GET FUNDED!!! How to Write a Bankable Business Plan

How to Write a Bankable Business Plan
Written and created by
Monikah J. Ogando
В© 2006-2007 Ogando Associates, Inc.
All rights reserved for the entire book. Reproduction or translations of
any part of this work by any means without express written permission
of the publisher is unlawful. You do not have resell rights to this book.
В© 2006 Ogando Associates, Inc.
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В© 2006 Ogando Associates, Inc.
About The Coach
Monikah J. Ogando, “The Entrepreneur’s Explosion
Coach,” helps entrepreneurs and small business
owners market online and offline to attract new
clients, build customer relationships, and increase
She offers tutorials, reports, teleclasses, articles,
workshops, and personal consulting that help people
just like you create easy systems that GET RESULTS for
their business. You can learn more about these terrific
resources at
For FREE tips and to be notified of upcoming teleclasses and workshops
with The Entrepreneur’s Explosion Coach, sign up for Monikah’s weekly ezine Start It Up at
Monikah’s articles on business strategy, and marketing, and financing are
published regularly in hundreds of business sites on the Web.
Having grown up in Boston, Monikah now enjoys the ocean and sunshine
in South Florida, managed to escape without the Bostonian accent and
doesn’t miss the snow at all!
В© 2006 Ogando Associates, Inc.
Table of Contents
Terms of Use
About the Coach
Chapter 1:
Chapter 2:
Chapter 3:
Chapter 4:
Chapter 5:
Chapter 6:
Chapter 7:
Chapter 8:
Chapter 9:
Chapter 10:
Chapter 11:
Chapter 12:
Chapter 13:
Chapter 14:
Chapter 15:
Chapter 16:
Chapter 17:
Chapter 18:
Chapter 19:
Chapter 20:
Chapter 21:
Chapter 22:
Creating Your Business Plan
Business Planning Basics
General Company Description
Present Situation
Your Vision
Current Product/Service
Research and Development
Production and Delivery
Market Analysis
Competitive Analysis
Marketing and Sales Strategies
Your Management Team
Organizational Structure and Staffing Plan
Product/Service Delivery
Customer Care
SWOT Strategy
Financial Forecasting Basics
Assumptions and Comments
Starting Balance Sheet
Profit and Loss Statement
Cash Flow Statement
Balance Sheet Projections
В© 2006 Ogando Associates, Inc.
Chapter 23:
Chapter 24:
Chapter 25:
Chapter 26:
Chapter 27:
Chapter 28:
Chapter 29:
Chapter 30:
Chapter 31:
Chapter 32:
Chapter 33:
Chapter 34:
Chapter 35:
Chapter 36:
A Quick and Easy Method to Double Check Your Financials
Key Ratios and Analysis
Polishing Up
Practical Tips
Sample Business Plan 1
Sample Business Plan 2
Sample Business Plan 3
Marketing Plan for Your First Year
SPECIAL REPORT: Financing Options for Your Business
Financial Projection Templates
S.Y.S.T.E.M.S. Forms for Running Your Business
Business Plan Fill in the Blank Template
Additional Resources
В© 2006 Ogando Associates, Inc.
It is hard to take a business seriously when there is little or nothing in writing
about its structure, future direction, or position in the marketplace. That is
why a business plan may be the most important document you will ever
write for your business.
Simply stated, a business plan is a written document detailing the
operational and financial aspects of your company. Like a road map, it
helps you determine where you are, where you want to be, and how you
are going to get there. If it is well written, your business plan will keep you
in touch with your goals, potential risks and probable rewards. It could
very well be the crucial factor in convincing investors or company
management to give you the financing you will need to realize your
Why Write a Business Plan
Gives you a path to follow.
Sets the stage to make the future what you want it to be.
Makes it easy for your banker to be in on the action. By reading or
hearing the details of your plan, your banker will have real insight
into your situation to determine if or how much to lend to you.
Likewise, potential investors can review your plan to gain a better
understanding of your business and to determine if their investment
is worth the risk.
Can be a communication tool when you need to familiarize sales
personnel, suppliers, and others with your operations and goals.
Can help you develop as a manager.
Can give you practice in thinking about competitive conditions,
promotional opportunities, and situations that are advantageous to
your business. Such practice over a period of time can increase
your ability to make wise decisions.
Saves you money and time by focusing your activities, giving you
more control over your finances, marketing, and business
Whether you are seeking a loan, looking for an investor, soliciting
management or simply using the business plan to manage your business
growth, the ideas, exercises and discussions contained in this course will
provide the structure to write a business plan designed to steer your
company into long lasting success.
В© 2006 Ogando Associates, Inc.
This course is deliberately designed as overkill for most businesses. That is
good because you have plenty to work with. It compels you to think
through many different possibilities for building your business beyond your
imagination. There is nothing “cutesy” or “full-of-fluff” about this course.
There is, however, a series of practical exercises to assist you to quickly
produce a plan of action – from a brief 10-15 page proposal to a
comprehensive 40-50 page operating plan.
How to Use This Course
Decide right now when you would like to have your business
plan completed. I mean RIGHT NOW. Go get your desk calendar
or Outlook Calendar and select a date by which you want to
finish. I recommend 30 days. That’s enough time to do your
research and writing, but not so much time that you lose
urgency for this project.
Once you have decided on a date, feel free to email me to let
me know ([email protected]). Count on me
as your accountability partner to get your business plan finished
by the date you promised yourself. I will send you a reminder
every week to help you stay on track.
Resist the temptation to go straight for the plan writing sections.
Be sure to read Part I on laying the foundation for your business.
A brief reality check on writing business plans, it is years of
wisdom crammed into a few pages and it makes a lot of sense.
You will become a smarter, more effective business person
because you will successfully complete this important project,
and enjoy more time for other priorities.
Create a folder in your computer specifically for all your
research, notes, ideas, and other material you may find useful for
completing your business plan. Feel free to include a subfolder
for this course, so you can keep even your reference material
Make sure your management team is in alignment with the work
you’ve completed on your business plan. In fact, let the business
plan design be a team effort. If you are a one-person shop, then
find an accountability partner to keep you focused,
encouraged, that could be a great sounding board for you as
you complete your plan writing project. This could be another
В© 2006 Ogando Associates, Inc.
entrepreneur who is also writing a business plan of their own, or a
trusted advisor.
Then, when you have your business plan in as final a format as
you can get it, send it out for peer review to SCORE (Service
Corps of Retired Executives), your local SBA office, or a Small
Business Development Center (usually associated with a local
college or university). These folks have experience with business
plans and can provide the expertise necessary to fine tune it for
funding success.
You can also outsource your project to a consulting firm such as
ours. We have written over 23 business plans with an 80% funding
success rate. Contact me at [email protected]
for further details.
Ready to get started? Let’s go!
В© 2006 Ogando Associates, Inc.
Chapter 1: Creating Your Business Plan
Once you have developed this section, you will set yourself up to ask the
appropriate questions during your research for marketing, product
development, and the management needs your company has to reach
the goals and objectives you set for yourself.
Getting Started
The hardest part of creating a business plan is gathering the energy to get
started. At first it seems like a daunting task, but once you get going, you’ll
find that writing the plan is not as tough as it seems. Start with some of the
easy steps first. If you get hung up on a particular part of the plan, skip it
for now. Come back to fill it in later. Don’t worry about making a perfect
first draft. Just get some thoughts down on paper to get the process
Keep Your Audience in Mind
Throughout the writing of your business plan, you want to keep in mind
your intended audience and why you are writing the plan. For example, if
you are trying to attract equity investors, you will want to emphasize the
significant profit potential, while also disclosing the risks and uncertainties
in your business. Investors often look for someone to blame (i.e., “s.u.e.”) if
their investment disappears.
If you are trying to get debt financing, you want to emphasize not the
profit potential, but the certainty that the debt can be paid back. In fact,
talk of big profits may scare away debt financiers because high profit
potential usually means high risks.
If you are writing the plan to help you run the business better, you may skip
or write very simple sections with general background information on the
company and the industry, and instead focus more in depth on the areas
of your plan that are currently most important to you (for example,
inserting a section on staffing, operational plan, etc.).
What’s Your Big Picture?
Basically, the first half of the business plan is geared toward developing
and supporting a solid business strategy. You look at the market, the
industry, customers, and competitors. You look at customer needs and the
benefits of current products and services. You evaluate the strengths and
weaknesses of each competing firm and look for opportunities in the
В© 2006 Ogando Associates, Inc.
marketplace. All of these steps are largely aimed at helping you create a
strategy for your business.
The second half of the business plan is a map to execute your selected
business strategy. Your products and services, your marketing and
operations should all closely tie in with your strategy. So while it may be
easy to select a smart sounding strategy for your plan, I recommend you
give a lot of thought to the strategy that will set the course for your
In today’s crowded marketplace, you are probably going to have serious
competition no matter how creative your business concept is. That is why
you need to think competitively throughout your business plan.
Where will you do things similarly to your competitors?
Where will you do things differently?
Where do you have real strengths?
Where do you have real weaknesses?
Can you find a particular niche to focus on?
Can you find a unique strategy?
Can you position your products and services differently?
Can you use different sales or marketing vehicles?
Even as You Take Off, Keep Grounded
A lot of business plans sound good on paper, but don’t work in the real
world marketplace. It is difficult to attract people to a new product or
service. Just because it is better does not mean people will start using it!
People and companies have established buying patterns and are
probably currently doing business with someone else. You’ve got to steal
them away from someone else’s business! Even if they are not spending
money on a similar offering, you have to lure their spending dollars away
from wherever it’s sitting, even if it’s sitting in the bank collecting dust!
It is also quite possible that when you enter the marketplace, your
competitors may react with their own new products or services or by
cutting their prices. And while it is easy to overestimate sales projections,
it’s just as easy to underestimate costs, especially for a start-up. So
forecast conservatively and have an extra cushion of cash tucked in
В© 2006 Ogando Associates, Inc.
Chapter 2: Business Planning Basics
Getting the Bank to Say Yes
First of all, getting a loan for a new business is tough. No doubt about it.
On top of that, the criteria for business loans varies much more widely
than for consumer loans and often varies quite a bit from one banker to
the next, even at the same bank!
So here are some things to keep in mind to give you an idea of your
chances of getting a loan:
Two or more years of profitable operation greatly increases your
loan chances.
The larger the owners’ investment in the business, the better your
chances of getting a loan.
Loans to small corporations will often have to be personally
guaranteed by a shareholder.
Fixed assets such as machinery or buildings can almost always
be financed.
Current assets such as inventory or goods in process increase
your loan chances.
It is difficult to get loans to offset operating losses.
It is usually possible to get a loan to modestly expand a
profitable business.
The Three C’s
Traditionally, banks look at what are called the three c’s – character,
credit, and collateral. Character means more than not having a criminal
record. It means that the bankers feel confident you are not going to
suddenly disappear to your secret hideaway in Tahiti if the business runs
into trouble. Bankers like to see ties to the community such as long
residence, family ties, and homeownership.
A clean credit history is also important. A couple of late credit card
payments should not be a factor, but missing mortgage payments for
three months in a row will require a good explanation.
Bankers like good credit and clean character but they LOVE solid
collateral. Equipment, buildings, and trucks – that’s the kind of collateral
that banks really like because they offer solid value and are likely to be
В© 2006 Ogando Associates, Inc.
worth a lot even if the business goes bust. Inventory, raw materials and
goods are second choices for collateral. They lose their value more
quickly than fixed assets but are still worth something.
What Happens if the Bank Says No?
Banks are much more lenient with consumer loans than business loans. So
you might want to consider borrowing the money as a consumer, and
then turn around and personally invest the funds in your business. Just
make sure that you never lie about how you are going to use the
proceeds on a loan application. For example, you could apply for a
home equity loan to tap any available equity on your house. Then take
the funds and invest them in your business. The bank feels safer because
statistics show that home equity loans are much more likely to be repaid
than loans for brand new businesses. No equity on your home? Get a car
No matter how small or large your business, you have to aggressively plan
the work, and then work the plan! It’s easy to make excuses for
expenditures when you look at them in isolation, but when you look at
them in the context of your whole budget, they often look a lot less
Too many people equate annual planning with budgeting. Worse, when
they budget, they simply extrapolate last year’s numbers into next year’s
plan, perhaps increasing by 5 percent here or 6 percent there.
Big mistake! The annual planning process is your best chance to really
manage your business – and to get key people to buy in to the total plan
by actively participating.
Even if you are running a one person business, you want to get a few
words into your annual plans, not just numbers. You don’t need a big
dissertation, that’s not the point. What matters is the few big things that
the business is going to strive to do better or different next year. The
annual planning process should be focused around those few, important
Review the company’s business strategy. Does changing market
conditions or heightened competition mean that it’s ready for an
В© 2006 Ogando Associates, Inc.
Establish just a few major goals for the next year, usually quantitative such
as increase sales by 14% or increase profit margins by 15%. You might also
consider qualitative goals such as improve the quality of a product or
customer service.
Sales Projections
Once you have reviewed your company’s strategy, it’s time to start
cranking out budget numbers.
I always begin with sales because they drive any of the other numbers.
Unfortunately, sales numbers, particularly of new products, are difficult to
project. If you have other people on your team that can work up new
projections with you, then go for it. Otherwise, consider multiple scenarios
based on “conservative”, “mid-range”, and “aggressive” sales
After you have the sales numbers, then work up the rest of your budget
numbers for a big-picture view of where your company is headed.
Benchmarking Your Budget
One of the best ways to establish cost goals for annual planning is to
benchmark your costs with other firms or companies in your industry. Don’t
get too wrapped up in the detail, focus on the total picture for major
categories. For example, if your advertising costs are 33% and the industry
average is 16%, it is time for some cost-cutting.
Often industry associations provide standard industry costs, and
occasionally they might be mentioned in articles in trade magazines.
Another way to procure benchmarking numbers is to hire a consultant to
put together a study of six-ten firms similar to yours. Being a third party, the
consultant will keep each firm’s individual numbers confidential, by
providing only average and median cost information to each company,
as an incentive for participating. What has worked best in the past for me
is when another publisher foots the bill for the consultant, but shares the
results with us in exchange for us to agree to share our numbers.
Under Pricing Your Profits
Many small businesses have thinner profit margins than larger firms
because they tend to under price their products or services. So why not
just raise prices? I know the feeling – you’re scared that the competition
В© 2006 Ogando Associates, Inc.
might take your customers away for cheaper prices. But you might be
surprised; customers tend to see higher prices as higher value.
Still unsure about raising prices? Remember, you can always cut them
back. A local cellular phone company has rolled the price of some of its
calling plans back and forth between $39 and $89 five times over the last
two years.
The Easiest Way to Profits
Let’s say your overall profit margin is 5 percent, not uncommon for many
small firms. But if you can cut your costs just by 5 percent, your profit will
almost double. On the other hand, to get the same increase by boosting
sales, you would have to increase sales by 100 percent!
Chances are cutting costs just a little bit would be a lot easier.
To attack your costs, take a look at every single expense item starting with
the biggest items. Get competitive bids for every product and service that
you buy. Remember, despite what they may teach you at business
school, there is no such thing as fixed costs! Often lease rates, mortgage
rates and utility rates can be negotiated downward, especially if the
market has shifted.
Review Your Product Mix
A seasoned banker once told me about a firm with several highly
profitable business divisions and one marginally profitable division. The
company sold the marginally profitable division and suddenly the
performance of the remaining divisions dramatically improved!
Even a marginal service or product line that isn’t losing money is draining
resources: time and focus. Close it and move on!
Is Your Marketing Working?
You have probably heard the maxim, “20 percent of my advertising brings
in 80 percent of my business, but I don’t know which 20 percent!” Well, I
bet that in your business there is at least one marketing expense that you
have strong suspicion isn’t carrying its weight. Cut it and see what
One year I tried cutting three-quarters of the marketing budget I spent in
sponsoring promotional events. What happened? Sales continued to
В© 2006 Ogando Associates, Inc.
creep upward and the profit margin of my entire company jumped
markedly higher. Nowadays, I only sponsor events when I want to play
their golf or eat their food, not because I have the expectation to drum
up business!
It is often by eliminating the marketing expenses previously considered
most sacred that you gain the most.
В© 2006 Ogando Associates, Inc.
Chapter 3: General Company Description
The Context of Your Business
Your General Company Description statement will provide a "big picture"
perspective of the industry to which your business belongs and prepare
the reader to better understand how your business fits into the total
picture. It should include:
• Industry background -- How complex is your industry? What's its
history? What are the different industry segments? What are some
recent industry trends?
Growth potential -- In view of the trends described above, provide
a statement (in dollars) of the future growth potential of the industry
in which you are competing.
New products and developments -- What new developments have
arisen in the recent past that will make your product or service more
attractive to the consumer?
Industry outlook and forecasts -- What is the future of the industry
according to industry leaders, experts, economists, government
forecasters, and other authoritative sources?
A Profile of Your Business
It is important to remember that throughout your business plan, you must
inform the reader of all major factors, positive and negative, that may
have an effect on the outcome of your organization. This section should
provide the reader with the concept of how your business works and why
it has a unique chance to shine in the marketplace. Make sure to ask
yourself the following:
What is the precise nature of your business?
How have you developed your products and services? Give a brief
What are the economic trends? Give evidence that spending
trends are favorable toward the industry.
В© 2006 Ogando Associates, Inc.
What is the organizational detail of your business? How is your
business organized in terms of management team, production,
fulfillment, etc.?
What are the factors that influence your business? Be sure to
include local economic factors, seasonality, dependence on
special vendors or suppliers, customer spending patterns, etc.
What are your plans for research and development? Include the
nature of your test-marketing procedures, the results achieved, the
product development that ensues, and the legal control of your
process and/or product.
Do you have contracts and agreements? Identify here and include
copies in the Appendix; for example, resale agreements, service
contracts, leases.
What are your operational procedures? For ventures involving
manufacturing a product, you want to keep in mind the following:
physical space requirements
machinery and equipment
raw materials
inventory and supplies
personnel requirements
capital estimates
For ventures involving wholesale and/or retail, you want to keep in
mind the following:
physical space requirements
purchasing procedures and plans
inventory system
staff and equipment
Profile of Your Specific Market
Accurately defining your target market requires much time and effort. In
structuring your market profile, make sure you have done your homework
and research with great care and due diligence. Don’t assume that your
target exists or that it can be created in a relatively short period of time.
В© 2006 Ogando Associates, Inc.
When developing a profile of your target market, it is important to
remember that your research will determine the strength of your analysis.
The time you spend on this section should be spent wisely. Your local
library, your internet connection and your telephone will be your strongest
allies. Use them to their fullest. Take advantage of the information and
statistics already available in books, directories, and case studies.
Thorough research will impress potential investors more than you can
So how do you define your specific market?
State precisely who the consumers of your products or services are.
Note the geographical scope of your market, including size and
Consider the growth potential of your target market.
Evaluate your ability to satisfy the market’s demands.
Know how your business plan will enable you to attract new
customers while keeping the customers you have.
Anticipated Challenges and Planned Responses
This section of the business plan sets forth your contingency strategies for
dealing with anticipated barriers and challenges.
Competition: First, make sure you list your major competitors by name.
And then you want to establish, for each of your key competitors:
1. The similarities and differences when compared with your business
2. Their strengths and weaknesses
3. Your “competitive edge”, your Unique Selling Point, enabling you to
prevail and stay on course
4. Your insight into how the competition will try to block your market
entry, and how you will respond. In other words, what are your Plan
B, C, and D?
Your Vulnerability Factor You want to consider here issues and challenges
that might leave you vulnerable to changes in your industry or specific
business, such as:
В© 2006 Ogando Associates, Inc.
1. Product obsolescence: How quickly will the products you offer
become obsolete? How will you make sure your product line stays
current and viable?
2. Cheaper products on the horizon
3. Cyclical trends in the marketplace.
4. Possible economic downturns in the future
5. Turnover of key employees
6. Seasonality of your products and services
7. Compensation benefits package to employees
Legal Factors:
1. License requirements
2. Restrictions and regulations you must operate under given the
nature of your business
3. Future changes in legal or government policies that may affect your
business and how you intend to respond
4. Any governmental agencies with whom you must register
5. Patents, copyrights, trademarks and other protection procedures: If
you are a start up business or even an established business with new
products, ideas and technology that will improve someone's
standard of living, and you want to place your products on the
marketplace, they should be patented or trademarked, and all
your written material copyrighted.
6. Steps to assure business secrets are preserved
Key Management Contingency
1. The depth of your management team
2. Management procedures are in place to ensure continuity of
3. Plans for responding to the loss of important personnel
1. Anticipated staffing needs overtime, including head count
requirements, training, benefits, expansion, and how these needs
will be met
2. Policies on diversity issues
3. Policies on temporary versus permanent staff
4. Policies on harassment, racism or prejudices of any kind
В© 2006 Ogando Associates, Inc.
The information covered in this section will show you have thought about
problem issues and carefully crafted contingency plans. It will provide
depth AND credibility to your business plan. So show that you have really
done your homework by staying practical, reasonable, and aware.
В© 2006 Ogando Associates, Inc.
Chapter 4: Present Situation
In this section of your business plan, define clearly how you have come to
your current situation. Identify how your idea was conceived up to your
present position. Here are some questions to answer in this section of your
business plan:
Explain the current Market Environment. Is it undergoing changes
in technology, demographics, competition, customers, or financial
What is the present stage of your industry: infancy, intermediate,
or mature stage? Is it reinventing itself, resisting the status quo?
Are there factors that would contribute to the growth or decline of
your product or service? Indicate both weak and strong points
here. It will show that you have done your homework.
Where are your products assembled or manufactured?
What is your product's average life cycle?
With regards to pricing and profitability, are current prices from
suppliers increasing, decreasing, or constant?
Indicate how you plan to make whatever adjustments are
necessary to manage those possible changes in prices.
How are your current or potential customers using your products
and services? If your business is a start-up enterprise, how will they
use your products/services?
Where will your main distribution center be? Do you have any
plans to open other offices and distribution centers? If so, indicate
when and where.
10. Give some additional information about your management team.
Are they all in place? Will you need to hire additional managers or
consult with outside consultants?
В© 2006 Ogando Associates, Inc.
11. Include some information about your current financial resources.
For example, you can briefly mention your current cash available
as of a certain date, current ratio (assets/liabilities), or current
quick ratio (cash + accounts receivables/current liabilities).
В© 2006 Ogando Associates, Inc.
Chapter 5: Your Vision
In this section of your business plan, you will develop short and long term
goals. Here is where you need to formulate a vision of where you want to
be in a few years. Make sure that you balance enthusiasm with realism. It
is a good idea to use checks and balances when you visualize your
company's progress. In order to achieve your goals, set a few simple
objectives for each year, first through fifth.
Try to capture, in relatively few words, the essence of what you envision as
the future, major distinctive characteristics of your company. You want to
particularly emphasize how your company will be different from other
companies in your industry, and how it will be different than the start-up or
existing company it is today.
With these ideas in mind, begin writing down what you want to achieve.
Here are some questions to spur your thinking:
Are your long term objectives to stay a one-person shop, or to build
a large company with several hundred employees, or a middle
Do you want the company to go public and sell its stock?
Do you want to pass the leadership down to your family?
What will you accomplish with the additional capital: open new
office, purchase equipment, hire key personnel, expand your
marketing and advertising?
Will you develop a stronger network of supplier and/or buyers as
time goes on? How?
Will you become a manufacturer at any time? Of what products?
What are your intermediate goals (2-4 years)?
What profits do you expect to generate in years 1 through 5?
In order for you to achieve your immediate goals, do you have any
debts that must be restructured or paid down? Explain why in detail.
В© 2006 Ogando Associates, Inc.
What will be your expected net profits after taxes from sales each
year? Take these net profits for a period of five years and show the
total for that period of time.
Next, indicate the Total Sales Revenue for the same period of time.
Finally, write down five to seven objectives, milestones or goals that you
plan to achieve with your business. This section is a nice feature, but is
often not included in business plans and you should not feel compelled to
include it either. List a few of the key events or points in time that will be
important markers of progress toward the successful achievement of the
goals of the business plan.
В© 2006 Ogando Associates, Inc.
Chapter 6: Current Products/Services
In this section, you will describe your company's products and/or services
in detail. Determining your future products, projected development, and
how you will produce and deliver to your customers are key aspects of
your product strategy.
The current product description in your business plan should highlight the
unique, distinct, or improved features and benefits of your product. Many
companies begin with a unique idea for a product or service that grows in
scope over time. These product insights, and subsequent methods of
exploiting them, often provide a compelling story.
This section is of special interest to bankers and investors because they
want to know what sets YOUR product or service apart from the
competition, how well you produce your product or service, and what
new trails your company may be blazing.
Proprietary Technology Proprietary technology is a new or unique
product, application or intellectual property in the market which may be
protected under patents, copyrights, trademarks, etc. Your company
gains this legal protection when registering with the U.S. Department of
Commerce's Patent or Trademark Offices. The registration of your product
provides you with legal protection and recourse in a court of law if a
competitor tries to copy your idea.
Return on Investment Return on Investment (ROI), when related to your
products and services, should be viewed not only from the perspective of
your customer, but also from the perspective of your company.
Most customers purchasing your product want a return on their investment
in terms of cost savings, improved efficiency, or improved convenience.
To ensure customer satisfaction, it is important to identify HOW your
product delivers value for the money.
One way some companies look at the situation is that their own revenues
and profits should in some way be related to the benefits and savings that
are generated for their customers by their product or service. This is quite
subjective and difficult to track accurately.
A more straightforward approach to ROI is to take the net profit (after
taxes) generated by the products and services you sell and divide it by
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the total amount invested in development and marketing. In short, ROI =
Profit/Investment. It is generally presented as a percentage of change
over time.
Useful Features/Benefits Customer satisfaction is increased when the
customer understands the features and benefits of your product or
service. Make sure you are addressing the needs and wants of your target
customer, and distinguish your offer from the competition.
It is important to keep this in mind as you design and build your product
and service line. Just because your technology or development staff can
create it does not mean that customers will want it. If it will not sell, it will
not generate a return on investment. Without the promise of a return, a
product will not get funded, and your business will not get off the ground.
Your product and service should be designed with the customer's needs in
Product Life Cycle The product life cycle can be broken into four stages:
introduction, growth, maturity and decline. Each stage of the product
cycle poses both opportunity and risk:
Introduction: Here, a product or service is first introduced to the customer.
This can be either a whole new industry or a new product within an
existing industry. You will be trying to gain recognition for a new product or
service. The risk you face is that no one will want your product or service
and that your business will fail.
Growth: In the growth stage, your sales are expanding and you are trying
to establish brand loyalty. This is the most risky stage in the product cycle.
You will gain greater customer acceptance, but you will also encounter
new competition from other businesses who may want to jump on a good
Maturity: If you start a business in an existing industry, you will be entering
the market in the growth, maturity or declining stage of the product cycle.
In the maturity stage, there are usually only a few strong companies that
dominate the market and entry in to the market is often difficult because
customers have already developed brand loyalty. To be successful in this
cycle, a business would require some type of unique twist or difference in
their product or service to gain market share.
Decline: The final stage of the product life cycle is characterized by
decreasing sales and companies exiting the market. Typically a company
in this stage is liquidating inventory or other assets in an attempt to raise
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additional cash. Eventually the company will either go out of business or
the product will be withdrawn from the market. We see car manufacturers
stop producing certain models, or software companies come out with
newer versions of their software applications.
Shortening Life Cycles In recent years the time taken by many products to
go through their entire life cycle, from introduction to maturity and
decline, has decreased considerably. While the typical life cycle for a
kitchen appliance used to be five or more years, it may now be three
years or less. This is true in a growing number of industries. For example, in
the electronics and software industries, product life cycles that may have
been three years in the 80's have now decreased to 18-24 months.
Rapidly developing technology, improving processes and more informed
consumers all shorten product life cycles.
The companies that can identify market needs precisely and act rapidly
to fill these needs with a high-caliber product will be the ones that survive
and prosper. A company fully committed to meeting customer needs and
maintaining its own prosperity should have a product or service portfolio
that includes items in their various life cycle stages. In this way, it will
always have new items ready for introduction as some of its other items
are entering their declining stage.
Your business plan needs to reflect your company's awareness of these
issues and its preparedness to act on them.
Positioning of Products and Services
In many business plans, the position of products or services will be
adequately covered in the strategy or sales/marketing plan sections and
you won’t need to address positioning as a separate issue. But if
positioning was not already covered, or if you want to discuss it in more
depth, here is the place to do it.
Consider how these attributes/features apply to the positioning of your
Outstanding Quality
Low Price
Best Engineered
Most Technically
Customized Solutions
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High Level of Service
Best Personalized
Serving a Niche Market
Brand Name Positioning
Market Leader
Most Innovative
Most Professional
Positioned for Certain
Customer Type
Positioned for Certain
Positioned by Affiliation
Multiple Positioning
Competitive Evaluation of Your Products and Services
If you are planning a new business, I would skip this section. It is hard to
evaluate products or services that don’t yet exist. But if you do include this
section, give your first focus to the most important competitive
differences. Then if you want to get into more detail, work your way
through the less important competitive differences.
Future Products and Services
Here, discuss not just potential new offerings, but also changes or
upgrades that you might make to your current products and services. Go
into detail only if your plans for future offerings are relatively firm.
В© 2006 Ogando Associates, Inc.
Chapter 7: Research & Development
All companies need ongoing product and service development. Your
target market, competitors and current technologies are always
changing. To maintain a competitive edge, you must keep on top of new
developments that will affect your business. Some of the questions to
consider are:
Do you have a plan for a new product, service or a new
Have you established milestones to track your development?
Have you listed your accomplishments (examples: prototype,
development, customer tests, feedback, etc.)?
Have you determined all the true costs of your development efforts
and are these costs for research, testing and development, etc. in
line with your budget? What are your competitors spending on R &
Whether you are a growing or a start-up organization, small and large
companies need to allocate resources to R & D. This may range from
staffing a complete department to research customer needs, as well as
develop new products, to simply keeping abreast of industry changes
through publications and conferences.
The market is becoming increasingly sophisticated and competition is
growing in intensity. This means customers are demanding more and your
company needs to deliver a better product to remain a significant player
in your market. Your current and future R & D plans should show how your
company will use test marketing at all key phases of the development
process to ensure a competitive product.
Product Selection Criteria
As your company grows, selecting your new products or services
becomes a bigger gamble. When you had an idea, you put it together,
and then tested it to see if it sold. With the marketplace becoming more
demanding, competition becoming fiercer, and development and
marketing costs soaring, present and future product cycle times generally
require more thorough evaluation before selecting new items to develop.
В© 2006 Ogando Associates, Inc.
More ideas and concepts are being created now than ever before. If
your company has put together its vision, mission, goals and objectives (as
discussed in the previous lesson), you will have a big head start on the
product selection process. With these planning tools in place, certain
concepts will fit more easily than others, and your company focus will be
easier to maintain
Writing a Product Selection Criteria for your company may prove to be
one of your wisest investments of time and effort for your management
group. First of all, it can pay off in wisely selected, profit-rich products or
services for development. It can also save your company both financial
losses and considerable grief by facilitating the wise discarding of
ineffective product concepts that may burden your company.
When putting together your company's Product Selection Criteria, the
issues for consideration may include:
• Is there an existing perceived value for accomplishing the task?
What would it cost elsewhere or by other means to accomplish the
same task?
What's the financial benefit to the company?
Do you have relatively low investment requirements to ensure
positive ROI?
Does the product line fit with the present strategy?
How feasible is it to develop and produce?
What is the time required to see the intended results?
Is the development and production of relatively low risk?
Your finished Product Selection Criteria may be very short and to the
point. Or it may cover a wide range of product questions as they relate to
the various departments of your company. By including Product Selection
Criteria in your business plan, you show the world that you recognize what
your company can produce and that you understand that product focus
and execution will carry your company to the profit levels that are
В© 2006 Ogando Associates, Inc.
After you have presented your current products and how your company
decides on its new products, it is time to give a preview of your company
hits. Your product intentions and projections should be described in the
same detail as your current product or service offerings. After all, the
target reader of your business plan is usually more interested in what you
foresee than what you have done, which is great news for start-up
businesses. This is where the target reader can assist your company's
efforts in some way (ideas, investment, management assistance,
materials, etc.).
Not only do you want to lay out your product plans in this section, but you
also want to show how you will achieve them. Investors are exposed to
dozens or hundreds of ideas each year. Most often they are unimpressed
until they see a good idea with an excellent plan of execution. In your
business plan, show the reader both your planned product concepts, and
how the products will be completed and delivered.
В© 2006 Ogando Associates, Inc.
Chapter 7: Production and Delivery
This section discusses any proposed site location, costs of your product,
facilities and logistics. The emphasis must be on the productive use of
capital, labor, and material resources, manufacturing processes, vendor
relations, experience and distribution requirements. Statements are
needed that indicate initial volume and expansion requirements, as well
as product/process complexity, uniqueness and costs.
At this stage you need to explain how you are going to make your future
product or deliver your future services. Determining your equipment,
material and labor requirements, as well as their price and availability can
be critical factors in the production process. Other considerations include
alternate sources/materials, inventory requirements, and care and
handling of hazardous materials, if any.
You need to determine the full capacity of your present facility and how
your new product plans will translate into manufacturing schedules. How
will the new product plans affect the way production is done now? Let
the reader of your business plan know that you've done your homework
and that your production capabilities will not be overrun by the proposed
products selected for future development and production.
To determine the cost of your product, it is important to quantify your
business costs in terms of production rates, capacity constraints, or
required quality assurance and safety programs. Include quantity
discounts, if applicable.
In evaluating the cost of the same product from other companies, you
should determine why and how your costs are more competitive. This
information will be important to the banker or investor who is looking at
the return on investment. If subcontractor or assembly work is required, list
the parts, vendors, lead times, costs, etc. Include information on how the
future product cost will rise.
В© 2006 Ogando Associates, Inc.
The manufacturing facility provides needed space for initial production
and expansion to meet projected demand. Site selection includes the
following considerations:
• Room and cost for expansion
• Land and construction costs
• Transportation cost and route access for common carrier
• Risks and insurance
• Packaging and material costs and availability
• Labor pool availability, skills, costs
• Local ordinances, licensing, and permit requirements
• Government assistance (roads, trainings, exemptions, etc.)
• Government restrictions and requirements (OSHA, NLRB, etc.)
• Community attitudes toward business and manufacturing
• Continued operating costs (utilities, communications, etc.)
People are one of the most significant resources for your business.
Assessing the required number of people and their skills, how and when
they will be trained, and who will hire and manage them is important to
your product strategy.
To protect proprietary interests and information, certain policies and
procedures like confidentiality and nondisclosure agreements should be
implemented with your staff, vendors and contractors, as applicable.
Work with an attorney to generate the agreements and procedures to
cover your company and your staff, vendors or contractors, should
questions or disputes arise.
Packaging and Transportation
The primary function of a product package is the protection and safety of
the product. The package must be designed to protect the product
during transportation over a specific period of time in varying climates.
Also, a package can be an effective marketing tool by differentiating
your product from your competition. For example, when you receive an
overnight package, you know whether the sender used Federal Express,
UPS, DHL or TNT before you even open the contents, just by looking at the
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Both the packaging and the transportation of your product convey an
image to the customer and must be balanced with the cost, availability
and competitive products on the market.
Product Fulfillment
Product fulfillment is an important part of customer satisfaction. Providing
a channel to monitor and manage the delivery, billing, warranty and
repair of your products will ensure customer satisfaction and loyalty. Some
or all of these services can be supplied directly by your company.
Increasing numbers of businesses are contracting fulfillment services to
companies specializing in these areas.
Some of the reasons to use an outside fulfillment operation may include:
1. Their telephone and order entry systems are state of the art.
2. They manage the sales employees which you may train with
detailed sales scripts.
3. Their shipping volumes with common carriers provide a tremendous
savings in shipping costs.
4. They have sophisticated equipment to handle and track lost
5. They take orders 24 hours, every day of the year.
Shipping Terms
Numerous pricing terms are available, and they all impact the final cost of
your product. Free on Board (F.O.B.) indicates that the seller is responsible
for the cost of loading the goods onto the vehicle. The customer then
takes title of the goods and is responsible for all freight charges, the cost
of unloading and any damages in transit. These terms can easily be
changed to "FOB Delivered" or "FOB Buyers Factory", to pass all the
transportation cost to the buyer until the customer takes physical
Another way to price freight is to charge a flat rate for a specific zone.
You actually pay the freight charges, but bill your customer a standard
Don't let your company fall into the trap of thinking the shipping
department's expenses are negligible. Where pennies might have been
saved on each product by carefully selected design, components or
processes, these same pennies can be lost through inattentive shipping
decisions. Develop your own methods by determining your return on the
investment you have made on your shipping.
В© 2006 Ogando Associates, Inc.
When your target readers see in your business plan that you have thought
of and addressed every facet of product delivery, including getting it in
your customer's hands, you gain immediate credibility in your ability to
manage the day-to-day operations of your business.
В© 2006 Ogando Associates, Inc.
В© 2006 Ogando Associates, Inc.
Chapter 9: Market Analysis
Potential lenders and investment groups must be clearly convinced that
the market you have identified is feasible for the distribution of your
products and services. The need to discuss consumer behavior or
individual habits is not always clearly evident. However, you must
remember that no matter what type of business you are in, the final
decision to buy or not buy is made by an individual. The better you
understand the decision-making process, the better you can sway that
In this section, and starting with this chapter, we will discuss your market
analysis and marketing/sales strategies. These sections of your business
plan explain to your readers that you know the overall "lay of the land",
who your customers are, and how you intend to most effectively reach
Market Definition
This section describes what is known about your target market. Several key
components of this analysis include:
Industry Analysis: An industry analysis begins with collecting
information on the size, growth, and structure of the industry as well
as target market coverage, marketing objectives, marketing mix,
and tactics. This information can be used to monitor changes and
exploit weaknesses in the marketplace that can give your company
a competitive edge.
Market Segment: Within the industry, the market segment defines
the market even further by product feature, lifestyle of target
consumers, season, etc. Sources such as industry reports, census
reports, and trade journal studies help you define your market. To
become the market leader in your product or service, your
company must capture the biggest portion of sales in its market
segment. For example, within the computer industry, a market
segment could be software, hardware, peripherals, networking, etc.
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Strengths and Weaknesses: In identifying the strengths and
weaknesses of your competitor's product, you are evaluating the
competitor's coverage of the market and its success in meeting
customer demand. By exploiting this weakness, you can improve
both your product and your position in the market and convey that
you are/will be strong where your competitor is weak. Marketing
positioning can include sources of advertising and promotion,
public awareness and public acceptance.
Unexploited Opportunities: Based on your marketing analysis, you
may discover additional niches and opportunities to explore. Often
a successful product can be leveraged through new distribution
channels, licensing, packaging, customer relationships, etc.
Identification of your top market opportunities will help you focus
your marketing efforts.
Customer Profile
Identify your customers (including the decision maker) down to the most
minute details. Include age, sex, family characteristics, geographic
location, occupation, attitudinal patterns, education, economic factors
(personal debt, income expectation, taxes, per capita income, etc.). If
your target market is a business customer, identify what type of business,
size (annual revenue), geographical areas of their offices, number of
employees, business structure (sole proprietorship, corporation, etc.), years
in business, etc.
Another consideration in profiling your customer is to understand who
influences purchase decisions. These are the people who will INITIATE the
inquiry of your product, INFLUENCE the decision to buy, DECIDE which
product or service to buy, and PERMIT the purchase to be made
(sometimes the decision maker and permitter are the same person, but
the decision maker (like a CFO) will sign the paperwork after other
managers have submitted their recommendations.)
It is important to know as much about your competitors' businesses as you
do your own business. Here are some areas you should know regarding
your competitions' product or service:
Products: How does your competitor's product or service compete
against your own, using the same criteria you used when evaluating
your own product or service?
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Organization: What is your competitors' organization like? Can they
make fast and accurate decisions? Will they respond quickly to
changes you make? Are their management and staff competent?
Are they leaders or followers in the market? How are they funded?
Do you consider them to be a viable competitor in the future?
Track Record: Customers will often choose a contractor or supplier
because of their track record. How does your record compare to
that of your competitors? An assessment of your stability compared
to that of your competitors can be a real selling point to your
customer, particularly if you are selling a product that will require
future servicing (e.g., cars, computers, pet grooming, etc.).
Any discussion of the business environment must include the various kinds
of risk. In researching risk, it is important to remember that it is impossible to
anticipate all possible risks and alleviate them. The best you can do is to
identify as many as possible and anticipate solutions to handle them
before they occur. The best strategy to alleviate risk is diversifying: Use
multiple suppliers, sell multiple products AND services, keep up with new
technologies, purchase insurance for those risks you can insure against
(fire, theft, illness, etc.). The two major risk categories are business and
environmental risks.
Business Risks
Cost Structure: The first and perhaps largest risk is the cost structure
of the industry. This is directly related to the amount of fixed assets or
capital required to operate your business, such as rent, insurance,
supplies, and all other costs required to keep running the business,
whether you are bringing in revenue or not.
Competition and Industry Growth: Competition from the national
brands or from present or new regionally-based companies poses a
risk to your company. If the market for your product continues to
grow, the major national companies will likely devote greater
resources to this segment. Developing a niche in the market,
competitive pricing, and customer service will minimize the risk.
Profit Margin: Profit margin (the percentage of net profits to sales)
versus the volume of sales is another type of risk. A good example of
this risk would be to compare a grocery store to a jewelry store. The
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grocery store sells its entire inventory every other day, but the net
profit margin is only 1-3%. The business makes its money through high
sales volume. The jeweler holds a piece of jewelry on average 90
days before he sells it, but he only has to sell a few large items to
equal the profit of the grocer.
Environmental Risks
Economy: Adverse changes in prevailing economic conditions can
have a negative impact on the company's projected business.
Economic risks such as inflation, recession, and rising interest rates
impact the bottom line. You cannot alter these risks, but you can
decrease the effects they have on your company by
understanding the impact of each. Perhaps the best strategy is
diversification, offering numerous products and services to multiple
market segments.
Weather: For certain types of businesses such as farming, travel and
tourism, sports, etc., the weather can be a substantial risk. The best
way to avert these risks is good planning, good management, and
proper business insurance coverage.
Legal and Government: Almost without warning, a local ordinance
can invalidate your business license, restrict your business operations
through zoning laws, or condemn your property in the public
interest. As with the legal risk, your business may be dependent on
government regulations or contracts that affect your product or
service. Staying abreast of legal issues facing your industry through
industry publications will warn you of any significant changes.
В© 2006 Ogando Associates, Inc.
Chapter 10: Competitive Analysis
Industry Overview
You will begin this section of your business plan by presenting a concise
overall picture of the industry. Here are some questions to spur your
research in this area:
What is the range in size for companies in this industry?
What is the range in sales volume for companies in this industry?
How do companies compete geographically (regionally, within a
particular city or town or metropolitan area, across the globe)?
How would you categorize companies in this industry: by their size,
the market segment they serve, the type of customer they serve, by
their sales methods, their production method, types of product,
types of services, specialization, relative pricing/quality)?
What is the number and size of the biggest or most well known
What is the infrastructure of most firms in this industry? Are they
mostly owner operated, professionally managed, publicly held,
subsidiaries or divisions of larger corporations?
How long have most firms been in business?
What are the most common sales and marketing methods that
companies in this industry use?
Is the industry hyper-competitive? Or is there mild competition?
Is this industry transaction oriented or are ongoing relationships and
customer loyalty important?
Is competition dominated by few key players? What is their market
Sometimes the power is really held by manufacturers, wholesalers or
retailers, not necessarily the customers or end users. They do so by
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controlling access to certain distributors or being gatekeepers to
the end users. Is that the case in your industry?
Is your industry cyclical? Sales generally fall and rise in parallel to
some economic or seasonal cycles. If so, what are the implications
for your business?
Is the industry growing? How do you know?
Is the industry highly lucrative, with wide profit margins?
How would you characterize the ease of entry into this industry?
Nature of Competition
Evaluating and summarizing not just who competes, but how they
compete, is a very important part of preparing a successful plan for your
business. You want to identify not all the ways that firms compete – but
the methods of competition that they give the most effort to and what
methods of competition tend to be most successful. For example, is price
emphasized more than anything else in advertising? Do the lowest priced
products or services have the largest market share? Is certain qualitative
feature emphasized again and again? Here are other features/attributes
to consider:
Product Features
Price as the Bottom Line
Product Upgrades
Local Proximity
Changes in the Industry
Summarize major pertinent changes that are shaping the industry.
Describe what the impact of these changes are on the different players in
the industry, including, if applicable, suppliers, your competitors, dealers,
wholesalers, retailers and consumers. Ask yourself:
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How is the growth in your industry currently? Is it rapid, moderate,
average, flat, declining, uncertain, volatile? What is causing that
Is the industry going through a period of consolidation?
Are customers shifting to fewer vendors? Expanding to more?
Increasingly demanding of their suppliers? Have specific
requirements from them?
What is the role of outsourcing in your industry?
What is the role of strategic alliances?
Are customers looking for a one-stop shopping experience?
Primary Competitors
Here you should focus on the companies that you compete with – not
their particular products or services. Direct your competitive analysis to
those few firms that you compete most directly with. Focus in less depth
on firms that you compete with less directly.
Competitive Products/Services
Again, remember that some of these sections may not apply to your
particular business, but it might prove useful to discuss, if not primary
competitors, then the products and services that compete with you most
Compare markets, customer needs, and customer characteristics with
competitive offerings to determine market opportunities. Include all major
opportunities that you think might exist, not just those you are most likely to
pursue. This will help open your mind to new opportunities and make your
plan more complete for future reference and for showing to outside
investors or advisors. Some opportunities to consider are:
Filling a need better
Finding an underserved niche
Serving a new/different market segment
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Fill a competitor’s weakness
A new competitive focus
Delivering a competitive edge
Threats and Risks
Identify the most significant risks the business faces. You may want to
include competitive threats, possible adverse market changes, major
challenges for new products or services, competitive reaction to your
moves, changes in the industry and changes from outside the industry –
such as the introduction of a product or service substitute. If you are
raising money from outside sources, especially for equity investment, not
adequately disclosing possible risks may be grounds for a lawsuit if the
business does not succeed. So be thorough.
В© 2006 Ogando Associates, Inc.
Chapter 11: Marketing and Sales Strategies
Marketing Strategies
We have all seen great businesses, with superior location and a unique
product, go broke and close their doors. In most cases, this can be traced
to poor marketing and promotions. Many business owners ignore the
potential in the effective advertising of their quality product and service.
Small business owners tend to overlook the need for exposure.
Four essential areas to investigate:
1. Publicity
2. Promotion
3. Merchandising
4. Market Research
Each of these four marketing areas is available to you if you are willing to
do the investigative ground work. The first step is to define your market.
Who is your targeted audience? Know its inclinations, its needs,
disposition, then gear your products and services to fit these.
Entrepreneur Magazine gives us good advice in this area: "All you have to
do is forget that you are selling your product or service, and put yourself in
your customer's place." Also, it suggests that you, "Ask yourself questions
such as, 'where do I go to buy it?', 'what makes me buy it?, 'what media
do I watch, read, and listen to, that makes me decide to buy it?' Simply
put, you must know what media your market draws to.
Your profits will literally rise or fall on the basis of how well you develop and
implement your marketing plan. Here is your chance to show your
entrepreneurial expertise. Carefully consider the following ideas and
strategies and implement each one into your plan:
Develop marketing strategies by acquiring market information, by
implementing feasibility testing, by accessing competitor track
records, and by generating insight into the market's future.
Pricing a product or service is as much a decision based on
customer acceptance, as it is on cost. Consumer research and
competitor track record and pricing should be demonstrated as
your basis. Charge what the market will bear.
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Determine if your product or service is right for your target market
and if they are ready to accept it.
Channels of distribution need to be effectively and efficiently
established if you are going to get your products and services out
into the market. This includes production, transportation, materials
handling and product packaging.
Promote your product or service to your target market. Include the
media you will use to promote your enterprise, related costs, and
anticipated benefits.
Your marketing
Your timetable needs to be accurate and plausible.
Warranty and/or guarantee policies need to be defined.
Professional resources needed to implement your plan require
Monitoring the response of the market to your campaign needs to
be considered.
Testing one approach to another will provide direction for future
Selling Tactics
Identify your sales force. Clearly think through the advantages and
disadvantages of commissioned versus salaried salespeople. You may
consider offering a combination of base plus commissions (monthly salary
and car allowance), bonuses, and health insurance. Identify all these
parameters in this section.
In the initial stages of your business, will you personally need to go out into
the market and promote your product/service? What type of training will
you offer for sales staff? Identify the need to increase sales staff as part of
expansion and analyze the nature of future staffing.
Will you hire only salespeople who have a college degree?
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Do your sales personnel need to be licensed by a state regulatory
Will you be selling your products/services through a network of
dealers or distributors?
Will your salespeople have protected territories?
Where are those protected territories?
Are your pricing policies set to market or industry standards?
Will your salespeople be able to compete with the prices that you
have established?
If your business is a start-up and cannot presently afford a sales
force, how do you plan to execute your sales strategy?
Your Unique Selling Advantage
This is what sets you clearly apart from your competitors and attracts
consumers. Ask yourself the following questions:
Will it make their life more comfortable? How?
Will it save them time or money? How?
Will you offer more customer service than your competition? If so,
how is it superior?
Will your customers' lifestyle be any different if they purchase your
product/service? How?
Which professional organizations do you belong to that will be of
value to your customers?
What are some of your competitors' weaknesses in reaching your
target customer?
How can you take these and turn them into strengths for your
В© 2006 Ogando Associates, Inc.
Advertising and Promotions
Develop a realistic budget for advertising by allocating about five
percent of expected annual revenues. Include in your advertising
campaign a good mixture of promotional matter. If your budget is
relatively small ($100 - $200 per month), definitely include business cards,
letterhead, envelopes, a brochure, postage, and a website. These will
give your business plenty of exposure if you carefully follow up on literature
sent out.
In this section you want to also describe any promotions or incentives that
you will use to increase the sales of your product or service. Describe the
duration and frequency of the promotions, the target audience, and how
information of the promotion will be delivered to target customers.
You do not have to spend a lot of money to promote your business well.
Just do a little research on the associated costs in your area for the
following items:
Radio advertising on one station during morning drive time hours
(6:00 AM - 9:00 AM).
The cost of a convention hall, hotel, auditorium, gymnasium,
classroom, or library meeting room that holds 30 - 50 people of a
potential seminar.
How much would a live-remote radio campaign cost? This type of
investment will bring you hundreds, if not thousands, of customers
within a six hour time frame, which would justify the cost. The
broadcast from your business site or home office will draw
customers to you directly.
Have you researched how effective a press release can be for your
business? If an editor of a newspaper or a producer of a radio or
television show likes your idea, they will interview you about your
product or service. This is free exposure that only costs you the price
of a few letters and stamps or fax phone charges.
Look in the Yellow Pages under Television Stations, Radio Stations,
Newspapers, and Magazines for the telephone numbers. Ask for the
name of the Business Editor or Producer. Send them a personalized,
double-spaced press release that is one or two pages in length.
Follow up in two weeks to find out if they received your material. As
you scan the Yellow Pages, you will be pleasantly surprised at the
В© 2006 Ogando Associates, Inc.
number of organizations you probably never knew existed. Also,
consider the various reference sources available in the library.
Don't ask them if they are going to do a story on you, simply remind
them of your unique product, service or idea.
A newsletter is another inexpensive way for needed exposure. You
could charge for a subscription, or send it out free each month, or
every quarter, to existing, new and prospective customers.
T-shirts, pens, coffee mugs, paper weights, hats, etc., are a relatively
inexpensive way to advertise your business. Check the costs by
interviewing several "Advertising Specialties" companies and
include this in your business plan. These promotional items are a
subtle reminder to your clients every time they see your name.
Offer to give public speeches to several organizations. The speaking
and seminar business will enable you to develop new business
relationships. Some organizations to choose from are chambers of
commerce, business and trade organizations, civic groups,
convention planners, service organizers, business firms, political
affiliations, fraternal organizations, athletic clubs, or professional
If you are considering trade shows, specify the events by name if
you are fairly certain which events you will attend. Describe what
you will do to promote your organization and your
products/services at these events and before the events take
Explain why the media vehicles that you use are the best choice for
delivering your message to your target audience. You
Establishing Marketing Objectives
Once your marketing campaign is underway, begin tracking results.
Conduct a few preliminary studies a few weeks into the campaign to
measure the results, but don't expect these results to be final. In most
cases, you should give your campaign six to twelve months to realize final
results. Your target expectations may be realized sooner, which would be
a result of a well-planned and well-executed marketing strategy. To help
meet your marketing objectives, four critical goals should be considered:
В© 2006 Ogando Associates, Inc.
To increase brand awareness by a specific percentage
To generate high-quality leads for your sales force
To improve the morale of your direct sales force
To increase sales by a specific percentage within a certain time
Above all, remember that your sales and marketing section is your
program for getting customers to buy your products and services. When
all is said and done, you want to state the underlying principles and
commonalities of all your marketing and sales effort, how it supports your
company strategy and positioning plan. The unspoken message that
should be clearly communicated in this section is cohesion. Your
marketing and sales “brings it home”.
В© 2006 Ogando Associates, Inc.
Chapter 12: Your Management Team
The management team provides the leadership for your business and
must include combined strength in both management and technical
areas. The management team should be selected in such a way that
talents are complimentary rather than overlapping or duplicated. You
must ensure that all of the key areas necessary to accomplish the goals
and objectives of the company are within the strength and talents of your
management team.
Early on in your business, you will want people who are capable of
handling multiple functions. As your company grows, your requirements
will call for more specialization within the management team. A
combination of experience, technical skills and energy will serve your
company well because your management team will be responsible for
the success or failure of your business.
As you develop your management team, keep this in mind: potential
lenders and investors will only finance a company with a management
team that has balance and the ability to provide the four essential
elements of management: Planning, Leadership, Organization, and
Therefore, as you write this section of your plan, put down who will be in
charge of certain responsibilities and tasks, and why they are qualified to
manage this specific department or task within your company. Having the
personal, technical and conceptual skills applicable to your business, the
management team must also have skills in marketing, finance and
Investors and lenders make their decisions on the basis of people. They
especially want to see people who have a proven track record or highly
relevant experience. It all starts with the person in charge. You will need to
assure everyone who may become involved with your venture that the
person running the business knows what he/she is doing and has what it
takes to make money.
After making those points, go on to describe the other key people. Your
management team should have experience in the most functional areas
В© 2006 Ogando Associates, Inc.
of the business. Attach detailed resumes for all key personnel in an
Legal Business Description
1. What is the company name?
2. What is the legal form of business (sole proprietorship, general or
limited partnership, corporation, subchapter-S Corporation, or
Limited Liability Company?
3. What is the business location of the company? List the corporate
headquarters, the business office and any other satellite or
franchise locations.
4. Discuss government regulations, licenses and permits required, if
Management Team
In this section, you want to list the officers and key employees by name,
position, age and stock ownership. Also specify how many shares of
common stock have been authorized by your Secretary of State, how
many outstanding and how many issued, as well as the vesting schedule
for officers, employees and Employee Incentive Stock Options, if
What outside support have you allied with? These may include an
accountant or CPA, an attorney, and any other key position that is being
filled by someone not directly an employee of your company. In the
Appendix of your business plan, you will include resumes of all these
individuals, as well as an organizational chart describing needed business
functions and relationships.
As you outline the position and its responsibilities, mention the person filling
it, and his/her qualifications. So you are giving an "introduction" to this
person's full resume found in the Appendix.
Board of Directors
An outside Board of Directors, including highly qualified business and
industry experts, will assist the management team in making appropriate
decisions and taking the most effective action, even though they are not
responsible for management decisions.
В© 2006 Ogando Associates, Inc.
Use this section to highlight the most relevant characteristics of your
Directors, and put each person's actual resume in the Appendix.
Strategic Partnerships
There are many ways to reach the top of an oak tree. 1) Start climbing. 2)
Sit on an acorn. 3) Make friends with a big bird. This section is a list of your
big birds. You specify what relationships you have formed with whom in
what industry, how the relationship is beneficial to you, and how you are
contributing to your strategic partner.
Also mention any joint marketing, development or third party agreements
you will be involved with. Be specific: What company? How is this
beneficial to all parties involved? What is required of your company? How
does this involvement impact your finances, operations, strategy, and
other resources?
Investors and lenders want to see that you not only generate goodwill in
your industry, but also that your management team is resourceful enough
to enroll others in its success without reinventing the wheel.
A top heavy organization is one whose expenses are mainly distributed to
pay the officers or management team, and it raises many an investor’s
concerns. You may want to discuss a compensation and incentive plan
offered to key personnel designed to give them a stake in the company’s
success as a way to encourage top performance and retaining them in
their positions.
Also, if compensation will include stock options, profit sharing or bonuses,
this is the place to mention it.
В© 2006 Ogando Associates, Inc.
Chapter 13:
Organizational Structure and Staffing Plan
This section explains the reporting structure in your firm and how work is
divided between different people. If you have a formal organizational
chart, include it in your appendix and reference it here. If you do not plan
to have a staff, or for a very small business with six or fewer employees (or
for a less complex business plan), you may prefer to skip this section and
include relevant information when discussing your management team.
For example, what are the duties of the President? Who will be in charge
of Finance/Accounting? Sales/Marketing? Other departments may be
relevant in your company such as Engineering, Customer Service, Human
Resources, Operations, Fulfillment (Shipping and Receiving), etc. Address
whatever is relevant to your particular business. Skip the rest.
Staffing Plan
It would be appropriate to discuss here specific issues such as which
positions need to be created and filled, your procedures for hiring
employees, your policies for reviewing employees, salary and benefit
policies, and training plans.
You could also discuss your overall strategy for human resources, explain
the kind of company culture you want to foster, present your philosophy
about human resources, or describe how your human resources
approach will be different than that of other firms. Skip this section for a
very small business or a solo-preneur enterprise.
В© 2006 Ogando Associates, Inc.
Chapter 14:
Product/Service Delivery and Facilities
There are many different ways to approach the discussion of product and
service delivery. One approach is to emphasize the steps that you will
take to insure that your delivery supports either your business strategy or
your positioning. Another approach is to simply summarize how you plan
on producing products or delivering services. Still another approach may
be to discuss standards you will use.
Development Approach Statement
a. Before giving the go ahead on a new product, what needs to
i. Get customer feedback
ii. Market surveys
iii. Feasibility study
iv. Conduct a focus group
v. Research comparative offerings
b. What factors influence the decision to proceed?
c. How will the actual design/engineering/development of the
product be completed?
d. How will it be manufactured? By a contract manufacturer? At your
facility? By arrangement with a third party?
Service Standards Approach Statement
Some of the standards you might want to consider using to help insure
that you provide quality service include:
How will your phones be answered?
Do you provide free written estimates? How soon?
What is the time frame between a signed agreement and
commencing work?
What is the quality of your materials?
В© 2006 Ogando Associates, Inc.
What is your follow up with the customer after the work has been
Do you offer a satisfaction-guarantee?
Other features to discuss may include your intention to control costs, to
insure quality control, any effort to support your strategic goal of being on
the cutting edge of new product development, or delivering personalized
service, how you select suppliers/vendors, or your order turnaround
Your location and the facility itself may be an important aspect of your
company’s business, even if you are a home-based business. Describe the
advantages and disadvantages of the location:
What kind of facility is it? How big?
Will clients be coming there?
What kind of equipment will be there? How long will it be furnished?
How long will this facility be adequate, considering future growth?
How will your facilities support the professional image you endeavor
to portray?
Are you near other businesses that serve a similar demographic
Are you buying land/space or leasing it? If so, what is the cost?
What are the major factors in site selection? Traffic flow, parking,
median income for the area, rental costs, etc.?
If you plan to increase the capacity of your facilities, how will you
do it: using a more efficient floor plan, using shared offices, building
an addition, leasing additional space, moving to a new location?
Do you plan to make improvements to your current facility: improve
capacity, accommodate more employees, increase the efficiency
of work flow, make for a more attractive work environment, make
the work environment more consistent with your business image?
В© 2006 Ogando Associates, Inc.
If you intend to create a more professional environment, how will
you do it: improve the landscaping, clean up the grounds, get new
company signs, improve the entrance way, get a new receptionist
work station, get new furniture, repaint the walls, buy new or used
office cubicles, carpet the floors, encourage everyone to clean up
their work area, set up a conference room?
Do you intend to upgrade office equipment?
Do you plan to automate certain functions? If so, which and why?
Moving to an online business model? How: expanding customer
support, job postings, product information, complete product
catalog, news releases, employee intranet, online ordering, etc.?
В© 2006 Ogando Associates, Inc.
Chapter 15: Customer Care
house, or
service is an increasingly important aspect of running a
business. Some organizations make it a centerpiece of their
campaigns. Will you handle all aspects of customer service inwill you outsource some of it to a fulfillment service, for
If you intend to pay significant attention to customer service, describe
how you will do it. Will it be a part of ongoing training programs? Will you
devise special employee incentives? Will you make an effort to solicit
feedback from customers? If so, how? Here are some customer care
ideas to get you thinking:
Decrease waiting time at your peak service periods
Add some support capability at your website
Offer support by email or fax
Offer a fax-back program
Expand your phone capacity
Install a voice mail system
Increase your hours
Outsource your service
Monitor occasional service calls
Seek customer input
Install toll free customer service lines
Empower your employees to respond creatively to client requests
Surveys and convenient feedback opportunities for your customers
Improve your order communication process to decrease fulfillment
В© 2006 Ogando Associates, Inc.
Use post-sale contact with customers for upsell or referral
Reduce the cost of shipping
Train your customers to use your website to minimize customer
service complaints (the airlines are famous for this)
Improve your order turnaround time
Decrease service call time
Improve the response time to service calls
В© 2006 Ogando Associates, Inc.
Chapter 16: Strategy (SWOT Analysis)
I know what you are probably thinking, “The competition has been in
business for years. They have a large loyal customer base; they have lots
of money, good products or services, and a solid reputation. Competitive
analysis is easy: they have all the strengths and I have all the weaknesses!”
Having helped dozens of start-up and growing businesses, I can tell you
that any business, even a new business, always has important strengths. A
new business, for example, is not tied to an existing way of business and
can more easily adopt a new strategy or new position approach for its
products or services. A small, privately held company has natural
advantages when competing with large public corporations in that it can
be much more flexible and responsive to changes in the market or the
needs of particular customers.
Key Competitive Capabilities
In this section, list and describe your firm’s major competitive capabilities.
Explain why these capabilities are important and how much advantage
they are more likely to give your firm. Here are some to consider:
• Advantages in particular functional areas
• Advantages of key personnel
• Product/Service advantages (in design, technology, packaging,
costs, capabilities, quality, ease of use, flexibility, etc.)
• Better positioned for new trends
• More customer responsive
• Technology advanced
• Innovation edge
• A more professional edge
• More employee centered
• More aggressive sales approach
• Tightly focused niche
• Advantages of being a new business
• Advantages of being a locally owned business
• Advantages of being a very small company
• Reputation advantage
• Lower cost structure
• Financial strength
• Better access to customers
• Well suited to capitalize on competitors’ weaknesses
В© 2006 Ogando Associates, Inc.
Key Competitive Weaknesses
Speaking of weakness, use this section to list and describe the major
weaknesses that your firm has versus your competitors. Explain the
seriousness and depth of these weaknesses, and differentiate between
weaknesses that definitely will be an issue, weaknesses that may likely be
an issue, and weaknesses that are unlikely to be an issue. If you are using
this plan to raise money, you want to emphasize here or elsewhere in the
plan how you will overcome or mitigate those major weaknesses. As in the
above section, here are some to consider:
• Weaknesses in particular functional areas
• Advantages of key personnel
• Product/Service deficiencies (in design, technology, packaging,
costs, capabilities, quality, ease of use, flexibility, etc.)
• Weak positioning for new trends
• Less customer responsive
• Technology challenges
• Speed to Innovation
• A less professional approach
• Less employee centered
• Less aggressive sales approach
• Tightly focused niche
• Disadvantages of being a new business
• Disadvantages of being a locally owned business
• Disadvantages of being a very small company
• Reputation weakness
• Lack of affiliations
• Higher cost structure
• Financial weakness
• Less access to customers
• Competitors well suited to capitalize on your weaknesses
So given your strengths and your weaknesses, how will you make your
presence known and stable in your market? Your strategy is a unique
formula that forms the foundation of your business plan, as well as
governing your daily operations. It is not a definition or summary of
pertinent markets, per se, but rather an account of the one or two key
factors that distinguish you from the competition and is most expected to
contribute to your firm’s long term success.
В© 2006 Ogando Associates, Inc.
If you are creating a highly detailed plan for an existing business, you may
want to also list secondary strategies – but this is certainly not expected in
a plan to raise money.
Your strategies need to complement one another so that you are not
sending your business in different directions. Here are some aspects you
might want to consider having your business known for:
• Being outstanding in one function
• Product/Service based strategy (highlighting the distinctive, unique,
superior, differentiated, customized aspects of your offering)
• Best personalized service
• Niche market focus
• New market focus
• Specialized product/service strategy
• Product proliferation (broad lines of products or service to meet the
full range of your customers’ needs)
• Premium quality
• Low price/low cost strategy
• Name brand
• Generic alternative
• Market share leader
• Industry innovator
• Leading response to one particular trend
• Most professional
• Numbers driven (operating with highly specific sales, cost and profit
targets, sharing cost and sales information with employees, etc.)
• Balance between stakeholders (shareholders, customers and
• New standard of customer service
• Superior people in key positions
• Preferred provider to corporate clientele
• Technological leader
• Pursuing strategic affiliations or partnerships (co-branding or joint
• Targeting specific customer type
• Web-based focus
• Custom solutions focus
• Marketing driven strategy (the sales process, advertising, product
positioning, promotions, etc.)
• Aggressive sales strategy
• Customer service focus
• Limited customer focus to serve highly specific needs
В© 2006 Ogando Associates, Inc.
Implementing Your Strategy
What do you plan to focus on?
What is your timetable?
What is the role of senior management in the success of your
Are you tying compensation into the implementation of your
How is your strategy influenced by a changing market?
It is one thing to have a great strategy. It is quite another to really
integrate your strategy into your way of doing business. Beyond the basic
ground covered in other parts of this plan, this section gives you a chance
to explain specific steps you are going to take to be sure your strategy is
really adhered to. If it seems too obvious or is thoroughly covered in other
parts of this business plan, you may want to skip this section.
В© 2006 Ogando Associates, Inc.
Chapter 17: Financial Forecasting Basics
Preparing financial forecasts may at first seem like an overwhelming task.
However, if you are extremely careful and meticulous, and follow the
step-by-step guidance in this course, you can create complete financial
forecasts even if you have no previous financial experience.
So breathe.
Some aspects of financial forecasting are relatively easy – such as
creating a profit and loss forecast. In fact, for a very simple business (such
as a sole proprietorship that does not sell on credit, has no inventory and
will not need to borrow money and does not plan on significantly
expanding) you may only need to create a profit and loss statement to
run your business.
But for most businesses you will need to forecast future balance sheets
and cash flows. Creating these forecasts is, frankly, not an easy task,
especially if you sell on credit or have inventory and do not have a lot of
financial experience. But you can do it if you follow this advice, and allow
yourself an adequate amount of time to perform and carefully doublecheck your calculations.
If you are in a rush to complete your financials or you don’t want to
bother to learn how to do all the calculations, you can always use the
templates that come with this course. Plug in your numbers and it will
automatically calculate profit and loss projections, cash flow projections,
balance sheet projections and key ratios. But of course, if you do it that
way, you will not learn as much in the process and will probably not know
how to explain your numbers to a prospective investor (it’s like cheating in
school and not being able to give the correct answers on the make up
test once the teacher catches you!).
It is imperative that every business prepare financial statements on a
monthly basis for the first year, regardless of its size or structure. Many of
my clients initially think that monthly financial statements are either
В© 2006 Ogando Associates, Inc.
Financial statements are KEY MANAGEMENT TOOLS. Take the time to learn
and interpret what the financial statements are telling you. It could mean
the difference between the success and failure of your business.
If uncertainty exists about your overall knowledge and understanding of
financial statements, I suggest you do one or more of the following:
1. Purchase accounting learning and reference workbooks from a
local bookstore.
2. Borrow reference accounting workbooks at your local library.
3. Take an accounting class at an accredited college or university.
4. Obtain help from an outside accounting firm familiar with your line
of business.
5. Purchase user friendly accounting software such as QuickBooks or
Peachtree Accounting, which guides you in formulating financial
projections and managing the finances of your business.
What Financials do I Need to Create?
If you are planning a really simple business, I suggest you only create profit
and loss projections and save yourself all the trouble of creating the more
difficult cash flow and balance sheet projections.
However, there are very few businesses that are simple enough to only do
P & L forecasting (also called the Income Statement). In fact, I feel that
only a part-time home-based business that is unincorporated, does not sell
on credit, has no inventory, does not need to borrow money and does
not plan on significantly expanding, should be the ones in this category.
Everybody else needs to create the following forecasts (also called proforma’s):
Profit and Loss (or Income) Statement
Cash Flow
Balance Sheet
I suggest that you project all of the above pro-forma’s on a monthly basis
for the next twelve months and on an annual basis for the following two
years. By only doing monthly calculations for the next 12 months you can
save yourself a lot of calculations and still satisfy the requirements of just
В© 2006 Ogando Associates, Inc.
about any lender or investor. For a very small business, such as under
$500k in annual sales, I might only project 12 months in the future and not
beyond. For a business larger than $5 million you might want to project
further into the future.
You will also need to create a page listing called “Assumptions and
Comments”, which details the key assumptions or other comments that
relate to your financials. You will need to provide a Starting Balance Sheet
showing the current financial status of the company. And if you have an
existing business you will need to provide lenders or investors with any
previous (or historical) financial statements.
Finally, you can complete your financial statements with a summary of
“Key Ratios” which are based on the financials that gauge the health of
the company, and make your plan look more complete.
Remember that the financials in this course are designed for a small
business, with all of the financial issues that a small business may be likely
to face. However, some parts of the financials may not be relevant to
your business. For example, if your business is a service business and does
not have inventory, simply ignore any inventory references, or delete
those rows altogether.
How to Create Your Financials
I have made it easy for you. Use the templates included in this course, if
only as an example to follow. They are set up to interact with each other
because this will save you time when you make revisions. You can make a
change on one financial spreadsheet and it will automatically make all of
the relevant changes on the other financial projections.
This is the sequence to follow:
Assumptions and Comments Worksheet
Starting Balance Sheet
Profit and Loss Forecast
Cash Flow Forecast
Balance Sheet Forecast
Key Ratios
It is important to follow this sequence in working with your financial
statements because it makes it easier to understand how the numbers
В© 2006 Ogando Associates, Inc.
relate to one another. Each subsequent spreadsheet builds on the
information furnished in the previous ones.
Remember, however, that if you later make a change to your
Assumptions and Comments Worksheet, it will affect results for all relevant
numbers in other financial spreadsheets. For example, if you reduce your
payroll tax rate, you will reduce your expenses in the Profit and Loss
projections, reduce your use of funds on your Cash Flow projection,
increase the equity on your Balance Sheet projection and change your
key ratios. So be sure that you are satisfied with your inputs on each
worksheet before proceeding to the next one.
And if you go back and make a change on any worksheet, make sure
you make appropriate changes on all other worksheets that may be
В© 2006 Ogando Associates, Inc.
Chapter 18:
Assumptions and Comments Worksheet
The financials should support the text of your business plan, help you to run
your business better and help you to get financing if needed.
The trap many people fall into in creating financials, however, is to get
hopelessly buried in small details such as creating a long list of office
supplies or getting frustrated trying to figure out the latest rules on
depreciating assets.
Stop it.
Make your best estimate on less important numbers and give more
thought to the numbers that really matter. Of course, if you want to, you
can always go back later and do a more careful estimate on any
particular entry.
Examples of some of the numbers that really matter and that potential
financiers are likely to ask you about) are your sales projections, the
average number of days on which you expect to get paid, your profit
margins, and when and how you are going to repay any debt.
In starting a new business, you can’t expect to be 100 percent
comfortable with your answers to the assumptions. That is why they are
called assumptions and not “certainties”, and why you clearly identify
them for your readers to see. But as you go through the assumptions, keep
in mind which ones may turn out to be way off and significantly impact
your financials. For example, let’s say you estimate freight to be 1 percent
of sales and it actually comes in at 1.5 percent – 50 percent over
projection. Unless you have a very thin profit margin, this will not
dramatically change your financials. On the other hand, if your cost of
goods sold is projected to be 20 percent, but actually comes in at 30
percent, then your financials will clearly be dramatically impacted.
If you are selling on credit, the most important assumption will probably be
the number of days you anticipate getting paid in. Potential financiers,
especially bankers, are likely to ask you about this assumption. People
starting a new business tend to consistently underestimate how long it will
take to get paid and how much effort it will take to get paid. Let’s say
that you stated terms are “net 30”. Chances are that many, if not most,
В© 2006 Ogando Associates, Inc.
customers will pay you after 30 days. So you need to be sure you have a
good plan for accounts receivables, and that you are using a realistic
estimate for the number of days you anticipate receiving payment.
On the other hand, if you are a new business, you may find it difficult to
get credit at all for your purchases, and if you can, you may be held to
strict credit terms.
The difficulty of timely payment collection from customers, combined with
the difficulty of getting credit from suppliers, can create a challenging
financial hurdle for new business.
Besides the assumptions here, I would recommend that you keep your
additional comments to an absolute minimum. Potential financiers know
that you have to make a huge number of assumptions in planning a new
or growing business. They want to know only about your most critical
assumptions. They are looking to finance your business, not run it.
Check the templates provided for line-item instructions on filling out the
Assumptions and Comments Spreadsheet.
В© 2006 Ogando Associates, Inc.
Chapter 19: Starting Balance Sheet
Remember that a balance sheet is a snap shot of your business at one
moment in time. This starting balance sheet should reflect your business at
the date of the start of the business plan.
The Starting Balance Sheet will not impact your profit and loss projection,
but it will certainly impact your balance sheet projections and will
generally impact your cash flow projections. So if you only want to
prepare a profit and loss projection for your business, but no balance
sheets or cash flows, then you could skip the starting balance sheet.
What Have You Committed to the Business?
Bankers and equity investors want to see how much money you and your
partners have personally put into the business. They do not want to invest
or finance a business if the principals are not personally heavily invested in
it. So specifically, they will look to see how much equity is in the business.
What Are the Assets?
Beyond what you have committed to the business, investors and
particularly bankers want to see what assets the business has. The more
solid assets the business has, the better protection for their investment.
Bankers particularly like fixed assets that they can seize in an absolute
worst case scenario. They like to see cash, inventory, and accounts
receivable as well, but they give secondary importance to these assets
because they find that when a business starts to run into problems, these
“softer” assets tend to get expended as the business struggles to survive.
How Good Are the Accounts Receivable?
The financial portion of your business plan is a narrative that presents
summaries of your business' financial history (if applicable), your financial
projections and the assumptions on which you based them, your
projected capital requirements and how the capital will be used, and
your plan to repay your lenders and/or investors. Before you can write
your financial plan narrative, you need to generate a set of projected
financial statements that reflect the goals and information you have
provided in earlier sections of your business plan.
В© 2006 Ogando Associates, Inc.
Are You Current on Your Payables?
Bankers will sometimes ask if you are current on your payables. Like many
business people, you may be paying beyond the stated terms, but still
within a range that the vendor considers to be good enough to continue
to extend your credit. So I would answer the banker that “we are paying
vendors within terms that they consider acceptable.” If you are way
behind on payments to major vendors you should try to bring them into a
range that the vendor considers acceptable before seeking financing.
Get a Credit Report
Also, you should get a credit report on your business (and also on yourself
personally) from a major credit reporting agency such as Dun &
Bradstreet. Potential lenders often check these reports before lending.
Clear up any disputes or problems on your credit reports before you apply
for financing. Getting a credit report can avoid embarrassing situations.
Basically, the total liabilities and equity shows who has legal claim to the
assets of the business. Hence the total liabilities and equity must always
equal the total assets. And this is why a balance sheet is called a balance
В© 2006 Ogando Associates, Inc.
Chapter 20: Profit and Loss Projections
Justifying Sales Forecasts
Both lenders and investors will want to know how you came up with your
sales forecast. For an existing business, for example, your sales numbers
may reflect your current growth rate or perhaps an accelerated growth
rate due to new factors such as the launch of a new product or an
enhanced marketing effort. For a new business, sales projections need to
be based on some currently existing factor outside the business – such as
the estimated size of the potential market, or the sales of similar
businesses, or the anticipated sales to specific customers.
Multiple Sales Forecasts
Because it is very difficult, but also very critical, to project sales, many
people will create multiple sets of financials using different sales forecasts.
For example, if you choose to create three sets of financials, you may
choose to call them the “Weak, Likely, and Strong” scenarios.
However, having created hundreds of business financials over the years, I
would suggest you focus on creating one set of financials very carefully,
rather than creating several different sets – unless you are creating a plan
to obtain huge amounts (such as millions of dollars) of financing.
I feel that you are better off with one set of financials for which you have
carefully estimated the major assumptions.
Watching Profit Margins
In creating profit and loss projections, I would give careful consideration to
profit margins. A large profit margin can make up for a lot of mistakes in
running a business. If your projected profit margin is 2 percent, small cost
overruns can kill you. But if your projected profit margin is 20 percent, small
cost overruns will hardly be noticed. If your profit margin ends up being
smaller than projected (or non-existent) in your first run through your
financials don’t be surprised – this is often the case. Go take a hard look at
your expenses and cut back on those that aren’t really essential for driving
your business ahead.
В© 2006 Ogando Associates, Inc.
Does Your Forecast Reflect Your Strategy?
All too often the text part of the business plan is not reflected in the
financials and hence never becomes reality. For example, if you say you
are going to have a top quality product, but don’t allocate adequate
funding, then you probably aren’t going to achieve your goal. Or if you
say you are going to have a first class marketing effort but don’t allocate
adequate funding, then you are probably not going to achieve this goal
At the same time, you need to be careful not to fall into the trap of trying
to do a world class effort on all aspects of your business – or you will run
out of money in a hurry. This is where aggressively following strategy
becomes crucial. You need to use the strategy that you choose for your
business to help decide not just what you will spend a lot of money on, but
just as importantly, what areas you will NOT spend a lot of money. For
example, if your strategy is based on a top quality product, you may want
to be careful not to overspend in non-product categories such as
marketing and general and administrative expenses.
Bad Debt
If you are selling on credit, you are almost certainly going to have some
bad debt. You can handle bad debt by entering in your sales forecast the
net sales you expect to eventually get paid for. For example, if you expect
to sell $150 worth of goods in January, but have a bad debt rate of 2
percent, then your net sales will be $147, the amount you should enter in
your January sales forecast.
В© 2006 Ogando Associates, Inc.
Chapter 21: Cash Flow Projection
The cash flow forecast is a crucial financial instrument. In fact, I refer to my
cash flow projection much more during the course of the year in running
the business than the P & L. The cash flow projection for a business is more
likely to swing rapidly and should be updated at least every month for a
business selling on credit. If you haven’t done cash flow projections
before, it may seem like a tough task at first, but if you examine just one
month on the cash flow, item by item, you will go a long way to
understanding how cash flow is done.
Projecting cash flow is especially important for growing businesses
because growing businesses burn cash. And fast growing businesses burn
cash quickly. It is quite possible for a profitable business to be driven to
bankruptcy because it ran out of cash to pay its bills. This usually happens
when a business must either stock up on inventory, or make and pay for
other expenses, before it is able to collect money from customers.
This is why you must try to hold onto cash by speeding payments from
customers and extending payables as long as possible to your vendors. It
is also why you need to stay on top of your cash flow projections.
Especially in starting a new business, you will be surprised how much effort
going into getting credit customers to pay you on time. Just sending
invoices is not going to cut it. If you are unwilling to send overdue letters,
make collection calls, or putting customers’ work on hold, then reconsider
granting credit. Potential lenders and financiers are very aware of this. So
you may want to say a few words to them about how you are going to be
sure you get paid from customers on a timely basis. Consider automating
credit card payments, pre-paid or deposits, etc.
A Word of Caution
In starting or running a business, you need to be careful in taking
advantage of “great deals” or volume discounts that will eat up your
cash. If you do not manage your cash carefully enough, you could allow
expenses to mount or inventory to build more than previously planned.
В© 2006 Ogando Associates, Inc.
Chapter 22: Balance Sheet Projection
In running your business on a daily basis, the balance sheet is much less
important than the cash flow forecast and the profit and loss projections.
If you have adequate cash to pay for your bills and are making a profit,
then you are going to avoid most financial problems. In fact, I spend
almost no time looking at a balance sheet for my business. Here is when a
balance sheet is helpful:
1. Bankers give them attention, especially if it looks like the
business is headed for trouble.
2. Sometimes bank lending will depend on achieving certain
balance sheet conditions, such as maintaining a minimum
net worth.
3. Banks and investors tend to look at ending balance sheet for
the year, especially if it is prepared by an outside accounting
4. One way to use a balance sheet is to help find more cash.
Can underused fixed assets be sold for cash? Can needed
fixed assets be sold and perhaps leased back? Is there a lot
of money tied up in receivables that payment can be
accelerated on? Is the inventory excessive?
Implementation Schedule
This portion of the business plan accomplishes the following:
• Identifies when you expect needed financing to kick in.
• Lists the main steps of the marketing campaign charted by date.
• Gives the scheduled dates of the production and delivery programs
that will fulfill the obligations of sales.
The implementation schedule will enable you to coordinate and manage
your business in a systematic and controlled way. This section of your
business plan is critically important both internally as a management tool,
and externally as a means of persuading others that you have the "smarts"
to put your business on the road.
Statement of Resource Needs
If you are using your business plan for the purpose of generating needed
resources from lenders or investors, this document will summarize your
В© 2006 Ogando Associates, Inc.
precise needs (capital, terms, requirement date), and identify how the
resources will be used.
In the case of financing, your cash-flow projections will, of course, reflect
how these funds will be repaid. In the case of capitalization involving
equity partners, your projections will give an indication of the growth of
equity and the anticipated timetable for the sharing of profits.
В© 2006 Ogando Associates, Inc.
Chapter 23: Double Checking Your Financials
It is essential to double-check your financial projections because it is very
easy to have one or more errors which can throw your results way off. If
bankers or investors pick up on a major error, they will be very leery of
providing you with financing. Even if you are not seeking financing, a
major error in financials could prove a disaster in your business, for
example, if they falsely give you the confidence to spend more money
than you can afford to spend.
Here is an easy method to double check your work, by using the Retained
Earnings figure in your Starting Balance Sheet (check your worksheets).
Start with the Retained Earnings entry from the Starting
Balance Sheet.
Add to it all Net Profit (after tax) from the date of the
Starting Balance Sheet up to the current period.
Then, from the Cash Flow Projection, add all Equity Capital
Subtract all Dividend/Owner Payouts.
The resulting number must equal the Retained Earnings
number that you derived using the “backing in” method
explained under the Retained Earnings text.
Don’t be frustrated if your numbers don’t at first match up. If you don’t
regularly assemble financial statements, it will probably take a bit of time
to get them right. Just carefully go back and review each step of your
Chances are that even if your financials double check correctly, you will
not be satisfied with your first pass through your work. I often find for
example that my profit margin is too low and that I want to go in and
reduce costs.
Be careful that when you go back and make even small revisions that you
make the changes on all the related financials. One of the great
advantages of the templates in this course is that you can change one
assumption and it recalculates all of the financial statement projections.
В© 2006 Ogando Associates, Inc.
Chapter 24: Key Ratio Analysis
If your cash flow looks solid and your business is profitable, I generally
would not be too concerned about ratios. Yes, some banks and bankers
are very rigid that your business currently meet or projects to meet their
ratio requirements. And some bankers will be much more concerned with
some ratios than others. But it is a competitive world, so if your business
otherwise has a solid plan for repaying its financing, you will usually be
able to find someone else to finance you even if your ratios are less than
One advantage of including ratios in your business plan is that it makes it
look more polished for potential lenders and investors. It makes you
appear more astute, and it makes less work for them!
Ratios are an extra plus for a business plan. Your plan will not be
incomplete if you do not include them. So if you don’t understand them,
or if your ratios look weak, you would probably be better off not including
them in your plan.
Here are some key ratios and the formulas used to derive them:
Quick Ratio
Current Assets – Inventory
Current Liabilities
Also called the Acid test, this ratio should usually be greater than one. It
tests the very short term liquidity versus current obligations of the business.
Inventory is not included because it is assumed that inventory cannot be
as quickly turned into cash as other current assets such as bank accounts
and accounts receivable.
Current Ratio
Current Assets
Current Liabilities
This ratio should be greater than two. This ratio tests the short term liquidity
of the business.
В© 2006 Ogando Associates, Inc.
Debt to Equity Ratio
Total Liabilities
Total Equity
This ratio should be one or less, but benchmarks for this ratio vary
considerably among different industries. This ratio also indicates how
heavy a debt load your business carries versus the equity. A high debt to
equity ratio may indicate that the business is too risky a candidate for
additional debt financing.
Debt to Assets Ratio
Total Liabilities
Total Assets
This ratio should be .5 or less, but again, benchmarks for this ratio vary
according to industries. This ratio is almost identical to the debt to equity
ratio, except that the debt load is compared to assets plus equity instead
of just equity.
Return on Equity Ratio
Net Profit
Total Equity
This ratio should be high enough to make it worthwhile for investors to
make equity investments in the business, and reflect an expected return
high enough to offset risks of the investment. Because virtually all new and
small businesses have a lot of risks, investors expect to earn much higher
returns than if they invested in larger, more stable businesses.
Returns on Assets Ratio
Net Profit
Total Assets
This ratio shows how effectively the business uses its total assets in earning
net profits. This ratio should at least be significantly higher than the highest
interest rate the firm will be paying on its debt financing.
В© 2006 Ogando Associates, Inc.
Sales Break Even
Fixed Costs
1 – (cost of goods % + commission % + freight %)
This value indicates the amount of sales that you need to achieve to
break even. Your break even level should be significantly lower than your
most likely sales projection. Cost of goods sold, commissions and freight
are all costs that vary with sales.
Working Capital
Current Assets – Current Liabilities
Working capital measures the amount of funds that the business has
available to pay for the daily operations of the business. This number
should be positive and large enough to easily cover the expected ebbs
and flows of running a business.
В© 2006 Ogando Associates, Inc.
Chapter 25: Polishing Up
The last two sections of the business plan, the Executive Summary and the
Appendix, are the sandwich bread to the meat, so to speak.
The Executive Summary is that critical portion examined first by investors
and lenders, yet completed after all other sections have been
The Appendix, on the other hand, is where you supply all the back-up
documentation needed to substantiate what you write about in your
Let's look at these two.
The Executive Summary
As previously stated, the Executive Summary is that critical portion of the
business plan that's looked at first but written last. By preparing the
Executive Summary last, you will be able to write it more easily and with
greater impact, since you will have already compiled your data in other
sections of your plan. Simply transfer the "sizzle" of the plan into concise
paragraphs that then become your Executive Summary.
Here are some key steps to take:
1. Begin by explaining when the company was formed and what you
sell, distribute or manufacture.
2. Next, explain the purpose of your operation by stating what
products and/or services you will provide for your customers; then
title this the "Statement of Purpose."
3. Indicate what phase of operation your business is presently in. Show
projections which demonstrate that you will cut operating costs by
a certain percentage and increase sales by a certain percentage.
These two important items will result in a faster turn of cash flow to
the company.
В© 2006 Ogando Associates, Inc.
4. Next, create your own Mission Statement. This is the driving value or
principle that has you be in business, even when business isn't going
according to plan.
5. Now give some background information on
o the market
o your customers' buying habits
o how you will educate your customers about your
o what type of quality products/services you sell
o whether or not you will be able to buy from different suppliers
at lower cost
o who you are buying your supplies from
o how much your operation has produced in annual sales over
the past 3-5 years, if your business has been in operation for
that long
o If you have operated at a loss, indicate why and then explain
how you will correct this problem
o Revenue projections for your next fiscal year, and projected
annual revenue growth rate (by percentage) for the next five
6. Now, begin explaining the concept of your products and services.
Use comparisons of similar products and services currently in the
market. Indicate any special training required for you or your staff,
managers and salespeople to properly produce, sell and distribute
your product/service.
7. Follow this up with whatever strategies you will use to meet the
competition. Also explain the market share you presently enjoy, or
will enjoy.
8. The next step is to clarify your Target Market. Define your typical
customer profile using the information that you wrote down earlier in
Lesson 3. Also, indicate any additional products you believe your
targeted market will respond to favorably.
9. Next, explain if your products are protected by copyright,
trademark and/or US patent laws.
10. Are responses from customers or potential customers favorable?
Indicate this also.
В© 2006 Ogando Associates, Inc.
11. The next steps that you will take are relatively easy, since you have
already compiled the data in other sections. Just give the most
important details in succinct fashion. The next "mini-sections" within
your Executive Summary should be, in the following order:
o Objectives
o Management
o Marketing
o Finance
These sections, along with the previous ones, will make a solid Executive
Summary, and give powerful, persuasive information to your reader.
Appendix Section
Your Appendix section should include all of the back-up documents to
the data you have already shared. In this section, you will want to provide
as many supporting documents as you can. Two good places to find most
of your important information will be the library and your customers.
Your public library carries previously written articles, publications,
newsletters, reports, and statistics that will help you verify your claims. Also,
look for Market Survey Data that has been collected by an independent
surveying company such as the Gallup Organization or IMC.
You should consider obtaining letters of reference. Your customers may be
your strongest ally, when persuading potential investors with your project.
If you can persuade loyal, satisfied customers, and/or respected people in
the community to write you a letter of recommendation, you will be miles
ahead of your competition. Get them to write the letter on their
Also include brochures, mechanical designs of your product, contracts,
media information, and surveys.
This section of the business plan might include some or all of the following:
• Footnotes from the text (i.e. assumptions used in projections, further
sources of information, etc.)
• Supporting documents
• Articles, clippings, and special reports that substantiate your
background information in marketing, customer profiling, and
industry information
• Biographies or resumes
В© 2006 Ogando Associates, Inc.
Charts and graphs
Copies of contracts and agreements with key strategic partners,
officers and suppliers
Glossary of terms (if applicable)
References: lenders, investors, other bankers, suppliers, anyone who
can give positive feedback on your past business performance.
В© 2006 Ogando Associates, Inc.
Chapter 26: Practical Tips
Here are the top 7 keys to ensure business plan success.
Be Realistic
Build your business plan with a sense of realism and practicality. Do your
homework carefully and think through every detail that could have a
bearing on the success of your project. Your business plan should be a
carefully crafted, practical document, geared towards performance, and
not a speculative piece of fortune telling.
Document Your Claims
Where you base projections on specific assumptions (i.e., projections
about market response to your goods and services), give evidence that
these are based on facts. Assemble and apply expert opinion to
substantiate your projections. Use sources such as newspaper and
magazine articles, university studies, and interviews of prominent people
familiar with your market.
Create a Unique Selling Advantage
If you have a "competitive edge", emphasize this advantage boldly.
Make it your selling point and direct the consumer to associate his needs
with your Unique Selling Advantage at the expense of the competitors.
Be Flexible
Your business plan, your "road map," allows you to check your position,
velocity, and direction, while keeping your objectives in mind. As you
monitor your progress, you will periodically need to implement mid-course
corrections. You will certainly need to adjust your business plan from time
to time as your assumptions are updated according to real-life feedback
from the "trenches", and as market conditions shift.
В© 2006 Ogando Associates, Inc.
Use Technology to Good Advantage
Modern computers and computer software can be a tremendous help to
you in developing portions of your business plan, especially the financial
portions. With the help of computers, you can play "what if..." and gain
valuable insight into future outcomes, based on strategic adjustment
variables, such as pricing services in relation to variable costs. Have your
local accounting expert explain the details, if necessary.
You might wish to invest in the equipment and software to service your
own needs in these regards. Computer hardware is very much within
reach of most budgets these days, and recent software developments
place effective software programs within easy reach.
Remember, the Internet, email and intranets are rapidly becoming as
common as a telephone number and a fax machine. Don't get left
behind while the world around you, including your competitors, takes full
advantage of these tools and technologies.
Attend to Packaging
The business plan should be clean, conservative, simple, well prepared,
clearly written, error-free, and appropriately bound. Your plan should look
impressive, not slick. Let the visual form reflect the quality of the content. If
you are presenting the business plan to prospective financial sources, you
should bind the materials in such a way that they will open flat on a desk
top. For in-office use, the business plan should be organized in a three-ring
binder, where updates can be easily incorporated.
Present the Business Plan Skillfully and Graphically
Consider using projection technology and similar support equipment
when presenting your business plan to prospective funders. Presenting
economic and chart-oriented information in attractive visual ways helps
to solidify your position. Also, it speeds up presentations, makes the
important facts quickly accessible, and reflects well on your ability as an
effective business manager.
В© 2006 Ogando Associates, Inc.
Congratulations! You have compiled a good, solid business plan, if you
have followed the steps in this course and enriched your experience with
our discussions. Hopefully you have enjoyed the entire process. If I were a
betting woman, I'd say you now understand your business much better
and feel quite confident in the direction you are headed.
If you would like further coaching on finalizing your business plan, or just
want some direction as to whom to approach for funding, give me a call
or send me an email. I am here to serve!
Also, if you found this course to be helpful in giving your business the clarity
and direction you have been seeking, let me know. If it has not, let me
know as well. I am always looking for ways to improve our programs and
I hope to connect with you soon!
Monikah J. Ogando
The Entrepreneur’s Explosion Coach
В© 2006 Ogando Associates, Inc.