Business Resource Book
Regina Regional Opportunities Commission
Business Resource Book Self-Assessment – Are you ready?! 1) Are you an entrepreneur? a) You must objectively identify your skills and qualities. Compare them to other successful entrepreneurs. Ask yourself – Do I have these skills? b) To assist in your assessment, complete the Entrepreneurial Self-assessment found at : http://www.bdc.ca/EN/advice_centre/benchmarking_tools/Pages/entrepreneurial_self_assessment.as px or http://www.bizmove.com/other/quiz.htm 1.1) Do I have a viable business idea? You are determined to be an entrepreneur; you will have to do an objective assessment of your product or service. To determine demand you must: a) Specifically identify who your potential customers are. Do not generalize. b) Are there enough potential customers to support your business idea? c) Identify who your potential competitors are. What are they doing well and what are they not doing well? How does your product or service fit in this market? What problems are you attempting to solve? d) How will you differentiate your business from everyone else? 1.2) Self-evaluation and determining your role in the business. a) What are your strengths and your weaknesses? ( e.g. marketing, finance, human resources) b) What are your support services? (e.g. lawyer, accountants, friends, family) c) How will your business be organized? Sole proprietorship, partnership, or corporation. Determine the legal form of your business and understand the legal and financial implications of your decision. (See http://www.isc.ca/CorporateRegistry/Pages/default.aspx) 1.3) What are the financial resources available to you to start your business? a) What personal assets can you afford to give up? Create a personal balance sheet by subtracting all your assets from your liabilities. b) Know what potential financing options are open to you. Do your research. (e.g. family, friends, government programs, angel investors, financial institutions) c) Establish relationships early. Find out and understand what bankers and investors are looking for. Find out what contributes to their financing decisions. d) Lenders’ will want to know that you and your plan address their concerns and outline how you will meet your financial obligations. You must know your plan intimately, anticipate any concerns, and be prepared to address them. Rehearse your presentation and keep it clear and simple. 2.) Your Business Plan is the Blue Print to your success.
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Business Resource Book Your business plan must outline the direction your business will go, how your business will get there, and outline the projected financial results. Your plan will need to summarize how the pieces of your business come together to reflect how your business will meet its goals and objectives. Do not be vague. You are the best advocate for your business! You must remember investors and lenders to not know as must about your business as you do. Give them all relevant information and make sure it is based on fact and solid research. Your business plan is the key to accessing funding. Your plan must expose the reader to your professionalism and organization. People invest in people, not ideas! You may include a confidentiality clause in your plan. This outlines that you do not want your plan shared, copied, or compromised. It may be easiest to use a number system to track how many plans you give out and to whom. 2.1) Executive Summary This is the first impression of your plan. It should be 1 to 2 pages in length. This portion must be clear and concise. It will form the understanding the reader will have of your business. Write this section last and make it professional, passionate, and to the point. Topics to include in the summary are: • What will your product be? • Who will be your customer or target market? • Background strength of your management team and your organizational structure • What is your competitive advantage? • Outline your sales projects and expected net income. • What does the future hold for your business and your industry? 3) Overview of General Company Description You will provide an overview of your business. Explain how all the attributes of your business will fit together. Include the reasons your business will differentiate from your competitors. You will not need to go into great detail in some areas (e.g. marketing plan), as you will detail your specific plans later on in the business plan. Here are some topics to include in this portion of the plan: a) Mission Statement: This is a 30 words or less statement, explaining your motivation for existence and the guiding principles you will use to lead your business. b) Goals & Objectives: Goals are the destinations you will take the business and the objectives are the progress markers you use to measure along the way to goal achievement. This topic must determine what you plan to achieve, how you plan to do it, when it will be completed, and who will execute the plan. Your company goals must be Specific, Measurable, Attainable, Realistic, and completed in a Time Frame. (SMART goals for short)
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Business Resource Book c) Business Philosophy: What is important to you in business and why will it separate you from your competition? d) Briefly describe your target market and why you will be catering to them. e) Describe your industry. Is it a growth industry? What short term and long term changes do you foresee? How will your company react and take advantage of it? f) Describe your most important strengths and competencies in the company. What factors will make you succeed? What back ground strengths, skills, and experiences do you bring to this company? g) Outline the legal form of the company and why you selected this form. 4) Prove your understanding of the industry with Market Analysis. To convince the reader there is a demand for your product/service, you must provide them with factual information. It is dangerous to assume you know everything about your market. You will need to perform relevant market research. You must understand the need for your product/service and meet this need at a profit. All your project sales and pricing estimates are attained through your market research. Actively search out your potential competitors and estimates their prices and sales. This is the first test to prove your ability to communicate the life-force of your business to the reader. Use this time to uncover data and question your assumptions. Your time is well spent. Without market research, your plan is meaningless! There are two kinds of market research you can do: Primary and Secondary. Primary research involves gathering your own data. For instance, you will identify competitors using the phonebook or do traffic counts at a location you want to open in, or do surveys and focus groups to learn about consumer preferences. Secondary research is performed using published information such as industry profiles, newspapers, census data, trade journals, and demographic studies. Information to do secondary research can be found at the Regina Public Library, the Regina Chamber of Commerce, Regina Regional, Opportunities Commission, the Government of Saskatchewan, Sask. Trade and Export Partnership, and through various trade associations and publications. Your marketing plan must be specific; give statistics, numbers, and sources. Your analysis must include: Industry Analysis • General Description • Size of your Market
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Trends in target market – growth trends, trends in consumer preferences, trends in product development. Barriers to entry to the market (1) Tariffs or Taxes (2) High production costs (3) High marketing costs (4) Training and skills (5) Patents for technologies (6) High capital costs (7) Zoning, certifications, permits (8) Government regulations (9) Economic down turns
Explain how you will be able to overcome the barriers. Consumer Analysis • General Profile • Who are your customers (age, gender, income level) • What are their needs and wants • Size of your market measured in $ and numbers • Number of prospective customers for your business • Social Class • Level of Education • Occupation If you are selling to another businesses determine; • Industry • Location • Transport services and warehousing • Size of the firms you are selling to • Quality, technologies, and price preferences Competitive analysis • List all competitors by address, products, and level of expected competition • Determine if they are direct competitors, or indirect competitors • Determine your strengths and weaknesses and honestly compare them to the strengths and weaknesses of our competitors • What will their reaction to you in market place be? How will you react? 5) Marketing Plan a) Marketing Strategy
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Business Resource Book Assess your companies’ ability to produce and sell its products and services. Be specific in describing your ability to attach and retain customers and how that will help you reach your financial goals. b) Product and Service Profile Review your description of your products and services. Include the specific benefits of your product or service and describe how it will meet the needs of your customers. What is your competitive advantage and why does it make you a better option than your competition. c) Pricing Outline your pricing structure. What price will you sell your product for and how did you determine it? Will you have a whole sale and/or retail pricing? What is your mark-up? How do your prices compare to your competitors? You will need to determine your break-even point. This is based on your price structure and projected sales volume. (How many units will you need to sell in your first year to cover your expenses?) Break Even Point = Fixed Costs/ (selling price- variable cost)
d) Place What is your distribution system for your product? How will your product reach the end user? What is the impact you have on the product before it reaches the end user? Discuss all the ways you are selling your product. Retail store, trade shows, online, wholesale, home parties, door to door, brokers. For a service based business, focus on accessibility, what are customers willing to pay? What are your hours of operation? Is your location accessible and what is the amount of parking available? e) Promotion List all the activities you plan on under taking to raise the profile of your business. T.V. ads, radio, print, trade shows, flyers, or public events. Breakdown your advertising expenses, justify these expenses, and determine what you hope to achieve with these initiatives. Outline what you will spend before start-up (in start-up budget) and what your ongoing spending will be (operation plan). You are building an image of your company. Ensure that all promotional material will enhance this image. 6) Operating Plan Explain your daily operations of your business. Topics to include are; a) Production • Production techniques and costs • Developments • Inventory control • Customer control
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Quality control
b) Location What qualities are you looking for to best serve your clients? Describe the physical environment you will need. • • • • • •
Power and utilities cost Type of building Zoning and permits Space required Access to the building ( by supplies and customers) Do you need to be close to the airport, rail ways, highways, or high shopping traffic?
c) Legal Environment (describe) • • • • • •
Licencing and bonds Permits Trademarks, patents, copyrights Insurance Occupational Health and Safety codes Work place and environmental regulations
d) Personnel • • • • • • •
Recruitment, training, and retention of employees Number of employees Skilled, professional, or unskilled labour needed Pay structure Quality of existing staff Organizational chart, job descriptions, and written procedures. Will you contract out certain activities?
e) Inventory • • • • • •
What kind of inventory? Raw materials, supplies, fresh goods? Value of investment to hold inventory Turnover rate and compare to industry average Are you a seasonal business? If so, how does it affect your inventory? How long does it take to get your products sent to you? Are your costs constant?
f) Suppliers
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Create full list with names, addresses, and contact info. Type and amount of inventory you will need Credit and delivery processes Reliability and reputations
How many suppliers will you draw from? Will there be periods of short or long term delivery problems? Will you need to have back up suppliers? Will the cost remain the same or will there be unexpected increases? g) Distribution Channels • • • • • • •
How are your products/services getting to your customers? Retail Wholesale Door to door Online Bid on contracts Independent representatives
h) Credit Policies • • • • • • •
Will you sell on credit? How will you track your accounts receivables? How will you determine who gets credit? What terms will you offer? What will it cost if you need to extend credit? How will you deal with slow paying customers? How will you deal with unsatisfied customers?
i) Sales Forecast With a detailed look at your operations, you must attach numbers to your plan. Prepare a month to month projection based on historical sales, your marketing strategies, industry and market research you have done. Prepare three forecasts. Best case, worst case, and most likely case. Keep your research notes about your assumptions; you will be challenged by investors to prove you are correct! 7) Management and Ownership Who will manage the business? What experiences and expertise to they bring to the business? What happens if this person suddenly leaves the business? If you will have a staff of ten or more people, prepare an organizational chart. Show your managerial hierarchy and who is responsible for key functions.
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Business Resource Book Include your resume and the resume of key employees in the appendix of your plan. If you have short coming, address them in this portion of the plan and outline how you will overcome then. a) Professional Advisory Support This is a list of your professional network that has agreed to give you advice. Your list may include; • • • • • • •
Board of Directors Management Advisory Board Accountants Attorneys Consultants Bankers Mentors
8) Personal Financial Statement Include personal financial statements for each individual owner or stakeholder. You need to show your assets and liabilities you have outside of the business as well as your personal net worth. You will need to draw from your personal assets to finance the business and these statements will show you what you can afford! Finally, investors and bankers will need to see this information as well. They will need to know that you will be able to cover your debts. 9) Financial Plan a) Start-up Expenses and Capitalization Before you are ready to operate your business, you will need to incur expenses. It is important to estimate these expenses accurately and then to plan on where you will get sufficient capital. This is a research project. It demands that you do a thorough job. The more details you have, the less chance of overlooking important start-up costs. The opening of a new business will have larger costs than you anticipate. Do not account for this by simply over budgeting. This will destroy the accuracy of your plan. Rather, budget in contingencies. If you are unable to get good information to accurately estimate possible overages, budget out 20% of your total start-up budget as your contingency. You must be able to explain your assumptions and how you arrived at this budget. Give sources, amounts, and the terms of any loans you have. Explain, in detail, how much will be contributed by each investor and the percentage each owner will have. b) 12 Month Profit and Loss Projections (Income Statement) This will outline your forecasted sales projections, cost of goods sold, expenses, and profit listed month to month for one year. This profit or loss projection must include explanations of your assumptions used to justify the company income and expenses. Keep notes about your assumptions for explanation and revisit
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Business Resource Book sources when it is time to revise your plan. It will benefit your business greatly to include 3 year projections to outline your long term assumptions. c) Projected Cash Flow This will tell you how much money you will need to pay your bills each month until the money from your sales can cover all your cash needs. Each month, the forecast shows; i. ii. iii. iv. v.
Expected Sales Expected cash inflow (sales from Accounts Receivable are paid) Cash on hand …..Subtract Cash expenses – rent, utilities, inventory, wages, bank charges, taxes, interest payments, and repayments from start-up, etc. Purchases/lease changes from equipment
Your cash flow will show you if your working capital is adequate. At any point your cash flow is below zero, you will need to borrow. Set a higher figure than zero to determine when to borrow and how much to borrow. You must have cash on hand for emergencies. Explain your assumptions and answer potential questions. When will you collect cash from your sales? When do you buy inventory or materials? Are you on credit with your suppliers? What are the terms? Are some expenses paid in advance? When? Irregular payments such as repairs, seasonal inventory buildup included? Are your loan payments, equipment purchases, and your ownership draws included? How will this affect your cash flow? d) Opening Day Balance Sheet This statement shows what assets the company has and what liabilities (debt) the company has. When liabilities are subtracted from assets, the remainder is Shareholders’ Equity. Use the start-up and capitalization statement as a guild to preparing the balance statement. Preparing a balance sheet that estimates the financial position of the company at the end of the year is useful when selling your investors on your business. 10) Appendices Only present relevant details and studies used in your business plan. • • • • • • •
Industry Studies Blue prints and plans Maps and photos of locations Articles about your business of industry trends List of equipment owed or purchased Market research studies Confirmed sales
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List of assets for collateral for you loan Material to support your assumptions in the plan
11) Writing the plan to suit your needs The outline presented must be modified to suit the specific needs of your business and to the audience your plan is intended for. a) The Bank The bank will need to know you can repay the loan. When presenting your plan to potential lenders, you must include: • • • • •
Amount of the Loan you are seeking Show how you will use the funds Request repayment terms. The interest rate will be difficult to negotiate, but ensure your payments are scheduled over a long enough period to prevent negative cash flow List your collateral and list any existing leans against your collateral Show how this loan will make your business stronger
b) Investors Investors will have a different point of view than the bank. They want opportunities that offer large growth and they expect to share in the profit. • • • • • • • • •
Percent of ownership you will give up to investors Estimated return on the investment Exist strategy for the investor (stock buy backs, sale of business, or IPO) Fund needed in the short term Funds required in the next two to five years How will the fund be used, how will this accomplish growth for your business Note the conditions you will accept How will the investor be involved in the business? ( on the board of directors, in management, silent partner) Decide the financial reporting mechanisms
11.1) Types of Business Service Business Service is an intangible product (you cannot touch it). They can offer more flexibility than other businesses. However, they do have higher labour costs and few fixed assets. • •
Your price structure and the method to determine it. Key competitive factors in this industry
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System of production management (How will people engage your service) Industry quality standards and how will you exceed them How you measure success? Labour productivity? Will you subcontract some services? Will you produce a profit for it? Credit, collection, payment policies and procedures Outline your strategy to recruit, maintain, and grow your client base.
Retail Business • • • • • • • • • •
Project your company’s image Prices must reflect profitability, competiveness, and re-enforce company image Inventory levels must be defined Note the industry average for annual turnover rate Selection of goods must reflect company image Multiply your initial inventory investment by the average turnover rate. At a minimum, the result should equal your projected first year cost of goods sold What are customer service policies and how will it enhance the company image? Does your location offer the necessary exposure? Is it convenient to get to? Do you have enough parking? What are your promotional strategies? How will it carry the company image? What is the key message to bring people to your store? Payment policies. Do you extend credit? If so, how much and what are the terms? Do you factor any potential losses and late payments into your overall pricing structure?
Manufacturing • • • • • •
Purchasing and inventory management procedures. Production levels Direct production costs and indirect production costs. Compare to the industry average. Gross and net profit for each item for production Capacity limits of building and equipment New products in development to use to expand after start-up
High Technology Companies • • • • • • • •
What is the status of your research and development? Short and long term economic outlook for the industry Information systems in place to handle changing markets, prices, and costs. What will be required to bring your product to market? What will keep the companies competitive advantage? How does the company protect intellectual property? Avoid technological obsolescence? Retain key employees?
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Supply the necessary capital?
Bankers tend to not lend to high technological start-ups, as they usually need to operate for a long time without profits or sales. You and your plan will need to be convincing to attract investors. You must outline the long term financial forecasts and show when your company will produce profit. Your assumptions must be well thought out, documented, and argued to attract investment.
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Business Resource Book
The content of this publication is provided for the general guidance and benefit for potential entrepreneurs in the Regina Region. This guild does not have any legal standing and cannot be used as an official interpretation of various code and regulations currently in effect. While efforts are made to ensure the accuracy and completeness of the information at the time of publication, errors and omissions may occur. This publication is for informational purposes only and it is not intended to provide specific financial, investment, tax, legal, accountant or other professional service advice and should not be relied upon in that regard. Readers should consult their own lawyer, accountant, or other professional advisor when planning to implement a strategy. This will ensue that individual circumstances are considered and action is taken using the latest information available. All information contained is subject to change.
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