Planned) Pro Forma Profit and Loss 2003 $14,991 $8,115 $0 -----------$8,115 $6,876 45.87%

2004 $407,700 $221,074 $0 -----------$221,074 $186,626 45.78%

2005 $815,400 $442,147 $0 -----------$442,147 $373,253 45.78%

Total Operating Expenses Profit Before Interest and Taxes Interest Expense Short-term Interest Expense Long-term Taxes Incurred Extraordinary Items

$3,000 $0 $2,000 $0 $0 $0 $1,600 $1,200 $900 $600 $0 -----------$9,300 ($2,424) $0 $0 $0 $0

$24,000 $8,000 $12,000 $94,400 $14,160 $0 $2,400 $2,400 $2,400 $3,000 $6,000 -----------$168,760 $17,866 $0 $0 $5,360 $0

$24,000 $10,000 $12,000 $139,200 $20,880 $0 $2,400 $2,400 $2,400 $3,000 $6,000 -----------$222,280 $150,973 $0 $0 $45,292 $0

Net Profit Net Profit/Sales

($2,424) -16.17%

$12,507 3.07%

$105,681 12.96%

Sales Direct Cost of Sales Other Costs Total Cost of Sales Gross Margin Gross Margin % Operating Expenses: Advertising/Promotion Shipping Expense Miscellaneous Payroll Expense Payroll Burden Depreciation R&D Phones/Office Expense Insurance Legal/Accounting Contract/Consultants

© 2005 Monkey Muffins. All rights reserved.

Sample Plans 293

7.4 Projected Cash Flow Cash flow remains strong with only minor negative flow due to aggressive monthly sales increases in year one.

© 2005 Monkey Muffins. All rights reserved.

294 Appendix B

Table: Cash Flow (Planned)

Pro Forma Cash Flow Cash Received Cash from Operations: Cash Sales From Receivables Subtotal Cash from Operations

Additional Cash Received Extraordinary Items Sales Tax, VAT, HST/GST Received New Current Borrowing New Other Liabilities (Interest-free) New Long-term Liabilities Sales of Other Short-term Assets Sales of Long-term Assets New Investment Received Subtotal Cash Received

Expenditures Expenditures from Operations: Cash Spent on Costs and Expenses Wages, Salaries, Payroll Taxes, etc. Payment of Accounts Payable Subtotal Spent on Operations

Additional Cash Spent Sales Tax, VAT, HST/GST Paid Out Principal Repayment of Current Borrowing Other Liabilities Principal Repayment Long-term Liabilities Principal Repayment Purchase Other Short-term Assets Purchase Long-term Assets Dividends Adjustment for Assets Purchased on Credit Subtotal Cash Spent

Net Cash Flow Cash Balance

© 2005 Monkey Muffins. All rights reserved.

2003

2004

2005

$14,99 1 $0 $14,99 1

$407,7 00 $0 $407,7 00

$815,4 00 $0 $815,4 00

$0 $0 $0 $0 $0 $0 $0 $0 $14,99 1

$0 $0 $0 $0 $0 $0 $0 $0 $407,7 00

$0 $0 $0 $0 $0 $0 $0 $0 $815,4 00

2003

2004

2005

$871 $0 $13,33 1

$14,33 $108,52 60 $222,6 28

$27,48 $160,02 80 $473,6 30

$14,20 2

$345,5 20

$661,1 92

$0 $0 $0 $0 $0 $0 $0 $0 $14,20 2

$0 $0 $0 $0 $0 $0 $0 $0 $345,5 20

$0 $0 $0 $0 $0 $0 $0 $0 $661,1 92

$789

$62,18 0

$154,2 08

$18,98 9

$81,16 9

$235,3 77

Sample Plans 295

7.5 Projected Balance Sheet As shown in the balance sheet in the following table, we expect a healthy growth in net worth, but not until 2006 when the company reaches its sales benchmark of $1,200,000. The company owns virtually no assets and generates wealth solely from sales. This creates a scenario that demands healthy sales for success. Table: Balance Sheet (Planned) Pro Forma Balance Sheet Assets Short-term Assets Cash Other Short-term Assets Total Short-term Assets Long-term Assets Long-term Assets Accumulated Depreciation Total Long-term Assets Total Assets

2003 $18,989 $0 $18,989

2004 $81,169 $0 $81,169

2005 $235,377 $0 $235,377

$0 $0 $0 $18,989

$0 $0 $0 $81,169

$0 $0 $0 $235,377

Accounts Payable Current Borrowing Other Short-term Liabilities Subtotal Short-term Liabilities

2003 $3,213 $0 $0 $3,213

2004 $52,887 $0 $0 $52,887

2005 $101,414 $0 $0 $101,414

Long-term Liabilities Total Liabilities

$0 $3,213

$0 $52,887

$0 $101,414

$40,000 ($21,800) ($2,424) $15,776 $18,989 $15,776

$40,000 ($24,224) $12,507 $28,282 $81,169 $28,282

$40,000 ($11,718) $105,681 $133,963 $235,377 $133,963

Liabilities and Capital

Paid-in Capital Retained Earnings Earnings Total Capital Total Liabilities and Capital Net Worth

7.6 Business Ratios The following table reflects important business rations as they relate to our industry.

© 2005 Monkey Muffins. All rights reserved.

296 Appendix B

Table Ratios (Planned) Ratio Analysis 2003 0.00%

2004 2619.70%

2005 100.00%

Industry Profile 6.20%

0.00% 0.00% 0.00% 100.00% 0.00% 100.00%

0.00% 0.00% 0.00% 100.00% 0.00% 100.00%

0.00% 0.00% 0.00% 100.00% 0.00% 100.00%

21.50% 21.20% 32.10% 74.80% 25.20% 100.00%

0.00% 16.92% 0.00% 16.92% 83.08%

0.00% 65.16% 0.00% 65.16% 34.84%

0.00% 43.09% 0.00% 43.09% 56.91%

32.20% 25.60% 15.80% 41.40% 58.60%

Percent of Sales Sales Gross Margin Selling, General, & Administrative Expenses Advertising Expenses Profit Before Interest and Taxes

100.00% 45.87% 62.04% 20.01% -16.17%

100.00% 45.78% 42.71% 5.89% 4.38%

100.00% 45.78% 32.81% 2.94% 18.52%

100.00% 36.00% 20.50% 1.60% 4.70%

Main Ratios Current Quick Total Debt to Total Assets Pre-tax Return on Net Worth Pre-tax Return on Assets

5.91 5.91 16.92% -15.37% -12.77%

1.53 1.53 65.16% 63.17% 22.01%

2.32 2.32 43.09% 112.70% 64.14%

2.24 1.21 48.00% 7.80% 15.10%

2003 $4,997

2004 $135,900

2005 $271,800

Industry $90,802 64.60%

2003 -16.17% -15.37%

2004 3.07% 44.22%

2005 12.96% 78.89%

n/a n/a

Activity Ratios Accounts Receivable Turnover Collection Days Inventory Turnover Accounts Payable Turnover Total Asset Turnover

0.00 0 0.00 5.15 0.79

0.00 0 0.00 5.15 5.02

0.00 0 0.00 5.15 3.46

n/a n/a n/a n/a n/a

Debt Ratios Debt to Net Worth Short-term Liability to Liability

0.20 1.00

1.87 1.00

0.76 1.00

$15,776 0.00

$28,282 0.00

$133,963 0.00

n/a n/a

1.27 17% 5.91 0.95 $0

0.20 65% 1.53 14.42 0.00

0.29 43% 2.32 6.09 0.00

n/a n/a n/a n/a n/a

Sales Growth Percent of Total Assets Accounts Receivable Inventory Other Short-term Assets Total Short-term Assets Long-term Assets Total Assets Other Short-term Liabilities Subtotal Short-term Liabilities Long-term Liabilities Total Liabilities Net Worth

Business Vitality Profile Sales per Employee Survival Rate Additional Ratios Net Profit Margin Return on Equity

Liquidity Ratios Net Working Capital Interest Coverage Additional Ratios Assets to Sales Current Debt/Total Assets Acid Test Sales/Net Worth Dividend Payout

© 2005 Monkey Muffins. All rights reserved.

Sample Plans 297

7.7 Sales Forecast Our sales forecast assumes that there will be no change in price or costs. As indicated in our milestones table, sales will not commence until April 2003. This is in large part due to the completion and finalizing of recipes, packaging, and structuring of relationships with our manufacturers and distributors. We expect slow growth throughout 2003 at a rate of 25 percent per month in each market segment. This will be our time to establish our first accounts and to fine-tune our co-sales strategy with our distributors. Growth for 2004/2005 assumes steady growth increase in overall sales year over year as a result of aggressive grassroots marketing, PR, and increased public awareness of our products.

© 2005 Monkey Muffins. All rights reserved.

298 Appendix B Table: Sales Forecast (Planned) Sales Forecast Sales

2003

2004

2005

Muffin Sales Licensed Merchandise Total Sales

$14,414 $577 $14,991

$400,548 $7,152 $407,700

$801,096 $14,304 $815,400

Direct Cost of Sales Muffin Sales Licensed Merchandise

2003 $7,827 $288

2004 $217,498 $3,576

2005 $434,995 $7,152

Subtotal Direct Cost of Sales

$8,115

$221,074

$442,147

© 2005 Monkey Muffins. All rights reserved.

Sample Plans 299

© 2005 Monkey Muffins. All rights reserved.

300 Appendix B

Confidentiality Agreement The undersigned reader acknowledges that the information provided by Monkey Muffins, Inc., in this business plan is confidential; therefore, reader agrees not to disclose it without the express written permission of Monkey Muffins, Inc. It is acknowledged by reader that information to be furnished in this business plan is in all respects confidential in nature, other than information which is in the public domain through other means, and that any disclosure or use of same by reader may cause serious harm or damage to Monkey Muffins, Inc. Upon request, this document is to be immediately returned to Monkey Muffins, Inc.

__________________________ Signature

__________________________ Name (typed or printed)

This is a business plan. It does not imply an offering of securities.

© 2005 Monkey Muffins. All rights reserved.

___________ Date

C

Appendix

Resources

This list of resources is meant to give you an idea of the resources available to you. As always, use caution when giving your personal or business information to associations, companies, websites, or other organizations.

Government Association of Small Business Development Centers (www.asbdc-us.org) Here, you’ll find out about what the U.S. Small Business Administration’s Small Business Development Centers can offer you, and locate the one closest to your business. Business.gov (www.business.gov) Business.gov guides you through the maze of government rules and regulations … and provides access to services and resources to help you start, grow, and succeed in business. Economic Development Administration (www.eda.gov) The U.S. Department of Commerce’s website, where you can find out information about loan guarantees, tax incentives, and other EDA programs. Federal Trade Commission (www.ftc.gov) This is the government agency regulating trade practices. The site has a wealth of information about regulations, as well as information about compliance measures. Internal Revenue Service (www.irs.gov) Yes, the IRS. This site, especially the small-business page, has good information on your tax-filing requirements, as well as resources to which you can turn for help.

302 Appendix C Office of Women’s Business Ownership (www.onlinewbo.gov) Under the auspices of the Small Business Administration, this organization exists to help womenowned businesses. U.S. Census Bureau (www.cnesus.gov) The U.S. Census offers a lot of information about the population and businesses in the country that would be useful in market research for your business. U.S. Patent and Trademark Office (www.uspto.gov) If you’ve got a trade secret that you want to keep all to yourself, or a logo that you want to be sure remains proprietary, this site will give you the information you need to do so. U.S. Chamber of Commerce (www.uschamber.com) This international organization represents 3,000,000 businesses, 2,800 state and local chambers, 830 business associations, and 96 American Chambers of Commerce abroad. U.S. Customs and Border Protection (www.customs.ustreas.gov) This agency, refocused after the 9/11 terrorist attacks, is still the place to get regulatory and tariff information on importing and exporting. U.S. Department of Labor (www.dol.gov) From minimum wage laws to statistics on hiring and employment, the Department of Labor is a place to visit for regulatory, trend, and employment information. U.S. Postal Service (www.usps.gov) The governing authority of your friendly, neighborhood post office has a website with great information on using the postal system to promote your business. U.S. Small Business Development Center (www.sba.gov) This should be your first stop on the Internet for virtually everything related to starting, financing, and operating your small business. Sample business plans, information on special programs and seminars, articles, and other resources are just a few of the valuable tools you’ll find here.

Money and Management America’s Business Funding Directory (www.businessfinance.com) searchable database of more than 4,000 loan and capital sources. Business Owners Toolkit (www.toolkit.cch.com) and low-fee downloads of legal forms.

Free

A site filled with tools, articles,

Resources 303 Clickangel (www.clickangel.com) ness owners.

An online network of angel investors and busi-

Cloudstart (www.cloudstart.com) plan for investors to see.

This website allows you to post your business

Quicken (www.quicken.com) The creator of this popular financial software has a website filled with financial information for small businesses and individuals. Small Business Administration (www.sba.gov/financing) The SBA offers much information on how to find proper financing for your business, and also offers guarantees for loans.

Marketing Publicity Services: Contacts on Tap (www.cornerbarpr.com) media contacts from around the country. PR Leads (www.PRLeads.com) ing sources for stories.

A database of

A service that e-mails leads from journalists seek-

Profnet (www.profnet.com) Another publicity-lead service, affiliated with PR Leads, but also offers a searchable database of experts for journalists. Publicity Hound (www.publicityhound.com) Print and online newsletter of publicity leads, as well as a terrific website filled with information on publicity and marketing for small businesses. Send2Press.com (www.send2press.com) service.

News-release creation and distribution

Media and Clipping Services Bacon’s Publicity Checker (www.bacons.com) Offers database of media contacts, directories, and news-release distribution services. Burrelle’s (www.burrelles.com) Another service offering a database of media contacts. It also offers a news-monitoring service that will send you clips that include a particular company name or topic.

304 Appendix C Professional Associations and Organizations American Association of Advertising Agencies (www.aaaa.org) many of the leading advertising agencies in the country.

An association of

American Management Association (www.amanet.org) International association including information on all aspects of management. Extensive publication list and library are available online. American Marketing Association (www.marketingpower.com) The country’s leading marketing-trade association. Again, this site offers resources, library, and other valuable information, including local chapters, available online. American Small Business Association (http://www.asbaonline.org) tion that advocates for the interests of small businesses.

An associa-

Better Business Bureau (www.bbb.org) This nonprofit organization, often mistaken for a government agency, is the watchdog of the business world, reporting businesses that act unethically or illegally. Direct Marketing Association (www.the-dma.org) zation of direct-mail and marketing companies.

The world’s foremost organi-

International Association of Business Communicators (www.iabc.com) Association of communications and marketing professionals, with local chapters throughout the country. National Association for the Self-Employed (www.nase.org) An association that supports the needs of micro-businesses (those with fewer than 10 employees). National Business Incubation Association (www.nbia.org) Association of incubator developers, managers, and technology specialists, devoted to advancing business incubation and entrepreneurship. It provides thousands of professionals with the information, education, advocacy, and networking resources to bring excellence to the process of assisting early-stage companies worldwide. National Association for Women Business Owners (www.nawbo.org) The nation’s leading association for women business owners, with chapters throughout the country. National Speakers Association (www.nsaspeaker.org) An association of professional speakers and those who have developed an area of expertise and leveraged it into a speaking career.

Resources 305 Point-of-Purchase Advertising International (www.popai.com) An association devoted to the interests and practices of in-store and on-site advertising and promotion. Public Relations Society of America (www.prsa.org) ation of public relations professionals.

The world’s leading associ-

Service Corps of Retired Executives (SCORE) (www.score.org) Part of the SBA, this organization offers free counseling to small-business owners by experienced professionals versed in various areas of business. Toastmasters (www.toastmasters.org) This international organization helps individuals improve their speaking, presentation, and interpersonal skills. Local chapters meet throughout the world.

Magazines and Newsletters Check out these business publications and magazines for the latest information about business. Entrepreneur Magazine (www.entrepreneur.com) Guerrilla Marketing Online (www.gmarketing.com) Idea Café (www.ideacafe.com) Inc. Magazine (www.inc.com) Marketing Profs (www.MarketingProfs.com) Marketing Sherpa (www.marketingsherpa.com) MarketingVOX (www.marketingvox.com) Nolo—Self-Help Law Center (www.nolo.com) Wall Street Journal’s Startup Journal (www.startupjournal.com)

Market Research and Information Sources Need market information? These companies provide market research and other information that can help you target your best markets. Dataminers (www.dataminers.com) SRI Consulting Business Intelligence (SRIC-BI) (www.sric-bi.com)

306 Appendix C Experian Information Solutions (www.experian.com) Harte Hanks (www.hartehanks.com) Standard and Poor’s Register of Corporations, Directors and Executives (www. standardandpoors.com) Ward’s Business Directory of U. S. Private and Public Companies

Business Portals and Directories Each of these sites has terrific articles, information, and resources for small businesses: ◆ www.Business.com ◆ www.businessknowhow.com ◆ www.businessnation.com ◆ www.morebusiness.com ◆ www.sbinformation.about.com ◆ www.Smartbiz.com ◆ www.womanowned.com ◆ www.workingsolo.com

Business Plan Software 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) Business Plan 12.0 by Out of Your Mind … And into the Marketplace (www.businessplan.com) Anatomy of a Business Plan by Linda Pinson (www.business-plan.com/anatomy.html)

Index Numbers 7(a) loan guarantee, 20 504 loan program, 20

A Achievers, 97 acquisition agreements, 163 actions implementing, 193 marketing plan, 114-115 active voice, 31 advertising, 108. See also promotions advisors, 43 advisory boards, 194-196, 201 affiliate programs, 121 agreements acquisition, 163 confidentiality, 52 franchise, 163 partnerships, 5 vendor, 138 AIDA (Attention Interest Desire Action), 125 alliances, 83 analyzing credit reports, 26-27 finances, 153-154 industries competition, 69-71 economic factors, 68 innovations, 67-68 life cycles, 64 locations, 69 market research, 62-64 price comparisons, 69 regulations, 68

backup documents, 159, 166 acquisition agreements, 163 appendix, 160 articles of incorporation, 162 bios, 160-162 credit reports, 163 franchise agreements, 163 leases/mortgages, 164 letters of intent, 165 licenses, 164 loans, 163 market analyses, 166 personal financial statements/ tax returns, 162 resumés, 160 balance sheets, 149 banks, 84 barriers, 193 basic insurance coverages, 155-156 Believers, 98 benchmarking, 43, 206 benefits of business plans, 4 establishing vision/ direction, 6 exit strategies, 8 feasibility, 8 finances, 7 future, 8 marketing, 8 outlining operations, 7 reality checks, 7 research, 8 setting goals, 6 staying on course, 6 B-to-C (Business-to-Consumer) bios, 160-162 markets, 89 Biz Plan Builder, 12 B2B (Business-to-Business) BizMiner, 66 markets, 89, 92-93 brand loyalty, 96 industry data, 40 iterative process, 44 markets B2B customers, 92-93 backup documents, 166 customer profiles, 96-99 demographics, 90-91 standard of living, 90 motivations, 95 perfect customers, 94-96 psychographics, 91-92 targeting customers, 89, 93 undesirable customers, 99 performance, 71 profitability, 151 Anatomy of a Business Plan, 13 angel investors, 21-22 annual meetings, 45 appendix, 160 applications for loans, 183 articles of incorporation, 162 assets, 76 associations, 128 assumptions, 127 Attention Interest Desire Action (AIDA), 125 attorneys, 84 attracting business partners, 43 financial assistance, 41-42 audiences, 30

B

308 The Complete Idiot’s Guide to Business Plans break-even points, 152 budgeting marketing plans, 115 operating budgets, 143-144 Bureau of Labor Statistics, 65 Business Plan 12.0, 13 Business Plan Pro 2005, 12 Business-to-Business (B2B) markets, 89, 92-93 Business-to-Consumer (B-to-C) markets, 89 businesses descriptions, 55 incubators, 21 networking groups, 124 partners, 43 selling, 5 summaries, 171-172 writing audiences, 30 capitalization, 34 grammar, 31-33 language/tone, 30-31 presentation, 33-34 punctuation, 34 rewrites, 35 voice recorders, 36 buying preferences, 96

C CAM (common area maintenance), 134 CAN-SPAM Act of 2003, 112 capacity to repay, 23 capital investors/lenders, 23 sources, 4 venture, 42 capitalization, 34 cash flow, 145-147 catalogs, 121 CDC (Community Development Centers), 22 census data, 66 certificates of insurance, 156

channels, 120-121 choices for customers, 92 clichés, 33 Clickangel website, 186 collateral, 24, 109 commercial loans, 19 common area maintenance (CAM), 134 common-law employees, 80 Community Development Centers (CDC), 22 community relations, 111 comparing prices, 69 competition analyzing, 69-71 market share, 103 complementary companies, 197 confidentiality agreements, 52 contractors, 79-80, 197 corporate seals, 45 corporations, 56 cost matrix, 115 Counselors to America’s Small Business, 11 cover letters elements, 48 example, 49 formatting, 50 CPAs, 84 credit cards, 18 credit reports backup documents, 163 bureaus, 25 free, 26 scores, 24-26 assessing, 26-27 increasing, 27 scams, 28 credit-reporting bureaus, 25 customer-service policies, 139-140 customers B2B, 92-93 databases, 207 demographics, 90-91 expanding, 124 feedback, 209

information management software, 122 marketing, 100-103 motivations, 95 perfect, 94-96 profiles, 96 Achievers, 97 Believers, 98 Experiencers, 98 Innovators, 97 Makers, 99 Strivers, 98 Survivors, 99 Thinkers, 97 psychographics, 91-92 targeting, 89-90, 93 undesirable, 99

D databases customer, 207 as sales tools, 122 debt financing, 16 decision makers, 95 declarative sentences, 32 declining industries, 65 deliveries, 137 demographics, 90-91 depreciation, 144 descriptions of products/ services, 57 direct mail promotions, 109 direct marketing, 109 direct selling, 120 direction, 6 distractions, 191 distribution, 107

E economics, 66-68 EDA (Economic Development Authority), 22 E-Focus Groups, 64

Index 309 elements confidentiality agreements, 52 cover letters, 48 executive summaries, 55 purpose portion, 55-56 title pages, 50 TOCs, 52 e-mail, 112 emerging industries, 65 employees. See also personnel common-law, 80 defined, 81 finding, 198 incentives, 199-201 information sources, 208 motivating, 198 relations, 111 statutory, 81-82 entrepreneurship, 3 Equifax, 25 equipment, 130-132 compared to supplies, 130 leasing, 132 technology, 131 equity financing, 16 exclamatory sentences, 32 executive summaries, 55, 170, 174 exit strategies, 8, 210-212 expectations implementing, 193 loans, 183-185 Experian, 25 Experiencers, 98

F factors, 179 facts, 32, 40 family as money sources, 18 Federal Trade Commission, 112 financial statements as backup documents, 162 information sources, 207

financing. See also money analyzing, 153-154 angel investors, 21-22 assistance, 41-42 benchmarking success, 43 capital, 4 credit-reporting bureaus, 25 debt, 16 equity, 16 factors, 179 internal growth, 187 investors/lenders capacity to repay, 23 capital, 23 collateral, 24 conditions, 24 credit ratings, 24 finding, 185 impressing, 180-181 owner’s character, 24 requirements, 179 selecting, 21 stake in company, 187 loans, 182 applications, 183 expectations, 183-185 government-secured, 183 leasing, 183 lines of credit, 18-19, 182 term loans, 182 transaction loans, 182 turnaround time, 185 money sources, 22 CDC, 22 EDA, 22 grants, 17 loans, 19-20 personal, 17-18 trade groups, 22 negotiating, 181 online, 186 securing, 5 sources, 178-179 summaries, 172 finding employees, 198 investors, 185

low-cost/free help, 11 prospects, 123-124 USP, 9-10 focus groups, 63-64 focusing summaries, 173-174 forecasting sales, 119, 127-128 formal advisory boards, 194 formatting cover letters, 50 franchise agreements, 163 free help, 11 friends as money sources, 18 future, 202

G geography. See locations goals, 41-43 attracting business partners, 43 financial assistance, 41-42 marketing plan, 114 setting, 6 government-secured loans, 183 grammar, 31 active voice, 31 clichés, 33 facts, 32 passive voice, 31 sentences, 32 grants, 17, 42 growth industries, 65 locations, 133

H help free/low-cost, 11 hiring, 11-12 software, 12-13 writing services, 10 home-equity loans, 18 hours of operation, 56 household characteristics, 91 hyperbole, 33

310 The Complete Idiot’s Guide to Business Plans I imperative sentences, 32 implementation, 192-193 impressing lenders, 180-181 improvements, 191 incentives for employees, 199-201 income customers, 90 defined, 8 incorporation, 162 increasing credit scores, 27 industries associations, 128 competition, 69-71 data analysis, 40 economics, 66-68 innovations, 67-68 life cycles, 64-65 locations, 69 price comparisons, 69 regulations, 68 trends, 66-67 influencers, 95 informal advisory boards, 194 innovations, 67-68 Innovators, 97 insurance coverages, 154-156 professionals, 84 internal assets, 76 Internal Revenue Service. See IRS Internet financing, 186 marketing, 112 ordering, 121 sales, 121 interrogative sentences, 32 interviews, 63 inventory, 136-137 investors angel, 21-22 finding, 185 requirements, 23-24

securing, 5 stake in companies, 187 IRS (Internal Revenue Service) contractors, 80 employees common-law, 80 defined, 81 statutory, 81-82 website, 81 iterative process, 44 analysis, 44 annual meetings, 45 benchmarking, 206 customer feedback, 209 information sources, 207-208 updates, 44

J–K–L jargon, 31 joining networking groups, 124 language, 30-31 leadership, 192 leases, 183 backup documents, 164 equipment, 132 locations, 133 lenders finding, 185 impressing, 180-181 requirements, 23-24, 179 selecting, 21 stake in company, 187 letters of intent, 138, 165 liability insurance, 155 licenses, 164 life cycles of industries, 64-65 lines of credit, 18-19, 182 LLCs (Limited Liability Corporations), 56 loans, 19, 42 applications, 183 backup documents, 163

commercial, 19 expectations, 183-185 government-secured, 183 leases, 183 lenders. See lenders finding, 185 impressing, 180-181 requirements, 23-24, 179 selecting, 21 stake in company, 187 lines of credit, 18-19, 182 micro, 20 SBA-guaranteed, 20 term, 182 transactions, 182 turnaround time, 185 locations, 56, 107, 132 analyzing, 69 B2B customers, 93 growth, 133 lease lengths, 133 locations/services, 134 pricing, 132 traffic, 133 low-cost help, 11

M Makers, 99 managing cash flow, 145 deliveries, 137 future, 202 inventory, 136 ordering, 137 plans, 189 teams, 77 manufacturer’s representatives, 120 marketing, 113 actions, 114-115 analyzing, 166 B-to-C, 89 B2B, 89, 92-93 budgeting, 115 cost matrix, 115

Index 311 customers perfect, 94-96 profiles, 96-99 undesirable, 99 defined, 106 demographics, 90-91 goals, 114 motivations, 95 psychographics, 91-92 researching, 62 focus groups, 63-64 interviews, 63 observation, 64 primary, 62 quantitative, 62 sales forecasts, 127 secondary, 62 surveys, 63 tainted data, 63 segments, 100 share, 103 strategies, 106 place, 107 pricing, 107 products, 106 promotions, 107-113 SWOT, 101-102 summaries, 172 targeting, 89, 93 timing, 116 mature industries, 65 micro-loans, 20 Minority Business Development Agency, 66 missions, 57-59 money. See also financing balance sheets, 149 cash flow, 145-147 financial analysis, 153-154 insurance coverages, 154-156 operating budgets, 143-144 profit-and-loss statements, 147 profitability, 151-152

inventory, 136 letters of intent, 138 locations, 132-134 ordering, 137 outlining, 7 production, 135 purchasing policies, 137 quality control, 135-136 service provisions, 135 strengthening, 5 suppliers, 137 vendor agreements, 138 opportunities, 102 ordering, 137 organizational charts, 82 outlining assumptions, 127 marketing plans, 113 actions, 114-115 budgeting, 115 NAICS (North American cost matrix, 115 Industry Classification goals, 114 System), 65 timing, 116 narrative summary format, 170 operations, 7 National Foundation for Credit suppliers, 137 Counseling, 28 outsourcing staff, 79 National Venture Capital owners Association website, 186 B2B customers, 92 needs versus wants of customers, character, 24 95 descriptions, 56 negotiating, 181 experiences, 76 networking groups, 124 investment amounts, 154 North American Industry transferring, 210-212 Classification System (NAICS), 65 notices of confidentiality, 50 Source and Use of Funds statements, 144 start-up costs, 142 sources, 22 angel investors, 21-22 CDC, 22 EDA, 22 grants, 17 investors/lenders, 23-24 loans, 19-20 personal, 17-18 trade groups, 22 mortgages, 164 motivations customers, 95 employees, 198

N

P

O observation, 64 operations, 129 budgets, 143-144 customer-service policies, 139-140 deliveries, 137 equipment, 130-132

partnerships, 56 agreements, 5 experiences, 76 strategic, 83, 196-197 passive voice, 31 past sales, 127 perfect customers, 94-95 brand loyalty, 96 buying preferences, 96 decision makers, 95

312 The Complete Idiot’s Guide to Business Plans importance, 95 influencers, 95 pricing, 96 performance, 71 personal characteristics of customers, 90 personal financial statements, 162 personal resources of money, 17-18 personnel. See also employees advisory boards, 201 contractors, 80 finding, 198 incentives, 199-201 motivating, 198 organizational charts, 82 owners, 76 partnerships, 56 agreements, 5 experiences, 76 strategic, 83, 196-197 professional resources, 84-85 salaries, 83 staffing, 77-79 philosophies, 190 places. See locations Plan Write, 12 point-of-purchase advertising, 108 political views of customers, 91 POS (point-of-sale) programs, 208 predicting market share, 103 presentation, 33-34 pricing comparing, 69 customers, 96 finding prospects, 124 locations, 132 marketing strategy, 107 utilities/services, 134 primary market research, 62 pro forma, 145 production, 135

products descriptions, 57 marketing strategy, 106 professional resources, 84-85 profit-and-loss statements, 147 profitability, 151-152 promotions, 107 advertising, 108 collateral materials, 109 community relations, 111 direct mail, 109 direct marketing, 109 employee relations, 111 online marketing, 112 point-of-purchase advertising, 108 public relations/publicity, 110-111 relationship marketing, 112-113 property insurance, 155 prospects, finding, 123-124 psychographics (customers), 91 B2B customers, 93 opinions/values, 91 political views, 91 styles, 92 public relations, 110-111 publicity, 110-111 punctuation, 34 purchasing policies, 137 purposes portion, 55-56

Q–R Qualitative Research, 64 quality control, 135-136 quantitative research, 62 referrals, 123 regulations, 68 relationships building, 196 advisory boards, 194-196 strategic partners, 196-197

identifying, 196 marketing, 112-113 researching, 8 facts, 40 industry trends, 66-67 markets, 62 focus groups, 63-64 interviews, 63 observation, 64 primary, 62 quantitative, 62 sales forecasting, 127 secondary, 62 surveys, 63 tainted data, 63 resources business plan help, 11 hiring, 11-12 software, 12-13 resumés, 160 retailers, 121 return on investment (ROI), 152 revenue, 8 reviewing iterative process, 44-45 rewriting, 35 rhetorical sentences, 32 ROI (return on investment), 152

S salaries, 83 sales channels, 120-121 cycles, 125 finding prospects, 123-124 forecasting, 119, 127-128 territories, 123 tools, 122 savings as money resources, 17 SBA-guaranteed loans, 20 SBIR (Small Business Innovative Research), 17

Index 313 scams, 28 SCORE (Counselors to America’s Small Business), 11 seals (corporate), 45 seasonal information, 56 secondary market research, 62 segmented summary format, 170 segments of markets, 100 selling companies, 5 POS programs, 208 sentences, 32 services descriptions, 57 locations, 134 marketing strategy, 106 provisions for, 135 Small Business Administration, 11 Small Business Development Centers, 11 Small Business Innovative Research (SBIR), 17 Small Business Technology Transfer (STTR), 17 software business-plan, 12-13 customer information management, 122 sole proprietorships, 56, 162 Source and Use of Funds statements, 144 sources capital, 4 financing, 178-179 information, 207-208 money, 144 CDC, 22 EDA, 22 grants, 17 loans, 19-20 personal, 17-18 trade groups, 22 spam, 112 spending habits of customers, 90

staffing, 77 advisory boards, 201 contractors, 79-80 employees common-law, 80 defined, 81 statutory, 81-82 finding, 198 incentives, 199-201 management teams, 77 motivating, 198 organizational charts, 82 outsourcing, 79 professional resources, 84-85 salaries, 83 strategic partnerships, 83, 196-197 start-up costs, 142 statements cash flow, 145-147 financial as backup documents, 162 information sources, 207 mission, 58 profit-and-loss, 147 Source and Use of Funds, 144 values, 59 vision, 58 statutory employees, 81-82 strategic partnerships, 83, 196-197 strategies developing, 190 exit, 210-212 market, 101 marketing, 106 place, 107 pricing, 107 products, 106 promotions, 107-113 SWOT, 101-102 strengths, 101 Strengths, Weaknesses, Opportunities, Threats (SWOT), 101-102

Strivers, 98 STTR (Small Business Technology Transfer), 17 styles of customers, 92 success, 43 succession plans, 8, 210-212 summaries, 169 company, 171 executive, 170, 174 financial, 172 focusing, 173-174 market, 172 operations, 171-172 suppliers outlining, 137 relationships with, 197 surveys, 63 Survivors, 99 SWOT (Strengths, Weaknesses, Opportunities, Threats), 101-102

T Table of Contents (TOC), 52 tainted data, 63 targeting audiences, 30 customers, 89-90, 93 tax returns, 162 technology equipment needs, 131 sales tools, 122 software business-plan, 12-13 customer information management, 122 term loans, 182 territories for sales, 123 Thinkers, 97 threats, 102 timing, 116 title pages, 50 TOC (Table of Contents), 52 tone, 30-31 trade associations, 124

314 The Complete Idiot’s Guide to Business Plans trade groups, 22 trade journals, 67 trade shows, 122 traffic, 133 Trans Union, 25 transaction loans, 182 transfers of ownership, 8, 210-212 trends in industries, 66-67 types B2B customers, 92 business plans, 4-5 loans, 182-183

U undesirable customers, 99 United States Commerce website, 23 Small Business Administration, 11 Statistics Division, 66 updates, 44 USP (unique selling proposition), 9-10 utilities, 134

V VALS Types, 97-99 values customers, 91 statements, 59 vendors agreements, 138 contacts, 123 venture capital, 42 Venture Capital Journal, 186 visions developing, 190 establishing, 6 statements, 58 voice, 31 voice recorders, 36

W–X–Y–Z wants versus needs of customers, 95 weaknesses, 102 websites Anatomy of a Business Plan, 13 Biz Plan Builder, 12 BizMiner, 66 Bureau of Labor Statistics, 65 Business Plan 12.0, 13 Business Plan Pro 2005, 12 census data, 66 Clickangel, 186 E-Focus Groups, 64 EDA, 22 Federal Trade Commission, 112 financing, 186 focus groups, 64 free credit reports, 26 IRS, 81 Minority Business Development Agency, 66 National Foundation for Credit Counseling, 28 National Venture Capital Association, 186 Plan Write, 12 Qualitative Research, 64 salary surveys/calculators, 83 SCORE, 11 Small Business Administration, 11 Small Business Development Centers, 11 United States Commerce, 23 United States Statistics Division, 66

wholesalers, 120 worker’s compensation insurance, 155 working capital budgets, 143-144 writing audiences, 30 block, 35 capitalization, 34 grammar, 31-33 language, 30-31 presentation, 33-34 punctuation, 34 rewrites, 35 services, 10 voice recorders, 36