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From Backpacks

to Briefcases.
How to develop your
own business plan.
Hank Jordan, CMC
www.atl.devry.edu/hjordan

BusinessPlanningPresentation: 1
Outline of a Business Plan

I. Executive Summary
II. Company Description
A. Legal Form of Business
B. Company’s Mission
C. Names of Top Management
D. Location and Geographic Information
E. Company’s Development Stage
F. Company’s Products or Services
G. Specialty Business Information

BusinessPlanningPresentation: 2
Outline of a Business Plan continued

III. The Industry Analysis


A. Size and Growth Trends
B. Maturity of Industry
C. Vulnerability to Economic Factors
D. Seasonal Factors
E. Technological Factors
F. Regulatory Issues
G. Supply and Distribution
H. Financial Considerations

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Outline of a Business Plan continued

IV. The Target Market


A. Demographics/Geographics
B. Lifestyles and Psychographics
C. Purchasing Patterns
D. Buying Sensitivities
E. Size and Trends of Market

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Outline of a Business Plan continued

V. The Competition
A. Competitive Position
B. Market Share Distribution
C. Barriers to Entry
D. Future Competition

BusinessPlanningPresentation: 5
Outline of a Business Plan continued

VI. Marketing and Sales Strategy


A. Company’s Message
B. Marketing Vehicles
C. Strategic Partnerships
D. Other Marketing Tactics
E. Sales Force and Structure
F. Sales Assumptions

BusinessPlanningPresentation: 6
Outline of a Business Plan continued

VII. Operations
A. Plant and Facilities
B. Manufacturing/Production Plan
C. Equipment and Technology
D. Variable Labor Requirements
E. Inventory Management
F. Supply and Distribution
G. Order Fulfillment and Customer Service

BusinessPlanningPresentation: 7
Outline of a Business Plan continued

VII. Operations continued


H. Research and Development
I. Capacity Utilization
J. Quality Control
K. Safety, Health and Environmental Concerns
L. Shrinkage
M. Management Information Systems

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Outline of a Business Plan continued

VIII. Management and Organization


A. Principals/Key Employees
B. Board of Directors
C. Consultants/Specialists
D. Management to Be Added
E. Organizational Chart
F. Management Style/Corporate Culture

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Outline of a Business Plan continued

IX. Development and Exit Plans


A. Long-Term Company Goals
B. Growth Strategy
C. Milestones
D. Risk Evaluation
E. Exit Plan

BusinessPlanningPresentation: 10
Outline of a Business Plan continued

X. The Financials (grouped by year)


A. Sales Plan
B. Staffing Plan
C. TQM Plan
D. Marketing Plan
E. Operations Plan
F. Capital Budget
G. Cash Budget

BusinessPlanningPresentation: 11
Outline of a Business Plan continued

X. The Financials (continued)


H. Income Statement
I. Balance Sheet
J. Cash Flow
K. Break Even Analysis
L. Plan Assumptions
M. Use of Funds
XI. Appendix

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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BusinessPlanningPresentation: 14
Time Saving Tips

 Develop a research plan


 Prioritize the most important areas
 Organize your documentation
 Use technology
 When stuck - get help

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Considerations for Your Business

When you sell a service,

You sell yourself.

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Common Factors of Service Businesses

1. Intangible product;
2. Subjective judgment of Quality;
3. Relatively few barriers to entry;
4. Perishable product;
5. Time lapses between use;
6. Quality depends on the actual service provider.

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Trends in Business

Faster delivery speed

Branching out/franchises

One stop shopping/personal banker

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Strategies for Improving Your Business

1. Make your product more tangible;


2. Develop a distinct image;
3. Cultivate referral sources;
4. Stay in touch with your customers;
5. Encourage timely purchases;
6. Stress quality and employee education;
7. Find ways to use excess capacity.

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Internal Planning for Existing
Businesses & Corporations
Define specific objectives such as:
Total revenues
Sales per employee
Revenues per customer
Profit margin
Inventory levels and Production time
Collection activity

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Performance Objectives

Measurable: objective not subjective


Reasonable: reachable goal
Time Specific: by a certain date
Motivational: not too hard, not too easy

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Problem Solving Plan

1. Define the problem


2. Assemble the team
3. Consider solutions
4. Recommend activities
5. Implement activities
6. Measure activities
Plan - Do - Check - Act

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Customer Analysis - current customers

Products/Services purchased?
Number of units purchased?
Sales $ this year?
Sales $ last year?
Sales $ prior year?

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Customer Analysis - new customers

Reason for purchase?


How was sale secured?
Sales $ this year?
Sales $ last year?
Sales $ potential?

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Customer Analysis - lost customers

Products/Services purchased?
Reason for loss?
Potential for regain?
Last annual purchase $?
Previous $ high annual?

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I - The Executive Summary

1. Your basic business concept makes sense;


2. Your business had been thoroughly planned;
3. That management is capable;
4. A clear-cut market exists;
5. Your business has competitive advantages;
6. Your financial projections are realistic;
7. Investors have an excellent chance to get a return.

BusinessPlanningPresentation: 28
I - The Executive Summary (continued)

• Your executive summary is the single most


important part of your business plan.

• It must motivate the reader to consider your plan.

• Prepare your Executive Summary last, only after


your entire plan has been completed.

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II - Company Description

Names:
Legal or corporate name
Doing business as ...
Brand or trade names
Subsidiary companies

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Company Description (continued)

Legal form:
Legal form of business
State incorporated
County for business license
Owners or major stakeholders

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Company Description (continued)

Management/Leadership:
Chairperson of the board
President
Chief Executive Officer
Chief Financial Officer
Chief Operating Officer
Advisory board members

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Company Description (continued)

Location:
Company headquarters
Place of business
Branches
Geographic area served

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Company Description (continued)

Developmental stage:
When company was founded
When product or service introduced
Milestones reached
Significant developmental indicators

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Company Description (continued)

Financial status:
Last year’s total sales
Last year’s pretax profit
Current number of employees
Amount of funds sought
Basic use for funds sought
Major financial obligations

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Company Description (continued)

Products and services:


General description
Number and type of lines
Number in each line
Patents and licenses:
Patents held and pending
Trademarks held and pending
Licenses held and pending

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III - Industry Analysis

• A description of your industry


• Current trends in your industry
• Strategic opportunities that exist in your industry

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Your Economic Sector

Service
Manufacturing
Retail
Distribution

Note: your business may belong to more than one

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Size and Growth Rate

Two years ago


Last year
This year
Next year
Five years out

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Industry Maturity

Introduction
Growth
Mature
Decline

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Sensitive to Economics

Which of these will affect your business?

Little business expansion


Increased unemployment
High interest rates
High inflation
Weakened dollar

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Seasonality

How many seasons does your business have?

Holidays
Summer
Winter
Spring
Fall

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Technological Change

How will changes in technology affect . . .

your products
your services
your costs
your business

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Regulation and Certification

National
State
County

What effects will they have on your business?

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Plan Preparation Form

Industry description
Industry trends
Strategic opportunities

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IV - The Target Market

Demographic
Geographic
Psychographic

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Market Size and Trends

• What is the current size?


• What is the rate of growth?
• Are changes occurring in your market?
• Are social values affecting your market?
• What else is affecting your market?

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Strategic Opportunities

• Alliances with other businesses?


• Who makes the decision to buy?
• How are these decisions made?
• How can you get your message to them?
• Compare your business to the competition?

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V - The Competition

Know who your major competitors are?


On what basis do you compete?
Who are your potential future competitors?
What barriers exist for new competitors?

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Customer Perception Factors

• Product or service features


• Convenience
• Quality
• Durability
• Image or intangibles
• Customer relations
• Social image

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Internal Operational Factors

• Financial resources
• Marketing program
• Economies of scale
• Operational efficiencies
• Strategic partnerships
• Company esprit de corps

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Market Share Distribution

List each competitor and show . . .

Percent of total revenues


Percent of total units sold
Trend of market share (up or down)

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Barriers to entry

Patented process
Trademarks
High start up costs
Substantial expertise required
Lack of suppliers or distributors
Market already saturated
Sophisticated machinery

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VI - Marketing and Sales Strategy

This section should cover . . .

How do you make customers aware of your product?


What message are you trying to convey?
What methods will you use?
How will you get the actual sales?

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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The Four P’s of Marketing

Product: quality, features, style, options,


packaging, guarantees, services, spares
Price: list, discounts, allowances, credit terms,
payment terms, rental, lease
Place: numbers and types, locations/availability,
inventory levels, transportation
Promotion: advertising, personal selling, sales
promotion, point-of purchase, publicity

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The Five F’s of Customer Wants

1. Functions: does it work?


2. Finances: is it worthwhile?
3. Freedom: easy to use?
4. Feelings: do I really feel better?
5. Future: will I have support?

Am I receiving true benefits?

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Marketing Vehicles

Brochures: leaflets, flyers


Print media: newspapers, magazines
Broadcast media: radio, television
Advertising specials: caps, pens, calculators
Direct mail: brochures, coupons
Public relations: news articles, specials
Sampling: free products, coupons

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Strategic Partnerships

Cooperative advertising: two companies mentioned


in the advertisement;
Licensing: let someone else use your product as part
of their product;
Distribution agreement: let someone else carry
your product;
Bundling: let another company include your product
as part of a total package.

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Sales Process and Productivity

1. How do you identify potential customers?


2. Should you use cold calling?
3. How do you qualify potential customers?
4. Who should be allowed to contact customers?
5. How frequently should you follow up?
6. What are your sales goals?
7. How do you capture all of this information?

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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VII - Operations

Theory into practice.

Master the basics.

Define standards of performance.

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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What Your Operations
Section Should Cover
Issues that . . .

1. Are essential to your business


2. Will help you succeed
3. Will provide a competitive advantage
4. Will overcome frequent problems

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Facilities Selection Considerations

Location
Lease versus Purchase
Improvements
Utilities/Maintenance
Exit clauses
Other key factors

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Inventory Management and Control

1. How much is enough?


2. How much is too much?
3. When and where to purchase supplies?
4. What type of system to use?
5. Who is responsible for its accuracy?
6. Which distribution methods to use?

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Order Fulfillment and Customer Service

Who is the best in your industry?


Utilize benchmarking.
L.L. Bean
Ritz Carlton
Federal Express
Motorola
What makes them the best?

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Order Fulfillment and
Customer Service continued
1. Who specifically processes orders?
2. How are orders checked?
3. What percent are incorrect?
4. How and when do you ship?
5. Who is responsible for extra costs?
6. What service programs do you offer?
7. What is your return policy?
8. How do you solicit customer feedback?

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Assessing your production plan

Workforce: level or chase strategy?

Productivity: output divided by input.

Capacity: time available for work.

Quality: cost of quality (Cost of doing it right


+ Cost of doing it wrong).

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Staffing Chart or Plan

1. Level or chase strategy?


2. How many employees at start-up?
3. Skills required?
4. How will you attract qualified people?
5. How will you keep qualified people?
6. Who is going to keep track of payrolls?

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Research and Development

– New products in development?


– New services in development?
– Who is doing the development?
– How much company time is spent on R&D?
– What equipment is needed for R&D?
– What are the trends in your industry?
– What is your competition spending on R&D?

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Other Operational Issues

How are you ensuring safe working conditions?


How are you protecting the environment?
How are you complying with governmental
regulations?
How are you providing adequate insurance
protection?
How are you managing start up activities?

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Start Up Costs
Facilities: Initial rent/Purchase
Equipment: Furniture, Equipment, Telephones,
Vehicles, Other
Materials: Initial inventory
Supplies: Production materials, Packaging
supplies, Brochures, Samples, Other
Fees: Permits, Inspections, Licenses
Other Costs: Accounting, Legal, Insurance,
Marketing, Salaries, Unanticipated costs

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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VIII - Management and Organization

Your management team:


Key employees and Principals
Board of directors
Advisory committee
Consultants and specialists
Key people to be added

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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Your Management Team

Do your key players . . .


Possess the necessary skills
Have a record of success
Have a team member attitude
As a whole are they effective

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Management Compensation
and Incentives
Salary
Bonuses
Commissions
Profit sharing
Equity
Stock

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Consultants and other Specialists

Management consultants
Marketing consultants
Designers and Engineers
Industry specialists
Attorneys
Accountants

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Management Structure and Style

1. How will decisions be made?


2. What are the lines of authority?
3. How much employee involvement do you want?
4. Do you believe in empowerment?
5. What will be the corporate culture?
6. Do you have a clear set of company policies?
7. How will you handle sexual harassment?

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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IX - Development and Exit Plans

You can’t reach a goal you haven’t set.

What do you want your business to look like in two,


three, five years?
Your long terms plans should include goals,
milestones, risks and an exit plan.

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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What are your goals?

1. Steady provider?
2. Innovator?
3. Quality leader?
4. Industry leader?
5. Niche leader?
6. Exploiter?

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Growth Strategies

1. Market penetration
2. Promotion and support
3. Expansion
4. Increase focus
5. Diversify
6. Refocus
Plan - Do - Check - Act

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Milestones

• How will your investors know you are


making sufficient progress towards your
goals?
• A milestone list focuses on the specific
objectives you intend to achieve by date.
• Progress comes slowly, be conservative.

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Risk Evaluation

• Work on solving today’s problems and


avoiding tomorrows.
• Every enterprise involves risk.
• Risks include . . .

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Exit Plan

How do investor’s get their money back?

1. Go public 5. Buy out


2. Acquisition 6. Franchise
3. Sale 7. Hand down
4. Merger 8. Close

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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X - The Financials

Numbers are merely the reflection of . . .

the decisions you make.

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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Numbers represent your decisions

Every business decision leads to . . .


a number,
which taken together form the basis of . . .
your financials.

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Can I use my Visa card to
pay for my MasterCard bill?

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What do you mean I’m broke?

I still have checks!

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Getting control of your finances

1. Read your statements.


2. Set policies and stick with them.
3. Use automation where practical.
4. Do not be afraid to get help.

Remember YOU are making management


decisions based on this information.

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Types of Financial Forms

1. Income Statement - are we making a profit?

2. Cash Flow Projections - can we pay our bills?

3. Balance Sheet - how much are we worth?

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General Financial Terms you should know

Accounts payable Current liabilities


Accounts receivable Debt
Accumulated depreciation Depreciation
Assets Equity
Assets current Fixed costs
Assets fixed Gross profit
Cash Liabilities
Cost of goods Long term liabilities

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General Financial Terms continued

Net profit
Net worth
Other or Intangible assets
Profit
Pro forma
Others?

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Guidelines for Preparing Your Financials

1. Be conservative
2. Be honest
3. Use standard terminology
4. Get realistic advice
5. Follow practices in your industry
6. Choose the appropriate accounting method
7. Be consistent

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Income or P & L Statement
Income:
Gross Sales - Returns & Allowances = Net Sales
- Cost of Goods = Gross Profit
Expenses: -
Salaries & wages; Employee benefits; Payroll taxes
Sales Commissions; Professional Services; Rent;
Maintenance; Equipment Rental; Furniture &
Equipment; Depreciation and Amortization; Insurance;
Interest; Utilities; Telephone; Office supplies; Postage and
Shipping; Marketing & Advertising; Travel; Other.
Net income before taxes
- Provision for taxes on income
Net Income After Taxes (Net Profit)

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Cash-Flow Projections

Why is this the single most important


financial statement?

If you can’t pay your bills, you are not going to


stay in business.

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Cash-Flow Items

Cash sales Reserve


Collections Owner’s draw
Interest Income Net cash flow
Loan proceeds Opening cash balance
Cost of goods
Operating expenses

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The Balance Sheet

Provides a snapshot of the overall financial worth


of the company.

It accounts for all the company’s assets minus all


the company’s liabilities.

The remaining amount is figured to be the net


worth of the company.

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Sources and Use of Funds

Equity Financing: selling ownership via . . .


Preferred stock
Common Stock
Debt Financing: taking out loans via . . .
Mortgage loans
Short and Long Term Loans
Investment from Principals: you or other key
individuals will contribute

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Assumption Sheet

Contains information you have already gathered.

Total sales per product line


Total payroll costs
Calculate gross margin per product line
Total costs and timing for additional expenses
Changes in costs or timing of financing
Other costs such as . . .

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Break Even Analysis

Why do you need to know this?

You need to know . . .


Fixed expenses
and
Gross profit margin (GPM)

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Financial Flow Chart
Sales Plan

Production Plan

Staffing Plan

TQM Plan Operations Plan Marketing Plan

Cash Budget Capital Budget

Income Balance Sheet Cash Flow


Statement
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XI - Appendix

State and Federal forms


Drawings and layouts
Photographs
Surveys
Other

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