Business Plan Development for the Young Professional

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1 Business Plan Development for the Young Professional Valdosta State University Small Business Development Center Ruby Riesinger Area Director/Business Consultant

2 Beginning Notes The business plan is a road map on an entrepreneurial journey. The plan should be written using the 3 rd person figure of speech. The plan must be realistic, credible, and compelling. The plan communicates the company s readiness and professionalism.

3 5 Ways to Ruin a Plan 1. Failure to consider outside influences: competition, industry trends, economic environment. 2. Lack of market research: over-estimating market size; failure to define target market. 3. Unsubstantiated and/or unrealistic financial assumptions. 4. Unprofessional appearance of plan: illogical format; spelling & grammar errors. 5. Lack of understanding plan.

4 Business Plan has 3 Sections 1. Narrative pages, concise, using headlines, graphs, and bullets. 2. Financial Projections 3. Appendix Based on facts & research; justify all the numbers. Management resumes, market research and data sources, floor plan, sample marketing materials, contracts, historical financials, personal financial statements, tax returns.

5 Key Elements of Narrative Section 1. Executive Summary 2. Company 3. Management 4. Operations 5. Target Market 6. Marketing Plan 7. Competition

6 Executive Summary Concise explanation of business: product, services, company. Management Team: short bios of key managers. Target Market: market size; market need; demographic profile. Marketing Plan: how will company penetrate market and retain customers? Competition: indirect and direct competitors. Competitive Advantage: what your company does better/different from competition. Financial Highlights.

7 Can you explain your business idea in the time it takes to get from the lobby to the fifth floor? Elevator Pitch

8 The Company Date of Formation. Legal Structure. Office Location. History and Accomplishments, if applicable. Competitive Advantage: describe industry and how your company is uniquely qualified to succeed. Provide examples: superior management; proprietary technology; outstanding systems.

9 Management Description of key team members. Owners/Manager s Experience present with entrepreneurial perspective. Who will be responsible for each functional area of the business? Outside resources Attorney, Banker, CPA (ABC s). Advisory Board use to fill in management gaps.

10 Management Personnel Start-up personnel needs. How will you find these people? Skills and training. Compensation. Consider including a staffing worksheet: 1)job roles; 2) # of employees in each role; 3)pay rate/range.

11 Operations How will products/services be produced or obtained? How will service be provided to the customer after the sale? List key suppliers. Discuss inventory and bookkeeping system.

12 Target Market Define target market: Who they are. For example: single, college educated professional woman, aged 35-50, with annual income levels from $50,000 and above. Where they are. Provide details about the geographic area you are going to serve. For example: Neighborhood? City? Region? Country? Size of market. # of those potential customers is large enough to sustain your business. What they want. Those potential customers value what you offer and are ready to buy.

13 Target Market Market Research: validate that a market exists for your product and/or service. (Utilize primary and secondary research methods.) Demographic Information: include demographic data (maps, reports, charts) and discuss how this information supports your business strategy. Market Trends: highlight trends in your industry that reflect positively on your business strategy.

14 Marketing The Four P s Product and Services Price Promotion Place

15 Marketing Product and Services Describe each product line Product features Product benefits

16 Marketing Price What is your pricing strategy? Is your pricing consistent with your product? How does your pricing compare to the competition? Why will customers pay your price?

17 Marketing Promotion Advertising: print, internet, TV, radio Public Relations Direct Mail Sales Promotions

18 Marketing Place/Distribution How will you deliver your product to the customer? What is the primary distribution method? What other distribution methods are offered?

19 Marketing Place/Distribution Does the business address enhance desired perception? Is the facility owned or leased? Any build-outs or improvements needed? Describe property, surrounding area, and why this is a good location for the business.

20 Competition Direct competitors. Indirect competitors. Competitive Advantage (particularly with respect to direct competitors ). Avoid statements such as There is no competition.

21 Financial Projection Objectives of the financial plan: 1. Establish profit potential of business given reasonable assumptions. 2. Determine capital needs of how it will be used. 3. Demonstrate that the business can generate cash to operate and repay loans.

22 Steps in Financial Projections 1. Estimate sales by month. 2. Calculate gross profit percentage by product line. 3. Determine amount of inventory. 4. Determine average collection period. 5. Determine how fast vendors must be paid.

23 Steps in Financial Projections 6. Estimate fixed asset requirements by month. 7. List repayment schedule for existing loans. 8. Estimate any start-up, one-time, or unusual expenses. 9. Estimate fixed expenses by month.

24 Financial Projection Statements Income Statement Balance Sheet Cash Flow

25 Income Statement Includes revenues & cost of sales. Includes selling, general & administrative expenses. Some cash outflows are not included, i.e. principal payments on loans. Not all expenses are cash outflows, i.e. depreciation.

26 Estimating Sales Talk with vendors. Check out industry averages or competitors. Estimate by product category. Estimate annual sales broken down into monthly expectations don t forget about seasonal fluctuations. Estimate average daily sales or traffic.

27 How to Estimate Expenses Quotes Insurance Property and Casualty General Liability Business Interruption Health

28 Labor Estimates 112 hours/week *4.3 weeks/month*$8/hour = $ /month

29 Sample Income Statement Projection Sales $100,000 Cost of Goods Sold $50,000 Gross Margin $50,000 SG&A ($30,000) Interest ($6,000) Depreciation ($2,000) Net Profit before Taxes $12,000

30 Balance Sheet Includes what the business owns (assets), what the business owes (liabilities), and book value of the business (equity).

31 Balance Sheet Assets Cash 5,000 Inventory 5,000 Furniture 1,000 Equipment 5,000 Improvements 10,000 Total Assets $26,000 Liabilities Acct. Payable 7,500 Bank Loan 10,000 Owner Equity Retained Earnings 8,500 Total L&OE $26,000

32 Cash Flow Projections The most important of all the projected financial statements. Business owners must have a fundamental understanding of what cash flow is an how cash flow works. CAUTION: Failure to adequately understand cash flow can be fatal to a business.

33 Cash Flow Projections Includes all cash coming into the business. Includes all cash leaving the business. Obviously, a business cannot operate in the absence of cash. Must be included as part of monthly and annual projections.

34 Financial Plan Income Statement answers: How much profit will the business make? When will the profits be made? Balance Sheet answers: How much of a business do owners own? How much do creditors own? Can funds be borrowed? Cash Flow Statement answers: When does a business begin to cash flow? How much cash will the business generate?

35 Financial Plan Caution: It is important that the owner have ownership of the financial projections. Projections should be prepared and presented on a monthly basis for the first three years. Understand the impact of any business cycle!

36 Sources of Money Total Project Cost: How much is needed? Equity Injection: How much will the owner invest?

37 Sources and Uses of Funds Sources Investment $8,500 Bank Loan 10,000 Trade Credit 7,500 TOTAL $26,000 Uses Improvements $10,000 Furniture & Equipment 6,000 Working Capital 10,000 TOTAL $26,000

38 Appendix Management resumes, job descriptions, and professional certifications. Personal tax returns. Personal financial statements. Resume. Personal credit report. Important legal documents: copies of leases, business licenses, contracts, and others. Letters of intent.

39 Appendix Company specific profiles: financial, trends, competitive intelligence, management team. Industry overview: financials, market size, companies, trends, trade associations. Market research: competitive landscape, market share, statistics, consumer data. Demographics: populations, spending, lifestyles income, business data relevant to target market. Literature: articles on relevant business topics.

40 Compelling Solutions by the SBDC Financial Projections Valuation Components Business Assessments Business Plan Overviews Operational Policies International Trade Acquisition Federal and State Regulation Compliance Strategic Planning Loan Packaging Procurement Sources of Capital Succession Planning Investor Presentations Certifications Cash Flow Analyses Marketing Plans and Research Consulting sessions are free of charge and scheduled by appointments.

41 Questions???

42 Thank You!! Ruby C. Riesinger, MBA Area Director/Business Consultant Valdosta State University Small Business Development Center

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