ENTREPRENEURSHIP

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Implementing a Simple Business

Module 013 | Implement the Business Plan

A business plan is a written description of your business' future. That is all

there is to it--a document that describes what you plan to do and how you plan
to do it. If you jot down a paragraph on the back of an envelope describing your
business strategy, you have written a plan, or at least the germ of a plan.

Business plans can help perform a number of tasks for those who write and
read them. Investment-seeking entrepreneurs to convey their vision to
potential investors use them. Firms that are trying to attract key employees,
prospect for new business, deal with suppliers or simply to understand how
to manage their companies better may also use them.

Objectives:

1. Know how to implement the plan and operate the business.

2. Understand the importance of keeping a business record.
3. Identify the duties and responsibilities of a bookkeeper.

6 Steps to Implement a Great Business Idea

According to Business News, only a small number of new small businesses will
last more than two years. The success or failure of recently started businesses
is typically dependent on the quality of the idea, as well as the execution and
performance of the operation.
Before diving in and beginning a small business, examine how sound your
business idea is and how you can properly kick start the enterprise. Here are
six steps for your small-business startup:
"A simple way to evaluate your idea is to ask for opinions from potential
customers."
1. Evaluate the idea
One of the first things individuals should consider when deciding
whether to start a business is identifying whether customers will pay
for the product or service.
"An idea is just an idea until you have a paying customer attached to it,"
Will Chroter, co-founder and CEO of Fundable, told Business News
Daily. "Anyone can discredit a simple idea, but no one can discredit
paying customers."

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 A simple way to evaluate your idea is to ask for opinions from potential
customers. Gauge interest online and in person to determine whether
demand for your product or service will be sufficient enough to pursue
the idea.

2. Create a business plan

According to the U.S. Small Business Administration, your business
plan should include the following components:
 Executive summary or brief description of your business plan
 Description of the markets you will serve
 What makes you different from other businesses
 Market analysis
 Management structure
 Products or services provided
 Marketing plan
 Sales strategy
 Required funding
 Financial projections
One of the most important aspects of a business plan is
understanding the market you will serve. Becoming familiar with
this demographic and determining whether you can expand to
other markets will help you develop a quality marketing plan and
ultimately improve the performance of your operation.
3. Take care of tax obligations, permits and licensing
When you start a small business, you will need to ensure you have the
proper paperwork and have completed all necessary tasks to ensure
you can legally operate. Entrepreneur noted you must know and
understand the taxes you and your business will need to pay.
In addition, a business cannot operate without a local permit or any
state licenses required for your enterprise. Consider meeting with a
legal adviser to ensure you meet all criteria and have all required
paperwork and other matters attended to.
4. Invest in insurance
Depending on your small-business idea, you may have varying
insurance needs, noted Entrepreneur. However, all operations should
have insurance to cover any issues that may arise during the process of
starting up, as well as during operation.
In addition, you will need to consider coverage for liability related to
injuries employees may suffer while working.
5. Know who to hire
Because you will be operating a startup business, it may be difficult to
know who you need to hire and what skills will be best for the job.
Entrepreneur recommends employing people who are creative and
competitive. These qualities will help your business further develop
and grow.
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Ask applicants to demonstrate their ability to come up with new and

unique solutions for problems. This skill will be especially helpful when
you hit hiccups down the road as you embark on your journey with a
new small business.
In addition, a competitive nature is good for a startup because these
employees will set goals and help your operation succeed.
6. Always remain patient
It is important to remember that your small business will not
automatically attract crowds of happily paying customers the moment
you decide to open your doors. Profit and success require hard work
and an understanding of exactly what needs to be done to achieve
optimal performance. Follow the right steps and invest in the right
elements to ensure your small business weathers the storm.

Entrepreneurship: How to Start and Operate a Small Business

Business ownership is a shared dream among many. Going from pipe dream
to grand opening takes hard work, dedication, knowledge and passion.
Maintaining the business takes all of the above, as well as patience and
stamina. The process of starting and operating a business is methodical;
skipping or half-addressing steps can lead to problems. A perceptive business
owner will know his business inside and out and be aware of when it is
prudent to cut corners and when it is not.
Starting a Business
1. Choose a business for which you have a passion. The launch process
will go much smoother if you enjoy what you are doing. Determine if
you want to start a business from scratch, buy an existing business or
buy into a franchise. Starting from scratch is the most labor-intensive
route, but buying an existing business can mean buying a previous
owner’s headache. Buying into a franchise provides a successful
business model, but a lot of freedom to adopt your own personal
touches is forfeited.
2. Write a business plan. Some would argue that a business plan is not
necessary to start a business. Although you do not need a plan to start
a business, the absence of one is akin to setting sail around the world
without a map. Think of the business plan as the map for the business.
The plan keeps the business on task during the startup process and
during operation. A business plan also is a requirement for any
business that will seek outside financing from a bank or investors.

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 3. Choose a business structure. Every business is required to declare
itself a sole proprietorship, partnership, limited liability company or
corporation. Determining which structure is best for you will depend
on the amount of asset and taxation protection needed, if you will be
running the business alone or with one or more partners, and how
much flexibility you desire.
4. Acquire all required licenses and permits. Requirements vary by
state, so check with your Secretary of State’s office and local county
clerk’s office to get the list of required documents.
Operating a Business
1. Set up an accounting system or hire an accountant. Knowing how
the business is doing financially is important for planning and survival.
Using an accounting software package will make tracking business
transactions easier, if you choose to do the accounting yourself. If you
opt to hire an accountant, provide the information to him so he can start
managing the account as soon as possible.
2. Advertise your business. No one will buy your products or services if
they do not know you exist. Create a website and advertise in different
mediums, such as newspapers and radio. Ask customers for referrals.
Network with other business owners to help with recognition and gain
referrals for new business.
3. Secure insurance for the business. Some states require a business to
carry insurance. Others, such as Texas, do not require it but
recommend it as a business practice. Liability insurance protects the
business in the event of litigation. Consider life and disability insurance,
health insurance and renters; insurance, if you are leasing an office or
storefront.

Business Plan: Your Financial Plan

The financial part of a business plan includes various financial statements that
show where your company currently stands and where it expects to be in the
near future. This information helps you determine how much financing your
business needs and helps outsiders determine whether lending you money or
investing in your business is a wise use of their funds.
Lenders and investors will expect that you have invested your own money in
the firm to demonstrate that you are committed to your idea and confident
that your business will succeed. The amount of your own money you will need
to have invested in the business compared to the amount you want to finance
varies, but it usually ranges from 20% to 50%.
You must also determine what type of financing would be most suitable for
your business. Banks offer several types of loans to businesses that do not
present too much risk. Do you need a short-term working capital loan to
increase your inventory? Do you want a transaction loan, where you receive
all the money at once, or a line of credit, where you draw on funds, as you need
them? Do you need an intermediate-term loan to purchase larger assets such
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as real estate or equipment? Would you prefer revolving credit, which has a
longer period than a line of credit and allows you to re-borrow funds that you
have previously paid back? Alternatively, are you a high-risk business that
needs to jump through the extra hoops required to secure a government-
backed Small Business Administration loan?
Structuring Your Financial Plan
Begin your financial plan with information on where your firm stands
financially at the end of the most recent quarter what its financial situation has
looked like historically. Then lay out your goals with financial projections for
the next three to five years, depending on what lenders or investors have
asked for. These are called "pro forma" statements, and they are based on your
assumptions about how your business will perform. Your one-year projections
should be broken down by month, while your more distant projections can be
broken down by year.
If your business plan is for the expansion of an existing business, your
statements will be based on your business's existing financial data. If your
business is new, your statements will be speculative, but you can make them
realistic by basing them on the published financial statements of existing
businesses similar to yours. If you cannot find this data on your own or if it
simply does not exist because your business concept is too unique or all
similar companies are privately held, look for an accountant who has
experience working with businesses similar to yours and can help you create
realistic financial projections.
Three Key Financial Statements
Your financial plan should include three key financial statements: the income
statement, the balance sheet and the cash flow statement. Let us look at what
each statement is and why you need it.
1. Income Statement/Profit and Loss Statement
The income statement, also called the profit and loss statement or P&L,
summarizes your company's revenue and expenses. Revenues are your
company's sales and/or other sources of income (for example, a
cleaning business earns revenues from the hourly or per-room or per-
home fee that it charges its clients; a grocery store earns revenue from
the foods and other products and services it sells. Expenses include
items such as the cost of goods sold (the money you spend buying
produce, meat and dairy from local farmers, for example) payroll for
employees, payroll, sales and income taxes, business insurance and
loan interest. The bottom line of the income statement shows the
company's net income, or its revenue minus expenses. Lenders and
investors want to know what kind of numbers your company is

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 working with and whether your company is profitable or expects to be
soon.
2. Balance Sheet
The balance sheet shows your company's assets and liabilities. It is
called a balance sheet because the assets must perfectly balance the
liabilities. Within each category are numerous subcategories. For
example, your assets will include cash, accounts receivable, inventory
and equipment. Your liabilities will include accounts payable, wages
and salaries, taxes, rent and utilities, and loan balances. The balance
sheet is important because it shows the company's financial position at
a specific point in time, and it compares what you own to what you owe.
3. Cash Flow Statement/Cash Budget
The cash flow statement shows the sums you expect to be coming into
and going out of your business in a given time frame. Topics you will
need to examine to predict cash flow include sales forecasts, cash
receipts vs. credit receipts and the period for collecting accounts
receivable. How much will these expenses be, and how often will you
need to pay them? Will you have trade credit, and how long will you
have to pay your suppliers? Cash flow statements not only show
potential investors that you know what you are doing, they also help
you to make sure your business model is financially viable and to
establish goals that you want to achieve.
Your financial statements should show both a long- and short-term vision for
your business. In business plans, three-year and five-year projections are
considered long term, and your plan will be expected to cover at least three
years. Your projections should be neither overly optimistic best-case
scenarios, nor overly cautious worst-case scenarios, but realistic in-between
projections that you can support. Do not commit the common error of making
hockey-stick projections that predict sudden, sharp growth – that is a classic
way to look like an amateur.
Lenders may want your statements presented in a certain way, so ask before
you draw them up. A bank, for example, may want to see monthly projections
for the first year, quarterly projections for the second year and annual
projections for the third year. In addition to financial statements for your
company, if you are a new business, you may need to provide personal
financial statements for each owner. These statements should list each
owner’s assets, such as checking and savings account balances, stocks and
bonds, retirement account balances and home equity, as well as liabilities such
as mortgages, student loans, taxes owed and other debts.
When you put together your financial statements, make sure there are no
typos or mistakes in your calculations. If you are inexperienced in preparing
these statements, hire an accountant to help you. Even if you and all of your
business partners know exactly what you are doing, you may still want to hire
an unbiased, outside professional to check your work and give you a second
opinion on whether your projects are realistic. You do not want to be
blindsided by mistakes or problems in your financial statements when a
potential lender or investor reviews your proposal.
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What You Can Learn from Your Financial Statements

While the financial statements are helpful in and of themselves, the data they
contain can also be used to calculate financial ratios such as gross profit
margin, return on investment and return on owner's equity. Ratios provide
helpful information about a company's liquidity, profitability, debt, operating
performance, cash flow and investment valuation.
Additional Financial Information
In addition to financial statements, prospective lenders or investors will also
want to see a sales forecast and, if your business will have employees, a
personnel plan.
Sales Forecast
The sales forecast is a chart that breaks down how much your business expects
to sell in various categories by month (for the next year) and by year (for the
following two to four years). For a cleaning service business, the sales forecast
might list one-time cleanings, monthly cleaning contracts, annual cleaning
contracts, and further break those down by houses, condominiums, apartment
units, entire apartment buildings and office buildings. For a grocery store, the
sales forecast might list projected sales of fruits, vegetables, dairy, meat,
seafood, packaged goods and hot prepared meals. If your business sells a
product, your sales forecast should include the cost of goods sold.
Personnel Plan
If your business will have employees and not just managers, you will need a
personnel plan showing what types of employees you will have (for example,
cashiers, butchers, drivers, stockers and cooks along with what they will cost
in terms of salary and wages, health insurance, retirement plan contributions,
workers compensation insurance, unemployment insurance, and Social
Security and Medicare taxes.
Use of Loan or Investment Capital
You have made a strong case for your business idea, its viability and your
ability to execute it. So how, exactly, do you plan to use any money that lenders
or investors offer you? They will want to know. If you are requesting a
$100,000 loan, for example, you might break that down into the amount that
will go toward equipment such as cash registers, shelving and refrigerated
display cases; purchasing inventory; and carrying out your marketing
campaign. If you are seeking capital to expand your business, you might show
how much you plan to spend on remodeling or adding store locations.
Proposed Repayment Schedule or Exit Strategy
Potential lenders will want to know how and when you intend to repay the
loan or line of credit, so you should put together a proposed repayment

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 schedule and terms. They may not agree with your suggestion, but offering
proposed terms shows that you are considering the loan from the lender's
perspective. Also, describe what collateral is available to secure the loan, such
as inventory, accounts receivable, real estate, vehicles or equipment. Be aware
that lenders do not count the full value of your collateral, and each lender may
count a different percentage.
Potential investors will want to know when their investment will pay off and
how much of a return to expect. They will also want to see that you have an
exit strategy to cash out on your investment and theirs. Do you plan to sell the
business outright to another individual or company? Hold an initial public
offering and go public? What will your exit strategy be if the business is failing?
At what point have you determined that you will cut your losses and sell or
close down, and how will you repay investors if this happens?
Remember, no one has to lend you any money or invest in your company, and
when they are considering doing so, they will be comparing the risk and return
of working with you to the risk and return they could get from lending to or
investing in other companies. You have to convince them that your business is
the most promising option.

Glossary
Balance sheet: Shows your company's assets and liabilities.
Business plan: A written description of your business' future.

References
1. 6 Steps to Implement a Great Business Idea;
http://blog.coloniallife.com/blog/6-steps-to-implementing-a-great-
business-idea; June 5, 2017
2. Entrepreneurship: How to Start and Operate A Small Business;
http://smallbusiness.chron.com/entrepreneurship-start-operate-small-
business-2441.html; June 5, 2017
3. Business Plan: Your Financial Plan;
http://www.investopedia.com/university/business-plan/business-
plan7.asp; June 5, 2017

Online Instructional Videos:

1. Stanford Webinar: Business Models for Entrepreneurs and Innovators;

https://www.youtube.com/watch?v=inQ8bATUoFM; June 5, 2017
2. How To Understand Financial Statements - Walkthrough | Dan Lok
https://www.youtube.com/watch?v=vecxHjgCKng; June 5, 2017
3. Entrepreneurship Series - Business Plan Writing 101;
https://www.youtube.com/watch?v=zlrb_X6fYZ0; June 5, 2017