Business Management-AW-Q235

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Statement of Confidentiality & Non-Disclosure
 
THIBUSINESS PLAN CONTAINS PROPRIETARY AND CONFIDENTIAL INFORMATION. data submitted to the receiver is provided in reliance upon its consent not to use or disclose any information contained herein except in the context of its business dealings with ENTER YOUR COMPANY NAME HERE (Company). The recipient of this document agrees to inform its present and future employees and partners who view or have access to the documes content of its confidential nature.
 
The recipient agrees to instruct each employee that they must not disclose any information concerning this document to others except to the extent such matters are generally known to, and are available for use by, the public. The recipient also agrees not duplicate or distribute or permit others to duplicate or distribute any material contained herein without the Company’s express written consent.
 
The Company retains all title, ownership and intellectual property rights to the material and trademarks contained herein, including all supporting documentation, files, marketing material, and multimedia.
 
Disclaimer Notice
 
THIS BUSINESS PLAN IS FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY ANY SECURITIES.
The Company reserves the right, in its sole discretion, to reject any and all proposals made by or on behalf of any recipient, to accept any such proposals, to negotiate with one or more recipients at any time, and to enter into a definitive agreement without prior notice to other recipients. The company also reserves the right to terminate, at any time, further participation in the investigation and proposal process by, or discussions or negotiations with, any recipient without reason.

 

Market Analysis and Sales Forecast

Market and Sales Forecast Summary

Total Market

Target Market Summary

Target Market Segmentation Analysis

Target Market Segment Strategy

Sales Forecast

Business Context Analysis

The Competition and Customer Buying Patterns

 
 

Success Strategy and Implementation Plan

SWOT Analysis

Our Competitive Edge

Website Plan
Website Marketing Strategy
Website Development Requirements

Marketing Strategy

Sales Strategy

Key Implementation Milestones

 

Company Resources

Our People

Existing management

Future management

Organization Structure

Business Structure

Start-up Capital

Summary

Use of Funds

Source of Funds
 
You can read more about our case study assignment help services here.
 

 

Financial Statements

Statement of Operations

Balance Sheet

Statement of Cash Flows

Breakeven Analysis

Key Ratios

Important Assumptions

 
A Good Business Plan is a Beautiful Thing
 
For the past 30 years, Donald Bittar has helped companies as an officer, board member and consultant to write business plans. Presently he is the CFO and board member of First Choice HealthCare Solutions, a public company. He also teaches as an Adjunct Professor in the Graduate School of Business and the Bisk College of Business of Florida Institute of Technology.
 
Donald has continually operated DABittar and Associates, a management and technology consulting firm for public companies and banks. In previous years, Donald was also President and Chairman of Associated Mortgage of North America, Inc. and President and Chairman of Marine Telephone, Inc.His first book, ‘Getting Under the Hood of an Annual Report’ is being used by students in both undergraduate and graduate university business schools.
 

He has been a frequent speaker at the National Association of Mortgage Bankers, National Council of Savings Institutions, Council of Presidents, New England Bankers Association and the National Corporate Cash Managers Association. Mr. Bittar received an MBA from Long Island University in 1964 and isresident of Melbourne, Florida
Published by
 
DABittar and Associates
1675 Saladino Street SE
Palm Bay, Florida 32909
 
All rights reserved. No part of this book may be reproduced or transmitted in any form or by any means,
electronic or mechanical, including photocopying, recording or by any information storage and retrieval
system, without written permission from the author, except for the inclusion of brief quotations in a
review.
 

Several people helped to make this book possible. They include Alex Vamosi and Tim Muth at the Florida Institute of Technology, College of Business for their encouragement and feedback.A special thank you goes to my Trunity team, Hanna Anderton and Cutler Cleveland. Additional thanks goes to my brother, Joe Fraumeni for his willingness to use his two-by-four to help me when I needed to get unstuck.
 
My last thank you belongs to my wife, Cindy for never letting me feel alone in writing this book and once again letting me know I got the best part of the deal.
 

The Toolkit
 
A good business plan is a beautiful thing. With the right tools and an organized toolkit you’ll find a
business plan can also be easy to build and write.
 
Aside from this book, you’ll find two other awesome tools in your business plan toolkit.
 
 Seven modeling tools
 Narrative template
 
You’ll be using a set of user-friendly modeling tools and an uncomplicated business plan narrative template. Both of these easy to use tools work with each other and this book as a smooth operating trio. Use this book to build your business plan one step at a time and you’ll find it’s a piece of cake.
 
Modeling tools
 
You’ll be using seven straightforward Excel spreadsheet modeling tools. They are going to do a lot of the work for you. Each modeling tool includes a simplified set of easy to read instructions. Follow the instructions and it will be smooth sailing all the way.
 
This icon will let you know when you have to open one of your modeling tools.
 
1) Product Description and Pricing Model The Product Description and Pricing Model tool will help you create a blisteringly clear description of what you are selling.You will be able to identify and describe all of the features for your product or service. It will help you model the pricing for your product or service. You’ll be able to describe the benefit of each feature to your customers and how your features stack up to the competition.
 
You can choose from among 6 general business models. Each of the six models can be applied to a variety of specific businesses. The business model will allow you to define the different products or services you are selling. There is a provision to allow you to describe the pricing and competitive advantages for up to 20 features for each product or service.
 

1) Retail establishments selling products Retail establishments are businesses which typically sell a tangible product to the general public. They can use a brick and mortar location, an internet website or a combination of both. The type of businesses using this model might include a book store, hardware store, clothing store, gift shop, paint store, grocery store, bakery store, sporting goods or automotive parts store.
 
the general public, other businesses or the government. They might use a brick and mortar location, an internet website or a combination of both.The type business using this model might include a hair salon, massage therapy, travel agency, plumber,electrician, computer repair, health and fitness club,car wash service or limousine service.
 
3) Consulting These businesses most often sell an intangible service to other businesses or a government entity. They might use a brick and mortar location, an internet website or a combination of both. The type business using this model might include an accounting firm, law firm, engineering firm, marketing agency, technology consulting or logistics consulting.
 
4) Restaurant These businesses generally sell a tangible product to the general public. Some also cater their
products to individuals, other businesses or a government entity. They generally use a brick and mortar location. Some also use an internet website or a combination of both. The type business using this model might include a fast food restaurant, catering service, mobile food truck, coffee house, pizzeria, or Chinese restaurant.
 
5) Boarding These businesses principally sell an intangible service to the general public. They generally use a
brick and mortar location. Some also use an internet website or a combination of both. The type business using this model might include a bed & breakfast inn, motel, child daycare center,adult daycare center, canine boarding, stable, assisted living facility or hospital.
 
6) Product sales These businesses always sell a tangible product. Their customer is generally another business or
government agency. Usually, they sell in wholesale lots. Generally, they use a brick and mortar location and a warehouse facility. Many use a physical location, an internet website or a combination of both. The type of business using this model would include a product manufacturer, product distributor or wholesaler or a manufacturer’s representative.
 

2) Target Market and Revenue Model The Target Market and Revenue modeling tool will help you develop reasonable, reliable and credible estimates of the market size for your product or service. The modeling tool includes
eight analytical worksheets.
 
Total Market Worksheet Using the modeling tool, you will be able to calculate the size of your Total Market. The
model will automatically calculate the Total Market summary data along with illustrative charts. You can find the summary data and charts in the Total Market Summary worksheet.
 
Target Market Worksheet Next, you will be able to estimate the size of your Target Markets as a percent of your
total market. The model will automatically summarize the Target Market data and product descriptive charts. You can find the summary data and charts in the Target Market Summary worksheet.
 
Average Customer Purchase Worksheet The Product Prices worksheet will allow you to enter the price you expect your average customer will pay for your products or services.
 
Purchase Frequency Worksheet Estimating the number of customers and how often they will buy your product or
service is the next step in developing a solid revenue projection for your business plan.Use the Purchase Frequency worksheet to help you to calculate how often a customer will buy from your business.
 
Sales Volume and Sales Forecast Worksheets The Revenue Forecast worksheet will help you to create a revenue projection by applying the price of your product or service to the number of customers and how often they will buy from your business. It will perform the calculations automatically for you based on the data you entered.
 
Validity Check Worksheet This worksheet will help you test the validity of your estimates for the amount of the
average customer purchase, the number of customers who purchase from you and your revenue estimate. It will create a perspective for you to help you to judge if your estimates are reasonable for you business.
 
3) Breakeven Analysis Model It is possible for a business to continually increase sales and not be profitable. It happens often and these businesses generally fail. The breakeven analysis model will help plan for profitability.
It will help you evaluate your selling price relative to your fixed and variable costs.A breakeven analysis can help you to determine with reasonable accuracy whether or not your business model is a profitable one.
 
4) Personnel Plan Model Growing a business often means bringing new people into the business. Of the top 5 resources
for a business, people are in first, second and third place.The Employee List page of the Personnel Plan modeling tool will help you identify the people with the skills, experience and knowledge the business will need. It will help you plan when to bring new people into the business and what it will cost to have them come onboard.The pages for Payroll Year 1, 2 and 3 will let you ‘tweak’ your plan to determine when during each of the first three years you will actually hire new staff and how much it will cost.
 
5) SWOT Model
The SWOT analysis is a great tool for viewing and assessing your business and its
 
 Strengths
 Weaknesses
 Opportunities
 Threats
It is a straightforward tool to allow you to take a closer look at your company and make it more competitive.
 
6) Milestones Model
 
The daunting job of getting the business to open on time can often be organized into a number of smaller achievable tasks. The completion of each task is called a milestone. The big challenge is to implement each milestone efficiently, effectively and on time. Defining what each task will deliver or produce and when it will happen leaves no confusion knowing when the task is complete.
This Milestone Model tool will help you to know if your business plan is on track and if it will
open as expected, planned and required.
7) Financial Statement Model
The Financial Statement modeling tool will help you analyze the financial requirements for your
company and help you develop your financial statements. It can help you to launch your
business with a solid financial foundation and keep it flying high.
The Source of Funds and Use of Funds pages can help you estimate how much money you will
need to begin the business and keep it afloat. These pages will also help you determine a
reasonable mix between investing your own funds, using other people’s money and committing
to bank loans.
The Statement of Operations page is where you can estimate what it will cost you to support
revenue projections. You can model each expense account and quickly see how it will affect
your net profit.
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The pages for the Source of Funds, Use of Funds, Statement of Operations, Balance Sheet and
Cash Flows Statement are all linked together. They will update each other as you make your
changes.
A standard set of financial ratios will be calculated and waiting for you on the Ratios page when
you are finished building your financial model.
Narrative Template
Open the template and you’re ready-to-go. It’s a Microsoft Word document with everything you need
already built-in. No set-up to worry about, everything is where it should be and it has all the business
plan sections you’ll need. You can use the handy cut and paste features to insert charts and tables from
the Excel modeling tools. The versatile MS Office insert functions will let you copy and paste all the
graphics you want to make your business plan sizzle and pop.
Every time you see this icon, it will be your signal to open the template.
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You’re the Biggest Investor in Your Business
Your good friend wants to start a business. He wants you to mortgage
your home for the startup capital. The money from the mortgage may
not be enough and he also wants you to drain your savings account. To
be on the safe side he also wants you to sign for a line of credit at the
bank. Until the money from the mortgage and line of credit are available,
he thinks it would be a good idea to charge as much as possible on your
VISA credit card.
What documentation would you want before investing in your friend’s new business?
Would you give him all the money without any documentation?
Would you want him to assure you the investment is fabulous and you’ll get your money back?
Would you want him to give you a detailed explanation of every aspect of the business?
Take the hobby test:
Yes No
1 Was all the money you gave your friend a gift?
2 If you did invest in your friend’s business, would
you care if he didn’t pay you back?
3 Would you want no interest on your money
while he was using it?
4 Would you be happy if your business never paid
you back for every dollar you invested?
5 Would you want to work in your business for
free without ever getting a salary?
If you answered ‘yes’ to any of the test questions, then you are investing
in a hobby and not a business. Hobbies cost money. They are not
expected to earn a profit. They do not generate sufficient income for
investor salaries or cash distributions.
Before investing in your own business wouldn’t you want the same documentation you would expect
your friend to give you?
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Do you need a Plan
Generally, launching a business is not a solitary effort. It requires other people to participate in an
untried venture. The people participating might be investors, creditors, suppliers, employees, partners
or customers. These people need a way to see the business as a successful opportunity for themselves.
Providing them with a way to validate and substantiate their belief in the success of the business is a
critical step in gaining their participation and support. A business plan lets other people see your
business and your vision for its success.
It is a powerful way to demonstrate ‘the idea’ can be profitable, the timing is right and the resources are
possible to make ‘the idea’ a reality. Like a roadmap, it can be the guide to birth and develop the ‘the
idea’. With a business plan, the shortcuts and hazards become more apparent. Using a business plan
to work out the kinks and hazards on paper, ahead of time, is faster, easier on the pocketbook and much
less stressful.
If you don’t plan for it, it can happen to you and it may not be what you expected or what you wanted.
Another powerful reason for writing a business plan and keeping it updated is the big benefit it can bring
you after the business has been launched.
Joe Fraumeni is a bowling center entrepreneur extraordinaire. He introduced
many exciting innovation to the bowling center industry. It is no surprise, he was
elected and re-elected President of the National Association of Bowling Center
Operators. Joe often said, “My business plan was like a living thing. I updated it
quarterly. It kept me on track and focused. As a sole proprietor, my plan
continually gave me the feedback I needed to stay ahead and remain
profitable.”
You are more likely to get solid and useful advice about your business from other professionals when
they can comment objectively on numbers or on a written description for a strategy for a “fabulous
idea.” A complete business plan often shows you are organized and have considered the marketing,
legal, financial, human resources and other aspects for running your business. A thorough business
plan can help improve your chances of getting investment capital and bank loans. With a business plan
it is easier to recognize the possible problems your business might face and opportunities which may
present themselves. It will also help you steer clear of legal problems; be aware of shifts in the
marketplace; and expand or downsize your business with objectivity.
When is the time right
Now is the right time to begin a business. The time is always ripe for starting a business with a unique
product or service, a new but validated approach to an existing market or a market badly serviced by
existing suppliers. It is not necessary to wait for ‘good times’ to start a business. Nearly half of the
Fortune 500 companies began during ‘bad times.’ There are advantages to starting a business even in a
slow economy.
 Space is cheaper.
 Great deals are available for furniture and electronics from businesses closing their doors.
Copyright 2013 Page 15
 Employees will accept lower wages.
 Cheaper services are available from providers who have lowered prices.
 There is less competition.
Generally, the “right time” to start a business depends entirely on the individual circumstances of the
entrepreneur. The “right time” is a balance between:
 Debt levels
 Present occupation or career status
 Age
 Support from spouse or family
 Local and national economy
If it realistically appears the opportunities and rewards are greater than obstacles then it may be the
“right time” to start.
Using the right voice
Generally, business plans are written from the third-person point of view. Rather than using
pronouns such as ‘I’ or ‘me’, the third-person point of view uses the pronouns he, she, they, them or
one. The third-person point of view is also known as the third-person objective point of view. Using this
writing technique can add a veneer of sophistication to your business plan. There are several reasons
for using the third-person point of view:
 It creates a more objective business-like perspective.
 It is a traditional and familiar method for relating information in a business plan.
 The story has more power and can better focus on the business.
 Using ‘we’, ‘they’, and ‘them’ infers more than one person and helps create more confidence in
the business.
Statistics can put meat on the bones
Statistics can help the people reading your Business Plan to have more
confidence with the data you are presenting to them. It allows the
reader to make smarter decisions about your business quicker. They
will have more confidence in your plan when your statistics are
presented in a manner which is balanced and easy to understand.
Statistics can help your business plan in two ways.
 Statistics can validate your assertions about the business. They
can provide objective measures, with stand-alone as well as hard
evidence, to substantiate positions or provide a level of certainty for
direction the company may take.
 Your reader will be better equipped to make the connections
Copyright 2013 Page 16
you want them to make between revenues, costs and market projections.
 The internet is the mother load for statistical data on most any subject. Some exceptionally
good data sources are:
o The local Chamber of Commerce
o The local Board of Realtors
o County government agencies
o State government agencies. Most state governments include the following state
agencies:
 State Economic Development Agency
 State Department of Commerce
 State Department of Education
 State Department of Revenue and Taxation
 State Department of Labor
o Federal government agencies
o National trade associations
o National lobbying organizations
Source and footnote your material
Investors and lenders need to feel comfortable with the data in your business plan. The greater their
comfort level the more likely they will act favorably. Sound research can help you create the strongest
credibility for your business plan. The more credible the sources you use, the more believable your
presentation. Using statistics about customer buying preferences from a study published by the
Automobile Manufactures Association is more credible than a few numbers mentioned in a blog.
It is easy to document your sources using footnotes with MS
Word. Place a footnote at the end of the sentence. Click on the
Reference tab on the top menu. Next click on the Insert a
Footnote button. It’s that easy. The footnote will automatically
appear at the bottom of the page. There are a few benefits for the
reader in locating the footnotes at the bottom of the page rather
than at the back of your business plan.
 It is easy to find
 It is faster to find
 The reader’s confidence in you material is confirmed
immediately
Material from Websites
The content of many websites are frequently changed. In your footnote include an access date or, if
available, the date when the site was last modified. Use the following example when you cite the
content of a website.
“Car Passenger Safety and Seat Belt Facts,” Ford Motor Corporation, accessed July 19, 2008,
http://www.ford.com/corp/about/factsheets.html.
Material from Books
Online Books
Copyright 2013 Page 17
When, citing from an online source, list a URL; include an access date only if one is required by your
publisher or discipline. If no fixed page numbers are available, you can include a section title or a
chapter or other number.
John B. Conti and Edward R. Spencer, The Growth of Advertising (New York: Knopf, 2007), chap.
12, doc. 56, accessed February 28, 2013, http://press-pubs.uflorida.edu/founders/.
Printed Books
When citing from a printed book use the following format.
John B. Conti and Edward R. Spencer, The Growth of Advertising (New York: Knopf, 2007), pages
59–61.
A more extensive description of footnote styles, methods and formats can be found in the Chicago
Manual of Style: http://www.chicagomanualofstyle.org/tools_citationguide.html
What do you want from the reader
After working hard to write a persuasive, attention grabbing and
compelling business plan why leave the reader wondering “what comes
next?” or “what do they want from me?”. You want the reader to be
absolutely clear about what you want from them.
A call to action statement is meant to prompt your reader to perform a
specific action.
Your business plan can be as creative as you want. By including an
effective call to action in your business plan, you can help it be more
successful. The reader will know what you want and read your plan more
prepared to make a favorable decision.
A picture is worth a 1000 words
Authors illustrate their books because the human mind is more receptive to images than letters and
words. People are more likely remember an image than a written description. Clip art and photographs
add beauty, color, and life to the printed page. They engage, prompt imagination, and appeal to readers.
Pictures are able to reach a reader more directly than text alone. They are able to explain complicated
concepts at a glance. Include picture and images about the most significant parts of your business.
Illustrate your products.
Copyright 2013 Page 18
Describe your processes.
A photo of your business location can help the reader understand
why it might be a key to the success of the business.
A powerful way to demonstrate the unique character of a new
restaurant is to include a photo of the signature menu item.
The internet is a valuable source of images, clipart, photos and graphics which can create and maintain
higher reader interest in your business plan.
Choosing a Name for your business
Pick one that’s easy to say and spell
Whimsical company names, with a play on words or replacing the letter “s” with “z” may sound trendy
but often cause problems down the road. Make your business name easy to spell and to say out loud.
Be as succinct and unforgettable as possible with a few words or three at most. One rule of thumb, in
selecting a name, is for employees to able to say with pride, “I work for ——-“!
The first name you choose for your business may not always be the
last or only name it might have. With time and experience with
products, customers and market experience the name of a business
might evolve or even change.
Copyright 2013 Page 19
Are you the first to use the name
Each day thousands of new businesses are launched. There is a strong likelihood the name you have
given your company may have already been used by someone else. Having the same name as another
business can create confusion and it could become expensive to correct. Rather than guess if your
business name is unique it is best to know for certain. With a little research, you can discover if you are
the only one to use the name.
Verify the domain availability
Searching for the name on Google and not finding it is not a foolproof indication the name is
available. It’s possible that somebody has registered the domain name but has not yet
launched a website. Before putting time and effort into using a domain name, look up the
availability for the domain. You can search and find the availability of your domain name
through any number of free internet services. Use Google and search on ‘how to check domain
name availability’. You will find several free services.
WSMDomains is a small and full-service domain registration
provider. They have been registering domain names since 1997.
Their website has a free search tool to let you know the availability of a domain name. If the
name is taken, innovate and change your name until you find the right domain name for your
business.
Check the Yellow Pages
If you’re starting a local business, the Yellow Pages is another good place to start researching for
a business name. You can browse alphabetized lists of local businesses to see which names are
being used by other companies. Reading other people’s names will not only tell you what to
avoid choosing, but it will also inspire you to come up with a unique name that fits your business
and industry.
Entity name registrations
Look up your name in the corporate registrations with the Secretary of State in your state or the state in
which you plan to establish your business. Many businesses exist but do not operate in public. One
example is a family-owned business only operating for the purpose of controlling a family investment
activity. It is not possible to know these entities exist unless you contacted the Secretary of State and
review names which have already been registered. Internet access to the database of registered names
for the Secretary of State may vary by state. Visit your state’s website and if you don’t have any luck
online, call them up and inquire if there is a business already registered with the name you want to use.
Add some sizzle to your narrative
A major goal of a business plan is to convince the reader of the
attractiveness of the opportunity and the success of the business.
The business plan can be more than a neutral, clinical presentation
of the facts. It can persuade and motivate the reader. Write your
plan to ‘sell’ your concept and your product or service to the reader.
Spice up your business plan by using words with sizzle.
Copyright 2013 Page 20
After you complete writing your business plan, go back through it and add some ‘punch’. Substitute
some the neutral language for words with sizzle. Getting a ‘wow’ from a reader means the reader is
getting more convinced the opportunity your plan describes can become a reality.
Copyright 2013 Page 21
Big and many sizzles
a bonanza gigantic prodigious
a feast of … grand rich
a full line of … great sizable
a gold mine of … hefty spectacular
a host of … huge substantial
a treasure trove of … immense super…
a wealth of … jumbo the biggest
Abundant king-size the sky’s the limit
an abundance of … lavish titanic
an endless supply of … mammoth towering
Boundless massive tremendous
Colossal monumental unlimited
Enormous more __than any other … vast
Gargantuan oversized voluminous
Generous packed with … whopping
Comfortable sizzles
a haven of … firm support roomy
air conditioned friendly serene
all the comforts of home Get comfortable with … smooth as silk
at ease homey snug
Casual hospitable Snuggle up with …
Cheerful It breathes soft as a baby’s bottom
Comfy just the way you like it soft as down
Congenial like floating on a cloud soothing
cool and comfy like walking on air superb fit
cool as a summer breeze loose-fitting the latest in comfort
cottony soft peaceful unassuming
Cuddle up with … placid unhurried
Cuddly relaxed velvety
Cushiony relaxing warm as toast
down-home restful You won’t know you’re wearing it.
Complete sizzles
a complete package everything from __ to __ scrupulously researched
A to Z everything under the sun sweeping
a total… everything you wanted to know the all-in-one __
about __ everything you’ll need the only __ you’ll ever need
all __ included everything you’ve always wanted in the sum total …
all the features you’d expect exhaustive the total …
all the right ingredients extensive the ultimate __
all-embracing full length unabridged
all-inclusive furnishes all the __ you’ll need uncut
built-in __ in its entirety unexpurgated
complete in one package in-depth
complete with … It’s all here
completely integrated leaves no stone unturned
Comprehensive panoramic
Encyclopedic provides 100% of the ___ you’ll need
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Convenient sizzles
… at your convenience … at your convenience … at your convenience
Accessible accessible accessible
all in one place all in one place all in one place
armchair shopping armchair shopping armchair shopping
Clarifies clarifies clarifies
combines the most outstanding
features
combines the most outstanding
features
combines the most outstanding
features
compatible with any _ compatible with any _ compatible with any _
direct from the manufacturer direct from the manufacturer direct from the manufacturer
easily adaptable easily adaptable easily adaptable
easily adjustable easily adjustable easily adjustable
eliminates the need for .. . eliminates the need for .. . eliminates the need for .. .
even if you don’t have .. . even if you don’t have .. . even if you don’t have .. .
Facilitates facilitates facilitates
fast setup fast setup fast setup
fast, easy access fast, easy access fast, easy access
Distinguished sizzles
a __ of distinction illustrious significant
a landmark influential the __ of record
a positive force in bringing about … major the absolute …
Acclaimed notable the leader in …
Accomplished noted the most imitated
Celebrated noteworthy the most talked about
Commanding of high repute the nation’s leading …
Dominant outstanding the nation’s most distinguished …
Eminent premier the nation’s most influential …
Esteemed prestigious the nation’s most respected …
Famous prize-winning used by the people who count
has played a major role in … prominent vital
has won the respect of … renowned world-class
high ranking respected
Honored revered
Easy sizzles
… coasting all the way fast-reading no prior __ experience necessary
Accessible foolproof no sweat
all in one easy step great for beginners one-step __
All you do is … in no time at all quick
amazingly simple instant __ safe and simple
at a glance intelligible simplified
clear It couldn’t be easier. so advanced. it’s actually simple
clearly and simply explained It’s a breeze. so easy a child can do it
clearly written It’s a cinch .. . step-by-step
easier than ever before It’s a piece of cake. straightforward
easy as one. two. three It’s a snap .. . the easy way
easy to follow It’s never been easier to … uncomplicated
easy to understand It’s that simple! user-friendly
effortless manageable within minutes
fast no headaches you don’t have to be an expert.
Great sizzles
a bravura performance majestic the kind of __ you’ve only dreamed
a towering achievement marvelous undreamed of
amazing monumental unforgettable
awe inspiring opulent wonderful
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awesome remarkable
breathtaking sensational
dazzling sparkling
elegant spectacular
exalted splendid
fantastic striking
glittering stunning
glorious sublime
incredible sumptuous
it will amaze you. superb
magnificent terrific
Improved sizzles
a change for the better new design , restructured
a metamorphosis in the making new refinements revived
a new look new, improved __ since …
a renaissance newly redesigned spruced up
a time to grow and change newly revised the best just got better
an about face now with more __ the first real improvement in __
beautified perfected times are changing and so are we.
better than ever re-created we’re growing to serve you better
changed refined we’ve bettered …
enhanced reformed we’ve changed the rules …
enriched refurbished we’ve made great strides …
expanded remodeled we’ve transformed …
increased __ renewed you’ll find more to like than ever
modified reorganized before.
new blood restored
Indispensable sizzles
a “must” invaluable without it.
a necessity obligatory you’ll wonder how you ever got
a prerequisite significant along
a vital link the __ no family should be without
an essential ingredient the basis of any good __
an indispensable tool the bible of …
basic the chief …
consequential the foundation of …
critical the heart of …
crucial the key to …
don’t you think you need __ ? the nerve center of …
don’t_ without it! the primary …
essential the principal…
imperative urgent
important vital
Luxurious sizzles
ambrosial gilded posh
classic gilt-edged precious
craftsmanship glittering rare
delicate tracery hand-tooled refined
deluxe individually crafted specially commissioned
elegant intricate splendid
elegantly appointed invaluable sumptuous
elite limited edition superb
embellished magnificent superior
epicurean masterpiece treasured
exquisite museum quality upscale
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fancy only the finest… valuable
finely crafted opulent VIP
first class ornate
gemlike plush
Money saving sizzles
a fabulous bargain fits your budget remarkable cash savings
a fraction of the original price get ready for fantastic savings. rock-bottom prices
a terrific value imagine being able to get a __ for surprisingly affordable
a truckload of savings incredible values the best __ for your money
affordable inexpensive the best deal in town
at popular prices invitingly priced thrifty
big value low cost tremendous savings
compare our prices with … marked down unheard-of low prices
designer quality at affordable prices money-saving ideas you get more for your dollar.
easy on your pocketbook money-saving opportunity you save because …
economical no middleman! you’ll save a few dollars in the bargain.
extra savings our loss is your gain! your money’s worth
extra value packed full of value
finally, a __ you can afford. pays for itself
first-class __ with no-frills prices! pick up a bargain.
New sizzles
a breakthrough in __ high-tech space age __
a novel approach innovative state-of-the-art
a radical departure keeps pace with … technologically advanced
a revolution in __ latest technology the __ of the future
a whole new world of __ leading edge the first and only
adds a new dimension to __ makes the __ obsolete the latest
advanced modern the new look in __
an exciting new way to … new horizons the successor to __
bold new now and new the world’s first __
brand new remarkable new trailblazing
contemporary revolutionary ultramodern
designed for today’s __ right out of tomorrow up-to-date
for tomorrow’s business needs scientifically developed up-to-the-minute
futuristic something new and exciting
groundbreaking sophisticated
Popular sizzles
a blockbuster chosen by … one of the most talked-about __
a fabulous success discovering __ phenomenally successful
a success story endorsed by .. . preferred by more .. .
a superstar everybody loves __ recommended by more …
a winner everybody’s talking about __ renowned
acclaimed famed the hottest __ in town
all-time favorite famous the people’s choice
always in demand favorite thriving
America’s favorite flourishing triumphant
approved by .. . has struck a responsive chord widespread acceptance
attended by more .. . illustrious word-of-mouth popularity
best-selling in vogue world-famous
booming known far and wide world-renowned
bought by more .. . legendary you can’t argue with success
celebrated more and more __ are
Powerful sizzles
a knockout intense raw power
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commanding knocks your socks off riveting
compelling masterful shocking
dynamic mesmerizing sinewy
dynamite mighty staggering
electric mind blowing stunning
electrifying muscular titanic
elemental never lets up unrelenting
energy overpowering unyielding
explosive overwhelming vibrant
forceful packs a punch vigor
gut-wrenching packs a wallop vitality
Herculean potent
high-powered primitive power
high-voltage Promethean
Reliable sizzles
a lifetime of satisfaction lasts a lifetime rigorous standards
a proven track record made to exacting specifications rugged
built to last made to last ruggedly built
carefully tested never let you down smooth performance
comes to grips with … never lets you down. sound
dependable no compromising on quality stands up to …
durable no shortcuts solid
faithful to … no-nonsense heavy-duty tamper-proof
functional virtually indestructible our high standards top credentials
gets the job done when you need it our proven method of … tough
heavy-duty precision engineered trusted
heavyweight proven techniques unswerving
high-performance quality controlled valid
individually tested quality you’ve come to expect we don’t cut corners.
laboratory tested reinforced will last for generations
Sizzling Results
accomplishes fixes prevents
boosts furnishes protects
comes through in the clutch gets results proven results
corrects gets the job done provides
creates high efficlency raises
cuts down on improves reduces
cuts through increases remarkable results
delivers instant results restores
delivers the goods lowers revitalizes
does it all maintains stops
does the job makes the difference unmatched performance
does the trick never lets up works immediately
effective never lets you down works like magic
fast results pays off works wonders
fast-acting performs You can count on __
Small sizzles
a little bit of… dwarf pocket-sized
a dash of … elfin portable
a pinch of … fits anywhere pygmy
abridged greatly reduced reduced to a minimum
barely more than … in a nutshell scaled-down
brief intimate slim
compact light as a feather smaller and lighter
compressed lightweight space saving
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concise Lilliputian styling
condensed midget take it wherever you go
cozy miniature tiny
cute mini micro compact vest-pocket
delicate minute virtually nonexistent
diminished neat wispy
diminutive petite
Sizzling Status
a behind-the-scenes look exclusive
until now, only a fortunate few have
been
a prestigious address found only in museums and VIP treatment
able to … gives you a privileged glimpse … will confer upon its owner …
among the elect gives you an insider’s grasp of … you’ll be in on …
aristocratic highest ranking you’ll be privy to …
automatically entitles you to … identifies you as … you’ll be welcomed
belongs in the home of every educated in good standing you’ll beam with pride
competitive prestige
connects you with … private
discriminating rank
distinguished private collections
recognized by cultured people
everywhere
don’t settle for anything less than __ . selective
elite the creme de la creme
Superior sizzles
America’s leading_ outstanding the greatest…
America’s number one __ peerless the leading …
brilliant perfect the summit
distinguished preeminent the top …
elite sets the standard the ultimate __
excellent still the best the undisputed leader
first class superb top-of-the-line
first-rate superlative top-ranking
highest quality surpasses tops
impeccable the aristocrat of_ unbeatable
in a class by itself the best in the business unexcelled
incomparable the choicest __ unmatched
matchless the definitive_ unparalleled
nobody beats … the finest … unrivaled
outclasses the foremost … your number one source
Unusual Sizzles
__ with a difference hard to find remarkable
__ with a different spirit in a class by itself something new and different
__ with a twist! incomparable specially formulated
a different kind of __ matchless the first and only …
a fresh approach to … no other __ comes close. the one and only …
a rare find nobody else gives you … the only …
a refreshing change of pace not available in any store the only one of its kind
an exciting change of pace off the beaten track there’s nothing quite like it.
custom designed one of those __ you encounter only a uncommon
daring one of a kind unconventional
distinctive only __ brings you .. . unique
exceptional original uniquely suited to …
exclusive out of the ordinary unlike any other …
extraordinary rare unprecedented
few times during your life refreshingly different we searched far and wide for these …
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Writing and Printing Your Business Plan
A sound business plan includes a crystal clear description of what
you are selling. A well defined description of each feature and its
value is the first part of a solid foundation for a business plan. It
sets the stage for the second part of the foundation, where you’ll
describe the customer and why the customer will buy your
product at your price points. With a solid foundation, you can
more easily complete your implementation strategies and
financial projections.
The easiest way to complete your business plan is to write it
using one sequence. Then, when you have completed writing the
plan, print it in a different sequence.
Sequence for Writing Your Plan
Write the ‘business plan sections’ in the following sequence and you will find your work will move faster
and easier.
Writing Sequence Business Plan Section
Step 1 What you are selling: Services and Products
Step 2 Market Analysis and Revenue Forecast
Step 3 Strategy and Implementation
Web Plan
Marketing Strategy
Sales Strategy
Step 4 Company Resources
Management Team
Business Structure
Startup Capital
Step 5 Financial Statements
Statement of Operations
Balance Sheet
Statement of Cash Flows
Step 6 Introduction and Overview
Executive Summary
Goals and Objectives
Mission Statement
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Company Summary
Startup Summary
Many of the ‘sections’ include a summary section. Write the summary after you have completed writing
the section.
Sequence for Printing Your Plan
There is a generally accepted order in which the sections of a
business plan should appear. Most plans begin with a summary
description of the company and progress with more detail about the
management, product, market and financial opportunity. Print
your business plan in the following order.
Printing
Sequence
Business Plan Section
Section 1 Introduction and Overview
Section 2 What We Sell: Services and Products
Section 3 Market Analysis and Revenue Forecast
Section 4 Strategy and Implementation
Section 5 Company Resources
Section 6 Financial Statements
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Writing Your Business Plan
Writing a business plan is a three step process. The first step is to describe what you are selling. The
second step is to describe your customer and explain why they will purchase what you are selling at your
price points. The third step outlines the resources you need, when you will need them, and how they
will be deployed. Everything in the business plan should be designed to explain why the business will
be successful.
Step 1: What you are selling
This is the most the most important part of the business plan.
Many inventors and entrepreneurs find this part of the business
plan more challenging than most.
Describing a product or service might seem a simple task. For
many, it is the most difficult part of writing a business plan.
People do not start businesses, develop products, commit their
financial security and spend years of their lives on projects they
believe will fail. It’s not uncommon for many entrepreneurs to
lose objectivity and perspective for their product or service. It
becomes ‘their baby’ and they love it with the same loss of
objectivity many parents have for their children.
They assume everyone intuitively knows and understands all of
the features and the benefit each feature has for every customer. When writing your business plan,
assume the reader knows nothing about the product or service you are selling. Then, work to draft the
clearest possible picture of your product or service.
What type business will you start
Use the Excel® Product Description and Pricing Model to help you develop a precise
description of what you are selling. There are seven different product and pricing
scenarios in the Product Description and Pricing Model. Select the model which best
fits your business.
1. Retail establishments selling tangible products
A typical retail establishment might be a: book stores, hardware store, clothing store,
retail thrift store, paint store, grocery store, bakery, butcher shop or music store. It
might also include an internet based store. A retail store sells products to the general
public. It is a place where a customer can purchase something tangible. They can either
‘walk out with the product’ or have it delivered.
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2. Retail establishments selling services
Retail service establishments might include a: beauty salon, travel agency, realtor,
computer repair shop, auto wash, taxi-limousine service, electrician, plumber, roofing
repair or health club. The business may have an internet store or then again, it might
not. A retail service store sells a service to the general public. Generally, it is a place
where a customer can purchase having something done. It can be something which will
be done now or in the future.
3. Consulting
Consultants have expertise in a particular field. They are professionals who offer their
expertise to individuals or businesses. Some areas of expertise require licensing or
certifications while others do not.
Examples of consultants requiring licensing or certification are:
 Accountants
 Attorneys
 Architects
 Professional engineers
 Psychologists, psychiatrists
 Family Counselors
 Tutors
 Professionals with experience in technology, human resources, marketing,
management, finance, manufacturing, logistics, sales, public relations and other
areas.
Generally, clients are billed for the time the Consultant spends on behalf of the client.
The billing arrangements may or may not include a flat fee. They might include a rate
charged by the hour, day, week, month or year. Clients might also be billed a
combination of flat fee and a rate based on time.
4. Restaurant
The business of a restaurant is much the same whether it is a small kiosk selling coffee
or a high-end, elegant dining establishment. Generally, customers come to a restaurant
at different times of the day with different expectations. Early morning, morning, noon,
late afternoon, evening and late evening each represent different eating patterns and
requirements. Restaurant menus will often vary depending on the time of day. Fast
food restaurants, catering companies, mobile food trucks, pizza restaurant, casual
dining, fine dining, coffee house and sports bar are all examples of ‘restaurants’.
5. Boarding
A boarding establishment rents part of its ‘brick and mortar’ facility to a customer or
end-user on an hourly, daily, weekly or monthly basis. Generally, it offers a basic ‘rental’
rate for the use of the facility. It may also charge for a variety of optional services
available to ‘guests’ during their stay in the facility. Some boarding establishments may
offer a ‘package deal’ which would include the ‘rental’ rate and some pre-defined
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services. A bed & breakfast inn, motel, hotel, child daycare center, adult daycare center,
kennel and stable are all examples of boarding facilities.
6. Product sales
Businesses selling a tangible product to another business (B2B) or government (B2G) are
engaged in product sales. They sell to ‘the trade’ rather than to retail customers. In
recent years, ecommerce has lowered the barrier for retail customers to purchase direct
from these companies. However, selling to ‘the trade’ is still responsible for the large
majority of their sales. Manufacturers, distributors, wholesalers and manufacturer’s
representatives are the types of companies engaged in product sales.
Describe what you are selling
After selecting your business type, the next step is to describe what you
are selling. Use the Excel® Product Description and Pricing Model to
help you define what you are selling. Complete the description for
each service and product you are selling. The description must
include the name for the thing you are selling and the information
about its features.
1. Describing the products, product lines and major features for the business
Effectively communicating what you are selling to others is an all important core of a
successful business plan. It allows investors and lenders to ‘buy into’ the vision you have for
your business plan.
Mick Welch, Regional President of BankFIRST, is the quintessential entrepreneur’s
banker. He will tell entrepreneurs, ‘When I understand what you are selling, who you’re
selling it to and how you are going to sell it, then I can present your business plan to my
Loan Committee and help you get the money you need.’
a. Identify the name of each feature.
b. Describe the feature and its purpose.
c. Features differ depending on the business. Following are examples of the product
or product line for a business and the features for the product or product line.
i. Apparel Store It might have several
product lines like blouses, skirts, jackets,
slacks, suits and accessories. The
product line for blouses might include
merchandise from several different
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brands. Each brand might be a feature for the product line.
ii. Grocery Store Picture the isles in a grocery store. The average ‘small’
grocery store stocks between 10 and 20,000 items. Like items are arranged
together on an isle. The store might have canned foods, bread, dairy items,
meats, cereals, cookies and cleaning items. Each of these categories
represents a product line for the store. Each product line includes a number
of items and brands. The items and brands represent the features of the
product line.
iii. Hair Salon The average hair salon might use major service
categories to describe its services. The service categories are similar to
product lines. The salon might offer ‘product line’ services like haircuts,
manicures, pedicures and hair coloring. Each product line might include
sub-categories or features. Haircuts might be a product line for the salon.
Haircuts for men, haircuts for women and haircuts for children might be the
features.
iv. Automobile Repair Most automobile repair shops will post a list of services
they perform. The list might include services such as oil change, brake
repair and battery installation. The repair shop uses these major service
descriptions as if they were product lines. Each product line includes
specific service features. The oil change product line would include features
like brand specific motor oil, synthetic motor oil and an oil change with or
without an oil filter.
v. Accounting Firm To make it easier for clients to understand what the
firm does, accounting firms organize their services by areas of specialization.
Their product lines are their areas of
specialization. The firm might offer services
like preparing tax returns, general
bookkeeping, financial planning, auditing and
representing their client as an Enrolled Agent.
Each area of specialization may include several
features. The tax return preparation product
line might include features like an individual
return, joint return, partnership return,
corporate return or a sub-chapter S corporate
return. The firm might charge a flat fee, a flat fee in addition to an hourly
rate or an hourly rate for the service.
vi. Marketing Consultants When describing what they do to a prospective
customer, Marketing Consultants generally identify several broad areas of
expertise. They might include aligning marketing with sales, brand
identification, brand positioning, website marketing, search engine
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optimization or social media marketing. Their broad areas of expertise
represent product lines for the firm. The social media marketing product
line might several features like marketing on Twitter, Facebook, Google+,
Yelp, Blogs or a campaign for all the sites. Like accounting firms, they might
charge a flat fee, a flat fee in addition to an hourly rate or an hourly rate for
the service.
vii. Restaurant It’s difficult to imagine a restaurant with a product line.
Most of us go to a restaurant for a particular meal or taste. We order ‘the
usual’. Many restaurants will vary what they
serve depending on the time of the day.
They might have a different menu for
breakfast, lunch, supper, late evening or
early morning. Some restaurants have
different menus for weekdays and
weekends. The menu is a restaurant’s
product line and it can be a chalkboard,
static printed menu, wall menu or a multiple
page booklet. The menu features might be the major menu categories like
appetizers, sandwiches, entrees, special of the day, deserts and beverages.
With a limited menu, the features can also be the individual items on the
menu. Generally, restaurants will charge for the individual items their
customers eat. Buffets, on the other hand, charge a flat rate for a meal
regardless of the individual items the customer might eat.
viii. Child Daycare Classrooms are a major part of the physical organization
of a daycare center. It might also include a cafeteria, several play areas and
a library. The classrooms and play areas are often segregated by the age of
the children. The product line for a daycare center might be the age of the
children. Depending on the daycare center, the product line could range
from infants less than 1 year old to children 12 years old. Each age bracket
could represent a different product line. The types of care and programs
offered to each age group would be the product line features. Many
centers charge a flat rate based on the amount of time the child attends the
daycare center. They might charge for full days or half days and have rates
by the day, week or month.
ix. Bed and Breakfast Even a bed and breakfast inn has products and features.
The individual rooms might be the products. In addition to breakfast, there
may be other services the inn might provide guests. Courtesy airport pickup
and drop, meals for special diet requirements, laundry, concierge service,
flowers and special event services like ‘the wedding package’ are some of
the features for the rooms. The inn might charge for full day or half day
occupancy and have rates by the day, week or month.
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x. Manufacturer Companies manufacturing a small number of items sell
products. When a company produces a large number of products it uses
product lines. Product lines might be structured in any number of ways.
They might be structure around target markets, the synergy between the
individual products, by price, by a common component or raw material or
by a manufacturing process. The individual components of a product
generally represent its features. A wrist watch, for example, might features
such as hour, minute and second hands, crystal, face, case, case back,
battery, time piece movement and wrist band. The company might charge
by individual unit. It might also have different pricing based on volume such
as by the dozen, case, pallet or truckload.
2. Estimating how much your average customer will pay for your
product or service.
Knowing approximately how much the average customer will pay
for your product or service is one of the important early tasks in
writing a business plan. The more accurate your estimate the more
useful and valuable your business plan will be.
Joel Childs, Vice President for Marketing at Federal
Express, Custom Critical. He would say, ‘That’s a great idea.
Who’s the customer and how much will they pay for it? Until
you know who the customer is and how much they’ll pay, the
idea isn’t worth much and only your mother will care.’
Talk to people about your product or service. If it is a tangible product, bring a sample to
show people. For a service, bring a presentation describing the process and the outcome the
customer can expect to receive. Ask the people you interview the four big questions:
1. “Would you buy it if it cost between $xxx and $xxx?”
2. “How many would you buy and how often would you buy it?”
3. “Why would you buy it?”
4. “Why is it better than the other alternatives?”
The answers may surprise you. You’ll know right away if your mother is the only one who cares
or you’ve got the greatest thing since sliced bread. Even a small sample is better than no sample
at all. The feedback you’ll get will be invaluable. It will help you to develop your pricing and
your estimates for sales volume. When planning the pricing for your product or service using
one of the following pricing strategies might be useful:
1. Market Based Pricing
2. Premium Based Pricing
3. Penetration Based Pricing
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4. Cost Based Pricing and Loss Leader
5. Tiered Pricing Structure
6. Market Segmented Pricing
Estimate the average price for each feature by using a high and low price range. This technique
is particularly useful when pricing a product line. Consider the blouse product line in a retail
apparel store selling blouses, skirts, jackets, slacks, suits and accessories. The store would most
likely sell several brands or types of blouses. Some blouses would be priced higher than others.
Calculate the average price for each brand by using the price for the most expensive blouse and
the least expensive blouse. If the range is too large, list the price for all of the blouses and
calculate the average price for the brand.
Use the following interview sheet to help you gather market feedback for your product or
service.
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Market Interest Survey
Date
Product Name
Prospect Contact Information
Name
Address
City, State Zip
Telephone
Email
Would you buy my product?
Why would you buy it?
Would you buy it if it cost between $xxx and $XXX?
What feature do you like best about the product?
Why do you like the feature?
Why is the feature important to you?
What would the feature do for you that you cannot do now?
Why is that important to you?
What problem does the feature solve for you?
Why is solving the problem important for you?
How are you solving the problem now?
What do you not like about how you are solving the problem now?
How easy is it to solve the problem now? How difficult is it?
What does it cost in time, effort, dollars to solve the problem now?
What does it cost to not solve the problem?
Who makes the solution you are using now?
What do you like about the vendor? What do you not like about
the vendor?
How easy is it to switch from what you are doing now to my
product?
Why is it easy or difficult?
What would it cost for you to switch to using my product?
Why would you switch or not switch to using my product?
How often would you use the product?
Why do you use it that often?
How many would you buy at one time?
Why would you buy that many?
Would you buy it now or not buy it now?
Why would you buy it now or not buy it now?
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3. How much will your customer buy
Business owners would like it if their customers always
bought every product or service all of the time. The reality is
for customers to purchase some of the products or services
some of the time. The more refined your estimate of what
they will buy and when they will buy it, the more efficient and
cost effective your business can be. A reliable estimate of
what your customer might buy can help to better forecast
sales, reduce the amount of inventory on hand, the number
of people you need or the amount of cash you need to begin
and sustain the business.
Grocery Store
Knowing which items the average customer will choose to fill their shopping basket each
trip to the grocery store is value able piece of information for the store. It would help in
estimating revenues, how many checkout isles are needed, the amount of inventory on
hand and the inventory restocking time. It would also impact the estimate of how much
funds were needed at start up for inventory to stock the shelves, people to service
customers and the physical size of the store. The combination of how often they will
come to the store, the days on which they will come and the hours during the day can
also impact the size of the staff, inventory and investment.
Hair Salon
Understanding which service a customer wants when they come every week or come
once a month or even every two or three months is critical to the success of the
business. Revenue projections are more accurate, staffing is more efficient and the
quality of customer service can be higher. How often they come for haircuts,
manicures, touchups and pedicures is the core of the business. The size of the salon,
the type of equipment needed, the licensing, employee skill set and the size of the staff
are all driven by knowing what the customer wants and how often they want it.
Accounting Firm
Some clients need their accountants more than just during tax season. They need them
weekly, monthly and quarterly to help with payroll, bookkeeping, completing state and
federal tax forms and complying with other regulatory requirements. Estate planning,
business valuations and retirement planning are other needs accounting firms fill during
the year. Estimating the firm’s income and expense is more accurate when it is possible
to reasonably anticipate the ongoing needs of the clients. It would also help in
determining the type of expertise needed by the firm and the depth of the expertise.
Licensing and certifications are also driven by the needs of the clients.
Daycare Center
Parents enroll their children in the summer, fall, winter, spring or at any time during the
year. They have their children attend school half days and full days. Some children
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attend every weekday and others attend less than everyday. Estimating the ages of the
children attending the daycare center is as important for the school as estimating when
they might enroll and how often they might attend. The more precise the estimate the
more precise the projections for revenue, expenses and profit. It will also help in
determining the size and number of rooms the center will need. The licensing and skill
set of the staff is a function of the ages of the children and how often they will attend.
Startup funds for, building space, property, equipment, outdoor play sets, books,
supplies, toys, food and staff are all conditioned on the ages of the children and how
often they will attend.
Calculating the Average Purchase Amount
Not all customers will purchase all of the features for
a product or service all of the time. Some customers
will purchase some features more often than others.
Assume you are offering a service. Included in the
service offering are four features:
1. The price for Feature 1 is $10
2. The price for Feature 2 is $5
3. The price for Feature 3 is $15
4. The price for Feature 4 is $20
The total price for the service, including all of the features, is $50. Often, the total price
of the service is not a useful value when estimating revenues, because every customer
may not purchase all of the service features all of the time. For example, some
customers may purchase features 1 and 3. Other customers may purchase features 2, 3
and 4. While still other customers may only purchase feature 1. This is also true for
products.
Daycare Center
Knowing the percent of customers purchasing each feature will help you determine the
average purchase amount for the average customer. Assume 100 children enrolled in a
daycare center. Following are four the daycare service features and their prices:
1. Infants less than 1 year old, $185 per week
2. Children 1 year old, $175 per week
3. Children 2 years old, $200 per week
4. Children 3 years old, $225 per week
Consider the following enrollment patterns and how they would affect the purchase
amount for the average parent.
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 If all of the parents enrolled infants less than 1 year old, then the amount of
the average purchase would be $185.
 If 50% of the parents enrolled infants less than 1 year old and 50% enrolled
children 2 years old, then the amount of the average purchase would be
$192.50
((50 infants*$185) + (50 children 2 years old*$200))/100
children.
 If 10% of the parents enrolled infants less than 1 year old, 80% enrolled
children 1 year old and 10% enrolled children 2 years old, then the amount
of the average purchase would be $178.50
((10 infants*$185) + (80 children 1 year old*$175) + (10 children
2 years old*$200)/100 children.
Automotive Repair
An automotive repair shop expects 100 customers per week. It offers the following four
major services.
1. Oil and filter change, $39
2. Brake repair and replacement, $129 per
pair.
3. Tire alignment, 79$
4. Radiator repair, $495
Consider the following automobile service patterns and
how they would affect the purchase amount for the
average car owner.
 If all of the customers wanted oil and filter
changes, then the amount of the average
purchase would be $39.
 If 50% of the customers wanted the oil and filter change and 50% of the
customers wanted their brakes repaired, then the amount of the average
purchase would be $84.
((50 oil change*$39) + (50 brake repair*$129))/100 children.
 If 10% of the customers wanted the oil and filter change, 80% of the
customers wanted the tire alignment and 10% of the customers wanted the
radiator repair, then the amount of the average purchase would be $116.60
((10 oil change*$39) + (80 tire alignment*$79) + (10 radiator
repair*$495)/100 children.
4. Competitive Pricing
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One way to help support the pricing for a product or service is to identify the relative
competitive advantage of the features. Being able to relate your pricing to the competitive
value of your features can help justify your pricing structure. It can also help to create more
credibility for your business plan.
o A lower price than competitors might be
a marketplace advantage. It might also
motivate prospective customers to move
past customer inertia or status quo.
o A higher price than competitors might
be offset when your features have
greater benefit for the customer than
the competitor’s features.
o Exclusivity might also justify a higher
price than competitors.
Apparel Store with prices higher than
competitors
If you want to look perfectly tailored, The Shoppe from Savile Row can help you. You
can purchase a jacket, suit, shirt or slacks and they will tailor it to fit you perfectly. Their
tailors work in the shop and they can complete the perfect alteration of any garment
you buy in the shop within 2 days. The cost to alter your purchase is:
 Jacket: $250
 Suit: $450
 Shirt: $100
 Slacks: $150
There are no other stores in the area capable of completing custom alterations within 2
days. Savile Row offers a money back 100% satisfaction guarantee for their work. More
impressive is their offer to complete the alterations at no charge if the alterations are
not complete within 2 days. Their alteration prices are more than 10 times higher than
any competitor in the area.
‘When you have to have it and you need it on time, go to Savile Row, it’s
worth every dime.’
Hair Salon with prices lower than competitors
Beautiful Cuts is a hair salon located in a high traffic section of a regional shopping mall.
It is affiliated with a local hair stylist school. Students from the school work at Beautiful
Cuts as part of their practical training. Students are not paid for the hair they cut. With
its lower operating cost, a regular woman’s haircut at Beautiful Cuts is $7. Competitors
charge between $12 and $25 for a regular woman’s haircut.
Bed and Breakfast with prices higher than competitors
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Ocean View Bed and Breakfast is located at the beach. All of the rooms have a full view
of the ocean, beach and palm trees. The next nearest beachfront bed and breakfast is
175 miles to the north and 230 miles to the south. The bed and breakfast has its own
limousine to take guests to and from the airport. There are several competitive bed
and breakfast inns in the local area. The competitors offer similar breakfast menus,
guestrooms and amenities. The rate for competitor guestrooms is between $175 and
$250 per night. Ocean View, the only inn on the ocean in the area, charges between
$350 and $500 per night for a room with a view.
Knowing the competitive advantage of your features will also help you complete the
Competitive Advantage section which appears later in the Business Plan.
5. Customer Benefit
This is where the rubber meets the road in a business
plan. The benefit to the customer is the bedrock for the
success of the business. Investors are more open to
supporting a business when the benefit to the customer is
easy to understand, robust and can be substantiated.
When the benefit is easy to understand, investors are open
to accepting pricing, revenue and profit models. Create
clear, easy to understand and believable descriptions of
the benefit to the customer and the reader will be more
receptive and interested in the business plan.
Bruce Simpson, President, FedEx Custom Critical Service, is a man with a
clear view to making a business successful. He would say, “Delighting
our customers with the benefits we deliver will help keep us successful.
It lets our customers feel good about buying our service. And that, keeps
them coming back.”
Letting your reader know the benefits your product or service offers your target market is key to
successfully marketing your business plan.
Identifying the core benefit to your customer
Use this technique to help you identify the core benefits your product or service delivers to
your customer.
An apparel shop offers its customers free alteration for the apparel a customer purchases
from the store. For example, a customer buys a pair of slacks but the legs are too long and
have no cuffs. The store will shorten the slacks to the correct length and add cuffs at no
additional charge. It also will complete the alteration within 24 hours. If the garment does
not fit after being altered, there is no charge for the garment. The store is open 7 days a
week from 7AM to 11PM. Ten percent of every sale is donated to the Feed the Hungry
Children Foundation.
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1) List the key features of your product or service.
The apparel shop features are:
 Apparel
 Free alterations
 24 hour turnaround time to complete alterations
 Money back guarantee if altered garment does not fit
 Open 7 days a week from 7AM to 11PM
 10% of every sale goes to the Feed the Hungry Children Foundation
2) Next, identify the benefit of each feature by asking yourself, “Why is this feature
important?” Keep asking the question until you get to the kernel of truth for why the
feature is important.
a) Why is the apparel store ‘money back guarantee’ important to the customer?
Answer = It removes the customers fear about purchasing the slacks.
b) Now, ask yourself the question, ‘Why is removing the fear about the purchase
important to the customer?’
Answer = The customer will have confidence the slacks will fit. If they don’t
the fit, the customer knows they will get all their money back. It is a risk
free purchase.
c) Ask yourself, ‘Why is a risk free purchase important to the customer?’
Answer = Without the guarantee the customer would have to purchase
another pair of slacks if the first pair did not fit. The customer will only have
to pay for one pair of slacks. It is a less expensive alternative and will save
the customer money.
Often, when selling a service a company may also sell a tangible product to accompany the service.
Alternately, when selling a product, a company may also sell a service to support the product. Include
descriptions of the associated products or services when defining what you are selling.
Writing the narrative
Open the Word® Business Plan template. Go to Section 2, ‘What we sell’.
Use the information you developed in the Excel® Product Description and Pricing
Model to help you write a narrative explaining what you are selling. It will help you
describe your products and services. The features for each product or service can be
found in the Product and Pricing Model. Pricing for products or product lines and
services are also located in the Model.
Charts and Graphs
Copyright 2013 Page 43
Consider cutting, pasting and resizing the charts and graphs to better illustrate and amplify your
narrative. Charts and graphs are an effective way to convey the nuts and bolts of a product or service.
This section of the business plan can be more convincing with chart and graphs. They are particularly
useful for packaging a great deal of information into a simple and easy to use format. You can use
charts and graphs to give your reader a visual snapshot that is more interesting than a table, and also
lets the reader understand the data almost instantly. Charts and graphs for a retail establishment
business model might include the following.
The following chart describes the product lines of a retail store and the brands included within the
product lines. It also describes the average price for each brand and the percent of customers expected
to purchase each brand.
Merchandise Line Name 1
Feature Name
Average
Price
Customers Buying
Feature Feature Description
Brand 1.1 20.00 5%
Brand 1.2 20.00 5%
Brand 1.3 20.00 5%
Merchandise Line Name 2
Feature Name
Average
Price
Customers
Buying Feature Feature Description
Brand 2.1 20.00 5%
Brand 2.2 20.00 5%
Brand 2.3 20.00 5%
Brand 2.4 20.00 5%
The strength of a business plan is supported by the competitive advantages of the product or service.
Include a chart describing the most significant competitive advantages for the major features of your
product or service. Each description should be very brief, not more than a few clearly articulated
sentences. They should convey what the feature does, how it solves the customer’s need and why
competitors will have difficulty imitating it. A well defined specific statement of fact will deliver more
impact than a broad generalization. For example, ‘it works in 7 minutes while the competitor takes 1
hour’ is more effective than ‘it is faster than competitors’. Keep perfecting your descriptions until they
are clear, concise and convincing.
More than just an interesting intellectual exercise, developing clear and compelling descriptions of your
competitive advantages will help your reader to understand why what you are selling is more valuable
than your competitors.
Merchandise Line Name 1
Feature Name Feature Description Competitive Advantage Customer Benefit
Brand 1.1
Brand 1.2
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Brand 1.3
Brand 1.4
Merchandise Line Name 2
Feature Name Feature Description Competitive Advantage Customer Benefit
Brand 2.1
Brand 2.2
Brand 2.3
Brand 2.4
Photos
Product and service photos can be important to a business plan for several reasons.
1. The reader can better understand your product or service with photos
It may not be possible for the reader to physically handle your product or personally experience
your service. You can use high quality photos to help the reader fill this gap and get closer to the
information they need. A graphic describing the service delivery process can also be very useful.
When the reader can easily understand your product or service they are more likely to give you
what you want.
2. Photos can help boost your brand
Effective product or service photos can sometimes act as
brand representative. Quickly and simply, photos can convey
your brand and style to the reader. Whether your brand is,
techie, modern, retro, contemporary, trendy or anything else,
photos can strengthen the reader’s appreciation for your
brand. They can help build more confidence in the reader for
your business plan.
3. They give your business plan a competitive edge
An illustrated business plan can be a refreshing change for a reader accustomed to reading dull and
lifeless business plans. Your products and services can be presented in the best possible way with
interesting photos and graphics.
4. They can improve a reader’s receptiveness
Relevant, spectacular photos can help you generate a more profitable reader response. A reader
will be more likely to buy into your business plan when you include great product and service
photos. Photos can help the reader feel more informed and comfortable with your product or
service business model. The more comfortable the reader is with your business model, the more
likely the reader will be to participating in your business.
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The Summary
After you have completed the detailed description of what you are selling, then write a concise
overview. Briefly describe each product or service, including a description of the most significant
feature, the selling price and the amount the average customer might purchase. Also include an
account of the competitive advantages.
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Step 2: Market Analysis and Revenue Forecast
Understanding the size of the market and the revenue potential is the next important step in writing
your business plan. Use the Excel® Target Market and Revenue Model to help you define the size of
your market and to estimate your revenues.
Sizing the Market
One of the easiest ways to size the market is to use the
‘bottom up’ approach. It assumes the size of the total market
is equal to the sum of the size of all its segments. Use this
approach to size each of the individual market segments.
Then total the size of all the segments. The result will be an
estimate for the size of the total market. With the size of the
total market in hand, you will be able to count the number of
potential customers, how often they will buy and then
project your revenues.
Let’s take a look at some likely segments for a hair salon and
an accounting firm. From the list of product or service
features for the business, select the features which have the
greatest customer benefit. For each of the major features
describe the profile for the customer who might benefits most from the feature. One technique for
identifying customer profiles is to imagine your customer in detail. Ask yourself questions like:
 What would look like, wear, say?
 How far would they travel to come to the business?
 How much do they earn?
 Will they make the decision on their own or with someone else?
Hair Salon
A hair salon, for example, might have customers who are both male and female. They might be
children, young adults, middle aged, older or senior citizens. Generally, the service features
which men like most may be entirely different from the feature women like most. Men would
represent one market segment for the hair salon and women another segment. If there were
150,000 men in the male segment of the total market and 200,000 women in the female
segment, then the total market size for the hair salon would be 350,000.
Accounting Firm
Picture the clients for an accounting firm. Some might be single or married. They might be
men, women or both. Other clients might be small, medium or large businesses. The
accounting firm might also have local, county, state or federal government agencies as clients.
Tax return preparation might be a big part of the accounting firm’s activity. It might prepare
returns for single men, single women or married couples. Additionally, it might prepare tax
Copyright 2013 Page 47
returns for small, medium or large businesses. The firm might also offer services like audits,
payroll preparation, business valuations and bookkeeping.
The accounting firm might have three market segments:
1. Individuals and couples
2. Small, medium or large businesses
3. Local, county, state or federal government agencies
The firm’s clients might include 2,000 individuals and 4,000 couples. It might have 100 small
businesses, 50 medium size businesses and 5 large businesses in its second market segment.
There may be 2 government agencies in the firm’s last market segment.
Market segments and sub-segments
A common mistake, made by new companies, is to offer a product or
service and then look for a market interested in buying it. The
company that designs a product or service and then enters the
market looking for a customer will struggle. The company who first
asks prospective customers about their most pressing need and then
offers a product or service to fill the need is far more likely to
succeed. If filling the need is a priority for the customer, the
company’s chances of success are even greater.
Segmenting the total market into clearly identifiable subsets will help
you develop a reliable estimate of the total market size. The more
specific your definition of your market segments and sub-segments, the more accurate your estimate of
the total market will be.
Manufacturer
You’ve decided to manufacture soap and you want to define the market and its segments.
Soap looks like a great product. No longer do people wait until the first Friday of the month to
bathe. People wash themselves everyday now and they use soap while doing it. The
assumption might be ‘everyone uses soap every day.’ The reality is, while they do use soap
every day, not everyone will buy your soap every day. To begin the process of segmenting your
total market you might include the following segments:
1. Geographic area
2. Household income levels
Your soap is triple milled and uses non-tallow ingredients. You’ve decided to manufacture
handmade natural soaps, created in small batches using a variety of natural oils, butters &
botanicals from the Rain Forest of Brazil. Customers with sensitive skin will benefit most by
using your soap. The ‘age’ market segment might be most attracted to the soap because in this
market segment have issues with sensitive skin. This market segment might require further
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sub-segments based on the soap’s moisturizing features and the benefits to the customer. The
household market segment might be subdivided into:
 Parents with children having sensitive skin
 Older people with dry and sensitive skin
You can also use the ‘bottom up’ approach to estimate the size of the segment for parents with
children with sensitive skin.
1. Select the geographic area for your prospective customers. Identifying a
test market area is a good way to iron out the bugs in a new product or
service before exposing the product to a broad market. In building your
business plan, consider identifying the test market area for an initial period
of time. In subsequent time periods you might increase the size of the
market area. For example, you might consider starting operations in the
Palm Bay-Melbourne-Titusville, Florida metropolitan statistical area for the
first year. It has a population of approximately 500,000 people. In the
second year, you might expand to the adjacent Orlando-Kissimmee-Sanford
metropolitan statistical area with a population of 2,000,000 people. Each
year you might grow the geographic area for your market area to finally
include 11,300,000 people.
Metropolitan Statistical Area Population Size
Year 1 Palm Bay-Melbourne-Titusville 500,000
Year 2 Orlando-Kissimmee-Sanford 2,000,000
Year 3 Lakeland-Winter Haven 600,000
Year 4 Tampa-St. Petersburg-Clearwater 2,700,000
Year 5 Miami-Fort Lauderdale-West Palm Beach 5,500,000
Total 11,300,000
2. Determine the number of households. Data from the metropolitan
statistical area indicates there are approximately 3.8 million households in
your market area.
3. Households with children 1 year old and younger. After demonstrating
the soap with friends and family, you’ve decided women are attracted to
the soap more than men. Also, mothers with infants are even more
Metropolitan Statistical Area Households
Year 1 Palm Bay-Melbourne-Titusville 170,000
Year 2 Orlando-Kissimmee-Sanford 680,000
Year 3 Lakeland-Winter Haven 204,000
Year 4 Tampa-St. Petersburg-Clearwater 918,000
Year 5 Miami-Fort Lauderdale-West Palm Beach 1,870,000
Total 3,842,000
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interested in your soap because of how your soap softened their skin.
Some of the mothers believed the hydration properties of the soap would
also help babies with very dry skin. One of the mothers said after using
your soap on her infant she no longer needed a special moisturizing cream
for her little girl which costs $4.95 per ounce. Mothers with infants were
more excited about your soap than any other group.
You’ve decided to focus on mothers with infants as your most lucrative
market segment. From the metropolitan statistical area demographic data
you calculated 27% of households have children 1 year old and younger. In
your total market area there are more than 1 million households with
children one year old or younger.
Metropolitan Statistical Area Households
with Children
<= 1year old Year 1 Palm Bay-Melbourne-Titusville 49,300 Year 2 Orlando-Kissimmee-Sanford 197,200 Year 3 Lakeland-Winter Haven 59,160 Year 4 Tampa-St. Petersburg-Clearwater 266,220 Year 5 Miami-Fort Lauderdale-West Palm Beach 542,300 Total 1,114,180 4. Households with annual income greater than $50,000 Some of the mothers thought the price of the soap was inexpensive, some thought it moderate and others thought it was too expensive. Those who thought $2.98 per bar was moderate or inexpensive had household incomes of $50,000 and higher. You’ve decided to focus on mothers with children 1 year old and younger with annual household incomes of $50,000 and more. From the metropolitan statistical area demographic data you calculated 42% of households with children 1 year old and younger have annual incomes of $50,000 and more. In your market area there are more than 500,000 households with annual incomes of $50,000 having children one year old or younger. Metropolitan Statistical Area Household with $50,000 annual income having Children <= 1year old Year 1 Palm Bay-Melbourne-Titusville 22,925 Year 2 Orlando-Kissimmee-Sanford 91,698 Year 3 Lakeland-Winter Haven 27,510 Year 4 Tampa-St. Petersburg-Clearwater 123,793 Year 5 Miami-Fort Lauderdale-West Palm Beach 252,170 Copyright 2013 Page 50 Total 518,094 The ‘bottom up’ approach helped to estimate the size of the market segment for parents with children with sensitive skin. You can use the same approach to estimating the size of the segment for older women with dry and sensitive skin. 1. Select the geographic area for your prospective customers 2. Determine the number of adults in the geographic area older than 70 years. 3. Select the size of the family income for your prospective customers. 4. Determine the number of families in your geographic area fitting the income profile. 5. Calculate the number of families with adults older than 70 having the correct income in your geographic area. Identifying the profile for the customer will help you determine the market segments and all of the subsegments belonging to a market segment. A customer might be an individual consumer, a business or a government agency. Following are examples of customer profile characteristics which can be useful in helping you develop market segments and sub-segments. 1. A consumer profile might include some of the following characteristics:  Geographic location  Gender  Age  Physical attributes: height, weight  Income, occupation  Education  Race  Religion  Nationality  Location  Marital status  Family size 2. A business, commercial or trade might include some of the following characteristics:  Geographic location  Industry  Product  Asset size, type assets  Type liabilities, liability size, accounts payable size  Shareholders  Revenue size, accounts receivable size  Number of employees  Information systems  Internet presence Copyright 2013 Page 51  Imports, exports  Decision maker characteristics 3. A government agency might include some of the following characteristics:  Geographic location  Federal, state, local  Domestic, foreign  Fiscal period, budget cycles  Funding levels  Political issues, interests  Public benefit, safety  Impact on cost avoidance, elimination, reduction  Decision maker characteristics  Available political influence Data sources Reliable and credible data binds together the business plan story and satisfies the reader’s need for validation. Factual and objective data is absolutely necessary to create believable substance for the business plan. Finding convincing data from trustworthy sources is easier when you use the internet. Some established and acceptable data sources are:  The Statistical Abstract of United States  Metropolitan Statistical Area data  DASL of Carnegie Mellon University  TIGER of the US Census Bureau  UN data  The Federal Reserve Board Every state and many county and city governments have economic development agencies. The major purpose of these agencies is help new and established businesses start, grow and become more successful. Generally, development agencies might offer the following support:  Statistical and data resources for wide range of subjects  Financial assistance with loans and grants  Advice and assistance for hiring and training employees  Help with locating and selecting a suitable site for the business The U.S. Small Business Administration maintains a website which includes links for all of the state economic development agencies in the United States. Copyright 2013 Page 52 Industry and Trade Associations Industry and trade association are yet another source of valuable and credible business data. Many associations will have a wide range of industry specific data available for subjects like:  Average sales volume  Average customer purchase amount  Average customer frequency of purchase  Average customer transaction value and amount Trade associations represent both small and large members. Generally, their role is to educate members and provide a powerful voice for regulatory governmental and industry based policy to help their membership. Many associations have state and local chapters to support their members. Most associations employ a staff of experts to offer members and the public access to information and data on a wide range of key issues affecting their industry. Following is list of trade associations and links to their websites. American Bakers Association American Booksellers Association American Marketing Association American Meat Institute Association of Information Technology Professionals Copyright 2013 Page 53 Automotive Service Association Gift and Home Trade Association International Boarding & Pet Services Association International Carwash Association International Society of Logistics Manufacturers' Agents National Association National Adult Day Services Association National Association of Massage Therapists Copyright 2013 Page 54 National Association of Career Travel Agents National Association of Event Planners National Association of Manufacturers National Association of Realtors National Child Care Association National Conference of CPA Practitioners National Franchisee Association National Grocers Association Copyright 2013 Page 55 National Limousine Association National Restaurant Association National Retail Federation National Society of Professional Engineers North American Retail Hardware Association Professional Beauty Association Professional Association of Innkeepers International Building the size of your markets Open the Excel® Target Market and Revenue Model. Follow the steps in the Instruction page and enter the fiscal years for your business. This modeling tool will help you develop reasonable, reliable and credible estimates of the market size for your product or service. The model will automatically calculate the Total Market summary data along with illustrative charts. You can find the summary data and charts in the Total Market Summary worksheet. Copyright 2013 Page 56 Use the modeling tool to help you estimate the size of your Target Markets as a percent of your Total Market. The model will automatically summarize the Target Market data and produce descriptive charts. You can find the summary data and charts in the Target Market Summary worksheet. Sizing the Total Market After opening the Target Market and Revenue Model, go to the Total Market page and enter the actual segment and sub-segments for your products or services. Estimate the annual growth rate for each Segment and enter the value. Describe your assumptions for the growth rate you are using. Enter your estimate for the size of each Sub-Segment in the first year. Identify the sources you used for your data. Keep track of your assumptions and sources for your estimate of the size of each sub-segment as you build your model. It will make it easier for you document and source your data when you write your narrative. Sizing the Target Market The raw truth is, not everyone will buy your product or service. The target market is the subset of the total market you believe may have the greatest probability of purchasing from your business. They are the individuals on which you will focus your advertising or message. Open the Target Market page and for each segment, enter the percent of the total Target Market you expect to convert to customers. Annual Customer Conversion Rate Prospects are people who may have a need for your product or service but have not yet purchased from your business. The number of people you can convert from being a prospect to a customer, is the customer conversion rate. The annual conversion rate is the number of prospects you can convert into customers during a twelve month period. “How many potential buyers in my Target Market will buy from me?” This is the question most often asked by entrepreneurs. Getting customer conversion projections exactly right happens very infrequently. There are many variables, unknowns and random events impacting a marketplace to be able to consistently predict customer conversion rates with unerring perfection. Sales teams can flounder and employee morale can erode under the weight of unrealistic customer conversion expectations. A more useful strategy is to develop reasonable estimates to get your estimates in the right ballpark. Three practices can help you get reasonable estimates of annual customer conversion rates. 1. Develop a complete understanding of how your prospects can become your customers. 2. Use credible, substantial statistics and marketplace data as the foundation for your projections. 3. Continually test the validity of your key Copyright 2013 Page 57 assumptions. Enter your estimates for customer conversion rates in the Target Market page of the Target Market and Revenue Model. Annual Customer Retention Rate Many products and services have the same or very similar characteristics. Just as you will do your best to entice your competitor’s customers, your competitors will do the same with your customers. Not every customer will remain loyal and become a repeat customer. The customer retention rate is the number of customers who will continue purchasing from you. Estimating your annual customer retention rate is a key element in a solid revenue forecast. Answering the following questions can help you develop a reasonable estimate for your annual customer retention rate.  What are the overlapping features with your competitor and how might the overlap affect your customers?  When, where, and how is your product or service used compared with your competitor’s product or service?  Do you compete in the same geographical market?  If you compete in different geographical areas: o What is the comparative cost to transport the product or deliver the service? o What is cost for your customer to travel and buy your product or service compared to the competitor? Based on the answers to these questions you should be able to develop realistic annual customer retention rate. Enter the percent of customers you believe you can retain as repeat customers for each year and for each Market Segment. The modeling tool will automatically calculate the size of the target market based on your estimate of the percent of the total market you plan to convert. Estimating the average customer purchase amount Open the Average Customer Purchase page. Next, open Product Description and Pricing Model. Copy the actual name for each Product or Service your business will offer from the Product Description and Pricing Model. Next, from the Product Description and Pricing Model, enter the average customer purchase amount for each Product or Service. Where appropriate, increase or decrease the average purchase amount you believe will occur over time. Record your assumptions and sources for your estimate of how and why the average customer purchase amount may change over time. Copyright 2013 Page 58 How often will your customer buy How many times each year the average customer will purchase from you is significant. Knowing how often the customer will purchase from you can help you project a more accurate estimate of the revenues. Estimating the frequency of purchase for a new product or service is always a challenge. Building a reasonably reliable frequency of purchase estimate for a new product or service can be a vital cornerstone for a revenue forecast. Answering the following questions can help you get through your first attempt at building a frequency of purchase estimate.  How cyclical or constant is the product or service usage?  What random events impact the customer’s decision to purchase the product or service?  How differentiated is the product or service? o To what degree is it differentiated? o What is the cost benefit to the buyer? o What is the value benefit to the buyer? Gauge, as best as you can, how often the customer will purchase from you and document your assumptions. Enter your estimates into the Purchase Frequency page of the Target Market and Revenue model. Sales Forecast Estimating how much you might sell is easier when you know how many customers you might have, how much they will buy and how often they will buy it. The Target Market and Revenue Model will automatically generate a forecast for your annual unit sales volume on the Sales Volume page based on the data you have entered. It will also automatically generate an annual revenue forecast for you on the Sales Forecast page. Take a reality check The Reality Check page can help give you feedback for your estimate of the market size, customer purchase amounts and revenue forecast. Another excellent source of feedback might be the industry association for your business. Generally, associations will have a great deal of industry specific data available, including data for:  Average sales volume  Sales per square foot  Sales per employee  Average customer purchase amount  Average customer frequency of purchase  Average customer transaction value and amount Copyright 2013 Page 59 Review the average customer purchase amount, annual sales volume and annual revenue projections for your business. Test if they make sense for your business as you envision it. For example:  Average customer purchase amount: Customers purchasing $27,000 each time they frequent a hair salon does not seem as likely as a customer engaging a marketing consultant for $27,000 to complete a project. An accounting firm specializing in preparing individual tax returns might have difficulty justifying an average preparation fee of $5,600.  Annual sales volume: With an ocean view, a Bed and Breakfast inn has 5 guestrooms and is open 7 days a week. It would not be plausible for the inn to have 5000 registrations in a single year. An apparel store, specializing in clothing for tall women, would be suffering with only 5000 transactions a year.  Annual revenue: A restaurant seating 100 people, open from 7AM to 11PM, seven days a week would not likely have $23 million a year in annual revenue. Grocery stores with 50,000 square feet selling $23 million a year might have too little revenue. After reviewing your estimates for average customer purchase amount, annual sales volume and annual revenue, there are three adjustments you can make to tweak and bring them closer to what you believe might be more reasonable for your business. 1. Revise the Product Description and Pricing model to adjust the average purchase amount. 2. Adjust the size of the target market. 3. Alter the number of times during the year the average customer will purchase from the business. Make the appropriate adjustments. Look again at the Reality Check. Getting the numbers ‘right’ may take a few iterations. After each adjustment, do a Reality Check until your numbers seem ‘bullet proof’ and believable. Writing the narrative for your market Open the Word® Business Plan template. Go to Section 3, ‘Market Analysis and Revenue Forecast’. Use the information you developed in the Excel® Target Market and Revenue Model to write a narrative describing the size and characteristics for total market and target market. Consider cutting, pasting and resizing the charts and graphs to better illustrate and amplify your narrative. Complete a narrative description of the following sections: Copyright 2013 Page 60 Total Market Analysis This is the place to describe the total market and each of its major segments. In this section, include the name for each total market segment. Include the name and size of each market segment. Indicate the growth rate for the total market and why you believe the growth rate is reasonable. Take into account your assumptions to validate the growth rate and why you believe the assumptions are credible. Identify the statistics and sources to support your estimate for the growth rate and an explanation of why the statistics are credible. Include charts and graphs to more clearly describe the total market. Charts similar to these might be useful. Total Market Size Summary Year 1 Year 2 Year 3 Year 4 Year 5 Segment 1 8,000 8,800 9,680 10,648 11,713 Segment 2 8,000 8,800 9,680 10,648 11,713 Segment 3 8,000 8,800 9,680 10,648 11,713 Segment 4 8,000 8,800 9,680 10,648 11,713 Segment 5 8,000 8,800 9,680 10,648 11,713 Copyright 2013 Page 61 Target Market Analysis In this section, let the reader know the name for each target market segment and sub-segment. Describe the size of each target market. Describe the percent of the total market population you believe you will be able to capture and why you believe it will be possible. Include your assumptions to validate the percent of the total market you will be able to capture and why you believe these assumptions are credible. Identify the statistics and sources to support your estimate for the size of each target market segment and an explanation of why are the statistics credible. Describing the geographic dimension for each target market segment gives the reader a better understanding of your market and its strength:  international  national  regional  local Include charts and graphs to better explain and illustrate the target market. You might select charts and graphs like these: Target Market Size Summary Year 1 Year 2 Year 3 Year 4 Year 5 Segment 1 80 152 218 281 342 - 10,000 20,000 30,000 40,000 50,000 60,000 70,000 Year 1 Year 2 Year 3 Year 4 Year 5 Total Market Size Total Market Size Copyright 2013 Page 62 Segment 2 80 152 218 281 342 Segment 3 80 152 218 281 342 Segment 4 80 152 218 281 342 Segment 5 80 152 218 281 342 Total Target Market Size 400 760 1,092 1,406 1,710 Target Market Segmentation Analysis Knowing the customer is an important part of a business plan. Generally, there three types of customers and a business might have one or all of them. Customers usually fall into three categories: 1. Retail Customers Generally, a retail customer is a person buying directly from a retail establishment. The business model is called business-to-consumer or B2C. In - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 Year 1 Year 2 Year 3 Year 4 Year 5 Target Market Size Segment 5 Segment 4 Segment 3 Segment 2 Segment 1 - 200 400 600 800 1,000 1,200 1,400 1,600 1,800 Year 1 Year 2 Year 3 Year 4 Year 5 Target Market Size Total Target Market Size Copyright 2013 Page 63 the description of the customer profile, include the significant characteristics such as: geographic location, gender, age, income, education, race, religion or nationality. 2. Businesses Another type of customer might be a commercial business or an institution. This business model is called business-to-business or B2B. In the description of the customer profile, include the significant characteristics such as: industry, geographic location, product, asset size, type assets, type liabilities, liability size, shareholders, revenue size, accounts receivable size, accounts payable size, number of employees, information systems, internet presence, imports or exports. 3. Government Agencies The third type customer is a government agency. This business model is called business-to-government or B2G. In the description of the customer profile, include the significant characteristics such as: Federal, state, local government, domestic, foreign government, fiscal period, budget cycles, funding levels, political issues or interests, public benefit or safety, impact on cost avoidance, elimination or reduction, decision maker characteristics or available political influence. In this section describe the customer characteristics. Describe the percent each segment represents of the Target Market. Explain the basis for your estimate such as population size, buying qualification or other criteria. Also explain why these groups will purchase from your business at your selling price points. Target Market Segment Strategy Think of each target market segment as a separate business or profit center. Prioritize the target market segments in order of the greatest opportunity they represent for the business. Explain the prioritization criteria, the ranking of segments and why the top segment represents the greatest opportunity for the business. Here is where you get to explain how you will get your future customers. Describe which strategies you will use to create brand recognition and to get prospects familiar with the name of the business. Explain how to convince people to buy what you are selling and to buy it from your business. Describe your marketing strategy for each target market segment. Word of Mouth Marketing If you are considering using a ‘word of mouth marketing’ strategy, include comments for the following:  How can a few individuals influence the buying behavior of many others to buy from your business? Who are these people? Copyright 2013 Page 64  How many people will buy from your business on the recommendation of others?  How many people will prefer a ‘word of mouth’ recommendation before buying from your business? Give the reader an understanding of the sequence and timeframe for marketing to the target market segments. For each segment, describe your plan for promotion, advertising, pricing and discounts. Explain your strategy for each customer type the business will serve:  Retail customers  B2B customers  B2G customers Sales Forecast One of the things lenders and investors want to see is the sales forecast. They will want to see a forecast of how many units you will sell and an estimate of the annual revenues. This is the place to show them how much money the company can generate. Give the reader a crystal clear, easy to understand presentation of the company’s revenue producing muscle. In your narrative, include straightforward charts and graphs to show how successfully the company will perform. Include charts and graphs like these: Sales Forecast Summary Year 1 Year 2 Year 3 Year 4 Year 5 Product 1 $800,000 $1,520,000 $2,184,000 $2,812,000 $3,420,880 Product 2 $800,000 $1,520,000 $2,184,000 $2,812,000 $3,420,880 Product 3 $800,000 $1,520,000 $2,184,000 $2,812,000 $3,420,880 Product 4 $800,000 $1,520,000 $2,184,000 $2,812,000 $3,420,880 Product 5 $800,000 $1,520,000 $2,184,000 $2,812,000 $3,420,880 Product 6 $800,000 $1,520,000 $2,184,000 $2,812,000 $3,420,880 Product 7 $800,000 $1,520,000 $2,184,000 $2,812,000 $3,420,880 Product 8 $800,000 $1,520,000 $2,184,000 $2,812,000 $3,420,880 Product 9 $800,000 $1,520,000 $2,184,000 $2,812,000 $3,420,880 Product 10 $800,000 $1,520,000 $2,184,000 $2,812,000 $3,420,880 Total Revenue Forecast $8,000,000 $15,200,000 $21,840,000 $28,120,000 $34,208,800 Copyright 2013 Page 65 Business Context Analysis Let the reader know how your industry is organized, structured and where your business fits within the industry. Understanding how your business fits within the context of your industry is important to your reader. In your narrative, make clear:  The relationship between customers and suppliers in your industry. Products and services are generally brought to the end user through the coordinated effort of a chain of individuals and organizations. These individuals and organizations are often called the marketing intermediaries in a distribution channel. The two main categories of marketing intermediaries are wholesalers and retailers. $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 $35,000,000 $40,000,000 Year 1 Year 2 Year 3 Year 4 Year 5 Sales Forecast by Product Product 10 Product 9 Product 8 Product 7 Product 6 Product 5 Product 4 Product 3 Product 2 $0 $5,000,000 $10,000,000 $15,000,000 $20,000,000 $25,000,000 $30,000,000 Year 1 Year 2 Year 3 Year 4 Total Sales Total Revenue Sales Volume Summary Year 1 Year 2 Year 3 Year 4 Year 5 Total Sales Volume 80,000 152,000 218,400 281,200 342,088 Copyright 2013 Page 66 Wholesale intermediaries sell primarily to retailers and other wholesalers or to industrial users. They do not sell significant amounts to ultimate consumers. Grocery Store Metcash and Sysco are two large food-service wholesalers. They buy more than 100,000 food products from manufacturers and resell them to more than 100,000 restaurants, hotels, schools, hospitals, and other institutions. Both companies also distribute frozen food products to supermarkets, other retail stores, and military commissaries. Hair Salon Takara Belmont is a distributor of equipment you might expect to find in most hair salons. It supplies salons with chairs, mirrors, washing equipment, drying stations and a range of other equipment. It sells only to the trade and not to the general public. Takara also offers complimentary consulting services to its customers. Retailers, by contrast are sole proprietors or firms selling goods and services to directly to individuals. Retailers are marketing intermediaries selling to end users and not for resale. Consumers generally buy from retailers. Typically they sell food, clothing, personal-care items, furniture, and appliances directly to consumers. Grocery Store Walmart, Publix, Dean & DeLuca and Sahadi’s are very different stores but they are all retail food stores selling directly to consumers. They purchase products from manufactures and wholesale distributors. Their customers are the general public and they do not as a practice sell for resale. Hair Salon Regis Hair Salons is one of the largest retail hair salon chains in the United States. It operates under a number of familiar brand names including: Best Cuts, Pro-Cuts, Hair Crafters, MasterCuts, SmartStyle, Cost Cutters, Hair Masters, Style America and Holiday Hair. The price for an average Regis haircut is approximately $20. Celebrity hairstylist, Ted Gibson operates a hair salon in Manhattan and some people might say a $900 haircut and style at the Ted Gibson Salon is a bargain. Ted Gibson’s salon and Best Cuts are both retail salons, with different pricing structures, providing a functionally similar retail service directly to the customer.  How is your product or service offered by competitors and purchased by their customers.  The geographic concentration of the industry Some industries are concentrated in geographic areas. Silicon Valley, Hollywood, the New York Jewelry District and the Miami Merchandise Mart are examples of a homogeneous geographic industry concentration. In your Copyright 2013 Page 67 community, there may be no homogeneous geographic industry concentration. However, it may have a concentration of commerce in a geographic area like ‘downtown’, a regional shopping area or along a major traffic artery. Describe the geographic concentration of industry for your business. Competition and Buying Patterns Give a clear account of how your business will distinguish itself from its competitors. Use the Excel® Product Description and Pricing Model to help you identify and describe the competitive advantage of specific features. For the most significant product or service features include any competitive advantage for the following:  Competitor Pricing  Customer Benefit  Value of Customer Benefit Direct Competitors Identify, by name, the most significant direct and indirect competitors for each product and service. Relate the ease of a customer substituting a competitor for your business. If there are no direct competitors describe the indirect competitors and their significance. Indirect Competitors Your prospects have unsatisfied needs. An indirect competitor is a company with an alternative solution for satisfying your prospect’s needs. Their product or service is different from yours but it also satisfies the same need. Most every business has indirect competitors. Knowing what they sell, how they sell it and their price points is an important part of a business being successful. Bed and Breakfast The Holiday Inn is 5 miles away from a bed and breakfast inn. Unlike the Bed and Breakfast Inn, it has no oceanfront view, no charming rooms and no gourmet breakfast. However it does have bonus incentives for frequent guests, air miles for each stay at the hotel, attractive price discounts for airline frequent flyers and it is right across the road from the airport. The Holiday Inn is an indirect competitor for the Bed and Breakfast and visa versa. When people come to town for a visit and stay with family, their families are also your indirect competitors. Restaurant Your grandmother and mother have a secret recipe for pizza sauce and a different process for proofing the dough. Everyone who has eaten their homemade pizza says the combination of sauce and the dough make for a unique, fabulous flavor. They say your grandmother’s pizza is the best they Copyright 2013 Page 68 have ever eaten. Using grandma’s pizza recipe as your signature dish, you decide to open a pizza restaurant. Your pizza is attractively priced compared to the other pizza restaurants in your market area. The indirect lunch menu competitors might include McDonalds, Burger King, Kentucky Fried Chicken and the sandwich deli counter at the nearby supermarket. Your target market includes a number of near by, large office complexes. Someone can eat lunch at your place or your indirect competitors for the same cost and get back to work on time. The people making lunch at home and bringing it to work are also your indirect competitors. Customer Inertia One of the toughest indirect competitors to combat is ‘customer inertia’. Your prospect chooses to do nothing and does not buy from you. It is difficult to overcome customer inertia because:  It’s easy for your prospect to continue to doing nothing.  Your prospect believes it costs nothing to do nothing.  Your prospect has been doing nothing for a long time and is really good at it. Often a new company with an innovative product or service believes they have no competitors because no one can do what they do. Investors and lenders know the danger in this assumption. They know asking a prospect to invest time and money in something new may result in inertia. Some reasons for customer inertia are:  The time, effort or exposure your product or service requires is too much for the prospect.  The risk associated with your product or service is too great for your prospect.  Your offer may not be adequate enough.  Loyalty to your competitor is too difficult to surmount.  Your price is an issue and the prospect is shopping for a better one.  There is too high a barrier to purchase your product or service.  Previous negative experiences are cannot be overcome.  Your business location may be too far, not desirable or inconveniently located. A clear description of your indirect competitors and how you will overcome them is a big part of a strong business plan and can help add strength and credibility to it. Price Copyright 2013 Page 69 For many industries, price is a significant competitive tool. Detail the selling price for the most significant competitors. Tell how you might use price to your advantage and how you will direct the buying patterns of prospective customers. Price, reputation, image and visibility are some of the more important competitive factors. Identify the most important competitive factors for your business and why they are important. The Summary Write a brief overview of the markets after you have completed the detailed description of the total market and target market. Briefly describe the market segments, including a description of the customer conversion rate, the customer retention rate and the most competitive advantages. Most important, include the highlights of your annual unit sales volume forecast and sales forecast. Copyright 2013 Page 70 Step 3: Strategy and Implementation SWOT Analysis SWOT analysis is a great tool for viewing and assessing your business and its Strengths, Weaknesses, Opportunities, and Threats. It is a straightforward tool to allow investors and lenders an opportunity to better understand the business beyond the numbers. Time and money are two key resources, often limited, in a business. After using the SWOT analysis with your business plan, you’ll have a much better understanding of how to use your resources best and make your business more competitive and successful. There is very little cost to performing a SWOT analysis. Investors and lenders appreciate seeing a SWOT analysis. It gives them an easy to digest capsule version of the company’s strengths, weaknesses, opportunities and threats. More significantly, it confirms for the reader, you know the company’s strengths, weaknesses, opportunities and threats. An important ingredient in getting a loan approval or investment commitment is your ability to convince investors and lenders you know your company’s strengths, weaknesses, opportunities and threats better than anyone else. Nothing shows you know the company’s strengths, weaknesses, opportunities and threats better than a well crafted SWOT. Using your SWOT you can show the reader you understand your business better than anyone else by:  Leveraging your company’s strengths to their fullest potential.  Addressing the company’s weaknesses and describing how you will compensate for them.  Taking advantage of the available opportunities  Recognizing the company’s threats Open the Excel® SWOT Model. Follow the steps in the Instruction page and enter the name for your business. The SWOT template is a great self-assessment tool to help you with your analysis of the business. It poses a series of questions about your business and your competitive environment. Your answers to these questions will help you develop a critical analysis of the business and form the basis for your implementation strategy. You’ll get the greatest value from your analysis by making your answers brutally honest and critically objective. Not all of the questions are applicable to every business. Answer only the issues which are applicable to your business. Copyright 2013 Page 71 Narrative for your SWOT Analysis Open the Word® Business Plan template. Go to Section 4, ‘Strategy and Implementation, SWOT Analysis’. Use the information you developed in the SWOT Model to write a narrative for a SWOT analysis describing the:  The business strengths  The weaknesses of the business  Opportunities available to the business  Threats facing the business Consider cutting, pasting and resizing the SWOT Summary chart to better illustrate and amplify your narrative. Your Company, Inc. SWOT Analysis Strength 1 2 3 4 Weakness 1 2 3 4 Opportunities 1 2 3 4 Threats 1 2 3 4 Competitive Edge Most businesses live in a highly competitive market. They have to 'go head to head' and 'beat' their competitors. Their marketplace is not a hospitable and welcoming community. With rare exception and almost never intentionally, do competitors help each other become more Copyright 2013 Page 72 profitable. In fact, the entrepreneur can almost count on the marketplace to make it difficult for a new business to take market share away from the existing businesses. To become profitable and successful a new business needs an entry wedge to successfully break into the market and get an adequate amount of market share. One of the best strategies for developing a successful entry wedge is to use a powerful and sustainable competitive edge. Developing a sustainable competitive edge is one of the most important goals for business. A competitive edge is vital to the ongoing life and success of a business and something which is of great interest to most investors and lenders. Generally, a business can create a competitive edge when it can deliver the same benefits as its competitors but at a selling price with a price advantage, or deliver benefits with a differentiation advantage exceeding those of competing products. A competitive edge lets the business offer superior value to its customers and profits for itself. “If you build it they will come” usually works only when there is an overwhelmingly apparent significant competitive edge. Without a powerful competitive edge, you can build it and they might still continue going to your competitor. Restaurant There are several restaurants in a geographic market. The size and demographics of the area indicate the restaurant market is not yet saturated. A new restaurant opens at a cost of $850,000. It will offer a typical menu and décor but with slightly better competitive pricing. When asked how will you compete and be successful in this market, the owner says, ”We’ll offer good food at good prices”. The assumption is, ‘if you build it they will come’. Another assumption is the other restaurants are not offering good food. A third assumption is the pricing at the other restaurants is ‘not good’. “Good food at good prices” is a weak competitive edge to support a $850,000 investment. You can construct a competitive edge for your business. There are three major components to building a powerful and sustainable competitive edge. 1. It must be able to generate enormous value for the customer. The value to the customer might in terms of rapid delivery, lower price, convenience, long term reliability or other characteristics. 2. The customer must be able to see the value quickly and the benefit must be blisteringly clear. It is not as important for your product and service to be ‘better than the competition’ as long as the customer perceives it to be so. Copyright 2013 Page 73 3. Your competitors should not be able to easily duplicate your competitive edge. It should be difficult and time consuming to duplicate. More preferably, it should be impossible to duplicate. Open the Product Description and Pricing Model. For each product or service feature, review the following:  Feature description  Competitive advantage  Competitor pricing  Benefit customer receives from the feature  Value to the customer from the benefit Narrative for your competitive edge Open the Word® Business Plan template. Go to Section 4, ‘Strategy and Implementation, Competitive Edge’. Write a description of your most significant competitive edge. Also include a description of any intellectual property, special knowledge, techniques, access or experience the business might have. Explain why they are significant and why they are sustainable. You might consider including charts similar to this to help summarize and illustrate your more important competitive advantages. Running Shoe Product Line Competitive Advantages Brand Name Average Purchase Price Feature Competitive Advantage Competitor Pricing Customer Benefit Value of Customer Benefit Nike 114.00 Shoe sole Unique material 149.00 Longer lasting 149.00 Adidas 104.00 Insole Shock absorbent 106.00 Less leg and joint injury 5,000.00 Converse 124.50 Body Water repellant 120.00 Less mold and fungus 250.00 Brooks 89.00 Body Vivid colors 85.00 Easier to indentify 100.00 Copyright 2013 Page 74 Web Plan Billions of people are online. The internet has radically changed how we find and share information. The utility and utilization of the cyber world is growing at light speed and shows no sign of slowing. A web presence is becoming a necessary part of a successful business strategy. Web pages have revolutionized the way businesses operate and interact with their customers. Business to Consumer Markets Before buying a products or services, even in their local area, most all consumers use online media to do their research. Almost half of all consumers will use the online Yellow Pages, rather than the hardcopy Yellow Pages, when looking for a product or service from a local business. Among other things, consumers look for positive customer reviews, product and service information and directions to the business. BIA/Kelsey is one of several companies specializing in providing business owners with data and information about these online media trends. Reviewing BIA/Kelsey’s website and others like them can give you a good idea of how important website are in marketing to local markets. Business to Business Markets Most business people will use the internet to research solutions for their business needs. After completing their research, more than half will have decided on a vendor before ever meeting with a salesperson. Included in the items business people look for are, detailed product specifications, product related white papers, customer testimonials and industry endorsements. A website can help promote credibility, even for a business with a ‘brick and mortar’ location. A company without a website raises a ‘red flag’ for some B2B customers. Many customers will research solutions for their needs online before making a buying decision. B2B prospects are more likely to click the “Buy Now” button or travel to your store when they feel safe and confident about your website. While B2B consumers and prospects have come to believe the Internet is a safe, efficient and practical way to shop, they are also wary of Internet scams and fly-by-night websites. There are several things you can do to help B2B customers and prospects have more confidence in your website:  Have a professionally designed website.  Provide quality website content.  Put your contact information on every page. Copyright 2013 Page 75  Clearly display your terms and conditions.  Provide a clearly visible privacy policy.  Include customer generated content.  Post pictures of real people, like the owners and employees.  Communicate with your customers.  Deliver on your promises. Take a look at competitor websites. Go the websites for the most successful companies in your industry. Right click on a web page. Click on the menu option, ‘View Source’ and examine the key words they are using. Pay particular attention to their choice of colors, use of photographs and links to other websites. Website narrative Open the Word® Business Plan template. Go to Section 4, ‘Strategy and Implementation, Web Strategy’. A well constructed website can give people a sense of confidence about a business. Whether the business is selling a product or service, a website can be an important ‘public face’ for a business. Consider including the following items in your Web Plan narrative:  General consumer information about the product or service  Whitepapers about the product or service  Links to other significant websites  Contact Us information  Customer support information, telephone number, live chat  Customer testimonials  Secure transactions  Clear and precise shipping costs  Delivery time and shipping method  ‘Trustmarks’: ie: VeriSign , trade and professional association membership logo, Better Business Bureau logo  Visitor and ‘click’ tracking Website Marketing Strategy In your business plan describe the target market segments on which the website will focus and how it will focus on those segments. Explain why you believe the website focus will be successful. Identify the search engine optimization tools the website might employ and why you believe they will be effective. Website Development Requirements Detail your plan for implementing the website and its development timetable. Describe the people who will be needed to build and maintain the website. Explain how much it will cost to build and maintain the website. Copyright 2013 Page 76 Marketing Strategy Out there, in the great and vast marketplace, is a sea of prospects for your company. The challenge is to get them to raise their hand so you can indentify them as prospects. The second big challenge is for them to know your company exists and has the answer to their needs. Most entrepreneurs will have a general marketing plan for the business in their head before the business opens for its first customer. A written marketing strategy has several success delivering benefits. 1. It gets the marketing strategy on paper where everyone can see it. Investors and lenders want to know how the company will find its customers and how prospective customers will find the company. A road map is a comforting tool when you begin a long journey. 2. With a written marketing plan, everyone can ‘stay on message’ both internally and externally. When the entire company remains on message employees and customers are blisteringly clear about what the company offers, how it offers it and what it will cost. 3. A marketing strategy helps to create greater efficiency within the company. Everyone is moving in the same direction and toward the same goals. Revenues tend to increase and waste tends to decrease. Profits are more probable with a written marketing strategy. 4. People in the business have a clear direction as to how to reach customers and which customers to reach with a written marketing plan. 5. Knowing when to have the right resources available and where they are needed is an important part of a marketing strategy. Use your SWOT analysis to bolster your marketing strategy. Leveraging the company’s strengths and competitive edge as part of the marketing message can add power to your strategy. Have your strategy offset the company’s weaknesses by promoting the benefits in the product or service features. Describe how the marketing strategy will take advantage of each opportunity in your SWOT analysis. Show how your marketing strategy will counter the treats facing the company. A well crafted marketing strategy can improve the quality and probability of success for a new business. Narrative for your marketing strategy Open the Word® Business Plan template. Go to Section 4, ‘Strategy and Implementation, Our Marketing Strategy’. In your narrative, explain which target market segments are included in your marketing strategy. Describe how your strategy will make the business ‘visible’ to your prospects and how it will Copyright 2013 Page 77 distinguish your business from competitors. Explain how your strategy will show your prospects how your products or services can ‘ease the prospect’s pain.’ Also, tell the reader how your marketing strategy will follow up with prospects for new business and existing customers for repeat business. How willing are your customers to buying your product or service at your price point? This is a big question for many investors and lenders. In your narrative, explain how your marketing strategy will address this issue. Including supporting statistics from reliable sources can increase the credibility of your marketing strategy. Sales Strategy A sales strategy is not the same as a marketing strategy. Sales strategies concentrate on how to close the sale. Marketing strategies, however, are more focused on getting the business name into the market and getting prospects interested in the business or keeping existing customers coming back. Each product line or service needs its own sales strategy. While the sales strategies may appear similar, success will depend on appreciating the subtle differences between the product lines or services and the customers buying them. The computer industry is highly competitive. Customers want processing power, more functionality and reliability. They are not particularly interested in the type integrated circuits, silicon wafers or wiring harnesses used to make the computer work. What they want is for the computer to be faster, better and at the lowest possible price. Irwin Levine, Director of Sales, IBM, is a salesman’s salesman. Early in his career, he learned the competitive power of strong customer loyalty. As a salesman he understood loyal customers could positively impact his commission income. As a senior sales executive he understood how a salesperson’s sense of loyalty and personal success could impact the bottom line for a business. SMART sales objectives were his passion. Irwin would say, “Success breeds success. If you make a salesman’s sales objective specific, measurable, achievable, realistic and time sensitive, then they will want to succeed and become successful. Salespeople are competitive by nature. When one begins to succeed the others will want to succeed more. Nothing creates profits faster than a sales force competing against itself wanting to be more successful then they were the year before.” Copyright 2013 Page 78 Sales strategy narrative Open the Word® Business Plan template. Go to Section 4, ‘Strategy and Implementation, Our Sales Strategy’. Write a narrative for your sales strategy. The strategy should document the sales objectives by product line or service, sales by target market and timetables. When defining the sales objectives, present them as SMART objectives. The characteristics of a SMART objective are:  Specific  Measurable  Achievable  Realistic  Time-sensitive Investors and lenders will have more confidence in the sales strategy and business when the strategy is supported by SMART objectives. See the section below for a detailed explanation of SMART objectives. things to keep in mind when writing the sales strategy narrative are: 1. Provide a clear description of the: o End user for the product or service o Decision maker for the sale o Purchaser for the sale o How long it takes to close a sale o Sales cycle for the product or service o Sales cycle for each target market o Using credentials to close the sale o Using testimonials to close the sale o ‘Return or refund’ policy o Commission plan for employees 2. Define SMART sales objectives based on: o Your product or service o Target market segment o The features and benefits to the customer o Who will be responsible for the sale o How much will be sold o When it will be sold. Copyright 2013 Page 79 Organize the sales objectives into manageable parts. For example, sell 50 units to end-users in 30 days; John will sell the service to 50 new customers in 60 days; sell 100 units to local independent retailers in six months. 3. Describe the sales tactics you will use. For example: o Sell through a website o Craft shows o Trade shows o ‘Sell sheet’ for retail stores o Direct mail via post or email o Telemarketing o Free samples 4. Identify the target markets which will be the focus for you sales strategy o Prioritize their importance o Explain the basis for your priorities o Write about them in order of priority with the highest priority appearing first. Sales Forecast Open the Target Market and Revenue Forecast Model and open the Sales Forecast Summary page. Open the Word® Business Plan template. Go to Section for, ‘Sales Forecast’. Write a narrative describing the forecast for the total sales of the business. Also describe the sales forecast for the top three products or services. These should be the mission critical products or services. Generally, a revenue forecast is based on assumptions or perhaps an algorithm. This would be the place to describe the assumptions you made about the:  Total market  Target market  Average customer purchase  Purchase frequency Include references for your data sources to add more credibility to your forecast. Consider cutting, pasting and resizing the summary charts and graphs to better illustrate and amplify your narrative. In the narrative, indicate the unit value for the charts and graphs: actual dollars, thousands, millions. Copyright 2013 Page 80 Implementation Milestones Two question investors and lenders often ask are: “How is the business doing?” “Will you make it on time?” They need to know if the business is on track and if it will open as expected with everything it needs to hit the ground running hard. Opening a business is generally a series of integrated tasks, some more complex than others. To be successful, the tasks need the active involvement of the management team cooperating and communicating with each other. More often than not, a team effort is more effective and successful than an individual effort. The daunting job of getting the business to open on time can be organized into a number of smaller achievable tasks. The completion date for each task is called a milestone. The big challenge is to implement each milestone efficiently, effectively and on time. Defining what each task will deliver or produce leaves no confusion as to when the task has completed its mission. Open the Milestones Model and go to the Instruction page. Enter your company name and the date you plan to open the business. Identify the tasks which need to be completed so the business can open on time. Arrange the tasks by the order in which they must be completed and their priority. Open the Milestones page and enter the following information about each task:  Start date  Estimated completion date  Completion date, if the task has already been completed  Cost to implement  Name of person assigned to complete the task  Task description  The deliverable you expect to achieve when the task is complete  Amount budgeted to implement the task  Estimate of value the completed task will have for the company  Priority number Milestone Narrative Open the Word® Business Plan template. Go to Section 4, ‘Strategy and Implementation, Important Milestones’. Write a narrative describing a few of the mission critical tasks and why you believe they will be completed on time and within budget. Copyright 2013 Page 81 Consider cutting, pasting and resizing the summary charts and graphs to better illustrate and amplify your narrative. In the narrative, indicate the unit value for the charts and graphs: actual dollars, thousands, millions. You might consider including charts and graphs similar to these to help summarize and illustrate your more important milestones. Copyright 2013 Page 82 Task Description Assigned To Start Date Est. Finish Date Completed Priority Bank loan application Ralph 3/2/2012 2/11/2012 4/1/2012 1.000 Apply for licenses Frank 3/15/2012 4/14/2012 4/14/2012 3.000 Contract with builder for leasehold build out Cindy 2/1/2012 5/31/2012 5/31/2012 2.000 Negotiate lease Chris 4/12/2012 5/12/2012 5/12/2012 4.000 Purchase computers, software Julie 6/1/2012 9/30/2012 12/12/2012 5.000 Task Completion Status Total assigned tasks 5 Total completed tasks 5 Percent completed 100.00% Task Budgetary Summary Tasks Total Percent on Budget Percent Value to Cost Budget $46,200.00 Cost to Implement $61,800.00 133.77% Value to Company $273,500.00 442.56% Copyright 2013 Page 83 Step 4: Company Resources Our People You’ll find it said in the annual reports of many companies, ‘People are our most important resource.’ Product, services, customers, money and timing are important to a business. Without the people in the business making it happen, products, services, customers, money and timing have almost no value. Their ideas and personal commitment are a very big part of a company’s survival and success.  People get things done  People are adaptable  People have the knowledge, insight, experience and ideas to develop new solutions  People can share visions, make sacrifices and create success What a lender or investor sees in the people and the management team will generally determine the level of involvement the lender or investor will make in a business. They know, the people and the management team are the only ones who can deliver the return on investment. The Employees Open the Personnel Plan Model and review the Instruction page. Next, open the Employee List page and enter the following information for all employees you plan to hire over the next 3 three years.  Employee's name if you know it or use TBD  Employee title  Critical skills, experience, knowledge the employee brings to the business  Employee's hourly rate or salary  Percent of employee’s wages attributable to direct of cost of labor  When the employee will be hired: first, second or third year Narrative about your team Open the Word® Business Plan template. Go to Section 5 for ‘Company Resources, Our People’. Write a narrative about the management team. Paint a strong enough picture of them to instill confidence in an investor or lender. Identify their unique and valuable knowledge, skill, Copyright 2013 Page 84 experience, education and licensing as it relates to the core business of the company. Also include the following information about each member of the management team.  Key skills  Previous experience in your industry  Previous business experience  Prior project development experience Sole proprietorships require special consideration. A one person business can be vulnerable to health, welfare and capability of its only employee. Investors, lenders, customers are often concerned about the short term and long term viability of such a business. Consider including an explanation of how the business will avoid the being vulnerable with only a single employee. Management Organization Chart In your narrative, include an organization chart for your top level management team. Double click on the chart above and edit the chart to reflect the organization of your business. Include the names and titles of the people on your management team. Enter ‘TBD’, to be determined, for the unfilled positions. Copy and paste the chart into the business plan template. You might also consider using a chart similar to the following one to show your projected employees and their cost. Employee Name Employee Title Critical skills, experience, knowledge Total Payroll Cost % Direct Cost of Labor Year Hired Jim Doyle President 10 years retail apparel experience 150,600 0% 1 TBD Vice President Apparel marketing experience 138,050 0% 1 TBD Vice President Finance Full charge accounting experience 125,500 0% 1 TBD Store Manager 5 years retail apparel store management experience 75,300 100% 1 TBD Store Employee 1 3 years retail apparel store experience 22,188 100% 1 TBD Store Employee 2 3 years retail apparel store 1 0 0 % 1 President Vice President Vice President Vice President Vice President Assistant Copyright 2013 Page 85 experience 22,188 TBD Store Employee 3 3 years retail apparel store experience 22,188 100% 1 TBD Store Employee 4 3 years retail apparel store experience 22,188 100% 1 TBD E-Store Manager 5 years e-store management experience 75,300 100% 2 TBD E-Store Employee 1 3 years retail apparel e-store experience 22,188 100% 2 TBD E-Store Employee 2 3 years retail apparel e-store experience 22,188 100% 2 TBD E-Store Employee 3 3 years retail apparel e-store experience 22,188 100% 2 TBD E-Store Employee 4 3 years retail apparel e-store experience 22,188 100% 2 TBD Order Fulfillment Manager 5 years retail apparel warehouse management experience 75,300 100% 2 TBD Shipping Employee 1 3 years retail apparel shipping experience 22,188 100% 3 TBD Receiving Employee 1 3 years retail apparel receiving experience 22,188 100% 3 TBD Stocking Employee 3 3 years retail apparel stocking experience 22,188 100% 3 TBD Website Manager and Developer 5 years retail apparel e-commerce management and development experience 75,300 100% 4 Total 959,418 You might also consider use summary charts and graphs like these. Payroll Summary Year 1 Year 2 Year 3 Direct Cost of Labor $219,525 $427,955 $636,385 Payroll Operating Expense $947,525 $947,525 $947,525 Total Payroll Expense $1,167,050 $1,375,480 $1,583,910 Copyright 2013 Page 86 The Business Structure Employees in most startup businesses  wear a number of different hats  perform a range of tasks outside their official job description  have wide leeway in making decisions Knowing the workflow of a business lets everyone understand relationships between the various functions of the business. The organizational structure defines the workflow of the business and makes clear who is responsible for the various responsibilities within the business. In the narrative about your management team, describe the organizational structure of the business by explaining:  The responsibilities and names of the divisions, departments or sections  The role of the divisions in the development of the product or service  The role of the divisions in the delivery of the product or service  How the divisions impact customer service and sales  How and why the employee count will grow relative to sales Include a chart describing the process flow of the business in your narrative. For product sales, describe: $0 $200,000 $400,000 $600,000 $800,000 $1,000,000 $1,200,000 $1,400,000 $1,600,000 $1,800,000 Year 1 Year 2 Year 3 Payroll Expense Payroll Operating Expense Direct Cost of Labor Copyright 2013 Page 87  How the product is manufactured or purchased.  The sales and order entry process  The order fulfillment process including stocking, inventory, shipping and delivery.  The accounting, billing, cash receipt process.  The accounts payable process For service sales, describe:  How the service is delivered to the customer.  The sales and order entry process  The order fulfillment process including scheduling and delivery.  The accounting, billing, cash receipt process.  The accounts payable process Choose the chart or charts which work best for your business. Use the chart to more fully illustrate your narrative of the process flow for the business. Double click on a chart below and edit the chart to reflect the organization of your business. Include the names of the divisions, departments or sections for the business. To edit the text, click on the chart. Then click on the ‘text tab’ which appears on the left hand border of the chart. Copy, paste and resize the chart to fit into your business plan template. Start-up Capital When a new business starts, it needs money. Before the first customer sale, it may need money for rent or to buy a building, furniture and equipment, supplies, such as legal and accounting fees, as well as continuing the research and development of a product or service. It might also need money for payroll. The money a business needs before, during and for a period after the first customer sale is called startup capital. Insufficient start-up capital is one of the biggest reasons why new businesses fail. Having too little start-up capital to operate the business for at least one year without profit or positive cash flow can present serious problems for the business. Copyright 2013 Page 88 To develop a successful estimate of how much money you might need for startup and the sources of the funds, work backwards. First, estimate how much money you might need plus a small reserve for contingencies. Next, determine how and where you will get the money you need. Use of Funds Underestimating the use of funds at start-up is a big reason why many start up businesses run out of money too fast. An inaccurate estimate of the funds needed for start-up can be painful and costly. Producing an estimate of funds needed which is too lean and tight invariably forces the business to ‘run out of gas’ too fast. Now is the time to plan for the capital to enable the business to be the most it can be. Estimate the capital you really will need to buy the necessary resources to make your revenue forecast a reality. If the staff is willing and customers like the product, the only thing remaining for success is the money. Open the Financial Statement Model and go to the Instruction page. Then enter the name of the business and the calendar years for the 1st, 2nd and 3rd year of operation. Follow the instructions and then go the Use of Funds page. When estimating these costs also include costs for delivery, setup, and training. Enter the following items, where appropriate, into the Use of Funds page.  Facilities Cost o Leasehold security deposit: An initial security deposit equal to one month or more in rent is generally required for most commercial leases. o Other Deposits: Utility companies and telephone companies generally require a new business to pay a deposit for service. o Tenant Improvements: Generally, the cost of remodeling a commercial space is approximately $100 to $250 per square foot depending on the individual requirements of the business. Remodeling costs can also be higher or lower. Use your best efforts to estimate the cost construction. o Signage: Signage includes all exterior and interior signs. A high estimate is conservative and advisable. o Other Facilities Costs: There may be other costs related to your facility, such as fees for appraisals or city/county taxes, that you will need to pay.  Business Equipment and Vehicles Copyright 2013 Page 89 o Equipment Costs: The following types of equipment are generally needed depending on the kind of business and its individual needs.  Office equipment and furniture for each category of employee  Specialized equipment for the manufacture, warehousing, or shipment of products  Specialized equipment for the preparation, execution and delivery of a service.  Computers, software, and peripherals (printers, etc.) for office and other areas  Phone systems, cell phones, WiFi, networks and cabling o Business Vehicles: You may need vehicles depending on your kind of business for:  Service or product delivery  Manufacturing activities  Service provision activities  Executives  Sales people  Customer support  Supplies: These are the initial quantities of supplies you will need to open the doors on your first day doing business. It does not include the ongoing purchase of supplies and materials after the business is operational. o Office supplies o Janitorial supplies o Supplies for manufacturing activities o Supplies for shipping and mailing o Stationery and business cards o Advertising materials for brochures, flyers and other printed advertising, marketing and sales material o Costs for an advertising agency to prepare an ad campaign for your startup o Web page design, development and search engine optimization  Other Startup Costs o Fee for attorney to prepare and register the legal form of business, to assist with commercial lease documents, and other pre-startup negotiations and documents. o Accounting fee for CPA to setup bookkeeping system o Local business licenses and permits o Insurance deposits o Industry and regulatory required training and certifications Copyright 2013 Page 90 Use of funds narrative The big question for investors and lenders is, ‘how will be money be used’. The next big question is, ‘is the explanation bullet proof.’ The business will face investor and lender resistance if the explanation isn’t sufficiently clear. Open the Word® Business Plan template. Go to Section 5 for ‘Company Resources, Use of Funds.’ In your narrative identify, explain and justify the significant mission critical uses of funds. Consider cutting, pasting and resizing the summary charts and graphs from the Financial Statement Model to better illustrate and amplify your use of funds narrative. In the narrative, indicate the unit value (actual dollars, thousands, millions) you are using for your charts and graphs. Consider using charts and graphs similar to the following. XYZ Company Inc. Use of Funds Expense Assets Facility Costs Lease security deposit $1,000 Other Deposits $1,000 Signage $1,000 Tenant Improvements $1,000 Property and Capital Equipment Building $100,000 Computers $1,000 Furniture $1,000 Office equipment $1,000 Software $1,000 Telephone systems, cell phones, and networks $1,000 Business Vehicles Vehicle 1 $1,000 Vehicle 2 $1,000 Supplies Advertising campaign cost $1,000 Advertising materials $1,000 Janitorial supplies $1,000 Office supplies $1,000 Copyright 2013 Page 91 Stationery and business cards $1,000 Supplies for manufacturing activities $1,000 Supplies for shipping and mailing Web page $1,000 Other Start Up Costs Attorney fees $1,000 Accounting fees $1,000 Local business licenses and permits $1,000 Training and certifications $1,000 Total Expense $13,000 Total Assets $109,000 Total Annual Deprecation Total Funds used $122,000 Source of Funds Except under unusually rare circumstances, there are only two kinds of start-up capital. This is the case no matter what type of business ownership or the source of the funds. In modeling the source of funds for your business whether the funds come from an investor, a lender, a bank, family, friend or yourself they should only be categorized as either a contribution to capital or as a loan. The first type of start-up capital is a capital contribution to owners’ equity. Some percentage of ownership in the business is generally associated with a capital contribution to owners’ equity. Loans are the second type of start-up capital. They can a long or short term loan. Long term loans mature in more than 12 months. Short term loans mature in less than 12 months. A loan Expense, $13,000 Assets, $109,000 Use of Funds Copyright 2013 Page 92 must have a principal amount, an interest rate, a term, a payment amount, an effective date and a termination date. Open the Financial Statement Model. Follow the instructions and then go the Source of Funds page. For each loan enter the following information:  Lender’s name  Loan amount  Annual interest rate  Number of years for the loan For each contribution to capital enter the following information:  Investor name  Amount of the capital contribution  Percent ownership in the business Source of funds narrative Open the Word® Business Plan template. Go to Section for Company Resources, ‘Source of Funds.’ Have your narrative explain why you believe there will be adequate capital for start-up. It might also include a description for a contingency second round of available capital should the start-up capital, in the first round, be depleted too soon. In your source of funds narrative describe the following information about: 1. Investors o How you will find your investors o How much you will pay a ‘broker’ to find your investors o How much you have budgeted for your legal fees to prepare agreements, heads of terms, private placement memorandum or other investor related documentation o Your contingency plan if you cannot attract all the investors you need at the same time o Your contingency plan if you cannot attract any investors o Your plans to uses equity, warrants, stock options or convertible debt o The percent ownership in the business you might give to the investors 2. Lenders o The interest rate Copyright 2013 Page 93 o The term o Collateral required o The guarantor for the loan 3. Founders and Family o Percent ownership in the business o Amount of capital contribution o Amount and the terms of loans Consider cutting, pasting and resizing the summary charts and graphs from the Financial Statement Model to better illustrate and amplify your source of capital narrative. In the narrative, indicate the unit value (actual dollars, thousands, millions) you are using for your charts and graphs. Consider using charts and graphs similar the following. Copyright 2013 Page 94 XYZ Company Inc. Source of Funds Loans Lender Loan Amount Annual Interest Rate Term (Years) Monthly Payment Annual Payment First National Bank 80,000 5.00% 30 429 5,153 City National Bank 10,000 5.00% 10 106 1,272 B&B Business Loans 10,000 5.00% 10 106 1,272 Bruce Cury 10,000 5.00% 10 106 1,272 John Williams 10,000 5.00% 10 106 1,272 Total Loans $120,000 $853 $10,244 Capital Contributions Investor Name Amount % Ownership Bruce Cury 20,000 10.00% Jack Spira 20,000 10.00% Joe Fraumeni 20,000 10.00% Paul Diebert 10,000 10.00% Irwin Levine 10,000 10.00% Edward Bittar 10,000 10.00% Bruce Jacobus 10,000 10.00% Preston Silvernail 10,000 10.00% Brian Cury 10,000 10.00% Elaine Cury 10,000 10.00% Total $130,000 100% Total Start Up Funds $250,000 Copyright 2013 Page 95 XYZ Company Inc. Source and Use of Funds Summary Source of Funds Loans $120,000 Contributions to Capital $130,000 Total $250,000 Use of Funds Expense $13,000 Assets $109,000 Total $122,000 Start up funds balance $128,000 Loans 48% Contribu tions to Capital … Source of Funds Source of Funds, $250,000 Use of Funds, $145,000 $0 $50,000 $100,000 $150,000 $200,000 $250,000 $300,000 1 Funds at Start Up Copyright 2013 Page 96 Step 5: Financial Statements A well constructed business plan includes a complete set of financial statements and the supporting documentation. The financial statements include a statement of operations, a balance sheet and a statement of cash flows. The supporting documentation should include:  a breakeven analysis for the business  a description of the significant assumptions used in preparing the financial statements  any other important notes to clarify the financial statements Statement of Operations For many investors and lenders, the income statement is the first tool they might use to evaluate a company. However, for the astute investor or lender the income statement is but one of several tools to guide an informed investment decision. The income statement has many names. It is also known as the profit and loss statement, P&L statement, earnings statement, operating statement or statement of operations. The primary purpose of the income statement is to show whether the company made or lost money during the period being reported. Unlike the balance sheet, the income statement reports the income and expense for a company during a specific period of time. It can reveal important insights into how effectively management is controlling expenses and producing profits. Income statements can also help compare a company's income, expenses, profits and profit margins to its competitors. Open the Financial Statement Model. Follow the instructions and then go the Statement of Operations page. The first task is to change the name of the income and expense accounts to fit your business. Clear the extraneous account names and amounts in the model. Now, enter the amounts you estimated for your sales and expense. Sales Open the Target Market and Revenue Model. Locate the 'Total Sales Forecast' at the bottom of the Sales Forecast page. Copy the total sales estimate for each year and paste them into the appropriate fields in the Statement of Operations. Cost of Goods Sold Cost of sales and “COGS” are other names for the Cost of Goods Sold category of the statement of operations. Included in this category are the direct costs attributable to producing the products or Copyright 2013 Page 97 services sold by the company. The items contributing to the direct cost of producing the product or service are listed individually. Companies providing a service may also report ‘cost of goods sold’. For example, in a hair salon, the cost of goods sold might be the hair coloring dyes, hair spray and nail polish. Indirect labor costs and indirect expenses such as distribution costs and the cost of the sales force are not part of cost of goods sold for companies producing products or services. The total cost of raw materials or inventory, during the accounting period, is equal to the beginning inventory plus the cost of materials purchased, minus the ending inventory. There are two major categories for the cost of goods sold. The first is for the direct cost of materials and the second is for the direct cost of labor. Direct cost of materials Open the Target Market and Revenue Model. Locate the 'Total Cost of Goods Sold - All Products’ at the bottom of the Direct Cost of Materials page. Copy the amounts for the direct cost of materials, freight, returns and allowances and paste them into the appropriate fields in the Statement of Operations. Direct cost of labor Open the Personnel Plan Model. Locate the “Direct Cost of Labor’ near the top of the Payroll Summary page. Copy the amounts for the direct cost of labor and paste them into the appropriate fields in the Statement of Operations. Operating Expense The operating expense account in an income statement generally includes two major categories. The first is the General Administrative Expense. The other category is Depreciation. Both are generally posted as separate line items on the Income Statement. General Administrative Expense Items in this category include the operating expenses for the company not directly linked to the company's products or services. Some people call these expenses ‘general overhead’. Include all of the following items which are appropriate for your business:  Advertising Expense  Auto Expense  Bad Debt Expense  Bank Charges  Commission Expense  Insurance  Interest Expense Copyright 2013 Page 98  License Expense  Maintenance Expense  Meals and Entertainment  Office Expense  Postage  Printing  Professional Fees  Rent  Repair Expense  Shipping Expense  Supplies Expense  Taxes  Utilities Expense Change the names of the operating expense accounts to better suit your business. Estimate your annual expense for each of the above items. Enter the amounts for each item and for each year. Interest Payments The Financial Statement Model will automatically generate the interest payments in the first year based on the loan amounts defined in the Source Funds page. It will also generate the interest payments, for loans made after startup, for the second and third years based on the loan amounts defined in the ‘New Loans after Start-Up’ page. Payroll Expense Open the Personnel Plan Model. Locate the “Payroll Operating Expense’ near the top of the Payroll Summary page. Copy the amounts for the payroll operating expense and paste them into the appropriate fields in the Statement of Operations. Depreciation and Amortization Expense The Financial Statement Model will automatically generate the depreciation in the first, second and third years based on the following items defined in the Use of Funds page:  Facility Costs  Property and Capital Equipment  Business Vehicles Narrative for the statement of operations Open the Word® Business Plan template. Go to Section 6, ‘Financial Statements, ‘Statement of Operations’. Have your narrative describe the profit trend and why you believe it is credible and reasonable. Also you might include an explanation for any items which may be material, unusual or significant. Copyright 2013 Page 99 Insert a blank page into your business plan. Copy the completed Statement of Operations from the Financial Statement Model. Paste it, using the Paste Special Function, as a Microsoft Office Excel Worksheet Object. Then size the Statement of Operations to fit the page. Next delete any unnecessary rows. Copyright 2013 Page 100 Sample Statement of Operations XYZ Company Inc. Statement of Operations 2012 2013 2014 Revenue Sales 4,000,000 4,000,000 4,000,000 Cost of Goods Sold Direct Cost Direct cost of materials 100,000 100,000 100,000 Direct cost of labor 100,000 100,000 100,000 Freight 100,000 100,000 100,000 Inventory Adjustments 100,000 100,000 100,000 Purchase Returns And Allowances 100,000 100,000 100,000 Cost of Sales $500,000 $500,000 $500,000 Gross Margin $3,500,000 $3,500,000 $3,500,000 Operating Expenses Advertising Expense 50,000 50,000 50,000 Auto Expense 50,000 50,000 50,000 Bad Debt Expense 50,000 50,000 50,000 Bank Charges 50,000 50,000 50,000 Commission Expense 50,000 50,000 50,000 Insurance – General 50,000 50,000 50,000 Interest Expense 50,000 50,000 50,000 License Expense 50,000 50,000 50,000 Interest Payments 4,378 7,044 10,243 Maintenance Expense Meals And Entertainment 50,000 50,000 50,000 Office Expense 50,000 50,000 50,000 Payroll Expense 50,000 50,000 50,000 Postage 50,000 50,000 50,000 Printing 50,000 50,000 50,000 Copyright 2013 Page 101 Professional Fees 50,000 50,000 50,000 Rent 50,000 50,000 50,000 Repairs Expense 50,000 50,000 50,000 Shipping Expense 50,000 50,000 50,000 Supplies Expense 50,000 50,000 50,000 Taxes Federal Income Tax 5,000 5,000 5,000 State Income Tax 5,000 5,000 5,000 Sales Tax 5,000 5,000 5,000 Other Tax 5,000 5,000 5,000 Utilities Expense 50,000 50,000 50,000 Depreciation and Amortization 4,364 4,364 4,364 Total Operating Expenses 978,742 981,408 984,607 Income From Operations $2,521,258 $2,518,592 $2,515,393 Non Operating Income Sale of surplus equipment 100,000 100,000 100,000 Total Non-Operation Income $100,000 $100,000 $100,000 Net Income (Loss) $2,621,258 $2,618,592 $2,615,393 EBITDA $2,595,622 $2,592,956 $2,589,757 Copyright 2013 Page 102 Balance Sheet A balance sheet is a snapshot of a company’s financial condition at a specific point in time. Generally, the balance sheet must reflect the financial condition of the company at the end of its fiscal quarter or year. A balance sheet will include the company’s  Assets,  Liabilities,  Owners’ Equity At any given time, assets must equal liabilities plus shareholders equity. An asset is anything the business owns with a monetary value. Liabilities are claims of creditors against the assets of the business. Fiscal Year While many companies end their fiscal year with the calendar year, some do not. The fiscal year for many companies is different from the calendar year. The nature of a company's needs will often determine the start and end of the fiscal year. Open the Financial Statement Model. Follow the instructions and then go the Balance Sheet page. The first task is to change the name of the asset, liabilities and owners’ equity accounts to fit your business. Clear the extraneous account names and amounts. Now, enter your estimates for your assets, liabilities and owners’ equity. Assets Assets appear first on the balance sheet. An asset is anything the company owns with a monetary value. There are two major asset categories. The first category is the current assets. The second category is the non-current assets. Current Assets Any asset expected to last or be in use for less than one year is considered a current asset. Also, assets that are reasonably expected to be converted into cash within one year in the normal course of business are considered current assets. Five balance sheet components are generally treated as current assets: cash and cash equivalents, accounts receivable, inventory, marketable securities, prepaid expenses. Generally, they are listed in order of how quickly they can be converted to cash and how fast they can be used to pay liabilities. Copyright 2013 Page 103 Cash and Cash Equivalents Cash and cash equivalents are the most liquid current assets to be found on a company’s balance sheet. They are generally listed as the first asset. “Cash” is not only currency but also an asset that can be quickly converted to cash. “Cash equivalents” are treated as “cash”. Treasury bills are considered “cash equivalents”. Short Term Investments Negotiable instruments, investments and certificates of deposits are considered short term investments. Generally, an asset which can be converted to “cash” in more than 90 days but less than a year is treated as a short term investment. Accounts Receivable An account receivable is a current asset resulting from billing a customer who owes money to the company for goods and services purchased by the customer. A common abbreviation for accounts receivable is “A/R”. In most companies an invoice is delivered to the customer, who in turn must pay the invoice within an established timeframe. Payment timeframes between companies can differ. Typical payment timeframes are 10, 30, 45 and 60 days from the date of invoice. For many companies, their accounts receivable policy can be a competitive edge. Inventories Inventory can mean different things for a company depending on the company’s product or service. Generally, it means the goods a company holds in stock. Inventory is a current asset because the expectation is for it to be converted to cash within a short period of time. There are, however, three categories of inventory. The inventory for a company may consist of any one or all three categories. 1. The first category is “materials or components”. For a company manufacturing lawnmowers “materials and components” might be the motors, gears, blades and wheels used in making a lawnmower. 2. “Work in Progress” is the second category. This refers to products in the process of being completely manufactured. At the time the product inventory was counted, these products were only partially completed. 3. The third category is ‘finished goods’. It includes the products packaged, in the warehouse and ready to be shipped to customers. Noncurrent Assets These assets cannot to be converted to cash within 12 months of the date on the balance sheet. They can also be assets not expected to be consumed or sold within the normal operating cycle of a firm, such as manufacturing equipment, real estate, furniture and fixtures. Generally, if an asset is not categorized as a current asset then it will be categorized as a noncurrent asset. Intangible assets are also included in the category for noncurrent assets. These are assets not physical in nature. They include company intellectual property such as patents, trademarks and copyrights. Goodwill and customer lists can also be categorized as intangible assets. Copyright 2013 Page 104 Property, Plant and Equipment These assets are the ‘bricks and mortar’ facilities belonging to a company. They are usually reported using the acquisition price less the accumulated depreciation. The depreciation is spread over the “useful life” of the fixed asset. Such assets include land, buildings, factories, furniture and equipment. Often these assets may have a market value greater than the depreciated value appearing on the balance sheet. Service companies would be expected to have a relatively lower value for property, plant and equipment and manufacturing would be expected to have a much more significant portion of their assets tied up in these fixed assets. Liabilities The chances are good, if it is something a company owes someone, it is a liability. They are the obligations of the company and are the opposite of assets. Liabilities are the amounts owed to creditors for past transactions. If an account includes the word “payable” in its name, it will most likely be a liability. A claim against a company's assets can also be considered a liability. Liabilities might also include customer deposits and amounts received in advance for future services. Some examples of liability accounts which might be reported on a company's balance sheet include:  Notes Payable  Accounts Payable  Salaries Payable  Wages Payable  Interest Payable  Income Taxes Payable  Customer Deposits  Warranty Liability  Lawsuits Payable  Unearned Revenues  Other Accrued Expenses Payable Generally, a balance sheet will include two major liability categories. The first category is “Current Liabilities” and it appears first in the liabilities section of a balance sheet. Long term liabilities are the second category and they follow the Current Liabilities. Current Liabilities Current liabilities are the debts a company owes which must be paid within one year. They are the opposite of current assets. Current liabilities includes things such as short term loans, accounts payable, dividends, interest payable, bonds payable, consumer deposits, and reserves for Federal taxes. The portion of a long term debt which is payable within one year is also included in the Current Liabilities. Generally, the current liability categories commonly appearing on a balance sheet are Accounts Payable, Accrued Salaries and Accrued Income Taxes. Copyright 2013 Page 105 Accounts Payable A payable is created when a company acquires a product or service before paying for it. This item appears on the company's balance sheet as a current liability, since the expectation is the liability will be paid in less than a year. A common abbreviation for accounts payable is “A/P”. Long Term Liabilities When a liability matures or becomes due in more than one year for the date on the balance sheet, it is a long term liability. A liability due in more than one operational cycle for the company might also be categorized as a long term liability. Another term for a long term liability is a “non-current liability”. Long term liabilities may include two major types of obligations. The first type of liabilities are loans or other financing obligation. The second type is an operational obligation. Operating liabilities are obligations created in the course of ordinary business operations. Financing liabilities are debt instruments resulting from the company raising cash from investors or lenders. Long Term Debt These liabilities have a term lasting more than 12 months from the date on the balance sheet. Typically, they are loans with interest payments, a specific maturity date and often payment schedules. Owners’ Equity This is the place on the balance sheet where shareholders or owners might look to know the value of their company. After the taking away everything the company owes from all of the assets, what is left is the owners’ equity. It is the company’s worth. Assets – Liabilities = Owners’ Equity Creditors and investors generally monitor the relationship between liabilities and shareholders’ equity. It generally includes two major categories. The first category is Contributed Capital. The second category is Retained Earnings. Contributed Capital Contributed capital is the money invested in the company by the owners. The funds are paid directly to the company in exchange for a part of the ownership in the company or for the company’s stock. Occasionally, instead of cash, an asset is exchanged for stock. Capital Stock Capital stock is the ordinary shares of stock a company might issue to raise money. The stock might be divided into various "classes" with each "class" having different rights. The two most widely used classes of stock are common stock and preferred stock. Copyright 2013 Page 106 The minimum dollar value assigned to shares of stock is the "Par value". There is no minimum or maximum value that must be assigned. Shares may also have "no par value." Par Value is different from the purchase price or the market value of the shares. Paid-In Capital Another category of contributed capital is paid-in capital. It is the money a company receives, above the par value, when an investor purchases stock directly from the company. Retained Earnings This is the second major category of Owners’ Equity. When a company earns a profit, generally, management might do two things with the profits. Management may pay it out to owners as a cash dividend or management may retain the profit and reinvest it in the company. The profit is posted in the retained earnings account when the management decides to invest the profit in the company. This allows investors to see how much money has been put into the business over the years. Narrative for the balance sheet Open the Word® Business Plan template. Go to Section 6, ‘Financial Statements, Balance Sheet’. Have your narrative describe the trend in assets and liabilities and why you believe they are credible and reasonable. Also you might include an explanation for any items which may be unusual or significant. Insert a blank page into your business plan. Copy the completed Balance Sheet from the Financial Statement Model. Paste it, using the Paste Special Function, as a Microsoft Office Excel Worksheet Object. Then size the Balance Sheet to fit the page. Next delete any unnecessary rows or columns. Copyright 2013 Page 107 Sample Balance Sheet XYZ Company Inc. Balance Sheet 2012 2013 2014 Assets Current assets: Cash 2,831,956 5,509,912 8,164,668 Total current assets $2,831,956 $5,509,912 $8,164,668 Other Non-Current Assets Property, Plant and Equipment 109,000 109,000 109,000 Less Accumulated Depreciation 4,364 8,728 13,092 Total other assets $104,636 $100,272 $95,908 Total assets $2,936,591 $5,610,183 $8,260,576 Liabilities and owner's equity Current liabilities: Total current liabilities $0 $0 $0 Non current liabilities: Long term debt 198,333 253,333 288,333 Total non-current liabilities $198,333 $253,333 $288,333 Total Liabilities $198,333 $253,333 $288,333 Shareholder's equity: Paid In Capital 130,000 130,000 130,000 Retained earnings 2,608,258 5,226,850 7,842,243 Total owner's equity $2,738,258 $5,356,850 $7,972,243 Total liabilities and owner's equity $2,936,591 $5,610,183 $8,260,576 Copyright 2013 Page 108 Statement of Cash Flows The statement of cash flows shows how well a company is paying for its operations and future growth by recording how cash "flows" in and out of the company. Positive numbers represent cash flowing in and negative numbers represent cash flowing out. Cash flows out when the company pays for employees, suppliers, creditors, longterm assets, investments, legal expenses, lawsuit settlements or most anything else. Cash flows in when the company receives money from customers, banks, bondholders, investors, legal settlements, selling company assets or from any other source. Who reads it and why Companies satisfy trade obligations and pay their bills with cash, not profits. The statement of cash flows is useful for those who need relevant and reliable information for predicting how well a company can meet its obligations. Included among the people and groups generally interested in statements of cash flows are:  Potential lenders or creditors wanting to know a company's ability to repay.  Potential investors who need to judge whether the company is financially sound. Structure for the Statement of Cash Flows Most companies will structure their Statement of Cash Flows into two basic sections. The first section is for cash flowing into the company from operating and financing activities. The second section is usually for cash flowing out of the company from operating expense and from investing activities.  In Flow o Cash receipts from the sale of goods or services o Interest or dividends receipts from investments other than in the company itself. o Cash received from selling stock  Out Flow o Payroll, other payments to employees o Payments to suppliers, contractors o Inventory purchases o Rent payments o Payments for utilities o Tax payments o Cash received from borrowing money Investing Activities Activities included in this section have an indirect relationship to the core, ongoing operation of the company’s business. Investing activities include transactions and events involving the purchase and sale Copyright 2013 Page 109 of land, buildings, equipment, securities and other assets not generally held for resale. It also includes making and collecting of loans to others.  Purchases of property, plant and equipment  Proceeds from the sale of property, plant and equipment  Purchases of stock or other securities  Proceeds from the sale or redemption of investments  Investment purchases Financing Activities This part of the Statement of Cash Flows might typically include cash raised by selling stock to investors and or borrowing from lenders. Open the Financial Statement Model. Follow the instructions and then go the page for the Cash Flows Statement. The Financial Statement Model will automatically populate the following entries to the Statement of Cash Flows:  Beginning Cash Balance  Cash Received  Cash from Operations  Cash from Non-operations  New Long-term Liabilities  Cost of Sales  Total Operating Expense  Other Liabilities Principal Repayment  Depreciation You must enter the values of the following items if they are relevant to your business:  New Current Borrowing  Sale of Other Current Assets  Sale of Long-term Assets  Purchase of Other Current Assets  Purchase of Long-term Assets  Other Narrative for the statement of cash flows Open the Word® Business Plan template. Go to Section 6, ‘Financial Statements, Statement of Cash Flows’. Have your narrative describe the trend for cash in flows and cash out flows and why you believe they are credible and reasonable. Also you might include an explanation for any items which may be unusual or significant. Insert a blank page into your business plan. Copy the completed Statement of Cash Flows from the Financial Statement Model. Paste it, using the Paste Special Function, as a Microsoft Office Excel Worksheet Object. Then size the Statement of Cash Flows to fit the page. Next delete any unnecessary rows or columns. Copyright 2013 Page 110 Sample Statement of Cash Flows XYZ Company Statement of Cash Flows 2012 2013 2014 Beginning Cash Balance $128,000 $2,831,956 $5,509,912 Cash Received Cash from Operations 4,000,000 4,000,000 4,000,000 Cash from Non-operations 100,000 100,000 100,000 New Current Borrowing New Long-term Liabilities 100,000 100,000 100,000 Sale of Other Current Assets Sale of Long-term Assets Other Total cash received 4,200,000 4,200,000 4,200,000 Expenditures and Cash Used Cost of Sales 500,000 500,000 500,000 Total Operating Expense 978,742 981,408 984,607 Other Liabilities Principal Repayment 6,667 6,667 6,667 Purchase of Other Current Assets 15,000 38,333 58,333 Purchase of Long-term Assets Other Depreciation 4,364 4,364 4,364 Total expenditures 1,496,044 1,522,044 1,545,243 Net cash flow 2,703,956 2,677,956 2,654,757 Cash Balance $2,831,956 $5,509,912 $8,164,668 Copyright 2013 Page 111 Breakeven Analysis One of the most important questions people involved with a new business eventually ask is: ‘When is the business going to make it?’ It’s one of the important questions lenders and investors want answered before they agree to participate. A breakeven analysis can answer the questions effectively. It is a key part of a well constructed business plan and helps in deciding if the business is worth pursuing. Long after your business is up and running, the breakeven analysis can continue to be helpful as a way to determine the best pricing structure for your products or services. A breakeven analysis is not complicated and it’s easy to do. Basically, it lets you know how many units of your product or service you must sell to cover your costs. To complete it you’ll need three basic pieces of information: 1) Fixed costs per month: These are the costs which do not vary with sales volume. They are items like rent and administrative salaries. Fixed costs must be paid regardless of how many units of products or services you sell. 2) Variable costs per unit: These costs fluctuate directly with sales volume. They would include the cost of buying things like the leather to make shoes, bread and ham for the sandwiches, shampoo for the haircuts and travel expense to visit clients for consultants. 3) Average selling price per unit You can calculate your breakeven point by using the following formula or you can let the Breakeven Analysis modeling tool do it for you. Breakeven point = fixed costs/ (unit selling price – variable costs) Open the Breakeven Analysis Model. Follow the instructions and then go to the Breakeven page. Complete the following 5 steps and the model will automatically calculate the breakeven analysis for you. Step 1 Open the Target Market and Revenue Model. Go to the Target Market Summary page. Enter the 'Total Target Market Size' for all market segments in the first year. Copy the ‘Total Target Copyright 2013 Page 112 Market Size’ for all market segments in the first year from the Target Market Summary page to the Breakeven Analysis model. Step 2 Next, go to the Purchase Frequency page in the Target Market and Revenue Model. Copy the total the frequency of purchase for all market segments in the first year and paste it into the Breakeven page. Only use the total average frequency of purchase. Step 3 Open the Financial Statement model. Go to the Statement of Operations page of the Financial Statement model. Copy the Total Operating Expense for the first year from the Statement of Operations into the Breakeven Analysis model. Step 4 Copy the Cost of Sales for the first year from the Statement of Operations to the Breakeven Analysis model. Step 5 Open the Average Customer Purchase page of the Target Market and Revenue model. Enter the Average Price for Products or Services for all products in the first year. Narrative for the breakeven analysis Open the Word® Business Plan template. Go to Section 6, ‘Financial Statements, Breakeven Analysis’. Have your narrative describe the cross point for revenues and expenses and why you believe it is credible and reasonable. Discuss why you believe the revenue and unit volume projections are achievable. Also you might include an explanation for any fixed cost or variable cost items which may be material, unusual or significant. Insert a blank page into your business plan. Copy the completed breakeven analysis chart and graph from the Breakeven Analysis Model. Paste them, using the Paste Special Function, as a Microsoft Office Excel Worksheet Object. Then size the chart and graph to fit the page. Next delete any unnecessary components. XYZ Company, Inc. Breakeven Analysis Units Sold Net Revenue Total Operating Expense Variable Cost Total Cost Total Profit 0 $0 $1,081,609 $0 $1,081,609 -$1,081,609 8,000 $800,000 $1,081,609 $50,000 $1,131,609 -$331,609 16,000 $1,600,000 $1,081,609 $100,000 $1,181,609 $418,391 24,000 $2,400,000 $1,081,609 $150,000 $1,231,609 $1,168,391 Copyright 2013 Page 113 32,000 $3,200,000 $1,081,609 $200,000 $1,281,609 $1,918,391 40,000 $4,000,000 $1,081,609 $250,000 $1,331,609 $2,668,391 48,000 $4,800,000 $1,081,609 $300,000 $1,381,609 $3,418,391 56,000 $5,600,000 $1,081,609 $350,000 $1,431,609 $4,168,391 64,000 $6,400,000 $1,081,609 $400,000 $1,481,609 $4,918,391 72,000 $7,200,000 $1,081,609 $450,000 $1,531,609 $5,668,391 80,000 $8,000,000 $1,081,609 $500,000 $1,581,609 $6,418,391 Important Ratios and Other Indicators Carpenters need hammers, barbers need scissors and dentists need drills. They need the tools of their trade. Investors, lenders and business people need financial ratios. They are particularly useful for:  Setting credit limits and lending terms  Performing a competitive analysis  Valuating the financial health of a business Open the Financial Statement Model. Follow the instructions and then go the Ratio page. The Financial Statement Model will automatically calculate all of the ratios for you. It will also display a number of significant financial indicators about your business. $0 $2,000,000 $4,000,000 $6,000,000 $8,000,000 $10,000,000 Revenue / Cost Units Sold Breakeven Analysis Net Revenue Total Cost Copyright 2013 Page 114 Narrative for the important ratios and other indicators Open the Word® Business Plan template. Go to Section 6, ‘Financial Statements, Important Ratios’. Have your narrative describe the significant ratios and other financial indicators about your business. Explain why you believe they are credible and reasonable. Also you might include an explanation any trends which may be unusual or significant. Insert a blank page into your business plan. Copy the completed chart of Financial Ratios and Other Indicators from the Ratio page of the Financial Statement Model. Paste it, using the Paste Special Function, as a Microsoft Office Excel Worksheet Object. Then size the chart to fit the page. Next delete any unnecessary components. Copyright 2013 Page 115 Sample Ratios and other Financial Indicators XYZ Company Inc. Financial Ratios and other Indicators 2012 2013 2014 Ratios Acid Test Null Null Null Current Debt to Total Assets 6.82% 4.45% 3.42% Current Liabilities to Total Liabilities 0.00% 0.00% 0.00% Debt to Equity 7.02% 4.57% 3.49% Net Worth $2,825,658 $5,541,650 $8,254,443 Return on Equity 85.60% 43.60% 29.23% Sales to Net Worth 141.56% 72.18% 48.46% Total Assets to Sales 75.60% 144.87% 213.57% Working Capital $2,908,956 $5,686,912 $8,441,668 Balance Sheet Cash $2,908,956 $5,686,912 $8,441,668 Total Current Assets $2,908,956 $5,686,912 $8,441,668 Other Non-current assets $115,036 $108,072 $101,108 Total Assets $3,023,991 $5,794,983 $8,542,776 Current Liabilities $0 $0 $0 Accounts Payable $0 $0 $0 Non-current Liabilities $198,333 $253,333 $288,333 Total Liabilities $198,333 $253,333 $288,333 Statement of Operations Sales $4,000,000 $4,000,000 $4,000,000 Cost of Sales $500,000 $500,000 $500,000 Gross Margin $3,500,000 $3,500,000 $3,500,000 Operating Expense $1,081,342 $1,084,008 $1,087,207 Advertising Expenses $50,000 $50,000 $50,000 Total Payroll Expense $150,000 $150,000 $150,000 Income From Operations $2,418,658 $2,415,992 $2,412,793 Net Income (loss) $2,718,658 $2,715,992 $2,712,793 EBITDA $2,495,622 $2,492,956 $2,489,757 Copyright 2013 Page 116 Important Assumptions A business plan based on a solid set of assumptions is a beautiful thing. Sharing you’re sources, derivations and calculations can give your readers much more confidence in your data. After spending hours pouring over data and creating reasonable financial projections, it doesn’t get better than to have the reader say, ‘It makes sense to me, too.’ Presenting sound financial assumptions and making them blisteringly clear, can also make the difference in getting the support you want from lenders or investors. Well communicated assumptions can also demonstrate your expertise in your industry. It’s something lenders and investors like to see. Open the Financial Statement Model. Follow the instructions and then go to the Assumptions page. Enter the assumptions you made in the other models for the follow areas:  Market Share  Sales  Property Plant and Equipment  Employees and staff  Expenses  Cash Flow Narrative for assumptions Open the Word® Business Plan template. Go to Section 6, ‘Financial Statements, Important Assumptions’. Have your narrative describe the significant assumptions you have made for your business plan. Explain why you believe the assumptions are credible and reasonable. Also, you might include an explanation any data or sources which may be unusual or significant. Insert a blank page into your business plan. Copy the completed chart of Assumptions from the Assumption page of the Financial Statement Model. Paste it, using the Paste Special Function, as a Microsoft Office Excel Worksheet Object. Then size the chart to fit the page. Next delete any unnecessary components. Copyright 2013 Page 117 Assumptions XYZ Company Inc. Market Share What percent of market share will you convert to business in year 1, 2, 3 We anticipate 1% market share in the year 1; 1.5% in year 2 and 1.75% in year 3. What is the logical, statistical basis for the estimate of market share conversion Interview from our prospect sample indicate a 3% conversation rate Sales What is the percent growth rate for yr 1,2,3 etc Year1 = 10%; Year2 = 12%; Year3 = 15% How many customer sales per year, month, week 25,000 How many customers are repeat customers 60% Average annual sales volume per customer 3 What is the average revenue per customer per sale $300 What percent of your sales will be for 'house accounts' belonging to large regular customers. What kind of terms will the have 20% Property Plant and Equipment Standard' equipment for each class of employee: Desk, chair, side chair, file cabinet, table, other furniture Desk, chair, side chair, file cabinet, table Computer, laptop, software, desk phone, cell phone, email account, printer, fax, scanner Computer, software, desk phone, email account How much equipment is necessary in relation to increasing sales $20,000 in equipment for every $200,000 in sales Facilities How many square feet per dollar volume of sales is necessary for the business 1.200 sq ft for every $250,000 in annual sales How many square feet for 'operations, production' 1,500 How many square feet for ' sales, customer interaction' 7,500 Will the facilities be leased or purchased leased Who will guarantee the lease President Employees and staff How many salespeople per $$unit of sales 1 salesperson per $250,000 in annual sales How many support people per number of salespeople 2 sales support staff for 3 salespeople Expenses Legal fees $5,000 business formation Accounting fees $1,200 establish accounting practices Business formation fees and expenses $2,000 Licenses $500 Travel expense $8,000 Required professional memberships. $1,200 Which expenses will the founders have to personally guarantee store and office rental lease, bank loan, private loan, office equipment lease, utilities Cash Flow Will there be sufficient cash on hand until the cash flow is positive Yes Copyright 2013 Page 118 Step 6: Introduction and Overview Executive Summary Open the Word® Business Plan template. Go to Section 1, ‘Introduction and Overview, Executive Summary’. Although the Executive Summary appears first when your plan is printed, it is best to write your summary last, after you have completed writing the bulk of your business plan. Your summary should be a thumbnail description of the business plan. It should have enough ‘sizzle’ to get the reader excited about reading beyond the first page. Use a generous sprinkling of words from the ‘Words that Sizzle’ section, in this book. Generally your summary should include the following items:  The name for your business  The business location  A blisteringly clear description of the product or service you are selling  The main reason your product or service is better than any others.  What you want readers to do when they finish reading the business plan. You might also include important points such as your projections for sales and profits, unit sales, profitability and keys to success. A three-year chart highlighting sales, gross margin, and profits can help you create reader interest in your plan. Preview a few other significant and exciting numbers which appear later in your plan. While people differ in how long an executive summary should be, they all generally agree it should be riveting, blisteringly clear and short. Leave the detail for the rest of the plan. One page is more than enough to get the reader hooked and willing to read more. Goals and Objectives Setting goals and objectives are one of the master skills for success. There are generally only two choices in business. You can set your own goals and objectives and be in control of your business. Or you can operate without them and have your business be out of your control. Investors and lenders are more comfortable participating with entrepreneurs who are in control of their businesses and operate with clearly defined goals and objectives. Goals: Goals inspire! Copyright 2013 Page 119 They create focus for what is important to the business. Goals foster hope, momentum, and inspire people to action. They help to enable a shared vision and direction for the business. With goals a business can strive to be the best it can be. A goal is a specific, measurable occurrence, object, or accomplishment you would like to achieve, or obtain sometime in the future. Goals can be long term or short term. They should be prioritized by importance and time. While goals do not necessarily have to be realistic or attainable, they must inspire action. For example: ‘We want to the biggest in our industry.’ Narrative for Goals Open the Word® Business Plan template. Go to Section 1, ‘Introduction and Overview, Goals’. Have your narrative describe your most significant short term goal, medium range goal and long term goal. Objectives Writing objectives is another important part of developing a business plan. Like any other task, the right tools to develop your objectives can make it easier. Objectives have five key elements. 1. The first is to identify the ‘end result’ of the effort. 2. Second, is to determine how the ‘end result’ will be accomplished. 3. Third, is to identify the way to verify the ‘end result’ was completed. 4. Fourth, decide the date when the ‘end result’ will happen. 5. Last assign someone to be responsible for implementing the objective. “The older I get, the more I see a straight path where I want to go. If you’re going to hunt elephants, don’t get off the trail for a rabbit.” T. Boone Pickens SMART Objectives Objectives define the finish line in the race for accomplishment. They can motivate and empower management to meet the objectives. Crossing the finish line can be a powerfully energizing experience and a huge boost to self-esteem for the management team. Make your objectives SMART. They are more profitable and faster to achieve. For an objective to be SMART it must be specific, measurable, achievable, realistic, and timed. Copyright 2013 Page 120  Specific The description of what is to be achieved is precise and blisteringly clear  Measurable The end results are quantified  Achievable What is being attempted is entirely possible  Realistic The resources to complete the objective are available  Timed There is specific time when the objective will be completed “People with clear, written objectives, accomplish far more in a shorter period of time than people without them could ever imagine.” Brian Tracy Examples of SMART objectives 1) Profitability Objectives Achieve a 20% return on capital in 3 years. 2) Market Share Objectives Gain 25% of the market for sports shoes January 20XX. 3) Promotional Objectives Increase awareness of the benefits of the product in the prime target market from 12% to 25% in 120 days. 4) Objectives for Growth Increase the size of our catering operation from $200,000 today to $400,000 in 2 years. 5) Objectives for Branding Make Y brand the preferred brand of 21-28 year old females in North America by February 20XX. Language in objectives Objectives use strong action verbs. Action verbs are clear and better communicate the intent of what is to be attempted. They include words like: plan write conduct produce apply to recite to revise to contrast to install to select to assemble to compare to investigate, to develop Use words that are active and measurable to get the best results. Strengthen your objectives by avoiding generalities in the descriptions. Copyright 2013 Page 121 tips for creating SMART objectives 1) Separate objectives from aims, goals and targets before you start. Aims, goals and targets are like ‘wish lists.’ They relate to hopes and aspirations. Objectives are the well defined battle-plans. 2) Define as many objectives as are needed for success. 3) Make them measurable. You will know that you’ve achieved your objective, because you will have defined the way to measure it. Others will know it, too. Describing how to record your success is also important. 4) Make it achievable. There is no useful purpose in starting a job you know you can’t be finished or one without a finish line. Ways to determine if the objective is achievable: a. You know it’s measurable. b. Others have done it successfully. c. It is theoretically possible or it is clearly not unachievable. d. You have the necessary resources or they are readily available. e. The limitations are clearly and fully defined. f. Who’s going to do it? g. Do they have or can they get the skills to do the job well? h. Is the money committed and available? i. Who carries the responsibility? j. Are the estimates for time, money, opportunity and human resources realistic? 5) If something else needs to be done before an objective can be accomplished, set up a two step objective in priority order. 6) The devil is in the details. Make your objective knife edge specific. Ways to sharpen specificity. a. Everyone involved in the task knows they are included. b. Everyone involved understands their task. c. The objective is free of jargon. d. All of the terms are clearly defined. 7) Deadlines are clearly and realistically set. Without a deadline the objective is not measurable. Narrative for Objectives Open the Word® Business Plan template. Go to Section 1, ‘Introduction and Overview, Objectives’. Have your narrative describe your four most significant objectives. Explain why you believe they are credible and reasonable. Also, you might include an explanation any resources or dates which may be unusual or significant. Copyright 2013 Page 122 Mission Statement A business mission statement is an integral part of strategic management. Like a Japanese Haiku, it is brief but the concept it conveys can be complex, significant and powerful. The mission statement provides direction for formulating, implementing and evaluating strategic activities. Generally, it is a short statement approximately 4 to 6 sentences in length. A mission might include the following:  Description of what your company does and how it does it.  What makes the company different?  Why does the business do what it does?  To what is the company dedicated?  To who is the company dedicated?  Who benefits from what the company does?  Sample values for why the company does what it does: o Provide high product quality o Provide superior customer service o Protect the quality of the environment o Ensure equal access to resources o Encourage innovation/creativity o Practice sustainable development Narrative for the mission statement Open the Word® Business Plan template. Go to Section 1, ‘Introduction and Overview, Mission Statement. Write the mission statement for your business. Keys to Success: The keys to the success of the business describe the specific strengths as they relate to the core business. They tell how the strengths will be used as a basis for developing the company’s competitive advantage. The plastic bag industry is one of the toughest and most competitive. The ease of substitution is extremely high. Customer loyalty can vanish on a fraction of a penny difference in price. The base raw material is the petroleum based plastic resin. The price of resin actively fluctuates in concert with the price of petroleum and the demand for resin. Maintaining profit margins is a constant tugof- war between, being competitive and the volatile price of resin. Copyright 2013 Page 123 In the middle of this industry is Steve Redlich, President, Poly Plastic Products, a successful manufacturer of plastic bags. Steve is one of those rare chief executives who continually views his business with the twin focus of a Marketing Vice President and a Chief Financial Officer. In answer to the question, “What’s the key to your success?” Steve smiled and answered, “It’s simple but not easy. If we continue to give our customers what they want at profit margins we can afford, we will continue keeping the business successful.” To identify the keys to your success ask the question: "What important thing, if you do it well, will make the business successful?" Next, fill in the blanks of the sentence: "If the business ______________________, then the business will be successful." Examples of typical keys to success might include some of the following:  Sell each unit at a profit.  Continue to reduce overhead costs.  Develop new products while maintaining the high quality of existing products.  Find and retain high-value customers.  Create and maintain the highest level of customer satisfaction.  Put the business in the right location. Narrative for keys to success Open the Word® Business Plan template. Go to Section 1, ‘Introduction and Overview, Keys to Success. Write the four most significant keys to success for your business. Company Summary Who is the customer, what is their ‘pain’ or problem? How will the business resolve the customer’s ‘pain’ better than others? The answer to these two questions is at the heart of a well crafted company summary. Describe the pain and how the business will resolve it for each market segment or more than one customer type. This is the ‘elevator pitch’ for the company. The Elevator Pitch You are in the lobby of a large New York City office building looking to raise money for your business. Quickly, you walk to the elevator bank, step into a waiting elevator and push the “Up” button. Just as the doors are closing, a voice shouts, “Hold the door, please.” You hit the ‘Open Door’ button. Through the door rushes a man you know is one of Copyright 2013 Page 124 the country’s top Venture Capitalists. He says, ”Thanks” and asks you “What brings you here?’ The "elevator pitch" is what you would tell the venture capitalist in the thirty seconds it would take to ride the elevator before he gets out of the elevator. An effective elevator pitch will give the reader just enough information to understand the exciting part of your business and want to know more. This is a good place to include ‘words that sizzle.’ It should not give the reader so much information so the reader feels overwhelmed. Narrative for the company summary Open the Word® Business Plan template. Go to Section 1, ‘Introduction and Overview, Company Summary’. Write approximately 3 to 4 paragraphs describing:  The most exciting part of the business  How the business solves ‘the customer’s pain’ better than any other company  The more than adequate number of potential customers waiting for your solution Company Ownership Often, a business will reflect its owners. The ethics, integrity, values and determination of a business are generally a reflection of the people who own and run the business. Many lenders and investors place great importance on knowing the type and kind of people who run the business. Many lenders will say, “Sure we need to look at the numbers and do our due diligence. But, the people running the business are the critical factor. Our final decision to lend the money is always based on the people running the business.” Narrative for the company ownership Open the Word® Business Plan template. Go to Section 1, ‘Introduction and Overview, Executive Summary’. Write approximately 3 to 4 paragraphs describing:  All of the individuals who have a 5% or greater direct or indirect ownership in the business.  The experience of each person as it relates directly to the core business.  The names of and business experience of the board members or advisory board.  What form of ownership: sole proprietorship, partnership, LLC, corporation?  Why was this form of ownership selected? You might include a description of their skills and experience which may be unusual or significant. Copyright 2013 Page 125 Startup Summary People are generally more open to participating in a business when they believe the founders are financially committed to the business. Lenders and investors will often want to know how deep the business owners are in the game. Knowing the source of the startup funds helps to create confidence in the ability of the business to survive until it can carry itself. Open the Financial Statement Model. Narrative for the startup summary Open the Word® Business Plan template. Go to Section 1, ‘Introduction and Overview, Startup Summary’. Write a narrative approximately 3 to 4 paragraphs describing and explaining the following:  What are the specific sources for the startup funds?  How much capital the founders will provide. Will the founder’s capital be a loan to the business or a capital contribution?  Will there be bank loans  Who will guarantee bank loans?  Will suppliers require a personal guarantee? Who will guarantee the suppliers?  Will the landlord require a personal guarantee for the lease and who will guarantee the lease?  What is the timetable to receive funds and how will they be used?  When will do you expect to receive first revenues and how much will it be? You made it! By the time you read this, you will have most likely finished building your business plan. If you followed the book, step by step, you should have produced a good business plan. No doubt, it’s a beautiful thing. Congratulations and good fortune with your business, Donald Bittar Copyright 2013 Page 126 Glossary  A/P See Accounts Payable  A/R See Accounts Receivable  Accounts Payable (A/P) An account payable is created when a company acquires a product or service before paying for it. This item appears on the company's balance sheet as a current liability, since the expectation is the liability will be paid in less than a year. A common abbreviation for accounts payable is “A/P”.  Accounts Receivable (A/R) An account receivable is a current asset resulting from billing a customer who owes money to the company for products and services purchased by the customer. A common abbreviation for accounts receivable is “A/R”.  Accrued Income Taxes The taxes assessed on a company, either on its earnings or on the value of its property, and not yet paid. Accrued income taxes are listed as a liability on the company's balance sheet.  Accrued Salaries Accrued salaries and wages are salaries and wages earned by employees during a given period that have not yet been paid to those employees. Generally salaries and wages are not paid immediately at the end of each day. They are withheld and paid after a week, 2 weeks or a month. The balance sheet reflects this “lag” as an accrued payable.  Ad Campaign A coordinated series of linked advertisements with a single idea or theme. An advertising campaign is typically broadcast through several media channels. It may focus on a common theme and one or few brands or products, or be directed at a particular segment of the population. Successful advertising campaigns achieve far more than the sporadic advertising, and may last from a few weeks and months to years.  Assets An asset is anything the company owns with a monetary value.  Assumptions Accepted cause and effect relationships, or estimates of a fact from the known existence of other facts. Although useful in providing basis for action and in creating "what if" scenarios to simulate different realities or possible situations, assumptions are dangerous when accepted as reality without thorough examination.  Average Customer The ‘average customer’ is an aggregate description of mean values including: demographic characteristics, price paid for the products or services they select and the frequency with which the customer will purchase from the business. Copyright 2013 Page 127  Average Price The estimated average price for each feature using a high and low price range. This technique is particularly useful when pricing a product line.  Average Purchase Amount A calculation that determines an ‘average purchase amount’ based on what products, features and services, specifically, your customers purchase over a specific period of time. Not all customers will purchase all of the features for a product or service all of the time. Some customers will purchase some features more often than others.  Average Sales Volume The quantity or number of products sold or services sold in the normal operations of a company in a specified period.  Average Selling Price Per Unit The mean price per unit sold in the normal operations of a company in a specified period.  B2B See Business-to-Business (B2B)  B2G See Business-to-Government (B2G)  Balance Sheet A financial statement that summarizes a company's assets, liabilities and stockholders' equity at a specific point in time. The balance sheet can help you get a greater a sense of what the company owns and what it owes. It can also give an indication of the resources a company has to help it grow during economic booms and to survive during bad times.  Bank Loans A debt financing obligation issued by a bank to a company or individual.  Beginning Inventory The book value of products, inputs or materials available for use or sale at the beginning of an inventory accounting period.  Blog A personal website or web page on which an individual records opinions, links to other sites, etc. on a regular basis.  Board of Realtors A local group of real estate licensees who are members of the state and national association of Realtors.  Bonds A Bond is a debt investment in which an investor loans money to an entity (corporate or governmental) that borrows the funds for a defined period of time at a fixed interest rate. Bonds are used by companies, municipalities, states and U.S. and foreign governments to finance a variety of projects and activities. Bonds are commonly referred to as fixed-income securities and are one of the three main asset classes, along with stocks and cash equivalents.  Bottom Up Approach The ‘bottom up’ approach in a market analysis assumes the size of the total market is equal to the sum of the size of all its segments. Copyright 2013 Page 128  Brand Recognition The extent to which the general public (or an organization's target market) is able to identify a brand by its attributes. Brand recognition is most successful when people can state a brand without being explicitly exposed to the company's name, but rather through visual signifiers like logos, slogans and colors.  Breakeven Analysis A method of showing the point at which a company's income from sales will be equal to its production costs so that it makes neither a profit nor a loss.  Brick and Mortar A term that refers to a physical location for businesses, such as an office, warehouse, or store front, where it conducts business face to face with its customers.  Budget An estimation of the revenue and expenses over a specified future period of time.  Business Context Analysis How your industry is organized, structured and where your business fits within the industry.  Business Model The plan implemented by a company to generate revenue and make a profit from operations. The model includes the components and functions of the business, as well as the revenues it generates and the expenses it incurs.  Business Plan A business plan includes a description of a company or small business, its services and/or products and how the business will achieve its goals. The plan includes the overall budget, current and projected financing, a market analysis and its marketing strategy approach. In a business plan, a business owner projects revenues and expenses for a certain period of time and describes operational activity and costs related to the business. The idea behind putting together a business plan is to enable owners to have a more defined picture of potential costs and drawbacks to certain business decisions and to help them modify accordingly before implementing these ideas.  Business Strategy A business strategy is the means by which it sets out to achieve its desired objectives.  Business Structure Organization framework legally recognized in a particular jurisdiction for conducting commercial activities, such as sole-proprietorship, partnership, and corporation.  Business Valuation The process of determining the economic value of a business or company. Business valuations can be used to determine the fair value of a business for a variety of reasons, including sale value, establishing partner ownership and divorce proceedings. Often times, owners will turn to professional business valuators for an objective estimate of the business value.  Business-to-Business (B2B) Generally, there three types of customers and a business might have one or all of them. One type of customer might be a commercial business or an institution. This business model is called Business-to-Business or B2B. Copyright 2013 Page 129  Business-to-Government (B2G) Generally, there three types of customers and a business might have one or all of them. One type customer is a government agency. This business model is called Business-to-Government or B2G.  Buying Patterns Typical manner in which consumers purchase products or services (or firms place their purchase orders) in terms of amount, frequency, timing, et cetera.  Buying Preferences Buying preference explains how a consumer ranks a collection of products or services or prefers one collection over another. This definition assumes that consumers rank products or services by the amount of satisfaction, or utility, afforded.  Calendar Year The one-year period that begins on January 1 and ends on December 31, based on the commonly used Gregorian calendar. Some companies choose to report their taxes based on a fiscal year (e.g. starting on April 1 and ending on March 31) to better conform to seasonality patterns or other accounting concerns applicable to their businesses.  Capital “Capital” can mean many things. Its specific definition depends on the context in which it is used. In general, it refers to financial resources available for use such as: 1. Financial assets or the financial value of assets, such as cash. 2. The factories, machinery and equipment owned by a business and used in production.  Capital Contribution to Owners’ Equity The first type of start-up capital is a capital contribution to owners’ equity. Some percentage of ownership in the business is generally associated with a capital contribution to owners’ equity.  Capital Stock Capital stock is the ordinary shares of stock a company might issue to raise money. The stock might be divided into various "classes" with each "class" having different rights. The two most widely used classes of stock are common stock and preferred stock.  Cash and Cash Equivalents Cash and cash equivalents are the most liquid current assets to be found on a company’s balance sheet. They are generally listed as the first asset. “Cash” is not only currency but also an asset that can be quickly converted to cash. “Cash equivalents” are treated as “cash”. Treasury bills are considered “cash equivalents”.  Cash Dividend Money paid to stockholders, normally out of the corporation's current earnings or accumulated profits. All dividends must be declared by the board of directors and are taxable as income to the recipients.  Cash Flow Statement One of the quarterly financial reports any publicly traded company is required to disclose to the SEC and the public. The document provides aggregate data regarding all cash inflows a company receives from both its ongoing operations and external investment sources, as well as all cash outflows that pay for business activities and investments during a given quarter. Copyright 2013 Page 130  Certificate of Deposit A bank time deposit that restricts holders from withdrawing funds on demand. Although it is still possible to withdraw the money on demand, this action will often incur a penalty. Certificates of deposits are considered short term investments.  Certification Certification is a voluntary process. It is a formal procedure by which an accredited or authorized person or agency assesses and verifies (and attests in writing by issuing a certificate) the attributes, characteristics, quality, qualification, or status of individuals or organizations, products or services, procedures or processes, or events or situations, in accordance with established requirements or standards.  Chamber of Commerce An association of businessmen and businesswomen designed to promote and protect the interests of its members. There is a national Chamber of Commerce, as well as numerous state and local chambers. Among the benefits members receive are deals and discounts from other chamber members, listing in a member directory and a variety of other programs and services designed to promote business activity in a region.  Chicago Manual of Style The Chicago Manual of Style is a style guide for American English published since 1906 by the University of Chicago Press. Its sixteen editions have prescribed writing and citation styles widely used in publishing.  Classes of Stock Stocks can be classified into many different categories. The two most fundamental categories of stock are common stock and preferred stock, which differ in the rights that they confer upon their owners.  COGS (Cost of Goods Sold) See Cost of Goods Sold (COGS)  Commission Income Mutually agreed upon, or fixed by custom or law, fee accruing to an agent, broker, or salesperson for facilitating, initiating, and/or executing a commercial transaction.  Common Stock Securities representing equity ownership in a corporation, providing voting rights, and entitling the holder to a share of the company's success through dividends and/or capital appreciation. In the event of liquidation, common stockholders have rights to a company's assets only after bondholders, other debt holders, and preferred stockholders have been satisfied.  Company Ownership Often, a business will reflect its owners. The ethics, integrity, values and determination of a business are generally a reflection of the people who own and run the business. Many lenders and investors place great importance on knowing the type and kind of people who run the business.  Company Resources Human, financial, physical and knowledge factors that provide a firm the means to perform its business processes. See also factors of production. Copyright 2013 Page 131  Competition The existence within a market for some product or service of a sufficient number of buyers and sellers such that no single market participant has enough influence to determine the going price of the product or service.  Competitive Advantage A competitive advantage is a feature in a product or service which is different from a competitor’s product or service. The advantage allows the company to generate greater sales, bigger margins or retain more customers than its competition. There are many types of competitive advantages including the cost structure, features, distribution network, delivery method and customer support.  Competitive Edge Generally, a business can create a competitive edge when it can deliver the same benefits as its competitors but at a selling price with a price advantage, or deliver benefits with a differentiation advantage exceeding those of competing products.  Competitive Factors Price, reputation, image and visibility are some of the more important competitive factors.  Competitive Pricing Businesses have three options when setting the price for a product. They can set it below the competition, at the competition or above the competition. Above the competition pricing requires the business to create an environment that warrants the premium, such as generous payment terms or extra features. A business may set the price below the market - and potentially take a loss - if it thinks that a customer is more likely to buy other products as well.  Competitor Any person or entity which is a rival against another. In business, a company in the same industry or a similar industry which offers a similar product or service.  Contributed Capital Contributed Capital is the money invested in the company by the owners. The funds are paid directly to the company in exchange for a part of the ownership in the company or for the company’s stock. Occasionally, instead of cash, an asset is exchanged for stock.  Contribution to Capital Except under unusually rare circumstances, there are only two kinds of start-up capital. This is the case no matter what type of business ownership or the source of the funds. In modeling the source of funds for your business whether the funds come from an investor, a lender, a bank, family, friend or yourself they should only be categorized as either a contribution to capital or as a loan.  Convertible Debt Corporate bond or debenture that may be exchanged for common stock in a certain proportion to the debt, within or after a specified period.  Core Benefit The critically essential main characteristic or attribute of a product or service which creates the primary value a customer perceives they will get from the purchase. Whereas vendors sell features ("high speed drill bit with tungsten-carbide tip"), buyers seek the value (the holes the drill will make). Copyright 2013 Page 132  Corporation A corporation is created (incorporated) by a group of shareholders who have ownership of the corporation, represented by their holding of common stock. Shareholders elect a board of directors (generally receiving one vote per share) who appoint and oversee management of the corporation. Although a corporation does not necessarily have to be for profit, the vast majority of corporations are setup with the goal of providing a return for its shareholders. When you purchase stock you are becoming part owner in a corporation.  Cost Effectiveness Relationship between monetary inputs and the desired outcome, such as between the expenditure on an advertising campaign and increase in sales revenue.  Cost of Goods Sold (COGS) The direct costs attributable to the production of the products sold by a company. This amount includes the cost of the materials used in creating the product along with the direct labor costs used to produce the product. It excludes indirect expenses such as distribution costs and sales force costs. COGS appears on the income statement and can be deducted from revenue to calculate a company's gross margin. Also referred to as "cost of sales."  Current Asset Any asset that is reasonably expected to be converted into cash within one year in the normal course of business. Current assets include cash, accounts receivable, inventory, marketable securities, prepaid expenses and other liquid assets that can be readily converted to cash.  Current Liabilities Generally, a balance sheet will include two major liability categories. The first category is “Current Liabilities” and it appears first in the liabilities section of a balance sheet.  Customer Benefit The real or perceived value that a customer experiences or believes he is receiving through interaction with a company. Benefits may include resolution of a problem, achievement of a desired outcome or fulfillment of a need through a purchase; a feeling of confidence following purchase; or satisfaction with post-purchase service.  Customer Conversion Rate Prospects are people who may have a need for your product or service but have not yet purchased from your business. The number of people you can convert from being a prospect to a customer is the customer conversion rate.  Customer Inertia One of the toughest indirect competitors to combat is ‘customer inertia’. This is when your prospect chooses to do nothing and does not buy from you.  Customer Profile A description of a customer or set of customers that includes demographic, geographic, and psychographic characteristics, as well as buying patterns, creditworthiness, and purchase history.  Customer Retention Rate Many products and services have the same or very similar characteristics. Just as you will do your best to entice your competitor’s customers, your competitors will do the same with your customers. Not every customer will remain loyal and Copyright 2013 Page 133 become a repeat customer. The customer retention rate is the percent of customers who will continue purchasing from you.  Demographics Demographics is a statistical view of a population with specific factors identifying and distinguishing a target population or market, generally including age, gender, income, schooling and occupation.  Depreciation In Accounting it means the gradual conversion of the cost of a tangible capital asset or fixed asset into an operational expense (called depreciation expense) over the asset's estimated useful life.  Differentiation Advantage Unique benefits or characteristics of a firm, product, or program that set it apart and above its competitors in the customers' viewpoint.  Direct Competitors Market situation where two or more firms offer essentially the same product or service.  Direct Cost of Labor The part of a payroll that can be specifically and consistently assigned to or associated with the manufacture of a product, a particular work order, or provision of a service.  Direct Cost of Materials The part of raw material cost that can be specifically and consistently associated with or assigned to the manufacture of a product, a particular work order, or provision of a service.  Distribution Costs Cost or expense incurred in moving products from the point of production to the customer. It is also called distribution expense.  Distributor An entity that buys products or product lines, warehouses them, and resells them to retailers or direct to the end users or customers.  Dividend A distribution of a portion of a company's earnings, decided by the board of directors, to a class of its shareholders.  Domain Name Unique address of a computer on the internet, made up of three parts: (1) name of the entity, followed by (2) type of the entity, followed by, if located outside of the US, (3) entity's geographical location. Domain names provide an easy way to remember internet address which is translated into its numeric address (IP address) by the domain name system (DNS).  Domain Registration Domain registration is the process of acquiring a domain name from a domain name registrar.  Earnings Statement See Income Statement Copyright 2013 Page 134  Ecommerce (Electronic Commerce) A type of business model, or segment of a larger business model, that enables a firm or individual to conduct business over an electronic network, typically the internet. Electronic commerce operates in all four of the major market segments: business to business, business to consumer, consumer to consumer and consumer to business. It can be thought of as a more advanced form of mail-order purchasing through a catalog. Almost any product or service can be offered via ecommerce, from books and music to financial services and plane tickets.  Economic Development Agencies The major purpose of these agencies is help new and established businesses start, grow and become more successful. Generally, development agencies might offer the following support: o Statistical and data resources for wide range of subjects o Financial assistance with loans and grants o Advice and assistance for hiring and training employees o Help with locating and selecting a suitable site for the business  Economy An entire network of producers, distributors, and consumers of products and services in a local, regional, or national community.  Elevator Pitch An effective elevator pitch will give the reader just enough information to understand the exciting part of your business and want to know more. The "elevator pitch" is what you would tell the venture capitalist in the thirty seconds it would take to ride the elevator before he gets out of the elevator.  End user Person or organization that actually uses a product, as opposed to the person or organization that authorizes, orders, procures, or pays for it.  Entrepreneur An individual who, rather than working as an employee, runs a small business and assumes all the risk and reward of a given business venture, idea, or product or service offered for sale. The entrepreneur is commonly seen as a business leader and innovator of new ideas and business processes.  Exclusivity Contract term in which one party grants another party sole rights with regard to a particular business function.  Executive Summary Brief but comprehensive synopsis of a business plan or an investment proposal, which highlights its key points and is generally adapted for the external audience.  Feature A feature is a distinctive characteristic of a product or service. Some features can set the product or service apart from similar items.  Financial Assumptions Beliefs about the financial aspects of a company which are accepted as true or as certain to happen but without proof. They are generally well-grounded in reliable data and information. Copyright 2013 Page 135  Financial Projections Estimates of future financial performance, revenues and expenses.  Financial Ratios Financial comparisons in which certain financial statement items are divided by one another to reveal their logical interrelationships. Often used in accounting, there are many standard ratios used to try to evaluate the overall financial condition of a corporation or other organization.  Financial Statements A business plan includes a complete set of financial statements and the supporting documentation. The financial statements include a statement of operations, a balance sheet and a statement of cash flows.  Financing Activities This part of the Statement of Cash Flows might typically include cash raised by selling stock to investors and or borrowing from lenders.  Financing Liabilities Financing liabilities are debt instruments resulting from the company raising cash from investors or lenders.  Finished Goods Finished goods are products that have completed the manufacturing process but have not yet been sold or distributed to the customer.  Fiscal Year A 12-month period that a company or government uses for accounting purposes and preparing financial statements. The fiscal year may or may not be the same as a calendar year.  Fixed Costs A cost that does not change with an increase or decrease in the amount of products or services produced. Fixed costs are expenses that have to be paid by a company, independent of any business activity. It is one of the two components of the total cost of a product or service, along with variable cost.  Footnotes to the Financial Statement Footnotes to the Financial Statement report the details and additional information that are not included in the main reporting documents, such as the balance sheet and income statement.  Forecasting A planning tool that helps management in its attempts to cope with the uncertainty of the future, relying mainly on data from the past and present and analysis of trends.  Fortune 500 An annual list of the 500 largest companies in the United States as compiled by FORTUNE magazine. The list is put together using the most recent figures for revenue and includes both public and private companies with publicly available revenue data.  Frequency of Purchase The number of occasions during a period of time that a consumer purchases a particular product or buys from a particular seller. Copyright 2013 Page 136  General Administrative Expense The operating expense account in an income statement generally includes two major categories. The first is the General Administrative Expense. The other category is Depreciation.  General Overhead Items in the category of General Administrative Expense sometimes called ‘general overhead’ include the operating expenses for the company not directly linked to the company's products or services.  Geographic Industry Concentration Some industries are concentrated in geographic areas. Silicon Valley, Hollywood, the New York Jewelry District and the Miami Merchandise Mart are examples of a homogeneous geographic industry concentration. In your community, there may be no homogeneous geographic industry concentration. However, it may have a concentration of commerce in a geographic area like ‘downtown’, a regional shopping area or along a major traffic artery.  Geographical Market An actual or nominal location where forces of demand and supply operate, and where buyers and sellers interact (directly or through intermediaries) to trade products, services, or contracts or instruments, for money or barter.  Goal A goal is a measurable occurrence or accomplishment you would like to achieve, or obtain sometime in the future.  Goodwill An intangible asset that arises as a result of the acquisition of one company by another for a premium value. The value of a company’s brand name, solid customer base, good customer relations, good employee relations and any patents or proprietary technology represent goodwill. Goodwill is considered an intangible asset because it is not a physical asset like buildings or equipment. The goodwill account can be found in the assets portion of a company's balance sheet.  Growth Rate The amount of increase that a specific variable has gained within a specific period and context.  Implementation Milestones The daunting job of getting the business to open on time can be organized into a number of smaller achievable tasks. The completion date for each task is called a milestone. The big challenge is to implement each milestone efficiently, effectively and on time.  Income Statement A financial report that measures a company's financial performance over a specific accounting period. It is also known as the profit and loss statement, P&L statement, earnings statement, operating statement or statement of operations. The primary purpose of the income statement is to show whether the company made or lost money during the period being reported. Financial performance is assessed by giving a summary of how the business incurs its revenues and expenses through both operating and non-operating activities.  Income Taxes Most public companies operate in many states, counties and cities. Each locality has taxing authority and companies, may be liable to local governments for an Copyright 2013 Page 137 assortment of taxes. Additionally, federal income tax must be paid by US companies. Many companies, like Tyson and 3M, also operate internationally and are subject to an array of taxes levied by foreign sovereign and local governments.  Indirect Competitors This occurs when your prospects have unsatisfied needs. An indirect competitor is a company with an alternative solution for satisfying your prospect’s needs. For example, (a) a pizza shop competes indirectly with a fried chicken shop, but directly with another pizza shop. (b) Two car rental companies in a given region would be in direct competition with each other, but both companies would be indirectly in competition with a local bus line or a taxi service.  Indirect Expenses An expense such as advertising, computing, rent or maintenance. They are difficult to assign to a specific entity, cost object, cost center, department, function or program. Indirect costs are usually constant for a wide range of output and are generally grouped under fixed costs.  Indirect Labor Costs The amount allocated for labor or activities that are not directly related to the manufacturing process.  Industry and Trade Association Industry and trade associations represent both small and large members. Generally, their role is to educate members and provide a powerful voice for regulatory governmental and industry based policy to help their membership. Many associations have state and local chapters to support their members.  Intangible Assets Intangible assets have no physicality, like a building, vehicle or machine tool. Examples of intangible assets include intellectual property, patents, trademarks, copyrights and business methodologies. Many companies also include goodwill and brand recognition as intangible assets on their balance sheet.  Intellectual Property Knowledge, creative ideas, or expressions of human mind that have commercial value and are protectable under copyright, patent, service mark, trademark, or trade secret laws from imitation, infringement, and dilution. Intellectual property includes brand names, discoveries, formulas, inventions, knowledge, registered designs, software, and works of artistic, literary, or musical nature. It is one of the most readily tradable properties in the digital marketplace.  Interest Payable Public companies generally have short and long term debt. The debt could be a bond, debenture, mortgage, unsecured short term note, long term loan or other indebtedness. Most all debt includes interest on the funds borrowed. The interest payments are usually made periodically. Payments can be monthly, quarterly, semi-annually and annually depending on the terms of the debt. The interest payments are usually posted to this account on the income statement. Also known as Interest Expense.  Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called Copyright 2013 Page 138 ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the University of California at Los Angeles, Stanford Research Institute, the University of California-Santa Barbara, and the University of Utah.  Inventory Inventory can mean different things for a company depending on the company’s product or service. Generally, it means the products a company holds in stock, assets that are ready or will be ready for sale.  Investing Activities Investing activities have an indirect relationship to the core, ongoing operation of the company’s business. Investing activities include transactions and events involving the purchase and sale of land, buildings, equipment, securities and other assets not generally held for resale. It also includes making and collecting of loans to others. Included in the Statement of Cash Flow.  Investment Capital The total amount of money endowed into a company by the shareholders, bondholders and all other interested parties.  Investor A person or entity who allocates capital with the expectation of a financial return.  Invoice A nonnegotiable commercial instrument issued by a seller to a buyer. It identifies both the trading parties and lists, describes, and quantifies the items sold, shows the date of shipment and mode of transport, prices and discounts (if any), and delivery and payment terms.  Keys to Success The keys to the success of the business describe the specific strengths as they relate to the core business. They tell how the strengths will be used as a basis for developing the company’s competitive advantage.  Kiosk Free standing, semi-permanent display or retail outlet, within a large retail establishment or a shopping mall.  Liability The chances are good, if it is something a company owes, it is a liability. They are the obligations of the company and are the opposite of assets.  Licensing Licensing is a non-voluntary process by which an agency of government or other constituted authority regulates a profession.  Line of Credit An arrangement between a financial institution, usually a bank, and a borrower. The arrangement establishes a maximum loan balance that the institution will permit the borrower to maintain. The borrower can draw down on the line of credit at any time, similar in function to a credit card, as long the borrower does not exceed the maximum set in the agreement. Also called a ‘credit line’.  LLC (Limited Liability Company) A corporate structure whereby the members of the company cannot be held personally liable for the company's debts or liabilities. Copyright 2013 Page 139  Lobbying The act of attempting to influence business and government leaders to create legislation or conduct an activity that will help a particular organization.  Long Term Debt Loans and financial obligations lasting over one year.  Long Term Liability When a liability matures or becomes due in more than one year for the date on the balance sheet, it is a long term liability. A liability due in more than one operational cycle for the company might also be categorized as a long term liability. Another term for a long term liability is a “noncurrent liability”.  Management Team A management team is generally a team of individuals at the highest level of organizational management who have the day-to-day responsibilities of managing a company or corporation.  Market One of the many varieties of systems, institutions, procedures, social relations and infrastructures whereby parties engage in exchange.  Market Analysis Research intended to predict the future of a market.  Market Interest Survey A ‘market interest survey’ is an interview sheet you might use to help you gather market feedback for your product or service.  Market Segment A homogeneous group that share one or more characteristics. Each market segment is unique and marketing managers decide on the characteristics they will use to create their target market(s). Marketing managers may approach each market segment differently, after fully understanding the needs, lifestyles, demographics and personality of the market segment.  Marketable Securities Very liquid securities that can be converted into cash quickly at a reasonable price.  Marketing The activities of a company associated with buying and selling a product or service. It includes advertising, selling and delivering products.  Marketing Plan Product or service specific plan, market specific plan, or company-wide plan describing the activities involved in achieving specific marketing objectives within a set timeframe.  Marketing Strategy An organization's strategy that combines all of its marketing goals into one comprehensive plan.  Marketplace Alternative term for market. Copyright 2013 Page 140  Merchandise Household, personal use, or commercial goods, wares, commodities, bought and sold in wholesale and retail.  Metropolitan Statistical Area Geographical divisions, determined by the United States Office of Management and Budget, for the purposes of census data and other urban population calculations. The divisions are primarily based on urban areas, and tend to follow town or county borders.  Mission Statement The mission statement provides direction for formulating, implementing and evaluating strategic activities.  Narrative An account of events, experiences, or the like.  Negotiable Instrument A document that promises payment to a specified person or the assignee. The payee (the person who receives the payment) must be named or otherwise indicated on the instrument. A check is considered a negotiable instrument. This type of instrument is a transferable, signed document that promises to pay the bearer a sum of money at a future date or on demand. Examples also include bills of exchange, promissory notes, drafts and certificates of deposit.  No Par Value Stock that is issued without the specification of a par value indicated in the company's articles of incorporation or on the stock certificate itself.  Non-Current Assets These are assets not to be converted to cash within 12 months of the balance sheet date.  Non-Current Liability Obligation that is not required to be satisfied within 12 months of the balance sheet date. Also called long term liability.  Notes Payable Written promises to pay stated sums of money at future dates, classified as current (if due within 12 months) or non-current (if due after 12 months) of the balance sheet date.  Objectives See SMART Objectives  Operating Cycle The amount of time it takes for a company to turn cash used to purchase inventory into cash once again.  Operating Expense An expense incurred in carrying out an organization's day-today activities, but not directly associated with production. Operating expenses include such things as payroll, sales commissions, employee benefits and pension contributions, transportation and travel, amortization and depreciation, rent, repairs, and taxes. Account located in the Income Statement.  Operating Liabilities Operating liabilities are obligations created in the course of ordinary business operations. Copyright 2013 Page 141  Operating Statement See Income Statement.  Ordinary Shares Capital stock is the ordinary shares of stock a company might issue to raise money. The stock might be divided into various "classes" with each "class" having different rights.  Organizational Structure The organizational structure defines the workflow of the business and makes clear who is responsible for the various responsibilities within the business.  Overlapping Features An area, range or distinctive characteristic in one feature which exists in common with another feature of the same product or service.  Owners’ Equity See Shareholders’ Equity  P&L statement See Income Statement  Paid-in Capital Another category of contributed capital is paid-in capital. It is the money a company receives, above the par value, when an investor purchases stock directly from the company.  Par Value An arbitrary value for a company’s stock which stated in the corporate charter.  Partnership A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.  Positive Cash Flow Normal situation where the cash inflows during a period are higher than the cash outflows during the same period. Positive cash flow does not necessarily mean profit, and is usually due to a careful management of cash inflows and expenditure.  Preferred Stock A class of ownership in a corporation that has a higher claim on the assets and earnings than common stock. Preferred stock generally has a dividend that must be paid out before dividends to common stockholders and the shares usually do not have voting rights.  Price Point Suggested retail price of a product, determined in such a way as to compete with prices of other products. A product may be introduced with a specific price point, but that price may be altered depending on current demand and competition.  Privacy Policy Statement that declares a firm's or website's policy on collecting and releasing information about a visitor. It usually declares what specific information is collected and whether it is kept confidential or shared with or sold to other firms, researchers or sellers. Copyright 2013 Page 142  Product A tangible thing produced by labor. It includes a transfer of ownership or possession.  Product Feature A product feature describes a characteristic of a product or service. Typical features are weight, height, color, price, delivery method and guarantee.  Product Line A group of related products manufactured by a single company. For example, a cosmetic company's makeup product line might include foundation, powder, blush, eyeliner, eye shadow, mascara and lipstick products that are all closely related. The same company might also offer more than one product line.  Profit and Loss Statement (P&L) See Income Statement  Profit Margin A ratio of profitability calculated as net income divided by revenues, or net profits divided by sales. It measures how much out of every dollar of sales a company actually keeps in earnings.  Property, Plant and Equipment These assets are generally the bricks and mortar of a company. They are usually reported using the acquisition price less the accumulated depreciation. The depreciation is spread over the “useful life” of the fixed asset. Such assets include land, buildings, factories, furniture and equipment. Often these assets may have a market value greater than the depreciated value appearing on the balance sheet.  Public Face Similar to a firm's reputation or goodwill, it is the public perception of the firm rather than a reflection of its actual state or position.  Reality Check An objective assessment which shows you the real world situation is different from what you believed, estimated or projected.  Retail Establishment Retail establishments are businesses which typically sell a tangible product or a service directly to consumers or to other businesses. They might use a physical street location, an internet website or a combination of both.  Retained Earnings Management may pay it out to stockholders as a cash dividend or management may retain the profit and reinvest it in the company. The profit is posted in the retained earnings account when the management decides to invest the profit in the company.  Revenue The amount of money that a company actually receives during a specific period, including discounts and deductions for returned merchandise. Revenue is calculated by multiplying the price at which products or services are sold by the number of units or amount sold.  Sales Cycle The course of time between the initial contact being made with a customer, the identification of services or products to be purchased, the acceptance of the intended purchase, and the transaction that completes the sale. Copyright 2013 Page 143  Saturated Market Situation where practically every prospect already has the product (or its substitute) and, thus, it is a replacement market with only a little chance of new sales.  Search Engine Computer program that searches databases and internet sites for the documents containing keywords specified by a user. For example ‘Google’ is a search engine.  Service A service is an intangible offering such as accounting, banking, cleaning, consultancy, education, insurance, expertise, medical treatment, or transportation. No transfer of possession or ownership takes place when services are sold. They cannot be stored or transported.  Shareholder Any person, company or other institution that owns at least one share of a company’s stock. A shareholder may also be referred to as a "stockholder".  Shareholders’ Equity Shareholders' equity comes from two main sources. The first and original source is the money that was originally invested in the company, along with any additional investments made thereafter. The second comes from retained earnings which the company is able to accumulate over time through its operations. In most cases, the retained earnings portion is the largest component.  Short Term Investments Negotiable instruments, investments and certificates of deposits are considered short term investments.  Short term Loans In general, a loan with a maturity period less than one year from the maturity date of a balance sheet.  SMART Objectives Objectives define the finish line in the race for accomplishment. They can motivate and empower management to meet the objectives. Crossing the finish line can be a powerfully energizing experience and a huge boost to self-esteem for the management team. Make your objectives SMART. They are more profitable and faster to achieve. For an objective to be SMART it must be specific, measurable, achievable, realistic, and timed.  Social Media Marketing Primarily internet or cellular phone based applications and tools to share information. Social media includes popular networking websites, like Facebook and Twitter. It involves blogging and forums and any aspect of an interactive presence which allows businesses to reach out to customers, for example, by informing them of sales and offering them special coupons.  Sole Proprietorship The sole proprietor is an unincorporated business with one owner who pays personal income tax on profits from the business. With little government regulation, they are the simplest business to set up or take apart, making them popular among individual self contractors or business owners.  Start-Up Capital The money needed to begin a new business is called start-up capital. Start-up capital can come from loans and capital investment. The lenders might be the Copyright 2013 Page 144 founder, a bank or a private lender. The capital investment would come from selling an ownership interest in the business. An investor might be an individual or group of individuals. Start-up capital is also called "seed money."  State Department of Commerce The state agency charged with licensing and regulating businesses and professionals within the state. The Agency is under the executive branch of the Governor for the state. While every state has such an agency, the name of the agency may differ from state to state. Most agencies publish a great deal of statistical information about the businesses within the state.  State Department of Education Designed to increase the proficiency of all students in the state. Provide students with the opportunity to expand their knowledge and skills through learning opportunities and to maintain an accountability system that measures student progress.  State Department of Labor The State Department of Labor is the organization responsible for employment resources in the state. They offer educational opportunities as well as career building resources via its website and locations that are found in many counties. This agency helps with filing of unemployment as well as helping to resolve employer issues. While every state has such an agency, the name of the agency may differ from state to state.  State Department of Revenue and Taxation The state agency charged with collecting state taxes fairly and efficiently. Generally, the oversight for the state’s property tax system and fairness property valuation throughout the state is the responsibility of this agency. The Agency is under the executive branch of the Governor for the state. While every state has such an agency, the name of the agency may differ from state to state. Most revenue and taxation agencies publish a great deal of statistical information about the businesses within the state.  Statement of Cash Flows The true for many companies can be based on the cash flow. The Statement of Cash Flows lets you understand how much cash came into the company, where it came from, how much was used and how it was used. It is one of the quarterly financial reports any publicly traded company is required to disclose to the SEC and the public.  Statement of Operations See Income Statement  Statistics A type of mathematical analysis involving the use of quantified representations, models and summaries for a given set of empirical data or real world observations. Statistical analysis involves the process of collecting and analyzing data and then summarizing the data into a numerical form.  Status Quo The status quo is the current state of things.  Stock Option A privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date. Copyright 2013 Page 145  Stockholders See Shareholder  Strategy A method or plan chosen to bring about a desired future, such as achievement of a goal or solution to a problem.  SWOT Analysis Situation analysis in which internal strengths and weaknesses of an organization, and external opportunities and threats faced by it are closely examined to chart a strategy. SWOT stands for strengths, weaknesses, opportunities, and threats.  Tangible Product A physical item that can be perceived by the sense of touch. Examples of a tangible product include cars, food items, computers, telephones, etc. Many businesses also need to provide packaging for a tangible product to provide protection during its transportation to a retail location.  Target Market The consumers or other businesses a company wants to sell its products and services to, and to whom it directs its marketing efforts. Identifying the target market is an essential step in the development of a marketing plan. It is a subset of the total market for a product or service. A target market can be segregated from the total market by geography, buying power, demographics or psychographics as well as by competitors.  Test Market Area Geographic areas selected for a limited-scale introduction of a new product and/or a marketing plan. A test market serves as a field-laboratory which simulates some or all factors associated with a full scale or national launch of the product.  Total Market The total market is also called the total available market. It is the size of the market if there were no competitors and even if the company could not reach or serve all of the market.  Trade Associations Organization whose members are involved in a particular business or trade, such as retail and wholesale, fabrics, food stuff, transportation.  Treasury Bill A negotiable debt obligation issued by the U.S. government and backed by its full faith and credit, having a maturity of one year or less. Exempt from state and local taxes. Also called Bill or T-Bill or U.S. Treasury Bill.  Trust Mark A badge, image or logo found on an electronic commerce Web site that indicates the Web site is a member of a professional organization or that the Web site has passed security tests. The Trust Mark shows approval branding of a well-known third company.  Unearned Revenues Payment received before a product is sold or a service is provided. Unearned revenue is classified as a current liability on the balance sheet until it is recognized as earned during the accounting cycle.  Use of Funds A description of money which is used during the start-up of a business. It includes the money for: Copyright 2013 Page 146 a) the non-recurring costs associated with setting up a business, such as accountant's fees, legal fees, registration charges, as well as advertising, promotional activities, and employee training. b) Operating expenses until the business is cash flow positive.  Variable Costs Per Unit These costs fluctuate directly with sales volume. They would include the cost of buying things like the leather to make shoes, bread and ham for the sandwiches, shampoo for the haircuts and travel expense to visit clients for consultants.  Warrant A derivative security that gives the holder the right to purchase common stock from the issuer at a specific price within a specified period of time. Warrants are often included in a new debt issue to entice investors.  Warranty Liability This is a projection of much it will cost to fix a product if a consumer purchased a warranty for the product. This term is also referred to as a warranty payable.  White Paper An informational document issued by a company to promote or highlight the features of a solution, product or service. White papers are sales and marketing documents used to entice or persuade potential customers to learn more about or purchase a particular product, service, technology or methodology. White papers are designed to be used as a marketing tool before a sale, and not as a user manual or other technical document developed to provide support to the user after making a purchase.  Wholesaler A distributor or middleman who sells mainly to retailers and institutions, rather than consumers.   Product Code-Business Management-AW-Q235
 
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