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Business Plan for a Startup Business

The busness pan conssts of a narratve and severa fnanca worksheets. The
narratve tempate s the body of the busness pan. It contans more than 150
questons dvded nto severa sectons. Work through the sectons n any order that
you want, except for the Executive Summary, whch shoud be done ast. Skp any
questons that do not appy to your type of busness. When you are fnshed wrtng
your frst draft, you have a coecton of sma essays on the varous topcs of the
busness pan. Then you want to edt them nto a smooth-fowng narratve.
The rea vaue of creatng a busness pan s not n havng the fnshed product n
hand; rather, the vaue es n the process of researchng and thnkng about your
busness n a systematc way. The act of pannng heps you to thnk thngs through
thoroughy, study and research f you are not sure of the facts, and ook at your
deas crtcay. It takes tme now, but avods costy, perhaps dsastrous, mstakes
ater.
Ths busness pan s a generc mode sutabe for a types of busnesses. However,
you shoud modfy t to sut your partcuar crcumstances. Before you begn, revew
the secton tted Refining the Plan, found at the end. It suggests emphaszng certan
areas dependng upon your type of busness (manufacturng, reta, servce, etc.). It
aso has tps for fne-tunng your pan to make an effectve presentaton to nvestors
or bankers. If ths s why youre creatng your pan, pay partcuar attenton to your
wrtng stye. You w be |udged by the quaty and appearance of your work as we
as by your deas.
It typcay takes severa weeks to compete a good pan. Most of that tme s spent
n research and re-thnkng your deas and assumptons. But then, thats the vaue
of the process. So make tme to do the |ob propery. Those who do never regret the
effort. And fnay, be sure to keep detaed notes on your sources of nformaton and
on the assumptons underyng your fnanca data.
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Business Plan
OWNERS
Your Business Name
Street Address
Address 2
Cty, ST ZIP Code
Teephone
Fax
E-Ma
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I. Table of Contents
I.Tabe of Contents........................................................................................... 3
II.Executve Summary...................................................................................... 4
III.Genera Company Descrpton......................................................................5
IV.Products and Servces.................................................................................. 6
V.Marketng Pan.............................................................................................. 7
VI.Operatona Pan......................................................................................... 15
VII.Management and Organzaton.................................................................19
VIII.Persona Fnanca Statement...................................................................20
IX.Startup Expenses and Captazaton..........................................................21
X.Fnanca Pan.............................................................................................. 22
XI.Appendces................................................................................................ 25
XII.Refnng the Pan....................................................................................... 26
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II. Executive Summar
Wrte ths secton ast.
We suggest that you make t two pages or fewer.
Incude everythng that you woud cover n a fve-mnute ntervew.
Expan the fundamentas of the proposed busness: What w your product be?
Who w your customers be? Who are the owners? What do you thnk the future
hods for your busness and your ndustry?
Make t enthusastc, professona, compete, and concse.
If appyng for a oan, state ceary how much you want, precsey how you are gong
to use t, and how the money w make your busness more proftabe, thereby
ensurng repayment.
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III. !eneral Compan "escription
What busness w you be n? What w you do?
Msson Statement: Many companes have a bref msson statement, usuay n 30
words or fewer, expanng ther reason for beng and ther gudng prncpes. If you
want to draft a msson statement, ths s a good pace to put t n the pan, foowed
by:
Company Goas and Ob|ectves: Goas are destnatons-where you want your
busness to be. Ob|ectves are progress markers aong the way to goa
achevement. For exampe, a goa mght be to have a heathy, successfu company
that s a eader n customer servce and that has a oya customer foowng.
Ob|ectves mght be annua saes targets and some specfc measures of customer
satsfacton.
Busness Phosophy: What s mportant to you n busness?
To whom w you market your products? (State t brefy here-you w do a more
thorough expanaton n the Marketing Plan secton).
Descrbe your ndustry. Is t a growth ndustry? What changes do you foresee n the
ndustry, short term and ong term? How w your company be posed to take
advantage of them?
Descrbe your most mportant company strengths and core competences. What
factors w make the company succeed? What do you thnk your ma|or compettve
strengths w be? What background experence, sks, and strengths do you
personay brng to ths new venture?
Lega form of ownershp: Soe propretor, Partnershp, Corporaton, Lmted abty
corporaton (LLC)? Why have you seected ths form?
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I#. Pro$ucts an$ Services
Descrbe n depth your products or servces (technca specfcatons, drawngs,
photos, saes brochures, and other buky tems beong n Appendices).
What factors w gve you compettve advantages or dsadvantages? Exampes
ncude eve of quaty or unque or propretary features.
What are the prcng, fee, or easng structures of your products or servces?
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#. %ar&etin' Plan
%ar&et researc( ) W(*
No matter how good your product and your servce, the venture cannot succeed
wthout effectve marketng. And ths begns wth carefu, systematc research. It s
very dangerous to assume that you aready know about your ntended market. You
need to do market research to make sure youre on track. Use the busness
pannng process as your opportunty to uncover data and to queston your
marketng efforts. Your tme w be we spent.
%ar&et researc( ) +o,*
There are two knds of market research: prmary and secondary.
Secondary research means usng pubshed nformaton such as ndustry profes,
trade |ournas, newspapers, magaznes, census data, and demographc profes. Ths
type of nformaton s avaabe n pubc brares, ndustry assocatons, chambers
of commerce, from vendors who se to your ndustry, and from government
agences.
Start wth your oca brary. Most brarans are peased to gude you through ther
busness data coecton. You w be amazed at what s there. There are more onne
sources than you coud possby use. Your chamber of commerce has good
nformaton on the oca area. Trade assocatons and trade pubcatons often have
exceent ndustry-specfc data.
Prmary research means gatherng your own data. For exampe, you coud do your
own traffc count at a proposed ocaton, use the yeow pages to dentfy
compettors, and do surveys or focus-group ntervews to earn about consumer
preferences. Professona market research can be very costy, but there are many
books that show sma busness owners how to do effectve research themseves.
In your marketng pan, be as specfc as possbe; gve statstcs, numbers, and
sources. The marketng pan w be the bass, ater on, of the a-mportant saes
pro|ecton.
Economics
Facts about your ndustry:
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What s the tota sze of your market?
What percent share of the market w you have? (Ths s mportant ony f you
thnk you w be a ma|or factor n the market.)
Current demand n target market.
Trends n target market-growth trends, trends n consumer preferences, and
trends n product deveopment.
Growth potenta and opportunty for a busness of your sze.
What barrers to entry do you face n enterng ths market wth your new
company? Some typca barrers are:
o Hgh capta costs
o Hgh producton costs
o Hgh marketng costs
o Consumer acceptance and brand recognton
o Tranng and sks
o Unque technoogy and patents
o Unons
o Shppng costs
o Tarff barrers and quotas
And of course, how w you overcome the barrers?
How coud the foowng affect your company?
o Change n technoogy
o Change n government reguatons
o Change n the economy
o Change n your ndustry
Pro$uct
In the Products and Services secton, you descrbed your products and servces as you
see them. Now descrbe them from your customers pont of vew.
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-eatures an$ Benefits
Lst a of your ma|or products or servces.
For each product or servce:
Descrbe the most mportant features. What s speca about t?
Descrbe the benefts. That s, what w the product do for the customer?
Note the dfference between features and benefts, and thnk about them. For
exampe, a house that gves sheter and asts a ong tme s made wth certan
materas and to a certan desgn; those are ts features. Its benefts ncude prde of
ownershp, fnanca securty, provdng for the famy, and ncuson n a
neghborhood. You bud features nto your product so that you can se the benefts.
What after-sae servces w you gve? Some exampes are devery, warranty,
servce contracts, support, foow-up, and refund pocy.
Customers
Identfy your targeted customers, ther characterstcs, and ther geographc
ocatons, otherwse known as ther demographcs.
The descrpton w be competey dfferent dependng on whether you pan to se
to other busnesses or drecty to consumers. If you se a consumer product, but se
t through a channe of dstrbutors, whoesaers, and retaers, you must carefuy
anayze both the end consumer and the mddeman busnesses to whch you se.
You may have more than one customer group. Identfy the most mportant groups.
Then, for each customer group, construct what s caed a demographc profe:
Age
Gender
Locaton
Income eve
Soca cass and occupaton
Educaton
Other (specfc to your ndustry)
Other (specfc to your ndustry)
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For busness customers, the demographc factors mght be:
Industry (or porton of an ndustry)
Locaton
Sze of frm
Ouaty, technoogy, and prce preferences
Other (specfc to your ndustry)
Other (specfc to your ndustry)
Competition
What products and companes w compete wth you?
Lst your ma|or compettors:
(Names and addresses)
W they compete wth you across the board, or |ust for certan products, certan
customers, or n certan ocatons?
W you have mportant ndrect compettors? (For exampe, vdeo renta stores
compete wth theaters, athough they are dfferent types of busnesses.)
How w your products or servces compare wth the competton?
Use the Competitive .nalsis tabe beow to compare your company wth your
two most mportant compettors. In the frst coumn are key compettve factors.
Snce these vary from one ndustry to another, you may want to customze the st
of factors.
In the coumn abeed %e, state how you honesty thnk you w stack up n
customers' mnds. Then check whether you thnk ths factor w be a strength or a
weakness for you. Sometmes t s hard to anayze our own weaknesses. Try to be
very honest here. Better yet, get some dsnterested strangers to assess you. Ths
can be a rea eye-opener. And remember that you cannot be a thngs to a peope.
In fact, tryng to be causes many busness faures because efforts become
scattered and duted. You want an honest assessment of your frm's strong and
weak ponts.
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Now anayze each ma|or compettor. In a few words, state how you thnk they
compare.
In the fna coumn, estmate the mportance of each compettve factor to the
customer. 1 = crtca; 5 = not very mportant.
Table /0 Competitive .nalsis
-.CTOR %e Stren't( Wea&ness
Competito
r .
Competito
r B
Importanc
e to
Customer
Pro$ucts
Price
1ualit
Selection
Service
Reliabilit
Stabilit
Expertise
Compan
Reputatio
n
2ocation
.ppearanc
e
Sales
%et(o$
Cre$it
Policies
.$vertisin
'
Ima'e
Now, wrte a short paragraph statng your compettve advantages and
dsadvantages.
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Nic(e
Now that you have systematcay anayzed your ndustry, your product, your
customers, and the competton, you shoud have a cear pcture of where your
company fts nto the word.
In one short paragraph, defne your nche, your unque corner of the market.
Strate'
Now outne a marketng strategy that s consstent wth your nche.
Promotion
How w you get the word out to customers?
Advertsng: What meda, why, and how often? Why ths mx and not some other?
Have you dentfed ow-cost methods to get the most out of your promotona
budget?
W you use methods other than pad advertsng, such as trade shows, cataogs,
deaer ncentves, word of mouth (how w you stmuate t?), and network of frends
or professonas?
What mage do you want to pro|ect? How do you want customers to see you?
In addton to advertsng, what pans do you have for graphc mage support? Ths
ncudes thngs ke ogo desgn, cards and etterhead, brochures, sgnage, and
nteror desgn (f customers come to your pace of busness).
Shoud you have a system to dentfy repeat customers and then systematcay
contact them?
Promotional Bu$'et
How much w you spend on the tems sted above?
Before startup? (These numbers w go nto your startup budget.)
Ongong? (These numbers w go nto your operatng pan budget.)
Pricin'
Expan your method or methods of settng prces. For most sma busnesses,
havng the owest prce s not a good pocy. It robs you of needed proft margn;
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customers may not care as much about prce as you thnk; and arge compettors
can under prce you anyway. Usuay you w do better to have average prces and
compete on quaty and servce.
Does your prcng strategy ft wth what was reveaed n your compettve anayss?
Compare your prces wth those of the competton. Are they hgher, ower, the
same? Why?
How mportant s prce as a compettve factor? Do your ntended customers reay
make ther purchase decsons mosty on prce?
What w be your customer servce and credt poces?
Propose$ 2ocation
Probaby you do not have a precse ocaton pcked out yet. Ths s the tme to thnk
about what you want and need n a ocaton. Many startups run successfuy from
home for a whe.
You w descrbe your physca needs ater, n the Operational Plan secton. Here,
anayze your ocaton crtera as they w affect your customers.
Is your ocaton mportant to your customers? If yes, how?
If customers come to your pace of busness:
Is t convenent? Parkng? Interor spaces? Not out of the way?
Is t consstent wth your mage?
Is t what customers want and expect?
Where s the competton ocated? Is t better for you to be near them (ke car
deaers or fast-food restaurants) or dstant (ke convenence-food stores)?
"istribution C(annels
How do you se your products or servces?
Reta
Drect (ma order, Web, cataog)
Whoesae
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Your own saes force
Agents
Independent representatves
Bd on contracts
Sales -orecast
Now that you have descrbed your products, servces, customers, markets, and
marketng pans n deta, ts tme to attach some numbers to your pan. Use a saes
forecast spreadsheet to prepare a month-by-month pro|ecton. The forecast shoud
be based on your hstorca saes, the marketng strateges that you have |ust
descrbed, your market research, and ndustry data, f avaabe.
You may want to do two forecasts: 1) a "best guess", whch s what you reay
expect, and 2) a "worst case" ow estmate that you are confdent you can reach no
matter what happens.
Remember to keep notes on your research and your assumptons as you bud ths
saes forecast and a subsequent spreadsheets n the pan. Ths s crtca f you are
gong to present t to fundng sources.
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#I. Operational Plan
Expan the day operaton of the busness, ts ocaton, equpment, peope,
processes, and surroundng envronment.
Pro$uction
How and where are your products or servces produced?
Expan your methods of:
Producton technques and costs
Ouaty contro
Customer servce
Inventory contro
Product deveopment
2ocation
What quates do you need n a ocaton? Descrbe the type of ocaton you have.
Physca requrements:
Amount of space
Type of budng
Zonng
Power and other uttes
Access:
Is t mportant that your ocaton be convenent to transportaton or to suppers?
Do you need easy wak-n access?
What are your requrements for parkng and proxmty to freeway, arports,
raroads, and shppng centers?
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Incude a drawng or ayout of your proposed facty f t s mportant, as t mght be
for a manufacturer.
Constructon? Most new companes shoud not snk capta nto constructon, but f
you are pannng to bud, costs and specfcatons w be a bg part of your pan.
Cost: Estmate your occupaton expenses, ncudng rent, but aso ncudng
mantenance, uttes, nsurance, and nta remodeng costs to make the space
sut your needs. These numbers w become part of your fnanca pan.
What w be your busness hours?
2e'al Environment
Descrbe the foowng:
Lcensng and bondng requrements
Permts
Heath, workpace, or envronmenta reguatons
Speca reguatons coverng your ndustry or professon
Zonng or budng code requrements
Insurance coverage
Trademarks, copyrghts, or patents (pendng, exstng, or purchased)
Personnel
Number of empoyees
Type of abor (sked, unsked, and professona)
Where and how w you fnd the rght empoyees?
Ouaty of exstng staff
Pay structure
Tranng methods and requrements
Who does whch tasks?
Do you have schedues and wrtten procedures prepared?
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Have you drafted |ob descrptons for empoyees? If not, take tme to wrte
some. They reay hep nterna communcatons wth empoyees.
For certan functons, w you use contract workers n addton to empoyees?
Inventor
What knd of nventory w you keep: raw materas, suppes, fnshed goods?
Average vaue n stock (.e., what s your nventory nvestment)?
Rate of turnover and how ths compares to the ndustry averages?
Seasona budups?
Lead-tme for orderng?
Suppliers
Identfy key suppers:
Names and addresses
Type and amount of nventory furnshed
Credt and devery poces
Hstory and reabty
Shoud you have more than one supper for crtca tems (as a backup)?
Do you expect shortages or short-term devery probems?
Are suppy costs steady or fuctuatng? If fuctuatng, how woud you dea wth
changng costs?
Cre$it Policies
Do you pan to se on credt?
Do you reay need to se on credt? Is t customary n your ndustry and
expected by your centee?
If yes, what poces w you have about who gets credt and how much?
How w you check the credtworthness of new appcants?
What terms w you offer your customers; that s, how much credt and when
s payment due?
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W you offer prompt payment dscounts? (Hnt: Do ths ony f t s usua and
customary n your ndustry.)
Do you know what t w cost you to extend credt? Have you but the costs
nto your prces?
%ana'in' Your .ccounts Receivable
If you do extend credt, you shoud do an agng at east monthy to track how much
of your money s ted up n credt gven to customers and to aert you to sow
payment probems. A recevabes agng ooks ke the foowng tabe:
Total Current 34 "as 54 "as 64 "as
Over 64
"as
.ccounts
Receivable
.'in'
You w need a pocy for deang wth sow-payng customers:
When do you make a phone ca?
When do you send a etter?
When do you get your attorney to threaten?
%ana'in' Your .ccounts Paable
You shoud aso age your accounts payabe, what you owe to your suppers. Ths
heps you pan whom to pay and when. Payng too eary depetes your cash, but
payng ate can cost you vauabe dscounts and can damage your credt. (Hnt: If
you know you w be ate makng a payment, ca the credtor before the due date.)
Do your proposed vendors offer prompt payment dscounts?
A payabes agng ooks ke the foowng tabe.
Total Current 34 "as 54 "as 64 "as
Over 64
"as
.ccounts
Paable
.'in'
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#II. %ana'ement an$ Or'ani7ation
Who w manage the busness on a day-to-day bass? What experence does that
person brng to the busness? What speca or dstnctve competences? Is there a
pan for contnuaton of the busness f ths person s ost or ncapactated?
If you have more than 10 empoyees, create an organzatona chart showng the
management herarchy and who s responsbe for key functons.
Incude poston descrptons for key empoyees. If you are seekng oans or
nvestors, ncude resumes of owners and key empoyees.
Professional an$ .$visor Support
Lst the foowng:
Board of drectors
Management advsory board
Attorney
Accountant
Insurance agent
Banker
Consutant or consutants
Mentors and key advsors
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#III. Personal -inancial Statement
Incude persona fnanca statements for each owner and ma|or stockhoder,
showng assets and abtes hed outsde the busness and persona net worth.
Owners w often have to draw on persona assets to fnance the busness, and
these statements w show what s avaabe. Bankers and nvestors usuay want
ths nformaton as we.
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I8. Startup Expenses an$ Capitali7ation
You w have many expenses before you even begn operatng your busness. Its
mportant to estmate these expenses accuratey and then to pan where you w
get suffcent capta. Ths s a research pro|ect, and the more thorough your
research efforts, the ess chance that you w eave out mportant expenses or
underestmate them.
Even wth the best of research, however, openng a new busness has a way of
costng more than you antcpate. There are two ways to make aowances for
surprse expenses. The frst s to add a tte "paddng" to each tem n the budget.
The probem wth that approach, however, s that t destroys the accuracy of your
carefuy wrought pan. The second approach s to add a separate ne tem, caed
contngences, to account for the unforeseeabe. Ths s the approach we
recommend.
Tak to others who have started smar busnesses to get a good dea of how much
to aow for contngences. If you cannot get good nformaton, we recommend a
rue of thumb that contngences shoud equa at east 20 percent of the tota of a
other start-up expenses.
Expan your research and how you arrved at your forecasts of expenses. Gve
sources, amounts, and terms of proposed oans. Aso expan n deta how much w
be contrbuted by each nvestor and what percent ownershp each w have.
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8. -inancial Plan
The fnanca pan conssts of a 12-month proft and oss pro|ecton, a four-year
proft and oss pro|ecton (optona), a cash-fow pro|ecton, a pro|ected baance
sheet, and a break-even cacuaton. Together they consttute a reasonabe estmate
of your company's fnanca future. More mportant, the process of thnkng through
the fnanca pan w mprove your nsght nto the nner fnanca workngs of your
company.
/9)%ont( Profit an$ 2oss Pro:ection
Many busness owners thnk of the 12-month proft and oss pro|ecton as the
centerpece of ther pan. Ths s where you put t a together n numbers and get an
dea of what t w take to make a proft and be successfu.
Your saes pro|ectons w come from a saes forecast n whch you forecast saes,
cost of goods sod, expenses, and proft month-by-month for one year.
Proft pro|ectons shoud be accompaned by a narratve expanng the ma|or
assumptons used to estmate company ncome and expenses.
Research Notes: Keep carefu notes on your research and assumptons, so that you
can expan them ater f necessary, and aso so that you can go back to your
sources when ts tme to revse your pan.
-our)Year Profit Pro:ection ;Optional<
The 12-month pro|ecton s the heart of your fnanca pan. Ths secton s for those
who want to carry ther forecasts beyond the frst year.
Of course, keep notes of your key assumptons, especay about thngs that you
expect w change dramatcay after the frst year.
Pro:ecte$ Cas( -lo,
If the proft pro|ecton s the heart of your busness pan, cash fow s the bood.
Busnesses fa because they cannot pay ther bs. Every part of your busness pan
s mportant, but none of t means a thng f you run out of cash.
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The pont of ths worksheet s to pan how much you need before startup, for
premnary expenses, operatng expenses, and reserves. You shoud keep updatng
t and usng t afterward. It w enabe you to foresee shortages n tme to do
somethng about them-perhaps cut expenses, or perhaps negotate a oan. But
foremost, you shoudnt be taken by surprse.
There s no great trck to preparng t: The cash-fow pro|ecton s |ust a forward
ook at your checkng account.
For each tem, determne when you actuay expect to receve cash (for saes) or
when you w actuay have to wrte a check (for expense tems).
You shoud track essenta operatng data, whch s not necessary part of cash fow
but aows you to track tems that have a heavy mpact on cash fow, such as saes
and nventory purchases.
You shoud aso track cash outays pror to openng n a pre-startup coumn. You
shoud have aready researched those for your startup expenses pan.
Your cash fow w show you whether your workng capta s adequate. Ceary, f
your pro|ected cash baance ever goes negatve, you w need more start-up
capta. Ths pan w aso predct |ust when and how much you w need to borrow.
Expan your ma|or assumptons, especay those that make the cash fow dffer
from the Profit and Loss Proection. For exampe, f you make a sae n month one, when
do you actuay coect the cash? When you buy nventory or materas, do you pay
n advance, upon devery, or much ater? How w ths affect cash fow?
Are some expenses payabe n advance? When?
Are there rreguar expenses, such as quartery tax payments, mantenance and
repars, or seasona nventory budup, that shoud be budgeted?
Loan payments, equpment purchases, and owner's draws usuay do not show on
proft and oss statements but defntey do take cash out. Be sure to ncude them.
And of course, deprecaton does not appear n the cash fow at a because you
never wrte a check for t.
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Openin' "a Balance S(eet
A baance sheet s one of the fundamenta fnanca reports that any busness needs
for reportng and fnanca management. A baance sheet shows what tems of
vaue are hed by the company (assets), and what ts debts are (abtes). When
abtes are subtracted from assets, the remander s owners equty.
Use a startup expenses and captazaton spreadsheet as a gude to preparng a
baance sheet as of openng day. Then deta how you cacuated the account
baances on your openng day baance sheet.
Optona: Some peope want to add a pro|ected baance sheet showng the
estmated fnanca poston of the company at the end of the frst year. Ths s
especay usefu when seng your proposa to nvestors.
Brea&)Even .nalsis
A break-even anayss predcts the saes voume, at a gven prce, requred to
recover tota costs. In other words, ts the saes eve that s the dvdng ne
between operatng at a oss and operatng at a proft.
Expressed as a formua, break-even s:
Breakeven Saes = Fxed Costs
1- Varabe Costs
(Where fxed costs are expressed n doars, but varabe costs are expressed as a
percent of tota saes.)
Incude a assumptons upon whch your break-even cacuaton s based.
Page 25 of 29
8I. .ppen$ices
Incude detas and studes used n your busness pan; for exampe:
Brochures and advertsng materas
Industry studes
Bueprnts and pans
Maps and photos of ocaton
Magazne or other artces
Detaed sts of equpment owned or to be purchased
Copes of eases and contracts
Letters of support from future customers
Any other materas needed to support the assumptons n ths pan
Market research studes
Lst of assets avaabe as coatera for a oan
Page 26 of 29
8II. Refinin' t(e Plan
The generc busness pan presented above shoud be modfed to sut your specfc
type of busness and the audence for whch the pan s wrtten.
-or Raisin' Capital
-or Ban&ers
Bankers want assurance of ordery repayment. If you ntend usng ths pan to
present to enders, ncude:
o Amount of oan
o How the funds w be used
o What ths w accompsh-how w t make the busness stronger?
o Requested repayment terms (number of years to repay). You w
probaby not have much negotatng room on nterest rate but may be
abe to negotate a onger repayment term, whch w hep cash fow.
o Coatera offered, and a st of a exstng ens aganst coatera
-or Investors
Investors have a dfferent perspectve. They are ookng for dramatc growth,
and they expect to share n the rewards:
o Funds needed short-term
o Funds needed n two to fve years
o How the company w use the funds, and what ths w accompsh for
growth.
o Estmated return on nvestment
o Ext strategy for nvestors (buyback, sae, or IPO)
o Percent of ownershp that you w gve up to nvestors
o Mestones or condtons that you w accept
o Fnanca reportng to be provded
o Invovement of nvestors on the board or n management
Page 27 of 29
-or Tpe of Business
%anufacturin'
Panned producton eves
Antcpated eves of drect producton costs and ndrect (overhead) costs-
how do these compare to ndustry averages (f avaabe)?
Prces per product ne
Gross proft margn, overa and for each product ne
Producton/capacty mts of panned physca pant
Producton/capacty mts of equpment
Purchasng and nventory management procedures
New products under deveopment or antcpated to come onne after startup
Service Businesses
Servce busnesses se ntangbe products. They are usuay more fexbe
than other types of busnesses, but they aso have hgher abor costs and
generay very tte n fxed assets.
What are the key compettve factors n ths ndustry?
Your prces
Methods used to set prces
System of producton management
Ouaty contro procedures. Standard or accepted ndustry quaty standards.
How w you measure abor productvty?
Percent of work subcontracted to other frms. W you make a proft on
subcontractng?
Credt, payment, and coectons poces and procedures
Strategy for keepng cent base
+i'( Tec(nolo' Companies
Economc outook for the ndustry
W the company have nformaton systems n pace to manage rapdy
changng prces, costs, and markets?
Page 28 of 29
W you be on the cuttng edge wth your products and servces?
What s the status of research and deveopment? And what s requred to:
o Brng product/servce to market?
o Keep the company compettve?
How does the company:
o Protect nteectua property?
o Avod technoogca obsoescence?
o Suppy necessary capta?
o Retan key personne?
Hgh-tech companes sometmes have to operate for a ong tme wthout profts and
sometmes even wthout saes. If ths fts your stuaton, a banker probaby w not
want to end to you. Venture captasts may nvest, but your story must be very
good. You must do onger-term fnanca forecasts to show when proft take-off s
expected to occur. And your assumptons must be we documented and we
argued.
Retail Business
Company mage
Prcng:
o Expan markup poces.
o Prces shoud be proftabe, compettve, and n accordance wth
company mage.
Inventory:
o Seecton and prce shoud be consstent wth company mage.
o Inventory eve: Fnd ndustry average numbers for annua nventory
turnover rate (avaabe n RMA book). Mutpy your nta nventory
nvestment by the average turnover rate. The resut shoud be at east
equa to your pro|ected frst year's cost of goods sod. If t s not, you
may not have enough budgeted for startup nventory.
Customer servce poces: These shoud be compettve and n accord wth
company mage.
Page 29 of 29
Locaton: Does t gve the exposure that you need? Is t convenent for
customers? Is t consstent wth company mage?
Promoton: Methods used, cost. Does t pro|ect a consstent company mage?
Credt: Do you extend credt to customers? If yes, do you reay need to, and
do you factor the cost nto prces?