From Backpacks to Briefcases.

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

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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
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Outline of a Business Plan continued
III. The Industry Analysis
A. B. C. D. E. F. G. H.
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Size and Growth Trends Maturity of Industry Vulnerability to Economic Factors Seasonal Factors Technological Factors Regulatory Issues Supply and Distribution Financial Considerations

Outline of a Business Plan continued
IV. The Target Market
A. B. C. D. E. Demographics/Geographics Lifestyles and Psychographics Purchasing Patterns Buying Sensitivities Size and Trends of Market

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Outline of a Business Plan continued
V. The Competition
A. B. C. D. Competitive Position Market Share Distribution Barriers to Entry Future Competition

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Outline of a Business Plan continued
VI. Marketing and Sales Strategy
A. B. C. D. E. F. Company¶s Message Marketing Vehicles Strategic Partnerships Other Marketing Tactics Sales Force and Structure Sales Assumptions

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

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

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Outline of a Business Plan continued
IX. Development and Exit Plans
A. B. C. D. E. Long-Term Company Goals Growth Strategy Milestones Risk Evaluation Exit Plan

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Outline of a Business Plan continued
X. The Financials (grouped by year)
A. B. C. D. E. F. Sales Plan Staffing Plan TQM Plan Marketing Plan Operations Plan Capital Budget

G. Cash Budget

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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 Statement
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Balance Sheet

Cash Flow

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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. 2. 3. 4. 5. 6. Define the problem Assemble the team Consider solutions Recommend activities Implement activities 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. 2. 3. 4. 5. 6. 7. Your basic business concept makes sense; Your business had been thoroughly planned; That management is capable; A clear-cut market exists; Your business has competitive advantages; Your financial projections are realistic; Investors have an excellent chance to get a return.

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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 Statement
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Balance Sheet

Cash Flow

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. 2. 3. 4. 5. Functions: does it work? Finances: is it worthwhile? Freedom: easy to use? Feelings: do I really feel better? Future: will I have support? Am I receiving true benefits?

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Marketing Vehicles
Brochures: Print media: Broadcast media: Advertising specials: Direct mail: Public relations: Sampling: leaflets, flyers newspapers, magazines radio, television caps, pens, calculators brochures, coupons news articles, specials 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. 2. 3. 4. 5. 6. 7. How do you identify potential customers? Should you use cold calling? How do you qualify potential customers? Who should be allowed to contact customers? How frequently should you follow up? What are your sales goals? 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 Statement
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Balance Sheet

Cash Flow

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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 Statement
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Balance Sheet

Cash Flow

What Your Operations Section Should Cover
Issues that . . . 1. 2. 3. 4. Are essential to your business Will help you succeed Will provide a competitive advantage 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. 2. 3. 4. 5. 6. How much is enough? How much is too much? When and where to purchase supplies? What type of system to use? Who is responsible for its accuracy? 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. 2. 3. 4. 5. 6. 7. 8.
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Who specifically processes orders? How are orders checked? What percent are incorrect? How and when do you ship? Who is responsible for extra costs? What service programs do you offer? What is your return policy? How do you solicit customer feedback?

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. 2. 3. 4. 5. 6. Level or chase strategy? How many employees at start-up? Skills required? How will you attract qualified people? How will you keep qualified people? 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 Statement
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Balance Sheet

Cash Flow

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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 Statement
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Balance Sheet

Cash Flow

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 Statement
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Balance Sheet

Cash Flow

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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 Statement
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Balance Sheet

Cash Flow

What are your goals?

1. 2. 3. 4. 5. 6.

Steady provider? Innovator? Quality leader? Industry leader? Niche leader? Exploiter?

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Growth Strategies
1. 2. 3. 4. 5. 6. Market penetration Promotion and support Expansion Increase focus Diversify 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. 2. 3. 4. Go public Acquisition Sale Merger 5. 6. 7. 8. Buy out Franchise Hand down 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 Statement
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Balance Sheet

Cash Flow

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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 Statement
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Balance Sheet

Cash Flow

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. 2. 3. 4. Read your statements. Set policies and stick with them. Use automation where practical. 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 Accounts receivable Accumulated depreciation Assets Assets current Assets fixed Cash Cost of goods
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Current liabilities Debt Depreciation Equity Fixed costs Gross profit Liabilities Long term liabilities

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. 2. 3. 4. 5. 6. 7. Be conservative Be honest Use standard terminology Get realistic advice Follow practices in your industry Choose the appropriate accounting method 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 Collections Interest Income Loan proceeds Cost of goods Operating expenses Reserve Owner¶s draw Net cash flow Opening cash balance

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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 Statement
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Balance Sheet

Cash Flow

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XI - Appendix
State and Federal forms Drawings and layouts Photographs Surveys Other

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