ELEMENTS OF A GOOD BUSINESS PLAN

The plan writers should have an in depth understanding of financial pro forma statements, cost and cash flow analysis and revenue modeling. Investors are typically numbers people. They know and understand financial statements and they will know very quickly if someone has simply pulled numbers out of the air.

A critical element of a good business plan is the market analysis. A true leading edge provider of business plans will subscribe to a numbers of online market research services such as Profound and Dialog. These services allow the plan researcher to access the most current data available on any market, product or application.

WHAT IS THE PURPOSE OF A BUSINESS PLAN?

IT IS TO TAKE FOUR MAJOR SECTORS OF A BUSINESS PLAN TO FOLLOW AND PRESENT TO WHOM EVER NECESSARY . SAHLMANS ALIGNMENT MODEL SHOWS IT SIMPLY AND BEST
PEOPLE

DEAL

BUSINESS PLAN

RESOURCES

OPPORTUNITY

DEFINE THE FOUR ELEMENTS

PEOPLEONE MUST CONSIDER THE MANAGERS, EMPLOYEES, FUNDERS, AND OTHER ORGANIZATIONS CRITICAL TO THEIR SUCCESS, AND HOW TO CAPTURE THIS HUMAN TALENT FOR THEIR VENTURES. DEALIS THE SUBSTANCE OF THE BARGAIN THAT DEFINES WHO IN A VENTURE GIVES WHAT, WHO GETS WHAT AND WHEN THOSE DELIVERIES AND RECEIPTS WILL TAKE PLACE.

DEFINE THE FOUR ELEMENTS

RESOURCESIT IS THE ENTREPREURS JOB TO EXPAND CAPACITY WITH LIMITED RESOURCES. ENTREPRENEURS AND THEIR FUNDERS HAVE A CENTRAL CONCERN ABOUT THE FINANCIAL RETURN THEY WILL GAIN FROM THE VENTURE, AND THUS FOCUS ON THE VALUATION OF THE COMPANY AND ON THE EQUITY DISTRIBUTION OF THE DEAL.

OPPORTUNITYIS DEFINED AS ANY ACTIVITY REQUIRING THE INVESTMENT OF SCARCE RESOURCES IN HOPES OF A FUTURE RETURN.

THE IMPORTANCE OF CASH-FLOW

CASH IS THE BLOOD OF A SMALL COMPANY WHEN YOU ARE OUT IT IS OVER. WHAT YOU SPEND THE MONEY ON IS AN INDICATOR OF WHETHER OR NOT YOU WILL BE SUCCESSFUL. INVESTORS WILL BE LOOKING AT YOUR BURN RATE. THUS AN ENTREPRENEUR SHOULD ALWAYS BE MONITORING THE FUNDS ON A WEEKLY, MONTHLY, QUARTERLY AND ANNUAL BASES. THUS THE QUESTION HOW DOES ONE DO THIS WITHOUT AN EXPENSIVE IT (INFORMATION TECHNOLOGY) SOFTWARE?

CASH-FLOW MONITORING
MICROSCOFT OFFICE HAS NUMEROUS TEMPLATES TO HELP ANY SMALL BUSINESS MONITOR CASH-FLOW, CAPITAL BUDGETING, PROFITABILTY, BREAKEVEN ANALYSIS, INVENTORYCOST OF GOODS SOLD ANALYSIS AND TURN NUMBERS INTO CONCLUSIONS. MICROSOFT TEMPLATES: 1. 13-WEEK CASH FLOW MODEL 2. STATEMENT OF CASH FLOWS 3. INCOME STATEMENT 1 YEAR 4. BREAKEVEN ANALYSIS 5. CAPITAL BUDGETING-RETURN-ON-INVESTMENT

CASH-FLOW MONITORING
6. PROJECTED BALANCE SHEET 7. OPENING DAY BALANCE SHEET 8. BALANCE SHEET WITH FINANCIAL RATIOS 9. FINANCIAL HISTORY AND RATIOS 10. INVENTORY-COST OF GOODS SOLD ANALYSIS 11. NEW PRODUCT SALES AND PROFIT FORECASTING 12. PRODUCT PROFITABILITY ANALYSIS 13. CUSTOMER PROFITABILITY ANALYSIS 14. FIVE YEAR PLAN 15. RISK ASSESSMENT AND FINANCIAL IMPACT 16. TURN NUMBERS INTO CONCLUSIONS MICROSOFT ACCESS DATA BASE HAS SIMILAR TEMPLATES FOR MONITORING PEOPLE AND OTHER RESOURCES.

STEP BY STEP PROCESS

THIS IS ALL GOOD INFORMATION BUT WHAT IS THE STEP BY STEP PROCESS I COULD FOLLOW? FIRST DETERMINE THE TYPE OF ENTITY YOU WANT TO SETUP. IN ORDER TO DO THIS YOU MUST KEEP IN MIND THAT ONE LAW SUIT COULD PUT A SMALL BUSINESS OUT OF BUSINESS THE SAME AS RUNNING OUT OF MONEY. THE FOLLOWING TABLE AVAILABLE ON MY MPC.EDU WEBSITE ENTITLED BUSINESS ENTITY COMPARISON TABLE WILL HELP YOU MAKE A CHOICE.

STEP BY STEP PROCESS

NEXT STEP WOULD BE TO DEVELOP A BUSINESS PLAN OUTLINE AND QUESTIONS THAT NEED ANSWERING. THE FOLLOWING ARE EXAMPLES OF WHAT I MEAN; BUSINESS PLAN OUTLINE 1. EXECUTIVE SUMMARY2-3 PAGESThis must be hardhitting, concise overview of the business as it is the first to be read. Thus it must completely captivate the reader or the rest of the plan will go unread. 2. VISION AND MISSION2-3 PAGESThe key importance is the mission statement which expresses the vision as an operational statement that is easily understood and which forms the basis for achievable goals. The vision/mission links the daily activities of the business to the long-term focus of the organization.

STEP BY STEP PROCESS

3. COMPANY PLAN---45 Pages---The company must be organized such that it can complete current business activities and those anticipated in the future. The organizational chart should anticipate changes in business size and structure. Strengths of management and key personnel are described in such a way that their capabilities to run the business are evident. Positions are sufficiently described in order to determine the anticipated salaries required to fill them. Ownership and outside support are also defined. PRODUCT/SERVICE PLAN45 PagesThis section presents a complete description of the product/service and its benefits to customers and other parties. The benefits and weaknesses of the product/service are described in the most practical, understandable terms possible.

4.

STEP BY STEP PROCESS

5. MARKETING ANALYSIS610 PagesThe marketing analysis is the detailed description of the available facts and statistics about the environment in which the organization will operate. The size of the market and the various market segments are delineated. Growth trends and demographic statistics assist in identifying the actual and prospective markets. This is where market research services such as Profound and Dialog come in handy and add creditability to the analysis. Microsofts template for competitive analysis can be used for comparison. MARKETING PLAN56 PagesThe marketing plan defines the projected sales in each market segment and the marketing and sales efforts necessary to achieve sales goals (Microsofts templates can easily be used for a clear picture). The details of marketing, advertising, and sales strategies should convincingly result in the desired sales and market share. Channels of distribution and methods for pushing and pulling the product/service through them must be completely presented.

6.

STEP BY STEP PROCESS

7. FINANCIAL PLAN45PagesThe financial plan for the business brings everything together. Typically, investors read this section right after the Executive Summary, because the Financial Plan expresses in dollars what all the other sections of the plan describe in words. The Financial Plan incorporates the cost of bringing the product/service to market that are defined in the Product/Service Plan. It links the acquisition of customers and the resulting sales with the projected sales from the Marketing Plan. The Financial Plan projects all aspects of the organizations financial activity. Microsofts templates mentioned earlier help clarify the process. Usually the financials are month-to-month for the first two years and annually for the next three (total of five years). This detail conveys to investors that the organization has truly done its home work and gives them a realistic view of the profitability of the business. This section addresses the funding needed and how/when it will be paid back.

STEP BY STEP PROCESS

SUPPORTING DOCUMENTS AND FINANCIAL STATEMENTS ORGANIZATIONAL CHART RESUMES FINANCIAL STATEMENTS PRODUCT/SERVICE INFORMATION INDUSTRY STATISTICS DETAILED COMPETITIVE INFORMATION OTHER RELEVANT INFORMATION

STEP BY STEP PROCESS

Next step would be to make sure that the Business Plan, Executive Summary and Cash-flow Analysis answer the following questions; QUESTIONS A BUSINESS PLAN SHOULD ANSWER 1. Who is in charge and what is their authority? 2. What is the organizations mission? 3. What is the organizations goal (s)? 4. How does those in charge intend to achieve the organizations goals? 5. How much money is needed to reach the desired goals? 6. Is the required funds feasible to reach the goals? 7. Is a month-to-month cash flow analysis (two year period then annually for the next three years) included and how feasible is it? 8. What is the repayment plan for any borrowed or invested funds? 9. Has any marketing material been prepared for review? 10. How is the success of the plan monitored? 11. Is there a back-up plan to be put in place incase the original plan falters?

STEP BY STEP PROCESS

QUESTIONS THE EXECUTIVE SUMMARY AND CASH-FLOW ANALYSIS SHOULD ANSWER

1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11.

Total dollars required? Start-up cost/breakdown? Overall size of the market? Market penetration means, methods and dollars required? Company share of the market and timeline? Competitor Analysis? Break-even Point? Investor or Debtor Exit Strategy? Return on Investment for Investors? Management Qualifications? Summation?

STEP BY STEP PROCESS

Now we are ready to prepare a presentation to an investor. Everyone has heard the phase 15 minutes of fame. This is true of the time you may have in front of an investor with 5 additional minutes for questions and answers. Microsofts PowerPoint can fill this need. Its flexibility to be able to add charts, tables, voice over, music and motion will come in handy. Industry experts recommend that you keep your slides to 10-15 and never more than 20. Once we are ready then one must identify the source of funding such as VENTURE CAPITALIST, ANGELS OF INDUSTRY, INVESTMENT BANKERS, PRIVATE MONEY OR A FINANCIAL INSTITUTION. Directories are available for free or at a small cost on-line that will help you target those with the highest potential for you securing the funds. Funding sources should be researched as well to make sure of a good fit.

STEP BY STEP PROCESS

Before you even meet the potential investor you must first file the necessary papers (based on the entity chosen) with the state you will be operating. In order to fill them out, you must determine the number of shares of stock authorized, how many shares will be available to investors , what the price per share is etc. The method used in most industries is a discount cash-flow basis (DCF). This can be used on past revenues or future revenue streams to determine the company valuation. An existing company (the reason for 3 year operational requirements for many funding sources) has an easier time proving its companys value than a start-up. Thus the reason existing companies have more funding sources available to them.

A DCF method is available for use on my MPC.EDU website entitled jk_nflowtoval_xls. For sample of an industry used month-to-month cash flow look at monthly cash flow_mcfp2 or information on Venture Capitalist look at The Venture Capital Industry topic.

STEP BY STEP PROCESS

Last of all is to review your oral presentation, executive summary and business plan with one method used by the industry to score the feasibility of your venture go to my mpc.edu website to the topic entitled Business Review. All three areas are scored and the questions should be clear and precise for any investor to approve your venture. Once approved you will be asked to fill out what is know as a term sheet before you receive any funds. This also can be reviewed on my mpc.edu website entitled Term Sheet. After doing all of this then you are ready to present your venture to anyone. The website has much more valuable information for an Entrepreneur. I would also recommend that you rehearse your presentation and have with you those that can answer any questions shown in more detail if necessary.

KNOW WHY MOST NEW BUSINESSES FAIL

WHY NEW BUSINESSES FAIL ACCORDING TO THE EXPERTS 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. Managerial Incompetence Lack of Relevant Experience Inadequate Financing Poor cash Management Lack of Strategic Planning Ineffective Marketing Uncontrolled Growth Poor Location Poor Inventory Control Inability to make the transition from Corporate Employee to Entrepreneur.