Entrepreneurial Essentials

Northeast Minnesota’s Small Business Development Center Presented by: Northeast Minnesota’s Small Business Development Center HELPING BUSINESSES GROW AND SUCCEED www.umdced.com 218-726-7298 A member of the Minnesota Small Business Development Center Network

What we will cover today: Am I an Entrepreneur? Feasibility Business Plan Business Financing Basic Legal Requirements for Start-Up

Questions to ask yourself… Are YOU… ? Self-starter Positive thinker Lifelong learner Well-disciplined Willing to put in long hours People-person Have family support Willing to make sacrifices Face challenges

Resources Small Business Administration (SBA) www.sba.gov Assessment tools Sample business plans Online workshops and seminars Library of resources

Myths Fact: There are no grants or easy money Myth: There are grants to help start your business Fact: There are no grants or easy money Myth: You can set your own hours Fact: Your hours depend upon the business and the work that needs to be done Myth: You are your own boss Fact: Your customers are your boss

More Reality Plan on long hours every day, every week Consider the financial investment risks Meeting normal family expenses Funding for the business Financial commitment Loss of investment Don’t underestimate the amount of time and investment needed in the beginning and growing stages of your business

Feasibility Start with your idea Identify your market(s) What is the business you want to start or buy Does fit with your lifestyle Do you have the necessary skills to manage this type of business Identify your market(s) What is the businesses market and where is it located

Feasibility Identify your competition Can you make a profit What products/services are competitive to yours Who and where is your competition your competition and do they compete for the same market share Can you make a profit Is the business financially feasible Will it provide enough profit to meet your personal needs and lifestyle

Your Skills Your Idea Your Market Your Finances

Experience as a manager/supervisor Knowledge of the industry Your Skills Experience as a manager/supervisor Knowledge of the industry Basic business knowledge Basic financial knowledge Willingness and ability to hire someone to fill gaps in knowledge

Does it offer something not currently available or being offered Your Idea Does it offer something not currently available or being offered Can it serve an existing market in which demand exceeds supply Can it be competitive based on quality, selection, price, or convenience

Who are your target customers? What do they ‘look’ like? Your Market Who are your target customers? What do they ‘look’ like? age, sex, education, nationality, income, etc. Where do they live and shop? What are their needs, wants, hobbies, interest? Will you offer a product or service they will use and benefit from?

What will it cost you (product vs. service)? cost units purchased Your Finances What are your monthly sales estimates? price units sold What will it cost you (product vs. service)? cost units purchased

What will it cost you (product vs. service)? cost units purchased Your Finances What are your monthly sales estimates? price units sold What will it cost you (product vs. service)? cost units purchased

Start with national trends Use demographic information Your Finances How do you make good revenue projections? Start with national trends Use demographic information Decide how much you need to spend on initial marketing. cost Where will you spend it?

What are your one-time start-up costs? Your Finances What are your one-time start-up costs? equipment building or renovation down payments legal fees Supplies Computers Software Website

What are the on-going monthly expenses? Your Finances What are the on-going monthly expenses? lease – building/equipment wages utilities/telephone Supplies Payroll Website (internet marketing)

Seasonal trends (cash flow) Monthly personal income needs Your Finances Financial literacy Credit score Lender possibilities Seasonal trends (cash flow) Monthly personal income needs Expansion plans Receivables/collections Written business plan

Where do we go from here? Business Plan Financing Legal Issues

The importance of your Business Plan Failing to Plan is Planning to Fail…… The importance of your Business Plan

Do I really need a business plan? A business plan is a powerful business document A well thought-out plan tells the story of the business Where is it now… Where is it going... How it will get there!

The business plan is vital because… Maps the future Provides Insight Provides A System Explains In Detail

Business Plan - Narrative Executive Summary Written last – Placed first Considered most important A lender will often read only the Executive Summary when making a preliminary decision to finance a business. This is a summary of the complete business plan from what product or service you will offer to the proposed financial structure. Identify any business risks and the steps you will take to eliminate them

Business Description Detailed outline of the business Business name Owners Business history Location Description of the legal structure Mission Statement Company objectives and the strategy that will enable the business to meet them Qualification of the business success within its industry

Amway Independent Business Owner Goals and Objectives Define short and long term goals of the business Use the SMART approach Specific Measurable Achievable Relevant Time bound “I will achieve one million in annual sales revenues within 3 years by selling household cleaning products and providing personal business opportunities to motivated entrepreneurs through the community.” Amway Independent Business Owner Company objectives and the strategy that will enable the business to meet them Qualification of the business success within its industry

Industry Analysis What is scope of the businesses industry? What are its current trends? Is the industry growing? Stable? Declining? How does your business fit into the existing industry? It is important to identify the expert resources you used to draw your conclusionsss

Products and Services What is your product or service? Describe each In detail. What is the benefit to your customer? How will the product or service be produced or delivered to the end user?

Marketing Analysis and Strategy Who or what is the market you will serve? How will you reach them? Who or what is your competition? What sets you apart from your competition? What are your promotional strategies? What distribution channels will you use? What is your price point? What technology will you use? Will you have a website? Known as a plan within a plan What type of communication methods will you use? How did you arrive at your price point?

Operational Plan How will your business operate? What facilities will the business require? Where will the business be located? Will the location meet the immediate and future needs of the business? What is your exit strategy – retirement, merger, buyout, go public, low performance, etc.? This section should provide an overview of the strategy you will use to implement the business plan.

Management and Organization What are the personnel requirements of the business? Who are the key people that will manage the business? What are their responsibilities? Describe their experience, document their education and background. Why are they are best-suited for the position within the business? Organizational charts are very helpful If you do not have specific people in mind, describe the attributes needed to fill the position

Financials Your opportunity to persuade the investor/reader that the business makes “cents” (aka money) Must reflect what is included in the plan Must be conservative and realistic The process of thinking through the financial plan will improve your insight into the inner workings of your company Together, these spreadsheets constitute a reasonable estimate of your company’s financial future

Financial Plan Equipment and Supply List Sources and Uses of Funds Details purchases of substantial property such as land, facilities, vehicles and equipment Sources and Uses of Funds Verify where the business funds will come from and where they will be spent Loan Application Application specific to the lender you are approaching

Financial Plan Breakeven Calculation/Analysis Cash Flow Projections Estimates how much you need to make in sales each month before you begin to turn a profit Cash Flow Projections Shows how money will flow in and out of your business Indicates whether you will earn enough money to pay your bills

Financial Plan Balance Sheet Profit and Loss (P&L) Projections The value of the company States the business’s assets, liabilities & net worth Profit and Loss (P&L) Projections Indicates when and if your business will be profitable Three years of projections – first 12 months must be more detailed

Financial Plan Assumptions The financial part of the business plan is based upon these assumptions Any part of the financials that are not obvious to the reader should be explained in this section

Appendix Owner’s financial statements Brochures and advertising materials Industry studies Magazine or other articles relating to your business Letters of support from future customers Will vary from business to business Blueprints, building plans, maps and photos of location Copies of any patents, trademarks or copyrights Future orders in hand What are other materials the client may need to support the assumptions in the plan?

Understanding Business Financing

Where do I get the money to start a business? Sources of Funding Where do I get the money to start a business? Guarantee to pay back an obligation at a certain rate (or variable rate), usually over a time period or at some point in time. Debt No guarantee of repayment, often management control, share in profits, and expected residual value when sold or closed. Equity

Sources of Debt Capital Bank Family & Friends Debt Suppliers or Trade Credit Non-bank Lenders Private Investors

Sources of Equity Capital Savings Sale of Assets Equity Personal Credit Resources Family and Friends Investors or Partners

How do I get money from a lender? Capacity Conditions 5 C’s of Credit Collateral Character Commitment

What does a lender want from me? Business Plan Legal Documents Funding Request Personal Financials Proposed Collateral Financial Projections

Selecting a Legal Structure Main Considerations Liability Taxes Level of Liability Income Tax Liability Insurance Self Employment Tax

Basic Legal Requirements

Four Levels of Government Federal Government State of Minnesota County Government City Government

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