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:
-Proforma 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 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 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. The balance sheet is covered in detail in the next chapter.
-Sources & Uses Report – This is a document that identifies the amount of money that the organization will use to start the business (before it opens) and then the money needed to fund the business during the first year. Then it identifies the sources of funds that will be obtained to operate the business. This could include both sales of products/services and loans/investments from outside resources.
If a business plan is being developed for 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
Key Business Strategies
Introduction – This chapter will provide information on developing the five principal strategies that every new business should develop. It is advisable that they be committed to writing before attempting to create any tactical marketing programs for the product or service. By writing the strategies down, it forces the entrepreneur to carefully think about the contents and meaning of the strategy, to ensure that it is consistent with the other elements of the marketing plan.
The key strategies to be covered are Overall Marketing, External Communications, Media, and Public Relations & Promotion. For each of these strategies, we will identify the specific goal of each and what the nature of the content is that should be included in the document. An effective business strategy such as we have identified can normally be developed on less than one page. If the objectives of the individual strategy are clearly identified, there is no reason that it cannot be articulated in one page or less.
Overall Marketing Strategy - This is the most fundamental of the five strategies, as it is a direct reflection of the positioning statement. The goal of the Overall Marketing Strategy is to establish the strategic framework for the other four strategies that will be covered in this chapter. Importantly, all the tactical programs developed for the product or service business must be consistent with the overall marketing strategy. A well, thought-out marketing strategy will contain the following specific segments:
* Market Position: Specifically, what is the overall goal of the business. An example would be to state that our goal is to be one of the three leading interior design firms in the ABC County.
* Product Line Focus: An example would be to indicate that we will only work on commercial design assignments for people intending to spend a minimum of $X on the project. This clearly positions the niche that the design firm is seeking to achieve, and also identifies clearly the types of assignments that it will not accept (i.e., commercial jobs & projects that will not result in at least $X being spent over the course of the assignment).
* Target Audience: This is a statement of the primary and secondary target market for the company. For example, we will place our primary marketing emphasis on residential architects within ABC County, while secondarily seeking to reach women head of households in homes worth at least $Y million dollars.
* Pricing Approach: This strategy will outline the role of pricing in the overall marketing of the brand/company. For example, is the goal to be the low priced or high-priced entry in the market or is there a competitor against whom the pricing will be pegged. This is a very important sub-strategy within the overall marketing strategy.
* Tactical Approach: This is a high-level view of the tactics that will be used to accomplish the objectives stated above. An example might be the statement that “the primary tactical focus of the marketing plan will be to utilize person to person networking to generate qualified leads, supported by an aggressive direct marketing program to reach the target segments with a specific message about the company.
External Communications Strategy - This is the strategy that is intended to provide the guidance and direction to the ultimate development of all external communications vehicles used by the company to generate awareness and trial of the product/service. It includes such functional elements as traditional media advertising (i.e., television, radio, billboards, and cable), building and vehicle identification, stationery & business cards, and importantly social media. It is intended to provide the direction to each relative to the following areas:
* Key Message to Communicate: Specifically, what does the organization wish the various external communications to say about the company that
