1. SCORE ® Counselors to America’s Small Business Service Corps of Retired Executives Small Business Planning Workshops

2. 201/02/09 Objective Write an effective plan for your business Write an effective plan for your business –Learn to use business planning forms –Learn to conduct market research –Build a cash flow forecast spreadsheet –Write a persuasive executive summary Learn about financing options Learn about financing options Create a decision-making tool for long-term success Create a decision-making tool for long-term success

3. 301/02/09 Three Workshop Series Workshop 1 BUSINESS PLAN BUSINESS PLAN –Introduction –What is a business plan? –Who needs it? –3-Step Process –Overview of major sections –Planning templates –Starting Business Checklist Workshop 2 MARKETING MARKETING –Product or Service Description –Identify Target Market –Understand your Customer –Identify competition and Your advantage –Marketing strategies –Sales and margin forecast Workshop 3 MANAGING MONEY MANAGING MONEY –Test Financial Feasibility using Cash Flow forecast –Begin with four budgets –Breakeven analysis and fixed costs –Three financial statements –Example –What the lenders want to see, including 5C’s of credit

4. SCORE ® Counselors to America’s Small Business Service Corps of Retired Executives Write a Winning Business Plan What is a Business Plan? Who needs it? Three step process Overview of major sections Planning templates from SCORE Starting Business Checklist

5. 501/02/09 The Business Business is the process of taking materials, goods or services from a beginning point and adding value along the way to the final user

6. 601/02/09 The Entrepreneur The entrepreneur is a capitalist, an innovator, an employers and an owner… The entrepreneur is a capitalist, an innovator, an employers and an owner… … who manages the process of adding value, organizes the business, creates jobs and assume the risk for the sake of profit … who manages the process of adding value, organizes the business, creates jobs and assume the risk for the sake of profit What does it take to start your own business? What does it take to start your own business? –A dream; Belief in yourself; Hard work; and –A Plan Find an unmet need Find an unmet need Figure out how to add value Figure out how to add value Figure out your unique advantage Figure out your unique advantage Organize resources Organize resources

7. 701/02/09 Starting Business is a Three Step Process 1. THINKING ABOUT IT –Do you have the right stuff –Choosing your business vs opportunity costs –Do you have the necessary funds 2. PLANNING FOR IT –Business plan –Marketing plan –Financial plan 3. DOING IT –Creating your business –Managing and Operating your business –Marketing your business

8. Step 1 Thinking About It

9. 901/02/09 Before you start… Do you have the Right Stuff? Characteristics of an Entrepreneur Characteristics of an Entrepreneur 1.Personal Characteristics – self starter, strong work discipline, finisher, integrity, physical and emotional stamina. 2.Social Characteristic – ability to communicate, like meeting people, uninhabited talking about your business, honesty 3.Business Characteristics

10. 1001/02/09 … Business Characteristics Can introduce and implement meaningful managerial policies and directives Can introduce and implement meaningful managerial policies and directives Enact strong leadership disciplines Enact strong leadership disciplines Display good business “common sense”, integrity Display good business “common sense”, integrity Make good decisions under pressure Make good decisions under pressure Good organizer. Good organizer. And who must face and endure the “Entrepreneurial Shock”: The psychological realization by a start-up business person that the “work-for-yourself” idea is accompanied by difficult decisions and disappointments. Entrepreneurial Shock often occurs when a start-up business person has worked in a corporate environment and was not exposed to all the complications of operating a business. And who must face and endure the “Entrepreneurial Shock”: The psychological realization by a start-up business person that the “work-for-yourself” idea is accompanied by difficult decisions and disappointments. Entrepreneurial Shock often occurs when a start-up business person has worked in a corporate environment and was not exposed to all the complications of operating a business.

11. 1101/02/09 2. Buy Existing Business –Conduct due diligence – ask for 3 years of past performance –Know why business is being sold –Prepare a business Plan 3. Buy Franchise –Carefully investigate franchisor –Read FTC Disclosure statement –Read and understand franchise agreement –Prepare a Business Plan Choose The Right Business Step 1 1.Start New Business Select your new business Define your business and product/service Understand your target market and competition Prepare a business plan Increasing possibility of success

12. 1201/02/09 Choose the Right Business Steps 2 &3 Do you have the necessary funds? Do you have the necessary funds? –First determine what you can afford –Then select an appropriate business Pick a business that Pick a business that –you know something about –have training or education in or –feel passionate about

13. 1301/02/09 Do You Have the Necessary Funds? Equity from yourself Equity from yourself –Own savings –Informal borrowing from family and friends –Refinance your home or home equity loan –Borrow from pension funds (401K or 403B) –Use credit limits on personal credit cards Equity from Partners or Investors Equity from Partners or Investors Debt* Debt* * You must have at least 1/3rd of the capital necessary to start the business Be Cautious

14. Step 2 Planning for It

15. 1501/02/09 Why Plan? Many things have to go “right” for a business to succeed Many things have to go “right” for a business to succeed –Right Idea –Right Market –Right Place –Right Time –Right Management –Right amount of Capital Planning doesn’t eliminate risk; takes time now … but avoids costly mistakes Planning doesn’t eliminate risk; takes time now … but avoids costly mistakes The value lies in the process of researching and thinking; not in producing a finished plan The value lies in the process of researching and thinking; not in producing a finished plan

16. 1601/02/09 A Business Plan… Uncovers every facet of the business being developed Uncovers every facet of the business being developed Explores new company’s strengths and weaknesses Explores new company’s strengths and weaknesses Reveals ways to capitalize on the strengths and minimizes the weaknesses Reveals ways to capitalize on the strengths and minimizes the weaknesses Points to the best method for development Points to the best method for development Provides a structure for company’s pursuit of ultimate success Provides a structure for company’s pursuit of ultimate success

17. 1701/02/09 What is a Business Plan? It is a written document that says: I know why my business exists I know why my business exists I know where I am and where I plan to go I know where I am and where I plan to go I know my competitive advantage and why I will succeed I know my competitive advantage and why I will succeed I know the strategies that I plan to follow to get from here to there I know the strategies that I plan to follow to get from here to there I know my business generates enough profits to: I know my business generates enough profits to: –Service debt –Provide adequate return to attract investors –Provide adequate return on my investment and sweat equity

18. 1801/02/09 Who Needs A Business Plan? Lenders Lenders Investors Investors Suppliers Suppliers YOU YOU You need a Business Plan as a decision-making tool to start & successfully operate your business over the long term

19. 1901/02/09 1. The Title Form 2. Table of Contents 3. Executive Summary (complete last) 4. Business Section 5. Marketing Section 6. Financial Section 7. Supporting Documents Business Plan Outline

20. 2001/02/09 The Title Page Company Name and address Company Name and address Telephone number, Fax number, e-mail address Telephone number, Fax number, e-mail address Name of person preparing Plan Name of person preparing Plan Date Plan prepared Date Plan prepared Request return Request return Mark Confidential Mark Confidential

21. 2101/02/09 Table of Contents Reference to major topics in plan Reference to major topics in plan Make it user friendly Make it user friendly Indicates completeness Indicates completeness

22. 2201/02/09 Business Section Mission of your business Mission of your business –Unmet need that you will satisfy better than competition Products / Services Products / Services Legal Structure Legal Structure Ownership Structure; Management Structure Ownership Structure; Management Structure Other topics you may need to cover: Other topics you may need to cover: –Facility –Technology –Management Information & Control –Manufacturing and Assembling

23. 2301/02/09 Marketing Section Product and/or service (from customer’s view … hopefully addresses an unmet need) Product and/or service (from customer’s view … hopefully addresses an unmet need) Industry Description: size, growth, trends Industry Description: size, growth, trends Target market (your niche) Target market (your niche) Characteristics of target buyer, unmet needs Characteristics of target buyer, unmet needs Competitor Analysis (Strengths and Weaknesses) Competitor Analysis (Strengths and Weaknesses) Competitive advantage (why will a customer do business with you?) Competitive advantage (why will a customer do business with you?) Strategies (selling, pricing, purchasing, location and advertising) Strategies (selling, pricing, purchasing, location and advertising) Goals (sales volume & margins forecast; list key assumptions) Goals (sales volume & margins forecast; list key assumptions)

24. 2401/02/09 Financial Section Your Personal Budget (only for lenders and you) Your Personal Budget (only for lenders and you) –determines “Owners Equity” Start-up Budget Start-up Budget –Land, facilities, capital equipment, inventory, other one-time costs, and “working capital” How you plan to finance the start-up How you plan to finance the start-up –Sources of equity and debt Expense Budget Expense Budget Sales Volume and Margin Budget Sales Volume and Margin Budget Cash Flow Projections Cash Flow Projections Break-even analysis and sensitivities Break-even analysis and sensitivities Pro-forma Financials Pro-forma Financials –Income Statement – Balance Sheet

25. 2501/02/09 Supporting Documents Personal resumes and other documents Personal resumes and other documents Owner’s financial statements & credit report Owner’s financial statements & credit report Copy of leases, mortgages, purchase agreements Copy of leases, mortgages, purchase agreements Contracts and Letters of reference Contracts and Letters of reference Key Employee job Descriptions Key Employee job Descriptions Licenses and permits required Licenses and permits required Attorney/accountants/insurance advisors Attorney/accountants/insurance advisors

26. 2601/02/09 Executive Summary Write this last Write this last 1 page long … 2 max 1 page long … 2 max Include everything that you would cover in a five-minute interview Include everything that you would cover in a five-minute interview Make it readable, enthusiastic and complete Make it readable, enthusiastic and complete Must have What, When, How and Why Must have What, When, How and Why

27. 2701/02/09 Executive Summary 1. What do you want to do? –Describe your product and/or services –Describe your business and your niche 2. When do you want to do it? 3. How are you going to do it? –Start up costs and timing –Funding (equity and debt) –Organization –Facilities and capital items 4. Why do you think you will succeed? –Mission and Objectives –Competitive advantage –Breakeven point and Risks

28. 2801/02/09 Planning is Iterative At any point you may need to rethink, rework or refine something you’ve already done At any point you may need to rethink, rework or refine something you’ve already done Do not get stuck on any section or form – do the best you can, move on and return to that topic later Do not get stuck on any section or form – do the best you can, move on and return to that topic later Go back, review and improve what you wrote previously Go back, review and improve what you wrote previously

29. Step 3 Doing It

30. 3001/02/09 Check List Create legal business Create legal business Get Federal Employer Identification Number Get Federal Employer Identification Number Get state employer I.D. or sales tax permit Get state employer I.D. or sales tax permit Obtain a business license or permit Obtain a business license or permit Obtain financing (equity & debt) Obtain financing (equity & debt) –Establish a line of credit (if necessary) Set up a business checking account Set up a business checking account Buy insurance Buy insurance

31. 3101/02/09 Legal Structure Attribute Sole Proprietorship PartnershipLLCS CorpC Corp Personal Liability Protection No Yes Franchise TaxNo Yes Double TaxationNo Yes High Cost of StartupNo Yes Member RestrictionYesNo YesNo Transfer of SharesNo Yes Easy Access to CapitalNoYes/NoYes

32. 3201/02/09 What Do Lenders Looks For? 5 C’s 5 C’s –Character –Collateral –Capacity –Conditions –CAPITAL Management Skills and Experience Management Skills and Experience A Business Plan demonstrating the debt can be satisfactorily serviced A Business Plan demonstrating the debt can be satisfactorily serviced

33. 3301/02/09 Doing It Check List (continued) Establish Credit / Check processing services Establish Credit / Check processing services Identify Personnel and begin recruiting Identify Personnel and begin recruiting Line up suppliers Line up suppliers Set a starting date Set a starting date Set up physical business Set up physical business Order business cards and stationary Order business cards and stationary Order signage (Outside and Point of Sale) Order signage (Outside and Point of Sale) Develop a website Develop a website Begin pre-opening advertising Begin pre-opening advertising

34. 3401/02/09 Wrap-up Think – Write the Plan – then Do it Think – Write the Plan – then Do it Choose the Right business, based on: Choose the Right business, based on: –Knowledge –Training –Experience –Passion Make sure you’ve got the funds Make sure you’ve got the funds Be honest with yourself Be honest with yourself Plan is for lenders, investors and YOU Plan is for lenders, investors and YOU

35. 3501/02/09 Use Free Counseling from Our mission is to help small businesses succeed. Our mission is to help small businesses succeed. We accomplish this mission by Educating Counseling Counseling Mentoring Mentoring

36. SCORE ® Counselors to America’s Small Business Service Corps of Retired Executives Congratulations & Thank You! Keep in touch. www.scorehouston.org

37. Back up

38. 3801/02/09 Buying a Business If possible, buy assets not stock If possible, buy assets not stock –avoids potential liabilities, unknown at the time of purchase. Describe the existing business Describe the existing business Date business was originally started Date business was originally started List the present owners List the present owners Are the present owners the original start-up owners? Are the present owners the original start-up owners? Date present owners acquired business Date present owners acquired business Present Organizational form Present Organizational form

39. 3901/02/09 Buying a Business Price Asking price Asking price Appraised value (see due diligence) Appraised value (see due diligence) Goodwill Goodwill –(difference between the price and book value) How and by whom were the assets appraised How and by whom were the assets appraised

40. 4001/02/09 Buying a Business Due Diligence Review Business History Review Business History –3-year Financial reports –3-year Income tax reports Review Operating History by major product lines Review Operating History by major product lines –3-year Sales and Operating reports Forecast sales and margins by major product lines Forecast sales and margins by major product lines Appraise the Business Value Appraise the Business Value –Verify Market value of inventory, receivables, capital assets, payables and debt –Determine the value rules in your industry based on similar sales –Compute business value using DCF Analysis based on forecasted sales and margins and compare it to the rules above Verify Business Goodwill Verify Business Goodwill –Business reputation – Positive or Negative –Brand identity – Strong or Weak? –Customer feedback – Positive or Negative Why is the owner selling the business Why is the owner selling the business –Banker; Customers; Supplier; Broker Attach itemized lists of assets & liabilities at book and appraised values in the Appendix Attach itemized lists of assets & liabilities at book and appraised values in the Appendix

41. 4101/02/09 Buying a Franchise Is this a repeatable franchise? Is it listed in SBA Franchise Registry? Is it listed in SBA Franchise Registry? How long has the franchisor been in business? How long has the franchisor been in business? Has the brand/product/service good market acceptance? Has the brand/product/service good market acceptance? What is the reputation and credit-worthiness of the franchisor What is the reputation and credit-worthiness of the franchisor How many franchisees are presently operating? How many franchisees are presently operating? What is the rate of turnover and closings of the franchisees? What is the rate of turnover and closings of the franchisees? Contact several franchisees at random (not from a list the franchisor provides) Contact several franchisees at random (not from a list the franchisor provides) Carefully review Uniform Franchise Offering Circular Carefully review Uniform Franchise Offering Circular

42. 4201/02/09 Buying a Franchise Is the franchise fee competitive? How much is the franchise fee and is it competitive and reasonable? How much is the franchise fee and is it competitive and reasonable? Are the “royalty fees” reasonable and competitive? Are the “royalty fees” reasonable and competitive? Are the following included for these fees? Are the following included for these fees? –Training program for franchisee and employers –Assistance in obtaining financing –Assistance in selecting and acquiring the right location –Assistance in facility design and layout –After start-up management assistance and performance evaluation –Co-op advertising, POS and sales promotion programs

43. 4301/02/09 Buying a Franchise Legal Issues What is the term of the agreement? What is the term of the agreement? Under what conditions can the franchisor terminate this agreement? Under what conditions can the franchisor terminate this agreement? Under what conditions can you terminate this agreement? Under what conditions can you terminate this agreement? Can you sell the franchise to others without the franchisors permission? Can you sell the franchise to others without the franchisors permission? What are your renewal rights? What are your renewal rights? Are your outside business activities limited? Are your outside business activities limited? Is the franchise territory protected? Is the franchise territory protected? Are there other “similar” franchisees located nearby? Are there other “similar” franchisees located nearby? Are there limits to the number of franchisees one can own and operate? Are there limits to the number of franchisees one can own and operate? Is the investment required all-inclusive? Is the investment required all-inclusive? How is the royalty fee used? How is the royalty fee used? What co-op programs are you required to participate in? What co-op programs are you required to participate in? Are there constraints on buying supplies and products from others? Are there constraints on buying supplies and products from others? Do you have the original and a copy of the franchise agreement and other required legal documents, signed by both parties Do you have the original and a copy of the franchise agreement and other required legal documents, signed by both parties Have an attorney carefully review the franchise contract or agreement