Life Lesson

Business Plan

1. What is your plan?

1. I have a million dollar idea. Remember that your idea is only worth a nickel in your head but the plan that gets you to a place of success and the hard work put into developing your business is what is worth the million dollars.
2. Vision “Where there is no vision, the people perish.” Proverbs 29:18
3. Count the Cost. “For which of you, intending to build a tower, does not sit down first and count the cost, whether he has enough to finish it-- ²⁹lest, after he has laid the foundation, and is not able to finish, all who see it begin to mock him, ³⁰saying, "This man began to build and was not able to finish.'
4. Sit down and consider. “For what king, going to make war against another king, does not sit down first and consider whether he is able with ten thousand to meet him who comes against him with twenty thousand? ³²Or else, while the other is still a great way off, he sends a delegation and asks conditions of peace. Luke 14:28-32
5. The Plan. "The business plan is a necessity, if the person who wants to start a small business can't put a business plan together, he or she is in trouble," says Robert Krummer, Jr., chairman of First Business Bank in Los Angeles.
6. Go online and look for the necessary tools to put together a business plan.
7. According to the SBA website. “A business plan precisely defines your business, identifies your goals, and serves as your firm's resume. The basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers, and others about your operations and goals.” http://www.sba.gov/starting_business/planning/basic.html
8. www.Score.org Service Corps of Retired Executives. This website not only is very information but will try to connect beginner entrepreneurs with experienced entrepreneurs as mentors.

2. Write the plan. The first step in building a business.

Design the business as an architect designs a house. ON PAPER

What goes in a business plan? The body can be divided into four distinct sections:

1. Description of the business.

                                                               i.            This needs to be a complete and thorough description of the business. This needs to be written so even a banker can understand the nuts and bolts of your vision. If a banker cannot understand what you are doing they will not fund you.

                                                             ii.            What are you going to build, sell, distribute?

                                                            iii.            This will probably be non-technical but very informative

                                                           iv.            Question that will be answered in this section will include your:

1.      Mission

a.       A good mission statement should accurately explain why your organization exists and what it hopes to achieve in the future; It articulates the organization's essential nature, its values, and its work.

2.      Strategy

a.       How is success defined?

b.      How will you take market share?

3.      Timelines

a.       How long will it take you to get started?

b.      How much time to go from getting a loan to making money?

4.      Goals

a.       Do you have any?

5.      Competition

a.       Will there be competitive pressure defining your pricing structure?

b.      Do you have a way to be better than your competition?

6.      Operating procedures

a.       This is the day-to-day operations. How will we work and run.

b.      Marketing.

                                                               i.            How will you tell people about your services?

                                                             ii.            What kind of advertising do you expect to do?

                                                            iii.            How will pull in new customers?

                                                           iv.            How will you support repeat customers?

c.       Finances.

                                                               i.            How will you pay your bills and eat?

                                                             ii.            Everything costs money

1.      Rent

2.      Utilities

3.      Payroll

4.      Fees

5.      Administration costs

6.      Insurance

                                                            iii.            Loan applications

                                                           iv.            Capital equipment and supply list 

                                                             v.            Balance sheet 

                                                           vi.            Breakeven analysis 

                                                          vii.            Pro-forma income projections (profit & loss statements) 

1.  Three-year summary

2.  Detail by month, first year

3.  Detail by quarters, second and third years 

4.  Assumptions upon which projections were based

5.  Pro-forma cash flow

IMPORTANT NOTE: Balance Sheet, Income statements and Pro-Forma cash flows are not easy to put together. It may be recommended to work with your local SBA office or have a friend knowledgeable in the realm of finance. Bankers look for very specific information and this information needs to be documented in their language.

d.      Management.

                                                               i.            Who will run your business? Normally this will be YOU.

                                                             ii.            If your project is large, you will have to define the organization structure. i.e. CEO, Business Manager, Service Manager, Etc.

Although there is no single formula for developing a business plan, many of the above elements are common to all business plans.

And finally Supporting Documents:

                                                               i.      Tax returns of principals for last three years Personal financial statement (all banks have these forms)

                                                             ii.      For franchised businesses, a copy of franchise contract and all supporting documents provided by the franchisor 

                                                            iii.      Copy of proposed lease or purchase agreement for building space

                                                           iv.      Copy of licenses and other legal documents

                                                             v.      Copy of resumes of all principals

                                                           vi.      Copies of letters of intent from suppliers, etc. 

3. Legal Side. What kind of business entity.

1. 501c3

                                                               i.            non profit tax status

2. LLC

                                                               i.            Easy to use and separates legal liability from individuals

3. Partnership

                                                               i.            two or more parties that establish a contractual relationship for the purpose of business

4. S Corporation

                                                               i.            A pass through corporation that allows tax responsibility to pass through to the owners. Very popular in Florida because Florida has no State income tax for individuals

5. C Corporation

                                                               i.            This corporation is a perpetual entity. Regardless of who owns the stock or who runs the company, this corporation is designed to last forever. Compare to Ford motor company. Henry Ford died many years ago, yet his corporation still goes forward.

4. Employees and Vendors

1. Treat them fairly
2. Pay them fairly

                                                               i.            Do not withhold unjustly especially to the poor.

1.      ¹⁴ Do not take advantage of a hired man who is poor and needy, whether he is a brother Israelite or an alien living in one of your towns. ¹⁵ Pay him his wages each day before sunset, because he is poor and is counting on it. Otherwise he may cry to the LORD against you, and you will be guilty of sin.

3. What is market wage? What should we pay? Below, above or at market wage
4. Benefits. Can we afford them?
5. Policy manual

                                                               i.            Equal Employment

                                                             ii.            Discrimination

                                                            iii.            Workman’s comp

                                                           iv.            Theft

                                                             v.            How to hire and fire

6. Do you owe them more than a salary?

                                                               i.            Praying for the sick

                                                             ii.            Praying for the employees

                                                            iii.            Praying for the family members

1.      This goes back to Abrahamic blessing. All peoples will be blessed through you. He who is faithful with the little will be faithful with the big.

2.      God will teach us responsibility on step at a time.

5. Who is your Competition? Are they successful? Are they funded?

1. Learn from other’s mistakes.
2. Supportable market. Do you have a supportable market for your products? Selling snowboards in Pensacola does not make sense but selling pool supplies does. Sell a product that you know that there is a market for will help to assure a measure of success. The other option is to develop a market for merchandising.
3. A story about selling:  Two salesman went to Africa in the 19th century to sell shoes. The first one saw that everyone walked barefoot. He booked passage back the next day, totally despondent, muttering to himself, "I can't sell shoes in Africa, nobody wears them." The second salesman saw all these un-shoed people and cabled back "hurry, send shoes, nobody wears them, the market is wide open, it's HUGE..."
4. Your time

                                                               i.            Do you have enough time? There is no easy way to make the transition from employee to business owner. As an employee, you were responsible for one segment of a business’ product. Maybe you were the secretary or the maintenance man. Maybe you were the salesman or the bookkeeper. As a business owner you become all of those things.

                                                             ii.            You immediately become the salesman because sales and cash flow immediately becomes the most important commodity. But then you have to pay bills and worry about marketing. Do you have a nice location? You may need to buy desks and fax machines and even a telephone system. You have just become a member of the business elite. You are now a business owner. Welcome to the 80 hour week.

                                                            iii.            My wife started her business because she was bored being at home taking care of our infant son. She wanted a part-time business that would allow her to get out of the house and make a little extra cash. She decided to offer a service for married couples related to invitations, thank you notes and the whole mailing process. With a $3000 investment she began on a journey that resulted in a lot of work and exactly $0 dollars one year later.

                                                           iv.            I remember her working most nights from the time our son fell asleep (8pm) till 12 midnight, learning how to create a website and managing that website. She was scanning pictures and putting in costs and a whole lot of other work. Now granted, any business with sufficient start up capitol would just have hired a web-page designer. But for us and for most families with limited cash, an employee or outside design firm was out of the question.

                                                             v.            The costs. Running a business will cost you a lot. It will cost you your time. Your patience. Stress will increase. Family time will suffer. But with time, hard work and perseverance these costs will slowly diminish as the benefits begin to grow.

                                                           vi.            80 hour week?

5. The time frame

                                                               i.            2 years to profit? My mom once told me that it takes approximately two years to turn a financial profit in a business. I am not sure where she gleaned that nugget of information but I have since used it as a good rule of thumb. In fact, starting a small business is always risky, and the chance of success is slim. According to the U.S. Small Business Administration, over 50% of small businesses fail in the first year and 95% fail within the first five years. This seems to say that even a profit is not enough profit.

Questions to ask yourself.

Am I an Entrepreneur? In other words:

Am I prepared to work hard and make sacrifices?

Am I self-disciplined?

Do I have management ability?

Am I experienced enough in this field?

What do I want out of life?

Are my goals realistic and attainable?

Further Reading.

Are you ready?[1]

Is Entrepreneurship For You?

In business, there are no guarantees. There is simply no way to eliminate all the risks associated with starting a small business - but you can improve your chances of success with good planning, preparation, and insight. Start by evaluating your strengths and weaknesses as a potential owner and manager of a small business. Carefully consider each of the following questions.

Are you a self-starter? It will be entirely up to you to develop projects, organize your time, and follow through on details.

How well do you get along with different personalities? Business owners need to develop working relationships with a variety of people including customers, vendors, staff, bankers, and professionals such as lawyers, accountants or consultants. Can you deal with a demanding client, an unreliable vendor, or a cranky receptionist if your business interests demand it?

How good are you at making decisions? Small business owners are required to make decisions constantly - often quickly, independently, and under pressure.

Do you have the physical and emotional stamina to run a business? Business ownership can be exciting, but it's also a lot of work. Can you face six or seven 12-­hour work days every week?

How well do you plan and organize? Research indicates that poor planning is responsible for most business failures. Good organization ­ of financials, inventory, schedules, and production ­ can help you avoid many pitfalls.

Is your drive strong enough? Running a business can wear you down emotionally. Some business owners burn out quickly from having to carry all the responsibility for the success of their business on their own shoulders. Strong motivation will help you survive slowdowns and periods of burnout.

How will the business affect your family? The first few years of business start­up can be hard on family life. It's important for family members to know what to expect and for you to be able to trust that they will support you during this time. There also may be financial difficulties until the business becomes profitable, which could take months or years. You may have to adjust to a lower standard of living or put family assets at risk in the short-term.

Why small businesses fail

Success in business is never automatic. It isn't strictly based on luck - although a little never hurts. It depends primarily on the owner's foresight and organization. Even then, of course, there are no guarantees.

Starting a small business is always risky, and the chance of success is slim. According to the U.S. Small Business Administration, over 50% of small businesses fail in the first year and 95% fail within the first five years.

In his book Small Business Management, Michael Ames gives the following reasons for small business failure:

1:Lack of experience
2:Insufficient capital (money)
3:Poor location
4:Poor inventory management
5:Over-investment in fixed assets
6:Poor credit arrangements
7:Personal use of business funds
8:Unexpected growth
Gustav Berle adds two more reasons in The Do It Yourself Business Book:
9:Competition
10:Low sales

On the Upside

More Reasons Why Small Businesses Fail

These figures aren't meant to scare you, but to prepare you for the rocky path ahead. Underestimating the difficulty of starting a business is one of the biggest obstacles entrepreneurs face. However, success can be yours if you are patient, willing to work hard, and take all the necessary steps.

It's true that there are many reasons not to start your own business. But for the right person, the advantages of business ownership far outweigh the risks.

• You will be your own boss.
• Hard work and long hours directly benefit you, rather than increasing profits for someone else.
• Earning and growth potential are far greater.
• A new venture is as exciting as it is risky.
• Running a business provides endless challenge and opportunities for learning.