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Monday, October 29, 2007

Realism vs. Optimism in the Business Plan

The most important function of a business plan is to create interest among investors so that they write a check. In achieving this goal, business plan writers are often challenged by determining the proper level of optimism in their plan. That is, they must create a compelling story to investors while maintaining credibility.

Optimism shows investors that a company is confident about the market opportunity, its ability to execute on the opportunity, etc. Over-optimism, however, leads investors to believe that the management team does not fully understand the opportunity or the tough road ahead. As such, business plans must be sure to limit over-optimism and show investors they are realistic and credible.

Realism, the opposite of over-optimism, should be used in business plans to portray sobriety and credibility to investors. Realism should manifest itself in management team bios that tell the actual accomplishments of managers, rather than fluff. It should manifest itself in credible market forecasts and sober assumptions of the company’s growth.

While business plans must excite investors so they take action, if they are too optimistic, investors will discount their merit. Conversely, if they are too sober, investors may not feel they will get an adequate return on their investment. As such, business plans should present a compelling, optimistic picture, but continuously refer to hard facts and realistic assumptions to build credibility and genuine excitement

About the author:
GT Business Plans has developed over 200 business plans for clients that have collectively raised over $750 million in financing, launched numerous new product and service lines and gained competitive advantage and market share. GT Business Plans is the sister site of GT Venture Capital

Business Plans

Way back in business school we had to churn out business plans every semester. As soon as the assignment would drop we would be scrambling for information. Start the number crunching game, do the analysis, do some mental planning and write business plans.

Then we graduated and got jobs. But, we still have to write business plans.

I came across a collection called Business Plans from 'Business-planning-4-you' (http://business.marc8.com/ebook-info.php/name/business_plans/toc_id/1-0-1-5) a few weeks ago. The title caught my eye as I wondered who would be giving away business plans and how many? How would they manage the number of industries? I wanted to find out more.

- It seems that they have over 1500 readymade business plans in their database.
- Covers a wide range of industries: from Abattoir Business Plan to Zen Practitioner Business Plan.
- The cost is $50 as of this writing. That makes it 3 cents per business plan (50/1500 = 0.03).
- They offer about 24 extra bonuses

I know I would be happy with the business plan templates that I could modify and add my own thoughts. I think it would be like instant soup. You have bought the basic ingredient, but you still need to provide a little bit more like hot water and a bowl.

Though I haven't tried the collection myself it looks quite good. I think this would be useful if you are in business school, early part of your career, or even a seasoned business man venturing into new areas.

Till next week and all the best with your business planning!
About the author:

About the Author
Sanjib Ahmad is a Product Consultant for "Business.Marc8.com - Business Best Sellers" (http://business.marc8.com). You are free to use this article in its entirety as long as you leave all links in place, do not modify the content, and include the resource box listed above.

Business Plan

A is a short brief that explains how a business owner, director or entrepreneur plans to orchestrate an enterprising effort that carries out the actions that are necessary in order for the effort to succeed. Basically, a business plan is the written description of a business’s business model. Those involved in the planning process and management are the most likely to use a business plan. Business plans are also used when approaching potential lenders or investors that have an interest in a particular business venture.

There is a great deal of subject matter that is addressed in a business plan including a number of sub-plans. There are a number of business plan models that can be used to create a new business plan from or there are software options like the Business Plan Pro 2004. If a business is not using a business plan software program, they will most likely follow what is considered to be a typical business plan format.


About the author:
Business Plan

A business plan is a short brief that explains how a business owner, director or entrepreneur plans to orchestrate an enterprising effort that carries out the actions that are necessary in order for the effort to succeed. Basically, a business plan is the written description of a business’s business model. Those involved in the planning process and management are the most likely to use a business plan. Business plans are also used when approaching potential lenders or investors that have an interest in a particular business venture.

There is a great deal of subject matter that is addressed in a business plan including a number of sub-plans. There are a number of business plan models that can be used to create a new business plan from or there are software options like the Business Plan Pro 2004. If a business is not using a business plan software program, they will most likely follow what is considered to be a typical business plan format.

Most business plans will begin with an executive summary that describes the basics of the business model as well as comprehensive explanations for the scheme of the plan. Next, the business plan will move into the background of the plan with a brief history of the company especially if it a newer company and background information that includes how long the company has been in business, the current number of employees, annual sales figures, the location of all the business’s facilities and a complete description of the business ownership.

Next, most business plans will detail what will be involved in their marketing efforts including the competitive environment, customer priorities, product, pricing and promotion strategies as well as the distribution strategy. The explanation of production and manufacturing should include all work procedures as well as production facility requirements, inventory requirements, equipment needs and fixed cost apportioning. Finance details the source of all funds, anticipated returns, a formal monthly cash flow statement and a list of all existing loans and liabilities. Human resources points out where responsibilities are assigned, training that will be required, necessary skills, union issues, salaries and new hiring information. Other areas that may need to be covered depending on each individual situation can include legal strategies, product research and development, marketing research and any inter-company workings.

For those who feel that they cannot complete a business plan on their own or simply don’t have the time that is needed to put together an effective business plan, there are some software options like the Business Plan Pro 2004. The Business Plan Pro creates a complete and professional looking business plan that is sure to clarify the workings of a business and impress those who see it for understanding and funding purposes. The Business Plan Pro 2004 provides preformatted tables, color charts and graphs, graphic forecaster, built-in formatting, Power Point templates and a great deal more. By using software like the Business Plan Pro 2004, the user is guaranteed to have an impressive and professional looking business plan to present to people of import.



About The Author
Greg is the webmaster and owner of " Best-Business-Plan-Tips.com" and has been researching and reporting on Business Planning for years. Click Here ==> http://www.best-business-plan-tips.com/

Saturday, October 27, 2007

A Strong Sales Model Underlies Every Assumption In a Business Plan

One of the most difficult tasks a new prospective entrepreneur faces is the construction of a Sales Model. Many books devoted to instruction for writing a business plan devote little or no attention to this vital exercise. The knowledge needed to assemble a quantified, qualified and clearly narrated Sales Model is essential to convey the scope and validity of an opportunity.

The most elemental data point required to commence assembling a strong sales proposition is the Cost of Goods (COG). Knowing with absolute certainty the all-inclusive COG is the foundation number necessary to build the Sales Model and ultimately a strong business plan. Guessing, estimating or hoping that the number you slot into your plan is accurate will lead to a solid dead end, and very quickly.

The Sales Model, just like the completed business plan, is written based on a series of assumptions. These assumptions are then qualified (given historical and current market perspective), quantified (COG and sales goals are utilized to extrapolate a believable sales universe is available for the product) and narrated (explanation is provided to support the basis on which the assumptions were based). The Sales Model is but one section of a business plan: however, it is the heart and soul of the following financial section so crucial to investors.

I see so many business plans that scream "this is guesswork"! First year sales are projected at a nice, clean round number (so often $1,000,000). Growth ramps up too quickly, and to unbelievable numbers. The justifications for these assumptions are based on mirrors and hope.

Let us make a few assumptions here to show a basic example of a method to build a believable Sales Model. We will assume that research has proven that our COG (remember, including packaging, shipper, master shipper and freight, customs and duties, if any) is $1.00 per unit for our widget.

Our next assumption to decide is the wholesale selling price: if the item is to be sold through traditional retail sales distribution channels. The nearest competition we can find on the market is selling in mass-market distribution stores (Wal Mart, K-Mart, etc.) for an average of $6.49. Assuming a 37.5% markup, the competitive item is being sold at wholesale for $4.06 (round to $4.00). Assuming that our item has features and benefits that would be perceived as similar to the competition $4.00 is an acceptable wholesale. A 25% COG is well within industry parameters (based on historical norms).
Tip! No matter how good a communicator you are, you will never be able to convey your vision for the business as successfully as a perfectly put together Business Plan. It provides a clear understanding as to what you want to achieve.

We now have our COG, a wholesale sales price and a pretty good picture of the retail price that will enable the item to be competitive and still offer excellent profit potential. The easy part is over. Here is where things get tricky.

Our item will be sold in the hardware section of stores. After studying industry specific data and researching the hardware product category we determine that we will have over 135,000 potential store placements if 100% of the American market could be penetrated. This is hard data. Now we must leave science and become artful.
Tip! Do not include every possible business plan financial projection scenario in your business plan.

How many of these 135,000 hardware outlets can we believably project to carry our widget in year one of operations, year two, year three, etc? Making every effort to build our plan on solid assumptions, we are going to be conservative. During the first year after operations commence, we will open 2% of our potential universe. Year two will see the widget's distribution add another 2.5% of the hardware outlets and year three we will gain another 3.5%. After three years we will conservatively projected 8% of the potential distribution points for a hardware widget.

Another point to consider when building out a distribution model, not all of the stores will be shipped at one point in any yearly cycle. It is important to have a line at the very top of the cash flow section in the Financials that details how many stores you project to open each month. Allow for seasonal variations. Is the widget a summer item, a Holiday item? This will determine peak shipping months.
Tip! Before you send your business plan to anyone, proofread the executive summary carefully. You will probably not get the financing if you have typos in the executive summary.

The next assumption is sell-in levels. How many units of the widget will a store typically carry in inventory? Competition averages 18 units per store. Is the widget going to be promoted, placed on end cap display, given a floor stand or presented in a featured way? These are questions that must be qualified, quantified and narrated to justify the sell-in assumption.
Tip! Myth: My business plan needs to be perfect before I can start my business.

If the sell-in assumption is 18 units per store, then our next task is creating a retail sales turnover. Again, if it is verifiable that the competitive leader turns goods an average of eight times per year, we will be conservative. An inventory turn of six times during year one, seven times during year two and eight times in year three is easily defensible. This will, of course, be average out as stores come on line during monthly new door openings.

As we are not completing a proper spreadsheet here, reflecting 12 month flows in our example, let us assume that year one sales are for stores that have been carrying the product for a full 12 months. Here is where our Sales Model construction for year one has brought us.

Doors Opened 2700 (2% of 135,000)
Tip! Starting Date - Set a starting date for when you want to begin your business or put into place this working business plan. Make sure you have printed material available for all services or products offered.

Sell-in per Door 18 units

Wholesale Price 4.00
Tip! 'Only qualified investors see your business plan.' Yeah, sure.

Inventory Turnover 6 Turns

Sales Year 1 = $1,166,400

Perform the same calculations on the assumptions we have created for years two and three and the results are $3,061,800 and $6,220,800 respectively.

The Sales Model we have created for our mythological widget is built on assumptions that we have vetted, checked against historical norms and properly support our theorem with logic and a conservative, believable rationale. The numbers work together and tell a story of strong sales traction with a lot of distribution to be gained (after year three we have 92% of the market still not serviced).
Tip! A Business Plan will help convince both you and the Bank of the project's feasibility and viability.

We now have the top line sales number under which we can project a financial picture that will excite potential investors, licensees and partners. They will know that we are serious, professional and knowledgeable. This presentation of a comprehensive plan supported by reality based assumptions is lacking in so many business plans I read.

By definition, a business plan is based on assumptions, and lots of things happen to distort assumptions. Murphy named a law after himself for a reason. Stuff happens! Nevertheless, business plans that achieve successful results are built on assumptions that mitigate the potential for ugly surprises. A business plan without a well-constructed Sales Model has no chance of overcoming the natural cynicism inherent in investors and decision-makers.
Tip! Financial data should be referenced in the Business Plan or as handout; not as a slide.

Geoff Ficke has been a serial entrepreneur for almost 50 years. As a small boy, earning his spending money doing odd jobs in the neighborhood, he learned the value of selling himself, offering service and value for money.

After putting himself through the University of Kentucky (B.A. Broadcast Journalism, 1969) and serving in the United States Marine Corp, Mr. Ficke commenced a career in the cosmetic industry. After rising to National Sales Manager for Vidal Sassoon Hair Care at age 28, he then launched a number of ventures, including Rubigo Cosmetics, Parfums Pierre Wulff Paris, Le Bain Couture and Fashion Fragrance.
Tip! To ensure your success. Writing a business plan enables you to consider all aspects of your photography business.

Mr. Ficke and his consulting firm, Duquesa Marketing, Inc. (http://www.duquesamarketing.com) has assisted businesses large and small, domestic and international, entrepreneurs, inventors and students in new product development, capital formation, licensing, marketing, sales and business plans and successful implementation of his customized strategies. He is a Senior Fellow at the Page Center for Entrepreneurial Studies, Business School, Miami University, Oxford, Ohio.

Venture Capital Business Plan

Venture capital finance is instrumental in inducing technological development, stimulating creativity and innovation and nurturing entrepreneurship. Concerted efforts are required by financial institutions, private sectors and other agencies to create a conducive environment for the growth of venture capital. In particular, initiatives are required to widen the perspective of venture capital finance and create a favorable fiscal and regulatory environment.

The venture capital schemes of the term-lending financial institutions presently focus mainly on supporting development of technology and implementing indigenously developed yet untested technologies. While this concern is understandable because of a genuine need for expanding the base of viable indigenous technology, it leads to a somewhat limited view of venture capital. What is required is a broader perspective on venture capital so that it is viewed as an instrument for financing a wide range of projects that essentially have a "high risk- high-return" profile.
Tip! Myth: My business plan needs to be perfect before I can start my business.

In this context, it is important that entrepreneurs, financing bodies, fiscal authorities, regulatory bodies and others understand the concept and relevance of venture capital. It should be appreciated that venture capital is an instrument for strengthening entrepreneurial forces in the economy; a device for inducing risk taking and a mechanism for promoting a closer investor/investee relationship. Those who participate in venture capital arrangements must overcome certain traditional psychological barriers and be willing to build a relationship of genuine partnership and not a perfunctory association of limited involvement.
Tip! Myth: Friends and family are the best sources of feedback and advice on my business plan.

To nurture the growth of venture capital, a favorable fiscal and regulatory environment should be created. Some of the specific things that may be are investors subscribing to the capital of venture capital funds may be given greater tax reliefs, and the long-term capital gains of the venture capital funds may be taxed at a concessional rate or even exempted totally from taxation. Orderly and efficient mechanisms must be evolved to facilitate liquidation of investments of venture capital funds.
Tip! The Plan - Outlines or templates for creating a business plan are availble free online. Get one.

Venture Capital provides detailed information on Venture Capital, Venture Capital Firms, Venture Capital Investing, Venture Capital Funds and more. Venture Capital is affiliated with Angel Investor Networks.

Five Reasons to Write a Business Plan

Have you heard the ancient proverb, "He who fails to plan, plans to fail"? Well, that sentiment has never been truer than when contemplating a start-up or acquiring an existing business. According to the Small Business Administration's Office of Advocacy, approximately 600,000 businesses close or file for bankruptcy every year. The facts speak from themselves

* 85% of all businesses that neglect to plan their business will fail.
* Interestingly enough, of those that take the time to write a business plan, 85% will succeed.
* Additionally, 40% of businesses with a strategic plan will double their business within 2 years of writing their plan.
* And with that plan, greater than 70% will exceed their expectations within 5 years.

With such overwhelming numbers, why would anyone start a business without having a business plan? More often than not, people recklessly fail to see the necessity. And in the end, many entrepreneurs strike out on a venture so convinced of its merits that they fail to thoroughly evaluate the business' potential. As a result, they are ill prepared to navigate the opportunities, costs, difficulties and requirements needed to successfully run their business.

Tip! Myth: My business plan is in my head—that's good enough.

How can you avoid the well-traveled path of those doomed before you? Here are five (5) reasons for you to tackle this time-consuming, but vitally important strategic planning tool:

Financing

Normally, this is the first (and sometimes only) reason business executives think to draft a business plan; often times because they are need of emergency financing. But some businesses such as independent practitioners (i.e., accountants, attorneys, consultants, etc.) may never have reason for significant infusions of capital that would traditionally justify writing a business plan. However, other types of businesses including technology or manufacturing firms, and particularly start-up businesses, may need to establish credibility with financing sources by allow potential investors and/or lenders to understand the viability of their business. Yet that doesn't necessarily make the need for financing the most important reason to write a business plan.
Tip! Myth: I don't need a loan—so I don't need a business plan.

Feasibility

The Small Business Administration reports that two-thirds of new employer businesses survive at least two years, and about half survive at least four years. That's a significant amount of time to invest in a venture only to discover its lack of feasibility. But an entrepreneur who takes the time to create a business plan can take an objective, critical look at their business and identify the strengths and weaknesses; and, potential risks and opportunities of the market and the venture, before they incur any costly, perhaps even disastrous, mistakes later.

Communication

Argruably the most valuable resource that any organization has is its people. And as a savvy business executive, you want the best and sharpest employees you can find to keep your company at the top of the heap or maximize your profitability. What better way to communicate your ideas to potential joint venture partners, management and/or key personnel than through a strategic planning document such as a business plan? The fact that you have taken the time to draft and annually update your business plan may be all you need to distinguish your organization from your competitors and sway a critical employee to join your executive team.
Tip! Company Highlights: The free sample business plan will also include a section for you to look at that will have miscellaneous highlights of the company. The free sample business plan will list such highlights as: a mission statement; value statement; keys for success; desired outcomes; etc.

Which brings us to two of the most important reasons for writing a business plan:

Roadmap

Drafting a business plan is a time-consuming process and it could take you weeks, maybe even months to prepare. But the real value in creating a business plan is that it makes an excellent benchmark for annual review for you to refer to throughout the life of your business. So don't just write a business plan when you start your business and place it on a bookshelf somewhere never to be thought of again. Instead, periodically review your plans to determine where you are and what your next steps and/or moves should be.
Tip! To ensure your success. Writing a business plan enables you to consider all aspects of your photography business.

Focus

How many times have you seen a seemingly viable business go out of business because they have added too many product or service lines and simply gotten too large? More often than not, they have acquired additional product lines, merged with other businesses, etc., all in an attempt to stay competitive. But that doesn't necessarily mean that they will maintain their market share, especially if they sacrifice things like customer service, product innovation, etc. But by drafting and continuously reviewing a business plan, an organization can stay focused on their vision, operational and financing objectives; long-term goals, etc, and not venture off into other areas because they "sound good".

So if you are really serious about investing your time, energy and hard-earn money into starting a business, start at square one. Taking the time to write a business plan, think through your idea, study and research the facts; and, critically review the overall picture, may be all you need to build a firm foundation for the future success of your business.
Tip! Before you send your business plan to anyone, proofread the executive summary carefully. You will probably not get the financing if you have typos in the executive summary.

Linette Singleton is principal consultant for Singleton Consulting Group, a resource partner that provides marketing and business development services to facilitate strategic growth changes for small businesses. Their latest product offerings include a Online Business Plan Writing course. She can be reached at http://www.bpcoachonline.com

Presenting Your Business Plan to an Angel Investor

When presenting your business plan to an angel investor you must understand that they will be very interested in your spreadsheets and proformas, but you must also realize that it is typically an entrepreneurial optimistic approach, which causes problems with proformas.

Therefore, you should have dueling spreadsheets; that is to say the spreadsheets, which take your best guess and double the time, double the expenses to compete with your optimistic approach. You should be able to present both of these to your Angel Investor; who chances are is a retired business person with a little bit of financial savvy.

This will show your Angel Investor that you indeed are a rational thinker and concerned about the money as well as the truth. If the Angel Investor cannot trust you your chances of being funded are nil. An angel investor is betting on the jockey not only the horse. As an entrepreneur you must be honest with yourself as well as your financial partner.
Tip! Myth: My business plan needs to be perfect before I can start my business.

They want to make sure you believe in what you are doing and that you also have risked your own capital, time and energies into the new business. Angel investors want you to succeed and often they also like to give their input and if you end up taking their money for your startup, the need to realize that their input needs to be taken seriously.

Angel Investors are typically much better investors for a long-term business plan that Venture Capitalists, although they do not come usually with the incredible network to help you succeed. Venture Capitalists are more interested in themselves and making money on their investment then what you get out of it or the future of the business with you in it. An angel investor is interested in you, the future of the business and the possibility of making a whole lot of money on their investment. Please consider all this when presenting your business plan to an Angel Investor.
Tip! Before you send your business plan to anyone, proofread the executive summary carefully. You will probably not get the financing if you have typos in the executive summary.

Lance Winslow

Business Plan Appeal - Five Rules For Writing Attention Grabbing Headlines

The success of a business plan stands or falls on its ability to get potential investors to take a moment to read it. Nothing works better for doing this than well-written headlines designed to interrupt and engage investors. Here are five fundamental rules for writing and incorporating headlines into your business plan.

1. More important than anything else, try to get investors' self-interests into every headline you write. Make your headlines suggest to investors that there is something about your business plan or venture they want. This rule seems so obvious. Yet, absent omitting headlines entirely, it is the rule most often violated. Replace overused one word headings like "Company", "Products", "Market", Financials" with headlines that appeal to investors' self-interests like making money, protecting their investment, or building trust.

2. Be sure to get news worthy information like new products, new uses for old products, or technological breakthroughs into your headlines whenever possible.

3. Avoid "curiosity" headlines. Marketing and advertising professionals have proven through testing and experience that the effectiveness of the average curiosity headline is, at best, doubtful. For every curiosity headline that succeeds in getting an investor to read further, a dozen will fail. Instead, combine curiosity with news or self-interest to create a single, more compelling headline capable of drawing investors into your plan.

4. Take a positive angle with your headlines. Avoid headlines that paint gloomy or negative pictures of your business venture or markets. For example, if you are targeting a market with millions of suffers, emphasize in your headlines how the business venture can benefit them.

5. Demonstrate through your headlines that here is a business plan that will generate results and is backed by evidence. Let your headlines educate investors about the opportunity, risks, and the available options.

Of course it goes without saying that in using any of these rules be sure to make your headline believable. In most cases, "too good to be true" headlines will not draw experienced investors into your plan.
Tip! Starting Date - Set a starting date for when you want to begin your business or put into place this working business plan. Make sure you have printed material available for all services or products offered.

Mike Elia is a chief financial officer and an advisor to venture capitalists and leverage buyout specialists. His business plan ebook "Business Plan Secrets Revealed" shows how to make your business the most appealing investment choice to venture capitalist, bankers, and other business investors. For his free business plan guide visit http://www.business-plan-secrets-revealed.com/free-business-plan-guide.html