of your target audience - This is a brief description of the market segment to which you will direct your marketing effort, and from which you anticipate your sales.
Program(s) to generate awareness of your offering - If your target customers are not aware of the item you have available it cannot succeed. Therefore you should identify what programs you will be implementing to create awareness of your offering. This would include a discussion of any of the following:
Media advertising
Social media
Networking
Speaking engagements
E-mail blasts
etc.
Program(s) to generate trial and usage of your product or service - Once you have created some awareness of your offering, it is necessary to do something to motivate the target customer to become a buyer/customer/client. In some product categories this consists of offering coupons or refund offers, in others it might be a free consultation and in a third it could be a store wide promotion offering a special event to draw in customers.
Management and Organization - This is a section where you will identify your plans for operating the company for the first three years. It should include a discussion of your legal structure (i.e., C Corp, S Corp, LLC, PC, etc.), and an overview of the personnel requirements of the organization. For example if you will require a sales effort to generate revenues, how will you achieve this in terms of using employees, brokers, distributors or just yourself as the selling entity for the organization. The section should also outline the organizational structure in terms of reporting relationships for employees who will work for the company for the initial three years.
Start-up Expenses - This is a section that will identify all the expenses that will be required to get you into the business. It will include only the ONE TIME expenses such as the purchase of computers, office equipment, supplies etc. that are needed to get the operation started.
Financial Projections - This is the most important part of the entire business plan, as it outlines your sense of the revenue and cash flow that will be coming to the company for the first three years. It should consist of four documents:
Pro Forma P&L - This is a projected profit and loss statement for the initial three year period of operations. It is a very difficult worksheet to create, as most new ventures do not have a clear path as to their revenues for the initial 12-18 months. Therefore it is important to make assumptions (which you will keep as an Appendix to the plan) so they can be revisited as the business begins operating. Do not make the mistake of assuming that your revenues will be flat for the first 12 months. Every business experiences a ramp-up time as you get started so the revenues in the early months will be significantly less than in the later months. It should be relatively easy to project expenses, as most of the expenses you will incur will probably be easily identified. These are items such as rent, utilities, staff salaries, product cost of goods, etc. A sample P&L for a company is shown at the end of this chapter.
Cash Flow Statement - This is an absolutely essential document that most business plans do not include. It shows the monthly flow of cash for the first year of the business. The intent is to identify cash needs of the business during the early stages of operation. It starts with the opening balance of your business account and reflects both the revenues and the expenses each month, showing the cash balance each in the company each month. A sample cash flow statement for a hypothetical company is shown at the end of this chapter.
Balance Sheet - This is a statement of the assets, liabilities and net worth of the organization and is a vital document when seeking funding for the organization. An example of a balance sheet for a hypothetical company is shown at the end of this chapter.
If a business plan is being developed for the purpose of applying for a loan, then it also must include a personal financial statement. This is essentially a statement of the assets you own, the income you have coming in from work or investments, and the liabilities you currently have such as mortgages or car loans. Virtually every loan to a small business will be secured based on the assets of the individual. Generally this is the equity in the home. For this reason it is very important that new businesses carefully think through their needs for start-up monies, as there is considerable risk in putting your house up as the collateral for obtaining operating cash for your business.
SUMMARY - It is almost impossible to do too much planning when starting a new business. While developing a business plan might appear to be an academic exercise to the aggressive entrepreneur, it will pay you back in dividends over time. Take the extra time to develop your plan, and then use it as a dynamic document as the business proceeds. You will be glad you did.
CHAPTER FOUR - Financing a New Business
Introduction - It is a well-known fact that the principal reason that new businesses fail is because of the lack of adequate funding. In almost every type of business, CASH IS KING. If you do not generate cash from the business it will not succeed. In our work at SCORE we have seen people go into business and generate reasonable sales, but due to the nature of the customers to whom they have sold the product or service they cannot collect the money -thus having a shortage of cash. If you have no cash you can't pay expenses or invest in the future of the business. If this situation continues you will fail!
Cash for a business comes essentially from two sources. One is the revenues you generate from selling your product or service, assuming you can turn the revenues into cash. This is a particular problem of many service businesses that perform the service for the client/customer but have difficulty collecting the money in a timely fashion -or at all. The other source of cash is your own pool of money that you have generated from your own savings or from outside sources. This chapter will identify the various options for a small business relative to generating funds to finance the start-up and the on-going operations of the business.
The Five Cs of Lending - All sources of lending hope to get their money back with interest in the future. Other than very close relatives, the motivation for investing in a business is to make a profit on the investment. In the case of a start up, the hope is to make a large percentage on the investment, since the risk is so high. One simple measurement tool the investment community looks at in evaluating potential investors is the 5 C's, which are as follows:
Capital - This refers to the amount of money you have put into the venture. Lenders like to see that the borrower has some significant ' skin in the game' before they are willing to take chances on the investment.
Collateral - This is the amount of liquid assets you would have to protect the lenders investment in your business. To this end,it is very common for a borrower to have to pledge their home, car, boat or other major assets in order to borrow money.
Cash Flow - This refers to the cash that the business will generate as a result of the operations. The cash flow is what will tell the investor whether they are likely to get their money back from the investment. If the investment does not show a very positive cash flow within 12- 24 months it is unlikely that the lender will be anxious to participate in this investment.
Character - This generally refers to the credit score you would get from the three rating agencies. If you do not have at least 700 in the current environment, it is very unlikely that you would be able to get attention from the more traditional lenders.
