Business planning requires an open and inquisitive mind. Many preconceptions are dis-proven and many opportunities missed by not listening and heeding the information that one acquires when researching your new business and especially when researching your existing business.
FORM The first money decision that one must make is what form is my business going to take. This decision is based upon many things;
- Will I make money now or later;
- Will I have a tax loss and how can I best use it;
- Will I have a potential product liability that I need to insulate myself and my assets from;
- Can I use any tax losses that might be generated in the initial stages of my new plan;
- What do my investors expect to get from the venture;
- How do I get out?
These are a few of the initial issues that face a business. If you are buying an existing business the questions are basically the same but are modified because of a going concern existence.
The answers to these questions depend upon your circumstances. The first issue that I feel needs to be addressed is what do my investors expect? If they expect to use losses from a start-up business one must use a pass through entity, either a form of a partnership or a corporation with an S election. If one is expanding an existing business, losses may also be generated and a pass through arrangement could be helpful in obtaining private capital.
WHY This Business?
This probably seems like a simple statement, but many people have gone down the road to bankruptcy without answering this question. Usually a business decision is made from prior experience, an introduced idea that captures one’s imagination, greed, or just circumstances. One must be able to identify the market, the product segment size in both units and dollars and the anticipated penetration percentage. How long it will take and what will it take to achieve the goal.
Once one has determined the market and has a preliminary idea of the product, the analysis begins. One needs to know who are the competitors, what do they produce, do they have new products that can compete with my new product. Do I have a plan to add products to counter new competition? Is my business easy to enter or difficult? Does it require substantial capital and specific skills or can anyone enter it with little capital and skills.
HOW do I acquire product?
This becomes a difficult task. In the beginning it might be easy to acquire product, but if your product takes off, others may jump into my market segment and I may be unable to get the product at a level that I originally forecast and I may reduce margin or I may lose my source of product.
New products or modifications to existing products often require new manufacturing facilities. A product manufactured by others runs the risk of having your contract manufacturing facility come up with their own product and supplant your source. If one has to produce their own product what does it cost to create a manufacturing facility and are the products, equipment and facilities available.
Do I need specialized talents and skills to run my operation. Most products that are manufactured require some specialties. Engineers, Scientist, or personnel with the skills necessary to get your product to market may not be readily available. Planning for skilled employees may require you to locate in areas where you are not currently located- Additional cost!
A good business plan must include a detailed explanation of the above items as well as good financials; Basic financials should include the following:
Balance Sheet, Income statement, Product detail, Sales by units, costs of each product, Cash flow statements, Accounts receivable and payable schedules. These schedules should at least be on a monthly basis for the first two years and may be summarized for the next 5 years with a detailed explanation of the assumptions and sources for your conclusions.
In Summary, a well developed financial section of a Business plan, whether a start-up or an existing business, should include the following:
Sales Details, including product line sales as support;
- Overhead details;
- Capital Assets;
- Loan Requirements, Types and estimated amounts;
- Perspective Balance sheet;
- Perspective Income Statement;
- Historical data if applicable
- Detail of assumptions and key marketing issues that effected your estimates.
If it a new business with a new product, don’t forget to outline an investor exit strategy so that one can see a path to a return of the investment.
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