The complete-idiots-guide-to-business-plans-120609033902-phpapp02

by Gwen Moran and Sue Johnson

A member of Penguin Group (USA) Inc.

Business Plans

This book is dedicated to the brave, visionary people who start and run the businesses that power our nation’s economy.

ALPHA BOOKSPublished by the Penguin Group

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Copyright © 2005 by Gwen Moran and Sue JohnsonAll rights reserved. No part of this book shall be reproduced, stored in a retrieval system, or transmitted by any means,electronic, mechanical, photocopying, recording, or otherwise, without written permission from the publisher. Nopatent liability is assumed with respect to the use of the information contained herein. Although every precaution hasbeen taken in the preparation of this book, the publisher and authors assume no responsibility for errors or omissions.Neither is any liability assumed for damages resulting from the use of information contained herein. For information,address Alpha Books, 800 East 96th Street, Indianapolis, IN 46240.

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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 informativematerial on the subject matter covered. It is sold with the understanding that the authors and publisher are not engagedin rendering professional services in the book. If the reader requires personal assistance or advice, a competent profes-sional should be consulted.

The authors and publisher specifically disclaim any responsibility for any liability, loss, or risk, personal or otherwise,which is incurred as a consequence, directly or indirectly, of the use and application of any of the contents of this book.

Publisher: Marie Butler-KnightProduct Manager: Phil KitchelSenior Managing Editor: Jennifer BowlesSenior Acquisitions Editor: Mike SandersDevelopment Editor: Ginny Bess MunroeProduction Editor: Megan Douglass

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ISBN: 1-4406-9085-5

Contents at a GlancePart 1: Getting Started 1

1 According to Plan 3How your plan can help you

2 Figuring Out the Financing 15Understanding your business’s financial needs

3 Business Writing Basics 29Tips and pitfalls to consider while writing your plan

Part 2: Putting Together Your Plan 37

4 Ready, Set, Write 39Putting your business ideas on paper

5 Getting Down to Business 47How to put your best business foot forward

6 Industry Overview 61Describing your industry and its climate

7 Who Are You? 75Your people are your primary asset; how to showcase yourdream team

8 Analyzing Your Business in the Market 87Explaining how your business will perform in the market

9 Getting the Word Out 105Positioning and promoting your business for the best possibleresults

10 Sales Plan and Forecast 119Explaining how you’ll sell your stuff

11 Operation Success 129Making the most of your day-to-day business activities

12 Money, Money 141Financial statements you’ll need to know for your plan

13 Show Your Documents 159Supporting your claims with all the right backup documents

14 Executive Summary 169What you’re going to tell them in this critical part of yourplan

Part 3: Putting Your Plan to Work 175

15 Financing Considerations to Include in Your Plan 177How to use your plan for investment or lending purposes

16 Using Your Plan as a Management Tool 189How your plan can help everyone in the business get on thesame page

17 Keeping Your Plan Current 205How to keep your plan up to date and relevant

Appendixes

A Business Terms Glossary 215

B Sample Plans 221

C Resources 301

Index 307

Contents

Part 1: Getting Started 11 According to Plan 3

Business Owner Basics ..................................................................3Types of Business Plans ................................................................4

Securing Financing or Investors ....................................................5Strengthening Operations ............................................................5Preparing for a Sale ....................................................................5

How Can a Plan Help? ..................................................................5Establishing a Vision and Direction ..............................................6Keeping on Course ........................................................................6Setting Goals and Benchmarking Success ......................................6Outlining Operations ..................................................................7Fiscal Fitness ................................................................................7Checking the Ego ........................................................................7Thorough Research ......................................................................8Marketing Plan ..........................................................................8Feasibility ....................................................................................8Future Expansion ........................................................................8Exit Strategy ..............................................................................8

Your USP ......................................................................................9Finding Your USP Through Feedback ..........................................9

Doing It Yourself or Getting Help? ............................................10Finding Free or Low-Cost Help ..................................................11Hiring Help ..............................................................................11

Getting Soft ................................................................................12

2 Figuring Out the Financing 15Understanding Debt and Equity ................................................16

Debt ..........................................................................................16Equity ........................................................................................16

Money Sources ............................................................................16Grants ......................................................................................17Personal Resources ......................................................................17Loans ........................................................................................19

Selecting a Lender ......................................................................21Angel Investors ............................................................................21Other Funding Sources ..............................................................22

The Complete Idiot’s Guide to Business Plansvi

EDA ..........................................................................................22Community Development Centers ..............................................22Trade or Business Groups ..........................................................22

What Lenders and Investors Want ............................................23Capacity to Repay ......................................................................23Capital to Invest ........................................................................23Collateral ..................................................................................24Conditions of Use of Money ........................................................24Character of Owners ..................................................................24Credit Rating ............................................................................24

Credit-Reporting Bureaus ..........................................................25Your Credit Score ........................................................................26Assessing Your Report ................................................................26

Increasing Your Score ................................................................27Beware of Quick Credit Fixes ....................................................28

3 Business Writing Basics 29Effective Business Writing ..........................................................29

Targeting Your Audience ............................................................30Language and Tone ....................................................................30Grammar ..................................................................................31Cutting the Fluff ......................................................................32Avoiding Clichés ........................................................................33Presenting Your Information ......................................................33Capitalizing and Punctuating Properly ......................................34Writing, then Rewriting ............................................................35

Avoiding Writer’s Block ..............................................................35Speaking and Writing Well ........................................................36

Part 2: Putting Together Your Plan 374 Ready, Set, Write 39

From Dream to Document ........................................................39Being Organized ........................................................................40Knowing Your Stuff ..................................................................40Supporting Your Claims ............................................................41

Getting to the Goal ....................................................................41Obtaining Financial Assistance ..................................................41Attract Business Partners ..........................................................43Operation Benchmark ................................................................43

Contents

Obtain Assistance ........................................................................43Iterative Process ..........................................................................44

Staying Updated ........................................................................44Analysis ....................................................................................44Annual Meeting ........................................................................45

5 Getting Down to Business 47Getting Off on the Right Foot ..................................................48Title Page ....................................................................................50Table of Contents ........................................................................52Confidentiality Agreement ..........................................................52Executive Summary ....................................................................55Purpose ........................................................................................55

Business Description ..................................................................55Structure ..................................................................................55Owners ......................................................................................56Location ....................................................................................56Hours of Operation ....................................................................56Season’s Greetings ......................................................................56

What Is It? ..................................................................................57We’re on a Mission ......................................................................57

Mission Statement ......................................................................58Vision Statement ........................................................................58Values Statement ........................................................................59

6 Industry Overview 61Industrial Strength ......................................................................61Understanding Market Research ................................................62

Interviews ..................................................................................63Surveys ......................................................................................63Focus Groups ..............................................................................63Online Focus Groups ..................................................................64Observation ................................................................................64

Understanding the Industry ........................................................64Industry Life Cycle ....................................................................64

Industry Economics and Trends ................................................66Opportunities and Obstacles ......................................................67

Innovations ................................................................................67Regulations ................................................................................68Economic Factors ........................................................................68

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The Complete Idiot’s Guide to Business Plansviii

Price Comparisons ......................................................................69Location ....................................................................................69

Competition ................................................................................69Business Performance ..................................................................71

7 Who Are You? 75Internal Assets ..............................................................................76Owners and Partners ..................................................................76Staffing ........................................................................................77

Management Team ....................................................................77Outsourcing and Consultants ......................................................79

Employee or Contractor? ............................................................79Who Is an Independent Contractor? ............................................80Who Is a Common-Law Employee? ............................................80Who Is an Employee? ................................................................81Statutory Employees ..................................................................81Statutory Nonemployees ..............................................................82

Organizational Chart ..................................................................82Salaries ........................................................................................83Strategic Partners ........................................................................83Professional Resources ................................................................84

CPA ..........................................................................................84Attorney ....................................................................................84Bank ..........................................................................................84Insurance Professionals ..............................................................84Other ........................................................................................85

8 Analyzing Your Business in the Market 87Getting Down to Strategy ..........................................................88Targeting Your Customers ..........................................................89Demographic Profiles ..................................................................90

Income and Spending Habits ......................................................90Personal Characteristics ..............................................................90Standard of Living ....................................................................90Household Characteristics ..........................................................91

Getting Psychographic ................................................................91Opinions and Values ..................................................................91Political Views ............................................................................91Style and Taste ..........................................................................92

Contents ix

Defining Business-to-Business Customers ................................92Type of Business and Ownership ..................................................92Sector ........................................................................................92Geography ................................................................................93Psychographic Characteristics ......................................................93

Who Is Your Perfect Customer? ................................................93Why Do They Buy? ....................................................................95

Do They Need It or Want It? Can They Afford It? ....................95What’s Important to Them? ......................................................95For Whom Are They Buying? ....................................................95Who Are Your Customers’ Influencers? ......................................95Are They Brand Loyal or Price Driven? ....................................96How Do They Buy? ....................................................................96

Creating Profiles ..........................................................................96Innovators ..................................................................................97Thinkers ....................................................................................97Achievers ..................................................................................97Experiencers ..............................................................................98Believers ....................................................................................98Strivers ......................................................................................98Makers ......................................................................................99Survivors ..................................................................................99

Why You Shouldn’t Service Every Customer ............................99Evaluating Market Segments ....................................................100Defining Your Market Strategy ................................................101The SWOT Approach ..............................................................101

Strengths ................................................................................101Weaknesses ..............................................................................102Opportunities ..........................................................................102Threats ....................................................................................102

Predicting Market Share ..........................................................103

9 Getting the Word Out 105Positioning Your Business in the Market ..................................105Explaining Your Marketing Strategy ........................................106

Price ........................................................................................107Place (Distribution) ..................................................................107Promotion ................................................................................107

Putting Together the Marketing Plan ......................................113Being Clear About Goals ..........................................................114Planning the Action ................................................................114

The Complete Idiot’s Guide to Business Plansx

Budgeting Your Resources ........................................................115Creating a Marketing-Cost Matrix ..........................................115Timing Your Projects ................................................................116

10 Sales Plan and Forecast 119Selling Yourself ..........................................................................119Your Channels ............................................................................120

Direct Selling ..........................................................................120Manufacturer’s Representatives ................................................120Wholesalers ..............................................................................120Retailers ..................................................................................121Catalogs ..................................................................................121E-tailing ..................................................................................121Affiliate Programs ..................................................................121

Sales Tools ..................................................................................122Database ..................................................................................122Technological Tools ....................................................................122Trade Shows ............................................................................122

Territories ..................................................................................123Finding Prospects ......................................................................123

Referral Systems ......................................................................123Vendor Contacts ......................................................................123Expanding Existing Customers ................................................123Joining In ................................................................................124Offering a Better Price ............................................................124

Sales Cycles and Strategies ........................................................124AIDA ......................................................................................125Sales Cycle ..............................................................................125

Sales Forecast ............................................................................127Outlining Your Assumptions ....................................................127Considering Your Marketing Reach ..........................................127Past Sales or Similar Industries ................................................127

11 Operation Success 129Business Operations ..................................................................129Equipment ................................................................................130Technology Needs ....................................................................131Equipment Leases ......................................................................132Building Leases ..........................................................................132

Price ........................................................................................132Length of Lease ........................................................................133

Contents xi

Location and Traffic ................................................................133Potential for Growth ................................................................133

Utilities and Services ................................................................134Production/Service Provision Methods ....................................135Quality Control ........................................................................135Inventory and Supply ................................................................136

Managing Inventory ................................................................136Purchasing Policies ..................................................................137Suppliers ..................................................................................137Handling Orders and Deliveries ..............................................137

Vendor Agreements or Letters of Intent ..................................138Customer-Service Policies ........................................................139

12 Money, Money 141Start-Up Costs ..........................................................................142Creating an Operating Budget ..................................................143Source and Use of Funds ..........................................................144Managing Cash Flow ................................................................145Creating a Cash-Flow Statement ..............................................145Understanding Profit-and-Loss Statements ............................147Understanding the Balance Sheet ............................................149Determining Profitability with Financial Tools ......................151

Are You Profitable? ..................................................................151Break-Even Point ....................................................................152Outlining Repayment/ROI ......................................................152

Analysis of Financial Facts ........................................................153Determining How Much Financing Is Needed ..........................153How Much Owners Are Investing ............................................154

Insurance Needs ........................................................................154Cover Me ................................................................................155Prove It ..................................................................................156

13 Show Your Documents 159Back Me Up ..............................................................................159Resumés or Bios ........................................................................160Personal Financial Statements and Tax Returns ......................162Business Structure (Articles of Incorporation) ........................162Loans ..........................................................................................163Credit Reports ..........................................................................163Franchise or Acquisition Agreements ......................................163Leases or Mortgage ..................................................................164

The Complete Idiot’s Guide to Business Plansxii

Licenses ......................................................................................164Letters of Intent ........................................................................165Market Analysis ..........................................................................166Other ..........................................................................................166

14 Executive Summary 169In Summary ..............................................................................169What’s in the Executive Summary ............................................170Selling in Your Summary ..........................................................171

Company Overview ..................................................................171Operations Overview ................................................................171Market Overview ....................................................................172Financial Overview ..................................................................172

Paring It Down ..........................................................................173What Not to Put in the Executive Summary ..........................174

Part 3: Putting Your Plan to Work 17515 Financing Considerations to Include in Your Plan 177

The Money Plan ........................................................................178Who’s Got the Cash? ................................................................178What Lenders Want to See ......................................................179Knocking a Lender’s Socks Off ................................................180Negotiating Your Financing ......................................................181Types of Loans ..........................................................................182

Transaction Loans ....................................................................182Line of Credit ..........................................................................182Term ........................................................................................182Government-Secured Loans ......................................................183Lease ........................................................................................183

What to Expect During the Loan Process ..............................183Finding Investors ......................................................................185Money Online ............................................................................186What Investors Want ................................................................187Other Financial Uses for the Plan ............................................187

16 Using Your Plan as a Management Tool 189Planning to Run ........................................................................189Planning Findings ......................................................................190

Solidifying Your Philosophy ......................................................190Developing a Strategic Vision ..................................................190

Contents

Identifying Improvements ........................................................191Preventing Distractions ............................................................191Avoiding Misunderstandings ....................................................192

Implementing Your Plan ..........................................................192Providing Strong Leadership ....................................................192Stating Clear Expectations ......................................................193Creating Actionable Steps ........................................................193Being Ready for Barriers ..........................................................193

All Aboard ..................................................................................194Creating an Advisory Board ....................................................194Identifying and Building Relationships ......................................196Strategic Partners ....................................................................196

Staffing Up ................................................................................198Keeping Them Motivated ........................................................198Creating Employee Incentives ..................................................199Getting Employees Onboard with Your Plan ............................201

Managing the Future ................................................................202

17 Keeping Your Plan Current 205Keeping It Going ......................................................................205Measuring Your Company’s Success ........................................206Getting Information ..................................................................207

Your Financial Statements ........................................................207Your Customer Database or Sales Figures ................................207Your Employees ........................................................................208

What Do Customers Really Think? ........................................209Using the Information You Find ..............................................210When It’s Time to Go, It’s Time to Go ..................................210Going Forward ..........................................................................212

AppendixesA Business Terms Glossary 215

B Sample Plans 221

C Business Resources 301

Index 307

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ForewordI have written dozens of business plans. I have read thousands of them. After almost20 years of building companies, I have come to realize that the actual business plan-ning document is almost always meaningless. That’s right. The final written productwe call “the plan” is actually almost worthless.

As a serial entrepreneur and angel investor, every business plan I ever read says the samething: “We get rich in year five.” Each plan states that this new company addresses a“billion dollar untapped market” and furthermore, its financial projections are “con-servative.” Let’s face it. These are both lies. If publicly traded companies are unable tounfailingly predict the financial goals they are able to hit next quarter, how can thenew 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 andessential to building a profitable company. President Dwight Eisenhower said, “I havealways found that plans are useless, but planning is indispensable.” A business plan that is notproperly researched or that is not regularly revisited and integrated into the company’soperations is useless. In business, as in most of life, things almost never happen theway we plan them. However, the actual process of considering all of the possibilities iscritical. It teaches you essential survival techniques at all phases of your business.

Stop searching for the perfect business plan format. There are no absolutely rightanswers. Don’t look for magic in pricey consultants. You need to write the first draftyourself because the process is a key learning step. Focus on the guidelines in thisbook 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 yourproduct or deliver your service. How will you acquire new customers? How muchbusiness can you expect per customer? When you consider these questions, is yournew 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 constructedthe 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 peoplewho might be real customers and are in a position to buy your product or servicetoday. Are they willing to part with their cash to solve a problem they have? What isthe Unique Selling Proposition (USP) you can offer prospective customers? You willnot 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. Ifyou 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’snot working. Too many small business owners set a goal and try to reach it no matterwhat. Sometimes, that tenacity is the backbone of their success. But sometimes, whenthey fail to see the signs that the goal might not be the best direction for the business,that lack of flexibility can be a business death sentence.

What do businesses need most? Not a perfectly written business plan, but a well-researched plan. Companies need enough cash to grow and thrive, which a good plancan help land. They need to manage that cash through constant analysis of cash flow.They need a management team that can execute the plan. They need a marketing anddistribution component so prospects can access the product or service. Finally, theyneed repeat customers and referrals.

Read this book. Write your plan. Keep talking to customers. And then modify yourplan to make the most of what’s working and to stop wasting effort on what’s notworking. These are the steps that will get your business off to a great start.

—Barry Moltz, www.moltz.com

Chicago, Illinois

June 2005

IntroductionThere’s no feeling like starting your own business. Opening a fresh box of businesscards with “Your Name, Owner” on them, or sitting in your brand-new office for thefirst 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. Becauseyou’re holding this book in your hands, you’re also more likely than the average start-up to succeed.

Why? You’ve realized the critical importance of creating a business plan. Whetheryou’re in need of financing, or simply need a road map to guide your business, a well-prepared and properly targeted business plan will help you to achieve the goals thatyou’ve set for your business by documenting the goals, resources, and processes thatwill propel your business forward.

There’s an old adage that says, “Failing to plan is planning to fail.” That is nevermore true than when it is applied to a business plan. We have seen this phenomenonfirsthand, consulting with and counseling scores of businesses. Those ventures thatoperate without a solid game plan in place are much more at risk to fail than thosethat take the time to plan.

Because we’ve both been in the trenches as entrepreneurs, we know how valuable yourtime is. As we’ve written this book, we assume that you know the basics—how to choosewhich business is right for you, how to structure it, how to staff it, and the like. We’vewritten this book to show you how to take the facts about your business and put themon paper in a way that will interest lenders, business partners, or other decision-makers,and how to create a plan that will become a critical management tool for your busi-ness. So we’re going to dive into the nuts and bolts of crafting your plan. (If you doneed to brush up on start-up basics, be sure to read The Complete Idiot’s Guide toStarting 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 makethat investment pay off.

Who This Book Is ForThe Complete Idiot’s Guide to Business Plans is for anyone who is starting or acquiring abusiness and wants to go the extra mile to ensure its success. Whether you’re usingyour 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.

The Complete Idiot’s Guide to Business Plans

What You Need to Know Before You StartThe Complete Idiot’s Guide to Business Plans assumes that you’ve got basic businessknowledge. We won’t explain the nuts and bolts of how to run your business becauseyou 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 youthrough the process of extracting the information you need in an acceptable business-plan format to secure financing or to strengthen your business operations, management,and marketing. Anytime you put a series of goals and objectives, as well as a plan forfulfilling them, on paper, you vastly increase the chances of achieving those goals andobjectives. That’s what we’ll help you to do.

While we recommend a format and order for the information, you may find that mix-ing up that order works best for your business. That’s fine. You’ll see in the samplebusiness plans that business plans come in many forms and formats. Write the planthat feels most comfortable for you and fulfills the purpose you need to achieve.

What You’ll Find in This BookThe Complete Idiot’s Guide to Business Plans is organized to walk you through the processof writing your business plan in a step-by-step sequence. Because there are some sec-tions that you’ll write out of order, we mention them within the sequence and thenpay 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’llneed to know, and a briefing of what you’ll need to write your plan more easily. We’vealso included a chapter on business-writing basics that will help you with some of thecommon issues of structure, composition, grammar, and punctuation that often plaguethose 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’sfocus lies. We’ll walk you through the planning process, including how to set goalsfor your plan and how to write it to achieve those goals. Throughout, we’ve wovensections 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’tjust put it on a shelf or in a drawer! In this part, we’ll show you how to make yourplan an important part of your business, how to keep it updated, and how to use it toobtain financing.

xviii

Introduction

Appendixes: This isn’t your garden-variety “stuff at the back of the book.” Our lastsection is chock-full of sample business plans from various types of businesses, rang-ing from retailers to consultants to manufacturing firms and more. Our glossary willbrief you on the terms you need to know, and our list of business resources will showyou where to turn for help, information, and advice.

Together, these four sections will tell you just about everything you need to knowabout writing a knock-their-socks-off business plan. And while we know that follow-ing these directions will leave you with a solid plan, it is our sincere hope that it willalso 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 BookTo get the most out of this book, read it through first and examine the sample busi-ness plans. You can also head online to examine other sample business plans to choosethe 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 yourplan. By tackling each of the parts in this book, you can then use the order that wesuggest, or reorganize the information the way that you see fit, or in the way that’srequired by your lender, investors, or consultants. Either way, this book will help youget 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 isworthwhile if it just sits in a desk or on a hard drive. We show you how to make yourplan into a real tool for your business, as well as how to integrate it into your opera-tions to keep it current and relevant to your business.

Pay particular attention to the sidebars and margin notes, which include tips, warn-ings, secrets, and money-saving tidbits. These notes may be short in format, butyou’ll find great value in how they can shorten your learning curve and boost yourbottom line!

xix

Because time is money, thesetips will help save you both asyou write your plan.

Bottom Line BoosterIn business, mistakes

can cost you. These sidebars willgive you fair warning aboutpotential pitfalls to avoid.

Red Zone

The Complete Idiot’s Guide to Business Plans

Let Us Know What You ThinkFor 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 ifthis book has helped you, let us know at [email protected] or [email protected].

AcknowledgmentsWe’d like to thank the folks at Alpha Books, including the amazing team who workedon this book: Mike Sanders, Ginny Bess, Megan Douglass, Jan Zoya, and the produc-tion team. Thanks to our agent, Bob Diforio, for all of his help, support, and constantcontact through his Blackberry!

Gwen would like to thank her family and friends for their support, advice, and assis-tance in writing this book. Thanks to her parents, Thomas and Jeanice Moran, whoraised 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 ofbusiness advisors. And thanks to Joseph Raymond, who taught Gwen about the thingsthat 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 nevercease to inspire her. And special thanks to the entrepreneur who shares her homeaddress—her husband, Henry Nonnenberg Jr.—and their daughter, Abigail.

Sue would like to thank her mother and late father, Susan and Albert Mahalske, foralways encouraging her by saying, “You can accomplish anything you want by puttingyour mind to it.” Thanks also to her loving husband, Bob Johnson, for supporting herthrough all of her crazy and wonderful ideas, ventures, and businesses, as well as toher two sons, Bobby and Chris, for all of their love and for being the wonderfulyoung adults that they are.

xx

The world of businessand writing business plans can beconfusing. These sidebars providedefinitions for the trickier terms.

Biz BuzzIn these sidebars, we’ll make youprivy to the tips, tricks, and little-known facts that will help youwrite your plan and run yourbusiness.

Back Office Secrets

Introduction

She would like to extend special thanks to Bill Harnden and Vicki Lynne Morgan fortheir time and input to some of the material in this book. Bill is the Assistant Directorof the Small Business Development Center (SBDC). After a long and distinguishedcareer in finance, he is currently employed at Raritan Valley Community College pro-viding financial counseling to many small businesses through the SBDC. Vicki Lynneowns Animal Brands, a marketing and sales representation agency, as well as RussmorMarketing Group, which focuses on private consulting, counseling, mentoring, andcoaching for businesses, and is an SBDC counselor.

Thanks to the great people she works with at SBDC and RVCC, especially Bill Harndenand Allison O’Neil for their team efforts and contributions, to their local SBDC, inassisting small businesses. Thanks, also, to the many wonderful small-business ownersshe has met and has had the opportunity to assist in their journey of pursuing theirdreams. 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 DomenickCelentano and Stellar Academy started by two sisters, Mary Matthews and Dr. MargaretBuley—who have allowed us to use their business plans (modified for confidentiality) inthis book to benefit and assist other future small-business owners. Through the SmallBusiness Development Center, Sue Johnson had counseled with each of these businesses.

TrademarksAll terms mentioned in this book that are known to be or are suspected of beingtrademarks or service marks have been appropriately capitalized. Alpha Books andPenguin Group (USA) Inc. cannot attest to the accuracy of this information. Use of aterm in this book should not be regarded as affecting the validity of any trademark orservice mark.

xxi

1Here’s what you need to know before you begin drafting your plan, includ-ing the financial and basic company information you should have on hand.This part also includes a few tips on business writing basics. In Chapter 1, wediscuss plan basics, such as how your plan can help you run your businessas 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 youunderstand the financing needs of your business. Chapter 3 gives you ahead start on business writing basics to help make the process of writingmuch less intimidating.

Part

Getting Started

1According 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 perhapsyou decided that you’ve just had enough of the commuter lifestyle andwant to start a business of your own, closer to home. Whatever the reasonyou’re starting or acquiring a business, you’re already further ahead thanmost 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 anumber of things you need to know before you start writing. So let’s dive in.

Business Owner BasicsEntrepreneurship is a big part of the American dream, and more people thanever are starting up their own enterprises as full-time ventures or as side-line operations. In 2003, there were approximately 23.7 million businesses

Chapter

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, includingstart-ups, acquisitions, and franchises. Major factors that determine whether a companyremains viable include an ample supply of capital, sizable enough to have employees,

the owner’s education level, and the owner’s reasonfor starting the business in the first place, such asfreedom for family life or the desire to be one’s ownboss. The companies that had the clearest sense ofpurpose—and a solid plan for survival—are the onesthat are still open today. The plan for survival is mosteffective when it takes the form of a written businessplan.

Beyond the organizational benefits, business plans can offer a financial benefit as well.More than 75 percent of small firms use some form of credit in their start-up or opera-tions. Companies use many different sources of capital, including their own savings,loans from owners’ family and friends, and business loans from financial institutions.Credit cards, credit lines, and vehicle loans are the most common types of credit. Someother 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 planbefore making loans available to your business. In the upcoming chapters, we helpyou present your business in the best possible way, which can make the differencewhen you’re trying to secure financing or credit for your business.

Types of Business PlansBusiness plans come in several varieties, and it’s important to know why you’re writingthe plan before you begin. A business plan can range from about 5 pages to 60 or morepages, 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 andfilled with more documentation than if you’re using it as an internal managementtool. The length and form of your business plan depends on you and your goals foryour business. The following sections look at some of the common varieties of busi-ness plans.

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An entrepreneur issomeone who launches a for-profit venture or business.

Biz Buzz

Chapter 1: According to Plan

Securing Financing or InvestorsPlans with financial goals place heavy emphasis on the business numbers—what are itssales, assets, projected revenue and income growth, and other factors that make thebusiness a good financial risk? Lenders and investors want to be sure that their invest-ment will be worthwhile, so you’ll want to put your best foot forward, emphasizingyour management strengths, financing plan, profit margins, and potential sales growth.

Strengthening OperationsIf your plan will be used as an internal tool to help you grow your business, you’ll wantto spend more effort examining how the business is structured, how products andservices are delivered, and how the company markets itself. That way, you can fullyoutline and measure the success and growth of your business, beyond the bottom line.

Preparing for a SaleIf you are looking for a way to sell your company, a business plan can help you streamlineoperations and find flaws that might make your business less attractive to potentialbuyers.

If your business is a partnership, you have toclearly lay out your expectations for the saleof the business, including the selling priceand how the proceeds are to be divided. It’s agood idea to consult an attorney to execute apartnership agreement or buy/sell agreementthat spells out these details.

How Can a Plan Help?The good news is that a thorough business plan can help you avoid many of the commonchallenges that new businesses face. How? A business plan is a road map of your busi-ness, both in context and in financial terms. A written business plan is an extremelyimportant tool for any business. It can be used to provide analysis and milestones forthe business owner. It serves as a means of communication with accountants, attorneysand others, and as preparation for financial needs and loans. It also acts as an iterativeprocess of a working plan for your ongoing business.

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A partnership agree-ment is a document that outlinesthe terms and conditions of twopersons or entities entering into abusiness agreement.

Biz Buzz


Writing a business plan enables you to assemble all of the components of your busi-ness together and document them. This process will ensure that you’ve considered themajor 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-termoutlook 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’sprogress. With constant review and updates of the plan, it will give you a solid basison which to make decisions, implement changes, and take action. As your businessprogresses, you will continue to learn more facts that can be implemented into yourplan. Some of the purposes that your business plan can serve are discussed in moredetail in the following sections.

Establishing a Vision and DirectionYour 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 experienceof the key players and the strategy for making the business work, and filters all of thatthrough the financial realities of the business. Done right, it’s a way to test the businesson paper before making a significant investment of time and money in a new venture.

Keeping on CourseYour business plan can also act as a compass, keeping you on the path that you origi-nally set for your business. All too often, businesses get sidetracked from their coremissions, leading to a slowdown in growth because resources are diverted to otherefforts. Your business plan can serve to remind you of exactly how your goals shouldbe focused.

Setting Goals and Benchmarking SuccessYour business plan will help you set the short- and long-term goals that will bench-mark the progression of your business. By putting these goals down on paper andexplaining how they will be accomplished, you map out the steps you need to take tomake your business successful.

Your business plan will also have projections about growth, revenue, and accomplish-ments. You can use these projections as measurements, to determine how well yourbusiness 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 thesectors of your business or you need to take a look at the measurement mechanismsyou’ve put in place to determine if they are realistic.

Outlining OperationsA large portion of your business plan will be devoted to the operations of your busi-ness, or how it will work. Who will be responsible for various business functions andhow will the work get done? Outlining these responsibilities on paper may show youwhere improvements could be made, where you can save money and time, and ifyou’re overlooking a key component of how your business will get its tasks done.

Fiscal FitnessAs 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 keyto convincing a lender that you have a viable business idea in which they shouldinvest. These money gatekeepers look for research—facts, figures, and demographics.However, they also look for intangibles, such as ingenuity, dedication, and manage-ment experience. So it’s critical that you include all of your assets, knowledge, andexpertise in this document. The more complete the business plan, the more likely youwill obtain funding.

Your business plan can also serve as a working budget, to ensure that income is spentproperly. Sure, it would be great to rent prime space and spend thousands on luxedécor for your new office. And when you get a fat check from a lender, it can betempting to splurge on a few things. However, by outlining the cash flow that will bethe lifeblood of your business, you’ll be less tempted to take money that should gotoward growth rather than spend it on a too-lavish grand-opening party.

Checking the EgoStarting your own business can be a heady experience. Suddenly, you’re the boss, andyou may have employees who rely on you to be their leader. You’re the one responsi-ble for decisions for a business that is largely the result of your talent and ability.With so many people turning to them for answers, many entrepreneurs get caught upin thinking that they know it all. A business plan helps you to understand the realitiesof your business and helps you stay focused on what needs to be done in the bestinterest of growing your venture.

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Thorough ResearchThe process of writing a business plan will mean that you’ll need to do the necessaryhomework. That means researching your business idea and the marketplace to see ifthey’re a good fit. Research can take many forms and range from studying data fromtrade associations to conducting your own market research by talking to potentialcustomers, vendors—and even competitors.

If you ignore the research component of starting your business, you do so at yourperil. A business plan that saves you from a business that fails because it was neverviable in the first place is also a successful plan.

Marketing PlanThe marketing component of your plan will set a clear course for getting the wordout about your business, products, and services. Beyond that, your marketing planwill determine how your product is positioned, priced, and distributed, relative toyour competition’s, giving you more insight into how your business will be successful.

FeasibilityThroughout your plan, you’ll be reinforcing why your business is a good idea, wherethe market for your products and services will be, and, overall, how feasible yourbusiness really is. While some businesses simply hang a shingle and call themselveslaunched, your plan will force you to think through exactly how your business will besuccessful and exactly why people or businesses will want to become your customers.

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

Exit StrategyBecause no one can run a business forever, goodbusiness plans also include exit strategies—gameplans for leaving the business or selling it. Investorsneed to know the business will have longevity afterthe entrepreneur leaves for any reason.

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Many people use rev-enue and income interchange-ably, but they are actually twodifferent things. Revenue is yourgross income, before any deduc-tions. Income refers to the amountof money that remains after yourbusiness expenses, but beforeincome taxes are paid.

Biz Buzz


Your USPIn the context of your business plan, you also need to show your unique selling propo-sition, or USP. Focusing on developing a USP isn’t a new concept, but it’s a criticalone. Setting your business apart from the competition means having a strong plat-form to do so. If you can’t articulate why customers should buy from your companyand 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’llfind yourself often competing on price or constantly having to settle for customersthat might not be the best fit for your company (or the selling cycle—the time framein 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 orservice is more convenient to use or provides some savings of time or effort, thatcan 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 isyour service better suited toward more established businesses?

◆ Better quality: Do you do what you do better than the competition? Qualityconsistently ranks ahead of price in surveys of why customers buy. So if yourproduct is more durable, your service more reliable, or you’re otherwise headand shoulders above the competition, let your customers and prospects know.

Finding Your USP Through FeedbackA good way to determine what your unique selling points are, if you’re already inbusiness, is to ask your customers. Institute some mechanism, such as a survey thatdetermines their level of satisfaction, to gather their feedback and ask them why theybuy from you. It’s usually better if you gather the information through some sort ofanonymous means. For instance, you can conduct surveys at checkout counters, or

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send surveys in the mail after the client buys from you, as you’ll get more reliable datathat way. Some ways to do this include the following:

◆ Sending a survey to customers with an incentive to return the survey, such as adiscount 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 anonymousform on your website.

Another idea is to teach employees to make note of anecdotal feedback that customersrelay. 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 inwhich 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 canbe more effective.

Look for ways that you interact with your customers and try to integrate short, non-invasive methods of information gathering.

The key to successful gathering of feedback is to keep questionnaires and surveys to amanageable length. This varies depending on your type of business, but the generalrule is that shorter is better—five to six questions is ideal. Use a format of both multiple-choice and open-ended questions for best results.

Doing It Yourself or Getting Help?There are a number of business-plan writing services out there, as well as business-plantemplate software. Should you hire someone, or use software to write your plan for you?

We don’t think so—at least not for the first draft. Theprocess of writing your plan is an exercise that willhelp solidify the direction of your business. By goingthrough the process yourself, even if you’re not agood writer, you’ll be forced to think through variousscenarios and learn more about how your business willrun, market, staff, and grow. By hiring someone to dothat for you, you’ll lose out on the benefits gainedfrom that process. However, if you’re not confident in

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If your plan needs an editorialonce-over, hire a business orcommunications student to helpyou fine-tune it. The student willget valuable resumé fodder

and you’ll get the benefit of abudding wordsmith who can putyour ideas into captivating prose.

Bottom Line Booster


your writing skills and feel like you need someone to edit your plan before it goes tolenders or equity partners, it’s fine to hire someone for the final draft.

Finding Free or Low-Cost HelpIf you are still skittish about tackling your business plan on your own, you may wantto consider getting some help. There are a number of resources to which you can turnto get that help for free (or almost free). If your plan needs just a bit of a kick-start,there are plenty of low- or no-cost resources to turn to for help. Try one of the fol-lowing:

◆ Check out your local Small Business Development Center, which can providefree and confidential counseling with assistance and review of your businessplan, as well as many other free counseling services to existing and beginningbusinesses. These services cover marketing, financing, and much more. Visitwww.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 varietyof small business information, suggestions, and tips offered in English and inSpanish.

◆ Contact your local college. If you can offer a meaty assignment, you may be ableto attract a business student to intern with your company in exchange for creditor a small stipend. If not, see if the college has a business club that can help.

◆ Virtually all industries and professions have trade associations. These associa-tions offer assistance, statistics, and research that can help you refine your busi-ness plan ideas. Visit the association’s website or call for help.

Hiring HelpIn addition to low-cost help, there are others who can help you write a business plan.Remember that bigger isn’t necessarily better. Don’t be seduced by a “big name” con-sulting firm, especially if your business is small. Instead, consider hiring a freelancewriter or marketing consultant, rather than a management-consulting firm. In mostcases, the soloist’s fees will be more affordable than hiring a company with lots of over-head. To save even more money, write the first draft yourself and hire a copyeditor orfreelance writer to polish up the grammar and language.

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Other tips for hiring providers include the following:

◆ Seek recommendations. Ask other business owners who they would use or callyour local Chamber of Commerce or business association.

◆ Interview a few. Speak with more than one provider to get a sense of pricing andservice 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 thereferences that are offered. And do call—you’ll sometimes be surprised at whatthe references really have to say!

◆ Review samples. Business plans are proprietary, so the professional may not beable to share other plans (be wary if he or she does). However, you should stilllook at the provider’s portfolio. Does it suit your style? Oftentimes writing willbe somewhat subjective—if you don’t like how the provider’s previous worklooks or reads, chances are that you won’t like what he or she will do for you.

Getting SoftThere are a number of business-plan software packages on the market today. Thesepackages will lead you step-by-step through the process of writing your plan. Some ofthe 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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If you hire a writer to complete your plan, he or she should have business planexperience, 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 otherplans that he or she has written. However, the writer should be able to produce at leasttwo appropriate writing samples. In this case, it really pays to check references.

Red Zone


◆ 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 yourbusiness plan just fine without spending the money on software. However, these pro-grams do make formatting convenient by providing step-by-step, fill-in-the-blanktemplates for writing a plan. The trouble is that your plan will look like that of every-one else who used the software. The choice is yours—it may save you some time, butonly 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 itfrom 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 beforeyou spend your money.

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2Figuring 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 animportant part of it. You’ll need to figure out how much money it willrealistically take to start or acquire your business, as well as how muchmoney you’ll need to sustain it until it becomes profitable.

It’s easy to underestimate the amount of money you’re going to need—andthat’s a major reason why many businesses fail. Undercapitalization willconstrict your cash flow and limit the opportunities you have to grow yourbusiness. You will also need enough money on the personal side to carryyou through the start-up phase. Sometimes business owners run out ofcash to cover their own expenses even when the business is viable.

In later chapters, we discuss the specific financial statements that you’regoing to need to develop. In this chapter, we address the broader strokesof making your plan appealing to financiers.

Chapter


Understanding Debt and EquityAs you examine the capital needs of your business, and consider using your plan toobtain that capital, you’ll first need to understand the two primary forms of financing:debt financing and equity financing.

DebtDebt financing means that you obtain money from a lender at a certain interest rateand term and then have to repay a set amount that includes interest and any fees thathave been added to the principal amount. When you borrow money, the lender hasno ownership stake or say in the decision-making processes, and you keep control ofyour business.

EquityEquity financing is when an investor purchases a part-ownership of your business inexchange for a certain amount of money. The investor and the business owner usuallydecide 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 inputin the business to ensure that the business will be successful and get the type of returnon their investments that they anticipate. Of course the negative is that you lose con-trol over what you thought was your business. Just be careful with the negotiations.In addition, the investor usually maintains a percentage ownership stake in the busi-ness, and may be entitled to a percentage of profits from the business, which is theinvestor’s return on investment.

The investor usually wants a buyout point that is stated up front, because they arelooking for a return on their investment over a certain period of time. The period oftime can differ between businesses and industries, but frequently it is less than five years.

Money SourcesWhen you’re looking for money to launch your business, there are a number ofoptions available, depending on the type of business you want to start, the collateralyou have, and the amount of money you wish to borrow. These include grants, per-sonal resources, savings, credit cards, and several different types of loans.

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Chapter 2: Figuring Out the Financing

GrantsDespite some infomercials that tout the availability of grants for virtually any business,grants for garden-variety ventures such as hair salons or restaurants are actually rela-tively rare. Sometimes you can find special one-time grants online, if you regularlysearch around, but that may require more than a bit of luck.

Still, if you find a grant that matches your business venture, by all means apply for it.Grants are terrific because they don’t need to be repaid as long as you fulfill the obli-gation that you set forth when applying for the grant. The searching and applying canbe time-consuming, however, and often grant matches are not found.

More commonly, grants are available for bio-life science and high-tech businesses, oftenoffered through various states to cultivatethose types of businesses. Federal grants forthese types of companies are offered throughthe Small Business Innovative Research(SBIR) and Small Business TechnologyTransfer (STTR) programs. Both govern-ment programs seek innovative and uniqueideas. If your business qualifies, it couldreceive a grant for as much as $750,000 forthe start-up phase and up to $1 million forthe growth phase.

Personal ResourcesMost lenders and investors want to see that you’ve invested some of your own resourcesin the business. After all, if your money is on the line, you’re more likely to be cautiousabout risking that investment. The following sections discuss some of the personalresources that bootstrapping entrepreneurs have used to start and fund their ventures.

SavingsPersonal savings, including money in savings and checking accounts, CDs, mutualfunds, and other investment vehicles, are often tapped for new ventures. The benefit isthat there is no interest due on this money, but you also want to be careful that youdon’t jeopardize your ability to pay personal expenses, such as mortgage, car, creditcard, and other payments, not to mention having a few bucks left over for groceries,clothes, and other essentials.

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Because navigating the government-grant process can be tricky, youmight want to seek help from yourlocal Small Business DevelopmentCenter (SBDC). SBDCs throughoutthe nation have consultants whocan assist you with the applicationprocess. For SBDC locations nearyou, go to their national websiteat www.asbdc-us.org.

Back Office Secrets


Home-Equity Loans or Lines of CreditA 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 interestmay be tax-deductible; however, you need to be sure that you’re going to be able torepay 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 yourhome, up to a certain percentage of the amount of equity you have in your home. Ahome-equity line of credit, on the other hand, operates much like a credit card. Youhave a maximum amount that you can borrow at any given time, and you can usechecks or a charge card to access the funds, which you can then repay in installmentsor 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 CardsYou can also access your personal credit cards to tap cash to meet your business expenses,either by using them to charge items for your business or by taking cash advances.

Be aware that this is usually a very expensive way to borrow for your business, depend-ing on the interest rates on your cards, and running up big balances on multiple cardscould also impact your personal credit rating. However, if your borrowing options arelimited, credit cards can provide a means to get the money and financial flexibilityyou need, especially for the short term.

Family and FriendsIf all else fails, you can go hat-in-hand to your family members and friends for finan-cial assistance. Although conventional wisdom says that it’s not a good idea to borrowmoney from your loved ones, it could be an option if there are no others.

The key to successfully borrowing money from family or friends is to treat the trans-action as you would with a stranger. Draw up paperwork that spells out the terms ofthe 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 orfamily member gone bad.

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LoansYou’ve probably taken a loan for something—to finance your education, to buy ahome, a car, or some other big-ticket item—so, it’s pretty clear how they work. Youapply for a certain amount of money and, based on a number of criteria, the lenderdecides whether you’re a good financial risk. Depending on how your profile shapesup, the lender decides how much to lend you,on what terms, and at what interest rate.

Beyond those basics, loans start to differ.Some of the options available for financing abusiness include commercial loans, a line ofcredit, micro loans, and SBA-guaranteedloans.

Commercial LoansCommercial loans are granted from a bank or other lending institution. Theyare extended based on the lender’s evalua-tion of the borrower’s credit and credentials.

Sometimes, closing, application, and otherfees are associated with these loans, so besure to get a full disclosure of any fees andcharges that are associated with the loanbefore you agree to the terms.

Line of CreditA line of credit, as described previously, is much like a credit card. You have a maxi-mum amount of funds that you can borrow. You can access any of the funds or theentire amount through provided checks or an associated credit card. You then payback a minimum amount, the total balance, or any amount in between. You accrueinterest on the outstanding balance. Lines of credit offer great flexibility during lowcash-flow periods. After you are approved for a line of credit, the money becomesavailable 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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Collateral is often re-quired, but keep in mind thatIRAs, 401Ks, and other types ofretirement investments are notallowed to be used as collateralfor business loans, so don’t counton them to strengthen your appli-cation.

Red Zone

Fees and interest rates on loansare often negotiable. Ask forfees to be waived and alsoask for a better interest rate.You could save hundreds or

thousands of dollars.

Bottom Line Booster


Micro-loansA micro-loan is an SBA-sponsored program offeredthrough an intermediary lender that offers up to$35,000 to small businesses, including start-ups.Micro-lenders are often more flexible than commer-cial lenders and are willing to offer financing, even ifyou already have other debts, such as a first loanfrom a commercial lender.

SBA-Guaranteed LoansOne of the most misunderstood concepts in lending is that the SBA lends money. Itdoesn’t. Instead, the government organization guarantees loans made through lenders.If a commercial lender is balking at lending you money because your enterprise may betoo risky, you can apply for an SBA guarantee of usually between 75 to 85 percent ofthe loan. This guarantee will ensure that the loan will be repaid to the lender even ifyou 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 haveSBA preferred-lender status, meaning that the lender can approve the loan internallywithout processing it through the SBA, giving borrowers shorter turnaround time onthe loan approval.

The two most common SBA loan programs are the 7(a) loan guarantee and the 504loan program. The 7(a) loan is the most common SBA loan and can be used for mostbusiness purposes, such as working capital (maturity of up to 10 years) and fixedassets (maturity of up to 25 years). The maximum loan amount is $2 million to thesmall business with an SBA 50 percent guarantee to the lender (there are higher SBAguarantees 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 loansare usually for major fixed assets such as land and buildings. Usually 50 percent of theloan amount or project cost is from a lender, 10 percent of the loan amount is fromthe business itself, and 40 percent of the loan amount is from the CDC, thus lower-ing the risk to any one lender. The maximum amount of an SBA-guaranteed loan is$1 million.

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

Back Office Secrets


Selecting a LenderWhen it comes to choosing a lender, you have a number of options. We usually rec-ommend that you start with the bank where you have your personal accounts, becauseyou already have a relationship and a good history with that institution. Lenders offerdifferent rates and terms, it’s a good idea to shop around and see what other lendershave to offer before you commit to one. Saving even one percentage point on a loancould 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 aredifferent types of banks—from small community institutions to huge financial con-glomerates. They’ll usually have a loan officeron site who can tell you about their lendingpolicies, and how much lending they do tosmall business, and if they lend to start-ups. Ifyou find that your local bank isn’t versed inbusiness loans, it might be a good idea to findone that is—and it may increase the likeli-hood of your loan being approved. Don’t for-get to check out reputable online bankinginstitutions, as well.

Angel InvestorsAngels, as they’re called, are individuals orgroups of individuals who provide venturecapital to entrepreneurial companies. Differ-ent angel investors have different criteria forinvesting, but they are almost always lookingfor equity in the company and a return ontheir investment.

Most angel investors have some amount ofcontrol within the company in which they areinvesting. This could be a good thing, in thatthe inexperienced entrepreneur now has anexperienced resource at his or her disposal.

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A business incubator isan organization that fosters thegrowth of entrepreneurial busi-nesses by providing a range ofsupport services, such as locationassistance, financing, manage-ment consulting, and others thathelp small businesses becomeestablished and successful.

Biz Buzz

The SBA maintains lists of the toplenders of SBA-guaranteed loansto small businesses. You canaccess this list of small business-friendly banks at www.sba.gov/financing/basics/lenders.html.

Back Office Secrets


Angel investors will usually look for a five-year exit plan in which they will recouptheir 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 traditionalor SBA-backed loan. To find angel investors in your area, contact your local university,business incubator, or Small Business Development Center.

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

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

Community Development CentersMany areas have Community Development Centers (CDC) or Community Develop-ment Corporations (CDC) that provide basic adult education activities and variousdevelopmental opportunities for budding entrepreneurs. These are often affiliatedwith a community church or religious organization. At times, these organizations willassist with small-business training, which has incentives tied to financing. Check yourlocal religious communities, local business groups, and state business organizationsfor information about these programs.

Trade or Business GroupsTrade groups and associations may also have information or funding programs. Whetherit’s a local business group that offers grants to start-ups in economically disadvantagedareas or a trade group that offers funds for businesses to develop and maintain busi-ness 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 finan-cially beneficial to your business.

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Also, check your state department of commerce. These departments provide assistanceto foster business in their communities. The United States Department of Commerceinformation can be found at www.commerce.gov. Also check your local state com-merce department for specific business incentives in your state.

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

Capacity to RepayThe people who give you money—whether to be paid back in installments or throughprofits in the business—will want to see a solid game plan that clearly maps out oper-ations, marketing, growth potential, and financial specifics. You need to show how thebusiness will generate revenue, how much it will generate, how that will translate intoincome and profit, and how, from that money, the investment or loan will be paid. Becareful not to be too ambitious about projections, however. Experienced lenders andbusiness 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 InvestLenders or investors like to see that the principals of the business have put theirmoney where their mouths are. In other words, they want to see that you’ve investeda substantial amount of your own resources, as well. After all, if a business owner’spersonal resources are on the line, or “skin in the game,” as well, the business owneris likely to be more conservative about risking that investment than if he or she hasnone of his or her own money on the line.

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Collateral Lenders and investors also want to see some sort ofcollateral.

If your business lacks adequate collateral, you may beasked to sign a personal guarantee. This pledges yourpersonal assets to secure the loan. If you’re asked tosign such a guarantee, remember that the things youown outside the business—your home, your car, yoursavings—may be subject to seizure should the busi-ness fail to meet its obligations, so be very carefulabout signing such a guarantee.

Conditions of Use of MoneyLenders and investors will likely want an assurance or guarantee of how the money isto be used. You may need to provide a detailed list of the equipment that will be pur-chased and how much it will cost. Money will likely be divided and earmarked forworking capital, staffing, and other expenses.

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

Credit RatingThe 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 youhandle your money and credit on a personal level, which could be a good indicator ofhow you’ll handle the money and credit in your business. A credit rating is needed foreach partner in the business who has 10 percent or more ownership in the business.

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Collateral is somethingof value that can be liquidatedand applied to satisfy the debt orto secure the investment. Collateralmay take the form of cash, inven-tory, equipment, or other thingsof value.

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Credit-Reporting BureausCredit-reporting bureaus gather information on users of commercial credit, and theyuse that information to compile reports on each individual’s credit history. The infor-mation 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, collectionefforts and judgments sustained, and so on. Lenders and other entities use the infor-mation in these reports to determine whether to extend further credit, how muchcredit 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 onereport may be clear, other reports may have mistakes or outdated information due toclerical errors, mistaken identity, or even identity theft. Make sure that all threereports are as clean as possible.

These three companies dominate the credit-reporting industry:

◆ EquifaxPO Box 740241Atlanta, GA 30374-0241Report fraud: Call 1-800-525-6285 and write to the previous addressOrder a credit report by calling 1-800-685-1111

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

◆ Trans UnionPO Box 390Springfield, PA 19064Report fraud at 1-800-680-7289 and write to theFraud Victim Assistance DivisionPO Box 6790Fullerton, CA 92634Order a credit report by calling 1-800-916-8800

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Part 1: Getting Started26

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

Assessing Your ReportReview 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 yourability to get a loan, reduce the amount for which you qualify, and increase yourinterest rate. So it’s very important to ensure that your credit report is as accurate aspossible.

Negative information generally stays on your report for seven years, while bankrupt-cies can stay on your report for up to 10 years. If you have negative information thatis older than those parameters, you can contact the credit-reporting bureau to have itremoved. Even if you have some negative credit, that doesn’t mean that you cannotget a loan. Lenders do consider the fact that you are making payments and are work-ing toward correcting the negative situation.

If you find late-payment information that’s more than seven years old, you can requestthat 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 contactingthe credit bureau. By law, the bureau must verify the information within 30 days orremove it from your report.

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 thereare no errors, this free report does not include your FICO credit score. To obtain yourFICO credit score, you have to pay a small fee.

Back Office Secrets


Different lenders have different cutoffs for how they rank credit scores, but in generalthis 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 thatyou need more collateral to get the loan.

If your score is below 620, it may be considered a greater risk, and may affect yourinterest rate, loan amount, and terms. However, even if you don’t have a very highcredit score, there are many lenders who will still take a chance on a solid businessidea. And you can try applying for an SBA guarantee to make your loan even moreattractive to lenders.

Whatever your score, it’s important to keep your credit payments up-to-date in themonths ahead. Even a few months of on-time payments can significantly increaseyour credit score.

Increasing Your ScoreBesides correcting misinformation and having outdated information deleted, there areseveral other ways you can increase your score. By reducing new charges, paying offexisting debt in a timely manner, and decreasing the ratio of debt you incur to theamount you have, you can have a positive impact on your score. This ratio is impor-tant because part of your score calculation is the amount of debt you have versus theamount available to you. So if you pay off a balance, it may not be a good idea toclose the card, which will reduce the amount of credit available to you and increaseyour debt-to-availability ratio.

If you’re sure you can be disciplined enough to keep a zero balance, it may be a goodidea to keep the balance-free card open. However, if you’ll be tempted to run up newcharges, then close the card and continue to pay down your other balances to decreaseyour ratio.

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Beware of Quick Credit FixesLook out for scam artists offering to fix your credit quickly. They often use a numberof tricks, such as sending a flood of bogus challenge letters to the credit-reportingbureau in an effort to get information deleted because the bureau was not able torespond to the massive number of letters within 30 days. Another (illegal) tactic thatsome 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 CreditCounseling (www.nfcc.org) to find a local not-for-profit credit-counseling bureau inyour 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, enablingthese financial institutions to make loans to riskier ventures.

◆ Lenders and investors usually look for specific criteria, including capacity torepay, cash to invest, collateral, character of owners, and credit, before theymake 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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3Business 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 theprospect of writing an address—let alone a multi-page plan—makes you abit woozy, fear not. Your business plan doesn’t have to be the businessequivalent of great literature. This chapter will share some tips to makethe process of writing much less daunting.

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

Chapter


sound more intelligent. Unfortunately, using this style usually backfires and makesthe writing long-winded and more boring than it should be.

When writing about your business, you should write clearly, almost the way youspeak. Your writing should convey the passion that you have for your business. Thefollowing sections discuss ways to make your writing more effective.

Targeting Your AudienceThere’s one key question that you should keep in mind whenever you’re writing adocument: Who is going to be reading this? Always write for your audience and besure 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 targetlenders 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 amanagement tool, however, you may want to pay more attention to potential risk fac-tors and threats so that you can work with employees and advisors to come up withappropriate strategies to tackle them. Again, write for your audience.

Why are you writing the document? Are you trying to persuade someone to do some-thing? Are you trying to use the document as a tool for learning about your businessor to put your thoughts in writing between partners? Focus on the reason you arecreating the document and keep that in mind as you craft your words. As you edityour 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 ele-ments that need detailed description? Once you’ve drafted the section, re-read itcarefully to ensure that you’ve included the relevant information, explained yourselfwell, and cut anything that doesn’t really need to be there.

Language and ToneThe words you choose in your plan will be almost as important as the informationthey 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 orphrases to substitute for simpler ones—doesn’t make you sound more professional or

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Chapter 3: Business Writing Basics

competent. In fact, the opposite is true—it’s boring and makes it less likely that yourmessage will get through.

The more clearly, concisely, and colorfully you write, the more likely it is that youraudience will absorb your message. If you must use industry terminology, do so spar-ingly and give definitions where necessary. Given the choice between lengthy narra-tives and brief descriptions, it’s almost always better to relay important information asbriefly as possible, with backup in an appen-dix if needed.

Your plan’s tone should be positive and opti-mistic. Flat, dull, or negative writing is moredifficult for the reader to absorb. You’relaunching an exciting new venture—don’t beafraid to let your enthusiasm show through inyour writing!

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

Using Active VoiceActive voice means that the person who performs an action in the sentence is the sub-ject, which makes your writing more exciting. In passive voice, the thing acted on inthe 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, AlisonSmith 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 (marketingefforts) 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 activevoice 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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Jargon is industryterminology that is generallyunderstood within a certaingroup, but not as well known out-side of an industry group.

Biz Buzz


Using Declarative SentencesYou 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 theprocess? 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’sone of the most revolutionary developments in the history of widgets!

◆ Imperative—Gives an instruction to the reader. Example: Sit back and readabout 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 andexclamatory sentences can turn readers off, and asking too many questions can be dis-tracting. You need to state the facts and use these other sentence structures toenhance your writing or to reinforce key points.

Cutting the FluffDon’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 withevidence, statistics, and other facts. The more you talk about how “revolutionary,”“innovative,” and “wonderful” your company is without citing specific examples, theless credibility you’ll have.

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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 exam-ple: “Out (Our) business is successful.” This would pass right through the spell-checker.

Back Office Secrets


For example, a business plan that asserts that “Our company is made up of a dynamicteam of top professionals. Our innovative approach is unlike anything else in the mar-ketplace today” is less credible than one that says something like the following:

“Four members of our management team have worked for Fortune 500 compa-nies. As a result of independent research that our company has undertaken inthe field, we have been able to develop a patented approach to new home con-struction, which saves the builder approximately 20 percent on labor costs andup to 30 percent on materials costs. This enables our franchisees to price theirservices lower than other providers inthe marketplace, while still maintaininga higher profit margin.”

See the difference? The first one is all talk. Thesecond example doesn’t need any hyperbole—the impressive facts speak for themselves.

Avoiding ClichésClichés are those tired phrases that we’ve all heard hundreds of times—keep yournose 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 over-use. Try rewriting them, focusing specifically on what you mean to say.

Presenting Your InformationHow you structure your writing is also important. Long narratives are usually a no-noin business-plan writing. If you can, separate lengthy paragraphs with many specificpoints into bullets, which are easier on the eye and enable the reader to more quicklyidentify the various messages being written.

Read the following paragraph:

Our online promotions take a number of forms, including online discounts andcoupons that can be used by ordering online, or which can be downloaded foruse in our brick-and-mortar store. In addition, we use e-mail to communicatepromotions, while our regular contests give customers and prospects chances towin something worthwhile to them. Banner advertisements put our messages inplaces where your customers and prospects are likely to frequent, and often tiein to current giveaways. To add a sense of urgency, we use time-sensitive offers

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Hyperbole is exaggera-tion or stretching of the facts tomake something seem more thanit actually is.

Biz Buzz


and events, such as a web chats, online seminars, or web casts to attract morecustomers 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, orwhich 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 customersand prospects are likely to frequent.

◆ Giveaways.

◆ Time-sensitive offers and events, such as a web chats, online seminars, orweb 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 ProperlyThere are different grammar and punctuation rules depending on the authority youconsult. Various style books have largely similar rules, but also have some importantdifferences, 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 willgive you an easy reference book if you find yourself stuck in a tricky grammar orpunctuation challenge. You can find most at your local bookstore or at one of theonline booksellers.

◆ Strunk and White’s Elements of Style is a great and easy-to-use handbook ofcomposition rules.

◆ The Chicago Manual of Style, a style guide compiled by the University of ChicagoPress staff, emphasizes consistency and clarity in writing.

◆ The Associated Press Stylebook will arm you with style rules, and give you a primeron copyright and libel laws.

Whichever stylebook you choose, just be sure to apply its rules consistently.

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Writing, then RewritingNo matter how good you think the first draft of your business plan is, plan on doing arewrite. 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 soperfect just 48 hours ago suddenly have so many areas that can be improved.

Avoiding Writer’s BlockThere are few things as daunting as a blank page. Just the thought of churning out a20-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, oreven a paragraph that you think will be easy to write. Then, dive in and beginwriting that section. Choose what you know best about your business—it couldbe the marketing strategy or the product-development approach. Once you’vewritten one small part, you should find that the writing comes more easily. Ifnot, choose another small section that you know well. Keep chipping away atthe 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 cupof coffee, close the door, and begin. These little rituals can do wonders to getyou ready to work.

◆ Carry a notepad. You may find that ideas for how to write your plan will strikeat the oddest times—in line at the grocery store, in your car, etc. Keep a notepador compact voice recorder close by so that you don’t lose these gems.

◆ Eliminate distractions. Lock the door. Let voicemail or your assistant answer thephone. Then set a timer for 30 or 45 minutes. Write about your topic for thatperiod of time, and do not allow yourself to be interrupted. Don’t worry aboutthe quality of what you’re writing—just do a brain dump onto the page. You canalways 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 torelax yourself. The great thing about working on a writing project like this isthat you can edit it, tinker with it, and improve it for as long as you like.

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Speaking and Writing WellAnother very helpful tactic for nonwriters who wish to write more easily and with morepolish is to use a voice recorder to make the job easier. If you find that you can explainyour 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 thatyou are explaining each component of your business to a friend or a customer, andrecord 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 languageflows easily. It’s much easier to spot typographical, punctuation, and grammaticalerrors when you’re reading aloud instead of silently. In the latter case, your eye ismore likely to compensate for the error because you knew what you meant to say. Byreading 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 otherareas 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 worth-while to invest some time in ensuring that you’re putting your best foot forward onpaper, 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 canusually backfire.

◆ Get familiar with common rules of punctuation and grammar.

◆ Overcome writer’s block by creating an outline, staying organized, and taking arelaxed approach to the process.

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

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2From management to marketing to operations to sales, this part walks youthrough the various segments of your company that you’ll need to explainand showcase. Whether you’re just mapping out a game plan or goingafter 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 busi-ness plan, from the overview of drafting your cover letter and title page inChapter 4; to putting together the meat of your management, operations,and marketing analyses in Chapters 5 through 11; and delivering a primeron financial documents in Chapter 12. Chapters 13 and 14 cover the backupdocumentation you should have and your executive summary, respectively.

PartPutting Together Your Plan

4Ready, 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 getready to write. But before you sit down at your computer to tap out “TheGreat American Business Plan,” it’s important to get organized and put abit of thought into what you’re going to write.

Having the materials you need on hand as you write, and having a goodunderstanding of what the purpose of your plan will be, will also save youtime as you begin to write. Try to develop a clear sense of whether you’reusing your plan to attract capital or if it’s solely for your internal purposes.

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

Chapter

Part 2: Putting Together Your Plan

for all plans, including being organized, knowing your facts, supporting your claimswith documentation, and getting help with the financial aspects, if you need it.

Being OrganizedSeparate your information into logical sections, including executive summary, opera-tions, industry forecast, marketing, financial projections, and the like. This will helpyour reader get to the most relevant information quickly.

Knowing Your StuffDon’t just cite industry statistics from a trade association press kit. You should be ableto explain, in detail, every component of your business plan. Remember that this isn’tjust a mindless chore—it’s a living document that can help your business to be moresuccessful. So as you do your homework, perhaps reviewing secondary research froman industry association, for example, be sure that you understand the information andstatistics that you’re reading and incorporating into your plan. Too often, time-strappedbusiness owners don’t take the time to really pay attention to the information they’recapturing. Instead, they read the information with preconceived notions about theirbusiness and its sector. Smart entrepreneurs ask questions and get answers aboutareas, numbers, or facts which they don’t understand.

Keep in mind that the higher the loan amount you’re requesting or the bigger theequity stake you’re offering to a business partner, the more likely it is that the personreading your plan to make a decision about its viability will ask you very detailed, spe-cific questions about your plan’s contents. If you stumble or show that you don’t havea good grasp of what’s written, then you’re going to greatly reduce your chances ofsealing the deal.

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Need help analyzing industry data? Check in with your city or county economic devel-opment office or your local Small Business Development Center. These entities are cre-ated to help businesses, often with free counseling and advice. You can often getno-cost access to management professionals, economists, and others who will knowl-edgeably help you decipher statistics and facts that are a bit unclear.

Back Office Secrets

Chapter 4: Ready, Set, Write

Supporting Your ClaimsJust as you should have a high level of knowledge about your business, you should beable to cite documents, studies, statistics, and other sources to support any claimsabout your industry and its future potential. The more homework you do, the moreattractive your plan will be. In Chapter 13, we discuss how to thoroughly support yourclaims and which documentation you should include in your plan.

You want to be thorough in your plan, but busy lenders, investors, and other profes-sionals don’t usually have time to pour over hundreds of pages. Aim to create a reportthat’s about 20 to 25 pages long (some are shorter) and, if you wish, add additionalsupporting documentation as an appendix. This should give you plenty of space tostate your case, without overwhelming your readers.

Getting to the GoalBusiness plans can serve many purposes, as we’ve discussed. Your plan’s goals willdetermine how your document is structured and which information is presented mostprominently.

First, you need to think about how you will use your plan to determine the goals that arenecessary for accomplishing the plan’s purpose. For example, as an internal managementtool, your plan will help you create a game plan for moving your business forward. Inthis type of plan, it’s critical to focus on the mission and vision of your business. Thistype of plan will be used to keep your business focused on its core purpose, ratherthan 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 yourbusiness, its products and services, the competition, and if or how the business willevolve or grow to remain viable while maintaining that business model. The followingsections discuss how to “get to the goal” of your business plans.

Obtaining Financial AssistanceIf 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 thistype of plan will be the financial statements, although details about sales, marketing,and management will also be important. The key messages will vary slightly depend-ing on the type of financing you’ll be seeking, as noted in the following:

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◆ 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 beimportant, 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 wantto focus more on the business profit margins and growth potential. Industrygrowth specifics, as well as sales projections and methods of controlling expensesto maximize profit, will be most important.

Venture capitalists want to see that their investment will pay a return. Your planshould also outline an exit strategy for the money that is invested. In otherwords, investors want to see a means for how they will recoup their originalinvestment, plus a return, within approximately five years.

◆ Grants—As we discussed earlier, grants are difficult to find. However, when theyexist, it’s usually for a specific purpose or industry, so you’ll want to write yourplan to support that purpose. For example, if your business is trying to obtain agrant as part of a community-revitalization project, you’ll want to showcase howyour business will contribute to the overall well-being of the area.

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So you got a grant to start or grow your business. Part of the process likely requires youto document how the money is helping the business—and, in a larger sense, the organi-zation giving the grant—create positive change. Some of the areas on which you’lllikely 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 onhow the money was used for that purpose.

In addition, you’ll want to include any residual effects. If you’re getting much more traf-fic as a result of restoring your building, document it in your report to the grantingagency.

Back Office Secrets


Attract Business PartnersPerhaps your plan is being used to attract new equity partners to your business or topresent your business in a way that makes it attractive for a potential merger withanother business. In this case, you’ll want to showcase your USP, as well as your oper-ations and management processes. Profitability will also be important in this case, soyou’ll want to be sure that your financial statements are strong and accurate.

Operation BenchmarkYour business plan can also be used as a management tool to keep your business ontrack and to ensure that you’re hitting certain goals and milestones necessary for yourcompany to sustain itself.

By putting these facts in writing, you have a simple reference that can be reviewedperiodically and by which you can measure goals and maximize resources.

For example, are you meeting goals that you set for your business? Your business plancan show you where you’re excelling and where your business needs to improve. Areyou meeting sales projections? Are expenses being kept in check? Have you staffedyour company as you anticipated? All of these measurements of success will be evi-dent when you compare your business to your written plan.

By reviewing your plan regularly, you should also see areas where you can consolidateyour business operations, cut expenses, or increase your profits. For instance, you mayfind that you’ve grown to the point where it makes sense to hire a full-time marketingperson instead of outsourcing your promotional efforts. Or you may see that outdatedequipment is beginning to negatively affect your productivity, so it may be time topurchase 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 AssistanceAs you write your plan, you’re likely going to want to turn to some of your currentadvisors for assistance. These may include your accountant or attorney.

Turn to your accountant for help with preparing proper financial statements. As afinancial advisor, he or she should be familiar with the financial information you’llneed 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 andfinancial success.

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If you’re looking for investors or are committing to certain responsibilities related togrants or other programs, you’ll want to have your attorney review your plan to ensurethat you’re not presenting any information or making any assertions that could getyou 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 ProcessThe 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 UpdatedMake time regularly to review your plan and ensurethat it’s updated on an ongoing basis. Financial state-ments should be reviewed at least semi-annually, andnew processes, information, staff, and other relevantinformation should be updated in your plan at leastquarterly.

AnalysisAs you review your plan to ensure that it’s up-to-date, take the time to read andreview it. Ensure that your goals are still realistic, and evaluate whether they need tobe changed based on your business’s growth or market factors.

In addition, sometimes the purpose of a business plan changes. You may have originallywritten your plan to land financing, but now have found that you need it to be more of amanagement tool. When this happens, re-tool your plan for the needs of your business.

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The iterative process isthe repeated review and integrationof your plan to keep it up-to-date.

Biz Buzz

As you review your plan regularly, you’ll likely find that some goals or elements are outof 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 inthe marketplace, it may be time to re-evaluate your marketing budget and focus it ondeveloping new niche markets.

Back Office Secrets


Annual MeetingAs a corporation, you are required to hold a board-of-directors meeting at least oncea year. At this meeting you review and document any changes to the business. Duringthe meeting, you take corporate minutes, which are later distributed to the board andinserted into the corporate books. (And with these books you also keep the corporateseal—to use, when necessary, to seal official corporate documents.)

This process may sound trivial, especially if there is only one shareholder/owner, butnonetheless it is required. If you do not hold or record annual meetings, or updatethe corporate books, and there should be alawsuit, the opposing side could ask to see thecorporate books (not updated) and then getoff on a technicality stating that you are notacting like a corporation. This is what isreferred to as “piercing the corporate veil.” Acorporate book and seal should be set up if anattorney forms your corporate entity. If youdo not have this, you can purchase one eitheronline or at a business-supply store.

In Part 3, we discuss in more detail how youcan make your plan a critical tool for yourbusiness. But, first, let’s move forward on thewriting.

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 themost 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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Your corporate seal is adevice that engraves the officialseal of your corporation ontopaper by pressing it betweentwo plates. You receive the sealfrom the state in which your cor-poration is filed. Your corporatebooks are where board meetingminutes and other corporatepaperwork are kept.

Biz Buzz

5Getting 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 tolenders, business partners, and others who will see your plan. Your planshould look clean and professional, reflecting the image that you wantyour business to project.

Creating a well-organized plan is also essential to make your documenteasy to use. While we suggest ways to organize your plan, the truth is thatmany business plans present information in varying order. It really dependson your business and the target audience. However, whatever form yourplan takes, it’s also critical to distill the essence of your business down intoa clear, compelling description that shows your knowledge and expertise.

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Getting Off on the Right FootIf your business plan is being used for external purposes, such as seeking financing orinvestment partners, you’ll need a proper introduction. A cover letter is the documentthat introduces your plan to its readers. This one-page letter is a brief statement ofyour business plan’s purpose, as well as what the reader can expect to find in yourpackage. 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” insteadof “Dear Loan Officer” or “Dear Sir”).

◆ An introductory purpose that states the purpose of the plan and benefits to thereader. For example, “We’re seeking to obtain ….”

◆ A brief statement of the amount of money you’re seeking, if you’re using yourplan 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, “Ihope that we can meet to further discuss financing options,” or “Please advisewith 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 anysupporting documentation you choose to include.

Your cover letter, like your plan, should be neat, clean, and free of grammaticalerrors, spelling mistakes, and coffee stains. You want to look like the consummateprofessional you are. An example follows:

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Chapter 5: Getting Down to Business

ABC Enterprises123 Main StreetAnytown, USA 01234(555) 123-4567

DATE

Mr. John JonesVenture Capital, Inc.444 Yellow Brick RoadMoneytown, USA 45678

Dear Mr. Jones:

It was a pleasure to meet you at last week’s Venture Capital America Fair. Based onour discussion, I’m pleased to forward you the enclosed business plan for ABCEnterprises, 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 thepharmaceutical industry. Led by Eric Ericson, a 20-year veteran of the printingand publishing industry, and Jack Jackson, an award-winning graphic designer, wehave designed a state-of-the-art facility that maximizes productivity and minimizesexpenses.

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 determinehow 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 financialstatements, I hope that we can arrange a time for you to tour our facility. I’ll planon following up with you in three weeks.

Thank you for your interest in ABC Enterprises. I look forward to our next meeting.

Sincerely,

Jack JacksonPresident

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Title PageThe title page of your document is the first visual image that the reader will have ofyour company. It should be neat and easy to read. Avoid artsy fonts, unless you areincluding 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 (usuallythe company’s owners, partners, or key shareholders), as well as the titles ofthose individuals listed

◆ The date that the plan is being submitted

◆ Optional: a notice of confidentiality, although weprefer including a separate page that outlinesthe provisions of confidentiality

And that’s it. Don’t clutter your cover page with toomuch 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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Be sure to find out if your target audience has specific format requirements. Differentlenders or other strategic partners may have guidelines or preferences for business-planorganization or presentation, including what should be included in each segment. Askyour intended reader if this is the case and tweak your business plan format to meetthose requirements, if necessary.

Back Office Secrets

A notice of confidential-ity is simply a statement thatinforms the reader that the infor-mation in a document should notbe shared, distributed, or other-wise disclosed.

Biz Buzz


Sample title page.

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Table of ContentsThe Table of Contents (TOC) helps your reader navigate your plan more easily. TheTOC 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 ideato 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 sub-heads that fall under that section. That way, if a reader needs to refer back to a specificfact, he or she can find it with a quick scan of the TOC, instead of getting frustrated whileleafing through page after page of the report. Of course, you should compile the TOCafter you’ve written your plan, otherwise you’ll waste time changing it as your plan evolves.

Confidentiality AgreementYou’ll probably want to include a confidentiality agreement in the early part of your busi-ness plan. Similar to the notice of confidentiality, this document, which is signed by thereader, is an agreement that the reader will not disclose the contents of the business plan toanother party without your expressed, usually written, permission. It also includes aplace for the reader to sign the agreement, indicating his or her agreement to keep theinformation confidential.

You’ll need to decide whether or not to include this. Sometimes, confidentiality agreementscan be off-putting to potential business partners or venture capitalists who may chooseto become involved in one of several similar businesses. Signing such an agreement couldpotentially 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, aconfidentiality agreement may protect you. So weigh your options and include one ifyou think you need it.

This agreement is generally a short one- to two-paragraph statement that includes thefollowing:

◆ The information in the report is confidential in nature

◆ The reader agrees not to disclose this information without prior written consentfrom 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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Part 2: Putting Together Your Plan54

Sample confidentiality agreement.


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

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

Business DescriptionThe business description includes an overview of what, exactly, your business does.Whether you sell widgets or service whatnots, here is where you will succinctlydescribe what it is that you do.

In this beginning section, avoid hyperbole and stick to just the facts. Your readersdon’t want to hear that your business is the best thing since sliced bread—they want toknow 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 high-lights of the company’s history, including any strengths or advantages that have addedto 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 back-ground that will showcase its staying power.

StructureIn this section, you describe how your business is structured, including whether it’s asole proprietorship, partnership, or some form of corporation. If there is a compelling rea-son why you’ve chosen one form of structure over another, you may wish to explainthat, as well.

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OwnersAlthough 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 soleproprietor, or list any partners or other shareholders in the business. Later you willinclude a resumé or bio in the appendix for each partner, highlighting pertinent pastexperiences.

LocationDescribe your location, including the community and the physical space in whichyour business is located, as well as your rationale for being there. If you did anyresearch that indicated that your current location would be a good one for your busi-ness, then include that as well. This description doesn’t need to be long—perhaps aparagraph or two describing the area. However, if there is a reason to go into greaterdetail—such as a community development program that will support your businessand help deliver customers, you certainly can make it longer.

Hours of OperationThis is short and simple: what days and hours are you open? If there are specific rea-sons for your schedule, explain them here.

Season’s GreetingsIf your business is seasonal, describe the dates that you are open for business. In addi-tion, describe any revenue opportunities for the off-season. For instance, if you own alandscaping company and dabble in snow removal during the winter months, includethat information.

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

Biz Buzz


What Is It?You’ve described your business. Now it’s time to get into the specifics of what yousell, 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 youintend to fill, as it relates to your product. For instance, if you’re a retailer spe-cializing in children’s furniture, here is where you describe that specialty insteadof the profile of the customers who buy children’s furniture.

◆ Explain the edge you have over your competition. In addition, you’re going towant 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 overyour competition. Again, stick to the facts here—don’t use vague hyperbole suchas “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 yourbusiness or its personnel have received? Include these; you should also includeany supporting documentation in the plan’s appendix.

We’re on a MissionBeyond the day-to-day functions of being in business, there are other reasons why mostbusinesses exist. Companies, like their owners, have sets of passions, values, and priori-ties. 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 paragraphin length, but they also have some very distinct differences as described in the follow-ing sections.

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Mission StatementThis section states why your business exists. Why is the business in existence andwhat is it in business to accomplish? The answers to these questions may address yourmarket niche, the reason why you founded the business, and profitability, amongother principles.

Your mission statement should address the overall purpose of your business includinga succinct statement of how the business will be carried out. Touch on such issues asyour management and staff, resources, and other factors that will be integral to yoursuccess.

Following is a sample mission statement:

AMT is built on the assumption that the management of information technol-ogy for business is like legal advice, accounting, graphic arts, and other bodies ofknowledge, in that it is not inherently a do-it-yourself prospect. Smart businesspeople who aren’t computer hobbyists need to find quality vendors of reliablehardware, software, service, and support. They need to use these quality vendorsas 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 withthe loyalty of a business partner and the economics of an outside vendor. Wemake sure that our clients have what they need to run their businesses as well aspossible, with maximum efficiency and reliability. Many of our informationapplications are mission critical, so we give our clients the assurance that we willbe there when they need us.

Vision StatementA 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 andhow the organization can best thrive in the long-term, from the perspectives ofgrowth, purpose, profit, and stability.

Think of your vision statement as how your business will operate five or ten yearsfrom now. How will it continue its growth? How will it evolve into a stronger organi-zation? 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-costprovider of electronic components in the tri-state area. Through aggressivecost-cutting across all levels of our organization, we will pass our savings alongto our customers and reinvest in our organization as necessary to promotegrowth.

Values StatementThe values statement defines those tenets that the organization holds as most impor-tant. 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 busi-ness, values may include factors such as profitability, proper staffing, and other factorsthat will improve the staying power of the business. Some values that a businessmight 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 ongoingtraining, recognition, thanks, and praise of your staff are important. A valuedstaff exhibits energy and quality of work to your customers.

Values vary greatly from business to business.The only criterion is that you write the valuesthat truly reflect your business. Following is avalues statement:

Hal’s Electronics Warehouse values ourcustomers and our commitment to lowprices. We have a minimalist approachto our surroundings and amenities,keeping our locations modest in décorand fixtures, while providing helpfulsales assistance.

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Unless you’re a soloist,don’t craft your company’s mis-sion, vision, and values state-ments on your own. If you havea management team, advisors,or employees, then get their inputon these important parts of yourbusiness plan to ensure that what’son paper is shared by the peo-ple involved with your business.

Red Zone


Congratulations! You’re done with the first section of your plan. Now we’re going todive into the mechanics of your business to show you how to “wow” even the pickiestof 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 afirst impression on your reader, so you want them to be clear.

◆ Confidentiality agreements are a double-edged sword, which may protect youbut 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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6Industry Overview

In This Chapter◆ Defining your industry

◆ Understanding market research

◆ Locating information about industry trends

◆ Explaining your business’s role in the industry

Industrial StrengthAnalyzing your industry requires combining your company’s collectiveexpertise with market research and trend information about the sector inwhich you’re doing business. This will show your plan’s target audiencethat you have done your homework and have a solid understanding of themarket and its forces. Your industry analysis should be one to two pagesand 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

Chapter


◆ 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. Inthis section of your plan, you’ll explain to your plan’s target audience why this is anattractive market for your business to court.

Understanding Market ResearchWhen it comes to analyzing your business market, knowledge is power. The moreinformation you have about your market, customers, competition, and prospects, themore effective your management and marketing strategies will be. So why do somany 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 tellthem anything about their business that they don’t already know. Some entrepreneurstake the word of friends, neighbors, and relatives that their idea is great so they over-look the value of market research. However, there are market-research options availableto even the smallest businesses—and those who avail themselves of such fact-findingare 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 inexistence, such as Census data or industry surveys.

In addition, research is further defined as qualitative or quantitative. Quantitativeresearch answers basic questions—who, what, when, where, how many, how much,and how often—using statistical analysis of data to draw conclusions. Quantitativestudies can benchmark awareness levels for your company, brand, product, or compe-tition and give you a glimpse of what your customers, prospects, and other audiencesthink 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, suchas “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 followingsections discuss some of the more effective mechanisms.

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Chapter 6: Industry Overview 63

InterviewsConducted by a trained, independent researcher, the interviewer draws informationfrom the interviewee either in person or by phone. The results should not be biasedby preconceptions, emotional attachments, or business pressures. The interviewer isgiven criteria by which to evaluate prospective interviewees. High-traffic areas likeshopping malls, amusement parks, and the like are prime locations for in-person, or“intercept” surveys. Increasingly, interactive kiosks, which allow interviewees toanswer questions electronically, are also popping up in high-traffic venues to captureconsumer feedback.

SurveysSurveys can be done by mail, telephone, e-mail, or in person. Again, it is important topay attention to how the survey is worded, to ensure that biased language does not influ-ence 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’regoing to get very different information from the question, “What are your favoritefoods?” than “What healthy foods do you like?” The latter gives the intervieweedirection as to what type of answer is expected. Good interviews are more objectivein nature and help you capture your customers’ true opinions instead of what theythink you want to hear.

Tainted data can be hazardous to your business’ health! Basing decisions onfaulty data is a sure-fire way to make the wrong decisions. Whether you’re conductingsurveys, focus groups or other methods of information collection, take pains to ensurethat the data is pure. Don’t inject leading questions. Try not to show a reaction when aninterviewee answers or expresses an opinion. By keeping your data collection as objec-tive 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.

Red Zone

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


discussion. Although focus groups generally reveal helpful information, they are vul-nerable to the dynamics of the group. A participant with a dominant personality orthe perception of a moderator’s bias can drastically influence results. Therefore, besure that you hire a trained moderator who has experience in or a thorough under-standing of your field.

Online Focus GroupsQuickly growing in popularity because of their relatively low price, some of the largerchat-based websites are offering online focus group opportunities. Online chat sessionsare less likely to be skewed by a dominant participant, as the relative anonymity of thesituation may bolster individuals who might otherwise be shy. However, this bravadocan also lead to exaggerated responses or enhanced claims by participants. Again, hirea 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 GoodMind (www.goodmind.net).

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

Understanding the IndustryOnce 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 hasit changed over the past five years? Explain whether it has grown or has been shrink-ing and why. Is it on the rebound? How will these factors affect your business? Alsoconsider how trends and fads will impact your business idea.

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

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Chapter 6: Industry Overview

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 industryis brand new. Online retailing was inthe emerging stage in the mid-1990s.

◆ Growing—This is when the industry isexpanding, with new products and serv-ices being offered. More customers areaware of the segment and are interestedin spending their money with thesetypes of businesses. The market for dig-ital music devices, such as iPods andother mp3 players, is growing.

◆ Mature—At this point, the industry has reached its critical mass and doesn’thave much room for expansion. Key players generally dominate the market, butthere 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 losingground. Markets at this phase of life are generally being replaced by new tech-nology or innovations. For instance, the typewriter industry is in decline, largelybeing replaced by personal computers.

Understand where your industry is in the life cycle. This can often be determinedfrom trade associations and publications and by looking at industry statistics from thegovernment and other sources. Explain how your business will benefit from—orovercome—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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The North American IndustryClassification System (NAICS)assigns code numbers to variousindustries to help clarify the busi-ness that they are in. Thesecodes have largely replacedStandard Industry Classification(SIC) codes, which essentiallydid the same.

Back Office Secrets


Industry Economics and TrendsAs you work on your industry analysis, you’ll need to take the economic temperatureof the sector in which you’re doing business and examine any trends or current eventsthat will influence your business.

There are many places to find statistics, trends, and other information about variousmarkets. General population information can also give you clues about emergingmarkets. For example, a baby boom means more demand for childcare and childproducts in the short-term, and increasing demand for the products and services thesechildren will need as they reach adulthood.

Some of the best places to look for excellent secondary information include the fol-lowing:

◆ Census data (www.census.gov) tells you about population statistics and trends inthe United States, as well as a wealth of business data.

◆ United Nations Statistics Division (www.unstats.un.org/unsd/industry) hasinformation on the production of major industrial commodities in countriesaround the world.

◆ BizMiner (www.bizminer.com) houses reports on 16,000 categories of businessin 300 areas of the United States. (They charge a fee for access.)

◆ Minority Business Development Agency (www.mbda.gov) includes many reportsspecific to minority business, but also has terrific general information, as well.

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Launching a business in a mature industry—in other words, one that is established andisn’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 businesswill secure a profitable portion of the market. For instance, Nantucket Nectars, thehighly successful juice and soft-drink company, started with two partners selling refresh-ments in a small boating community. Today, it’s a multi-million-dollar company, in spite ofthe fact that they competed against established players like Ocean Spray, Motts, andmany other juice makers. They made a difference by setting themselves apart with thequality and flavors of their products. You need to find your exceptional difference fromthe competitors in your industry and make it clear in your plan.

Back Office Secrets


◆ Trade journals and associations. Visit the websites of trade organizations andpublications that cover your industry. If they don’t have archived information ontheir sites, contact the management offices and publishers to request back issuesand additional information you need.

◆ Local and State Government. Contact your state, county, and local planningboards and, if applicable, business-licensing offices, or state economists’ offices.

◆ Local libraries. Reference librarians are among the best-kept secrets when itcomes 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 researchtools that will help your search.

Opportunities and ObstaclesAs you gather information about your industry, you may begin to identify bothopportunities and obstacles. These factors will influence how your company doesbusiness. These are discussed in the following sections.

InnovationsWhat new progress, inventions, or ways of doing business have been introduced inyour sector? How is your business either incorporating or competing with thesedevelopments?

Innovation can have a huge impact on howan industry sector performs overall. Forinstance, the advent of digital cameras haslargely changed the way many photographersconduct their business. Photographs can nowbe seen instantly and proofs e-mailed orposted on a website for review, eliminatingthe need for costly printing. Identifying theseopportunities through innovation will showyour audience that you’re not afraid ofchange and that you’ll keep your businesstechnically current.

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Identifying obstacles isn’t neces-sarily a deal-breaker. Lendersand business partners will wantto see that you’ve realisticallyevaluated the marketplace. If youcan provide sufficient solutions orideas to overcome the obstacles,it’s likely that your innovativeapproach to the matter willimpress lenders and potentialbusiness partners.

Back Office Secrets


So how does this relate to your plan? Explain how your business will apply technol-ogy or innovation to reduce costs or streamline operations. In the case of a photogra-phy studio, for instance, the business owner may include the cost savings enjoyed byusing his website to take orders instead of printing photographs. In addition to thepositive impact on his financial statement, he can show how this will save him and hisemployees time in their day-to-day operations, and allow them to deliver their prod-ucts and services more quickly, effectively, and/or cost-efficiently to customers.

RegulationsGovernment regulations can have devastating effects on businesses. For example, ifyour business violates environmental legislation or your products include ingredientsthat are determined to be harmful to its users, you could soon find yourself out ofbusiness and facing very significant fines and lawsuits.

Examine the regulatory climate surrounding your market sector and explain it to yourtarget audience. Outline your plan for dealing with any potential regulation.

Keeping an eye on regulations that can affect your business is smart business. Explainingthese regulations in your business plan is also a smart move, showing readers that youunderstand the regulatory environment in which your business is operating.For instance, if your business is home-based or located in a residential area, youneed 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. Ifyour business will use materials that are potentially hazardous or that may damage theenvironment if improperly used, you should explain how you will take care that yourbusiness 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 dev-astating for both you and your investors.

Bottom Line Booster

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


Price ComparisonsPricing is also an important consideration. In mature markets, pricing is often lessflexible than in emerging markets, so you’ll need to provide a brief description of howyour 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 ofdoing business in mature markets should, in theory, be less than the research, develop-ment, and other costs of a start-up. Therefore, in a mature market, pricing for distri-bution partners and end users may be actually lower and more flexible.

LocationIf 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’sundergoing revitalization. Lenders may see an unsavory address and become concernedabout crime or other factors. Instead, explain that your business is on the ground floorof an exciting new community-redevelopment program. Include evidence of this state-ment 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 drive-up window to offer an innovative new drive-up service for your business? Are youlocated near an attraction that draws a great deal of foot traffic that will pass by yourbusiness? Say so.

CompetitionNow that you know your business, you need to figure out how it stacks up against thecompetition, and honestly evaluate how their product, service, or business is betterthan yours. Because larger competitors generally have large marketing budgets, youneed to be creative in how you sell your business’s products or services to new andexisting customers. Knowing that you’re strong where your competitor is weak givesyou 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 yourbusiness that can sharpen your competitive edge. To get the goods on your competi-tors, you need to become a sleuth. Find out everything you can about the company sothat you can determine where it falls short of your operation. This will provide you

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with important information that you can use to differentiate your company. If you canoffer specialized products, knowledgeable service, personalized attention, betteratmosphere, or other advantages, this can be your key to maintaining your share ofthe market.

If possible, visit your competitor’s place of business or talk to customers. Also go tothe local retail store, restaurant, or other venue that may potentially take marketshares away from you. If that’s not possible, read industry publications for informationabout the company or do some online research. By gathering information about yourcompetitor, you can get a clear picture of how it measures up against your businessand which weaknesses you can use to your advantage. Other great places to get thegoods on competitors include these:

◆ The company’s website. Look for a background or history on the company, andits 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 keyteam member. Read news releases or copies of media coverage that are includedon the site to get additional insight.

◆ On the wire. If the company’s releasing info about itself, it may be doing so onone 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’llreceive a slew of helpful information from the company’s investor relations depart-ment. 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 con-tact the investor relations department and request information as a prospectiveinvestor. (But if you do invest, you’ll often get information sent to you regularlyand 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 num-ber 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 formalcomplaint aggregators, such as the Better Business Bureau, may have informationabout problems that customers have had with your giant competitor. (You shouldnote that it’s almost never a good idea to use complaints about competitors inyour marketing. However, complaints that you see over and over again can helpyou understand some of the weaknesses of your competitor.)

◆ Directory assistance. Check some of the popular business directories, such asStandard and Poor’s Register of Corporations, Directors and Executives, or Ward’sBusiness Directory, published by The Gale Group. These directories give infor-mation on revenue base, number of employees, contact information, and otherbasics.

◆ Uncle Sam’s two cents. The Federal Government can be a wealth of informationabout your competitor. Check out information from government agencies, suchas the Small Business Administration or the Patent and Trademark Office.

◆ Search engines. Type the company’s name into a few search engines—especiallythe more inclusive ones such as Google or one of the meta-search engines likeDogpile.com, which also search a number of directories and databases. Scrollthrough the results and you’ll likely be surprised at what you find.

Business PerformanceIt seems like a great deal of information to cram into two pages, but you’ll need toinclude 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’redoing business. Identify its benefits and challenges. Then explain why your business isperfectly suited to succeed in this climate.

Again, don’t use a great deal of hyperbole or exaggeration. Simply state, matter-of-factly and with supporting documentation, why your business will be successful in thismarket, 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 60 %Area Distributors 30 %Local Distributors 10 %

4.4 ObjectivesThe 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 73

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 SizeWe 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 EnvironmentThe 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!

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 governmentagencies to identify your industry.

◆ Primary research is research done especially for your business. Secondaryresearch is gleaned from other sources.

◆ There are many resources to find trend information and statistics about yourindustry. 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 andinsight.


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.

7Who 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 basedprimarily on technology or one where machines perform many functions,your people are still the ones who will interact with and sell to your cus-tomers. They’re the ones who will navigate challenges with their experi-ence and will develop innovation through their creativity. You’ll want toshowcase those human assets in this section of your business plan.

Describing the organization and personnel involved in your business is acritical component to inspiring confidence in your enterprise. As you craftyour organizational structure, think about how you can build upon it inthe future, and be sure that you’re laying a strong foundation for thefuture.

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Internal AssetsRegardless 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 internalassets include the management, the employees, and the collective body of knowledgethat those individuals bring to the business.

Finding the right staff, the best management strategy, and the most efficient organi-zation of these people are key elements in the success of any business, and the inclu-sion of these will be important components of any business plan.

This section of your business plan will explain how and by whom your business willbe run, showing lenders the strong leadership and capable staffing that you have inplace. If you’re using the plan as a management tool, you can get everyone on thesame page as to who does what.

Owners and PartnersIn this section, you describe the experience, roles, and responsibilities of the people atthe helm of the business. Ideally, as the owner or partner of the business, you will haveexperience in the type of business you’re launching or acquiring. If you owned orwere involved in a similar company, or have background in that industry or sector, it’simportant to highlight that, as well as any accomplishments you had there, such asemployment promotions, the profitability of your previous company, and the like. Onegift-shop owner we know began her business after years in shopping-mall manage-ment. Although it wasn’t exactly the same type of business, she did know the retailsector very well. She was able to secure financing because lenders saw her previousexperience as an asset.

If you have other experiences that are relevant, be sure to mention those, as well. Forinstance, our gift-shop manager was involved in marketing the shopping mall that shemanaged. That experience was also valuable because it showed lenders that she knewhow to promote retail businesses. Even if you’re opening a house-painting businessand don’t have experience working for such a company, if you’ve managed a prof-itable company in the past, have experience in a service business, or have slowly builta small clientele by working weekends, make that clear. The more relevance you canshow between your experience and the business you’re launching, the better.

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Chapter 7: Who Are You? 77

StaffingIf your business is a solo practice or will be run by you and your partner, you don’t needto say much about your staff. However, if you intend to hire employees—or grow yourbusiness to the point where you’ll be hiring employees—you need to address staffingissues. If there are weaknesses in your staffing structure, you should address them anddescribe how you’re going to overcome them.

Financial projections are often made for three years into the future. So if you plan onhiring employees in year two, you need to discuss that here and add these numbers toyour calculation. Your projected future growth is important for lenders to know aswell as for strategic planning for your business.

Management TeamClearly defining your management team is the next step. This section of your businessplan usually has a separate listing for each person on the team, with the highest-rankingmanagers and employees listed first. You should then list the rest of your employeesin a pecking order. For example, you might list yourself and your partner first, thenyour vice-president of sales, director of finance, director of customer service, market-ing manager, and so on. Be sure to highlight the relevant experience and the jobresponsibilities of all of your employees.

Look closely at how you intend to run your business and where you’ll need help. Oftenit’s a good idea to hire managers and employees who supplement weaknesses in thebusiness. So, for instance, if you are terrible at balancing your checkbook or hateworking with numbers, you should supplement the financial side of your businesswith a part-time bookkeeper or an accountant who will handle your payroll and taxpaperwork. If you’re going to be spending most of your time working on the inven-tory and marketing of your new store, you’ll need an employee or two to run the reg-ister. If you’re launching an ice-cream manufacturing company, you’ll need people toactually make the ice cream, a team of salespeople, marketing, and package-designstaff, as well as a group of office staff to handle orders, returns, and customer service.


Staff stats.

Chapter 7: Who Are You?

Outsourcing and ConsultantsSometimes, especially in the early phases of a business, it’s important to keep staffingcosts down, and this can be done through the use of consultants or independent con-tractors. Such individuals are often hired to perform a specific task or provide specificexpertise. For instance, you may have an independent contractor who works fromhome and handles bookkeeping for a number of clients, or you may hire a consultantto oversee your company’s marketing or graphic-design needs.

Hiring such talent on a per-diem basis often enables you to tap more specializedexpertise than you could afford full-time. An experienced, full-time bookkeeper mightcost you $35,000 to $40,000 per year, plus taxes, benefits, and expenses (as well as theadditional office space you would need for the bookkeeper). However, you might beable to hire a person with similar experience for $40 to $50 per hour. If you only needto 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 savingsand 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 deter-mine 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 youmay 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 forservices, you must first know the business relationship that exists between you and theperson 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 relationshipand the level of independence that the individual has in performing services for you.

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It’s very important that you have a clear understanding of who in your organization isan employee and who, if anyone, is an independent contractor. Incorrectly classifyingan employee as an independent contractor could leave you liable for back Social Security,Medicare, and other taxes, penalties, and interest on that withholding. Generally, suchtaxes are not withheld from the money paid to independent contractors. The follow-ing 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 theresult of the work done by an independent contractor, and not the means and meth-ods of accomplishing the result.

For example, Vera Elm, an electrician, submitted a job estimate to a housing complexfor electrical work at $16 per hour for 400 hours. She is to receive $1,280 every 2weeks for the next 10 weeks. This is not considered payment by the hour. Even if sheworks 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 compa-nies, which she obtained through advertisements. Vera is an independent contractor.

Reporting Payments Made to Independent ContractorsYou may be required to file information returns to report certain types of paymentsmade to independent contractors during the year. For example, you must file Form1099-MISC, Miscellaneous Income, to report payments of $600 or more to personsnot treated as employees (e.g., independent contractors) for services performed foryour trade or business.

Who Is a Common-Law Employee?Under common-law rules, anyone who performs services for you is your employee ifyou can control what will be done and how it will be done. This is true even whenyou give the employee freedom of action, in other words, the ability to determinewhen and how the work will be done. What matters is that you have the right to con-trol the details of how the services are performed.

To determine whether an individual is an employee or an independent contractor underthe common law, the relationship of the worker and the business must be examined. Allevidence of control and independence must be considered. In an employee-independentcontractor determination, all information that provides evidence of the degree of con-trol 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 cat-egories: behavioral control, financial control, and the type of relationship of the parties.

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Make no mistakes when it comes to determining whether an individual is anemployee 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.govand remember that just because someone doesn’t work in your office or works for youonly part-time doesn’t mean that the IRS doesn’t consider him or her an employee.

Red Zone

Who Is an Employee?A general rule is that anyone who performs services for you is your employee if youcan 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 BobBlue, an auto dealer. She works six days a week, and she is on duty in Bob’s show-room on certain assigned days and times. She appraises trade-ins, but her appraisalsare subject to the sales manager’s approval. Lists of prospective customers belong tothe dealer. She has to develop leads and report results to the sales manager. Becauseof her experience, she requires only minimal assistance in closing and financing salesand in other phases of her work. She is paid a commission and is eligible for prizesand bonuses offered by Bob. Bob also pays the cost of health insurance and group-term life insurance for Donna. Donna is an employee of Bob Blue.

Statutory EmployeesIf workers are independent contractors under the common law rules, such workersmay nevertheless be treated as employees by statute (statutory employees) for certainemployment 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, orbakery 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 sellinglife insurance or annuity contracts, or both, primarily for one life-insurancecompany.


◆ An individual who works at home on materials or goods that you supply andthat must be returned to you or to a person you name, and you also furnishspecifications for how the work is to be done.

◆ A full-time traveling or city salesperson who works on your behalf and turns inorders to you from wholesalers, retailers, contractors, or operators of hotels,restaurants, or other similar establishments. The goods sold must be merchan-dise for resale or supplies for use in the buyer’s business operation. The workperformed for you must be the salesperson’s principal business activity.

Statutory NonemployeesThere are two categories of statutory nonemployees: direct sellers and licensed real-estate agents. They are treated as self-employed for all federal tax purposes, includingincome and employment taxes, if …

◆ Substantially all payments for their services as direct sellers or real-estate agentsare directly related to sales or other output, rather than to the number of hoursworked.

◆ Their services are performed under a written contract provided that they willnot be treated as employees for federal tax purposes.

Organizational ChartAfter you’ve done the narrative portion of your organizational chart, it’s a good ideato map out the specifics so that your reader can see the business organization in anat-a-glance format.

An organizational chart is a series of boxes, structured in a tiered format, that illus-trate the hierarchy of management in the business.

If you hire consultants and they play key roles in the company, they can also beincluded, showing the person to whom they report. They should, however, be shownas consultants. Generally, if you have a solo practice, or very few employees, anorganizational chart is not necessary.

Bottom Line Booster


SalariesIf you’re using your plan to secure financing or business partners, you’ll also want toexplain the compensation structure for owners, managers, and employees, as well asthe rationale for putting that structure in place.

Lenders and partners will want to know that you’re not asking for money to fund aninflated salary structure. Plus, in your start-up or early acquisition phase, you’ll wantto keep your expenses lower to keep as much cash on hand as possible. Considerusing 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 theamount paid to an employee only when an employee is positively contributing to thecompany’s bottom line.

Here, you should also note industry standards in salary levels (check with your tradeassociation or use your firsthand knowledge of the area), as well as any special com-pensation considerations for your geographic area. For instance, your business maybe 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.

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As the business owner, it’s important that you compensate yourself properly, but that younot overshoot the boundaries of what’s reasonable. A good self-check when decidinghow to compensate yourself is to check with trade or professional associations anddetermine what the salaries traditionally are in your sector. In addition, you can tapsalary 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 foryour business, its location, and other factors.

Bottom Line Booster

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


Professional ResourcesIn addition to your employees, consultants, and other alliances, you likely have a fewmore members of your support team whom you should include in your plan. Thesepartners are the mark of a professionally run firm.

CPAName your accounting firm and its role in your business. For example, if you holdquarterly meetings with your accountant to review business profits and expenses, or ifyour accounting firm manages your payroll and tax-filing requirements, then youshould include that information.

AttorneyYou’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.

BankIt’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 busi-ness. Keep them updated on your business successes, such as expansions, new productlines or services, acquisition of new clients, or significant jumps in revenue. They mayalso be in a position to refer business to you, so it’s a good idea to keep them in theloop about what and how your business is doing.

Insurance ProfessionalsRegardless of the type of business you have, it’s likely that you’re going to need sometype of insurance. If you’ve received professional consultation about the type andamount of insurance you will need, describe that, as well as how this advice is helpingyou limit your potential liability.

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OtherInclude any other types of professional advisors or partners. You may have hired a real-estate professional to help you choose the right location for your business; include thatinformation. If you have received a loan guarantee from the Small Business Administra-tion, or counseling from the Small Business Development Center or local businessdevelopment group, include that. If there is a professional who is at your disposal orupon whom you rely for advice, include a brief description of that person and his orher contributions.

Now you have a clear vision of your management and staffing structure. It’s time tomove 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 andstaff 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 taxesand penalties.

◆ Create an organizational chart to show your management at a glance.

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8Analyzing 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 firstpart of your plan where you take the cold, hard facts and use them to painta picture about your business and the climate within which it will be oper-ating. Here, you’ll explain who your customer segments are and whyyou’re targeting specific populations. You’ll also get into prioritizing mar-ket segments.

This chapter also discusses a popular business approach called SWOTanalysis. SWOT stands for Strengths, Weaknesses, Opportunities, Threats.This is a valuable tool, and one which you should use regularly to evaluatethe state of your business.

Chapter


Getting Down to StrategyAfter you’ve presented the cold, hard facts about your business, you need to put it insome context to help your target audience understand your business prospects. Here,you demonstrate that you not only understand your business, but you also understandthe 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 toindustry 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 howand why your customers will buy from you. This needs to come across loud and clearin 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 informationinstead of just presenting it as is. For instance, if you’re a florist and know that thereare approximately 500,000 people within your geographic target area who are likelyto 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 businessas an attractive alternative, and why you believe customers will know about andchoose you as their floral provider.

External market factors also play a role in how you’ll analyze your market. These caninclude the economies of your country and the countries in which you do business,legislative issues, changing customer attitudes, innovations in the sector, and otherinfluences that are beyond your control (such as changing technologies).

If these concepts seem a little far-reaching, then you need to consider the real-lifebusinesses that have dealt with similar circumstances. One such business is Canada’sManitoba Harvest Hemp Foods and Oils. They had plans to expand their successfulhemp-foods business into the United States. They launched their expansion in Sep-tember 2001, just ten days before the terrorist attacks.

Then, in October of that year, the United States Drug Enforcement Agency announcedits plans to ban hemp foods, essentially making Manitoba’s products illegal. This madeat least one of the company’s major customers pull the products off of its shelves. Thecompany took part in a lawsuit that eventually overturned the DEA’s decree and madehemp foods legal, but it did cost the company in lost sales and legal fees. Over thelong term, the company held hundreds of seminars to educate both customers andconsumers about the product and its benefits. That helped Manitoba stay in businessand, ultimately, grow.

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Chapter 8: Analyzing Your Business in the Market 89

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

Different businesses have different markets. Business-to-consumer (also called B-to-C orB2C) models sell directly to consumers. Business-to-business models (B-to-B or B2B) sellto other businesses. Each of these strategies employs different approaches to marketingand selling to its respective audience. Consumer markets are often motivated by price,convenience, or other factors valued by an individual. Business customers are oftenmotivated by price as well, but are usually more driven by how a product or servicewill benefit the overall organization.

Back Office Secrets

Targeting Your CustomersYour industry analysis should begin with your target customers. These are the peoplewho are most likely to buy your product or service.

Obviously, not everyone can or should be a customer. Even the largest companieswith 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-productscompany. Even if you sell a specific product or service, your business, and your cus-tomers, will differ depending on how you position that product or service. For exam-ple, your restaurant may be promoted as an affordable place to take the family, or asan exclusive, upscale dining experience for special occasions. Each of these establish-ments will have very different customer profiles.

Whether your company has already been in business for a while, or whether you canglean information from competitors in the area, trade associations, and the like, youstill need to determine/identify a profile of who, exactly, your customers are. Under-standing the characteristics of people, businesses, or organizations who will be yourbest, most profitable prospects means that you can pour your marketing dollars intovehicles that reach them and eliminate waste. If you try to be everything to everyone,you will be less profitable.


That means—get ready for a shock—that you may actually want to turn away busi-ness, or, at least temporarily, ignore some of your less profitable markets. It’s a scaryproposition, but when you understand that clients who aren’t a good fit may actuallybe costing you money, it becomes easier.

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

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

Personal CharacteristicsWhat does your customer “look” like? Is your customer generally male, female, orboth? What is the age range of your customer base? Does your business appeal to anyspecific ethnicity or religion, based on your geographic location, product mix, orother factors?

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

Chapter 8: Analyzing Your Business in the Market

Household CharacteristicsConsider 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 edu-cation level? What products and services does this household need—and who choosesthem? Understanding how your target lives is critical to understanding how to mar-ket to him or her.

Virtually any household or personal characteristics constitute a demographic profile. It’sup to you to determine which of these characteristics is most common among your keycustomers and how it affects the reasons that they do or will buy from your business.

Getting PsychographicIn addition to understanding the demographics of your customers, you also need tounderstand the psychographics of your customers. The demographics are the physicalcharacteristics and can be measured objectively, whereas psychographics are psycho-logical characteristics and attitudes that affect purchasing behavior.

Important psychographic data will vary from business to business, but some of theareas that may be important to know include opinions or values, political views, andstyle or taste.

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

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

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Style and TasteKnowing what your customers’ interests are and how they spend their leisure timewill enable you to more closely connect with them. You will be able to make appro-priate inventory, service, and marketing choices. For example, a music store in a ruralsouthern area might require a different inventory mix than a music store in an urbanarea with a mix of various ethnicities.

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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 assumptionsabout your clientele.

Red Zone

Defining Business-to-Business CustomersBusinesses that sell to other businesses can look at similar characteristics to determinetheir target customers.

Type of Business and OwnershipIs your best customer a sole proprietorship with two employees, or a LLC with 200employees? Each type of business has different needs, concerns, and buying habits. Ifyou’re an accountant, it may be more profitable for you to target companies with 50-plus employees that need more accounting services than small soloist or few-personbusinesses. On the other hand, if you sell copy machines, the size of the business maynot matter to you, as long as they have a need for photocopying equipment.

SectorYour 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). Thismay 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 forcertifications or licenses. If your customers are airlines, you’ll likely have a stringentset of requirements relating to your goods and their manufacture.

GeographyExamine 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 inareas that meet certain geographic criteria? For instance, a gift shop may find its bestcustomers within a 10-mile radius of its store, whereas a manufacturer of snow-removalequipment will target areas where, obviously, it snows during the winter. If you areselling a product on the Internet, then geography is usually not an issue because youcan ship your product to anywhere in the world.

Psychographic CharacteristicsBusinesses also have psychographic characteristics. Is the corporate culture conserva-tive or outrageous? Does it position itself as a high-end provider of goods and ser-vices, and wants that same mind-set from its vendors? Examine the culture and valuesof 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 canabout your customer base, you can betterpredict their buying habits and prefer-ences. You can profile the individuals orbusinesses that will be most profitablefor you and understand their motivations.That lets you better target your marketingefforts, create messages that are meaningfulto these customers, and invest in marketingmethods that are more effective.

Targeting your marketing becomes easierwhen you’ve been in business for a while.Then, you can do the following:

As you begin to create profilesof your audience, crafting market-ing messages and approachesbecomes easier. You may findthat you have more than one

profile within your customer base.Prioritize them and, if you find thatyou need to divide your marketingdollars, distribute them accordingto the respective size of the mar-ket they represent.

Bottom Line Booster


◆ Turn to your database. Track customers’ buying habits. Who are your mostprofitable customers—the ones who routinely buy in larger quantities or thecustomers who are loyal, need little attention or assistance, and continue to dobusiness with you? Do they come from a particular industry? What other char-acteristics do they have?

◆ Ask your employees. Who do they consider to be their “best” customers andwhy? Who do they enjoy working with?

◆ Create your own wish list. Are there customers that you wish you had, butdon’t? What are their characteristics? Where can you find them? What’s thebest way to reach them?

Take the information you’ve gathered and piece it together to develop a perfect cus-tomer profile. A mid-size computer networking company might find that its best cus-tomers are on-site information technology professionals in companies with fewer than100 employees that need simple networks, and are within 50 miles of the company’sheadquarters. A restaurant may find that its best customers are the people in localoffice buildings for weekday lunch business. A small but nationally oriented consult-ing 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 customersby doing the following:

◆ Speaking to similar businesses. Contact people who own the kind of businessyou wish to start. If you can’t find local proprietors who will speak to you, youmay have to go outside your market area. However, you’ll likely be surprised athow forthcoming business owners are—even with wanna-be entrepreneurs whomay end up being their competition.

◆ Consulting trade associations. Industry associations will likely have statistics onbuying trends and may even have customer profiles or analyses. Start with the pub-lic relations or membership departments to find out what information is available.

◆ Contacting Small Business Administration Resources. The United States SmallBusiness Administration offers many resources and will supply you with a list oftheir affiliates who provide free consulting. Some of the best resources are theagency’s Small Business Development Centers, or SBDCs, which will help youaccess myriad sources of secondary research. The Centers can put you in touchwith consultants who can help you analyze that market data.


◆ Using your experience. If you’re starting or acquiring a business in a particulararea, it’s likely (and advisable) that you have experience in that area. Use yourown experience to define the customers who have been most beneficial andprofitable in your past dealings.

Why Do They Buy?In addition to understanding your customers, it’s also critical to understand why theybuy. Knowing their motivations, needs, and wants will help you to better positionyour company to service the market sector that will be best for your business. Thefollowing 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’tnecessarily require? Getting a car serviced when it breaks down is a need. Getting itdetailed 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 deci-sion? 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 forsomeone else. For instance, a mother will likely choose everything from clothes to ahair stylist for her children. In these cases, you need to determine how to reach thedecision-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 gro-cery store may be a woman in her 30s, but the type of juice or cereal she buys may be

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significantly influenced by her family members. Similarly, an apparel or music cus-tomer may be a young person in his 20s, but his influencers may be celebrities ormedia who showcase a particular type of clothing or music.

You can use your knowledge of influencers by reaching out to your target audience ina way that reinforces the influencer’s impact. In-store signage that reflects a clothingtrend or music sampling may enable customers to try the latest hits. You may wish toshowcase articles written about the products you carry to further encourage customersto purchase that product. Service businesses can also take advantage of influencers byusing them to cultivate referrals.

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

How Do They Buy?Think about how your customer buys your product or service. Does it require face-to-face interaction or does the customer prefer the convenience and relative anonymityof 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 thatyou’re meeting the buying preferences of your customer.

Creating ProfilesThere are many companies that create certain profiles of customers. They group cus-tomers according to certain characteristics that research has shown are indicators ofcertain buying patterns. One such company is SRI Consulting Business Intelligence(SRIC-BI), which types U.S. adult consumers in what they call VALS Types™. Theseprofiles help segment the market and help companies determine the characteristicsthat they should be looking for.

The following VALS Types are excerpted with permission from SRIC-BI, and are agood 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 typeswould be the best customer for your business?

InnovatorsInnovators are successful, sophisticated, take-charge people with high self-esteem.Because they have such abundant resources, they exhibit all three primary motivationsin varying degrees. They are change leaders and are the most receptive to new ideasand technologies. Innovators are very active consumers, and their purchases reflectcultivated tastes for upscale, niche products and services.

Image is important to Innovators, not as evidence of status or power but as an expres-sion of their taste, independence, and personality. Innovators are among the estab-lished and emerging leaders in business and government, yet they continue to seekchallenges. Their lives are characterized by variety. Their possessions and recreationreflect a cultivated taste for the finer things in life.

ThinkersThinkers are motivated by ideals. They are mature, satisfied, comfortable, and reflec-tive people who value order, knowledge, and responsibility. They tend to be well edu-cated, and they actively seek out information in the decision-making process. Theyare well informed about world and national events and are alert to opportunities tobroaden their knowledge.

Thinkers have a moderate respect for the status quo institutions of authority andsocial decorum, but are open to considering new ideas. Although their incomes enablethem many choices, Thinkers are conservative, practical consumers; they look fordurability, functionality, and value in the products they buy.

AchieversMotivated by the desire for achievement, Achievers have goal-oriented lifestyles and adeep commitment to career and family. Their social lives reflect this focus and arestructured around family, their place of worship, and work. Achievers live conventionallives, are politically conservative, and respect authority and the status quo. They valueconsensus, predictability, and stability over risk, intimacy, and self-discovery.

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With many wants and needs, Achievers are active in the consumer marketplace. Imageis important to Achievers; they favor established, prestige products and services thatdemonstrate success to their peers. Because of their busy lives, they are often inter-ested in a variety of timesaving devices.

ExperiencersExperiencers are motivated by self-expression. As young, enthusiastic, and impulsiveconsumers, Experiencers quickly become enthusiastic about new possibilities but areequally 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, andsocial activities.

Experiencers are avid consumers, and spend a comparatively high proportion of theirincome on fashion, entertainment, and socializing. Their purchases reflect theemphasis they place on looking good and having “cool” stuff.

BelieversLike Thinkers, Believers are motivated by ideals. They are conservative, conventionalpeople with concrete beliefs based on traditional, established codes: family, religion,community, and the nation. Many Believers express moral codes that are deeply rootedand literally interpreted. They follow established routines, organized in large partaround home, family, community, and social or religious organizations to which theybelong.

As consumers, Believers are predictable; they choose familiar products and establishedbrands. They favor American products and are generally loyal customers.

StriversStrivers are trendy and fun loving. Because they are motivated by achievement,Strivers are concerned about the opinions and approval of others. Money defines suc-cess for Strivers, who don’t have enough of it to meet their desires. They favor stylishproducts that emulate the purchases of people with greater material wealth. Many seethemselves as having a job rather than a career, and a lack of skills and focus oftenprevents them from moving ahead.

Strivers are active consumers because shopping is both a social activity and an oppor-tunity to demonstrate to peers their ability to buy. As consumers, they are as impul-sive as their financial circumstance will allow.

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MakersLike Experiencers, Makers are motivated by self-expression. They express themselvesand experience the world by working on it—building a house, raising children, fixinga car, or canning vegetables, and they have enough skill and energy to carry out theirprojects successfully. Makers are practical people who have constructive skills andvalue 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. Theyare respectful of government authority and organized labor, but resentful of govern-ment intrusion on individual rights. They are unimpressed by material possessionsother than those with a practical or functional purpose. Because they prefer value toluxury, they buy basic products.

SurvivorsSurvivors live narrowly focused lives. With few resources with which to cope, theyoften believe that the world is changing too quickly. They are comfortable with thefamiliar and are primarily concerned with safety and security. Because they must focuson meeting needs rather than fulfilling desires, Survivors do not show a strong pri-mary motivation.

Survivors are cautious consumers. They represent a very modest market for mostproducts and services. They are loyal to favorite brands, especially if they can pur-chase them at a discount.

Why You Shouldn’t Service Every CustomerIn the hustle and bustle to get new business, many small businesses collect customersthat are, at best, undesirable and, at worst, costly. Although it’s important to attractrevenue to sustain your business at the start, be careful of collecting a customer basethat is made up of customers that don’t fit your “perfect” customer profile—or whodon’t even come close.

Check your customer base against your perfect profile periodically by the followingsteps:

◆ 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 upmore time than can be recouped from the profit you make from them?

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◆ Asking your employees. Are there customers who are consistently troublesomeor who are even abusive to your staff?

◆ Looking around you. Who are the people coming into your place of business andplacing orders? Do these people match your perfect customer profile?

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It’s possible that certain customers are actually costing you money. If a customer isvery difficult to service, constantly returns items or asks for credit, and yet keeps com-ing back to your business for more, you could actually be losing money on that cus-tomer’s transactions. Certain big-box retailers have started tracking such “difficult”customers and, after they exceed their return limit, place restrictions on their transac-

tions. If you have a customer who is costing you money, you may need to take similaraction, or politely suggest that the customer find a new provider.

Bottom Line Booster

Evaluating Market SegmentsAfter you determine the profiles of your various customers, you can begin determiningwhether each of these market segments is worthwhile to pursue. This will depend pri-marily 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 popula-tion statistics that we discussed earlier in this chapter. You may find that doctors whoown poodles are a great market for your product or service. However, if there are onlya few of them, it may not be worth the time and expense to actively market your busi-ness to them.

In addition to establishing the number of people orbusinesses within a market segment, you must deter-mine whether you can reach them. Are there mailinglists for physicians who own poodles? Magazines?Television shows? How will you reach this audienceto let them know about your products or services? Ifyou can’t do so relatively easily and with little wasteof time and money, it’s likely that this won’t be agood segment to pursue.

A market segment is aportion of your prospective cus-tomer base defined by demo-graphic or psychographic means.

Biz Buzz


Defining Your Market StrategyNow that you have a clear vision of your customers and market segments, you’ll needto decide the strategy that you’ll use to attract them to your business. Some of thequestions 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 marketstrategy in language that lenders and other business partners will understand.

The SWOT ApproachSWOT stands for Strengths, Weaknesses, Opportunities, Threats. This is a commonanalysis approach used in business. The S and W are internal processes that deter-mine what makes your company unique, whereas the O and T components of theprocess detail external factors that can come into play.

StrengthsObviously, your strengths are the areas in which your business, product, or serviceexcels. For example, one New Jersey hardware store survived when a retail mass mer-chant moved in next door, by marketing how knowledgeable his staff is. The fact thateveryone in the store is a hardware expert—versus the more generalist employees atthe larger retailer—was a significant strength and appealed to do-it-yourselfers whomay 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 thingsthat make your business special.

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

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

ThreatsJust as you were upfront about your business’s weaknesses, you should honestly evalu-ate threats to your business. Is the market heavily saturated with competition? Areprice increases or pending legislation going to make it difficult for your business toconform to its pricing structure? Discuss these potential threats and the solutionsyou’ll use to ensure that they don’t derail your business.

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When you’re considering the strengths of your business, it’s important to understand thedifference between benefits and features. Benefits are the tangible or intangible assetsthat the customer will gain. Features are the elements of the product. For instance, whenpurchasing a computer, the hard drive and internal components are features. The factthat the buyer will be able to work at a higher speed is a benefit. People tend to buybenefits, instead of features.

Back Office Secrets


Predicting Market ShareYour research will help you determine what share of the market you can expect tocapture, which can then help you better estimate your revenue projections. For exam-ple, if you are opening a childcare center, you might determine that there are 5,000families 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 therecurrently are four other childcare centers serving the same area, and you are nownumber five. You then hypothetically have a one-fifth share of the market for child-care in your area.

However, just because you now have 1,000 potential families in need of daycare, thatdoesn’t mean that all 1,000 will become your customers. There are many other fac-tors, including personal preference, price, and location. However, let’s say that youcalculate 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 anarea where there were 100 other childcare centers serving the 5,000 families, youcould estimate that each center would have 50 children, and you would not reachyour 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 busi-ness stacks up to the competition.

Your Business Competitor #1 Competitor #2 Competitor #3

Product/service

Price

Value

Branding

Location

Uniqueness

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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 addressthose 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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9Getting 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 asolid plan in place for promoting it, you’ll surely be out of businessquickly. Lenders and investors know that all too well and will want to seethat you have a solid plan in place for promoting your business.

Positioning Your Business in the MarketAfter you understand your target market, you can begin to explain howyou will reach these targets, and what messages you’ll use to get customersreasons to spend money at your business. In other words, you need toexplain your marketing plan. For example, two restaurant owners may takevastly different approaches to attracting customers to their locations. Onemay decide to go for an upscale, exclusive image, whereas the other maydecide that the market really needs a more informal, home-style diningestablishment.

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The upscale restaurant owner may want to approach his or her local restaurant writerto discuss how the restaurant is creating low-fat gourmet cuisine, or the owner maywish to send out richly designed mailers to local businesses. The family-style restau-rant owner may hold coloring contests for children who dine in the restaurant and

may want to start a birthday club for families, offer-ing discounts or free food to families who celebrateat the restaurant.

Understanding the act of properly targeting a cus-tomer segment is critical because investors will wantto know that you have a game plan for reaching outto your audience. If you can’t show them that youunderstand how to reach the universe of people whoare likely to buy your product or service, they willlikely be nervous about how you will attract and sus-tain business, especially in the start-up or new acqui-sition phase.

Explaining Your Marketing StrategyIn addition to your analysis of your customers and what they want, your marketingstrategy primarily involves four areas of discussion:

◆ Product

◆ Price

◆ Place (distribution)

◆ Promotion

The product section of your marketing strategy relates to the features and benefits ofyour 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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Marketing is the processof developing pricing, promot-ing, and distributing goods orservices to reach an appropriatebase of prospective customers.The purpose of marketing is tocreate brand identity, build trust,and give people reasons to buyyour products and services.

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

Place (Distribution)Place means different things to different businesses. If your product isn’t readily avail-able 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 howthis element figures into your marketing strategy, you’ll want to consider such ques-tions 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 areasat specific times?

◆ Are there benefits or opportunities that my location, distribution mechanism, orother means of providing products or services provide?

PromotionThe promotion component of your marketing plan is important for showing youraudience how you intend to let people know about your business. After all, the bestbusiness in the world will fail if no one knows about it. Promotions should be focused onthe target market and measured to determine if they are working.

The sequence of your promotions is important. There are very cost-effective market-ing tools to consider, especially if there is lack of a substantial marketing budget.Before deciding upon any marketing tool, the business owner needs to determinewhat his or her goals are before deciding exactly what tools are best. The big ques-tion is whether the target market will actually be influenced by a particular marketingtool. 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 theword out. The following sections describe the most common promotional tools.


AdvertisingAlthough advertising is sometimes used as a synonym for marketing or promotion,this definition is actually not correct. Advertising is the specific action of purchasingspace or time in or on a media vehicle and creating messages, artwork, or broadcastproductions 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 whatyour advertising choices will cost. You may then change your mind about certainchoices, but more importantly, these numbers will be needed later in the financialsection of your business plan.

Point-of-Purchase AdvertisingWith point-of-purchase advertising, you can take advantage of “impulse shopping”habits that make people purchase your products or services when they see them inspecialized displays or in on-site signage and other vehicles. Point-of-purchase adver-tising is most effective at the checkout counter, but other point-of-purchase displaysinclude floor stands, display bins, and window displays. Many manufacturers will cre-ate and provide you with point-of-purchase displays when you sell their products atyour business location. Generally, they’ll also compensate you with discounts forusing 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

Promotions can also be used to drawattention to the business, such as specialoffers, grand openings, seasonal discounts,and so on.

Collateral MaterialsCollateral materials are the print materialsthat are used to communicate informationabout your business to customers. These aresome of them:

◆ Logos

◆ Sales sheets

◆ Stationery and business cards

◆ Newsletters

Direct MailDirect mail includes a variety of advertising messages mailed directly to your targetedcustomers and business prospects. Highly targeted and measurable, this form of com-munication can be very effective. Brochures, letters, fliers, and other forms of collat-eral can be used as direct-mail pieces. In your direct-mail pieces, you should includesome 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 orrequest more information about your products or services. Or you might want themto visit your business location. Here are some examples of direct mail:

◆ Letters

◆ Postcards

◆ Packages

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

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If there is something inherentabout your business that willafford your business greater vis-ibility or better service, includeinformation about that in your

marketing plan as well as yourlocation description. For instance,if you’re located at a busy venuethat lets your signage reach avast audience, mention this in themarketing section of your busi-ness plan.

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lists and databases. The lists and databases are often targeted to include a select geo-graphic 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 PublicityAlthough it is often confused with publicity, public relations include many more activ-ities. Publicity is a component of public relations, or PR, which also includes creationof events, conducting media tours, creating audience outreach, and other tactics.Public relations, on the other hand, is the practice of interacting with and communi-cating to different stakeholders, such as customers, employees, shareholders, commu-nity 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 yourbusiness, this is called publicity. It differs from advertising because you don’t pay forthat mention. In fact, it is unethical to pay for publicity, unless it is clearly labeled asan 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

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

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Community RelationsCommunity relations play an important role in your marketing program. By sponsor-ing and participating in community events, you can increase your exposure in yourlocal community, create goodwill, and boost sales. Align your business with charitiesand causes that have meaning for yourself and/or your target market. Volunteer yourtime and expertise to local community efforts and be prepared to reap the benefits.Including information about your community relations efforts will show readers thatyou understand your business’s role in its community and that you’re interested infostering relationships that will benefit both the reputation of your company and theloyalty 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, toparticipating in drives, to making donations.

Employee RelationshipsIt’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. Dependingupon your business, you can use a variety of media in your employee communicationefforts. These include the following:


◆ Newsletters informing employees of specials, events, and so on

◆ Motivational advertising specialties for employees only

◆ Company intranet or e-mail updates

Online MarketingOnline marketing includes the use of websites and e-mail to forward your advertisingmessages to prospective customers. Many businesses use online marketing to buildbrand loyalty while increasing sales of their products or services. If you want youronline marketing efforts to be effective, you should integrate the advertising messageswith content that is useful or of interest to your potential customers. Some toolsinclude these:

◆ Websites

◆ E-mail marketing campaigns

◆ Banner advertisements

◆ Online publicity

Unsolicited commercial e-mail is called spam. Spam is illegal unless you’resending it to someone who has requested information about products and services likeyours or unless you’re contacting someone with whom you have had an existing busi-ness relationship. To be sure you’re keeping within the boundaries of the law—and toavoid 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).

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Network MarketingRelationship marketing is different from public relations because it involves interact-ing one on one with customers. Some of the disciplines of relationship marketinginclude the following:

◆ Networking—Networking means actively seeking out and meeting others inyour business community. For many small businesses, this is the easiest and most


effective way to market your business. The purpose of networking is to make con-tacts who may bring you business or who may be able to assist your businessefforts in some other way, by providing either services or information. Throughnetworking your opportunities to ask for and receive qualified referrals. By net-working and helping other business people, you gain the visibility and trust youneed to grow your business. For many small businesses, this is the easiest and mosteffective way to market your business. No form of promotion is more powerfulthan 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 professionalswhom they know and trust. Ask other business owners about professional groups.

◆ Stakeholder meetings—Stakeholders are people who are directly affected byyour business. These could include customers, community members, neighbors,partners or shareholders, or employees, among other groups. Holding smallgatherings to address their concerns, or addressing them one on one, is a greatexample of relationship marketing.

◆ Cultivating referrals—Don’t assume that just because customers are happy withyour service they’re going to refer you to others. They may not think of it orthey may think you’re too busy already, especially if you’re always talking abouthow swamped you are. Inspire customers to act as your sales force by givingthem an incentive to bring you new customers. This may include a discount offtheir next service, a small gift, or credit on their account. Be sure to ask new cus-tomers where they heard about your business so that you can track referrals andthe effectiveness of your marketing endeavors.

Putting Together the Marketing PlanOh no, more planning, you may be thinking. Well, putting together a marketing plan ismuch more specific than putting together your overall business plan, but it’s criticallyimportant. Just as a winning football team always goes onto the field with a solidgame plan, your business needs to have an outline of how to reach out to prospectivecustomers in order to succeed.

Because you’ve already done much of the homework necessary to complete your mar-keting plan, such as defining your target audience and segmenting your markets, theprocess will be easier than if you were starting from scratch. Of course, having a clearplan of action when it comes to promoting your business will be something that in-vestors will want to see when they read your plan.

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Being Clear About GoalsNow that you have a sense of where you are, you can decide where you want to go. Askyourself what you are trying to accomplish with this plan. Do you want to increasesales? Change the perception of your business among target audiences? Generate morestore traffic? Do you want to enter a new market where you may not have muchexperience? 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 opti-mistic, use a healthy dose of realism to keep you grounded. Remember that the bestmarketing plan in the world is not likely to increase sales 80 percent by next yearunless there are special circumstances, such as an outstanding new product introduc-tion or the sudden disappearance of your competition. Although it’s fine to have mul-tiple goals, be sure to prioritize them so that you can create a realistic plan forachieving them.

Planning the ActionThis is the heart of your game plan. For each goal that you have outlined, you needto create a strategy, key messages, and a series of steps that will help you accomplishthe goal. You have many tools at your disposal. It’s best to create a spreadsheet forone year that clearly identifies each marketing tactic and the timing for each. As youexamine each of your goals, conduct a mini-brainstorming session. Consider what thebest vehicles for your message may be. You may decide to use newspaper, radio, tele-vision, magazine, or outdoor advertising; you might also use direct marketing programs,including postcards, sales letters, flyers, business-reply cards, newsletters, 800-responsenumbers, etc; public relations elements such as publicity, events, speaking engagements,sponsorships, opinion polls, and the like are also useful. Perhaps you can accomplishyour objectives and cut your costs by teaming up with related, noncompeting busi-nesses for in-store promotions or cross-promotional outreach. Online promotionalopportunities are more abundant than ever, and you may want to consider designing awebsite 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 gettrapped into big, splashy promotions just for the sake of doing them. It’s much moreeffective to have smaller, more frequent communications if your budget is limited. Forexample, 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 thatthis 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’sannual marketing budget. In return, the owner got one small story in the local news-paper. If the organization’s goal was to become more philanthropic, the donationwould have been an effective gesture. However, because the original goal was toincrease publicity, the money would have been better spent on a diverse program withmore components.

Finally, be sure that the promotions project the right image. If your audience is con-servative, don’t create an outrageous promotion. Similarly, if you need to project acutting-edge image, be sure that your efforts are smart and sophisticated.

Budgeting Your ResourcesSome business owners believe that marketing is an optional expense. This is one ofthe 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 morebusiness during the slow times if you don’t invest in telling customers about yourself?

Take a realistic look at how much money youhave to spend on marketing. Although you doneed to ensure that you are not overextendingyourself, it is critical that you allot adequatefunds to reach your audiences. If you find thatyou do not have the budget to tackle all ofyour audiences, then try to reach them one byone, in order of priority.

For each of your tactics, break out eachexpense. For example, a brochure’s costsinclude the writing, photography, graphicdesign, film, printing, delivery, and so on.Outline the estimated cost of each. Then youcan beef up or pare down your plan, depend-ing on your situation.

Creating a Marketing-Cost MatrixJust as you created a matrix that compared your business to its competition, you canuse the same sort of grid to compare the costs of different marketing options. Thefollowing chart shows you an example.

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Just as you budget yourmoney, budget your time, too.Many marketing campaigns fallby the wayside because theowner underestimated how muchtime it would take to complete.(People don’t realize that certaincampaigns are long-term proj-ects, while others simply getbored or distracted.) Start smallor hire help for bigger projects.

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Sample Cost MatrixMarketing/Advertising Method Cost

Phone book/Yellow Pages $400Mailed coupons (two times/year) to local zip code $500Brochure $600Business cards $200Stationary $250Start-up website development $1,500Total $3450

Timing Your ProjectsNow that you have identified and categorized the steps involved in each activity, allota segment of time and a deadline to each. Again, be sure that you are not overextend-ing yourself or you may get burned out. It’s better to start with smaller, more consis-tent efforts than to begin with a program that is overly ambitious and then discardeda few months later.

What you now hold in your hands is probably the most effective “to-do” list that youwill ever write. You have prepared a document that will help you reach your audiencesegments from a point of knowledge and expertise instead of from “shoot-from-the-hip” hunches.

Don’t put the marketing plan on a shelf and forget about it. Your marketing planshould be a living document, which grows and changes over time. As your businessreaps the benefits of your initial marketing strategies, you may want to increase thescope of your marketing. We discuss more about how to keep your plan updated inlater chapters.

Again, your marketing plan will show your target audience how you’re going toattract business, and the costs associated with doing so. So use the best tools availableto 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 includesyour pricing, distribution, and the overall features and benefits of your productor 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 toreach? What is the time frame for execution? Think about what you want toaccomplish and craft your plan accordingly.

◆ Get familiar with the laws governing marketing and advertising in your businesssector, especially new laws regarding electronic marketing, by visiting the FTCwebsite or contacting your industry association.

◆ There are many tools that you can use to promote your business. Tools shouldbe integrated, with a theme and continuity in the message. Before you startusing them, be sure you understand how they will reach your key audience andyour 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 thisan investment in your business.

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10Sales 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 yourproducts and services to your customers. Sometimes this is done directlyand sometimes it’s done through third parties. Regardless of who handlesit, your sales and sales figures will provide the backbone of your financialplan. Here, we’ll discuss how to arrive at those figures and how to bestcommunicate your approach through your business plan.

Selling YourselfRegardless of the business that you’re in, you’ll need to explain how youwill sell your products and services to new and existing customers. In addi-tion, your target audience will want to see some sort of prediction of salesperformance, based on a set of circumstances or assumptions. This forecast

Chapter


will be the backbone of your financial statements,predicting revenue levels and profit margins. Themore information you have, the more likely yoursales forecast will be on target, whether your businessis a start-up or has been a player in the marketplacefor some time.

Your ChannelsChannels are the avenues by which you deliver your products or services to the mar-ketplace. Depending on the type of business you have, you may have one channel ormultiple channels. It’s important to spell out each of these distribution and deliverymethods, as well as what they mean for your business and your sales activities so thatyour 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 SellingIf you have an in-house sales force that handles sales, give specifics on the size of theteam and what their responsibilities are. How do you divide territories or accounts?How do you compensate these salespeople to maximize their performance?

Manufacturer’s RepresentativesIf you don’t have salespeople on staff, or if you wish to beef up the coverage of yoursales effort, you may wish to hire a manufacturer’s representative. These companiesor individuals operate independently of your business, and represent a number ofproducts 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.

WholesalersWholesale 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. Whole-salers can be an excellent way to reach myriad small businesses that might not beprofitable targets individually. Explain any wholesale relationships and how theyexpand your reach into the marketplace. For example, if your company will producebath products that you’ll sell through day spas, specialty boutiques, and direct sales

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A forecast is a predictionor estimate, based on a particularset of circumstances or criteria.

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Chapter 10: Sales Plan and Forecast 121

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

RetailersAnother means of distribution, especially for products, is through retailers. Thesemay 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 realestate that is the shelves in these retailers is an excellent way to attract financing. Ifyou don’t have wide retail distribution yet, explain how you’ll achieve it, if that is partof your sales strategy. Include information on any commitments or orders from retail-ers in your sales summary.

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

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

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


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

There are many affordable customer information management software options on themarket today. Even a simple contact management database like ACT! or Goldminecan 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-salesoftware 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.

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

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

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

Chapter 10: Sales Plan and Forecast

TerritoriesIf your company is national, it’s likely that your sales areas will be divided into terri-tories. These territories may be geographic, such as the northeast, a state, or a localewithin a state. Territories can also be divided by type of account, with some salespeo-ple handling large national accounts and others managing regional accounts, or theycan be further divided by industry.

However you divide your territories, be sure to explain them clearly and how they arespecifically relevant to the type of sales in which your company engages.

Finding ProspectsAnother thing that lenders, business partners, and investors will want to know is howyou find your prospects. There are several immediate ways that can be included inyour plan.

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

Vendor ContactsLook 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 youbusiness. Ask them to do so.

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

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the CEO needs help with speechwriting. Then ask your customer to forward yourinformation along with an endorsement. This way, you’ve leveraged your relationshipwith one initial customer contact and turned it into new sales opportunities within thesame company.

Joining InRotary Clubs, Chambers of Commerce, or business networking groups at the local ornational level can be great places to find more customers and influencers. Localgroups 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 onlyallow one of each type of business to join their ranks.

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Offering a Better PriceIt’s usually not the best idea to sell on price against a big competitor, as it can oftenbackfire. Still, if you do have legitimately lower prices, this can be a valuable tool inattracting price-conscious customers. Perhaps you’re able to deliver your servicemore economically because you keep your overhead low. After careful evaluation, ifyou reach the decision that price promotion should be part of your marketing strat-egy, you can do so effectively through advertising, point-of-purchase displays, public-ity, or direct mail.

Sales Cycles and StrategiesIt is also important to include information on sales cycles and any strategic approachyou’re taking to selling your products and services. So if your business has big sea-sonal jumps, such as a landscaping business or a wedding boutique might, it’s clearthat your sales cycle is supposed to vary and that lower numbers in certain monthsaren’t a sign that the business is in trouble.

More nationally focused businesses may be better off looking for a good tradeassociation and attend their regular meetings or conventions to connect with pros-pects, vendors, and other important contacts. These types of connections also showthat you’re establishing yourself and your business as leaders in the community, so besure to include information in your plan.

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AIDAMost first-year business students learn the four components of buying behavior bythe acronym AIDA, which stands for …

Attention: To get a prospect interested in your product or service, you need toget their attention. This means breaking through the clutter of competing salesmessages and finding ways to get your product or service in front of the cus-tomer in a way that is meaningful and memorable.

Interest: After you’ve gotten the prospect’s attention, the next step is to capturetheir interest. You generally have only a few seconds, so your sales pitch or mate-rials should be compelling. This is where your research about your customers’and prospects’ buying behavior and motivations will pay off. You should be ableto 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 thethird phase of the buyers’ behavior.

Action: If the desire is strong enough and there is no compelling reason not totake action, you have achieved the final phase of buying behavior, with the goalof having the prospect purchase the product or service.

Sales CycleThe AIDA analysis of buying behavior can take place in a matter of seconds or a mat-ter of months or even years, depending on the sales cycle of the particular product orservice. Here is where you need to know how your customers buy, as well as why theybuy. 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 toexplain how your customers go about their decision-making process.


Sample sales plan.

SalesWe 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.

DistributionWe 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.

LogisticsAfter 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.

Chapter 10: Sales Plan and Forecast

Sales ForecastAlthough 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 ofassumptions or criteria, how much revenue your business will generate over specificperiods of time. This will be the basis for most of your other financial statements andwill 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 thefactors contributing to the sales figures that you project, because lenders and investorswill be looking closely at those criteria and the corresponding numbers. If they don’tlook reasonable, that could ruin your credibility and your chances of getting the cash.To avoid any misunderstanding, you should define your assumptions and consideryour marketing reach and past sales.

Outlining Your AssumptionsBe clear about the criteria upon which you based your forecasts. For instance, if you’reassuming that you’ll have a certain number of salespeople or employees or that a partic-ular increase in demand will spike your sales, explain why. For example, if you own anice-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 andyou only have two employees working, your numbers could be vastly skewed.

Considering Your Marketing ReachHow expansive your marketing effort is will also have an impact on your sales fore-cast. How many targets do you anticipate reaching? After you consider that, you canbegin to determine how many of those targets will choose to buy from you instead offrom your competition.

Past Sales or Similar IndustriesIf you’re in a new market or your business is new, you can look at the performance ofsimilar businesses in a particular geography or industry. For instance, you might beopening a small deli in a downtown area. Perhaps there are no statistics on how delishave traditionally performed in that particular area, but you might be able to find outhow other restaurants or grocery stores have performed and extrapolate your informa-tion from there.

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Industry AssociationsYour industry associations might be able to give you insight as to how a particulartype of business may fare in various geographic areas.

Market FactorsExamine the characteristics of the market, including how the economic climate isamong 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 orthe poorer the economic climate, the more conservative your sales projections should be.

TrendsIt’s advisable to create several sales forecasts, including one as a best-case scenario andone based on much more modest factors. This will show your target audience thatyou’ve considered what will happen if you don’t meet the most ambitious goals andthat 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 layout 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 notaccurate or well supported with documentation can call the rest of your planinto question.

◆ It’s a good idea to create more than one sales forecast, depending on differentsets of circumstances.

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11Operation 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, whatyour business will need to perform daily functions and produce the productsand services at the volume and level of quality that you need. For manage-ment purposes, this section will help you to identify weaknesses in yourgame plan, because lenders and investors will need to see a solid opera-tional plan in place before they fork over the dough.

Business OperationsThe next part of your plan will address your operations and include infor-mation and documentation about how and where your business operates.This demonstration of your infrastructure will assure your target readersthat your business has made provisions for its day-to-day performance, aswell as its future.

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If your business has a highly technical or unusual method of delivering its productsand services, you may wish to break the following segment out into a separate opera-tional plan. Otherwise, addressing them clearly and thoroughly under their individualsubheads should be sufficient. In either case, it’s important that you demonstrate sta-bility in each of the following areas. In addition, whenever you have the opportunityto show how these operational components and activities support your short- andlong-term business goals, you should do so.

EquipmentWhat equipment does your business need to succeed and to deliver products and servicesmost 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. Explainwhat your business will need, both now and for the foreseeable future. Obviously, thiswill 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

◆ 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 bemuch more complex:

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When you write yourplan, you’ll need to know the dif-ference between equipment,which is machinery, technology,or other permanent fixtures thatyou need to run your business,versus supplies, which are the dis-posable, expendable, or easilyreplaceable items that are usedin the operation of your business.

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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 fea-tures of the equipment in your business. If you’re writing your plan to secure financ-ing for the equipment and other areas, you may even need to include the vendorfrom 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-artworkspace, you should discuss why that’s necessary and how it will differentiate yourcompany from the competition.

Technology NeedsIn addition to your equipment needs, it’s alsolikely that you’ll need specific technology foryour business. This can be incorporated intoyour overall equipment outline, but youshould specify those needs, as well as theiraccompanying costs.

Don’t overlook the basics whenyou’re investing in equipment,such as a computer backup sys-tem. If your computer hard-drivecrashes and you did not back upyour data, this could be devastat-ing, costly, and possibly put youout of business.

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Additionally, you should explain the current technology standards in your industryand the needs of your business. If you aren’t using the latest technology, explain whythat isn’t a detriment to your business, or how you’ll be upgrading your systems tomeet industry standards and the time frame you have for doing so.

Equipment LeasesChances are that you won’t purchase all of your equipment, but that you’ll lease someof it. This may be true for vehicles, computers, or other equipment that is likely tobecome outdated on a regular basis. Leasing can provide you more flexibility, andenable you to keep more of your cash liquid. If you do have or plan to have equip-ment leases, include copies of the lease or lease information in the operations sectionof your plan.

Building LeasesIf you’ve secured a location for your business, or have one in mind, this is the place todiscuss 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 yourlocation. Issues that lenders and investors will want to know about include price, thelength of your lease, the location and traffic, and growth potential.

PriceAre you paying a fair price for your rent or purchase? Commercial real-estate pricesare often described in price per square foot. For rentals, this is translated into monthlyrent by multiplying the price per square foot by the number of square feet that you’rerenting, and dividing the total by the number of months in a year. For example, if aproperty 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)

Chapter 11: Operation Success

If you’re purchasing real estate, you calculate the total figure. For instance, the pur-chase price for a 2,000-square-foot office offered at $100 per square foot would be asfollows:

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 inthe area. In addition, this will be a key figure as you calculate your expenses. Depend-ing on the type of business you have,your rent or mortgage could be one ofthe largest expenses.

Length of LeaseIf you’re renting, show the length of yourlease. Lenders and investors will want to seethat you have a stable location for a fixedperiod of time. Many leases will also offer arenewal option, albeit often at a higher rent,so include that information as well.

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

Potential for GrowthDiscuss how the location will accommodate the growth of your business. As youroperations expand, can the property provide you with increasing amounts of space? Ifyou anticipate great growth in your business, consider the cost of moving those oper-ations, or the expense and reduced productivity of having to house your business inmultiple locations. If the property you’ve chosen can’t accommodate the growth youanticipate, you need to explain how you will overcome that handicap or why it’sworthwhile to house your business in this facility for a period of time as it grows.

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Sometimes landlords will makeimprovements to the building,at their own cost, to meet yourbusiness needs, such as upgrad-ing a bathroom, putting up a

wall for an extra office, or build-ing a front reception counter. Besure to negotiate this into yourlease. A better layout will surelyhave a positive effect on yourbusiness.

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If there are specific benefits to the location, such as special redevelopment programsthat 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 ServicesYour rent or mortgage isn’t the only location expense that you’ll need to consider andfactor into your financials. You’ll need to include information about the utilities andservices that will be necessary for your business and how much those will cost. Thesemay 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 feeswill be assessed by the landlord and may be adjusted every few months. The CAMfees 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 tooffer 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 superfluousitems as coffee service could go a long way toward building morale, so state thosegoals along with the expenses.

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Production/Service Provision MethodsYour equipment list won’t give the whole picture when it comes to how you deliveryour products and services, so you’ll want to explain that here. How have you devel-oped your systems so that your business is most efficient? How do you train youremployees to be effective? How do you ensure that your operations run smoothly andwithout interruption?

If you own a company that makes something, describe the production process, fromthe intake of raw materials to the finished product. What machinery or method ofassembly 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 todeliver the service to your expectations? Similarly, for retail or distribution busi-nesses, you need to explain how your business acquires the products it will sell andhow it ultimately delivers them to the marketplace.

Quality ControlA key component of your operations is qualitycontrol. Without some assurance that yourproducts or services are being constructed ordelivered each time at the same level of qual-ity that customers come to expect, you couldpotentially lose customers because they won’tbe able to rely on you for consistency.

How will you ensure that you regularly meet the level of satisfaction that customersdemand? 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, yourquality level remains intact. However, if you’re delivering a service or running a retailstore, ensuring quality can become trickier. In cases like these, it’s a good idea to turnto external monitors, such as so-called “secret shoppers” that visit your establishmentor sample your service anonymously and give feedback on the experience. If youmake use of such outside services or consultants to regulate the quality of your serviceor the customer’s experience, be sure to say so. This is an excellent way to show youraudience that you’re serious about making your business the best it can be. However

Quality control refers tothe measures that your businesstakes to ensure that you’re consis-tently delivering your productsand services to an acceptablestandard.

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you go about making sure that your business delivers its products and services toacceptable standards, you should outline these measures in your business plan.

Inventory and SupplyMany service businesses don’t need to worry about inventory beyond ensuring thatthey have enough staff and resources on hand to meet customer demand. However,for most other types of businesses, managing inventory and suppliers is an essentialpart of keeping their businesses running smoothly.

It’s important to include information about inventory management in your plan, sinceit’s such an integral part of a well-run business. If you don’t maintain enough inven-tory, you have nothing to sell and customers will be dissatisfied when they cannot getwhat they need from you. If you have too much inventory, you unnecessarily tie upvaluable assets. Inventory that sits too long may become obsolete, or may becomeundesirable or unable to be sold for a variety of reasons. You need to show lendersand investors that you have a system in place to ensure that you maintain the mostappropriate inventory levels for your business. Explain how you will properly manageyour inventory so that investors, lenders, business partners, and other stakeholderscan be confident that you’re investing your inventory dollars wisely.

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 oraccounting system to your stock, to radio frequency identification tags that can actu-ally track how long your inventory has been sitting on the shelves. It’s worthwhile tocontact your industry association or read trade magazines to get recommendations

about what types of programs are available and appropriate for your business.

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


Purchasing PoliciesWhen inventory starts to decline, how does your company purchase the new productsor materials necessary to replenish your stock? Explain the authorization proceduresand the individuals who are responsible for ordering these materials. How do you ensurethat there is clear communication between the individuals responsible for inventorymonitoring and the individuals responsible for purchasing supplies, materials, orproducts? Is there a system of checks and balances to ensure that only one individualis ordering materials?

Explain your purchasing policies, including how you work with your staff to comparepricing and to keep the cost of your materials down. If one individual is responsiblefor this function, then explain how you have a backup plan if that person is somehowunable to perform that essential duty. This is a key component of managing yourinventory—the purchasing process should be well organized and efficient.

SuppliersGood suppliers are valuable assets. If your suppliers continually fail to deliver thegoods and services you need to operate your business effectively, eventually yourproducts 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 compa-nies to whom you outsource key functions (for instance, the printing company of asmall publisher), or the companies with whom you partner to deliver your productsand services (e.g., the trucking company you hire to deliver the large appliances yousell). Give specifics about their areas of responsibility, any warranties, and other rele-vant parameters of your agreement.

Handling Orders and DeliveriesAfter 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 howthey’re handled once they arrive.

In addition, if your business needs to fulfill orders and make deliveries, explain howyou handle those functions. Who is responsible for that? How do you ensure that theproducts or services were delivered? How do you ensure that customers were happywith the result? Give details about your system and the individuals responsible formaking it run.

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Vendor Agreements or Letters of IntentSales agreements make lenders and investors happy. If you have customers, that meansthat you’ve successfully been able to sell your product. The more of these agreementsyou have, generally, the happier lenders and investors are to consider your requestsfor financing. So if you have standing agreements or a solid customer base, includethat information in your operations segment.

If you’re a start-up and don’t have such agreements, but have strong prospects whowill use your service or order products from your company, include letters from thoseorganizations.

Following is a sample letter of intent:

ABC Manufacturing555 Main StreetHoliday, 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 andour company would purchase in bulk from them (as they provide a quality productand a cost savings to us). We anticipate purchasing 500 cases of their product eachmonth at a bulk rate of $250 per case. We anticipate this understanding to take placeonce a mutually beneficial contract is in place within six months of the date of thisletter of intent.

We are a current customer of HiLight, Inc., and use their products throughout ourmanufacturing facility. To date, the company has been a reliable provider of productsand services to ABC Manufacturing.

We anticipate a continued business relationship with HiLight in the future.

Sincerely,

Jim JamesPurchasing Director

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Customer-Service PoliciesWithout a clear customer-service policy, the satisfaction that people experience withyour business is likely to be as uneven as if you lack a quality-control system. Youshould 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 youkeep your customer-service staff to a minimum, you might need to direct your customersto 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 serv-ice. One family-owned jewelry shop in Maryland actually gave a customer a newwatch worth several thousand dollars when the watch the customer purchased wasn’toperating properly and wasn’t covered by the warranty. The gesture cost the shopseveral thousand dollars, but it preserved the relationship with the valued customerand gave the retailer an excellent reputation for service, which attracted more busi-ness through referrals and word of mouth.

How will your business handle customerservice? Explain your philosophy, andhow your customer-service methods willfoster repeat business, if that’s your goal.Explain how you track customer satisfac-tion and address customer complaints orproblems.

Whatever your customer-service approach,be sure that it reinforces the overall goals andobjectives of your business.

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 willhave a one-year warranty on parts and workmanship. We will have a customersupport group (four personnel) for Smart-Lite which will also take responsibilityfor components support. There will be a product repair function for Smart-Litewhich will be free, except for shipping/handling costs, for products under warranty.

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It may surprise you that not allbusinesses should adopt a“customer is always right” pol-icy. If you run a business basedon deep discounts or where

you sell clearance items, you mayneed to adopt a final-sale policywhere you don’t allow returns.

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Repairs for products out of warranty will be on a “for profit” basis. The repairshop will have to inventory enough spare parts to assure rapid turnaround onrepair jobs. Because customers will also be ordering their own supply of sparesensors these will have to be stocked as well. Reorder points and quantities willbe determined as we gain experience.

Clearly explaining your operating procedures will give your target audience a goodidea of how smoothly and effectively your business will function. This area should betied closely to your staffing and management overview, ensuring that they correspondand that you have sufficient labor to implement the operation systems that you’veoutlined 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 needto run effectively.

◆ Explain how you monitor and manage inventory and purchasing, specifically withan 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 inyour management and staffing section. A disparity here could lead lenders andinvestors to believe that you don’t have a good handle on how to staff your com-pany. Consistency is important!

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12Money, 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 businessesfinances are among the most important factors in your business’s long-term success. It’s critical that you have a realistic handle on the moneycoming in and going out of your business, as well as how that money canbe best managed and invested to grow your business.

One of the most frequent mistakes that entrepreneurs make in their busi-ness plans—and in their businesses—is to be overly optimistic about salesfigures and costs. As a result, they overspend and, when the money doesn’troll in as planned, they find that they’re financially strapped. Similarly,there is danger in being overly conservative in your estimates because youwon’t be able to spend the money necessary to hire staff, upgrade equip-ment or resources, or otherwise invest in your business.

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As you create your budget and estimate your revenue, it’s important to be conserva-tive in those estimates. However, if the numbers are too low, review whether you’rebeing too conservative or whether your business is truly viable.

Start-Up CostsYour start-up costs are one-time costs that are incurred before and during the initialphase of opening your business. For example, if you paid an attorney to have yourbusiness entity formed as an LLC (Limited Liability Corporation), this cost would beincluded 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 toresearch what expenses your business is likely to incur prior to and in the early daysof opening its doors with you at the helm. The more accurately you define theseexpenses and account for these costs at the onset of your business, the more accu-rately you can project your financial needs as well as your future profits.

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Creating an Operating BudgetYour operating budget, also called a working capital budget, reflects the costs associatedwith your day-to-day operations and the income that you will need to cover theseexpenses. Depending on the type of business you are starting or acquiring, you shouldinclude 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


Again, the more research and detail you put into cal-culating these expenses, the more accurately you canreflect your businesses profits.

Many of these numbers should be obtained fromprior sections of your business plan. For example, inChapter 9 we mentioned advertising. At that point,you should have determined what method of advertis-ing your company will pursue, find out the associatedcosts, and create a matrix table with this information.All you need to do is copy that number here intoyour financial statements (your detail backup isalready in the prior section).

Depreciation is whenyou allocate cost of an asset,such a piece of equipment, realestate, a computer, a phone sys-tem, or the like, over a period oftime for accounting and tax pur-poses. It takes into considerationthe decline in the value of apiece of property due to generalwear and tear or obsolescence.

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The information written in your business plan in the business and marketing sectionsshould tie into the financial section. At the same time, the business and marketing sec-tions should be a verbal description and detail of the numbers reflected in the financials.

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Source and Use of FundsThe Source and Use of Funds statement is a simple document that outlines where themoney to start or acquire your business will come from and how it will be allocatedfor the business. A common Source and Use of Funds statement would contain thefollowing 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 FlowCash is the most important thing to have if you want your business to survive! Thenumber-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 flowof a business. Many times, business owners look at their profits instead of the cash onhand or the revenue coming in on a regular basis. Owners will often look at theirsales minus their expenses, which equal their profits; if their profits are large, theyfeel that they are doing well.

Instead, business owners need to look at what point their sales are being received andthat they have enough money to cover the expenses that need to be paid at that par-ticular time. You may have a great customer who’s placing large orders. However, ifthat customer takes 120 days to pay his or her bills, and you’re left carrying the costof 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 StatementTo monitor this important element, you’ll need to create a cash-flow statement. Thisstatement, like the asset that it records, is a crucial financial-planning tool. It willshow you how much money you need, when you need the cash, where the money willbe coming in from, and at what point in time.It will also show you what expenses need tobe covered at a particular point in time.

Pro forma cash-flow statements generallycover a three-year period. The first year’srevenues should be mapped on a monthlybasis, and the following two years should beprojected on a quarterly basis.

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Pro forma means “pro-jected,” or an estimate of whatwill come in the future, based onthe circumstances in the present.

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Cash-Flow Projection

Sample cash-flow statement.

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

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

Take note that there is a line item on the cash-flow statement for “loan pay-ment.” If you are borrowing money, one of the first places that the lender will look is atthe loan payment line. They want to determine that they will be getting their moneyback, 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 rejectedbefore it has a chance to dazzle them.

Red Zone

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

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Understanding Profit-and-Loss StatementsThe profit-and-loss statement, also referred to as the P&L statement or the incomestatement, 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 onlyincome and deductible expenses. In other words, it only reflects expenses that aredeductible on your tax returns.

Now, here comes the accounting lesson: If you are repaying a loan and for one yearthe principal and interest are $5,000, the full amount would be deducted on the cash-flow statement (because you have to pay the full amount—remember: cash flow shows


what is being paid out). However, only the interest portion is shown on the income state-ment 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 yourfinancial statements, not to mention the ever-changing tax law. However, you shouldalso be on top of your company’s finances!

Like the cash flow, the P&L is also a pro forma (projected) statement on a monthlybasis for the first year, and on a quarterly basis for years two and three.

Sample profit-and-loss statement.

Profit and Loss Statement


Understanding the Balance SheetCash-flow and profit-and-loss statements project trends in your business over a periodof time, whereas a balance sheet is a snapshot of your business at a particular point intime. A balance sheet is usually prepared at the start of a business and also at the endof a reporting period. It literally only reflects the state of your business for the momentin 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 whatyou owe, like accounts payable, loan repayment, and so on. Net worth, also referred toas owner’s equity, is the worth or value of the business at that point in time. In otherwords …

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 areitems that are or can be easily turned into cash or used within one year. These includeaccounts receivable, inventory, and prepaid expenses. Prepaid expenses are items thatare paid in advance, such as insurance premiums. Fixed assets are permanent andinclude things like land, buildings, fixtures, and equipment (minus accumulated depre-ciation).

Within the liability section there are current liabilities and long-term debt. Currentliabilities are debts that will be paid within a one-year period. These are items such asaccounts payable, accrued expenses (like payments owed for salaries), taxes payable,and short-term notes payable. Short-term notes payable is the current (one-year) por-tion of the long-term debt. Long-term debt is the balance of a loan that is owed, afteryou subtract the one-year portion that is included in short-term debt.

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Sample balance sheet.

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Balance Sheet


Determining Profitability with Financial ToolsIn the financial and accounting world, there are many financial tools, ratios, and analy-ses that can be calculated. These calculations are computed for many reasons, such asa guideline to industry comparisons, to assist in business management operations, tolet investors know if your company is on a profitable track, etc. Following are a fewkey financial tools that should be included in your business plan to assist a lender aswell 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 isprofitable. One such ratio is the gross profit margin on break-even points. This showsthe 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.

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

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Another key ratio is the operating profit margin. This is where you divide the incomefrom the operation by the sales. This will give you just the operating profits and doesnot take into account the taxes and interest. This is the number that is the mainsource of your cash flow and should reflect growth from year to year.


Break-Even PointThe break-even point is a financial analysis tool used to determine at what point inyour business your expenses exactly match your sales, without showing a profit or aloss. 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 notchange 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 proportion-ally to the sales amount. For example, direct labor and material to produce the prod-uct. The more you sell, the more you need to produce. and therefore, the morematerials and labor you need.

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There’s an old saying that goes, “Anyone who controls the purse strings con-trols the business.” This is absolutely true, and that’s the reason why it is important tohave 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 havean employee or outside entity cutting the checks, you should routinely check the booksto be sure that everything is being managed properly. At the very least, have youraccountant or an auditing firm review your firm’s payment practices.

Red Zone

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


This calculation is even more important if you have investors who are willing to investin your business. One of the first things they will want to know before forking overtheir cash is what their return on investment (ROI) will be and how long it will bebefore they are repaid. This helps them weigh whether your business is a good invest-ment 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 FactsThe financial statements and ratios listed in the prior sections are some of the key ele-ments used in the planning and analysis of your business. There are many more finan-cial tools to use depending on your type of business. However, the key point is to usethese financial tools to compare where you stand in relation to industry standards andyour competitors. It’s important to analyze the information and use it to assist you inmaking 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 tothe actual numbers, revise your plan, and continue this recurrent process to keep yourbusiness on track.

Determining How Much Financing Is NeededThe first step in determining how much financing you’ll need is to complete the financialstatements we’ve reviewed. This will show you how much money you’ll need to operateyour business. Depending on the type of business and the amount of money the own-ers 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 yourbusiness.

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 itthrough its early months, or even years, of operation. This is when financing isneeded. 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 leastamount of cash available, to determine the most amount of money in a givenmonth that you will be short.

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3. Multiply that number by 125 percent. In other words, increase what you mayneed by an additional 25 percent to be conservative (or in case there are othercircumstances that you overlooked). This is the monthly amount that you shouldcome up with. Part of this will be your own investment money (usually a mini-mum 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 byan average interest rate (for today’s terms) of 10 percent, and multiply that by anaverage 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 repay-ment.” In the revenue section, be sure to include the total loan amount in themonth that you anticipate receiving it.

How Much Owners Are InvestingAn owner’s investment in his or her own business is imperative. Owners almostalways infuse some of their own money into their businesses, especially during start-up, 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 thefinancial needs determined in its financial statements. If the owner does not haveenough money to invest and needs to go to a lender, the lender will require that theowner invest a minimum of 10 to 20 percent of the loan requested (depending onother criteria mentioned later in Chapter 15). A lender will want to know that theowner has some of his or her own “skin in the game,” or has put some of his or herown assets on the line as a measure of belief in the business. Why should the lenderbe the only one taking a risk on the business venture?

Insurance NeedsSmall-business owners often ask what type of insurance coverage they need for theirbusinesses. This should also be addressed in your plan, especially if it’s being used tosecure financing, because lenders and investors will want to see that you’ve taken pre-cautions 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. Businessesare classified differently in the insurance field, and each small business has differentrequirements and different premiums. For instance, worker’s compensation coveragewill be far less for a business that employs clerical workers than it will be for a busi-ness that employs construction workers, where injuries are more common. Therefore,it is important to discuss your business position with an insurance agent before youmake any insurance purchases.

Cover MeBasic insurance coverage for most small businesses includes the following:

◆ Liability is very important and covers alleged negligent acts. In other words, itcovers actions for which your business is legally responsible, including peopleacting on your behalf. This would cover wrongful performance, which resultedin property damage or bodily injury, as long as the employee was operatingwithin the scope of his or her duties. This protection might also cover injuriesor issues that arise as a result of negligence—if a florist leaves a hose on and acustomer slips and falls; service liability—a contractor installs a new bathroomsink and after he leaves, the pipes leak; product liability—the Tylenol scare.

◆ Professional liability, or Errors & Omissions insurance, covers liability thatresults from mistakes or negligence. For example, it may cover an employee of aconsulting firm erroneously wiping out client data, or a home inspector failingto notice a problem with a home before a buyer purchases it. Items to be surethat are included in a liability policy are legal defense costs, coverage for bothW-2 employees and 1099 subcontractors, and personal injury such as libel, slan-der, or false arrest.

◆ Property insurance is one of the most basic types of insurance, and covers yourbusiness property against physical loss or damage to the assets (contents of thebusiness location) and/or the building by theft, fire, or other means. What iscovered under property insurance varies in each policy, as does the amount ofprotection. Be sure to consider automobile insurance, because there is a likeli-hood that your personal auto policy will not cover claims arising from businessactivity.

◆ Worker’s compensation insurance may also be required if you have employees.This insurance provides both medical and disability insurance for job-relatedinjuries or sicknesses, and coverage is provided for all employees.

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If your state requires worker’s compensation coverage, it’s likely that a worker’s com-pensation representative or auditor will contact your company each year to verify theactual number of employees and payroll versus the number of employees and payrollthat you have reported. If there is a difference and the payroll is higher than thatreported originally, you will be charged an additional premium. Likewise, if the payrollis lower than originally reported, a return premium will be sent to the business owner.

Home-based small businesses should consider insurance coverage as well. Operatingout of the home, the owners often think that they are covered by their individualhomeowner’s policies. Many homeowner policies have specific limits and oftenexclude coverage for many small-business aspects.

Prove ItIf you are working for a large corporation, they will often ask a business owner for acertificate of insurance prior to signing a contract agreement. This is a form suppliedby your insurance company or agent, which shows what type of insurance, the limitamounts, and the effective dates of your business coverage. The client may also ask tobe a certificate holder, to assure that your insurance coverage is not changed and thatif it is, they will be notified. This means the client’s name is on the certificate to ensurethat he or she will be contacted if the insurance coverage should expire. Insurancecoverage 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 bod-ily 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 businessinsurance to consider. On all insurance coverage, you should try to obtain at least twoquotes. Different insurance carriers sometimes offer slightly different premium rates.Also, premiums are not always determined the same way, which leaves room forinterpretation and therefore variances in rates. Consulting with an insurance agent isimportant, because he or she will be able to tailor the coverage to fit your specificneeds.

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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 andyou won’t be investing properly in the growth of your business.

◆ An operating budget is essential to help you understand how much it costs torun your business.

◆ A cash-flow statement is a pro forma—or projected—look at when money willbe received by your business. Too little cash flow kills many businesses, evenwhen they’re profitable.

◆ A balance sheet shows a snapshot of a business’s assets and liabilities at a specificpoint in time.

◆ Evaluate your insurance needs carefully, and be sure to check with the require-ments imposed by your state, county, or municipality.

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13Show Your DocumentsIn 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 businesswill be. That’s great. But how will the reader of your business plan knowthat what you’re saying is accurate? This chapter shows you how to provewhat you say.

Back Me UpBackup documents add credibility to the case you make. Although youdon’t want to overwhelm your reader with paper, proper backup will re-assure 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 willlikely depend on your business plan, but include anything that will back upassertions that you’ve made, as well as items that are likely to impress youraudience. All of the information you include should help you put your bestfoot forward.

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Resumés or BiosOf course, you’ll want to include information about the background of the ownershipand management team of your company. A resumé can be a good way to do this, buta narrative bio can sometimes paint the picture more clearly and can help you high-light strengths or experiences over many different aspects of your career—not just achronological order of one job after another.

A resumé can also be included in the appendix if your job history is exceptional andshows a track record of success and experience related to your business. Avoid includ-ing a resumé if there are gaps or many periods of short employment, which may befrowned 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 biothat explains the person’s strengths and achievements, instead of using a resumé for-mat that will shine a spotlight on periods of unemployment or jobs that didn’t workout. Bios and resumés of partners are needed as well. Also, if there are any keyemployees with significant backgrounds or consultants that you want to use, includethose bios, too.

Your bio or resumé should sell the reader on your strengths. It’s not just a laundry listof jobs that you’ve held. Rather, the document should highlight the areas whereyou’ve made a difference, and that relate to your business. Even if you don’t have

lengthy academic credentials, you can create a greatbio. For instance, if you started a promotion programthat increased sales in a particular category, mentionit. If you worked your way up through the ranks at aparticular company, earning increased levels ofresponsibility, tell that to your reader, since thatshows that you know the business and that youimpressed your former employer enough to be pro-moted.

Following is a sample biography:

John Smith, ….

John Smith is HiLight, Inc.’s founder, president and CEO. He was educated at AndersenUniversity, receiving B.S. and M.S. degrees in electrical engineering. He began hisbusiness career with Jacobsen Engineering where he was involved in the developmentof several new product concepts, which increased the company’s sales in the industrialsector by 20 percent over five years. He left Jacobsen to become the general manager

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An appendix is thesection at the back of your planthat includes supplementary andsupporting information, facts,forms, and other materials.

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of Apex Electrical, a multi-million-dollar electrical components business. During histenure with Apex, the company’s revenues tripled and their PBT percentage was upmore 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 programfor 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 launchHiLight, 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, whichincreased the company’s sales in the industrial sector by 20% over fiveyears.


◆ 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 ReturnsIf you’re interested in lining up financing, and your business is a start-up, then it’s likelythat 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 needto see how financially sound your personal background is. You will need to include thepast three years of your personal financial statements and income-tax returns. Yourfinancial statements should include a balance sheet reflecting your personal assets andliabilities, and your W2’s or 1099’s showing your current income. Of course thelender will run a credit report, so be sure that your credit is good and if you do nothave good credit, be honest and give explanations. The lender will expect the sameinformation 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 businessname with your local county clerk’s office), include copies of that paperwork. If yourbusiness is incorporated (chapter S) (one or more owners register the business with thestate—has limited liability over that of a sole proprietor), include the articles of incor-poration. If your business is an LLC (one or more owners also register the businesswith the state and also has limited liability over that of a sole proprietor) include the

Chapter 13: Show Your Documents

member documents. If you have partners you should have a buy/sell agreement or apartnership agreement, and these documents should be included as well.

This information is generally put in the plan’s appendix, with other supporting docu-mentation that isn’t integral to the narrative of the business plan. It’s usually not agood idea to place this documentation into the body of the plan because it can inter-rupt the flow. So, when you mention the structure of your business, you can referyour audience to the additional information in the appendix of the plan.

LoansGot loans? Better mention them. Lenders will want to know if your business has otheroutstanding long-term debts, so address them, and explain the need for additionalfunding. If you’re using your plan to attract investors or partners and you have a loancommitment, be sure to include that as well.

If your business is a start-up, you probably don’t have other financial obligations, butwill focus on what your financing needs are. We covered the details of venture capitalfunding in a previous chapter, but you’ll also want to disclose any funding that youreceived here, how much the funding was, and any terms, such as equity interest andconditions of the funding.

Credit ReportsAgain, if your business is a start-up applying for financing, then your personal finan-cial history is going to be a factor in whether you get a loan, as well as how muchyou’ll get and at what interest rate. So, as we discussed, be sure your credit report isas clean as possible.

You probably won’t include a copy of your credit report if your plan is a managementtool. However, when you formalize your presentation to lenders or investors, theymay want to see a copy to get a better understanding of how you have handled yourfinances in the past.

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

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agreements generally include information about thestructure of the business, as well as any long-termcompensation that is due to the seller and that willimpact your business’s profitability or franchise fees,training requirements, and conditions.

Leases or MortgageWhether you’re renting or purchasing your property, you’ll need to include copies ofthe lease or mortgage documents to show both that you have a place from which yourbusiness 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, youcould consult with a Realtor to obtain an estimate of the size of the facility in yourarea as well as an estimate of the rent or market value of the facility you will need tohouse your business.

LicensesDepending on the type of business you have, you may need state or municipal licensesor may have other registration requirements. Some areas impose a licensing or regis-tration requirement as well as a tax levy on all businesses in the town or city, regard-less of the type or size of business. In New Jersey, for instance, all businesses that dobusiness with the state, county, or local government agencies need to be registeredwith the state. In certain states, construction companies and contractors are requiredto be certified to conduct business.

The best way to determine which regulations apply to your business is to check withyour state or county economic development office. Local Small Business DevelopmentCenters are also likely to have the information you will need. Be sure to include copiesof any required licenses, registrations, or certifications you will need as backup.

An acquisition agree-ment is an agreement that out-lines the merger of two companiesor the sale of one company toanother.

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Letters of IntentIf 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 existingcustomers who will increase their orders when your business expands, include lettersof intent—an explanation from these customers or prospects that they do intend to dobusiness 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 someexamples:

◆ A sandwich shop may present letters from area businesses that would use itscatering services.

◆ A public relations agency may present letters of intent from prospective clientsor even from other agencies that intend to subcontract work to the agency.

◆ A real-estate appraiser may solicit letters of intent from mortgage companies orbanks that will use the service.

When lenders and investors can see that you’ve already got business lined up, theygenerally 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 andour company would purchase in bulk from them (as they provide a quality productand a cost savings to us). We anticipate purchasing 500 cases of their product eachmonth at a bulk rate of $250 per case. We anticipate this understanding to take placeonce a mutually beneficial contract is in place within six months of the date of thisletter of intent.


Market AnalysisSome municipalities and consultants will conduct a market analysis for your business,using local economic indicators to determine whether your business would do well ina particular community. It takes into account the type of business that you have aswell as the local business mix, market size, the size of the target market that existswithin the community, and whether the business is local, as well as a financial feasibil-ity component.

Sometimes, downtown development organizations will prepare feasibility studies freeof 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 par-ticular 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.

Bottom Line Booster

OtherIf you have other compelling information, such as information about awards or honorsin your industry, high-profile media coverage, new research that applies to your productor service, patents, trademarks, or other information about other intellectual propertyassets, 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 mostquestions that your readers have.

We are a current customer of HiLight, Inc., and use their products throughout ourmanufacturing facility. To date, the company has been a reliable provider of prod-ucts and services to ABC Manufacturing.

We anticipate a continued business relationship with HiLight in the future.

Sincerely,

Jim James

Purchasing Director

Chapter 13: Show Your Documents

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, includinginformation about management and staff, location commitments, and high-profile media coverage.

◆ Use your plan’s appendix as a holding area for backup information so that itdoesn’t interrupt the flow of the plan.

◆ Put lengthy supplements and backup materials in an appendix at the back of theplan. This will help preserve the document’s flow, while giving the reader accessto additional information he or she may wish to review.

◆ Include any indicators that bode well for your business, including letters ofintent, new research about your field, or a market analysis that indicates yourbusiness 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 determiningthe best location for your business.

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14Executive 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 afirst impression? Never is that more true than with your business plan’sexecutive 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 shouldreally sell your plan—why your business idea is so likely to succeed andthrive—so that the reader will be interested in continuing on to read theentire document.

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

Chapter


the pages that follow it. Usually between one and three pages in length, the executivesummary explains the key points of the plan.

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

Red Zone

What’s in the Executive SummaryThe executive summary introduces your company … while the rest of the plan includesthe 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 getthe reader excited about your business. In it, you’ll want to include a brief descriptionof the business, including the concept, what makes your business different (uniquenessor niche), the business entity, and whether it’s a start-up or established business; sum-marized financial projections and needs; market information, including statistics support-ing 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 thesegmented, topic-driven format. A narrative format will simply be straight text, movingfrom one point to another with no breaks. This format can be effective because itkeeps 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 orinvestors. See the sample plans in Appendix B for examples of executive summaries.

The other format you can choose to use when writingyour summary is the segmented, or topic-driven, for-mat. This takes the components of your summary anddivides them into clear-cut sections. The benefit here isthat the reader can skim each section for key informa-tion, saving time. This type of summary is usually twoto three pages long, and is simply separated by sub-heads.

Either format will work—it depends on what you feelcomfortable writing.

Often, lenders and investors willreview the executive summaryfirst—and if they don’t like whatthey see, they might not read anyfurther. So it’s very important tomake your case by writingclearly and succinctly to capturethe reader’s attention.

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Selling in Your SummaryWhichever way you write your plan, it will include similar information. If you write asegmented plan, you’ll divide your information according to topic. Some of the topicareas may include the company overview, products or services, an operations overview, amarket overview, and a financial overview. A narrative plan will have all of the sameinformation, but it is not separated into sections. Instead, it reads as one continuousdocument covering all of these topics, but without subheads.

Company OverviewThe business overview is probably the shortest section. It should include a brief snap-shot of your business, including the location, type of business, date founded, and otheridentifying 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 sec-tion, but keep it short—one or two paragraphs is enough. You’ll have plenty of spaceto explain in more detail later in your plan.

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

Operations OverviewThis 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, includingany 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. Payparticular attention to any aspects of your business that will control costs, streamlinesystems, or make your business run more profitably and efficiently. Again, here’s agood example from Creative Car Consultants.


Creative Car Consultants Operations OverviewOur expansive knowledge will be key in brokering deals for prospective customersof the company. Our target customer base will primarily involve upscale, busy pro-fessionals who earn $75,000 and up per year who do not have time to spend inan automobile dealership haggling over the cost of a vehicle, arranging financingand getting the automobile titled properly. Our secondary target market/audienceincludes, 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 pastvehicle-buying experience. We will also target individuals who are seeking a pos-itive used car-buying experience.

Market OverviewThe market overview tells the reader why you’ve chosen to do business in this particularsector. To strengthen this section, you should include some of the secondary researchabout the marketplace that you used in your marketing section. Don’t go overboardwith the statistics, but use two or three of those to support your position that this is aviable market in which to do business.

Creative Car Consultants Market OverviewWith more than 1 million residents in a five-county area, metropolitan Jackson-ville, 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 thestate median income of $38,819. Meanwhile, neighboring Clay County has a1999 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 aninnovative business model.

This section is also where you give a brief overview of how you intend to reach out tothe market, including a mention of any special marketing activities you intend to use.

Financial OverviewIn the financial overview, you should give a brief description of the projected revenueand profit of your business, as well as a description of the financing needs your business

Chapter 14: Executive Summary

will have, if any. Clearly, the finances of your business are complex, so you need tofocus on the broad strokes. Answer such questions as the following:

◆ How much revenue can the business expect to generate in a particular period oftime?

◆ 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 projectedrevenue goals?

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

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

Paring It DownSo how do you boil 20 or so pages down to one or two? You need to think carefullyabout the essential information that your audience needs to know. Be sure to address“what is in it” for the reader to keep his orher interest. Often, you are not in front ofthe person reading your business plan to beable to explain it further, so you have to makesure that what you wrote is going to “catch”the reader’s interest to want to explore youridea further. What would you say about eachof these subject areas if you only had 60 sec-onds to do so?

Once you’ve written your summary, it’s agood idea to get objective feedback on it fromtrusted colleagues and advisors. Run it by

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As you prepare to write yoursummary, it may be helpful totake a hard copy of the planyou’ve written so far and high-light the most important informa-tion. That will help you organizethe best information to appear inthe summary, instead of trying topare down 20 or so pages oftext, which can be unwieldy.

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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 toread?

If you find that you’re having trouble focusing on the essence of your business byparing it down to one or two pages, it may be an indication that you need to spendmore time honing the focus of your business. Those who have a clear vision and under-standing of what their business is, how it will run, and what its needs are can usuallystate those needs succinctly. Writing your summary is an excellent exercise to indicatewhether your understanding of your business is at the level that it needs to be.

What Not to Put in the Executive SummaryBecause the executive summary emphasizes the highlights of your business plan, thereshould not be a lot of detailed descriptions. It should simply summarize each of thekey points listed in the previous sections. Therefore, one section should not dominatethe 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 particularpage for the information; you want to take the key point from that page and restate itaccurately here in the executive summary.

If your business is a technology or scientific business, be sure not to include terminol-ogy that the layperson would not understand. Keep it simple. See Appendix B for anexample 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 anengaging way and your business is easy to understand.

◆ Use a segmented approach if your business is complex or if you’re not sure ofyour organizational and writing skills.

◆ If you have trouble boiling down your business plan to create the executivesummary, it could be an indication that you need to streamline the focus of yourbusiness. Spend some time thinking about the key elements and whether youneed to sharpen your vision of how your business will run.

3Your plan can be a tool for running and growing your business—or it canbe a stack of paper lying useless in a drawer. In this part, we show you howto use your plan to land financing, manage your business better, attractinvestors, and more. We also discuss how you can make your plan a living,breathing part of your business. Chapter 15 covers the specifics of usingyour plan to get financing, while Chapter 16 discusses how it can be put towork as an important management tool. And because no plan is worth thepaper 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.

PartPutting Your Plan to Work

15Financing 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. Thefollowing information about financing and the various types of loans willbe very helpful. If you are in need of financing from the onset, the follow-ing information will help you determine what source of financing will bestmeet your needs. If you are not in need of financing at this point, the fol-lowing information is good to know for future reference. You never knowwhen your business may be in need of financing. For example, when yourbusiness is growing and capital equipment may be needed or just from busi-ness growth additional employees may be needed, as a business owner, youcan obtain a loan to allow your business to growth and be able to finan-cially stay afloat.

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Part 3: Putting Your Plan to Work178

The Money PlanThroughout the course of writing this plan, you’ve prepared financial statements, runbudget numbers, and by now you should have an excellent understanding of how muchmoney you will need to start and to operate your business. Once you have preparedthis 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 con-sider two scenarios—a minimum amount and a maximum amount that you need. Youalso need to figure out the time period over which you will need the additional financ-ing because this will make a difference in the financing available to you and the repay-ment 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

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So if your business needs $80,000 in financ-ing for the first year of business, you mightassemble 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

Be sure, however, that you estimate your financing properly for the period in ques-tion. If you find that you’ve run through $80,000 in six months when you estimatedthat it would see you through a year of operations, then you may have trouble con-vincing lenders that you have an accurate grasp of the needs of your business, whichmay 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 financ-ing as discussed in Chapter 2, to determine if you are going to borrow money from alender (debt) or from an investor (trading cash for equity in your business).

What Lenders Want to SeeIn 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. Thoseare 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 agood investment risk.

Lenders are also looking for your equity investment into the business—generally 10to 20 percent of the amount you are seeking to borrow, depending on the type ofbusiness 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 addi-tion, lenders want to see how you have repaid credit extended to you in the past asevidenced by your credit rating. If there is a blemish in your credit, a lender willoften still work with you providing that you have …

A factor (as in accountsreceivable factoring) is a busi-ness that purchases an existingbusiness’s accounts receivable.This provides the business withguaranteed cash, although theaccounts are sold to the factorfor less than the full value of theamount due. But then it is theresponsibility of the factoring com-pany to collect all debts owed.

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◆ 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 thatthe money is used for the direct operation of the business and the purposes for whichit was borrowed, such as start-up expenses, working capital, building, land, leaseholdimprovements, equipment, and inventory. Often research is necessary to obtain quotesfor verification which will back up the costs that you are listing as uses of the proceedsof the loan.

Knocking a Lender’s Socks OffKeep in mind that the loan officer’s job is to make loans. Banks do want to lendmoney, especially to those ventures with limited risk. The loan officers are often ana-lytical people. Because the loan officer makes recommendations to the committee, it isthe loan officer who you want to impress, provide information to, and work withclosely through this process.

If you don’t have the collateral, the credit, and the capacity to repay, no amount ofrazzle-dazzle is going to pry open a lender’s purse strings. However, if you have thebasics in place, you can seal the deal by doing the following:

◆ Be organized. Have your loan package in order. Your application should betyped or neatly printed, and your supporting materials and business plan shouldbe clean and look professional.

◆ Show growth potential. Demonstrate that your business has staying power and amarket that’s just waiting to be cultivated and grown.

◆ Demonstrate a solid strategy. What’s your game plan? Don’t keep your lenderguessing about whether you’re the groundbreaking market leader or a savvyentrepreneur who has spotted a growing market and is diving in. Be clear abouthow you will approach your positioning, pricing, and marketing.

◆ Diversify or dedicate. Will your business diversify its holdings so that it’s lessexposed to market changes? Or will it focus on vertical integration so that it isdeeply entrenched in a market and can withstand economic downturns? Showwhy you think one approach or the other is the best idea.

◆ Understand your numbers. It’s critically important, when you speak with yourlender, that you fully understand how you arrived at your projections for sales,

Chapter 15: Financing Considerations to Include in Your Plan

revenue, expenses, and the like. If you falter here, the lender may find that youlack sufficient understanding of the economics of your business and do not rep-resent a good risk. Know where the numbers came from and why you thinkthey’re accurate.

◆ Leadership. Your business may be following in the footsteps of others, but thepeople leading it should be strong. A business with capable, experienced leader-ship is far more likely to succeed than one where the owner is diving into a sec-tor about which he or she knows nothing. So shine a spotlight on the abilities ofyour top team members. Of course you’ve already done this in your owner andkey management’s resumés that you have attached to the business plan.

Show energy, enthusiasm, and professionalism when it comes to your business. Yourattitude may be the final factor that gets you the money you need to succeed.

Negotiating Your FinancingAlthough it sometimes may feel like seeking financing for your business leaves you atthe mercy of lenders, that’s a very dangerous attitude to project. It’s important to re-member that, when it comes to financing, you are the customer. Lenders are in businessto find good investments and to make loans when those investment opportunities areavailable. 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 youhave a great opportunity for the lender. If you have a solid plan, with adequate collat-eral, experience in the industry or another track record of success, and a good creditrating, it’s likely that lenders will be tripping over themselves to lend you money foryour business. The more fully you meet the five c’s of lending, the more leverage youhave 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 nego-tiable. As you shop for your business loan, compare the packages that are beingoffered—which has the best interest rate or the lowest fee structure? Some have ashorter approval or turnaround times than others. Try to reduce loan restrictions andcriteria, negotiate lower interest rates, and reduce or waive fees.

Also, don’t assume that larger lending institutions are the best bets. Sometimes, yourlocal bank can give you a better deal than a large commercial lender, who may bemore interested in super-size businesses.

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Types of LoansJust 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 thetype of loan for which you should apply.

Transaction LoansA transaction loan is usually extended for a period of less than a year, giving the bor-rower a short-term infusion of cash. It’s called a transaction loan because it’s usuallysatisfied 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 isdeducted from the amount made available to the bor-rower, and the borrower then repays the face value ofthe loan plus interest at the maturation date. Thistype of financing is usually used for working capital,financing inventory that will be sold before the matu-ration date of the loan, and other short-term needs.

Line of CreditA line of credit is an amount of money made available to a borrower, and it worksmuch like a credit card. The borrower may access any portion of the loan, up to themaximum amount available, and then can pay off the loan in installments or in onelump sum. Some lines of credit require that the line be paid off entirely at least oncea year. This type of financing is ideal to supplement periodic cash flow issues or tofinance short-term needs.

TermA term loan is much like a car loan or a mortgage—a predetermined amount is bor-rowed in full, and paid off in equal installments that total the principal and interest ofthe loan over a predetermined period of time. This type of loan is better for borrow-ing larger sums that may be more difficult to pay off in a short period of time, espe-cially to purchase assets, such as real estate, large equipment, and the like.

A loan’s maturity, ormaturation date, refers to theend of the lending term, or thedate by which the loan needs tobe paid off.

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Government-Secured LoansGovernment-secured loans are generally term loans that are backed by the SmallBusiness Administration or other government agency. In other words, the lender hasa guarantee from the government agency that, should the borrower not pay back theloan, the lender will be reimbursed for the loan amount, thus decreasing the riskinvolved in lending money to, especially, small or start-up ventures.

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

What to Expect During the Loan ProcessWhile the terms, conditions, and other aspects of lenders will vary from institution toinstitution, their general requirements during the application process are often quitesimilar. Most loan packages require the following:

◆ Bank application and fee—Each bank has its own application, which must befilled out in full. Some banks have an application fee, although some do not (andothers will waive it if you ask them to do so).

◆ A business plan—A complete and professional business plan required for astart-up business can make or break your loan application. This document pro-vides a lot of insight into you and your business, and lenders will place a greatdeal 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, ifit’s existing, or the individuals at the helm, if it’s a start-up. Of course, as we dis-cussed in Chapter 13, the executive summary has to be captivating, because ifyou lose the lender there, they often will not read any further. Lenders are alsolooking for industry stability and statistics to support your business, a strong

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management team, accomplishments, marketing, reach of customers, growthand expansion plans, good credit rating, and detailed financial statements (cashflow, profit and loss, and balance sheet) showing assumptions, and of coursetheir eye will focus on the “loan repayment line.”

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Business ratios provide a way for lenders to use the data from your financial statementsto compare your firm’s strengths and weaknesses with your competitors, both large andsmall. As these ratios shift over time, they can also act as indicators about your com-pany’s performance, for better or for worse. Lenders will obtain balance-sheet andincome-statement information from your firm and compare them with the same informa-tion from your competitors, if they have access to that information; or they will consultguides, such as the Almanac of Business and Industrial Financial Ratios, Industry Norms,and Key Business Ratios, or RMA Annual Statement Studies, which examine data fromhundreds of industry groups.

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◆ Tax returns—Personal tax returns of the company’s owners are often requiredfor the most recent three years. Business tax returns are also required, if yourbusiness has existed that long.

◆ Credit history—Although the lender will run their own credit check on eachpartner in the company, it is best to truthfully inform the lender up front as towhat you anticipate them to find on your credit report. It is also important tocheck your own credit report from all three credit bureaus, prior to going to thebank. Sometimes the credit bureaus have made an error and have mistakenlyreflected bad credit under your name (especially if you have a common last namesuch as Johnson).

◆ Income and assets—Your bank will likely askfor income verification, in the form of pay stubs,employer verification, or copies of bank state-ments, as well as a list of your personal and busi-ness assets and investments.

◆ Leases—If you have leases on buildings, equip-ment, or vehicles, the lender is going to want toreview the terms of these as well.

Remember that you are entitled toone free credit report each yearfrom each of the three creditbureaus (Experian, Equifax, andTrans Union). Access that report byvisiting www.freecreditreport.com.

Back Office Secrets


◆ Insurance—Usually the bank will ask for insurance verification, especially ifthere is real estate involved, as well as a property appraisal. The lender wants tomake 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 debtyou owe to the bank.

The loan turnaround time depends on the type of lender you are approaching, as wellas the size loan you seek. For example, if you are applying for an SBA-guaranteed loanthrough an SBA “preferred” commercial lender, that means that the lender has passedprior SBA criteria and can make the loan decisions in-house. If the lender is not anSBA “preferred” lender, then the loan needs to go back to the SBA for processing anddecision-making, and this adds time as to when you will hear back if your loan isapproved. Often if you are applying for a smaller loan amount, the turnaround time isquite 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 lenderin anywhere from a few days to a few weeks, on average.

Finding InvestorsWe’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 fortheir money. There are billions of dollars available through angel investors (a specifictype of venture capitalist, usually a wealthy individual who has money to infuse intobusinesses through equity financing) and venture capitalists (who are often companies,but could be individuals who will invest money and management advice in return foran equity stake in your company—they often raise their investment money from apool of private and individual sources).

However, it is sometimes difficult to locate these investors, because it’s not like theytake 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, anaccountant, a friend who has already been in touch with investors, trade shows, andeven investor meetings and seminars are the best ways to get in touch with theseinvestors. You might also consider talking to other companies in your industry, sup-pliers 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 knowledgeableinvestors. So you really have to “shop” around by being inquisitive. Remember,

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investors are selective as well. They are looking for the best return on their moneywith 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 isthe one they should invest in! In summary, finding a professional investor is all aboutnetworking.

Of course you could visit your local Small Business Development Center (SBDC) ortheir technology commercialization centers in most states. They often have contactswith many investors.

Money OnlineAlthough many investors are not the easiest to connect with, there is some Internetresearch 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 sub-scribe to. This is a useful magazine when you are looking for financing throughinvestors. Each month there is information such as investor featured articles, view-points, funds, initial public offering (IPO), and investor conferences.

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Some companies will offer unsecured loans to start-up businesses, but theyoften 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 aloan that’s “guaranteed” once a processing or other fee is paid. Once the businessowner sends the fee, which can total up to several thousand dollars, the loan nevermaterializes. So it’s important to be sure you’re dealing with reputable lenders, andnever send an advance fee for a loan.

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What Investors WantOften, angel investors and venture capitalists, like lenders, will also look for a viablecompany with minimum risk. Of course, the investors will closely review the businessplan and financials, too, looking for companies with growth potential. Althoughinvestors often look at those companies in traditionally fast-growth areas, such as sci-ence or tech companies, or those organizations with a unique idea that is truly revolu-tionary to the marketplace, there are also investors who specialize in particularindustry sectors.

Investors also look at the management team and their level of experience and involve-ment. 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 donot have to make monthly loan payments. However, the investor will seek a return oninvestment and usually participates in how the business is run to ensure that it will besuccessful.

Investors, through their stake in the company (now part ownership), usually take anactive role in working with the company to make it grow. Sometimes business ownerswill 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 managementexperience and a network of resources and expertise to guide your company to suc-cess. 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 anaverage of 34 percent per year return on their money. That may seem high, butthey’re also taking a big risk—if your company doesn’t succeed, they lose their moneyentirely. That’s the first rule of lending and investing—the bigger the risk, the higherthe return should be.

Other Financial Uses for the PlanIn addition to attracting investors and lenders, you might also use your financiallyfocused plan for internal growth to measure your progress and goals. The financialstatements 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

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more employees can you afford to hire? Do you have the finances to cover these sce-narios? Or do you again have to borrow money?

In addition, your financial plan will be written in a language that your accountantspeaks. Armed with a copy of your plan, your accountant may be able to identify areaswhere your business finances can be strengthened, or help you to identify ways tobecome more profitable or ways to diversify your assets so that your company is morestable during tough financial times.

Of course, when there are multiple partners, it is imperative to have everything docu-mented for all to review, so that all partners have a meeting of the minds and do notperceive 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 thebusiness plan, it is also a good idea to have a buy/sell agreement or partnership agree-ment between the partners. This type of document spells out the terms of the busi-ness, how the profits and losses are shared, if the partners’ shares can or can not betransferred, 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 animportant tool for the financial well-being of your business. Even if you don’t needmoney now, having this plan in your pocket gives you an important component of aloan 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 andinvestors.

◆ 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 theirmoney, but they may also make new resources, knowledge, and experience avail-able to you.

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16Using Your Plan as aManagement 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 handbookfor running your business. Because it has forced you to do your homeworkabout virtually every area of your enterprise—from structure to operations tomarketing to competition to future prospects—you have been required toanalyze factors and functions that you may have previously taken for granted.

Planning to RunA management plan differs from a plan created to attract financing because itusually has a greater focus on operations, marketing, and management—the

Chapter


internal workings of your organization. Obviously, revenue and sales projections, aswell as expense estimates, are also important. However, they are considered more of afunction of how your organization is run. In a plan used to secure financing, the oper-ations, marketing, and management are usually treated as the infrastructure that willdeliver the anticipated financial gains.

Management plans, on the other hand, tend to pay a bit more attention to the innerworkings of the organization and may spend more time on details such as the rationalefor management structure, finding and motivating exceptional employees, examininghow 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 businessthan the people who want to give it money. These people will assume that you’ve gota good handle on all of those inner workings. They don’t really want to know aboutthe details unless those details are integral to turning a profit or growing their returnon investment.

After facts and figures about your business have been committed to paper, businessowners often find that they learn a few things about themselves.

Planning FindingsAfter you’ve committed your plan to paper, it’s not uncommon to come away with anentirely new view of your business. It’s likely that through the rigorous research andanalysis that you’ve had to undertake to complete the plan, you’ve been forced toquestion a few of your assumptions about your business, and you may have evenlearned a thing or two.

Solidifying Your PhilosophyBy drafting your mission, vision, and values statements, you’ll likely have a betterunderstanding 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 afew brief sentences, they can more clearly make decisions about what’s best for howthat company is run.

Developing a Strategic VisionIt’s likely that creating your business plan has given you better insight into your busi-ness’s strategic vision. Companies often pay lip service to strategic thinking, but dothey really know what it means?

Chapter 16: Using Your Plan as a Management Tool 191

If you’re thinking strategically and designing your business in a strategic manner, itmeans that every decision your organization takes and makes is done in accordancewith its desired outcome in mind. It may mean that you’re willing to downsize part ofyour business while pursuing more lucrative segments, instead of chasing every rabbitthat passes by. It may mean that your busi-ness values its employees as much as its cus-tomers, so you create a work environmentthat reflects that philosophy. It means thatyou run your business within the frameworkof its philosophy, goals, and objectives, andare not distracted by short-term opportuni-ties that do not benefit your business.

Identifying ImprovementsLike 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 mak-ing to your business’s operations and overall well-being, also.

By writing down your unique selling proposition and how you will set yourself apartfrom your competition, you have discovered ways that you could improve upon yourcompetitive 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 streamlineyour staffing and management.

Preventing DistractionsYour business plan is also a touchstone. As you solidify your philosophy and the waythat you do business, you also create a point of reference for when you may be temptedto veer off into other areas. Pittsburgh, Pennsylvania, entrepreneur Anita Brattina, inher excellent book Diary of a Small Business Owner, relays how she got sidetrackedinto a publishing venture in the early years of forming her company, Direct ResponseMarketing. The venture, although it taught her much, funneled time, resources, andmoney away from her core business, which was telemarketing.

Similarly, you’ll likely encounter opportunities along your entrepreneurial route thatwill seem interesting, although perhaps a bit unrelated to your business. When thishappens, reviewing your business plan can help you decide objectively whether this isan opportunity that moves you closer to your goals and objectives, or whether it’s

A strategy is a course ofaction or series of steps designedto achieve a desired result.

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simply a red herring that will only serve to divert you from growing your business inthe manner you wish.

Avoiding MisunderstandingsIt’s also not uncommon, especially with businessesthat have multiple owners, to find that a written busi-ness plan uncovers a few differences of opinion abouthow the business should be run, or should approachvarious sectors of the business. For instance, onepartner may believe that it’s critical to have deluxeoffice space and a prime location, whereas anotherpartner may believe that a sub-prime office in thebest possible location is a better option. One of theowners may believe that sales increases of 10 percentper year are likely, whereas another may think thatthe reality will be half of that.

Implementing Your PlanIt’s one thing to go through the process of creating your plan. That could be consideredthe easy part. A plan that sits unused, on a hard drive, in a desk, or on a bookshelf isworthless.

After you’ve created your plan, it’s essential to put it in place, especially the improve-ments that you’ve identified. How do you do that?

Providing Strong LeadershipRecently, Gwen had a bad experience with a rude employee at a local video store. Sheasked to speak with the owner, who was almost as rude. It quickly became clear thatthe 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 em-ployees perform. Therefore, it is essential that you provide strong leadership. Thatdoesn’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 anunwavering example for your management and staff of how the company achievesthose objectives.

Don’t get into a multiple-owner mess. It’s especially impor-tant for businesses with multipleowners to get their plans onpaper. Such a plan literally getseveryone on the same page andhelps each party come to anagreement on how every area ofthe business will be managed.

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Chapter 16: Using Your Plan as a Management Tool

Stating Clear ExpectationsAs you begin to put your plan into action, you must be clear about the accompanyingexpectations you have of others involved. This includes partners, managers, staff,consultants, and other individuals or entities who will be an integral part of creatingyour plan.

Don’t assume that the people involved know what they need to do. As you begin toexecute your plan, put important expectations in writing and distribute those docu-ments to those involved. Examples include detailed job descriptions, employee manu-als, letters of agreement, and the like.

Creating Actionable StepsIt’s virtually impossible to effectively implement your plan unless you take the time tobreak your objectives down into actionable steps, especially in the areas of sales, mar-keting, and operations.

What are the actions that you will take to get everyone closer to those goals and objec-tives that you set early on? Break them down, put them in order, and assign deadlinesto each. Then monitor those deadlines to ensure that they are being met. You’ll soonsee remarkable progress.

Being Ready for BarriersMany times people are uncomfortable with change. If your business is an establishedentity with longtime employees, and you’re suddenly asking them to employ a newway of doing things, then you may find yourself facing resistance.

Start-ups aren’t exempt from barriers to change. Communities that may not be will-ing to accept a new service provider, or customers who aren’t used to the innovationsyou’ve made to a particular type of business, may prove to be more challenging thanemployees who are set in their ways.

Try to anticipate these possible challenges and work on ways to solve them. We discussmore about getting employees onboard later. However, if you need to invest in educat-ing your customers or create ways to reach new markets that will be more receptiveto your brand or way of doing business, then map out possibilities for doing so.

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

Creating an Advisory BoardAn advisory board is a team of professionals who have various areas of expertise thatcomplement your business. This board exists for the purpose of sharing their collec-tive wisdom and advice to benefit your business.

Formal vs. InformalAdvisory boards can be formal or informal. Sometimes entrepreneurs form small sup-port groups where they can air their concerns and work out some of their challengeswith a trusted group of colleagues. One northern New Jersey group of female small-business owners gets together for dinner once a month. They each share their businessgoals and hold each other accountable for making progress toward them. They alsoshare their challenges and concerns about their businesses. Because they’ve developeda deep level of trust among them and none are in businesses that compete with eachother, they find that this is an excellent way to help each other in a nonthreateningenvironment.

That may suit you well. However, if you need more intensive guidance or input thanthat, you may wish to convene a formal advisory board. A formal advisory board ismore structured and includes professionals chosen for their various levels of expertise.It has guidelines and usually involves some form of compensation to its members, butit can truly deliver a wealth of resources and invaluable advice to the business.

Convening a Formal BoardOn 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, andaccommodations will be enough compensation. Usually, though, this may be an hourlyrate or a formal stipend, and you should be prepared to shell out anywhere from sev-eral hundred to a few thousand dollars per person, depending on how many advisoryboard members you have and how much time and effort will be required of them.


On your board, you’ll want to handpick advisors who can address every area of yourbusiness. A board can vary from about five members to as many as a dozen, depend-ing on the size of your business. Such boards generally meet in person at least twice ayear, 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’thave an obligation to your business, with the exception of your attorney and account-ant. It’s a good idea to start with a smaller board and then add various experts as youneed 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 owndream team. In addition, some of these individuals may have areas of expertise thatoverlap. For example, you may find someone who not only is a successful entrepre-neur but also has a venture capital background, or your accountant may also be afinancial-planning expert.

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

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Aim high when you assemble your board. You may be surprised at the generosity ofsome very well-known and successful entrepreneurs when it comes to giving advice toup-and-coming businesses. Often, they’ve benefited from the generosity and advice ofothers and are happy to pay it forward.

Identifying and Building RelationshipsBecause no successful business exists in a vacuum, you’ll also find that your businessplan helps you solidify the relationships that you need to succeed. It may seem oddthat a document can do that, but by clarifying your business needs, you’ll see whereyou need to invest time and resources to help your business.

In addition to defining roles and partners, your business plan will identify win/win sit-uations for various entities. For instance, if you’re trying to start a bakery, you likelywill look for a location that doesn’t have one nearby, or that doesn’t have a provider ofthe type of baked goods that you will provide. That’s a win/win: you win becauseyou’re providing something new to the market, and the market wins because it nowhas easier access to something it wants or needs.

Your plan can also help you build relationships with those who can help your businessby charting a clear course for working together. For instance, when Renfro Foods waslooking for ways to expand its customer base, the 64-year-old family-owned manufac-turer of gourmet salsa, sauces, and relishes, run by five members of the family’s secondand third generations, found such an opportunity by teaming up with the El PasoChile Company, another Texas-based family-owned business that was only four yearsold at the time. El Paso needed manufacturing support and Renfro needed expandeddistribution. The alliance served both needs so well that it has now been going strongfor 20 years, growing each of the companies to approximately $10 million in annualsales, and weathering various challenges, including El Paso’s near-bankruptcy. That’sthe benefit of a well-planned alliance.

Strategic PartnersThe Renfro Foods–El Paso Chile Company alliance is one example of the strategicpartnerships that can take your business to the next level. You may find that there arestrategic partners that can benefit your company. These may come in the form of sup-pliers, consultants, or other complementary companies.


SuppliersOne New York woodworking company farms out some of its projects to a smaller sup-plier in the area. This enables the company to increase its inventory during its busyconsumer 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 thatyou cultivate relationships with reliable vendors who consider keeping your business apriority.

ConsultantsHiring the appropriate consultant for a short- or long-term engagement can also pro-vide you with the experience and expertise you need to address specific business chal-lenges.

When hiring consultants, it’s critical to choose the best fit for you. One area wheresmall companies often let their egos get in the way of judging a good consultative fitis when they’re choosing marketing or advertising providers. Often, it’s assumed thatby 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’lltake your money. However, unless you’re spending $10,000 or more per month, you’renot likely to get the attention that you would from a smaller provider, who might onlycharge $4,000 for a similar level of service, because of a lower hourly rate. We’ve seenmany times when a smaller provider was able to provide equal or better service muchmore affordably than a larger-scale counterpart.

Complementary CompaniesCompanies that complement your business, whether they’re organizations to whomyou can subcontract or businesses with which you can team up to provide better serv-ice, are a critical part of your team. These companies may be influencers, who are in aposition 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 theirremodeling customers to each other).

So as you identify these complementary businesses, add them to your plan, and findways to cultivate these relationships.

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Staffing UpYou hear, time and time again, that employees are the backbone of your business. It’strue. Building a great team is important, but keeping them well trained and motivatedis 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 ofqualified applicants for a fee, which is usually based on the applicant’s annualsalary.

◆ Your own employees can provide referrals and recommendations of other poten-tial employees. Often, employees will be reluctant to refer someone who isn’t agood worker, fearing that doing so will reflect poorly on him or her. Provide anincentive for such internal head-hunting.

◆ Your local or regional newspaper is a great venue for placing ads and getting loadsof 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 thejobs that you have open, the skill sets and qualifications you require, and howindividuals might apply.

Keeping Them MotivatedKeeping employees motivated during tumultuous times can be the difference betweenweathering a storm and being left with a skeleton crew to navigate difficult waters. Intough times, many businesses need to make difficult choices about cutting staff, yet lay-offs can be damaging to the productivity and to the rate of turnover of the remaining

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As you begin to look for companies to participate in referral exchanges or towhich you will refer business, be sure that you check them out with the local BetterBusiness Bureau and even a few references. Referring your customers to a business thatmay not treat them well will reflect badly on your business, washing away your hard-earned credibility.

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employee base. Employees are often deeply affected, not only by the threat to theirown 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 busi-ness is to lose key staff members who can be instrumental in helping you turn thingsaround during these times. It’s important to make use of marketing tactics internallyto 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 thesame time.

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

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Creating Employee IncentivesSome managers immediately assume that the way to motivate employees and inspireloyalty is to throw more money at them. In fact, this isn’t the case. Studies have proventhat 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 asmotivation in specific circumstances. Money rewards may go toward paying the elec-tric bill, but other incentives may be remembered for years. Cultivating an environ-ment where your employees like their work, like their environment, and have some


control over their day-to-day activities can make the difference between an employeebase that stays and one that goes away.

When putting together a motivational plan for your employees, consider what willtruly matter to them. Consider programs that recognize the value of their time, suchas 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 countthe 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 helpprovide better service, or develop a better product, or make the workplace a bet-ter 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 toyou with any issues or ideas.

◆ Review your own management style and see where you can improve your skillsto become a better boss.

◆ Address employee needs and provide the things that they require to do a goodjob for you, such as medical benefits, daycare subsidies, on-site physical fitnessfacilities, or credits for membership.

◆ Offer training, education, and personal development opportunities, such as con-tributing to continuing-education efforts or offering skills-improvement classesat the office or on site (computer training, time management, financial advise-ment, and so on).

◆ Sponsor a company retreat, taking your employees away from the office for aday or two to interact in a different, hopefully relaxing environment.

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◆ Encourage employee interaction, socializing, and team building by hosting cor-porate outings or events, and pay for everything (e.g., shopping excursions, base-ball games, fishing trips, “dinner-and-a-movie night,” family picnics, and so on).

◆ Provide financial incentives, such as referral commissions when employees bringin 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. Buildingan infrastructure of good people will only add to the stability and success of yourbusiness. Your employees are your greatest asset!

Getting Employees Onboard with Your PlanWhether your employee base is brand new or established, you should keep your fin-ger on the pulse of their concerns. A great way to do this is to put together anemployee advisory board. These boards are made up of employee representativesfrom all areas of the company and can help you mine great ideas while keeping thelines of communication open between you and your staff.

Employee advisory boards should be made up of a cross-section of employees whocan 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 councilon a level playing field. Share your business plan with your advisory council. If it’s notappropriate for your business to share specific financial information, then edit thatout and, instead, focus on how the business is run. What are areas that the businessdoes well? What are areas that need improvement? Often, you’ll find that, becausemany of these people are on the front line, they see small changes that can lead to bigimprovements in efficiency, effectiveness, and customer satisfaction.

Sometimes, it’s best to hire an outside facilitator to moderate the group and ensurethat responses aren’t influenced by whomever is leading the group. It’s also easier foran outsider to be more impartial and ensure that each member of the group is partici-pating equally. Such moderators can be found through some management-consultingfirms or even through your local Small Business Development Center or chapter ofthe Service Corps of Retired Executives (SCORE). See Appendix C for contact infor-mation to locate a center or chapter near you.

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Encourage the employee advisory council to address specific challenges that the busi-ness is facing, as well as encourage them to come up with solutions to more etherealproblems like improving morale and making the workplace more pleasant. Holdbrainstorming 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, allowingemployees to stretch their minds and think big may lead to little changes that canmake a difference.

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

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Managing the FutureFinally, your plan can help you manage your business by helping you to identify theneeds for the future, whether that includes equipment, staffing, or even response topossible regulatory changes.

Your business will encounter many changes in its life cycle, from shifting economicfactors to changes in staffing, and perhaps even changes in the products and servicesyou offer. Your plan, if you continue to update it and treat it as the heart of your busi-ness, will help you adapt to these changes more readily and will help you to stay thecourse 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 ambiguousoperations approaches that can become problematic in the future.


◆ Your plan can also help you to identify the people and businesses that will beessential to your success. Be sure to include an approach for cultivating theserelationships.

◆ Internal and external advisory boards will help you to tap many of the resourcesthat you need to grow your business. Use them to shore up the expertise youneed.

◆ Treat your employees with respect and always “listen” to their input, which canbe very valuable.

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17Keeping 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 isto review and update it regularly, and incorporate its elements into yourbusiness. That’s easier said than done, but as we’ve said before, a businessplan that sits in a drawer is useless.

Keeping It GoingA business plan that is frequently referenced but not used to implementaction is a waste of paper. One small publishing company’s owner poredover his business plan at least weekly. However, when revenue fell andcash flow became nonexistent, he never took action to correct the situa-tion, such as focusing on how sales could be increased. Instead, he spentall of his time in his office, trying to rework the numbers so that he couldkeep his business afloat. He declared bankruptcy within 13 months of

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opening his doors, losing most of his investment and all of the money that was entrustedto him by investors.

So as you continue to consult your business plan, comparing the “real world” numbers to those whichyou have projected, always ask questions: Are thenumbers different? Why? Are they higher or lower?Why? What’s working? What’s not working? Howcan we change and be better?

Taking your business for granted, even after a periodof success, is a dangerous thing. Instead, use an itera-tive process to look for ways to use your success to cre-ate an even higher level of success. This continualchallenge will ensure that you never get caught rest-ing on your laurels.

Measuring Your Company’s SuccessTo compare your company’s success to others’, you’ll need to find ways to regularlycapture information about what’s going on in your business to compare with yourplan. There are a number of ways that you can do this. This process of comparison iscalled benchmarking.

As you begin to put your processes in place, look at how often you realistically canand should review and update your plan. If your business is a start-up or in a fast-growth mode, then you should review your plan at least quarterly and may wish to doso 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 mightbe enough.

You’ll also need to decide how you will structurethose reviews. Will you hold a formal meeting withyour advisory board? Will you host a retreat withyour top management team? Or will it simply be you,holed up in your office, reviewing the plan and mak-ing adjustments when necessary? Different methodswill work for different businesses. It’s your job todecide the best fit for your business.

Iterative process refersto the act of doing somethingrepeatedly to achieve a desiredresult, usually coming closer tothe desired result or improvingthe process with each completionof the process. As applied tobusiness plans, it means review-ing, updating, and improvingyour plan on a regular basis.

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Benchmarking meansmeasuring progress against a setof determined parameters. Thiscould be measurement againstthe success of competition ormeasurement against specificgoals and objectives.

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Getting InformationHow will you go about establishing systems to capture the information you need anddeliver 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 StatementsYour accountant will work with you to determine which financial indicators are mostrelevant to your business. Then you can put processes in place to generate reportsthat deliver that information to you, keeping your finger on the financial pulse ofyour business. Such reports may include sales figures, cash flow, expenses, and thelike. Be sure to check these on a regular basis—at least monthly—to ensure that yournumbers are on track. Take your eye off the financial ball and you might end upbeing hit in the face with a big, unpleasant surprise when it comes to your business’sfiscal well-being.

Your Customer Database or Sales FiguresAs you establish your business and develop a customer base, you may begin to seecycles or rhythms in your sales and expense figures. Depending on the type of busi-ness you own, you may wish to keep computerized data files on your customers, oruse a point-of-sale system that will report the types of sales being generated at a par-ticular time. For instance, a small financial services firm may find that it’s getting agreat 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 businessstrategy to target younger investors, it could mean changing the entire marketing andsales plans of the business.

Similarly, if the business is a small retail floral shop, it may not be feasible to keepcustomer profiles on everyone who walks through the door. However, a simple point-of-sale (POS) program that can capture simple sales information may provide keyinformation about why people buy. For instance, if May through July is prime wed-ding season, the florist may also find that many customers buy flowers for weddinganniversaries during this time. Many inexpensive POS programs can help identifybuying patterns.


Your EmployeesWe said it before, but it bears repeating: Your employees are on the front lines of yourbusiness and they’re often full of terrific information and ideas. In addition to settingup an employee advisory council that will help you identify opportunities and prob-lems, you should also provide venues for employees not on the advisory committee tobetter help you run your business better. These may include providing incentives forgood 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’sworking well in your business’s marketing. Train employees to make note of anecdotalfeedback that customers relay, as well. For instance, if a customer says that a new dis-play 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 suggestionboxes are also good ways for you and your employees to gather feedback. It’s usuallybest if the customer is given some incentive to respond, whether it’s entry into a draw-ing or a chance to win a prize or discount.

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 companythat you run. These systems have fallen in price in recent years, and now they’re withinthe financial reach of most businesses. But before you buy, make sure that your systemhas the essential features it needs to serve you well, including:

◆ Inventory monitoring. You should be able to check stock levels through your systemand 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 toincorporate scanning capability into your system. A simple handheld device orinfrared scanner will save time by letting your system “read” the items soldinstead of keying in every one.

◆ Report generation. Your system should allow you to run the sales reports youneed, including categorizing data by time period, SKU number, or other criteriathat your business might need.

Some systems also allow you to cross-reference your inventory by UPC, SKU, distributornumber, or other ways. A sophisticated bookkeeping system will allow you to generateestimates and some will even track time or work with various time-tracking software pro-grams to allow you to find out where how your employees’ time is being spent.

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Chapter 17: Keeping Your Plan Current

The key for you or your employees to successfully gather feedback is to keep ques-tionnaires and surveys to a manageable length. This will vary depending on your typeof 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. Every-thing 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 yousending the messages you wish to send? Or are you taking shortcuts that may bereflecting 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 cooland hip or is it more conservative?

◆ If you do business from your home, do you take proper measures to project aprofessional image, such as installing a separate phone line with voicemail sothat business calls aren’t answered by your three-year-old?

◆ Are the correspondence and marketing materials you send out current and up todate? 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 topay attention to the details.

It may be difficult to hear negative information about your business, but try not to takeit personally. The more honest customers are, the more likely it is that you’ll hearabout something they don’t like. Entrepreneurs are usually so emotionally invested intheir 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 employ-ees need to be friendlier or that your store is laid out in a confusing way, look forways that you can address those issues without taking them personally.

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Using the Information You FindUpdate, update, update and analyze, analyze, analyze! After you review your businessplan and update the financial forecast budgeted numbers with the actual numbers, doa comparison of budget versus actual. Then analyze and determine where the num-bers are increasing (the good things that you are doing in your business—keep doingthem) and where the numbers are decreasing (determine why they are decreasing andhow 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 stan-dards. Although a few of the financial ratios were explained in prior chapters, thefinancial ratios are almost endless. One place to find a list of many of the ratios is onthe 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 forfuture direction and success.

When It’s Time to Go, It’s Time to GoWe’ve discussed how your business plan can help you build your business and make itsuccessful. 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 youroverall business planning. Although it might not be a part of your business plan, a suc-cession plan is an important tool that will provide for the longevity of your business.

Your succession plan discusses what will happenwhen you are no longer willing or able to run thecompany. Hard as it may be to believe, you may getto the point where you want to try your hand atother ventures, or you may want to retire. It’s alsoimportant to remember that sometimes the unthink-able happens and business owners become incapaci-tated 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 ownershipin writing, you eliminate—or at least greatly reduce—the potential for conflict about future ownership.

A succession plan, alsocalled an exit strategy, is a docu-ment that outlines future owner-ship of the company. It includeshow the company will be trans-ferred, including any buy-outagreements or remuneration thatis to take place upon transfer ofownership.

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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 orequity investors. It will also include how you wish the transfer of ownership totake place in your company. For instance, you may wish for your spouse to takeover your share in the company. If you have an equal business partner who owns40 percent of the company and the two of you have sold a 20 percent ownershipstake 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.

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Think carefully about who should take your place in the company beforedrawing up your succession plan. Making your spouse or another relative your de factosuccessor could be a bad idea. If you’re retiring or taking on other ventures, yourspouse may wish to join you in those endeavors, and you may find that your childrenaren’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 employeefor eventual ownership, giving him or her an incremental equity stake in the company tiedto compensation or performance. You’ll also want to consider the wishes of your businesspartners, if you have any. After all, the partner may be the one left running the com-pany with your successor. If he or she doesn’t believe that person is a good fit, it couldmake for a rocky road ahead. It may make the most sense for a partner to buy out yourshare of the company. That can be a difficult decision, but it can be a better one thantrying to make a match between two parties who will have difficulty working together.

Red Zone

◆ Infrastructure—Your succession plan should also outline the infrastructure ofyour company—the hierarchy of management and employees that gives yourcompany stability. Many small companies don’t withstand the exit of the founderbecause 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 isan essential ingredient in creating a company that has lasting value. Explain thereporting structure of your company, and which sectors are responsible for theactivities 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 transfertheir responsibilities, acting in a consultative capacity for as long as several years.


You’ll want to include provisions for compensation to your estate in the case ofuntimely demise or incapacitation.

It’s a good idea to enlist the help of a skilled accountant to determine the valueof your company prior to drafting your exit strategy. An accountant will be ableto help you value such esoteric assets as name recognition and brand value, espe-cially 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 thefinancial terms of the agreement.

◆ Timeline—Your succession plan should also include the timeline under whichyou’ll remove yourself from the company. You may work there full-time for ayear and then offer two years of part-time assistance or consultation. Your exitmay 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 areprotected and that the document is legally binding. The last thing you want is anunpleasant surprise when it’s time to say “good-bye.”

Going ForwardNow you’re armed with the tools you need to create an effective business plan—onethat can help you start, finance, and grow your business. We wish you the best of luckin your new venture, as one of the many entrepreneurs that join the ranks of businessowners.

There is something about owning a business of one’s own that provides a sense of sat-isfaction 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 invest-ment 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 successagainst other companies or a set of goals.


◆ 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 giveyou 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, whetheryou plan to sell your company or find yourself unable to run it.

◆ Enjoy your business. Being an entrepreneur can be one of the most satisfyingfeelings there is.

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ABusiness Terms Glossary

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

accounts payable Money owed to suppliers, vendors, and other creditors.

accounts receivable Money owed to your business by customers andother entities.

accrual method An accounting method in which income is reportedand expenses deducted in the year to which they relate rather than theyear when they were paid.

amortization The gradual reduction and elimination of a liability, suchas a mortgage, through a series of regular payments, covering both princi-pal and interest, over a specified period of time. It also relates to writingoff an intangible asset investment over the projected life of the assets.

assets Items of value owned by a business, including real estate, equip-ment, cash, and other items that can be sold for cash. Some intangibleitems, such as a well-known logo or trade name, can also be consideredassets.

audit Review of a company’s financial and accounting records and sup-porting documents by a professional, such as a Certified Public Accountant.This also refers to an examination of an individual’s or corporation’s taxreturns to verify accuracy.

Appendix

Appendix A216

balance sheet A financial document that shows a “snapshot” of a business’s or indi-vidual’s assets, liabilities, and equity at a particular date.

benefits Various methods of employee compensation, in addition to wages. In addi-tion to those required by law, such as Social Security, unemployment compensation,and worker’s compensation programs, employee benefits also include health and otherinsurance coverage, paid vacation, retirement programs, and other compensation tothe employee.

bio A narrative document that outlines the experience or professional backgroundof an individual. Also called a CV (curricula vitae).

bootstrapping Working within a very narrow budget. This often refers to start-upbusinesses that have self-financed and have done so with limited financial means.

business-to-business Refers to a marketplace where a company’s products andservices are sold to other businesses.

business-to-consumer Refers to a marketplace where a company’s products andservices are sold to consumers.

capital Assets, especially cash, available to invest in a company to further its pro-duction or growth.

cash flow The amount of revenue received by a business in a specific period oftime. The cash coming in should be more than the liabilities owed.

cash method A method of accounting in which income is added and expensesdeducted 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 shareholdersand 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 hasthe right to seize these items and liquidate them for payment.

consultant An individual with specific expertise who is called upon to providecounsel 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 haspassed a national uniform examination and has met other requirements; CPA certifi-cates 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 chargedand paid later, or the issuance of a refund for a product or service.

CV curricula vitae (See bio.)

debt Money owed to another party or organization.

demographic A profile based on a series of objective characteristics, such as loca-tion, income level, gender, and so on.

depreciation The allocation of the cost of an asset over a period of time for account-ing and tax purposes. A decline in the value of a property due to general wear andtear 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 with-holding taxes and other payroll deductions or organizational benefits. An employee isgenerally 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 theamount that is owed relative to that asset or business.

exit strategy A plan for the existing owner or management of a company to suc-cessfully hand over control of the company to a successor.

financial statement A document that records a specific element of a business’s orindividual’s assets, income, debt, money owed, and other aspects of the entity’s finan-cial situation.

gross income Total income before taxes and revenue are deducted.

income The financial gain accrued over a period of time.

industry The business sector in which a company operates.

insurance A policy that is underwritten by an insurance carrier and protects a busi-ness or individual against specific liabilities.

interest The amount of money paid as a return on money borrowed or creditextended.

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 ownershipstake or other measure of value in a business.

Appendix A218

iterative A process in which an operation is performed repeatedly.

liability Money owed or the state of being legally responsible for a situation.

liability insurance An insurance policy that protects the policy owner against spe-cific risks, such as an injury on the policy owner’s property, losses due to theft, orother exposures.

license A legal document that grants a business or individual permission to conductbusiness or perform some other function.

LLC Limited liability corporation: A form of corporation that requires fewer filingrequirements 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 prospectsto buy from a company or individual.

marketing The process of bringing a product to the universe of potential customerswho are likely to buy it.

NAICS code North American Industry Classification System used by NorthAmerican 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 leaderor owner of a company.

profit Also called net income, this is calculated by subtracting expenses from rev-enue. The remaining amount is profit.

pro forma A projection of future circumstances, based on what has happened in thepast or what is expected to happen in the future.

psychographic The profile of characteristics of prospects and customers that detailtheir 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 investorwhen he or she trades money for shares or other interest in an asset or business.

Business Terms Glossary

revenue The money that is earned by a business.

risk The possibility of incurring a liability or exposure to asset losses.

S-corporation A corporation that is organized and taxed under Subchapter S of theInternal Revenue Code.

SIC code Standard Industry Classification is a method of classifying business sec-tors. It was replaced by NAICS.

sole proprietor An individual who operates as a business without incorporation orpartnership.

SWOT Strengths, Weaknesses, Opportunities, Threats: A method of analyzing asituation or business to determine whether it’s viable.

USP Unique Selling Proposition: The aspect or element of a product or servicethat makes it different from the competition.

worker’s compensation insurance Insurance that is carried by an employer toprotect a worker from lost wages if he or she is injured while performing work dutiesand rendered incapable of working.

219

BSample Plans

The business plans incorporated in this section are sample plans to pro-vide you with an idea of what some actual business plans contain. Al-though every business plan will be different and your business plan willinclude 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 mapof your business, even if you’re using it to attract investors or businesspartners, so it should be continually reviewed and updated to keep you ontrack. If you need additional assistance in writing your business plan, youcan find help from local business organizations and business plan softwarepackages available. Check Appendix C for a list of such resources.

Good luck with crafting your business plan. We wish you much successwith your business endeavors.

Appendix


Sample Plans 223



Appendix B224


Sample Plans 225


Appendix B226

Appendix B

Table of ContentsExecutive Summary ............................................................000

The Business ......................................................................000Description of Business ............................................................................000Market Research ......................................................................................000

Industry Trends ......................................................................................000Competition ............................................................................................000Demographics ........................................................................................000Competitive Advantage ..........................................................................000

Market Plan ..............................................................................................000Promotion ..............................................................................................000Pricing ..................................................................................................000Monthly Sales Assumptions and Forecast ................................................000

Operations ................................................................................................000Non-Personnel Costs ..............................................................................000Personnel Costs ......................................................................................000

Management ............................................................................................000Management Compensation ....................................................................000

Financial Data ....................................................................000Cash Flow Statement by Month Year 1 (First Half) ..............................000Cash Flow Statement by Month Year 1 (Second Half) ..........................000Cash Flow Statement by Quarter Year 2 ................................................000Cash Flow Statement by Quarter Year 3 ................................................000Income Projection Statement by Month Year 1 (First Half) ..................000Income Projection Statement by Month Year 2 (Second Half)..............000Income Projection Statement by Quarter Year 2....................................000Income Projection Statement by Quarter Year 3....................................000Balance Sheet First Day of Operations ..................................................000Application and Expected Effect of Loan................................................000

AppendixA. Assumptions/Unusual Risks ................................................................000B. Supporting Documentation ................................................................000C. Personal References ............................................................................000D. Resumés ..............................................................................................000E. Start-up Expense Detail Report..........................................................000

228


Sample Plans

II. Executive SummaryThe goal of Stellar Academy is to provide high-quality, center-based childcare learn-ing to the Bridgewater/Branchburg area.

DYNAMIC,

DIFFERENT,

DEDICATED, AND

IN DEMAND …

STELLAR ACADEMY!

DynamicStellar Academy’s competitive edge is its unique view of children and their developingminds. Our Education Director, Margaret Buley, has a Ph.D. in education with anexpertise in brain-based learning and child development. She has won many accoladesfor her knowledge of and dedication to children. She has been named Teacher of theYear 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 thatschool readiness can be greatly enhanced during the early childhood years. She knowsthat learning occurs as the brain rewires itself with each new experience. Presentingthe appropriate experiences at the right time is essential. At Stellar Academy, the childis immersed in interactive experiences that are both rich and real. Stellar Academy’sideology is based on the latest research in ‘brain-based’ learning and the currentunderstanding of the emotional and social development of children. This cutting-edgeperspective puts Stellar Academy at the forefront of childcare providers.

Different(Proprietary information deleted.) This cutting-edge perspective puts Stellar Academy atthe forefront of childcare providers.

DedicatedA dedicated staff sets Stellar Academy apart from other childcare providers. Our teach-ers realize that everything they do or don’t do affects the child. A knowledgeable staffis a top priority and we offer ongoing development to all employees. Because we arecommitted to keeping and rewarding teachers who demonstrate our high standards, weoffer the best salaries in the area. Stellar Academy is an excellent place to work and

229


Appendix B

offers a professional environment that is challenging, rewarding, creative, and respect-ful of ideas and individuals.

We are also dedicated to keeping our parents “stress free.” We offer a secure websitethat enables parents to access web cams, e-mails, and online digital photographs oftheir child’s day of learning. We offer classes to educate our parents on the best tech-niques to promote their child’s mental well-being and growth.

The knowledge and skill of our management team is unsurpassed. Dr. Buley is dedi-cated to creating an environment for the children that will set the stage for a lifetimeof learning. Ms. Matthews, Stellar Academy’s Business Director, was Chief OperatingOfficer for a successful data-processing consulting firm. Having been involved withthat company from its infancy, she knows the dedication and commitment necessaryto create a successful organization.

Above all, everyone at Stellar Academy knows that the early childhood years are cru-cial to the growth and development of the child. This cutting-edge perspective putsStellar Academy at the forefront of childcare providers.

DemandIn 2001, Americans spent approximately $38 billion on licensed childcare programs.Expenditures on licensed care will be even higher in 2002, likely exceeding $41 bil-lion. The National Child Care Association has forecasted that by the year 2010, thefour-and-under population will increase over current levels by 6 percent, or an addi-tional 1.2 million children. By that same year, upwards of 85 percent of the laborforce will consist of working parents.

According to industry analyst Roger Neugebauer, “The factors that drive the demandfor childcare continue to be strongly positive. Mothers continue to seek employment,mothers’ commitment to work is increasing, family size remains small, the popularityof center-based care as an option continues to rise, and the population of young chil-dren will remain high. These observations lead me to conclude that the future isbright for the childcare profession.”

In 2000, New Jersey ranked highest of all states with a preschool enrollment rate forthree- and four-year-olds of 79 percent. There are approximately 3,725 childrenbetween the ages of 0 and 6 in need of childcare in the Bridgewater/Branchburg tar-get area. Licensed childcare capacity in that area is currently only 1,724. This meansthat there are 2,001 children in the target area in need of childcare. There is ampledemand for limited capacity, and the majority of center-based providers in the areacurrently have a waiting list.

230


Sample Plans

We anticipate a high demand for the services provided by Stellar Academy and intendto expand our business beyond our initial center. This will be accomplished by utiliz-ing our unique curriculum and environment in future centers.

Experts agree that today’s parents are becoming more informed about the benefits ofhigh-quality childcare learning and are seeking “the best” for their children. StellerAcademy is “the best” learning environment for children.

III. The BusinessA. Description of Business

Stellar Academy is a new company that provides high-level expertise in the educationof preschool children. We provide learning from 7 A.M. to 7 P.M., Monday throughFriday. Stellar is the Latin word that means “a gathering of stars,” and we feel ourcutting-edge teaching philosophy and environment will provide our children with afirm foundation upon which they can build a bright future.

Stellar Academy provides excellent value to its customers, timely payback to its credi-tors, 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 TrendsResults of a study released by The National Child Care Association titled, “TheNational Economic Impacts of the Child Care Sector,” include the following findings:

In 2001, Americans spent approximately $38 billion on licensed childcare pro-grams. Expenditures on licensed care will be even higher in 2002, likely ex-ceeding $41 billion. As a result, the sector creates enough income to supportapproximately 2.8 million direct and indirect jobs. In addition, the sector gener-ates almost $9 billion in tax revenues.

The licensed childcare industry directly employs more Americans than publicsecondary schools.

Childcare provides an essential infrastructure, which enables mothers andfathers to be employed outside the home, to earn necessary income. By making

231


Appendix B

it possible for parents to work, the formal childcare sector enables Americans toearn more than $100 billion annually.

By the year 2010, the four-and-under population will increase over current lev-els by 6 percent, or an additional 1.2 million children. Unless the formal child-care sector adds sufficient capacity, parents will not be able to fully participate inthe U.S. economy. By that same year, upwards of 85 percent of the labor forcewill consist of working parents.

Parents, and women in particular, are an increasingly critical part of the econ-omy, especially in the technology sector.

Childcare is a fact of life in America today. More than two thirds of all children underthe 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 lastresort 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 mar-ket. This method is usually utilized by high-income families and generally con-sists of a live-in nanny providing 24-hour care.

3. Family home care is daycare performed in the provider’s home. A family home-careprovider 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 gener-ally within a reasonable distance of the workplace. It is usually employer subsi-dized. Its growth has slowed considerably after a surge in the mid-1990s.Employer childcare capacity increased by 6 percent in 2001 and 4 percent in2002, compared with an annual rate of more than 10 percent for the previousfive years. With the economy and the stock market in the doldrums, employersare 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 carein the 1960s to the most popular today. In 1965, one in four three-, four-, orfive-year-old children was enrolled in a part-day or full-day preschool, whereasby 2002, two in three children took advantage of an early childhood program(National Center for Education Statistics).

232


Sample Plans

Demand for high-quality care is growing and parents are willing to pay the higher costsassociated with this care. Approximately 50 percent of children born today are the firstor 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 twowell-established incomes to spend on one or two children. These parents are educatedto 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. “Inmany communities around the country, kindergarten is no longer aimed at the entrylevel,” says Dominic Gullo, professor of early childhood education at the Universityof Wisconsin. “And the only way Mom and Dad feel they can get their child preparedis through a pre-kindergarten program.” In 2000, 79 percent of New Jersey’s three-and four-year-olds were in preschool. This resulted in New Jersey being ranked high-est of all the states in the nation.

Not only is childcare considered important, but quality childcare is receiving signifi-cant 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 tothe quality of childcare, they aren’t enough. At the heart of high-quality childcare isthe nature of the interactions between children and caregivers. Research shows thatchildren 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 theNational Institute of Child Health and Human Development has identified is thelevel of stimulation provided in the care environment. When children have challeng-ing toys and organized activities available to them in childcare, they perform betteron tests of vocabulary, short-term memory, and attention. In addition, care settingsthat are stimulating and well organized lead children to get along well with theirpeers.” The benefit of high-quality childcare is getting significant press.

State RegulationsChildcare and learning centers in New Jersey are regulated by the Manual of Require-ments for Child Care Centers issued by the Department of Human Services. The statesets levels for everything from square-footage requirements per student to student-teacher ratios. When compliance is met, the Division of Youth and Family Serviceswill issue an operating license.

233



Appendix B234

Sample Plans

The target area currently has 17 licensed childcare facilities. Student capacity rangesfrom 15 through 181 at each facility. Total child capacity for ages 0-6 in the targetarea is approximately 1,724.

According to the 2000 census, the target area has approximately 6,406 children age 6and under. The target area has approximately 21,287 housing units with an averagefamily size of 3.14 and 3.19. According to the 2000 Demographic Profile of SomersetCounty, there are 169,600 jobs in the county.

235


There are approximately 3,725 children requiring childcare. Licensed center-basedchildcare capacity is currently at 1,724; therefore, parents of 2,001 children in the tar-get area must find alternative means of childcare. As previously stated, researchersfeel 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 areahaving a waiting list prior to enrollment. Limited capacity is a problem, and StellarAcademy is the solution for high-quality, center-based childcare.

Appendix B

Competitive AdvantageStellar Academy offers the following competitive advantages:

◆ Cutting-edge curriculum written by an expert in the field of education utilizingthe 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 anew understanding in how we learn. We have learned more about the brain and itscapacities in the last 10 years than in the 100 years preceding. Using technologies suchas magnetic resonance imaging and positron emission tomography, scientists are capa-ble of watching the human brain as it performs tasks and learns. This research, in addi-tion to giving us a blueprint of the brain, has tremendous implication on how humanslearn. The brain “makes itself work” by constantly changing its structure and functionin response to experiences coming from the outside. This ability is called the “plasticityfactor.” The outside world helps to shape the brain’s architecture. When this newunderstanding 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 earlychildhood learning. Stellar Academy’s competitive edge is derived from its unique viewof children and their developing minds. The early years are the most important years indeveloping a child’s future potential. All activities that our children engage in are con-structed to foster their emotional, social, and intellectual prowess.

Innovative environment—A principle ideal of brain-based learning states, “teachersneed to orchestrate the immersion of the learner in interactive experiences that areboth rich and real.” At Stellar Academy, we offer an environment that is unmatchedin that ideal. (Proprietary information deleted.)

Child-centered philosophy—We also realize that nurturing can only take place inan environment of love and security. Stellar Academy strives for a “stress free” envi-ronment for our children. The child’s emotional well-being is our top priority. Wecreate a loving and fun-filled sanctuary that makes learning automatic. Security setsthe stage for exploration, and that exploration leads to self-esteem. Children are

236


Sample Plans

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 isbelieved to be a more accurate measure of success than I.Q. or S.A.T. scores. Expertsbelieve that people who possess a high degree of emotional capacity are very success-ful. The nurturing of emotional capacity will be a top priority at Stellar Academy.

Technology-enhanced communication network—We are also deeply aware of theemotional 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 intouch” 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 com-prehensive breakdown of their child’s activities and accomplishments. If parents wish, weprovide a time to talk by phone to their child. We also make our environment parent-friendly. We incorporate seating and areas for parents to “hang out” if they wish to staywith their child or participate in their activities. Stellar Academy feels an obligation to itsparents to disseminate the latest information regarding advances in child development.This will be accomplished through on-site information sessions, newsletters, and aninformative website. Our operating hours are also an advantage to our parents. Byremaining open until 7 P.M., parents need not feel stressed if they are caught in traffic orstuck at the office. Stellar Academy is parent-friendly.

Highly trained and knowledgeable staff—In order to create the optimum environ-ment for our students and their parents, we must have teachers who are dedicated tothe emotional and intellectual health of each child. Our teachers realize that every-thing they do or don’t do affects the child. Our teachers are held to a very high stan-dard. Therefore, they are paid above the norm. Childcare teachers in New Jersey earnbetween $X per year with no benefits.

(Stellar Academy wishes not to release this information) At Stellar Academy, our start-ing salary is $X. We also maintain a high level of training for our teachers in the latestadvances of brain-based learning and child development. Stellar Academy is an excel-lent place to work; it is a professional environment that is challenging, rewarding, cre-ative, and respectful of ideas and individuals.

Experienced, goal-oriented management team—The philosophy of Stellar Academyis to create an environment that fully immerses children in a nurturing experience. Ourcurriculum is written by a Ph.D. in Education who fully understands child developmentand the most effective methods to foster cognitive and emotional growth. Our businessdirector is a former Chief Operating Officer for a data-processing consulting firm andis highly experienced in creating a quality work environment and organizing a staff toget the job done.

237


Appendix B

Eric Jensen, author of the book Learning Smarter, states, “Because the brain is so highlyadaptable, it can adapt to ineffective teachers or schools, but the result might be a badadaptation. Such students might learn to sit in the back, never volunteer, and only causetrouble 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

PromotionStellar Academy must communicate its competitive advantages to prospective clients.If the parent hears and understands these advantages, they are more likely to use ourservices. This education will be done with professional marketing materials, on-sitetours, and lectures on the benefits of “brain-based” learning. We will also use a com-bination of newspaper advertisements and press releases. Program literature will beavailable, 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 Internetwebsite. The website can communicate the advantages of enrollment in our program.

238


Sample Plans

PricingStellar Academy’s fee schedule will be comparable to other major center-based facilities.

239


Appendix B

Monthly Sales Assumptions and ForecastStellar Academy’s operating capacity will be 180 students, to be reached by theend of the first year. This capacity will be approximately 21 full-time infants,130 full-time children, and 29 part-time children.

240


Sample Plans

D. Operations

241


Personnel CostsPersonnel Costs

TABLE 10 - Monthly Personnel Costs at Full Enrollment

Position Salary+ Benefits (15% of salary) Monthly Cost

Head

Teacher

1 @ $ $

Office

Assistant

1 @ $ $

Teachers* 7 @ $ $

Teachers’

Aids*

2600 hours per month @ $(10 aids @ 12 hrs day @ 260 days per year)

$

Total $


Appendix B242

Nonpersonnel Costs

Appendix B

Nondisclosure AgreementThe undersigned acknowledges that LET’S EAT! by Domenick Celentano LLC(“LEDC”) has furnished to the undersigned potential investor (“investor”) cer-tain proprietary data (“confidential information”) relating to the business affairsand operations of LEDC for study and evaluation by investor for possibly invest-ing in LEDC.

It is acknowledged by investor that the information provided by LEDC is confi-dential; therefore, Investor agrees not to disclose it and not to disclose that anydiscussions or contracts with LEDC have occurred or are intended, other than asprovided for in the following paragraph. It is acknowledged by Investor thatinformation to be furnished is in all respects confidential in nature, other thaninformation that is in the public domain through other means and that any dis-closure or use of same by Investor, except as provided in this agreement, maycause serious harm or damage to LEDC, and its owners and officers. Therefore,Investor agrees that Investor will not use the information furnished for any pur-pose other than as stated above, and agrees that Investor will not either directlyor indirectly by agent, employee, or representative disclose this information,either in whole or in part, to any third party, provided, however, that (a) infor-mation furnished may be disclosed only to those directors, officers, and employ-ees of Investor and to Investor’s advisors or their representatives who need suchinformation for the purpose of evaluating any possible transaction (it beingunderstood that those directors, officers, employees, advisors, and representativesshall be informed by Investor of the confidential nature of such information andshall be directed by Investor to treat such information confidentially), and anydisclosure of information may be made to which LEDC consents in writing. Atthe close of negotiations, Investor will return to LEDC all records, reports, docu-ments, and memoranda furnished and will not make or retain any copy thereof.

This document contains confidential and proprietary information belongingexclusively 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 dol-lar amounts replaced with the words “(proprietary information).” This is done tokeep some aspects of the contents of this actual business plan confidential.

244


Sample Plans

Table of ContentsSummary ..........................................................................................000Keys to Success ................................................................................000Foodservice Operation Summary ....................................................000Products and Services ......................................................................000

Menus ..........................................................................................000Food For Later ..............................................................................000Catering ........................................................................................000Cooking School ..............................................................................000Food For Now ................................................................................000

Location............................................................................................000Floor Plan......................................................................................000

Sales and Marketing Strategy ..........................................................000Objectives ......................................................................................000Positioning (Against Target Audiences) ..........................................000Key Messages ................................................................................000Generating Awareness ....................................................................000Advertising ....................................................................................000Promotions ....................................................................................000Strategic Alliances ..........................................................................000

Management Summary....................................................................000Organizational Structure..................................................................000Market Analysis ................................................................................000

Competition (Local) ......................................................................000Financial Plan ..................................................................................000Concept Tuning—Phase 2................................................................000Appendixes ......................................................................................000Index ................................................................................................000

245


Appendix B

Summary

The BusinessLET’S EAT! by DOMENICK CELENTANO is a neighborhood retail prepared-foods destination providing “FOOD FOR NOW … AND FOOD FOR LATER.”Our customers are busy individuals, soccer moms and dads, shoppers, and localbusiness employees who desire restaurant-quality, fresh-prepared meals at amodest price. Customers experience an innovative convergence of retail formatspackaged in a small footprint, a hybrid neighborhood deli and all-day café pro-viding a dynamic retail environment with convenience.”

Professionally trained chefs and knowledgeable staff provide meal solutions inthree ways: 1) take-home prepared foods at a sit-down, all-day café and foodbar; 2) catering to home or office; and 3) an on-site cooking school. The LET’SEAT! 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-foodoperations into one cohesive business. Situated in “lifestyle” retail centers andopen malls, the LET’S EAT! experience delivers great-tasting food with everydayappeal and true convenience. Each location will be in a small footprint formatproviding a dynamic retail environment with “PURPOSEFUL THEATRE and conven-ience.” LET’S EAT! by DOMENICK CELENTANO is creating the next generationof 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 andreputation in a format that matches the needs of today’s suburban consumers.

A convergence of consumer and demographic trends is unfolding, presentingunique opportunities for well-executed prepared-food formats. LET’S EAT! capi-talizes on the convergence of trends.

This convergence coincides with a social shift: Americans are less and less beingfed by “Mom.” Instead, they are fed by restaurants and, more frequently, byretail environments such as gourmet take-home emporiums and boutiques. TheLET’S EAT! design and experience presented in this business plan is a reflectionand outgrowth of these trends making meal purchases more exciting, easier, andbetter tasting.

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ManagementDomenick Celentano: During the past 26 years, Domenick held key executivepositions 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 fourCelentano sites, Domenick introduced the “Food for Later” concept to thesupermarket channel through the development of a fresh prepared line ofupscale meal solutions products (known in the industry as Home MealReplacement) for leading supermarket chains, such as Kings, Genuardi’s, andGourmet Garage.

• Branding: Domenick developed Celentano into a $30 million business,creating the second-largest national brand in the Italian prepared-foods cat-egory.

• Restaurant (Food for Now): He developed and managed the commissaryoperations for Pastabilities™ by Celentano, an early leader in the now-burgeoning fast-casual sector.

• Marketing/Promotion: He developed a successful marketing campaignaround Celentano’s unique Clean Room manufacturing system, generatingnational 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 groupthat is the regional franchisee for TGI Friday’s in a dozen countries in Westernand Central Europe, and Russia. Ted co-founded and managed Tyn Group, a pri-vate equity investment company in Prague. He also held positions with Kidder,Peabody & Co. in New York as an investment banker and with AndersenConsulting developing information systems. He received his MBA in financewith honors from Rutgers Graduate School of Management.

MarketAccording 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 compoundannual growth rate (CAGR) over the 2000–2005 period to surpass $27.6 billionin 2005. Additionally, Italian is currently the leading international cuisineamong specialty food buyers.

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The near-term territory for LET’S EAT! is the NJ/NY/CT tri-state region, with anemphasis 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 salesnationwide. Affluent suburban consumers, defined as having annual householdincomes exceeding $75,000, are the leading purchasers of specialty and preparedfoods. Communities or clusters of communities with an abundance of this kind ofdemographic are the targeted locations for LET’S EAT! retail sites. LET’S EAT! hascurrently identified four such communities using Market Insite™ and CACI™ data.

CompetitionThe competition is broadly divided into two categories: (1.) Foodservice, whatwe call FOOD FOR NOW, is composed of QSR (fast food), fast casual, casual, andupscale/white-tablecloth restaurants. (2.) Retail, what we call FOOD FOR LATER iscomposed of supermarkets, convenience stores, and specialty retailers. FOOD FOR

NOW AND FOOD FOR LATER each require special skills to properly deliver to theconsumer.

The competition in the LET’S EAT! target market includes supermarkets withdeveloped take-home prepared-foods departments, take-home specialty foodsretailers, and fast-casual eating establishments. Ironically, there currently is nota regional or national Italian fast-casual retail competitor in today’s marketplaceeven though Italian is the number-one international cuisine for specialty foodpurchases. However, three competitors/comparables to take note of include thefollowing:

“A well known chain” Its 183 stores in 1999 grew to 478 in 32 statesthrough 2002, with about 70 percent owned by franchisees. “A wellknown chain’s” success is tied to what Chairman and CEO RonShaich long has preached: Increasingly sophisticated diners cravefresh sandwiches, bagels, salads, soups, and pastries as alternatives tofast-food fare … “the nutritional essence of manufactured.” As onecustomer comments, “I’m not a fast-food gal, and I prefer thisbecause it’s fresher.” “A well known chain” is more of a breakfast andlunch concept; their dinner business is relatively small.

“Another well known chain” developed the concept of a place spe-cializing in ready-to-eat, restaurant-quality meals when he noticedthe 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

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range from $13 to $18 million per site, with approximately 25 per-cent derived from catering. New management team has 30 new sitesplanned over the next five years.

“Another well known chain” is a relatively small, 65-store, family-heldsupermarket chain. It does more than $3 billion in sales each year,with stores in New York, Pennsylvania, and New Jersey. Its fans areloyal and legion. The stores are hardly typical—they’re much largerthan most supermarkets (up to 120,000 sq. ft.), and they offer spe-cialty shops such as huge in-store cafés, cheese shops with some 400different varieties, and French-style pastry shops with exotic desserts.

Investment/Use of ProceedsPhase 1—Two SitesPhase 1 will consist of two retail sites. A tri-state area site will require approxi-mately $ (proprietary information) to render it fully equipped, ready to openand provide an adequate cushion of working capital. Initial capital infusion willbe by Domenick Celentano, Ted Heisler, Scott Darling (LET’S EAT! board mem-ber), and other “friends and family.”

LET’S EAT! has obtained a Letter of Intent for a $350,000 term loan backed bythe Small Business Administration.

Several supplemental sources of financing are being tapped as well. Theseinclude some combination of equity, developer build-out allowance, etc. Thesecond LET’S EAT! site will be opened approximately one year after the first siteopening. Funding will come from internal cash plus $ (proprietary information)of external equity, debt, lease, or a combination. An Indicative Terms ofPlacement and related materials are available to interested investors for review.Through fiscal year-end 2004, the company will be an LLC structure providingtax-loss pass-throughs for investments placed as equity.

Phase 2—Tri-State Roll-OutA phase-2 cash investment of $ (proprietary information) will be considered inapproximately two years after the opening of the first site. The phase-2 invest-ment will support the roll-out plan for an additional 14 sites in the (proprietaryinformation) area for years two through five. The additional site openings areplanned at the rate of one per quarter thereafter into 4Q 2008, for a total of 16LET’S EAT! sites after five years.

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Phase 2 will be partially funded by additional bank lines of credit with theremaining support through institutional money or private money, which mayhave an impact on whether the company continues as an LLC entity or is con-verted 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 envisionedthat an accelerated regional or national roll-out can be accomplished via corporatelines 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 ProjectionsThe financial projections presented in the business plan are considered by manage-ment to be the minimum reasonably achievable. Moreover, LETS EAT! hasretained retail foodservice consulting firm (proprietary information) and hasreceived independent validation of certain key financial drivers including dailysales, COGS, and same-store sales growth of comparable companies. Key drivers ofprofitability 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 amountof corporate overhead and staff is gradually layered into the projections starting inearly 2005, after several sites have been opened. Management believes that thePhase-1 proof of concept site has the capacity and the market position to achievean annualized run rate in excess of $ (proprietary information) per day, or $ (pro-prietary information) in sales for the first fiscal year, with minimum 6 percentannual same-store growth forecasted over the following four years. Revenue fore-casts are based on well-grounded demographic buildups, comparisons to other sim-ilar chains, and they cross-tabulate favorably with NASFT specialty retail per squarefoot sales data for retail locations in the 3,000 to 5,000 sq. ft ranges. Subsequentsite 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 restau-rant industry with a superior quality position in serving fresh, flavorful Mexicanfood. The restaurants are contemporary and offer quality food to eat in or takeout at both lunch and dinner with fast counter service and no waiters. “A knownchain” operates 76 company restaurants and has 93 franchised restaurants. Net

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revenues were $78 million in 2001 and grew at a compounded annual averagegrowth rate of 61 percent since 1998. Average unit volumes are $1.5 million andaverage check is $7.50.

Cash Flow Break-EvenThe business is projected to achieve cash-flow break-even sometime during thesecond quarter of 2006, shortly after the opening of the sixth site.

ExitDomenick Celentano, as the projected largest shareholder, is prepared to facili-tate an exit for all investor/shareholders at the conclusion of phase 2. An exit isanticipated in approximately five years via an IPO or a trade sale to an industrybuyer. The exit will be timed for when LET’S EAT! has approximately 15 to 18retail outlets open in the region, giving LET’S EAT! a demonstrated operating his-tory. By this time, it is expected that the business will be financially self-sufficientfor purposes of continued modest development, for example, new site openingswill be made from internal funding sources, or from a modest amount of bankdebt. The investor/shareholders can anticipate an exit multiple of 7x EBITDA orhigher. This is supportable based on recent sales statistics of small but growingfast-casual chains (some of similar size to LET’S EAT!) to publicly traded enti-ties. With significant regional or national growth prospects occurring, the attrac-tiveness of LET’S EAT! to the capital markets or to a trade buyer should bereflected in a favorable exit price.

Keys to SuccessConcept: 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 FOR NOW … AND FOOD FOR LATER with outstanding qualityand excellent value

Service: Friendly, knowledgeable, and quick customer service

Marketing: Targeted marketing to key resident and business demographics

Management: Knowledgeable, experienced management team that will do thefollowing:

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Appendix B

• Develop proof of concept, executing FOOD FOR NOW … AND FOOD FOR LATER

with replicable PURPOSEFUL THEATRE, maximizing different day parts withappropriate product offerings

• Capitalize and position CELENTANO name in a format for today’s busylifestyle

• Manage food costs

• Execute five-year roll-out

Foodservice Operation SummaryAs our lives get busier and more complex, the food business does, too. The linebetween food retailers and restaurants has blurred completely—with the adventof a new category of restaurant, fast-casual, and the proliferation of convenienceand specialty stores that offer so much more than their names imply. In thatgrowing center zone is a unique opportunity to serve both sides of our everydayfood 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 toserve great food to busy people. This LET’S EAT! mission addresses four busylifestyle needs:

1. Great-tasting food. The customer will experience a wide variety of mealsolutions made with high-quality, fresh ingredients and nothing else. Thisexciting atmosphere creates a uniquely enjoyable experience through theexecution of PURPOSEFUL THEATRE.

2. Convenience. Not the same as just fast! Convenience means that LET’SEAT! offers a menu that can be enjoyed on-site in our comfortable seatingarea (FOOD FOR NOW), or ordered to go for desktop dining or dinner-tableentertainment (FOOD FOR LATER).

3. Everyday appeal. Foods that satisfy customers’ desire for home-style, com-forting dishes that please all members of the family and their wider circleof friends.

4. The stuff that memories are made of. The CELENTANO name is familiarin these parts, especially to the late baby-boomer and older local tri-stateresidents. Knowing that the CELENTANO family is behind LET’S EAT!,coupled with the chefs’ interactions with customers, will bring back mem-ories of delicious Italian family favorites and enable customers to buildmemories with their own children.

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Sample Plans

Products and ServicesMenusA sample of the prepared foods that would be sure sellers in this market offeredat LET’S EAT! are illustrated in the menus in Appendix G. Products and servicesare defined as the following:

FOOD FOR LATER is food purchased in the store and consumed at home or atwork. FOOD FOR LATER is broken into two subcategories:

1. FOOD FOR SLIGHTLY LATER is intended to be consumed within a 24-hourperiod and is purchased in the bulk-service cases. These items will be closerto preparation and presentation of restaurant food.

2. FOOD FOR LATER is refrigerated and/or frozen entrées in a grab-and-go con-figuration and have a longer shelf life. This enables the consumers to havesome stock-up items for consumption when they do not have time to visitLET’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 LaterPrepared FoodsWhy Cook? Customers will be able to watch our chefs as they work in ourshowcase open kitchen, the focal point of LET’S EAT! preparing over 50 entrées,side dishes, and tantalizing appetizers. Our “foodies” (what we call our affableculinary staff) will invite the customer to enjoy time-tested family favorites orthe newest culinary trends.

Our ready-to-serve foods will be continuously prepared, fresh, throughout theday and available in a variety of formats.

FOOD FOR SLIGHTLY LATER will be featured in bulk-service cases, showcasing plat-ters of entrées and side dishes in magnificent display-ware. LET’S EAT! foodieswill interact with the customer offering samples of delicious main courses andside dishes to increase the incidence of purchase and offer creative meal-planningadvice. Customers will be invited to call ahead, when they have no time toshop. Our foodies will do the work for them!

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Appendix B

FOOD FOR LATER will include grab-and-go sections that will feature many of theprepared foods seen in the service case. These prepackaged meals in single- andmulti-serving sizes, for the customer in a hurry, will be labeled with this distinc-tive LET’S EAT! by Dom Celentano trademark to continuously reinforce thepurchase 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 family-size offerings providing the customer high-quality meals for their stock-up needswhen they can’t visit LET’S EAT! frequently. Additionally, a large selection of tra-ditional 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 ownparty meal preparation will be able to do so with convenience and value.

DeliThe 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 constantlyoffer samples of favorites such as Penne Pasta and Sun Dried Tomato, Mozzarellaand Cherry Tomato, Wild Rice with Citrus Vinaigrette, and Chicken Tarragon, toname just a few.

CateringFrom sandwich platters to off-premises catering, our professionals will offer per-sonalized attention to customers. Most customers view catering as a stressfulendeavor. They do it infrequently and are dazzled by the myriad of decisions inselecting foods that complement each other for a successful menu. The vastmajority of LET’S EAT! competitors offer a potential customer a confusing listof à la carte items, from which the customer must perform the vast majority ofthe work. To make the purchase decision easier and shorten the closing cycle ona catering order, LET’S EAT! will have a wide array of themed menus eliminat-ing the confusing selection process for the customer. This streamlined salesprocess will increase the incidence of a closed sale, vastly improving the revenuepotential of the catering unit. LET’S EAT! senior management will be corporatesales specialists and will also offer many business function packages, similar tothe consumer-themed menus, geared to today’s corporate budget constraints,once again streamlining the sales process and aiding in the rapid closing of asale. In all cases, custom-designed catering programs for business or personalneeds will be offered.

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Cooking SchoolThe cooking school will be an operational as well as theatrical technique and isnot considered as a separate revenue stream. As part of the PURPOSEFUL THEATRE,this creates a great opportunity to bond with customers and to position theLET’S EAT! culinary staff as experts in their field, which of course they are!Recognizing the cooking as entertainment phenomenon, the “food bar,” border-ing the open kitchen, will be subtly designed to create main dishes and sidedishes that will mirror the items available in the prepared-foods take-out sec-tion, furthering the purchase of LET’S EAT! products.

Food For NowCaféWith all this great food around, as well as the exciting shopping at ChesterCommons Mall, customers need a comfortable place to sit and enjoy the offer-ings. The café is a fast-casual format and will work in harmony with a food barthat will enable customers to watch the kitchen work while sampling theirresults.

Fast-casual is commonly defined as an innovative dining category that is a crossbetween traditional quick-service and casual dining. The distinct characteristics offast-casual are as follows: modest, but not rock-bottom prices; fresh, often hand-made food; distinctive design; and fast, but attentive service. Fast-casual takesadvantage of the convergence of the consumers’ fast-paced life and their reluc-tance 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 higher-quality and healthier menu selections and are significantly differentiatedfrom 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 expen-sive than most of the casual-dining restaurants in the area. The nationalper-person average is $10, although this is skewed lower than what cus-tomers are currently paying in the (proprietary information) area due tothe region’s higher cost of living.

• The fast-casual segment is growing at six times the rate of fast food andtwice the rate of full-service restaurants.

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Appendix B

Generation X-ers (college-educated consumers born between 1961 and 1972)and baby boomers represent the single largest demographic in the tradepolygon area (46 percent) and both are now the best customers for fast-casual restaurants. They are more sophisticated about their food choices,and fast food no longer appeals to them; the more baby boomers age, themore they opt for more healthful and flavorful food; their longer workhours make them more time-conscious but they are unwilling to sacrificequality food for convenience.

Datamonitor, a British consulting firm, reported that the fast-casual foodmarket 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, thefast-food industry is expected to grow by only 1 percent per year, while full-service restaurants are expected to expand by 3.2 percent per year.

The café will be a hybrid of two authentic Italian “fast-casual” concepts. ATAVOLA CALDA (“hot table”) serves a wide variety of hot and chilled foods that acustomer can order for take-out or eat at one of the tables located either insideor at the food bar. A ROSTICCERIA, which is similar to a TAVOLA CALDA, but special-izes in roasted meat and poultry, serves items that are priced by the portion andprices that are quite reasonable. Of course the café menu will also feature greatsandwiches (the sandwiches make a great spin-off for box-lunch catering), salads,and soups from the LET’S EAT! deli.

There is no fast-casual concept in the trading polygon, the closest being “a cer-tain chain” and café located in (proprietary information), well over 10 milesaway and outside of the trading-area polygon. A café of this type is needed inthe area. The LET’S EAT! café is well positioned to deliver the quality, healthfulmeals sought by the demographic that will frequent (proprietary information).

LocationLocation, 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

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The initial location for LET’S EAT! is the (proprietary information), currentlyunder development by Fidelity Land Development Corp. The LET’S EAT! mar-ket concept and the center have a perfect synergy for the following reasons:

Good for LET’S EAT!

• Neighboring Businesses: (proprietary information) has a premier tenantlist including Bath & Body Works, Chico’s, Domain, Express, Pier 1Imports, Talbots, Talbots Kids, Talbots Petites, Talbot Woman, Victoria’sSecret, and Williams Sonoma, to name but a few. The nearest malls withany 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’SEAT! thereby augmenting the natural demographic flow for LET’S EAT!

• Lifestyle Segmentation: LET’S EAT! offers the perfect meal solution fortime-starved shoppers … these same shoppers who are part of the demo-graphic group with an “aversion to the mall.” (proprietary information)Mall, as a Lifestyle Center, was designed with inherent curb appeal, funnel-ing the consumer in a manner to naturally gravitate toward the center andLET’S EAT!’s location within (proprietary information).

• Demographics/Traffic Count: (proprietary information) is at the conflu-ence of excellent site selection, demographics, and the lack of crediblecompetition, which makes this an excellent location for a meals-to-goestablishment. The mall is at the confluence of (proprietary information),having average daily traffic counts of 18,000 and 14,000 respectively. Thishigh-traffic volume will generate many visit possibilities, either after shop-ping, on the way home from work, or elsewhere. Almost 70 percent of thehouseholds in the seven-mile trading circle have an estimated householdincome in excess of $75,000, which perfectly aligns with NASFT data onheavy users of specialty foods.

• Business: The (proprietary information) to the north, located in adjacent(proprietary information), is a 684-acre, 7-million-square-foot (proprietaryinformation) development. This mixed-use project accommodates offices,distribution, light manufacturing, retail, and hotels. With additionalexpansion planned, this is a growing customer segment for LET’S EAT!With a time-starved working population commuting to and from the (pro-prietary information), this natural business traffic flow will be sure to fre-quent LET’S EAT!

(proprietary information) to the south hosts a variety of Fortune 500 compa-nies, as well as growing regional corporations primarily in the Pluckemin dis-trict. AT&T, Pfizer, Verizon Wireless, Advance Realty, and Development are

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Appendix B

examples of companies with corporate headquarters located in the district.Here, too, is a time-starved working population commuting to and from (pro-prietary information), again a natural business traffic flow that will be sure tofrequent LETS EAT!

Good for (proprietary information)

• LET’S EAT! adds another dimension to shopping experience with itsplanned “PURPOSEFUL THEATRE.” This dovetails with the major progressionsin the business cycle, which is moving up the value chain from the serviceto an experience economy. Many business leaders believe that the experi-ence economy is the next big wave of business.

• Adding a dining option lengthens customers’ shopping experience andprovides an on-site location for workers at the mall. There is no need forthe customer to leave the shopping environment during any of the day-part meal occasions. Increasing the length of the customer on-site shop-ping experience increases the probability of a purchase occasion in themall. The ability to lengthen customers’ shopping experience is why LET’SEAT! will be an attractive tenant for future target locations. This desirabil-ity will facilitate the phase-2, five-year roll-out of 17 locations. Addition-ally, LET’S EAT! will offer a tenant discount for café and prepared-foodspurchases, providing a valuable incentive for tenant hiring and providing amodest productivity gain to the tenant by offering employees a conven-ient and value-added shopping opportunity.

• LET’S EAT! FOOD FOR NOW … AND FOOD FOR LATER offerings mean more fre-quent trips into the center. Shopping trips to the mall for other purchaseswill generate incremental traffic for LET’S EAT! The consumer will frequentLET’S EAT! on a weekly or more frequent basis, thereby creating incrementaltraffic for other stores. Other than the proposed Horn & Hardhart coffee loca-tion, LET’S EAT! is the only location attracting the consumer on a weekly (ormore frequent) basis.

Branded concept future development: Upon validation of the proof-of-conceptunit at this location, this ability to add incremental shopper traffic will attractregional developers into a strategic partnership with LET’S EAT!, again strength-ening the five-year, 17-unit roll-out. Based on discussions with (proprietaryinformation), they feel the concept would be appropriate for other premierholdings in the Fidelity portfolio.

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Floor PlanLET’S EAT! will have a design that is a stunning presentation of excitement thatwill assault the senses with the sounds and aroma of great food being preparedin direct view of the consumer … this is what we call PURPOSEFUL THEATRE. Thefollowing pages are examples of the current mall-site plan, the proposed LET’SEAT! floor plan, and an illustration of how the LET’S EAT! concept could belaid out in the desired space.

Sales and Marketing StrategySituation AnalysisPrevailing consumer behavior would indicate a decline in home-cooked mealsbecause of work and life commitments. People fondly remember how it used tobe, being fed by Mom with the whole family sitting down together to sharetheir meal and their day. While the desire for that experience remains, time con-straints have made those memories a distant reality, with most Americans fed byrestaurants, fast-food take-out, and frozen entrées, all trying to recapture anddeliver on the home-cooked meal. LET’S EAT! not only makes the promise, itdelivers. With an opportunity, in its premier franchise, to showcase the future ofmeals, LET’S EAT! offers a unique package of food, entertainment, and memo-ries that recaptures, and takes to a new level, the family meal.

With six decades of excellence in food behind the name, CELENTANO is syn-onymous with fresh and delicious meal offerings. LET’S EAT! capitalizes on thedesire for busy families and individuals to fit a healthy and delicious meal intotheir 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 willensure that LET’S EAT! generates awareness, educates, and captures the localconsumer and business audiences. LET’S EAT! is a retail food experience thathas a perfect product connection to the demographic profile of the areas it hastargeted for location, as well as the new lifestyle malls it will inhabit. The fol-lowing marketing overview will highlight the tactics necessary to ensure successfor LET’S EAT! in each market.

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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 LifestyleCenter will attract storylines regarding the unique and convenient shoppingexperience. LET’S EAT! will piggyback on the articles featuring the openingof 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 NOW … AND

FOOD FOR LATER consumption

• Contemporary specialty foods establishment with PURPOSEFUL THEATRE

Key MessagesConsumer

• 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 featurescatered, on-site, or take-home meals, as well as the entertainment and edu-cation provided by an on-premise cooking school

• It offers easy-to-create great meals at home using the LET’S EAT! productlines

• When you think of great Italian food, you think LET’S EAT!

• Designed and located to serve great food to busy people

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• LET’S EAT! offers FOOD FOR NOW … AND FOOD FOR LATER

• A unique Food Bar … bringing food to the customer and the customer to thefood

Business

• LET’S EAT! provides numerous business-oriented services designed to meetthe customer’s budget and custom meeting needs

• The LET’S EAT! cooking school is a unique experience and great team-building opportunity

• LET’S EAT! is centrally located and easily accessible to the regional businesscenters located in Mount Olive and Bedminster Township

Generating AwarenessLET’S EAT!, being a truly unique retailing concept, along with the CELENTANOname, will be a significant story, thereby creating a host of public-relationsopportunities, that will ensure benefits to the mall. Additionally, Dom Celentano,having built significant brand penetration and recognition of the Celentanoname in the New York metropolitan area, will be an additional and importantfactor in developing press opportunities. LET’S EAT! will take advantage ofDomenick’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 localmedia in order to generate increased brand and product-line awareness inboth consumer and key business audiences.

• Utilize proactive media relations as a means of enhancing the overallimage of LET’S EAT! as an industry leader and innovator.

• Create newsworthy story angles about different aspects of LET’S EAT! andthe specific services offered to generate news that appeals to a broad rangeof media.

• LET’S EAT! opening—A convergence of consumer and demographic trendsis unfolding, presenting unique opportunities for well-executed prepared-foods take-out formats. LET’S EAT! is the culmination of these trends, pro-viding FOOD FOR NOW … AND FOOD FOR LATER in a hybrid neighborhood

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Appendix B

deli/fast-casual environment with the centerpiece being the large openkitchen encircled with the food bar providing an exciting shopping envi-ronment through the use of PURPOSEFUL THEATRE.

• The CELENTANO story—A strong brand name in NJ, the opening ofLET’S EAT! provides an excellent opportunity to focus on how DomenickCelentano, a local resident, is bringing his family’s heritage and expertiseto 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 supermar-kets.

LET’S EAT! took the CELENTANO reputation back to its roots inretail.

Dom cut his teeth in the business as a kid in retail.

• Future of restaurants—The line between food retailers and restaurants hasblurred completely, with the advent of a new category of restaurant, fast-casual. LET’S EAT! brings the future to Chester in a meal/retail environ-ment that offers great food, entertainment, and education.

• Cooking school—A truly unique and fundamentally different aspect ofLET’S EAT! The school offers an opportunity for media to do a first-personstory as a student. The media is always looking for a new angle to reporton. Cooking school will grab their interest and will be a vehicle to host themedia and immerse them in the PURPOSEFUL THEATRE. Since this is the onlyretail concept with a cooking school in the trade area (except Kings), thecooking school, integrated with the open kitchen and food bar, will be amedia attention grabber.

• Target media—We would seek to publicize the above story angles in mediaoutlets, 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

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Sample Plans

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 per-cent off)

• Offer classes at the cooking school through local schools, adult continuingeducation, or as a tourist highlight through the Chamber of Commerce

Strategic AlliancesLET’S EAT! will seek out developers with a portfolio of current and futurelifestyle retail centers. The ability to add incremental shopper traffic will beattractive to regional developers to consider entering into a strategic partnershipwith LET’S EAT! The focus will be identifying site-appropriate opportunities inthe developer’s portfolio and illustrating how future units would “fit” into theseappropriate sites, and highlighting the success of the Proof of Concept in (propri-etary 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 build-out steps that are better facilitated with a developer/partners. Based on discus-sions with (proprietary information), a partnership is feasible.

It is anticipated that there will be a future mix of products and services that maybe better serviced by outside vendors. For example a floral department could besubcontracted to a local florist. There are no plans for the proof of concept toinclude any strategic alliances. If any are considered prior to opening, they wouldonly have consideration if they enhance the focus or profitability of the concept.

PricingIn order to be successful in the (proprietary information) market, items must becompetitively priced to similar menu offerings at competitor locations. However,customer-perceived premiums such as uniqueness, quality, and atmosphere canraise the price threshold. Since several of the specialty foods stores in the tradingareas (Kings and Shop Rite, primarily) offer prepared foods items as well, atten-tion needs to be paid to like items to ensure that comparison-shopping cannotbe made.

263


Appendix B

MANAGEMENT SUMMARYThe LET’S EAT! concept needs strong retail management to ensure success.Domenick Celentano as CEO has the capacity, food retail experience, and inparticular, his management approach, articulated as follows, to make the con-cept a success:

“People are a company’s greatest asset. A good manager or entrepreneur isable to cultivate this great talent and use the team’s collective talents torun the company, keep it healthy, and to propel it forward. In business, theword “I” is overused; “WE” is fundamental in a manager’s vocabulary.Recognizing good people, motivating them to new heights, having empathywhen needed, prodding when appropriate, and inspiring the team to suc-ceed while having fun—these qualities have characterized my managerialstyle throughout my professional career. This, above all, is what differenti-ates me from others.”

—Dom Celentano

For the past 26 years, Domenick has held key executive positions of CELENTANOBros., Inc, the company best known for the CELENTANO brand of ItalianFrozen Pastas and Prepared Meals (its flagship product, the round Ravioli). AsVice President and then President, he developed and managed a team, creatingthe second-largest national brand in the Italian prepared foods category.

He has also received numerous business and civic awards from New Jersey Businessand Industry Council, The Food Marketing Institute, and the Bedminster TownshipGoverning Committee. He has appeared at Bob Messengers Top Gun Roundtable, aUnited States Senate subcommittee hearing on the Nutritional Labeling andEducation Act, and has been a guest speaker at St. Joseph’s University and vari-ous Food Marketing Institute Conferences. Domenick is very active in SomersetCounty community services. For the past seven years he has been a member ofthe Bedminster Township Planning Board, a graduate of the class of 2002, LeadershipSomerset, a program sponsored by the Somerset County Board of Chosen Free-holders, a member of Le Tip International, and the Somerset County Chamberof Commerce. These community and business ties will bring early momentumto LET’S EAT! in sales and public relations. The LET’S EAT! concept is slatedfor 17 store roll-outs over the next five years, with a forecasted revenue of $35million. Domenick recognized the need for an individual with strong, multi-unit operational experience.

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Sample Plans

Theodore Heisler: Finance. Ted has extensive experience in private equity,mergers/acquisitions, and management consulting. He is part of an investmentgroup that is the regional franchisee for TGI Friday’s in a dozen countries inWestern and Central Europe, and Russia. Ted co-founded and managed TynGroup, a private equity investment company in Prague. He also held positionswith Kidder, Peabody & Co. in New York as an investment banker and withAndersen Consulting developing information systems. He received his MBA infinance with honors from Rutgers Graduate School of Management.

Organizational StructureDuties in a retail foodservice organization of this type are usually divided be-tween food production and service. The chart below represents a typical struc-ture for this type of organization.

Personnel PlanProper staff utilization is a key component in any business, but is particularlyrelevant in this business model. This is necessary when managing diverse dayparts, being able to move from department to department. This staff manage-ment, along with being able to move food and other resources around the facil-ity, is what makes the business model feasible. Please refer to the chart below foran assessment of the costs associated with the amount of labor necessary to staffsuch an operation.

265


Site-Level Staffing

NumberFTEs

Avg. AnnualSalary/Wage

Total AnnualSalary/Wage

General Mgr 1 $75,000 $75,000

Assistant Manager 2 $45,000 $90,000

Catering Manager 1 $40,000 $40,000

Head Chef 1 $75,000 $75,000

Chef 2 $45,000 $90,000

Hourly Worker 18 $18,000 $325,000

Total Pre-Taxes/Benefits $695,000

Taxes/Benefits $95,000

Total $790,000

The above figures reflect a total labor cost of 37% of site operating revenue. Regionalmulti unit operators, such as Panera Bread currently run at 30.5% making the laborfigures in this forecast conservative. An extended version of the above chart can befound in Appendix D.

Appendix B

Market AnalysisThe LET’S EAT! concept proves further to be a perfect fit in the (proprietaryinformation) center in light of the outstanding demographic profile of the sur-rounding communities. Affluent suburban consumers are clearly the leadingconsumers of specialty and prepared foods. This statement is clearly evidentwhen local demographics are compared side by side with recent industry statis-tics 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 purchaseof at least one specialty food category in the past six months. Half ofthose qualify as “medium” or “heavy” consumers by purchasing fouror more categories.”

The chart below compares the Chester Commons seven-mile demographic to“heavy” consumers of specialty foods as detailed in the NASFT report.

266


Category ChesterCommonsRegion1

NASFT Study2

Region Mid Atlantic 2nd

highest region and 10% above average

Income Median HouseholdIncome $86,515

82% of households withincome above $50,000

Household incomes over $50,000 - 83% aboveaverage

Age 46% 30-59 35-44 23% above average

45-54 14% above average

Marital Status 66% Married Married couples 6% above average

Education Bachelors Degree 24% 42% above average

Graduate Degree 14% 73% above average

Profession 77% White Collar White Collar workers 32% above average

As the chart confirms, the (proprietary information) demographic proves thatLET’S EAT! is a perfect fit in the marketplace. Appendix F has detailed excerptsfrom the NASFT study and Appendix E has detailed trade polygon maps anddata. According to the NASFT, U.S. retail sales of gourmet/specialty foodsreached $20.0 billion in 2000, up from $15.3 billion in 1996. Sales are projectedto grow at 6.7 percent compound annual growth rate (CAGR) over the 2000-2005 period to surpass $27.6 billion in 2005. Driving the interest in specialtyfoods are various contributors such as TV Food Network, and the proliferation offood magazines such as Gourmet, Saveur, and Bon Appetit. Additionally, Italian iscurrently the leading international cuisine among specialty food buyers.

Sample Plans

Competition (Local)Competition within an eight-mile radius of (proprietary information) has beendivided into two categories, supermarket and specialty food. Within the super-market category, only “a certain chain,” at the outer fringe of the eight-milering, would be considered in the “above average” category in providing a mod-icum of prepared foods. The vast majority of the competition in the specialtycategory was uneventful deli/general-store formats, providing little or no pre-pared foods and certainly no knowledgeable culinary staff. The marketplace wasthe only establishment that has a modicum of take-out/prepared offerings.What follows is a detailed competitive analysis and pictorial, clearly illustratingthe lack of credible competition and the opportunity to generate significant rev-enue for LET’S EAT! within the seven-mile trading area.

Specialty StoresThese can be defined as having a small selection of deli and prepared foods,mostly American sandwiches and prepared salads (the standard fare of maca-roni, potato, coleslaw, etc.). Some are combination general-store and liquor-storeformats. Most lack adequate on-site parking or have difficult ingress/egress.

SupermarketsTypical supermarket prepared and deli offerings. There is minimal on-site prepa-ration with most foods prepared off-site in commercial kitchens. There is no in-store 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 orother food retailers. Overall, all of the operators market to the demographic thatLET’S EAT! seeks. Following is a brief synopsis of a selection of these competitors:

267



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 specializingin the sandwich /salad segment. Panera’s offering is builtaround their store-baked breads and pastries, which allbenefit from excellent merchandising. The business’primary focus is on in-store and take-out meals, althoughmost stores do have an offering in carryout cateringplatters.

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 isbased on a flexible format that can service all day parts.The stores change from an espresso/pastry shop in themorning, to a fast casual sandwich/pizza spot at lunch, toa table service restaurant with full bar in the evening. Themenu is built around brick-oven breads that are turnedinto sandwiches, pizzas and accompaniments for salads.Catering is marketed as a portion of the business withcomplete event consultation offered. Catering offeringsinclude most items from the menu, as well as appetizersand 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 theEuropean market model, specializing in specialty foods.Their stores range in size from 3,000 to 20,000 squarefeet. In the 1990’s, Sutton Place acquired the Hay DayFarm Market chain in Connecticut, as well as thevenerable Balducci’s market in New York City. Thecompany operates a central commissary in Maryland thatserves the stores, as well as supporting the cateringcomponent. Sutton Place could be viewed as the largestsmall-format specialty chain in the region.

268


Sample Plans

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 firstopened in New York City’s SoHo district in 1977. A retailexpansion occurred in the 1990’s establishing the brandin new markets. The mail order component of thecompany is large and has an international presence.Catering is offered at most locations. Stores averageapproximately 10,000 square feet in size. Although, Dean& Deluca has only a handful of stores, with slowexpansion planned, the brand is considered a marketleader 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 andorganic foods. The concept has expanded over the yearsinto a destination for specialty and well-merchandisedprepared food offerings. Most stores have a cateringcomponent specializing in pick-up and drop-off service.The company also has an excellent offering of upscaleprivate label products, as well as natural body care. Moststores average 40,000 square feet, with several existingand in development in the LET’S EAT! Phase 2 businessregion.

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 inlarge-format upscale food retailing. The stores featureexotic produce, multi-cultural prepared food offerings thatsupport considerable in-store dining as well as takeout.Top-quality merchandising along with extensive offeringsin pastry, bread, and cheeses make Wegmans a retailerthat many operators have tried to emulate. The storesalso feature a sizeable catering business, primarily inpick-up and drop-off platters and meals.

269


Appendix B270

Financial PlanThe development of the LET’S EAT! business model and the associated invest-ment will occur in a phased format as outlined below. Detailed financial projec-tions and other related information are attached as Appendix A.

Investment/Use of ProceedsPhase 1—Two SitesPhase 1 will consist of two retail sites. A tri-state-area site will require approxi-mately (proprietary information) to render it fully equipped, ready to open, andprovide an adequate cushion of working capital. The first site therefore requires(proprietary information). Of this, (proprietary information) is currently circled asfollows: by Domenick Celentano, Ted Heisler, Scott Darling (LET’S EAT! boardmember), and other “friends and family.” LET’S EAT! has obtained a Letter ofIntent for a $350,000 term loan backed by the Small Business Administration.Several supplemental sources of financing are being tapped as well. These includesome combination of equity, developer build-out allowance, etc.

The second LET’S EAT! site will be opened approximately one year after the firstsite opening. Funding will come from internal cash plus (proprietary informa-tion) of external equity, debt, lease, or a combination.

An Indicative Terms of Placement and related materials are available to inter-ested investors for review. Through fiscal year-end 2004, the company will be anLLC structure providing tax-loss pass-throughs for investments placed as equity.

Phase 2—Tri-State Roll-OutA phase-2 cash investment of (proprietary information) will be considered inapproximately two years after the opening of the first site. The phase-2 invest-ment will support the roll-out plan for an additional 14 sites in the NY/NJ/CTarea for years two through five. The additional site openings are planned at therate of one per quarter thereafter into 4Q 2008 for a total of 16 LET’S EAT! sites

Sample Plans

after five years. Phase 2 will be partially funded by additional bank lines ofcredit with the remaining support through Institutional money or privatemoney, which may have an impact on whether the company continues as anLLC 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 thatan accelerated regional or national roll-out can be accomplished via corporate linesof credit, proceeds from an IPO, or a combination of the two. In addition, creatingmaster franchise licenses in various territories will be considered.

Financial ProjectionsThe financial projections presented in the business plan are considered by manage-ment to be the minimum reasonably achievable. Moreover, LET’S EAT! hasretained retail foodservice consulting firm Solganik & Associates and has receivedindependent validation of certain key financial drivers including daily sales, COGS,and same-store sales growth of comparable companies. Key drivers of profitabilityat the site level include, among others, the number of opened sites, the number ofdaily patrons, average ticket price, and food costs. A modest amount of corporateoverhead 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 annualizedrun 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 growthforecasted over the following four years. Revenue forecasts are based on well-grounded demographic buildups and comparisons to other similar chains, and theycross tabulate favorably with NASFT specialty retail per-square-foot sales data forretail locations in the 3,000 to 5,000 sq. ft. ranges. Subsequent site openings aredeemed to have a similar financial and operating profile.

Start-Up SummaryStart-up cash expenses for the initial facility are estimated below. Tenant fit-outand kitchen build-out are estimated at $65.00 per square foot and depreciatedover a specified period in the P&L. The start-up requirements also include esti-mates for equipment, staffing, marketing prior to opening, inventory, and work-ing capital. The estimated build-out schedule is for four months. The detail forkitchen equipment and retail fixtures can be found in Appendix C.

271



Appendix B272

The following daily sales figures are the basisfor the forecast calculations in the sales analy-sis and build-up in Appendix A. Sales in thefirst year are forecasted to reach $ (proprietaryinformation). For comparison, in the mostrecent retail studies by NASFT, median salesper square foot of 40 comparably sized storesaveraged $10.14 per week. If applied to the(proprietary information) location at 3750 sq.ft. × (proprietary information) would yield(proprietary information)/week, or $ (propri-etary information)/year. LET’S EAT!’s loca-tion, management team, and concept-richPURPOSEFUL THEATRE, even without inclusion ofcooking school revenues, will exceed industrynorms for revenue per location.

Sales GrowthSales-growth projections are based on a same-store growth rate of 6 percent annually.

Following is the result of research regardingsame-store sales growth rates for foodserviceand retail operations that share a similar offer-ing, positioning, or customer demographic to the LET’S EAT! concept. Mostpublicly available information is for established companies in the maturityphase of their growth cycle. Therefore, it is reasonable to assume that the LET’SEAT! model could attain slightly higher growth rates during the initial years ofthe start-up phase.

Food CostsCost of goods calculations and expense-line items are based on management’sin-depth experience as well as industry standards.

Cost of goods for a typical foodservice operation is typically calculated in termsof food cost. Food cost is, in general terms, calculated in the following manner:

Opening food inventory–Ending food inventory= Food Cost Value

Model Site atInception

Retail Sales per day $3,000

Catering Retail per day $1,000

Café per day $2,000

Cooking School per day $0

Daily Sales per site $6,000

Weekly Sales per site (7 days) $42,000

Site Space sq ft. 3,750


Sample Plans 273

Food cost is often judged in terms of a percentage of revenue. The food cost per-centage that is perceived as acceptable can be different for different sectors of theindustry. What this means for LET’S EAT! is that relative to the retail price of anitem, the food cost of that item may have a different target percentage based onwhat revenue stream that item is sold through. This variance in percentage usu-ally has to do with the amount of labor associated with delivering a given prod-uct to the customer. Different products will have different food cost percentagesbased on this, but a department or operation as a whole will have an overall foodcost based on the preceding formula. The chart below outlines high and low indus-try averages for food cost for the LET’S EAT! departments, along with a commentabout the amount of labor necessary to deliver the item to the customer.

For purposes of these financial forecasts, LET’S EAT! is assuming that its retailsales COGS percentage will be in the low 30s for retail sales; high 20s for cateringretail sales; and low 30s for café sales, all showing modest improvement overtime during the phase-2 build-out. These are on the conservative end of thespectrum as compared with the foregoing. Detailed COGS figures are shown inAppendix A.

Economies of Scale: Food CostsAs the LET’S EAT! concept grows from a single operation to a multiple-locationregional chain, some economies of scale will be experienced in terms of purchas-ing power, as well as labor efficiencies. These economies could mean significantsavings and increased profitability to the chain as expansion grows. Assumptionswith respect to such improvements in the cost structure are embodied in thefinancial forecasts in Appendix A.

Food purchasing is done through local, regional, or national distributors. Distribu-tors have fixed costs in employees, infrastructure, fuel, etc. As foodservice opera-tors purchase more products, their fixed costs remain the same, and they are ableto reduce their wholesale prices to the operator. Distributors usually establishpricing based on a percentage above their cost. There are several tiers of percent-ages available to operators based on their order size. The SYSCO Corporation, the

Segment High Low Labor

Catering 30% 24% High

Café 34% 26% Average

Retail 37% 28% Low

Appendix B

largest foodservice distributor in North America, shared some informationregarding its pricing structure, which is reflected below:

In real dollars as it could relate to LET’S EAT! moving from the lowest tier tothe highest tier could mean as much as 4 percent to 5 percent in food-cost sav-ings. Fifteen stores generating (proprietary information) each at 32 percent foodcost is (proprietary information). At 28 percent, that same food cost is (propri-etary information), or a $1.2 million savings. A key element to these kinds ofcontracts is that distributors will want minimum drops, shorter payment terms,and to offer incentives for using “house” brands. Overall, a good partnershipwith a distributor is a necessity for the success of this size of operation.

Central ProductionAnother way that profits can be maximized as a company grows is through cen-tralized production of some products. In a centralized model, often referred toas a commissary, products are produced in a single location and then distributedto all the locations in the chain. This method achieves some of the followingadvantages:

• Improved consistency—It is very difficult to train 15 cooks in 15 differentlocations to prepare lasagna the same way. Central production ensures thesame food product every time regardless of location.

• Labor savings—In the same lasagna scenario, you now have 2 people mak-ing lasagna instead of 15. In effect, store-level labor can be reduced.

• Purchasing power—Distributors would much rather deliver one pallet ofcrushed tomatoes for tomato sauce to one location than 3 cases each to 15locations. The distributors will pass that savings on.

Central production is a commitment to the above issues as well as a commit-ment to controlling a business’s food path, instead of relying on outside manu-facturers to determine the quality of products. Regarding profitability, in arecent study by Solganik & Associates, one retailer commented that production

274


Type of Operation Weekly CorporatePurchasing 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%

Sample Plans

costs were reduced by 25 percent when they adopted centralized production,mostly based upon shipment quantities. Perhaps the best example of savings ina central kitchen is the sandwich kit. Sandwiches are sliced and portioned at thestore level in most operations. A 15-unit operation may each serve 20 Italiansubs a day, or 108,000 subs a year. If each sub has an average overage of 1⁄4 ounceat $4.50 a pound, an additional food cost of $7,593 has been incurred. That isjust 1 sandwich out of 10 varieties sold. The solution to this could be a sand-wich 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 organizationgrows beyond five or six stores. The method’s strengths lie not only in profitabil-ity, but also in increased control of the organization.

Concept Tuning—Phase 2Products and Services. Each location will be tuned to adjust the mix relevant tothe location’s demographics. Some locations will be more “Food For Now” cen-tric and others will be more “Food For Later” centric. Some of this informationwill come from the developer. A strategic relationship with a developer makesthe acquisition of this information easier as well as giving Lets Eat! leverage tonegotiate what other food tenants are allowed.

Location. Site selection for future stores will leverage the marketing success ofthe well-known retail brands that populate Lifestyle Centers; this tenant list willbe 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 length-ens customers’ shopping experience and provides an on-site location for workersat the mall. There is no need for the customer to leave the shopping environ-ment during any of the day-part meal occasions. Increasing the length of thecustomer on-site shopping experience increases the probability of a purchaseoccasion in the mall. The ability to lengthen customers’ shopping experience iswhy LET’S EAT! will be an attractive tenant for future target locations.

This will be the roll-out map for future site selection.

275


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 landmanagement

• Claritas™ trade area demographics,1-to-7-mile radius, occupation,transportation, travel time, retailtrade potential; courtesy of fidelityland management

• Average daily traffic counts; courtesyof fidelity land management

Appendix E

• Bank term sheet

Appendix F

• Research

Solganik & Associates“And a Meat Loaf to Go”; February23, 2004, by Jerry Adler; Newsweek“Wrap It Up, We’ll Take It”;February 25, 2004, by David LHarris; The Boston Globe“Connecting with the SpecialtyFood Consumer”; Food MarketingGroup; Richard Kochersperger;Courtesy of Food Marketing Group“The Mall Without the Mall”; TheNew York Times, July 25, 2002“Now, This Is Shop-at-Home,”North Jersey News Group,Thursday, August 14, 2003, ByLaura Fasbach, Staff Writer“Plucky Little Competitors”; TimeMagazine, 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 FoodMarketing Group

Appendix G

• Menus

Appendix H

• Landlord Letter of Intent

Appendix I

• Public relations portfolio example

Appendix J

• Investor term sheet

Appendix B

Appendix Index

276


Sample Plans 277

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.

Appendix B

1.0 Executive SummaryMonkey Muffins, Inc., is a new company based out of Nyack, New York. Wedevelop and market wholesome mini-muffins made from all-natural ingredients,supplying parents with a healthy snack alternative for their families. Thesemuffins 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 servetheir children delicious snacks that were free of artificial colors, artificial flavors,and preservatives. This plan will serve as a living document of our growth, andwill be updated quarterly.

1.1 Objectives1. 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 in2005.

3. Net loss not to exceed 15 percent in 2003. Net profits of 5 percent orgreater in 2004 and 10 percent or greater in 2005.

1.2 MissionMonkey Muffins will provide a wholesome snack alternative for nutrition-consciousadults and their families. We will use only the finest, freshest ingredients com-bined with colorful innovative packaging to deliver a superior muffin.

1.3 Keys to Success1. 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 deliand grocery market as well as natural-food stores.

3. Low cost of goods without sacrifice in quality enabling a healthy bot-tom line to be achieved.

278


Sample Plans

2.0 Company SummaryMonkey Muffins, Inc., is a new company located in Nyack, New York, that devel-ops and markets specialty baked goods for health-conscious adults and their fami-lies. The company’s primary product is a mini-muffin made with all-naturalingredients that appeals to children.

2.1 Company OwnershipMonkey Muffins, Inc., is a privately held S-corporation. Its founders, Lisa Coatesand Robin Rarrick, are the primary shareholders and managers.

2.2 Start-up SummaryOur 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. Thestart-up costs are to be financed by direct owner investment. The assumptions areshown in the following table and illustration.

279


Appendix B280


Start-up

Requirements

Start-up ExpensesLegal $500Stationery, etc. $500Brochures/Website Development $1,000Insurance $300Research and Development $1,500Label and Package Design $15,000Baking Equipment $3,000Total Start-up Expenses $21,800

Start-up Assets NeededCash Balance on Starting Date $18,200Other Short-term Assets $0

Total Short-term Assets $18,200

Long-term Assets $0Total Assets $18,200Total Requirements $40,000

Funding

InvestmentLisa Coates $20,000Robin Rarrick $20,000Other $0Total Investment $40,000

Short-term LiabilitiesAccounts Payable $0Current Borrowing $0Other Short-term Liabilities $0Subtotal Short-term Liabilities $0

Long-term Liabilities $0Total Liabilities $0

Loss at Start-up ($21,800)

Sample Plans

2.3 Company Locations and FacilitiesMonkey Muffins operates from a home office in Nyack, New York. All bakingtakes place at a commercial bakery/food-production facility in Poughkeepsie, NewYork. As the company grows and additional staff is needed, larger office space willbe acquired.

3.0 ProductsMonkey Muffins, Inc., develops and markets specialty baked goods, specificallywholesome mini-muffins for health-conscious adults and their families. All theirproducts are made from all-natural ingredients and feature colorful, innovativepackaging 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 Muffinscome packed with four 1⁄2-oz. muffins to each package. A case contains 12 packages.

3.1 Competitive ComparisonAt this time, there is no known competition in this specific market. There are sev-eral large corporate food manufacturers in the market who mass-produce mini-muffins that contain artificial colors, artificial flavors, and preservatives. Theproper placement of Monkey Muffins in the specialty foods marketplace will becritical in separating our product from what could be the perceived competition ofthese large companies.

3.2 Sales LiteratureSales literature for Monkey Muffins can be obtained by contacting the company at(845) 348-4700.

3.3 SourcingMonkey Muffins, Inc., will develop the recipes, market the products, and assist itsdistributors in establishing new accounts. They will not directly participate in pro-duction of muffins.

281


Appendix B

Muffins will be manufactured by third-party co-packer/bakeries who specialize inprivate label production. Monkey Muffins will participate in R&D (recipe devel-opment), and oversee the quality of the packaging. All ingredients will be sourcedand 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 pendingwhile the company’s management interviews various prospects. It has yet to bedetermined who will manage the transportation of product to the distributors.The management will, however, maintain some inventory of product to use assamples while establishing new retail accounts.

3.4 Future ProductsThere are plans to develop additional flavors of mini-muffins as well as potentiallydeveloping some non-muffin products. These will be further explored in year two.

Additionally the company is developing a package containing six packs of muffinsthat can be purchased in your grocer’s freezer section. These packs will thaw inless than 30 minutes, making them ideal for children’s lunch boxes.

4.0 Market Analysis SummaryThe primary role of Monkey Muffins, Inc., as a company is to effectively marketour products to select target demographic groups. Our customers primarily areparents who purchase our products for their children. In fact, the company wasfounded 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 informa-tion about our customers is included in this chapter.

The consumers of Monkey Muffins will typically acquire our products at specialtyfood stores/gourmet delis, health-food stores, coffee houses/espresso bars, andfood-service environments such as school cafeterias and corporate dining andvending. Our customers are not people who would choose a mass-produced prod-uct containing artificial ingredients. They are prepared to pay a premium price forthe quality and assurance that an all-natural product provides.

As Monkey Muffins, Inc., is a New York-based company, it may be assumed thatin the early stages the company will be supplying its product principally to theNew York/New Jersey area. There has been a steady 4 percent growth in thewholesome/organic-foods/health-foods industry in the Northeast per year overthe past decade, most notably with parents of children 2 to 12 years of age.

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Sample Plans

The subject of our market segmentation analysis will focus on our retail outletsrather than on our end users. While our consumer stays quite constant, themethod of end-user delivery is quite varied with our retailers.

4.1 Market SegmentationIn support of the information in the market-analysis table, the following must benoted.

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 theretail outlets who are our primary customers.

c. The end-user profile is as follows. Monkey Muffins are principally purchasedby woman ages 25 to 45. Of this group, 90 percent have one or more chil-dren ages 2 to 12, and 50 percent own a home.

d. Data concerning segment growth was supplied by D&B Million DollarDatabase, U.S. Government Census and trade publications related to each ofthe markets mentioned herein.

283


Table: Market Analysis

Market AnalysisPotential Customers Growth 2003 2004 2005 2006 2007 CAGRSpecialty Food Stores/GourmetDelis

15% 100 115 132 152 175 15.02%

Supermarkets 2% 300 306 312 318 324 1.94%Coffee Houses/Espresso Bars 25% 150 188 235 294 368 25.15%Food Service 8% 200 216 233 252 272 7.99%Total 11.01% 750 825 912 1,016 1,139 11.01%

Appendix B

4.2 Target Market Segment StrategyMonkey Muffins, Inc., will focus on the following markets: specialty food stores/gourmet delis, coffee houses/espresso bars, health-food stores, food-service estab-lishments and supermarkets, and schools, each of which have indicated a need fora wholesome alternative to mass-produced baked products.

4.2.1 Market NeedsOur customers’ food needs are critical to our business survival. We are creators ofwholesome mini-muffins for people who care about the quality, content, andimage of what they consume. Our customers will happily pay the required pricepremium for knowing that the foods they consume are prepared with care, com-pletely natural, and fun. Our customers want foods that do not contain artificialcolors, artificial flavors, or preservatives. Our customers are parents buying thebest 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 muchor too quickly, or adapted more economic packaging processes.

4.2.2 Market GrowthCurrently the whole-foods and organic-foods industry are experiencing a rapidgrowth phase, and account for just over 10 percent of the $300 billion food retailindustry. This growth has achieved a rate of 4 percent annually since 1998 andshows no signs of slowing.

4.3 Industry AnalysisThe 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 thelargest and most powerful manufacturers in the world, major national grocerychains, tens of thousands of stores, thousands of vendors, and, of course, hundredsof millions of buyers.

The health-foods industry is similar in basic structure, channels, costs, and distri-bution. Additionally, the wholesome-foods industry is the fastest-growing segmentin food retail, accounting for just over 10 percent of annual sales in 2001.

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Sample Plans

4.3.1 Competition and Buying PatternsThe purchase decision in our business is based more on the customers’ trust inour process and our integrity than on any other single factor. In our segment, thekey is our label. To our customer, our label means the assurance that the productinside 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 wesell tends to be 20 to 30 percent more expensive than the national packagedbrands selling similar or substitute products. The most frequent reason for choos-ing another brand, according to the store owners, is simply buyers’ habits and thehesitancy of some consumers to try new products.

4.4 Promotion StrategyOur promotion strategy is comprised of several key elements:

◆ Public Relations—Monkey Muffins will retain the services of a PR firmspecializing in the food and beverage industry. We will focus our efforts atfirst to secure placement in trade publications that publish to our keymarket sectors. We will also look to secure business profiles in consumerpublications and newspapers. We feel that a well-executed PR campaignwill be the most critical element to our promotion strategy.

◆ Trade Events—We must attend all prominent trade events, particularlythe Fancy Food Show. This will help ensure that our brand has continuousexposure 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, particu-larly 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 fund-raisers to build local awareness of our product.

◆ Website—Our website will be a key promotional tool that will includeboth fun activities for children and product information for adults. OurURL is on all of our labels and promotional materials, which should helpto drive traffic to our site.

285


Appendix B

5.0 Web Plan Summarywww.MonkeyMuffins.com will be utilized as an electronic business card for thecompany 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 forchildren’s online gaming, featuring the monkey from our label. We will alsoinclude a current events page, describing where our products can be purchasedand any special promotions we will be taking part in.

Monkey Muffins online will also feature a store where customers can purchaselogo apparel and collectables. At this time there are no immediate plans to sell ourmini-muffins via the Internet, but that option may be explored at a later time.

6.0 Management SummaryMonkey Muffins, Inc., is owned and operated by its founders Lisa Coates andRobin Rarrick. It is a small company with minimum command hierarchy and amaximum of community spirit and cooperation. There are no plans to hire addi-tional 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 TeamLisa Coates Lisa was born in Brooklyn, New York, and raised in Connecticut.She attended Moore College of Art and Design in Philadelphia where shereceived a BFA in printmaking. She has taken her art background in a nobledirection 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 MonkeyMuffins in my kitchen one afternoon,” says Lisa. “I was looking after a bunch ofkids and wanted to make a snack they would like that wasn’t overly sweet.” Afterdozens of variations, she realized she was on to something very big. Among Lisa’smany 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 twochildren, Parker and Halle.

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Sample Plans

Robin Rarrick Robin was born in Monticello, New York, but has been a long-time Rockland County resident. She attended New York University and CityCollege at Brooklyn where she received her degree as an optician. She worked asSenior Optician and Product Manager for Brenner Optics in New City, NY, for13 years. She has served as Treasurer of Nursery School of the Nyacks and hasextensive bookkeeping skills. At Monkey Muffins, Robin is responsible for mar-keting, advertising, product and account management, and bookkeeping.

Robin is also a resident of Nyack where she lives with her husband John and theirchildren, Max and Emilyrose.

6.2 Personnel PlanAs the following table shows, salary and compensation increases are projected inline with growth in sales and profits. Salary increases are roughly similar togrowth of the company and cost of living. There are only plans for two salariedemployees in 2004 (those being the principal managers), and there will be nosalaries prior to that time by the management. Additional payroll will be includedfor transporting product to the distributors. Nearly every other service (art, legal,accounting, marketing, etc.) is outsourced.

287


Personnel Plan2003 2004 2005

Robin Rarrick $0 $40,000 $60,000Lisa Coates $0 $40,000 $60,000Part-time Driver $0 $14,400 $19,200Other $0 $0 $0Total Payroll $0 $94,400 $139,200

Total People 3 3 3Payroll Burden $0 $14,160 $20,880Total Payroll Expenditures $0 $108,560 $160,080

Table: Personnel (Planned)

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 collectiondays get above 45 under any circumstances. This could cause a serious problemwith cash flow, because our working capital situation is chronically tight.

Appendix B

◆ We must maintain gross margins of 45 percent at the least, which enablesus to focus more capital into marketing and promotion.

7.1 Important AssumptionsThe financial plan depends on important assumptions, most of which are shownin 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 segmentgrowth of natural foods.

◆ We assume access to equity capital and financing sufficient to maintainour financial plan as shown in the tables.

288


Table: General AssumptionsGeneral Assumptions

2003 2004 2005Short-term Interest Rate % 10.00% 10.00% 10.00%Long-term Interest Rate % 10.00% 10.00% 10.00%Tax Rate % 30.00% 30.00% 30.00%Expenses in Cash % 5.00% 5.00% 5.00%Personnel Burden % 15.00% 15.00% 15.00%

7.2 Break-even AnalysisOur 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 payrollrequirements in years one and two.

Sample Plans

7.3 Projected Profit and LossWe expect aggressive growth in years two and three with virtually no increase inoperating costs. This is due to careful planning and management of operating cap-ital and by not underestimating our cost of doing business.

Additionally, the primary management has agreed to take only a nominal increasein pay until the company reaches its sales benchmark in 2005. This is how we areable to show profits by the third year and continue on a steady growth plan.

289


Appendix B290


Sample Plans 291


Appendix B292


Pro Forma Profit and Loss2003 2004 2005

Sales $14,991 $407,700 $815,400Direct Cost of Sales $8,115 $221,074 $442,147Other Costs $0 $0 $0

------------ ------------ ------------Total Cost of Sales $8,115 $221,074 $442,147Gross Margin $6,876 $186,626 $373,253Gross Margin % 45.87% 45.78% 45.78%Operating Expenses:Advertising/Promotion $3,000 $24,000 $24,000Shipping Expense $0 $8,000 $10,000Miscellaneous $2,000 $12,000 $12,000Payroll Expense $0 $94,400 $139,200Payroll Burden $0 $14,160 $20,880Depreciation $0 $0 $0R&D $1,600 $2,400 $2,400Phones/Office Expense $1,200 $2,400 $2,400Insurance $900 $2,400 $2,400Legal/Accounting $600 $3,000 $3,000Contract/Consultants $0 $6,000 $6,000

------------ ------------ ------------Total Operating Expenses $9,300 $168,760 $222,280Profit Before Interest and Taxes ($2,424) $17,866 $150,973Interest Expense Short-term $0 $0 $0Interest Expense Long-term $0 $0 $0Taxes Incurred $0 $5,360 $45,292Extraordinary Items $0 $0 $0

Net Profit ($2,424) $12,507 $105,681Net Profit/Sales -16.17% 3.07% 12.96%

Table: Profit and Loss (Planned)

Sample Plans 293


7.4 Projected Cash FlowCash flow remains strong with only minor negative flow due to aggressivemonthly sales increases in year one.

Appendix B294


Table: Cash Flow (Planned)

Pro Forma Cash Flow 2003 2004 2005

Cash ReceivedCash from Operations:Cash Sales $14,99

1$407,7

00$815,4

00From Receivables $0 $0 $0 Subtotal Cash from Operations $14,99

1$407,7

00$815,4

00

Additional Cash ReceivedExtraordinary Items $0 $0 $0Sales Tax, VAT, HST/GST Received $0 $0 $0New Current Borrowing $0 $0 $0New Other Liabilities (Interest-free) $0 $0 $0New Long-term Liabilities $0 $0 $0Sales of Other Short-term Assets $0 $0 $0Sales of Long-term Assets $0 $0 $0New Investment Received $0 $0 $0 Subtotal Cash Received $14,99

1$407,7

00$815,4

00

Expenditures 2003 2004 2005Expenditures from Operations:

Cash Spent on Costs and Expenses $871 $14,332

$27,482Wages, Salaries, Payroll Taxes, etc. $0 $108,5

60$160,0

80Payment of Accounts Payable $13,33

1$222,6

28$473,6

30

Subtotal Spent on Operations $14,202

$345,520

$661,192

Additional Cash SpentSales Tax, VAT, HST/GST Paid Out $0 $0 $0Principal Repayment of Current Borrowing $0 $0 $0Other Liabilities Principal Repayment $0 $0 $0Long-term Liabilities Principal Repayment $0 $0 $0Purchase Other Short-term Assets $0 $0 $0Purchase Long-term Assets $0 $0 $0Dividends $0 $0 $0 Adjustment for Assets Purchased on Credit $0 $0 $0 Subtotal Cash Spent $14,20

2$345,5

20$661,1

92

Net Cash Flow $789 $62,180

$154,208

Cash Balance $18,989

$81,169

$235,377

Sample Plans

7.5 Projected Balance SheetAs shown in the balance sheet in the following table, we expect a healthy growthin 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 solelyfrom sales. This creates a scenario that demands healthy sales for success.

295


Pro Forma Balance Sheet

AssetsShort-term Assets 2003 2004 2005Cash $18,989 $81,169 $235,377Other Short-term Assets $0 $0 $0Total Short-term Assets $18,989 $81,169 $235,377Long-term AssetsLong-term Assets $0 $0 $0Accumulated Depreciation $0 $0 $0Total Long-term Assets $0 $0 $0Total Assets $18,989 $81,169 $235,377

Liabilities and Capital2003 2004 2005

Accounts Payable $3,213 $52,887 $101,414Current Borrowing $0 $0 $0Other Short-term Liabilities $0 $0 $0Subtotal Short-term Liabilities $3,213 $52,887 $101,414

Long-term Liabilities $0 $0 $0Total Liabilities $3,213 $52,887 $101,414

Paid-in Capital $40,000 $40,000 $40,000Retained Earnings ($21,800) ($24,224) ($11,718)Earnings ($2,424) $12,507 $105,681Total Capital $15,776 $28,282 $133,963Total Liabilities and Capital $18,989 $81,169 $235,377Net Worth $15,776 $28,282 $133,963

Table: Balance Sheet (Planned)

7.6 Business RatiosThe following table reflects important business rations as they relate to our industry.

Appendix B296


Ratio Analysis2003 2004 2005 Industry Profile

Sales Growth 0.00% 2619.70% 100.00% 6.20%

Percent of Total AssetsAccounts Receivable 0.00% 0.00% 0.00% 21.50%Inventory 0.00% 0.00% 0.00% 21.20%Other Short-term Assets 0.00% 0.00% 0.00% 32.10%Total Short-term Assets 100.00% 100.00% 100.00% 74.80%Long-term Assets 0.00% 0.00% 0.00% 25.20%Total Assets 100.00% 100.00% 100.00% 100.00%

Other Short-term Liabilities 0.00% 0.00% 0.00% 32.20%Subtotal Short-term Liabilities 16.92% 65.16% 43.09% 25.60%Long-term Liabilities 0.00% 0.00% 0.00% 15.80%Total Liabilities 16.92% 65.16% 43.09% 41.40%Net Worth 83.08% 34.84% 56.91% 58.60%

Percent of SalesSales 100.00% 100.00% 100.00% 100.00%Gross Margin 45.87% 45.78% 45.78% 36.00%Selling, General, & Administrative Expenses 62.04% 42.71% 32.81% 20.50%Advertising Expenses 20.01% 5.89% 2.94% 1.60%Profit Before Interest and Taxes -16.17% 4.38% 18.52% 4.70%

Main RatiosCurrent 5.91 1.53 2.32 2.24Quick 5.91 1.53 2.32 1.21Total Debt to Total Assets 16.92% 65.16% 43.09% 48.00%Pre-tax Return on Net Worth -15.37% 63.17% 112.70% 7.80%Pre-tax Return on Assets -12.77% 22.01% 64.14% 15.10%

Business Vitality Profile 2003 2004 2005 IndustrySales per Employee $4,997 $135,900 $271,800 $90,802Survival Rate 64.60%

Additional Ratios 2003 2004 2005Net Profit Margin -16.17% 3.07% 12.96%Return on Equity -15.37% 44.22% 78.89%

n/an/a

n/an/a

Activity RatiosAccounts Receivable Turnover 0.00 0.00 0.00Collection Days 0 0 0Inventory Turnover 0.00 0.00 0.00Accounts Payable Turnover 5.15 5.15 5.15Total Asset Turnover 0.79 5.02 3.46

n/an/an/an/an/a

n/an/an/an/an/a

Debt RatiosDebt to Net Worth 0.20 1.87 0.76Short-term Liability to Liability 1.00 1.00 1.00

Liquidity RatiosNet Working Capital $15,776 $28,282 $133,963Interest Coverage 0.00 0.00 0.00

Additional RatiosAssets to Sales 1.27 0.20 0.29Current Debt/Total Assets 17% 65% 43%Acid Test 5.91 1.53 2.32Sales/Net Worth 0.95 14.42 6.09Dividend Payout $0 0.00 0.00

Table Ratios (Planned)

Sample Plans

7.7 Sales ForecastOur sales forecast assumes that there will be no change in price or costs. As indi-cated in our milestones table, sales will not commence until April 2003. This is inlarge part due to the completion and finalizing of recipes, packaging, and structur-ing of relationships with our manufacturers and distributors.

We expect slow growth throughout 2003 at a rate of 25 percent per month ineach market segment. This will be our time to establish our first accounts and tofine-tune our co-sales strategy with our distributors.

Growth for 2004/2005 assumes steady growth increase in overall sales year overyear as a result of aggressive grassroots marketing, PR, and increased publicawareness of our products.

297


Appendix B298


Sales ForecastSales 2003 2004 2005

Muffin Sales $14,414 $400,548 $801,096Licensed Merchandise $577 $7,152 $14,304Total Sales $14,991 $407,700 $815,400

Direct Cost of Sales 2003 2004 2005Muffin Sales $7,827 $217,498 $434,995Licensed Merchandise $288 $3,576 $7,152

Subtotal Direct Cost of Sales $8,115 $221,074 $442,147

Table: Sales Forecast (Planned)

Sample Plans 299


Appendix B300


Confidentiality AgreementThe undersigned reader acknowledges that the information provided by MonkeyMuffins, Inc., in this business plan is confidential; therefore, reader agrees not to dis-close it without the express written permission of Monkey Muffins, Inc.

It is acknowledged by reader that information to be furnished in this business plan isin all respects confidential in nature, other than information which is in the publicdomain through other means, and that any disclosure or use of same by reader maycause 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) Date

This is a business plan. It does not imply an offering of securities.

CResources

This list of resources is meant to give you an idea of the resources avail-able to you. As always, use caution when giving your personal or businessinformation to associations, companies, websites, or other organizations.

GovernmentAssociation of Small Business Development Centers (www.asbdc-us.org)Here, you’ll find out about what the U.S. Small Business Administration’sSmall Business Development Centers can offer you, and locate the oneclosest to your business.

Business.gov (www.business.gov) Business.gov guides you through themaze of government rules and regulations … and provides access to ser-vices 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 informationabout loan guarantees, tax incentives, and other EDA programs.

Federal Trade Commission (www.ftc.gov) This is the governmentagency regulating trade practices. The site has a wealth of informationabout regulations, as well as information about compliance measures.

Internal Revenue Service (www.irs.gov) Yes, the IRS. This site, espe-cially the small-business page, has good information on your tax-filingrequirements, as well as resources to which you can turn for help.

Appendix

Appendix C302

Office of Women’s Business Ownership (www.onlinewbo.gov) Under the aus-pices of the Small Business Administration, this organization exists to help women-owned businesses.

U.S. Census Bureau (www.cnesus.gov) The U.S. Census offers a lot of informa-tion about the population and businesses in the country that would be useful in mar-ket research for your business.

U.S. Patent and Trademark Office (www.uspto.gov) If you’ve got a trade secretthat you want to keep all to yourself, or a logo that you want to be sure remains pro-prietary, this site will give you the information you need to do so.

U.S. Chamber of Commerce (www.uschamber.com) This international organi-zation represents 3,000,000 businesses, 2,800 state and local chambers, 830 businessassociations, 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 tariffinformation on importing and exporting.

U.S. Department of Labor (www.dol.gov) From minimum wage laws to statisticson 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 postalsystem to promote your business.

U.S. Small Business Development Center (www.sba.gov) This should be yourfirst stop on the Internet for virtually everything related to starting, financing, andoperating your small business. Sample business plans, information on special pro-grams and seminars, articles, and other resources are just a few of the valuable toolsyou’ll find here.

Money and ManagementAmerica’s Business Funding Directory (www.businessfinance.com) Freesearchable database of more than 4,000 loan and capital sources.

Business Owners Toolkit (www.toolkit.cch.com) A site filled with tools, articles,and low-fee downloads of legal forms.

Resources 303

Clickangel (www.clickangel.com) An online network of angel investors and busi-ness owners.

Cloudstart (www.cloudstart.com) This website allows you to post your businessplan for investors to see.

Quicken (www.quicken.com) The creator of this popular financial software has awebsite filled with financial information for small businesses and individuals.

Small Business Administration (www.sba.gov/financing) The SBA offers muchinformation on how to find proper financing for your business, and also offers guar-antees for loans.

MarketingPublicity Services: Contacts on Tap (www.cornerbarpr.com) A database ofmedia contacts from around the country.

PR Leads (www.PRLeads.com) A service that e-mails leads from journalists seek-ing sources for stories.

Profnet (www.profnet.com) Another publicity-lead service, affiliated with PRLeads, but also offers a searchable database of experts for journalists.

Publicity Hound (www.publicityhound.com) Print and online newsletter of pub-licity leads, as well as a terrific website filled with information on publicity and mar-keting for small businesses.

Send2Press.com (www.send2press.com) News-release creation and distributionservice.

Media and Clipping ServicesBacon’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 con-tacts. It also offers a news-monitoring service that will send you clips that include aparticular company name or topic.

Appendix C304

Professional Associations and OrganizationsAmerican Association of Advertising Agencies (www.aaaa.org) An association ofmany of the leading advertising agencies in the country.

American Management Association (www.amanet.org) International associationincluding information on all aspects of management. Extensive publication list andlibrary are available online.

American Marketing Association (www.marketingpower.com) The country’sleading marketing-trade association. Again, this site offers resources, library, and othervaluable information, including local chapters, available online.

American Small Business Association (http://www.asbaonline.org) An associa-tion that advocates for the interests of small businesses.

Better Business Bureau (www.bbb.org) This nonprofit organization, often mis-taken for a government agency, is the watchdog of the business world, reporting busi-nesses that act unethically or illegally.

Direct Marketing Association (www.the-dma.org) The world’s foremost organi-zation of direct-mail and marketing companies.

International Association of Business Communicators (www.iabc.com)Association of communications and marketing professionals, with local chaptersthroughout the country.

National Association for the Self-Employed (www.nase.org) An association thatsupports the needs of micro-businesses (those with fewer than 10 employees).

National Business Incubation Association (www.nbia.org) Association of incu-bator developers, managers, and technology specialists, devoted to advancing businessincubation and entrepreneurship. It provides thousands of professionals with the in-formation, education, advocacy, and networking resources to bring excellence to theprocess of assisting early-stage companies worldwide.

National Association for Women Business Owners (www.nawbo.org) Thenation’s leading association for women business owners, with chapters throughout thecountry.

National Speakers Association (www.nsaspeaker.org) An association of profes-sional speakers and those who have developed an area of expertise and leveraged itinto a speaking career.

Resources

Point-of-Purchase Advertising International (www.popai.com) An associationdevoted to the interests and practices of in-store and on-site advertising and promotion.

Public Relations Society of America (www.prsa.org) The world’s leading associ-ation of public relations professionals.

Service Corps of Retired Executives (SCORE) (www.score.org) Part of theSBA, this organization offers free counseling to small-business owners by experiencedprofessionals versed in various areas of business.

Toastmasters (www.toastmasters.org) This international organization helps indi-viduals improve their speaking, presentation, and interpersonal skills. Local chaptersmeet throughout the world.

Magazines and NewslettersCheck out these business publications and magazines for the latest information aboutbusiness.

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 SourcesNeed market information? These companies provide market research and otherinformation that can help you target your best markets.

Dataminers (www.dataminers.com)

SRI Consulting Business Intelligence (SRIC-BI) (www.sric-bi.com)

305

Appendix C306

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 DirectoriesEach 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 SoftwareBusiness 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)

Numbers7(a) loan guarantee, 20504 loan program, 20

AAchievers, 97acquisition agreements, 163actions

implementing, 193marketing plan, 114-115

active voice, 31advertising, 108. See also pro-

motionsadvisors, 43advisory boards, 194-196, 201affiliate programs, 121agreements

acquisition, 163confidentiality, 52franchise, 163partnerships, 5vendor, 138

AIDA (Attention InterestDesire Action), 125

alliances, 83analyzing

credit reports, 26-27finances, 153-154industries

competition, 69-71economic factors, 68innovations, 67-68life cycles, 64locations, 69market research, 62-64price comparisons, 69regulations, 68

industry data, 40iterative process, 44markets

B2B customers, 92-93backup documents, 166customer profiles, 96-99demographics, 90-91

standard of living, 90motivations, 95perfect customers, 94-96psychographics, 91-92targeting customers, 89, 93undesirable customers, 99

performance, 71profitability, 151

Anatomy of a Business Plan, 13angel investors, 21-22annual meetings, 45appendix, 160applications for loans, 183articles of incorporation, 162assets, 76associations, 128assumptions, 127Attention Interest Desire

Action (AIDA), 125attorneys, 84attracting

business partners, 43financial assistance, 41-42

audiences, 30

BB-to-C (Business-to-Consumer)

markets, 89B2B (Business-to-Business)

markets, 89, 92-93

backup documents, 159, 166acquisition agreements, 163appendix, 160articles of incorporation, 162bios, 160-162credit reports, 163franchise agreements, 163leases/mortgages, 164letters of intent, 165licenses, 164loans, 163market analyses, 166personal financial statements/

tax returns, 162resumés, 160

balance sheets, 149banks, 84barriers, 193basic insurance coverages,

155-156Believers, 98benchmarking, 43, 206benefits of business plans, 4

establishing vision/direction, 6

exit strategies, 8feasibility, 8finances, 7future, 8marketing, 8outlining operations, 7reality checks, 7research, 8setting goals, 6staying on course, 6

bios, 160-162Biz Plan Builder, 12BizMiner, 66brand loyalty, 96

Index

308 The Complete Idiot’s Guide to Business Plans

break-even points, 152budgeting

marketing plans, 115operating budgets, 143-144

Bureau of Labor Statistics, 65Business Plan 12.0, 13Business Plan Pro 2005, 12Business-to-Business (B2B)

markets, 89, 92-93Business-to-Consumer

(B-to-C) markets, 89businesses

descriptions, 55incubators, 21networking groups, 124partners, 43selling, 5summaries, 171-172writing

audiences, 30capitalization, 34grammar, 31-33language/tone, 30-31presentation, 33-34punctuation, 34rewrites, 35voice recorders, 36

buying preferences, 96

CCAM (common area mainte-

nance), 134CAN-SPAM Act of 2003, 112capacity to repay, 23capital

investors/lenders, 23sources, 4venture, 42

capitalization, 34cash flow, 145-147catalogs, 121CDC (Community

Development Centers), 22census data, 66certificates of insurance, 156

channels, 120-121choices for customers, 92clichés, 33Clickangel website, 186collateral, 24, 109commercial loans, 19common area maintenance

(CAM), 134common-law employees, 80Community Development

Centers (CDC), 22community relations, 111comparing prices, 69competition

analyzing, 69-71market share, 103

complementary companies, 197confidentiality agreements, 52contractors, 79-80, 197corporate seals, 45corporations, 56cost matrix, 115Counselors to America’s Small

Business, 11cover letters

elements, 48example, 49formatting, 50

CPAs, 84credit cards, 18credit reports

backup documents, 163bureaus, 25free, 26scores, 24-26

assessing, 26-27increasing, 27scams, 28

credit-reporting bureaus, 25customer-service policies,

139-140customers

B2B, 92-93databases, 207demographics, 90-91expanding, 124feedback, 209

information managementsoftware, 122

marketing, 100-103motivations, 95perfect, 94-96profiles, 96

Achievers, 97Believers, 98Experiencers, 98Innovators, 97Makers, 99Strivers, 98Survivors, 99Thinkers, 97

psychographics, 91-92targeting, 89-90, 93undesirable, 99

Ddatabases

customer, 207as sales tools, 122

debt financing, 16decision makers, 95declarative sentences, 32declining industries, 65deliveries, 137demographics, 90-91depreciation, 144descriptions of products/

services, 57direct mail promotions, 109direct marketing, 109direct selling, 120direction, 6distractions, 191distribution, 107

Eeconomics, 66-68EDA (Economic Development

Authority), 22E-Focus Groups, 64

Index 309

elementsconfidentiality agreements,

52cover letters, 48executive summaries, 55purpose portion, 55-56title pages, 50TOCs, 52

e-mail, 112emerging industries, 65employees. See also personnel

common-law, 80defined, 81finding, 198incentives, 199-201information sources, 208motivating, 198relations, 111statutory, 81-82

entrepreneurship, 3Equifax, 25equipment, 130-132

compared to supplies, 130leasing, 132technology, 131

equity financing, 16exclamatory sentences, 32executive summaries, 55, 170,

174exit strategies, 8, 210-212expectations

implementing, 193loans, 183-185

Experian, 25Experiencers, 98

Ffactors, 179facts, 32, 40family as money sources, 18Federal Trade Commission, 112financial statements

as backup documents, 162information sources, 207

financing. See also moneyanalyzing, 153-154angel investors, 21-22assistance, 41-42benchmarking success, 43capital, 4credit-reporting bureaus, 25debt, 16equity, 16factors, 179internal growth, 187investors/lenders

capacity to repay, 23capital, 23collateral, 24conditions, 24credit ratings, 24finding, 185impressing, 180-181owner’s character, 24requirements, 179selecting, 21stake in company, 187

loans, 182applications, 183expectations, 183-185government-secured, 183leasing, 183lines of credit, 18-19, 182term loans, 182transaction loans, 182turnaround time, 185

money sources, 22CDC, 22EDA, 22grants, 17loans, 19-20personal, 17-18trade groups, 22

negotiating, 181online, 186securing, 5sources, 178-179summaries, 172

findingemployees, 198investors, 185

low-cost/free help, 11prospects, 123-124USP, 9-10

focus groups, 63-64focusing summaries, 173-174forecasting sales, 119, 127-128formal advisory boards, 194formatting cover letters, 50franchise agreements, 163free help, 11friends as money sources, 18future, 202

Ggeography. See locationsgoals, 41-43

attracting business partners,43

financial assistance, 41-42marketing plan, 114setting, 6

government-secured loans, 183grammar, 31

active voice, 31clichés, 33facts, 32passive voice, 31sentences, 32

grants, 17, 42growth

industries, 65locations, 133

Hhelp

free/low-cost, 11hiring, 11-12software, 12-13writing services, 10

home-equity loans, 18hours of operation, 56household characteristics, 91hyperbole, 33


Iimperative sentences, 32implementation, 192-193impressing lenders, 180-181improvements, 191incentives for employees,

199-201income

customers, 90defined, 8

incorporation, 162increasing credit scores, 27industries

associations, 128competition, 69-71data analysis, 40economics, 66-68innovations, 67-68life cycles, 64-65locations, 69price comparisons, 69regulations, 68trends, 66-67

influencers, 95informal advisory boards, 194innovations, 67-68Innovators, 97insurance

coverages, 154-156professionals, 84

internal assets, 76Internal Revenue Service. See

IRSInternet

financing, 186marketing, 112ordering, 121sales, 121

interrogative sentences, 32interviews, 63inventory, 136-137investors

angel, 21-22finding, 185requirements, 23-24

securing, 5stake in companies, 187

IRS (Internal RevenueService)

contractors, 80employees

common-law, 80defined, 81statutory, 81-82

website, 81iterative process, 44

analysis, 44annual meetings, 45benchmarking, 206customer feedback, 209information sources,

207-208updates, 44

J–K–Ljargon, 31joining networking groups, 124

language, 30-31leadership, 192leases, 183

backup documents, 164equipment, 132locations, 133

lendersfinding, 185impressing, 180-181requirements, 23-24, 179selecting, 21stake in company, 187

letters of intent, 138, 165liability insurance, 155licenses, 164life cycles of industries, 64-65lines of credit, 18-19, 182LLCs (Limited Liability

Corporations), 56loans, 19, 42

applications, 183backup documents, 163

commercial, 19expectations, 183-185government-secured, 183leases, 183lenders. See lenders

finding, 185impressing, 180-181requirements, 23-24, 179selecting, 21stake in company, 187

lines of credit, 18-19, 182micro, 20SBA-guaranteed, 20term, 182transactions, 182turnaround time, 185

locations, 56, 107, 132analyzing, 69B2B customers, 93growth, 133lease lengths, 133locations/services, 134pricing, 132traffic, 133

low-cost help, 11

MMakers, 99managing

cash flow, 145deliveries, 137future, 202inventory, 136ordering, 137plans, 189teams, 77

manufacturer’s representatives,120marketing, 113

actions, 114-115analyzing, 166B-to-C, 89B2B, 89, 92-93budgeting, 115cost matrix, 115

Index 311

customersperfect, 94-96profiles, 96-99undesirable, 99

defined, 106demographics, 90-91goals, 114motivations, 95psychographics, 91-92researching, 62

focus groups, 63-64interviews, 63observation, 64primary, 62quantitative, 62sales forecasts, 127secondary, 62surveys, 63tainted data, 63

segments, 100share, 103strategies, 106

place, 107pricing, 107products, 106promotions, 107-113SWOT, 101-102

summaries, 172targeting, 89, 93timing, 116

mature industries, 65micro-loans, 20Minority Business

Development Agency, 66missions, 57-59money. See also financing

balance sheets, 149cash flow, 145-147financial analysis, 153-154insurance coverages,

154-156operating budgets, 143-144profit-and-loss statements,

147profitability, 151-152

Source and Use of Fundsstatements, 144

start-up costs, 142sources, 22

angel investors, 21-22CDC, 22EDA, 22grants, 17investors/lenders, 23-24loans, 19-20personal, 17-18trade groups, 22

mortgages, 164motivations

customers, 95employees, 198

NNAICS (North American

Industry ClassificationSystem), 65

narrative summary format, 170National Foundation for Credit

Counseling, 28National Venture Capital

Association website, 186needs versus wants of customers,

95negotiating, 181networking groups, 124North American Industry

Classification System(NAICS), 65

notices of confidentiality, 50

Oobservation, 64operations, 129

budgets, 143-144customer-service policies,

139-140deliveries, 137equipment, 130-132

inventory, 136letters of intent, 138locations, 132-134ordering, 137outlining, 7production, 135purchasing policies, 137quality control, 135-136service provisions, 135strengthening, 5suppliers, 137vendor agreements, 138

opportunities, 102ordering, 137organizational charts, 82outlining

assumptions, 127marketing plans, 113

actions, 114-115budgeting, 115cost matrix, 115goals, 114timing, 116

operations, 7suppliers, 137

outsourcing staff, 79owners

B2B customers, 92character, 24descriptions, 56experiences, 76investment amounts, 154transferring, 210-212

Ppartnerships, 56

agreements, 5experiences, 76strategic, 83, 196-197

passive voice, 31past sales, 127perfect customers, 94-95

brand loyalty, 96buying preferences, 96decision makers, 95


importance, 95influencers, 95pricing, 96

performance, 71personal characteristics of cus-

tomers, 90personal financial statements,

162personal resources of money,

17-18personnel. See also employees

advisory boards, 201contractors, 80finding, 198incentives, 199-201motivating, 198organizational charts, 82owners, 76partnerships, 56

agreements, 5experiences, 76strategic, 83, 196-197

professional resources,84-85

salaries, 83staffing, 77-79

philosophies, 190places. See locationsPlan Write, 12point-of-purchase advertising,

108political views of customers, 91POS (point-of-sale) programs,

208predicting market share, 103presentation, 33-34pricing

comparing, 69customers, 96finding prospects, 124locations, 132marketing strategy, 107utilities/services, 134

primary market research, 62pro forma, 145production, 135

productsdescriptions, 57marketing strategy, 106

professional resources, 84-85profit-and-loss statements, 147profitability, 151-152promotions, 107

advertising, 108collateral materials, 109community relations, 111direct mail, 109direct marketing, 109employee relations, 111online marketing, 112point-of-purchase advertis-

ing, 108public relations/publicity,

110-111relationship marketing,

112-113property insurance, 155prospects, finding, 123-124psychographics (customers), 91

B2B customers, 93opinions/values, 91political views, 91styles, 92

public relations, 110-111publicity, 110-111punctuation, 34purchasing policies, 137purposes portion, 55-56

Q–RQualitative Research, 64quality control, 135-136quantitative research, 62

referrals, 123regulations, 68relationships

building, 196advisory boards, 194-196strategic partners,

196-197

identifying, 196marketing, 112-113

researching, 8facts, 40industry trends, 66-67markets, 62

focus groups, 63-64interviews, 63observation, 64primary, 62quantitative, 62sales forecasting, 127secondary, 62surveys, 63tainted data, 63

resourcesbusiness plan help, 11hiring, 11-12software, 12-13

resumés, 160retailers, 121return on investment (ROI),

152revenue, 8reviewing iterative process,

44-45rewriting, 35rhetorical sentences, 32ROI (return on investment),

152

Ssalaries, 83sales

channels, 120-121cycles, 125finding prospects, 123-124forecasting, 119, 127-128territories, 123tools, 122

savings as money resources, 17SBA-guaranteed loans, 20SBIR (Small Business

Innovative Research), 17

Index 313

scams, 28SCORE (Counselors to

America’s Small Business), 11seals (corporate), 45seasonal information, 56secondary market research, 62segmented summary format, 170segments of markets, 100selling

companies, 5POS programs, 208

sentences, 32services

descriptions, 57locations, 134marketing strategy, 106provisions for, 135

Small Business Administration,11

Small Business DevelopmentCenters, 11

Small Business InnovativeResearch (SBIR), 17

Small Business TechnologyTransfer (STTR), 17

softwarebusiness-plan, 12-13customer information man-

agement, 122sole proprietorships, 56, 162Source and Use of Funds state-

ments, 144sources

capital, 4financing, 178-179information, 207-208money, 144

CDC, 22EDA, 22grants, 17loans, 19-20personal, 17-18trade groups, 22

spam, 112spending habits of customers,

90

staffing, 77advisory boards, 201contractors, 79-80employees

common-law, 80defined, 81statutory, 81-82

finding, 198incentives, 199-201management teams, 77motivating, 198organizational charts, 82outsourcing, 79professional resources, 84-85salaries, 83strategic partnerships, 83,

196-197start-up costs, 142statements

cash flow, 145-147financial

as backup documents,162

information sources, 207mission, 58profit-and-loss, 147Source and Use of Funds,

144values, 59vision, 58

statutory employees, 81-82strategic partnerships, 83,

196-197strategies

developing, 190exit, 210-212market, 101marketing, 106

place, 107pricing, 107products, 106promotions, 107-113SWOT, 101-102

strengths, 101Strengths, Weaknesses,

Opportunities, Threats(SWOT), 101-102

Strivers, 98STTR (Small Business

Technology Transfer), 17styles of customers, 92success, 43succession plans, 8, 210-212summaries, 169

company, 171executive, 170, 174financial, 172focusing, 173-174market, 172operations, 171-172

suppliersoutlining, 137relationships with, 197

surveys, 63Survivors, 99SWOT (Strengths,

Weaknesses, Opportunities,Threats), 101-102

TTable of Contents (TOC), 52tainted data, 63targeting

audiences, 30customers, 89-90, 93

tax returns, 162technology

equipment needs, 131sales tools, 122software

business-plan, 12-13customer information

management, 122term loans, 182territories for sales, 123Thinkers, 97threats, 102timing, 116title pages, 50TOC (Table of Contents), 52tone, 30-31trade associations, 124


trade groups, 22trade journals, 67trade shows, 122traffic, 133Trans Union, 25transaction loans, 182transfers of ownership, 8,

210-212trends in industries, 66-67types

B2B customers, 92business plans, 4-5loans, 182-183

Uundesirable customers, 99United States

Commerce website, 23Small Business Admin-

istration, 11Statistics Division, 66

updates, 44USP (unique selling proposi-

tion), 9-10utilities, 134

VVALS Types, 97-99values

customers, 91statements, 59

vendorsagreements, 138contacts, 123

venture capital, 42Venture Capital Journal, 186visions

developing, 190establishing, 6statements, 58

voice, 31voice recorders, 36

W–X–Y–Zwants versus needs of cus-

tomers, 95weaknesses, 102websites

Anatomy of a BusinessPlan, 13

Biz Plan Builder, 12BizMiner, 66Bureau of Labor Statistics,

65Business Plan 12.0, 13Business Plan Pro 2005, 12census data, 66Clickangel, 186E-Focus Groups, 64EDA, 22Federal Trade Commission,

112financing, 186focus groups, 64free credit reports, 26IRS, 81Minority Business

Development Agency, 66National Foundation for

Credit Counseling, 28National Venture Capital

Association, 186Plan Write, 12Qualitative Research, 64salary surveys/calculators,

83SCORE, 11Small Business Admin-

istration, 11Small Business Develop-

ment Centers, 11United States Commerce,

23United States Statistics

Division, 66

wholesalers, 120worker’s compensation insur-

ance, 155working capital budgets,

143-144writing

audiences, 30block, 35capitalization, 34grammar, 31-33language, 30-31presentation, 33-34punctuation, 34rewrites, 35services, 10voice recorders, 36

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