The Business Plan Chapter 35.1

 Explain the purpose and importance of a business plan  Identify external planning considerations Objectives

Business Plan Buying Behavior Business Philosophy Trading Area Key Terms

 A business plan will help you secure financial assistance  A business plan is a proposal that outlines a strategy to turn a business idea into a reality  It describes a business opportunity to potential investors and lenders Developing the Business Plan

 The business plan will guide you as you open the business and plan for its management  Your business plan should convince investors and lenders that :  your business idea is profitable  Identify procedures necessary to legally establish the business  Works as a management tool Developing the Business Plan

 A business plan must be well organized and easy to read  It should include three components  Description and analysis of the proposed business  Organizational and marketing plan  Financial plan Developing the Business Plan

 The description and analysis section introduces the proposed business concept  This section should clearly identify the products and services the business will sell Description and Analysis of the Proposed Business

 This section also includes  Trading area analysis  Market segment analysis  Analysis of potential locations  It includes your personal business philosophy and self analysis Description and Analysis of the Proposed Business

 When preparing your plan, be as factual as possible  Use up to date information  The U.S. Small Business Administration and the Senior Core of Retired Executives can provide potential sources of information Description and Analysis of the Proposed Business

 Begin your plan with a description of the type of business you want to open  You will present market research data and review significant trends  Explain how a current or changing situation has created an opportunity for the business to fulfill consumer demands Business Philosophy and Products

 A Business philosophy explores how you think the business should be run and demonstrates your understanding of your business’s role in the marketplace  It reveals your attitude toward your customers, employees, and competitors Business Philosophy

 The philosophy will help attract new customers and keep them  Wal-Mart’s business philosophy is that it will not be undersold, and the return policy is that customers can always return merchandise if they are dissatisfied with it Business Philosophy

 After identifying your business philosophy, describe the product or service you will offer  Explain the potential customer benefits and why your service or product will be successful  Include many facts, trends, and statistics Type of Product or Service

 The next part of the business plan is a self analysis which describes your personal:  Education  Training  Strengths  Weaknesses  A plan for personal development Self Analysis

 You need to highlight your strengths and skills in your chosen area  You should describe how you will acquire the skills you lack through additional training or by hiring other professionals Experiences, Skills, and Plans

 Indicate the education and training you have had so far to prepare you for operating your new business  Your educational and work experience shows potential lenders that you can understand the industry and have that required skills for running a successful business Experiences, Skills, and Plans

 Some businesses require applying for a special license  In this section, you should explain if you already have this license or if it is in process Licenses

 Include the special personal traits and work habits you posses  Examples of:  past leadership activities  Personal initiatives and willingness to work hard  These add strength to your business plan Personal Traits

 After the explanation of personal skills, define your trading area  A trading area is the geographical area from which a business draws its customers.  You must analyze your trading area to become familiar with geographic, demographic and economic data Trading Area Analysis

 Geographic data include how many people live in a certain area  Geographic are identifiable and measureable population statistics such as  Age  Gender  Marital status  Race/ethnicity Geographic, Demographic & Economic Data

 Knowing the demographics of your trading area will help you identify market trends that may have a direct impact on your business  Prevailing economic conditions are among the major factors affecting a business Geographic, Demographic & Economic Data

 Economic factors include:  Economic growth  Projections  Trends in employment  Interest rates  Business mergers  Governmental regulations Geographic, Demographic & Economic Data

 Taxes increases or decreases levied by the local, state and federal government affect consumer buying power  It is important to include how much disposable income the potential consumers in your trading area hafe Geographic, Demographic & Economic Data

 It is important to include how much disposable income the potential consumers in your trading area have  This is the personal income remaining from wages after all taxes have been taken  Personal income is also known as buying income Geographic, Demographic & Economic Data

 List all the competitors in your trading area:  Products  Prices  Locations  General quality of products  Strengths and weaknesses  Try to estimate your competitor’s sales volume and identify how they promote and sell products Competition

 The next part of your business plan should contain a market segment analysis, a description of your target marking and the buying behavior of your potential customers Market Segment Analysis

 Target market is the specific group of people you want to reach  You can identify target market by common geographic characteristics  You must carefully identify your target market so that you will know the needs and wants of different markets for your product Target Market

 After you have identified your target market, you will need to explain how the market’s buying behavior will be good for your business  Buying behavior is the process individuals use to decide what they will buy, where they will buy it, and from whom they will buy it Customer Buying Behavior

 The decision where the locate your store is vital to your success  You can select your location after you have analyzed your trading area and your market segment, including your target market and your competition Analysis of Potential Locations

 The advantages of leasing outweigh the other options for most new businesses  With leasing, you:  Avoid a large initial outlay of cash,  Your risk is reduced by the shorter commitment  You lease expenses are tax deductable Lease, Buy, or Build?

 The process of buying or building is more complex and almost always requires major financing  Regardless of whether you buy, lease, or build, you need to compare certain terms of each potential method of financing your property Lease, Buy, or Build?

 Those terms include:  Monthly rent/payments  Length of commitment  You must also find out who is responsible for insurance  You should have an attorney review any documents before you sign them Lease, Buy, or Build?

 Before you decide, consider the number and size of potential competitors in the area  If your business is similar in size and merchandise to its competitors, you may want to locate near them  This encourages comparison shopping Competing and Complementary Business

 A larger business that offers more variety than the competition should be able to generate its own customers and therefore can be situated away from the competition  A complementary business is one that would help generate store traffic such as shoes and accessories store located next to clothing stores Competing and Complementary Business

 The nature of your business will dictate if you locate your business in a:  mall  neighborhood shopping center  freestanding location  Online  That location will determine your hours of operation and the number of customers who will see your business Hours of Operation

 Restaurants and other businesses that rely on high visibility or prime locations may spend the extra mo0ney to locate in a high traffic location  Such a site may not be a priority or profitable for all businesses Visibility

 Customer safety should be a consideration when choosing a business location  Research the community’s crime rate  Find out whether the fire department is a volunteer of municipal one and contact them about safety codes Safety

 Make sure your customers can get to you location easily  Identify the highways, streets and public transportation options that they can make use of to get to your site Customer Accessibility

 Learn about any local ordinances or laws that may affect your business  Research and restrictions that might prevent you from locating in a particular area Zoning and Other Regulations

 Plans to build or renovate will require the necessary building permits  Operating a regulated business, such as a service station, will call for the necessary local zoning approvals and state licenses Zoning and Other Regulations

1. Why is it important develop a business plan? 2. Identify the three major parts of a business plan 3. What is a trading area? After you read

Chapter 35.2 The Marketing and Financial Plans

 Develop a business’s organization plans  Construct a marketing plan  Identify the financial elements of a business plan  Describe financing sources for businesses Objectives

Job Description CollateralCredit UnionDebt Capital Organization Chart Equity Capital Key Terms

 The second section of the business plan explains how you will organize the new business  It describes your current and anticipated staffing needs  It also reviews how you plan to sell your product and how you intend to reach customers Organizing the Plan

 The details of your proposed product are explained along with your:  potential suppliers  manufacturing or selling methods  inventory policies  It also includes your marketing plan which details your pricing strategies and promotional plans Organizing the Plan

 The organizational section of your business plan is a blueprint or a foundation for the structure of your proposed business  You must construct a clear, solid foundation around which to build the rest of your business Proposed Organization

 There are three main types of business ownership structures:  Sole proprietorships  Partnerships  Corporations  In this part of the business plan you state which structure you chose and why Types of Ownership

 You will outline the steps you plan to take to establish your business  The specific steps you will take depend on how you organize your business Steps in Establishing Your Business

 You need to demonstrate to potential investors and lenders that you know how to staff the business so that it operates successfully  List your personnel needs in your business plan and identify the people who will perform those jobs Staffing

 Prepare job descriptions for your partners, employees, and yourself  Job descriptions are written statements listing the requirements of a particular job and the skills needed to fulfill those requirements Job Descriptions

 Each job description includes the  Purpose of the job  Qualifications  Skills needed  Duties to be performed  Equipment to be used  Expected work conditions  These help employees know what is expected of them Job Descriptions

 Once you have completed the job description, develop an organization chart to establish the chain of command within your business  An organizational chart is a diagram of the company’s departments and jobs with lines of authority clearly shown Organization Chart

 Your organization chart tells employees to whom they report and to whom they can turn to with problems and questions  It also establishes department responsibilities Organization Chart

 Trained professionals will help you avoid mistakes that could damage your prospects for success  If you decide to use outside professionals, identify them and their responsibilities son your organization chart Outside Experts

 Professionals who can help include accountants, attorneys, bankers, and insurance agents  You can also use technical assistance to identify employment practices in your state or locality Outside Experts

 One part of your business plan should include information on the types of products and services you will offer  Your investors or lenders will also want to know what the associated cost will be Proposed Product or Service

 For products, you will need to develop a plan that details all the purchasing or manufacturing requirements as well as your inventory policy and anticipated costs  Your inventory system depends on the size and scope of your proposed business  Trade associations can give you suggestions for the best inventory control system Proposed Product or Service

 For services, you need to develop a plan that addresses who will provide the service to your customers and how and when that will happen  State the services provided by competitors and describe additional distinct services you will provide and their estimated costs Proposed Product or Service

 Marketing mix strategies are vital to the success of your business  It is important to look at key areas such as  Pricing policies  Promotional activities Proposed Marketing Plan

 Your business plan must outline your pricing policies  You might be able to set a price high enough to cover your costs and make a profit, but competitive enough to attract customers Pricing Policies

 Identify how to reach the greatest number of potential customers in your target market in the most efficient and effective way  The firms promotional mix includes  Advertising  Public relations  Promotions  Personal selling Promotional Activities

 Your business plan will outline the mix that will be most effective in persuading prospects to do business with you  This plan will explain why you have selected this mix and what costs you anticipate  Specify an annual budget for each activity Promotional Activities

 In the financial section of a business plan, lenders and investors can see what monies are needed to start and operate the business  They will also review the entrepreneurs statements of personal external and internal forms of capital Financial Section

 Capital is the funding needed to finance the operation of a business  It includes all goods used to produce other goods  In business, capital may include owned property and cash resources Sources of Capital

 Raising money from within your company or by selling part of the interest in the business is called using equity capital  The advantage of using equity capital is that you do not need to repay the money or pay interest  However, the investor becomes a co-owner in the business Equity Capital

 The larger the share of your business that you sell, the more control you relinquish to your investors  Equity capital sources include  Personal savings  Partners  Shareholders Equity Capital

 The most common method of financing a business is using personal savings  Although you may not prefer this option, you probably cannot avoid investing part of your savings  Starting a new business involves risk and your investors will also be at risk Personal Savings

 Having partners is another way to raise capital for your business  Partners may bring in their own money and have access to other sources  As with equity investors, you may have to share control of the business when you bring in a partner Partners

 You may sell stock to shareholders as a way to raise capital  You will first need to form a corporation  Share holders will have influence over general corporate policy decisions but it is limited to the amount of shares they hold Shareholders

 Debt capital is a term used to describe borrowed funds that must be repaid  Some debt capital sources are, banks, credit unions, the SBA, friends, relatives, suppliers, and previous business owners Debt Capital

 Debt capital can work to your advantage when you finance a new business because borrowing money and repaying it on a timely basis builds a good credit standing  In turn, a good credit standing makes it easier for you to borrow additional money Debt Capital

 Although interest may be paid, the interest becomes tax deductible  However, if you cannot pay back the debt, you will be forced to file bankruptcy  This does not mean the business may close, but creditors may take it away from the owner Debt Capital

 Commercial banks are one of the most common sources of business financing  They know their local areas and economies will and offer a number of different loans and services on competitive and government regulated terms Banks

 To evaluate a business owner’s credit worthiness, banks follow a criteria called the six C’s of credit  Capital  Collateral  Capability  Character  Coverage  Circumstances Banks

 How much of your own money, or capital, is being invested into the business?  Banks, like other potential lenders, will want to know how much capital you are willing to invest in your new venture Banks

 What assets can be used as collateral for a loan?  Collateral is something of value that you pledge as payment for a loan incase of a default  Some banks require a collateral to be greater than the value of the loan Banks

 A resume of your previous training and related work experience will answer questions about your capability and character  Your personal credit will also be reviewed to see if you regularly pay your bills on time Banks

 Banks will want to know the amount of insurance coverage that you carry and the general circumstances of your business  This is outlined in the description and analysis section of your business plan Banks

 A credit union is a cooperative association formed by labor unions or groups of employees for the benefit of its members  Credit unions often offer lower interest rates on loans but require you to be a member  They also use the six C’s criteria Credit Unions

 After you have identified your source(s) of business capital, the last part of your business plan is to develop your financial statements  Your financial statements display your business’s projected income and expenses and help persuade investors to lend money. Financial Statements

 1. What are the three major parts in the organization and marketing section of the business plan?  How is an organization chart used in a business?  What are the six C’s or credit? After you read.