Why Prepare a Business Plan?

Most entrepreneurs prefer to be an "entrepreneur" first and a business person second.  This is the first big mistake most new business owners make!

Planning and good management skills are vital to business success.  Those who do not plan run a very high risk of failure.

A business plan is a formal, written summary of what you hope to accomplish by being in business, and how you intend to organize your resources to meet your goals.  It is essential to plan so that you can successfully operate your business and measure your progress along the way.

Planning forces you to think ahead realistically rather then optimistically. It helps you:

Identify your customers

                                    Identify your market area

                                    Establish your pricing strategy

                                    Recognize the competitive conditions you must operate under

                                    Have clear goals to aid in decision making

Planning will not only aid in validating your original ideas and assumptions (or invalidating them) but often leads to the discovery of new ideas and opportunities. 

A business plan will also help establish the financing needed to establish and grow a business.  It makes it easier for a lender to assess your venture and will aid in securing financing if done properly.  If the business plan is realistic, comprehensive, well documented and professional it will serve as an important document for outside lenders as well as business owners.

Once the business is started the business plan must be reviewed and updated on a regular basis.  A business plan is not a one shot project.  It is always a "work in progress."  Three to four hours (at a minimum) should be spent every month updating the business plan.

Sharing Ownership With Others

Now that you have decided what business to start and about how much capital will be required, you may find it necessary to join with one or more associates to launch the enterprise.

 Partnership

If you lack certain technical or management skills which are of major importance to your chosen business a partner with these skills may prove a most satisfactory way to cover the deficiency. If you are very skilled in your special area but lack management training and skills, you might look for a partner with a background in management. If you may need more start-up money, sharing the ownership of the business is one way to obtain it. Great care should be taken in deciding upon a partner(s). Personality and character, as well as ability to render technical or financial assistance affect the success of a partnership.

 

A partnership can be a mixed blessing. A partner who puts in time or money has a right to expect a share in running the business.

 In a partnership the liability for the debts of the firm is unlimited, just as it is in a single proprietorship. This means the owners are personally responsible for the firm's debts, even in excess of the amount they have invested in the business. In a corporation the liability of the owner is limited to the amount they pay for their shares of stock. A partnership, like a single proprietorship, lacks continuity. This means the business terminates upon the death of the owner or a partner, or upon the withdrawal of a partner.

 

Corporation

The corporation is a legal entity whose continuity is unaffected by death or transfer of stock shares by any or all of its owners. Even with no partners, you may decide a corporation with minor stockholders is better than a single proprietorship primarily because of the corporation's limited liability.

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Cash Planning

The first question you want to answer is: How much money will I need? But this question can't be answered until several other questions are answered and several decisions are made.

To decide how much money is needed to start a business, enter all of your potential income and all of your planned expenses on a work sheet or form.

Even though you may feel that this kind of planning is more than you need to start a simple small business it is useful to get started with this approach to management which puts figures down in black and white. You will find the same approach valuable in an established business.

First, estimate your sales volume. Obtain assistance in making your sales estimate from wholesalers, trade associations, your banker, and other business-people. Several business and statistical publications may be useful in making sales volume estimates.

In reaching your final estimate of sales do not be over-enthusiastic. A new business generally grows slowly at the start. If you overestimate sales you are likely to invest too much in equipment and initial inventory, and commit yourself to heavier operating expenses than your actual sales volume will justify. Since you are just starting up you might have no sales for the first few months. At any rate you can expect your first few months to be very low.

You must also determine what proportion of your sales will be cash and what proportion will be sold on credit. If you estimate that a certain portion of the sales will be on credit then you must figure when you are going to get the money for these sales. One month? Two months? More? Never (Bad Debt)?

Next, estimate how much cash will be paid out. Remember that in starting a business you may be purchasing equipment, paying fees and licenses, making deposits on lease, utilities and so on, several months before you open the door. Some of these expenses are easy to estimate. If you have decided to lease space then you know what your deposits will be and how much you will have to pay out each month. You can probably get the cost of fees, licenses and utility deposits with a few telephone calls.

Other expense figures may take a little more work to get. One way is to obtain typical operating ratios for the kind of business in which you are interested. Among the sources for such ratios are Dun & Bradstreet, Inc., trade associations, publishers of trade magazines, specialized accounting firms, industrial companies, and colleges and universities. The typical ratios for your type of business multiplied by your estimated sales volume will serve as bench marks for estimating the various items of expense. However, do not rely exclusively on this method for estimating each expense item. Verify and modify these estimates through investigation and quotations in the particular market area where you plan to operate.

Don't forget to pay yourself too. You may need money to live on if you have to quit your job. If your spouse is working and can support the family for a while you may not have to withdraw money from the business. The longer you can go without taking money out, the quicker you will build up a strong cash position. Now that you have estimated your cash receipts and expenses, write down the amount of cash you will put into the business to start.

Don't forget to pay yourself too. You may need money to live on if you have to quit your job. If your spouse is working and can support the family for a while you may not have to withdraw money from the business. The longer you can go without taking money out, the quicker you will build up a strong cash position. Now that you have estimated your cash receipts and expenses, write down the amount of cash you will put into the business to start.

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The Management Mechanism

The Management Mechanism

The management mechanism (process) is cyclical in nature. The basic functions, especially planning and controlling, of one cycle are evaluated and used in planning for the next cycle, usually a budget period.

Planning

The process of determining organizational goals and how to accomplish them. Said another way, planning is the function of organizing a sequence of predetermined actions to complete future organizational objectives. Planning is one of the primary functions of management.

Strategic Planning

Involves setting long term goals and establishing general guidelines for obtaining these goals.

Operational Planning (Also called day-to-day planning).

Involves setting specific measurable objectives for specific time periods (usually a budget period)and establishing schedules and timetables for obtaining these objectives within the overall organizational framework.

Organizing

The process of using resources and personnel in an orderly way to achieve the objectives and long term goals of a company. Departmentalization, sharing responsibility through assignment, and delegation of authority are parts of the organizing function.

Staffing

Recruiting and placing qualified personnel needed for the organization to achieve its objectives and goals. Selection, compensation, and labor relations are all part of staffing.

Leading

Working with people to get them to perform in ways that will help the organization achieve its goals. Communication and motivation are key leadership skills.

Controlling
Making sure that the operational objectives are met on a day-to-day basis.

This involves setting performance standards for individuals, measuring performance against these standards, and taking action to correct any weak and/or problem areas. The function of control involves both management control (ensuring the effective and efficient use of human resources) and operational control (ensuring that specific tasks are carried out). The latter is accomplished primarily through scheduling and establishing procedures.

System for Managing Results

The management mechanism (process), to attain results, must have four important links:

1. Defining objectives, 2. assigning responsibilities, 3. developing standards of performance, and 4. appraising performance.

Why a Succession Plan?

Our economy depends heavily on the continuity and success of the family business. It is unfortunate, even alarming, that such a vital force has such a poor survival rate. Less than one third of family businesses survive the transition from first to second generation ownership. Of those that do, about half do not survive the transition from second to third generation ownership.

At any given time, 40 percent of businesses are facing the transfer of ownership issue. Founders are trying to decide what to do with their businesses; however, the options are few.

The following is a list of options to consider:

q · Close the doors.

q · Sell to an outsider or employee.

q · Retain ownership but hire outside management.

q · Retain family ownership and management control.

To be one of the few family businesses that survive transfer of ownership requires a good understanding of your business and your family.

There are four basic reasons why family firms fail to transfer the business from generation to generation successfully:

1. · Lack of viability of the business.

2. · Lack of planning.

3. · Little desire on the owner's part to transfer the firm.

4. · Reluctance of offspring to join the firm.

These factors, alone or in combination, make transferring a family business difficult, if not impossible. The primary cause for failure, however, is the lack of planning. With the right plans in place, the business, in most cases, will remain healthy.

There are four plans that make up the transition process. By implementing these plans, you will virtually ensure the successful transfer of your business within the family hierarchy.

- A strategic business plan for the business will allow you an opportunity to chart a course for the firm. Setting business goals as a family will ensure that everyone has a clear picture of the company's future.

- The family strategic plan is needed to maintain a healthy, viable business. This plan establishes policies for the family's role in the business. For example, it may include an entry and exit policy that outlines the criteria for working in the business. It should include the creed or mission statement that spells out your family's values and basic policies for the business. The family strategic plan will address other issues that are important to your family. By implementing this plan, you may avoid later conflicts about compensation, sibling rivalry, ownership and management control.

- A succession plan will ease the founding or current generation's concerns about transferring the firm. It outlines how succession will occur and how to know when the successor is ready. Many founders do not want to let go of the company because they are afraid the successors are not prepared, or they are afraid to be without a job. Often, heirs sense this reluctance and plan an alternative career. If, however, the heirs see a plan in place that outlines the succession process, they may be more apt to continue in the family business.

- An estate plan is critical for the family and the business. Without it, you will pay higher estate taxes than necessary. Taking the time to develop an estate plan ensures that your estate goes primarily to your heirs rather than to taxes.

For business owners who do little planning, the idea of preparing four plans may seem overwhelming. Although it is not easy, the commitment made by all family members during the planning process is the key ingredient for business continuity and success.

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The Benefits of Superior Service

Lost Customer Revenue

A.Annual revenue $_________________

B.Total number of customers _________________

C.Percentage of dissatisfied customers x ____________%

D.Number of dissatisfied customers (C x B)= ________________

E.Number of dissatisfied customers apt to switch x __________.25%

F.Number of dissatisfied customers who will switch= ________________

G.Average revenue per customer ( A / B) $ ________________

H.Revenue lost through poor service (F x G) $ ________________

Additional Revenue From Word of Mouth

I. Number of people satisfied customers will tell (B x .87 x 2.5 people) = ________________

J. Number of prospects who buy due to positive word of mouth assuming 1 in 50 told (I x .02) buys = ________________

K.Potential new revenue resulting from positive "word of mouth" (J x G) $ ________________

Repeat Customer Business

L. Number of repeat customers, assuming only 1 in 10 (.10 x B) $ ________________

M. Revenue per customer (L x G) $ ________________

N. Replacement cost for lost customers (M x 5) $ ________________

Reduced Customer Replacement Cost

O. Reduced replacement costs (N / 5) $ ________________

Total Increase

P. Total annual increase (H + K + M + O) $ ________________

Q. Total Increase over customer's lifetime or 10 years (P x lifetime or 10 years) $________________

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Internet Marketing

Internet Marketing is a necessity in the new world economy. But what is IM? The internet is a communications channel that is multidimensional in its ability to transmit marketing messages. The key to using this communications channel for a small business is to present the same total content and unique selling position as a brick and mortar store would. So that is the analogy that I use in presenting an overall internet marketing plan.

Management of a website and the accompanying marketing can be a confusing and complex task. Search Engine Optimization (SEO), Search Engine Marketing (SEM), and Pay Per Click (PPC) are all terms that you see referencing the management of website marketing. Keywords, links, and page optimization are all important nonpaid aspects of making your website an effective sales tool for your business.

The above are technical aspects. Even more important is the brand development of the site and the presentation of your products and/or services key benefits. If search engines are the queens of the internet, then customer service is the emperor. Getting the technical aspects correct is only important if your site convinces the visitor that you can fulfill their specific needs.

Even if you have no interest in the physical management of your website, you need to understand how this key marketing tool functions. Websites are not "build it and leave" tools, You must consistently evaluate and modify a website for it to provide the performance you need. Businesses are allocating more and more of their marketing budget to the Internet. To meet the competition you need to manage your site and the various marketing technologies and tools.

The internet is now at the “top of the food chain” for marketing tools. It can provide a 24/7 fulfillment tool, a brand building tool, and perhaps most importantly a feedback loop from current and potential customers. The most important step you can make in developing a website is to define which of its functions you will need to utilize. It doesn’t matter if you build your own site or you work with a website designer, understanding how the web fits into your marketing plan is the most significant part of developing a web presence.

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A Misconception about marketing and sales

Marketing and selling are the same. This misconception comes about because many of the most successful entrepreneurs are also very good salespeople. Talented salespeople can often go a long way selling a particular product or service without having a clear understanding of the true dynamics of the marketplace. Thus their success in selling can delude them into believing they have mastered marketing.

In reality, though, selling is only one aspect of marketing implementation. That is, once you have identified your customer prospects and determined how best to reach them, you move into the sales process–convincing customers to buy your product or service. If you haven’t done your marketing homework, you can easily fail when it comes to selling. And if you are fortunate enough to convince a random group of individuals or companies to buy your product or service, without some notion as to why you picked them, your success may be a testimonial to your sales rather than your marketing skills.

Your Management Skills are your most important tool......

Poor management is the largest single cause of business failure. Year after year, the lack of managerial experience and aptitude has accounted for around 90 percent of all failures analyzed by Dun & Bradstreet, Inc.

Many factors may adversely affect individual firms over which owners have little control. In such cases, the astute manager can often soften the blow or, sometimes, change adversity into an asset. Examples of factors over which the owner has little control are overall poor business conditions, relocation of highways, sudden style changes, the replacement of existing products by new ones, and local labor situations. While these factors may cause some businesses to close, they may represent opportunities for others. A local market place may decline in importance at the same time new shopping centers are developing. Sudden changes in style or the replacement of existing products may bring trouble to certain businesses but open doors for new ones. Adverse employment situations in some areas may be offset by favorable situations in others. Ingenuity in taking advantage of changing consumer desires and technological improvements will always be rewarded.

In the final analysis, it is up to you. Will your management be competent? Will you be able to judge, and then satisfy, your customers' wants? Can you do this accurately and quickly enough to more than compensate for risks due to factors beyond your control? Such accomplishment requires expert management

The Top Ten Challenges Faced By Small Business

The Ten Challenges

Discussions between groups of small business owners revealed ten common challenges faced by small business owners:

à Knowing Your Business

à Knowing the Basics of Business Management

à Having the Proper Attitude

à Having Adequate Capital

à Managing Finances Effectively

à Managing Time Efficiently

à Managing People

à Satisfying Customers by Providing High Quality

à Knowing How to Compete

à Coping with Regulations and Paperwork

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