Unit 2 The Feasibility Study Testing an Opportunity

Unit 2 Vocabulary Benefit Business Concept Business Model Business Plan Competitive Grid Corporation C-corporation Direct Channel Distribution Channel Executive Summary Feature Feasibility Analysis Indirect Channel Industry Liability Protection Limited Liability Limited Liability Company (LLC) Limited Partner Mission Statement Nonprofit Corporation Partnership Prototype

Unit 2 Vocabulary Small Business Administration (SBA) Shareholders Sole Proprietorship Subchapter S Corporation Trade Association Target Customers Unlimited Liability Value Chain Vision Statement

Unit 2 Essential Question 1 (MKT-EN-2) What are the fundamental concepts of business ownership?

Essential Question 1A (MKT-EN-2C) What are the common types of business ownership?

Sole Proprietorship Sole Proprietorship: The owner is the only one responsible for the business’s activities. Easiest and most popular form of business to create. Accounts for 76% of all businesses.

Partnerships Partnership: More than one person shares the business decisions and outcomes. General Partners: All partners have unlimited personal liability and take full responsibility for the management of the business. Law requires that at least one partner is a general partner.

Partnerships More than one person shares the business decisions and outcomes. Limited Partners: Partners whose liability is limited to their investment. Cannot be actively involved in managing the business. If a limited partner becomes involved in the business, they lose their limited liability status.

Corporation Corporation: A business that is chartered or registered by the state. Legally operates apart from its owner(s). Continues to operate regardless of the status of the owners.

Corporation C-Corporation Most common corporate form. It protects the entrepreneur from being sued. Requires a lawyer to setup. Required to issue stock. This shows the amount of equity or ownership. Required to have a board of directors.

Other Corporation Types Subchapter S Corporation: Avoids double taxation by being taxed like a sole proprietorship or partnership. Nonprofit Corporations: Legal entities that make money for reasons other than the owners’ profit. Limited Liability Companies: Receives the limited liability advantages of corporations and the passthrough tax advantages of a partnership.

Essential Question 1B (MKT-EN-2D) How do the advantages and disadvantages of the different types of business ownership compare and contrast?

Sole Proprietorship Advantages Easy and inexpensive to create. Owner has complete control over business activities. Owner receives all the profits. Least regulated. Business pays no taxes. Profits are considered personal income and the owner is taxed at the personal rate.

Sole Proprietorship Disadvantages The owner has unlimited liability: Debts incurred by the business have to be paid from the owner’s personal assets (car, house, bank accounts, etc.). More difficult to raise capital. Limited by the total reliance of the abilities and skills of the owner. Death of the owner automatically dissolves the business.

Partnerships Advantages Inexpensive to create. General partners have complete control. Partners can share ideas. Easier to get capital and in greater amounts.

Partnerships Disadvantages Cannot dissolve one partnership without dissolving the other partnerships, which dissolves the business. If one partner dies the business dissolves. Personality conflicts. Partners are bound by the laws of agency: All partners can be held liable for the actions of each other.

Corporation Advantages Can raise money by issuing stock. Common Stock: Shareholders have voting rights. Preferred Stock: First to receive their money back in case of business failure. Owners and shareholders have limited liability: Owners are only liable to the amount of their investment. Can offer more benefits to its employees; pension, retirement, and profit sharing plans.

Corporation Disadvantages Expensive to setup. Can cost between $2,500 and $5000 in fees. Business income is more heavily taxed. Owners (stockholders) are double taxed. Corporations pay taxes on its profits. From the profits, it pays stockholders earnings, or dividends. The stockholders must now pay income taxes on their dividends.

Unit 2 Essential Question 2 (MKT-EN-1) What are the concepts and processes associated with successful entrepreneurial performance?

Essential Question 2A (MKT-EN-1H) What is a feasibility analysis?

The Business Concept An idea for a new business that can be tested.

The Business Concept The Business Concept Statement What is the product being offered? Who is the customer? What is the benefit being provided? How will the product get to the customer?

Sample Business Concept Statement Eastside Sports offers sporting equipment and apparel to local teams and to people who play sports. It provides the convenience of one-stop shopping at a retail outlet in the customer’s own neighborhood.

Feasibility Analysis Feasibility Analysis: Determines if an idea for a business (Business Concept) is practical.

Feasibility Analysis Conduct testing Test the industry: a group of businesses with a common interest. Look at the health of the industry, trends and patterns of change, and major players. Test the market. Talk to your target customers: those most likely to buy your product. Determine their needs and wants.

Feasibility Analysis Conduct testing Test the product. Create a prototype: a working model of a new product. Prototypes are not limited to physical models. They can also be flow charts, blueprints, and other intellectual property.

Feasibility Analysis Create a competitive grid: a tool for organizing important information about the competition. Competitor Customer Benefits Distribution Strengths / Weaknesses

Feasibility Analysis Used to compare your proposed business to your competitors’ businesses and identify your competitive advantage.

Feasibility Analysis Look at start-up resources needed. Purchase or lease equipment, furnishings, and a facility. Buy starting inventory and supplies. Pay employees. Finish product development. How long do you have to carry the company expenses until you have a positive cash flow?

Essential Question 2B (MKT-EN-1I) What are the major reasons for business failure?

Reasons for Business Failure 1. You start your business for the wrong reasons. You want to make a lot of money. You think you would have more time with your family. You wouldn't have to answer to anyone else. On the other hand, if you start your business for these reasons, you'll have a better chance at entrepreneurial success:

Reasons for Business Failure What will improve your success? You have a passion and love for what you'll be doing, and strongly believe that your product or service would fulfill a real need in the marketplace. You are physically fit and possess the needed mental stamina to withstand potential challenges. You have drive, determination, patience and a positive attitude. Failures don't defeat you. You learn from your mistakes, and use these lessons to succeed the next time around.

Reasons for Business Failure You thrive on independence, and are skilled at taking charge when a creative or intelligent solution is needed. You like -- if not love -- your fellow man, and show this in your honesty, integrity, and interactions with others. You get along with and can deal with all different types of individuals.

Reasons for Business Failure 2. Poor Management Poor management is the number one reason for failure. Neglect of the business. You must regularly study, organize, plan and control all activities of its operations, including continuing market research. A successful manager creates a work climate that encourages productivity and has a skill at hiring competent people, training them. A good leader is skilled at strategic thinking, able to make a vision a reality, confront change, make transitions, and envision new possibilities for the future.

Reasons for Business Failure 3. Insufficient Capital Business owners tend to underestimate how much money is needed for operation. They may have an unrealistic expectation of incoming revenues from sales. You must know how much money your business will require; not only the costs of starting, but the costs of staying in business.

Reasons for Business Failure 4. Location, Location, Location Location is critical to the success of your business; a bad location is disaster to even the best-managed enterprise. Some factors to consider: Where your customers are Traffic, accessibility, parking and lighting Location of competitors Condition and safety of building Local incentive programs for business start-ups in specific targeted areas The history, community flavor and receptiveness to a new business at a prospective site

Reasons for Business Failure 5. Lack of Planning All successful major event were a result of careful, methodical, strategic planning, and hard work. It is critical for all businesses to have a business plan. It must be realistic and based on accurate, current information and educated projections for the future.

Reasons for Business Failure 6. Overexpansion Overexpansion often happens when business owners confuse success with how fast they can expand their business. A focus on slow and steady growth is optimum. Indications that an expansion may be warranted include the inability to fill customer needs in a timely basis, and employees having difficulty keeping up with production demands.

Reasons for Business Failure 7. No Website Simply put, if you have a business today, you need a website. Period. 70 percent of the U.S. population use the internet. E-commerce sales was 70 billion dollars in 2004 and continues to rise. If you don't have a website, you are most likely losing business to those that do.

Reasons for Business Failure The website should be professional looking and well-designed enabling users to easily find out about the business and how to avail themselves to its products and services.

Reasons for Business Failure When it comes to the success of any new business, you are ultimately the "secret" to your success. For many successful business owners, failure was never an option. Armed with drive, determination, and a positive mindset, these individuals view any setback as only an opportunity to learn and grow. Most self-made millionaires possess average intelligence. What sets them apart is their openness to new knowledge and their willingness to learn whatever it takes to succeed.

Unit 2 Essential Question 3 (MKT-EN-10) What are the concepts, systems, and strategies needed to implement and obtain support for an entrepreneurial entity?

Essential Question 3A (MKT-EN-10A) What are the elements in a formal written prospectus (i.e. executive summary, introduction, analysis of the business situation, planned operation of the proposed business/product/service, planned financing and request for financing?

The Business Plan

Business Plan A document that describes a new business. It is used to help obtain financing. It serves as a living guide to the business. It provides a start-up blueprint. It conveys the vision: main concept of the business; what the business is, what it will become, and how it should be run.

Parts of the Business Plan Executive Summary A description of the project. General statement of purpose and objectives. Only one page, single spaced.

Parts of the Business Plan Introduction A brief recounting of the key points contained in the business plan. First sentence(s) of the first paragraph is the business concept statement. Overview of the industry. Sources of information including interviews, research sources, and advisor involvement. Written last.

Parts of the Business Plan Analysis of the business situation Self-analysis Presentation of the qualifications of you and your partners as well as areas of expertise which are missing and how the problem will be solved. Personal business experience and training/education in the proposed field Personal business strengths and weaknesses Demonstrated willingness to take risks A brief plan for personal development in the proposed field

Parts of the Business Plan Trading Area Analysis Presentation of the research which analyzes your customers, competition, market, prospective location, geographic data, economic data, demographic data.

Parts of the Business Plan Trading area analysis General data Geographic Demographic Economic

Parts of the Business Plan Competitive data List and describe competitors Competitive advantage(s) of the proposed business Competitive disadvantage(s) of the proposed business

Parts of the Business Plan Market segment analysis Description of the target market Age Income level Population estimate Other specific demographic, psychographic or economic information Customer buying behavior related to the proposed business

Parts of the Business Plan Analysis of potential location(s) Availability of location Cost (rent or buy) Traffic patterns Proximity of competitors Any other relevant information concerning the location

Parts of the Business Plan Planned Operation of the Proposed Business/Product/Service Proposed Organization Presentation of the management philosophy, legal form of the company, key management personnel, and key employment policies.

Parts of the Business Plan Proposed Organization Legal form of organization and rationale Managerial organization – roles, relationships, job descriptions – organization chart Key management personnel (management, finance, marketing, legal, production, etc.) Management compensation and ownership Board of directors. Outside professional services. Employment policies.

Parts of the Business Plan Proposed Product/Service Presentation of the product or service being offered. Description, quality, breadth and width of product line Proprietary features, patent or copyright protection, manufacturing plans Potential suppliers Inventory policies Supplies

Parts of the Business Plan Proposed Marketing Strategies Presentation of the market niche that is being served, the pricing policy, the company image, the marketing tactics used to reach the customer, a media plan, and the marketing budget.

Parts of the Business Plan Proposed Marketing Strategies Proposed pricing policy (costs, markups, markdowns, relation to competition, etc.) Proposed promotional programs Personal promotional activities (Personal selling, Publicity) Non-personal promotional activities (Advertising, Sales Promotions) Promotional media Costs (Marketing budget) One-year promotional plan

Parts of the Business Plan Planned Financing Presentation of the forecasts for the future of the business as well as the assumptions made when calculating these figures.

Parts of the Business Plan Projected Income and Expenses Profit-and-loss forecast by month for the first year’s operation Cash-flow forecast for the first year Cash-flow forecast by month for the first year Projected balance sheet at the end of the first year Projected three-year plan A brief narrative description of the planned growth of the proposed business, including financial resources and needs

Parts of the Business Plan Proposed Plan to Meet Capital Needs Initial financial requirements Personal and internal sources of capital Earnings External sources of capital Short-term and long-term borrowing Long-term equity funds Repayment plans Repay borrowed funds Provide return on investment for equity funds

Parts of the Business Plan Conclusion Specific request for financing Summary of key points supporting the financial request Bibliography Appendix Additional supporting information not included in the body (questionnaires, letters, etc.)

Sources of Information Small Business Administration (www.sba.gov) Service Corps of Retired Executives (SCORE) (www.score.org) Small Business Development Centers (Debbie Graham – dgraham@georgiasbdc.org) Chamber of Commerce (Christine Daniel – Cdaniel@camdenchamber.com) Trade Associations

How to Make a Business Plan Gather Data Organize the data Set-up a notebook Write a draft

How to Make a Business Plan Packaging and Presenting the Business Plan Should appear attractive and professional. Should be put together like a book: Table of Contents. Sections labeled and tabbed. All supporting documentation available in appendices.

How to Make a Business Plan Packaging and Presenting the Business Plan Cover page should contain: The name of the company Address and phone number of the company The words Business Plan The names of the people in the group Attention getting