How to Write a Business Plan

Transcription

1 A Free Educatinal Dcument Prvided by The Business Finance Stre { Hw t Write a Business Plan Develping the Business Plan siness Plan GREAT BUSINESSES START WITH A GREAT PLAN. T help yu create yur great business we put tgether this dcument which describes step by step everything yu need t create the right plan fr yur cmpany. Building yur wn future is the mst challenging, and the mst rewarding experience f yur entire life. PLAN THE WORK, AND WORK THE PLAN - AND NO MATTER WHAT, DON'T FORGET TO ENJOY THE RIDE! A Free Educatinal Dcument Prvided by The Business Finance Stre {

2 A Free Educatinal Dcument Prvided by The Business Finance Stre { Develping the Business Plan Educatinal Series Table f Cntents: Intrductin...3 A business plan is...3 Why create a business plan?...3 Things t cnsider when develping a business plan...4 Frnt matter..4 What type f business?...5 Legal structure.. 6 Lcatin....7 What prcess?...7 Envirnment & market....8 Marketing plan. 9 Financials Glssary f terms.. 17 A Free Educatinal Dcument Prvided by The Business Finance Stre {

3 A Free Educatinal Dcument Prvided by The Business Finance Stre { INTRODUCTION Every business starts with an idea. Regardless f what the idea is, a well-thught-ut business plan is what helps transfrm an idea int a reality. It is a cmmn miscnceptin t think that business plans are written fr the sle purpse f btaining financing. Actually, the mst imprtant reasn fr writing a business plan is t create an essential management tl t use in the present, as well as the future. A BUSINESS PLAN IS A written dcument fully describing and analyzing a particular business; it prvides cmplete, detailed infrmatin abut shrt-and lng-term business gals. Infrmatin prviding ptential investrs with cmplete knwledge f a business; investrs will then be able t understand all f its strengths and weaknesses, enabling them t identify present and future ptential. WHY CREATE A BUSINESS PLAN? A Cmplete Business Plan Will: Assist management in btaining varius surces f financing Identify the strengths and weaknesses f a business Present crrect details abut the business; i.e. past, present, and future perfrmance Furnish detailed prjectins abut the cmpany Discuss the financial aspects f starting r expanding the business Guide management thrugh the steps f develping and fine-tuning a business Prvide clear business bjectives and shrt-and lng-term gals Prvide answers fr any ptential financial backers Prvide prspective investrs with the infrmatin t determine whether the cmpany is the crrect investment fr them Prvide a chrnlgy f events and financial markers against which the firm can cmpare their actual results Keep a business fcused Imprved dds fr success Chances f receiving funding are dependent n the accuracy f the business plan A Free Educatinal Dcument Prvided by The Business Finance Stre {

4 A Free Educatinal Dcument Prvided by The Business Finance Stre { THINGS TO CONSIDER Summary Sectin: The fur basic questins t guide yu in develping the business plan What are the firm s wn success strengths and weaknesses? What is the verall business cncept? Manufacturing, retail, r services sectr? What is the current situatin? Develp an verview f the business peratin, fcusing n the cmpetitive envirnment What is the current financial picture? Prducts and/r Services: What the business ffers t the custmer in the marketplace Operatins Analysis: Hw the cmpany s infrastructure is ging t wrk Marketing and Sales Operatins: Hw the business is ging t create the need fr the prduct/service Develping the Financials f a Business Plan: Prjects hw the business will perfrm in the future FRONT MATTER This sectin f the business plan shuld be written last Cver Letter: States why the business wner is creating and submitting the business plan Highlights imprtant infrmatin frm the plan If the business plan is being presented t a specific individual, make certain his/her name and address is spelled crrectly Nn-Disclsure Statement: This infrms the reader t keep the plan s cntents cnfidential Title Page: Cntains the fllwing infrmatin: Current date Cmpany lg Cmpany name Cmpany address Cmpany address Cmpany telephne numbers Hme and ffice # s f emplyees Cmpany Web site address Table f Cntents: Shuld specifically utline cre sectins and sub-sectins f the business plan; it is a gd idea t wait until the plan is written befre adding page numbers Executive summary: this sectin is the mst imprtant part f any business plan and shuld be written when the plan is cmplete; if yu can t sell the plan in the executive summary, yur plan has less chance f being read; it shuld include: Business Descriptin: Must specifically state what the business is and why it will be successful A Free Educatinal Dcument Prvided by The Business Finance Stre {

5 A Free Educatinal Dcument Prvided by The Business Finance Stre { Visin and Missin Statement: Visin statement describes where yu want t be Missin statement describes hw yu will get there; it is what makes a business unique What are the pprtunities fr the business? Discuss the market Discuss the industry What are the cmpetitins? What are the marketing/sales strategies? What are the financials? What is the prfit ptential like? What are the sales prjectins? What is the grwth ptential? What persnnel are needed? What is the prduct/service? WHAT TYPE OF BUSINESS? If the cmpany is: A Manufacturing Business: What is the surce f the cmpetitin? Is there available skilled labr t hire? Will prducts be made fr inventry r per rder and hw much f each shuld be made? Will the business make ne r mre than ne prduct? A Retail Business: By what means will the business be kept current f fashin changes and taste changes in the business? Hw will the advertising needs be handled? Hw much actual inventry shuld be purchased? Shuld the stre pen in a mall r a free-standing lcatin? A Service Business: Are the skills better than cmpetitrs? Shuld the business insist n cash payments nly? Identify the market(s) t be served Shuld franchising be cnsidered? Identify the business cmpetitive advantage Is the client list big enugh r shuld the business start fresh? Explain hw the business prduct/service is different frm cmpetitrs A Free Educatinal Dcument Prvided by The Business Finance Stre {

6 A Free Educatinal Dcument Prvided by The Business Finance Stre { Explain the legal structure f the cmpany; is it a sle prprietrship, partnership r crpratin? Be as specific as pssible Tell the reader if the business is a start-up r identify the length f time it has been in business Prvide a brief verview f prgress t date; be sure t mentin cntracts, patents and any market research identifying the viability f the business Describe the management team, as well as their individual experience Indicate exactly hw much mney has been invested and hw it has been spent Summarize the past financial perfrmance by identifying the prjected grss revenues and net prfits Explain if management will be drawing a salary frm the business in the beginning; if s, be as specific as pssible when quting the salary requirements LEGAL STRUCTURE What is the legal structure f the business (if selling equity)? General Partnership: A business partnership featuring tw r mre partners where each partner is liable fr any debts taken n by the business All the partners assets can be invlved in a bankruptcy case against the cmpany Bth grups are usually invlved in day-t-day peratins Limited Partnership: A business rganizatin with ne r mre general partners wh manage the business and assume legal debts and bligatins, as well as ne r mre limited partners, wh d nt participate in day-t-day peratins and are liable nly t the extent f their investments Crpratin: The mst cmmn frm f business rganizatin; chartered by a state and given many legal rights as an entity separate frm its wners. Characterized by the limited liability f its wners and the issuance f shares f easily transferable stck LOCATION Manufacturing Where will the business be lcated? Where is the majrity f the custmer base lcated? This will affect shipping csts Where are the suppliers lcated? Service Where will the business be lcated? What is the distance frm the custmer base? What ft traffic des the lcatin have? What are the demgraphics f the area? A Free Educatinal Dcument Prvided by The Business Finance Stre {

7 A Free Educatinal Dcument Prvided by The Business Finance Stre { Retail What will the hurs f peratin be? Where will the stre(s) be lcated? What ft traffic des the lcatin have? Hw easy is it t get int the stre? What are the demgraphics f the area? WHAT PROCESS? Hw will the prduct/service be made/perfrmed? Cnduct a market analysis: Market research that supplies infrmatin abut the marketplace This invlves: Stage f Develpment: What are the prblems in the develpment f the prduct/service? Indicate which industry assciatins the wners f the business will affiliate with Are there any industry guidelines that must be cmplied with? Are there any gvernment regulatins that management must fllw? Wh are the suppliers t the business? Are there alternate suppliers fr backup? What are the prices, terms and cnditins? Prductin Prcess: What are basic requirements fr the business? Cnsider land, equipment and ffice space. Management shuld be familiar with these csts. When will prductin begin n the prduct r service? Hw lng will it take t prduce the prducts? Be familiar with the csts f all materials. Wh will make purchases n the cmpnents necessary fr prductin? Hw will the cmpany respnd if the demand fr gds fluctuates? Did the cmpany perfrm feasibility testing n their prduct (testing f the prcess, prttyping and pricing)? What will be the system fr keeping track f inventry? ENVIRONMENT & MARKET Cmpetitive Analysis: ne must knw wh the cmpetitin is and what they are ding; cmpetitin is the rivalry amng firms perating in a market t fill the same custmer need A Free Educatinal Dcument Prvided by The Business Finance Stre {

8 A Free Educatinal Dcument Prvided by The Business Finance Stre { Cmpetitive intelligence is the publicly available infrmatin n cmpetitrs, bth current and ptential; it has 3 parts: Defensive intelligence: Infrmatin gathered t avid being caught ff guard; serves t keep track f mves that deal with the firm s business Passive intelligence: Infrmatin btained fr a specific decisin (i.e. a cmpany may seek infrmatin abut a cmpetitr s return plicy when develping its wn) Offensive intelligence: Identifies new pprtunities Awareness f all current and ptential business pprtunities and risks in the marketplace An extensive understanding f the nature f the cmpetitin, bth direct and indirect, t help btain cmpetitive advantage; cmplete a review f the industry, as well as the primary cmpetitrs Familiarity with the strengths and weaknesses f the cmpetitin Custmer Analysis: Business cmpetes t serve cnsumer needs Define the cnsumer needs What are their buying patterns? What is the market ptential: what is the ttal demand fr a prduct in an envirnment? Measured by: Market size Market grwth Prfitability Type f business decisins and custmer market ptential Define the custmer s purchasing decisins What is the make-up f custmers and the target market? Include demgraphics like age, gender and incme Industry Analysis: Determines the attractiveness f a market based n its ecnmic structure What is the current status f the industry? (Business-t-business r business-t-cnsumer) Changes in the marketplace; nte new entries int the marketplace Estimate ttal size f target market in terms f grss sales/units f prduct r service sld Scan the envirnment: there are five different types f envirnments: Technlgical: Technlgical develpments cme ut f the research effrt Plitical: Observe trends that may have an impact n business Ecnmic: Ecnmic trends and events that affect businesses (e.g. depressin, high inflatin) Scial: Be familiar with emerging scial trends; an imprtant part f this envirnment cncerns the values cnsumers hld Regulatry: Gvernment influence n businesses A Free Educatinal Dcument Prvided by The Business Finance Stre {

9 A Free Educatinal Dcument Prvided by The Business Finance Stre { MARKETING PLAN Describes the marketing strategies t use t influence the custmer t purchase the prduct r service Marketing Mix: The fur Ps f marketing, price, prduct, place and prmtin Price: The fur factrs used t arrive at a price: Pricing bjectives Cst Cmpetitin Demand; ask and answer the fllwing questins: - Is the prduct r service better than thse f its cmpetitrs? - If the price is lwer, hw will the business be able t charge less? - Hw will the price f prducts/service cmpete with market prices? - If price is higher, why wuld a custmer chse the prduct? - Is the cmpany ffering discunts t students, senirs r fr thse wh pay in cash rather than by credit? - Des the cmpany sell in large vlume? - Hw are similar prducts/services priced? - Is the quality different and/r is the prductin prcess mre efficient? - Prvide a brief summary f the fixed and variable csts. What d the csts include? - What kind f a return is management lking fr in the investment and hw sn des the business anticipate recuping the investment? Pricing Strategy: Determine the price f the prduct and/r service New Prducts Skimming pricing: Setting a high price during the initial stage f the prduct s life Penetrating pricing: Setting a lw price during the initial stages f the prduct s life; prmte heavily at this time t gain market share Established Prducts Maintaining the price: Pricing that maintains psitin in the marketplace and builds n the prduct s public image Reducing the price: Cut price t meet r beat that f cmpetitin Increasing the price: T segment the current served market and t take advantage f prduct differences A Free Educatinal Dcument Prvided by The Business Finance Stre {

10 A Free Educatinal Dcument Prvided by The Business Finance Stre { Price-Flexibility Strategy: One-price strategy: Charging the same price t all custmers based n same cnditins and quantities; helps t simplify pricing decisins and t keep gdwill amng custmers Flexibility-pricing strategy: Charging different prices t different custmers fr the same prduct and quantity; price is based n custmer value (financial wrth) t the business Prduct/Service Strategies Prduct/services strategies state market needs that may be served by different prduct fferings What are the business prducts and/r service? Evaluate all f the firm s prducts and/r services Understanding the cnsumer perceptin f a prduct and/r service cmpared t the cmpetitin Identify the ne thing that makes the prduct r service unique What ther features des the prduct/service have? Cnsider quality, price, cnvenience, selectin, packaging and service Identify benefits custmers will experience frm buying the prduct/service Prduct-Psitining Strategy: Intrducing a brand in the marketplace Where will it be received favrably cmpared with cmpeting brands? This will help psitin the prduct s that it stands apart frm the cmpetitin Prduct-Repsitining Strategy: View the current status f the prduct and find a new psitin that seems like it will wrk better Increases the life f the prduct Crrects an riginal psitining mistake New-Prduct Strategy: A new prduct intrduced t meet new needs and t cntinue cmpetitive pressure n existing prducts Value-Marketing Strategy: Delivering n prmises made fr the prduct r service; prmises f prduct quality, custmer service, and meeting time cmmitments; geared tward ttal custmer satisfactin Sales/Distributin Plan Describe the type f persn/business likely t buy the prduct/service What is the distributin f the prduct r service? Will the cmpany use mail-rder, whlesaler, retailer? Describe the return plicy Describe the service guarantees and any ther warranties What pst-sales supprt will be ffered? What payment plans will be ffered? A Free Educatinal Dcument Prvided by The Business Finance Stre {

11 A Free Educatinal Dcument Prvided by The Business Finance Stre { Identify specific marketing materials t be used Identify cst f advertising Hw much business is anticipated frm these surces? What are the csts fr varius services? Will the cmpany use the Web? Sales/Distributin Strategies Channel-Structure Strategy: The prcess f using intermediaries in the flw f gds frm manufacturers t custmers; distributin can be direct r indirect; reaches the largest number f custmers as quickly as pssible, at a lw cst, but still maintaining cntrl Multiple-Channel Strategy: When there are tw r mre different channels fr distributin f gds and services; achieves greatest access t each market segment t increase business Prmtin: Creates awareness, gets the buyer t buy and describes hw a prduct/service slves the buyer s need What is the psitin yu want t hld in the custmer s mind? Creating a cnsistent message when cmmunicating the prduct s psitin; it is what the business wants the custmer t think f when he/she sees their brand The fllwing are sme prmtinal tls: - Sales and sales management - Trade publicatins - Trade shws - Prmtinal materials - Direct mail - Internet - Packaging - Public relatins - Televisin - Radi The main purpse f advertising is t build brand awareness and create a new want r awareness f the prduct; must identify ways f advertising the prduct/service Identify the cst fr advertising Identify necessary marketing material specifically Prmtin strategies A Free Educatinal Dcument Prvided by The Business Finance Stre {

12 A Free Educatinal Dcument Prvided by The Business Finance Stre { FINANCIALS - Media-Selectin Strategy: Chse channels (i.e. newspapers, magazines, televisin, etc.) thrugh which messages fr the prduct/service are transmitted t the custmer; helps mve the custmer alng the desired the path f purchase prcess - Advertising-Cpy Strategy: Designing the cntent f an advertisement t cmmunicate a prduct/service message t the ptential custmer - Selling Strategy: Mving the custmer t the purchase phase f the decisin-making prcess thrugh persnal cntact Hw financially viable will the business be? Why is it necessary t determine amunt and type f all expenses? It is imperative t shw expected results fr the first and/r current year f peratin Up t five years f future prjectins are necessary A business plan fr an n-ging business shuld include financial statements frm the previus five years Financial prjectins shuld be realistic This sectin will serve as a benchmark fr the cmpany t gauge prgress against riginal prjectins Determine amunt and type f all expenses the business will incur; this basic infrmatin will help create the financial statements fr the business; these statements are: Balance sheet: A snapsht f the financial state f the business at a particular pint in time - It utlines the assets, liabilities and equity - It helps ne understand the net wrth f the business - Balance sheet shuld list current assets, such as Accunts Receivable, Cash Balances and Inventry - It shuld als list fixed assets, such as prperty, equipment, furniture and fixtures and vehicles - Current liabilities include accunts payable and debts that must be paid within a year; nrmally, these debts are payable t creditrs and suppliers - Lng-term liabilities include lng-term lans, such as mrtgages, equipment lans r lans made t the business - Sharehlder s equity cnsists f permanent funds cntributed t the business by wner; als, sharehlder s equity can be cntributed by smene wh invests in the business fr a share f wnership (capital stck) and retained earnings A Free Educatinal Dcument Prvided by The Business Finance Stre {

13 A Free Educatinal Dcument Prvided by The Business Finance Stre { Incme Statement - Shws the prfit r lss fr a particular time perid - Details all revenues, expenses and ther csts; as with the cash-flw statement, it shuld be prepared mnthly, r quarterly - It is an accunting tl used t measure business perfrmance - Reveals the break-even pint fr the business (the pint at which the level f sales in either dllars r units causes revenue t equal ttal csts) Statement f Cash Flws - A reflectin f hw much mney the business has at a particular pint in time - If the cash inflws (cllected revenue) exceed the cash utflws (disbursements), the cash flw is psitive - If the cash utflws (disbursements) exceed the cash inflws (cllected revenue), the cash flw is negative - A cash-flw statement enables ne t see exactly where cash is lw and when the cmpany will have a surplus; it shuld be prepared n a mnthly basis - The imprtant pint is anticipating and planning fr fluctuatins - There is an essential difference between cash flw and incme statement - The cash-flw statement includes details f time when revenue is cllected r expenses are paid Expenses: All businesses have tw (2) types f expenses ne-time expenses and perating expenses One-time expenses are csts incurred nly nce when first setting up a business; ne-time expense examples are: Cars and trucks Decrating, remdeling, installatin f equipment, fixtures and leasehld imprvements Depsit r dwn payment n equipment (cmputers, phtcpiers, etc.) and fixtures Dwn payment n prperty r depsit n rent Incrpratin csts where applicable Licenses and permits Prducts and develpments csts r franchise fees, where applicable Prmtin csts in anticipatin f business pening Starting inventry Utility installatin fees Operating expenses are nging csts t be paid every mnth. Operating expense examples are: Distributin csts Electricity fees A Free Educatinal Dcument Prvided by The Business Finance Stre {

14 A Free Educatinal Dcument Prvided by The Business Finance Stre { Insurance fees Maintenance fees Prmtin fees Other financial expenses, i.e. sales discunts and bad debts Repayment f lan capital and interest Aut expenses Travel expenses Fees fr accuntants and lawyers Analysis Benefit-cst analysis: Used t cmpare advantages and disadvantages f varius slutins t a specific prblem The management team must first perfrm the fllwing five (5) functins: Fully define the prblem Determine the bjectives Develp alternatives Attach a dllar value n all benefits and csts f each alternative Calculate the benefit Cst Rati (bjectives divided by alternatives, B/C) and make the decisin - This frm f analysis establishes a clear relatinship between expenditure (cst) and purchases (benefit) - Therefre, this calculatin can be used t study prblems where the csts and benefits f alternatives t achieving an bjective can be assigned dllar values Frecasting: Useful technique fr making decisins based n predictins f future events, including future interest rates, emplyment levels, inflatin and supply csts The majr emphasis in frecasting techniques is lking fr specific patterns and fluctuatins ver a perid f time; this perid culd be shrt-term (1 year r less) r lng-term (mre than 1 year) There are three (3) types f frecasting techniques; it is essential t mnitr these prjectins regularly Causal mdels: emphasizing crrelatinal/causal relatinships Time-series prjectins: Prjectins where quantifiable bservatins are made ver time Qualitative Mdels: Reliance n expert judgments by prfessinal managers Break-even analysis: Use t determine at what pint the cmpany s csts match its sales vlume Fixed expenses/grss prfit margin = sales t break even A Free Educatinal Dcument Prvided by The Business Finance Stre {

15 A Free Educatinal Dcument Prvided by The Business Finance Stre { GLOSSARY OF TERMS Asset: everything wned that has value, including tangible items like cash, accunts receivable, inventry, land, buildings, equipment Blended payment: a lan payment, cnsisting f principal and interest, that is the same amunt each and every mnth; a gd example is a mrtgage payment Break-even pint: the level f sales where revenue equals ttal csts; a break-even pint may als be expressed in terms f units f prduct Break-even sales revenue: the dllar amunt a business needs each week r mnth t pay fr bth direct prduct csts and fixed csts; it will nt include prfit Cash-flw statement: a financial statement that shws when cash flws are received and disbursed by a business Cst f gds sld (COGS): calculated by adding all f the expenses a business incurs as a result f prducing its prduct r service Current assets: cash, accunts receivable, inventry, all term depsits and prepaid expenses which will be cnverted t cash within ne year Current liabilities: perating lans, accunts payable and accrued charges, including utstanding checks, wages, lngterm debt payments and taxes due within a year Current rati: pints ut hw easily a business can meet its debts; t calculate, divide Current Assets by Current Liabilities; the higher the rati, the mre easily a business can pay its debts Debt/equity rati: hw much debt a business has in relatin t the amunt f equity invested; a high level f Debt t Equity (D/E) can be f cncern; t supprt the cmpany, mney can be raised ne f tw ways: By brrwing it (incurring a debt) r by selling wnership in the cmpany (equity); t calculate the D/E rati, divide Ttal Liabilities/Equity (TL/E) Depreciatin: a charge against a fixed asset that writes ff the cst f that asset ver its useful life; the amunt f depreciatin is entered as a nn-cash expense n the incme statement Equity cntributin (capital stck): cash that the wner(s) r investr(s) have invested in the business in return fr a share f wnership Fixed assets: include land, building, and equipment/machinery that are likely t have a useful life t the cmpany Fixed csts: csts that remain unchanged, regardless f the level f sales; a gd example is the cmpany s mnthly rent and insurance A Free Educatinal Dcument Prvided by The Business Finance Stre {

16 A Free Educatinal Dcument Prvided by The Business Finance Stre { Gdwill: an amunt representing the excess paid fr a cmpany, its shares, r ther assets abve and beynd its net asset value Grss prfit: (r grss margin): the prfit earned befre determining perating and administrative expenses; it is calculated by subtracting the Cst f Gds Sld frm Sales Incme statement: lks at all revenue received frm selling prducts/services and then subtracts the ttal cst f perating the cmpany; the incme statement reflects exactly hw much mney a cmpany has lst r made during a certain perid f time (net prfit) Incrpratin: the legal prcess that makes a business a separate entity frm its wner Intangible asset (sft asset): the nn-physical assets, such as incrpratin csts, patents, gdwill r trademarks Interest cverage rati: the rati f net incme (befre extrardinary items and incme tax) f the business Inventry turnver: a rati that pints ut hw well inventry is selling; an imprtant cash driver shwing the number f times inventry is sld thrugh in ne year Leasehld imprvement: imprvement(s) made n leased premises; a prime example wuld be redecrating Letter f credit: a guarantee f payment by a financial institutin t a third party Leverage: describes the amunt f debt in relatin t equity; the mre debt used t finance the cmpany, the mre leveraged it is Liquidatin value: the amunt f mney fr which an asset can be sld Liquidity: describes hw readily assets can be cnverted int cash Lng-term liabilities: liabilities, such as debts r lans, nt payable within ne year Net wrth: the wner s equity in a business; this is calculated by deducting Ttal Liabilities frm Ttal Assets Operating (revlving) lan: shrt-term financing t supply cash-flw supprt r cver day-t-day perating expenses Overdraft: a negative accunt balance caused by withdrawing mre mney than is available in an accunt Partnership: a frm f business wnership made up f tw r mre peple; the partners share an agreed-upn percentage in the respnsibility, prfits and/r lsses Payment terms: the negtiated cnditins fr payment f invices Persnal guarantee: a guarantee made t the lender that an wner will take persnal respnsibility fr repaying a business lan r any ther debt bligatin A Free Educatinal Dcument Prvided by The Business Finance Stre {

17 A Free Educatinal Dcument Prvided by The Business Finance Stre { Prfit margin: the rati f prfits (generally pre-tax) t sales; t calculate, divide Pre-tax Prfit by Sales/revenues Quick rati: measures hw easily a business can raise cash by selling its mst liquid assets; referred t as the acid test rati; it is calculated by subtracting Inventry frm Current Assets, and then dividing by Current Liabilities Rati analysis: calculating financial ratis t determine trends and t cmpare business perfrmance Receivables: gds representing invices that have been billed, but have nt been paid; als knwn as Accunts Receivable Receivables turnver: a rati that shws hw well receivables are being paid; an imprtant cash driver shwing the number f times receivables are cllected in ne year; calculate by dividing the Value f Receivables by Sales and multiplying by 365 Retail sales revenue: identify the annual sales revenue per square ft multiply that dllar figure by estimated flr space t derive an estimate f annual sales revenue Return n investment (ROI): cmmnly used as a test f prfitability; t calculate ROI, divide Net Prfits by Ttal Assets Sales grwth: the difference between current and previus year s sales divided by the previus year s sales Sales revenue: the ttal dllars frm sales activity brught int a business each week, mnth r year Security: assets belnging t the business (r its wner) pledged t a lender in supprt f a lan Sle prprietrship: a frm f business rganizatin in which ne persn is the nly wner; there is n distinctin between the wner s and businesses respnsibility regarding the cmmitments made n behalf f the business Tangible net wrth: shws the wner s equity, calculated by deducting Ttal Liabilities frm Ttal Assets, less (but nt limited t) Gdwill, Incrpratin/prepaid Expenses, Leasehld Imprvements and Deferred Csts Term lan: a lan btained fr a specified length f time usually nt lnger than the useful life f the asset purchased with the prceeds Trade credit: credit a supplier gives t custmers by allwing them a certain perid in which t pay; an integral aspect f managing cash flw Variable csts: csts that change depending n the level f sales r prductin; culd include sales discunts and sales cmmissins Wrking capital: mney left t wrk with nce all liabilities have been cnsidered; net wrking capital is a cmpany s current assets less its current liabilities A Free Educatinal Dcument Prvided by The Business Finance Stre {

18 A Free Educatinal Dcument Prvided by The Business Finance Stre { This free educatinal dcument is prvided by The Business Finance Stre. We ffer a wide variety f prducts and services t meet yur needs and help yu achieve yur financial gals. Need funding? Cntact us tday! CONTACT US inf@businessfinancestre.cm Harbr Blvd., Suite 102 Funtain Valley, CA (888) Tll Free (949) Direct (949) Fax A Free Educatinal Dcument Prvided by The Business Finance Stre {