Part 4: Operating & Organizational Plans

Building an ISP Business Plan ??? Bankers or VCs who invest in your company are ultimately investing in you. These sections of the business plan are where you communicate your grasp of actually runnng an ISP. by Jason Zigmont With many ISPs, the thing that separates them from their competitors is the way they operate and manage their business. It may be a higher level of service quality, or a visionary as CEO; whatever it is, these sections are where you strut your operational/organizational stuff. Operating Plan This section of the business paln covers the details of how your ISP will actually operate. If it's a Virtual ISP (VISP)?an ISP that outsources all core functions?there are fewer details to be included than for a facilities-based ISP. Virtual ISPs should describe who they are buying their access from and how that provider is set up, from a high level prospective. A facilities-based ISP has to describe in detail how the business will wor:. how access will be providd and what systems are in place to do this. You should also explain in detail what differentiates you from your competitor and how your service is better then others. A complete Operating Plan consists of the following sections:

• • • •

Operating Plan Summary Situational Review Operations Quality Control and Customer Service

The Operating Plan Summary and Situational Review sections are an overall high-level view of the Operating Plan. Within the Situational Review, you should state where your base of operations will be, as it will serve as a reference point for your reader. The Operations subsection covers all aspects of your business and how it operates, such as how you interact with subscribers and how you provide your service. The Operations subsection should contain enough detail so that the reader, no matter what their level of experience is, can understand how you provide Internet access and support your users. Diagrams, which should be included in the appendix of your business plan, can be useful to explain what might otherwise be a difficult setp to understand. The essential issues to cover in the Operations subsection include:

• • •

Customer Service Technical Support Internet Access Provision

Within your descriptions of Customer Service and Technical Support, you should label any direct measures of quality (DMOQs) such as hold times, call abandon rates, and any appropriate ratios. Internet Access Provision should include all of the important details about your service, such as user-to-modem ratios, monitoring, and service provisioning. For example:

" The Quality Control and Customer Service section describes the metrics that you have defined to use in measuring quality of service and customer opinions. your ethics. which therefore allows providers to make a profit. The Organizational Plan contains five sections: • • • • • Organizational Plan Summary Situational Review Management Philosophy Key-Personnel Assessments Compensation and Incentives The Organizational Plan Summary and Situational Review sections provide an overall high-level view of the Organizational Plan. Doe's personal commitment to helping both employees and customers alike. Currently. ISP Business Plan-Operating & Organizational Plans . and the company's employees. If you have a history of failures. Your history?whether you have had successes or failures?is an important element. Also. Venture capitalists and banks make many decisions based on the people who are running the company. coupled with the 10% overage agreement with XYZ provider will allow the company to provide a 'no busy signals' guarantee. and if the provider is willing to accept busy signals during peak times. so the key is not to know everything. if you are missing key personnel. Many companies have gone under because of egos: not being able to hire people who are smarter then the owner or manager. they can raise the ratio. during its peak time had a ratio of 35:1.net will be able to retain both end-users and quality employees. and how you plan to interact with each other and your customers. You can have the best Marketing Plan and Operations Plan.' "This philosophy of helping others carries through all areas of the company."All Internet providers oversell their modems by a certain ratio. as those people can often make or break the company. In helping end-users. You should be upfront and honest with both yourself and your readers and explain how you plan on succeeding by bringing others in. Readers will use this segment to form a judgement as to whether you are capable of executing the plan. This. For example: "QEI. You should also discuss how often you plan on looking at the metrics and what you plan to do to assure a high level of service. This philosophy is best expressed in a quote by noted sales trainer and speaker Zig Ziglar.net's management philosophy stems from Mr.net has decided to purchase enough wholesale ports for an operational user to modem ratio of 6:1. As a provider grows. The Management Philosophy section is your chance to explain your way of doing business. Organizational Plan The Organizational Plan gives your reader an insight into who is behind the company and whether or not you know your strengths and weaknesses. with some of the better providers running a 6. QEI. they can have a higher user-to-modem ratio. For example. Average ISPs run a 10:1 ratio.cont. you're dead in the water. Within the Situational Review.5:1 ratio. but if you cannot execute the plans. QEI. Everyone has strengths and weaknesses. AOL runs a 25:1 ratio. but to be able to bring in others whose strengths complement for your weaknesses. state what you need and ." The Key-Personnel Assessments put you and your other key personnel under the spotlight. You should explain your strengths and weaknesses and how your key personnel fill in your weaknesses. Retaining quality employees will be one of the hardest challenges for management as the employment market for skilled people with Internet experience is fiercely competitive. you should reference an organizational chart in the Appendix. AOL. He states 'You can have everything in life you want if you just help enough other people get what they want. stress what you learned from each failure.

discussed seats on the board with a local venture capitalist and a local financial consultant. if you have outside board members label them in this section and use them to fill any weak spots you may have. The Compensation and Incentives section is where you explain how much you and your employees are paid. but GAAP rules throughout the financial plan. financial situation and the type and amount of funding you need to get from your current to your projected numbers. Mr. The reason is simple. the Operational and Organizational plans will truly show your grasp of running your ISP. possibly. We will get deeper into budgets later. In addition. Doe has however.000 per individual has been discussed as possible compensation for their services. An annual stipend of $5. Sound important? by Jason Zigmont My head literally hurts when I have to sit down and crunch numbers. and will point them out.net has no outside members of the Board of Directors. specifically the Operating Plan to determine what type of person you truly are and what you are capable of. and my hat goes off to those who are. or pro forma. ultimately. After all. GAAP defines in what ways items such as capital expenditures and the like are reflected or depreciated. when a Venture Capitalist is looking at your business plan and thinking about investing in your company. Both individuals would bring much expertise and. If the purpose of the business plan is to raise funding. This is where accountants come in." In the end. the numbers and assumptions within the Financial Plan will be scrutinized and challenged?as will your request for funding.how you are looking for them. This is due to what are called Generally Accepted Accounting Procedures or GAAP. if you have brought in an outside Board of Directors you should state it here. Before I launch into this column.net. Before you start your financial plan. Investors will look for exorbitant salaries or benefits. QEI. If you have not put your money or time into it. Sometimes your bankers or investors may be able to help you find the people you are looking for. I want to make absolutely sure you understand that I am not an accountant. DISCLAIMER: The information within this column is for educational purposes only and should not be considered financial advice. . If you are putting together your business plan for internal purposes. Investors and banks are looking to see if you have made sacrifices and/or have invested your own time and money in the business. you need to determine what type of funding you are looking for and what it will be used for. For example: "At the date of this writing. why should they? Also. opportunities for financing needed for expansion into additional states and growth of QEI. Readers of your business plan will use these sections. and that any financial plan or budgets should be thoroughly looked over by a qualified certified public accountant. what they're really doing is investing in you. I am not an accountant (IANAA). You need to show that you are worth investing in and that you are a sound business operator Part 5: The Financial Plan Building an ISP Business Plan ??? A financial plan provides the core justification for your solicitation of outside funding?the dollars and sense of how you'll make investors' money grow. your budgets will be your guideline?and would not necessarily reflect the same results as your budgets for outside consumption. So what exactly is a Financial Plan? Your Financial Plan discloses your current financial condition and details your projected.

' as angel funding usually comes in the early stages of the company's development. but provides a limited amount of upside usually in the form of interest. you want to discuss your financial history. Usually companies are started on the owner's capital and then grow beyond the current fund source. and key historical profit and loss numbers. Possible goals include higher monthly recurring revenue. The Financial Plan Summary and Situational Review should include bottom line numbers such as profit. trade credit. Within the Situational review. Equity funding provides capital in return for a piece of your company. So now that you have an idea of the different types of funding and an idea of what you need. Short-term debt usually takes the form of lines of credit. and most long term debt. net loss.' Angel funding is seed money that is considered a risky investment by the 'angel. In these Internet days. For the people providing the funds.Funding usually falls into one of three categories: • • • Short term debt Long term debt Equity funding. My best advice is to be careful and realize that 5 percent of a $100 million company is worth more then 100 percent of a $1 million company. most operating capital is raised through equity funding.continued Financial Plan Summary and Situational Review These sections provide an overall high level view of your Financial Plan. Debt is rarely used for operating capital. if you have one. credit cards. with the occasional small business loan thrown in. Also in taking equity funding you take on a fiscal responsibility to your investors. and positive cash flow. You should also discuss your growth rates both . If you are seeking outside financing you should stress either your ability to pay back the debt or maximize the return on investment. (ROI). While I do know many ISPs who were funded mostly?or in some cases solely?by credit cards. First $teps The first round of outside capital is usually in the form of 'Angel Funding.Long term debt usually refers to mortgages and other loans. and in the case of some short term. debt is less risky. You will need to demonstrate what their ROI will be and in what form it will be delivered to them. Be aware that both VCs and angels are likely to take a significant portion of your company in return for their investment. and equipment leases. is secured by the items purchased. Many owners have problems giving up their equity. The next rounds of funding are often from Venture Capital firms. The Financial Goals section should cover your overall financial goals and how you plan to reach them. gross profit margin and other useful bottom line numbers. and they may want to make changes within your company. but it is often the only choice for growth of the company. rather it is usually used to purchase equipment. what goes into a Financial Plan? A complete Financial Plan consists of the following sections: • • • • • Financial Plan Summary Situational Review Financial Goals Cash Flow Planning Financial Controls ISP Business Plan .Part 5: The Financial Plan . lower costs. VCs and Angels are also looking for a quick and generous return on investment. equity funding is abundant as everyone is looking for the proverbial 'next Yahoo!' Be aware that there are quite a few regulations and issues connected with taking equity funding.

19 $66.862.598.71) $21. does not mean you have to loose money.00 $20.00 $52.719.449.00 $2.00 $1.715.470.31 ($49.96 ($17.00 $2.250.304.00 $2. which should be included in the appendix.00 $15.00 $37.html.00 $250.401.162.401.719.75 $12.17 $38.477.500.00 $10. but in the Internet business pro forma cash budgets are 1 year projections.541.00 $100.097. Do not be afraid to say that your goal is to make a profit or increase your profit margin.00 $10.30 $12.00 $1.00 $750.000. and general and administrative costs.81 $1.50 $611.00 $41. A cash budget may look like this: (These numbers are samples only.377.000.250.250.00 $250.097. Variable costs include dial-up ports.270. Readers of your business plan will use this section to determine how much risk there is in investing in your company and what your future growth potential is. You should also include how often you will look at the metrics and what corrective action will be taken should those numbers be missed.470.64 Financial Controls This section describes what checks and balances are in place to assure that you reach your goals and stay within budget.00 $750.715. please visit:http://www. what they are really doing is investing in you.00 $250.715. After all.000.00 $1.00 $40.01 $1.00 $500.00 $500.000. The first step in determining your cash budget is to determine your fixed and variable costs. . Keep in mind that bad debt and accounts receivable will alter your income numbers and should be reflected accordingly.239.00 $1.50 $4.81 $21. when a Venture Capitalist is looking at your business plan.728.17 $1.500.000.00 $250.500. In the end your Financial Plan should truly show what financial state your business is or will be in.470.268.00 $1.00 $2. utilities.00 $1.470. Fixed costs include rent.197. you can use either a projection of your past sales or your sales forecast to determine your monthly income and put it together for a framework of your cash budget.85 $12.00 $500.883.) Pro Forma Cash Budget for Planning Year 1 (Table 3) Planning Month Total Cash Inflows Cash Outflows ??Cost of Goods Sold ??Wages & Salaries ??Payroll Taxes ??Fringe Benefits ??Rent & Leases ??Utilities ??Capital Expenditures ??Internet Connectivity ??Travel & Entertainment ??Marketing ??Postage & Supplies ??Accounting & Legal ??Miscellaneous Total Cash Outflows Net Cash Flow ???[Plus] Beginning Cash Balance Ending Cash Balance 1 $3.00 $500.00 $1.01 $1.76 ($34.500.250.net/html/archives.000. and thinking about investing in your company.00 $750.250.00 $17.00 $39.00 $750.250.858.50 $2.01 $1.000.46) $38. Just because you are an Internet company.75 $1.715.00 $1.250.000.historical and projected.86 ($27.00 $750.00 $500.00 $500.000.howtosell.822.00 ? $1.00 $500.19 2 $6.95 $12.00 ? 4 $19.00 ? 5 $29.954. and any costs that are directly related to each user you add.000.715.01 $1. phone lines.75 $7.500.00 $2.00 $500. You need to show that you are worth investing in and that the firm providing your funding will make money on their investment.00 $500.250.45 $12.00 $500. Ideally you would project out 3 years in advance.01) $100.093.36) $66.00 $1.819.00 ? 3 $12.250. Cash-Flow Planning This sction is an overall view of the cash flow budget.00 $1. For a detailed explanation of determining your costs.387.00 $1.46 ($10.35 $1.796.500.81) $150.00 $10.00 $250.35 $10.000. Once you have determined your cost of goods sold. and do not reflect your business or possible projections. you should start with a wages and salaries and determine your variable cost of goods sold.01 $1.470.250.270. Within the budgets in your appendix.