Procedure of preparation business-plan
Business plans are an important test of clarity of thinking and clarity of the business. Reasons for writing a business plan. Market trends and the market niche for product. Business concept, market analysis. Company organization, financial plan.
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- 1. What's in a business plan?
- 1.1 What makes a successful business plan?
- 1.2 Executive Summary
- 2. Background
- 2.2 Business Concept
- 3. Market Analysis
- 3.1 Market research
- 3.2 Marketing program
- 3.3 Competitive factors
- 4. Company organization
- 4.1 Operations Plan
- 4.2 Management
- 5. Financial Plan
- 5.1 Financial Forecasts
- 5.2 Sources of Capital
- 6. Risk Management
- 7. Technology / System Summary
Business plans are an important test of clarity of thinking and clarity of the business. It is important that everyone involved in your effort has a clear understanding of your objectives. A good plan achieves that.
Anticipating the next stage of business growth, and planning for it, can help to minimize the surprises your business will face "Surprises can be great for birthdays, but potentially fatal for businesses".
Business plan is typically designed for either or both of the following purposes:
1. To establish a framework for management to use as they pursue the enterprise objectives
2. To convince an investor that a capital investment in the enterprise's business is a sound financial decision
Help tools for preparation of different types of business plans are provided below. If you prepare it for venture capital investors, it is also important to know in advance how investors read a business plan and how they would evaluate your business plan.
The best way to show bankers, venture capitalists, and angel investors that you are worthy of financial support is to show them a great business plan. Make sure that your plan is clear, focused and realistic. Then show them that you have the tools, talent and team to make it happen. Your business plan is like your calling card, it will get you in the door where you'll have to convince investors and loan officers that you can put your plan into action.
Once you have raised the money to start or expand your business, your plan will serve as a road map for your business. It is not a static document that you write once and put away. You will reference it often, making sure you stay focused and on track, and meet milestones. It will change and develop as your business evolves.
Not everyone who starts and runs a business begins with a business plan, but it certainly helps to have one. If you are seeking funding from a venture capitalist, you will certainly need a comprehensive business plan that is well thought out and contains sound business reasoning.
Reasons for writing a business plan include:
- support a loan application;
- raise equity funding;
- define and fix objectives and programs to achieve those objectives;
- create regular business review and course correction;
- define a new business;
- define agreements between partners;
- set a value on a business for sale or legal purposes;
- evaluate a new product line, promotion, or expansion.
Professional investors will expect your plan to provide proof, not just promises. They'll want to see market data, competitive advantage, and management track records. They'll want to see robust and comprehensive financial projections. True, you'll hear stories about investors backing new companies without a plan, but those are the exceptions, not the rule. So, however you cut it, your business plan is very important, even at the early start-up stage, and even if you can keep it in your head. Before you purchase business stationery, telephones, or rent a location, you should do a business plan.
1. What's in a business plan?
A business plan should prove that your business will generate enough revenue to cover your expenses and make a satisfactory return for bankers or investors:
1. Executive Summary - features the highlights of your plan and sells your idea in two pages or less;
2. Company Summary - a factual description of your company, ownership, and history;
3. Products (or Services or both) - describes your products and/or services and how they stand out from competitive products and services;
4. Market Analysis - provides a summary of your typical customers, competitive landscape, market size, and expected market growth;
5. Strategy and Implementation - describes how you will sell your product, how you will put your plan into action, and establishes milestones;
6. Management Summary - provides background on the management team, their experiences, and key accomplishments;
7. Financial Plan - contains key financials including sales, cash flow, and profits.
1.1 What makes a successful business plan?
- a well thought out idea;
- clear and concise writing;
- a clear and logical structure;
- illustrates management's ability to make the business a success;
- shows profitability.
Only one out of 20 business plans are read by prospective investors beyond the executive summary and only 6 out of 1000 business plans get funded in average. The quality of the business plan is crucial for winning attention of investors, especially for a first-time entrepreneur who has no track record in managing own business. It is not only important for a business plan to have the right content, but it also must be organized into logical and clearly defined sections and presented in a way that is informative and maintains readers interest.
Your business plan should:
- provide a roadmap showing how your company plans to achieve its goals;
- provide Strengths-Weaknesses-Opportunities-Threats (SWOT) analysis;
- discuss your company's plans for the near and long-term future.
In writing your plan, you should keep it as short as possible while ensuring that you cover all the important topics in sufficient detail to substantiate your proposal. Investors only give you one chance. Address every key aspect of your plan: value proposition, financials, deal structure, marketing strategy, valuation and exit strategy - everything investors consider when they decide which projects to invest in.
1.2 Executive Summary
The executive summary is the single, most important part of the business plan. Describe the market opportunity, your product to harvest the market opportunity, your strategy for addressing and selling to that market, financial results in the first years of operation, long term objectives, and the key personnel. This is a "commercial" of your business plan, as investors will read it first. It should be written last ensuring that only vital information is included in most clear and convincing way. As a general rule, your first paragraph should include your business name, what it sells, where it is located, and the nature and purpose of the plan. You might also refer to the keys to success, or at least summarize them briefly.
The outline of the executive summary should include:
1. Disclaimer page (registration number; return instructions; non-proprietary);
2. The Purpose of the Plan (attract investors; document an operational plan for controlling the business; test the financial feasibility of a business concept);
3. The Company (the needs your company will satisfy; the products or services you will offer);
4. Market Analysis (the characteristics and the size of your target market);
5. Product or Service Research and Development (major milestones; ongoing efforts);
6. Marketing and Sales Activities (marketing strategy; sales strategy; keys to success in a competitive environment);
7. Organization and Personnel (key managers and owners; key operations employees);
8. Financial Data (funds required and their use; historical financial summary; prospective financial summary, including brief justification for sales projections; valuation and deal structure; valuation summary and methods used).
Describe the market recent developments, market trends and the market niche for your product. Your business plan must demonstrate clearly the commercial viability of the proposed venture.
2.2 Business Concept
Provide detailed description of the products or service and implementation arrangements for the targeted types of customers:
if you are selling a product: key suppliers and your terms and arrangements with them;
if you are selling a service: which services will be provided at the business location and which will be delivered "in the field".
The business description is the "Business Vision" and includes: who the company is, what it will offer, what market needs it will address, and why the idea will work. A business without vision is a business that will not know what it is doing! The description should include:
1) an overview of the industry the business will be in;
2) a description of the company;
3) the company's positioning;
4) descriptions of the company's products or services;
5) the company's pricing strategy.
The Company Description
Begin with your mission statement - a one or two sentence description of the purpose of the business and to whom the product or service is targeted. It is vital that entrepreneurs know what business they are in. Not being clear in the mission statement indicates that one is not clear about the purpose of one's company. It can also indicate that a business is not prepared for the market. When the railroads failed to recognize that they were in the transportation industry, and not the "train" business, they lost out to trucking and airlines for market share. A business person should pay very close attention to this statement, as all else hinges on it. If during the building of the rest of the plan one discovers that the plan is not correlating to the mission statement, then the mission statement or the plan must be modified.
Describe the business. Give a brief history and include information like whether it is a corporation, a retail, or service business. Be complete as to ownership status, location of operations and other pertinent information.
When discussing the company's principals, one doesn't need to provide a complete resume. The resumes are included in another section. You can however point out interesting qualities of the principals. For example, if one of the owners of a research firm has been recognized for discoveries in his field and it relates to the business, then one may include a statement like "Biochemist John Blow, who discovered the X factor in 1994, will head up the research team".
3. Market Analysis
3.1 Market research
Know your customer understand what motivates people: "You have to find out how to press the "hot buttons" that turn consumers on, and this reality means gaining an understanding of what motivates them in real-life situations. To turn people on, you must, first, find out what they really want, and then, show them how to get it.
Understand the dynamics of customer needs: understanding customer needs will help you define new market opportunities and drive innovation and revenue growth in every aspect of your organization.
In the new rapidly changing economy, however, customer predictability is dead. Whatever a customer wants today may not be what he or she wants tomorrow. Or he or she may want more of it. If you're offering low prices, customers want those prices slashed further. If you're offering state-of-the art products, they want them newer still. In meeting ever-increasing customer demands for lower, faster, better, and newer, companies are driving themselves and their competitors to the brink.
You can't predict the future, but by establishing effective change management practices you can be ready for whatever it brings.
Use different types of interaction: you don't need a degree in psychology to compete successfully in the marketplace, but you do need some way to figure out the different styles of interaction different people prefer to use. People tend to lead their decision-making process with one of the four functions: intuition, thinking, feeling, and sensing. Vividly differentiated differences that are anchored to a product and engage the above functions can enhance memory of your current and prospective customers.
Do continuous customer research: if you want to develop a new product or service, exploratory market and customer research should be an essential and continuous component of the process. It provides the foundation and platform for effective idea generation and creativity management. "It describes customer or consumer needs, wants, gripes, complaints, and problems that each have about the performance of a certain activity, function, process, life event, or product. This research, prior to idea generation, provides the basis for setting up a problem - solving mindset towards idea generation".
To explore customer needs and wants, examine external market and competitive trends, ascertain potential needs and wants of each customer segment and character type, identify problems that customer cite, observe people to discover their unrealized needs.
In your business plan you will need to evaluate the typical consumers within the market segments you are targeting. There are countless variables to consider when analyzing consumer behavior. Try to focus on those behavioral possibilities that best determine how viable your product will be in your target markets. Look at:
1. Which features will most appeal to consumers?
2. How are choices made between competing products?
3. Which marketing promotions or media avenues seem to offer the best vehicles for reaching the consumer base?
And ask the following questions:
1. How much disposable income do target consumers have to spend on this product?
2. How do your target consumers reach purchasing decisions?
3. Are consumers resold on a particular brand before they visit a store or do they buy on impulse?
4. What characteristics influence the purchase of one product or service over a competing one?
3.2 Marketing program
Outline the details and steps necessary to reach potential customers and convert them from prospects to paying customers. It is important to demonstrate to investors that you have identified specific marketing avenues and procedures to effectively sell your product or service. Answer questions such as the following in your marketing program section:
1. What specific marketing mediums will you use to reach your customer?
2. How often will each be used?
3. What will each cost?
4. Why did you choose these marketing avenues over others?
5. What marketing materials will you need? (business cards, brochures, website, etc)
6. Who will design your marketing materials?
7. Who will write the text for your marketing materials?
8. Why did you decide to employ these materials and not others?
9. What is the cost of marketing materials per prospect or client? (You may choose to include marketing pieces in the appendix of your business plan)
10. Will your company be able to attract free PR?
11. Who will write your press releases, manage the process, and maintain relationships with editors?
12. What dollar value will you invest to obtain and maintain PR results?
13. How will your marketing and PR efforts change as your business grows?
Advertising and promotion.
Use this section to provide an overview of your general promotional plan. Give a breakout of what methods and media you intend to use and why. If you have developed an advertising slogan or unique selling proposition you may mention it, but it isn't strictly necessary.
You should outline the proposed mix of your advertising media, use of publicity, and other promotional programs:
1. Explain how your choice of marketing vehicles will allow you to reach your target market;
2. Explain how they will enable you to best convey your product features and benefits.
Be sure that your advertising, publicity, and promotional programs sound realistic, based upon your proposed marketing budget. Effective advertising, generally, relies on message repetition in order to motivate consumers to make a purchase. If you are on a limited budget, it is better to reach fewer, more likely prospects, more often, than too many people occasionally.
Sales strategy needs to be in harmony with your business strategy, marketing strategy, and your company's strengths and weaknesses. For example, if your start-up company is planning on selling products to other businesses in a highly competitive marketplace, your market entry will be easier if you rely on wholesalers or commissioned sales representatives who already have an established presence and reputation in the marketplace. If your business will be selling high-tech products with a range of customized options, your sales force needs to be extremely knowledgeable and personable
A marketing plan is typically designed to establish a framework for management to use as they pursue the marketing and sales objectives. It should be built on the results of your market research and the specific value proposition of your product or service. In general, a marketing plan is a limited form of a business plan that has a limited scope and the marketing emphasis.
Similar to any other business document, it is not only important for the marketing plan to have the right content, but it must also be presented in a way that is informative and maintains the reader's interest.
3.3 Competitive factors
In this section you need to do an in-depth analysis of the competitive advantages and weaknesses of your firm. When exploring weaknesses you should include information that will help allay any concerns that may arise as to their ability to significantly hinder your success.
This section is important, especially if your company is a start-up, because you will, typically, be competing with established companies that have inherent advantages such as financial strength, name recognition, and established distribution channels.
Describe your competitors: list competitors by name, location, and their strengths and weaknesses; your competitive strategy - how you will succeed against them; how they will react to your entry into the market.
4. Company organization
4.1 Operations Plan
The operation plan deals specifically with the internal operations and equipment necessary to produce your product or service. The following are selected areas that need to be addressed in this section: Location: Where will your business be located? What square footage is needed, in how many locations? What type of space is it - office, warehouse, manufacturing, or a combination? What is the advantage, if any, of your location? At what point will the goals of the business exceed the above-mentioned facilities? Provide a layout of your facility in the appendices of your business plan. Equipment: outline and describe the significant equipment needed, including cost. What does the equipment do, how do the pieces function together, and how much can be produced? Will you purchase or lease your equipment? Why and from whom? Be sure to include manufacturing equipment, vehicles, computers, and office equipment. Labor: How many employees will you need? Full-time? Part-time? Break them out by function, number of hours worked, and hourly pay. Describe the skill sets needed. What are the salaries of those in management, production, distribution, sales and administration? Will you run multiple shifts? What are your hours of operation? What criteria are used to locate and hire quality employees? Manufacturing and Service Process: Walk the reader through your manufacturing and service process from raw material through finished product. Where will you obtain and store raw materials? Outline your key suppliers, the purchasing process, and unique purchasing requirements. Where will finished goods be stored, and what is the associated space and cost? How will finished goods (or services) be distributed? What is the lead-time for the entire process? How will quality be measured, controlled, and improved? Explain the technology requirements for your manufacturing process.
Consider including a start-up schedule, or if you are currently in business provide a schedule as to how your future plans will progress over the next 12 to 18 months. You may wish to include a chart in your business plan that outlines the time frame associated with specific operational steps and goals.
Investors' in people rather than products, so sell the management team. Describe the management team at the initial stage and plans for the near future, including coverage for the owner's unforeseen absence (sick time, etc.) during critical periods.
A good management team can take even a mediocre idea and make it work. In fact, strong entrepreneurial teams have been known to move from business idea to business, repeatedly creating and running thriving companies. These same teams can even turn around a struggling company. When looking for capital to turn around a company, special attention should be paid to this area. Often the people make the difference.
Use this section to describe company management including the responsibilities and expertise of each person. Many lenders and venture capitalists base their investment decisions on the strength of the company's principals. Include special skills and abilities, as well as complementary aspects of the team's relationship.
For positions that have yet to be filled, detailed job descriptions, and who needs to be hired to achieve success must be described. Describe the talents these persons need to possess and how the addition of that person will help the company meet its objectives. Methods of recruitment and hiring should also be detailed.
5. Financial Plan
5.1 Financial Forecasts
Provide in Appendix a full set of cohesive financial statements: startup costs, break-even analysis, balance sheet, income statement and cash flow forecast, for a period of 3 to 5 years, including loan amortization schedule, and detailed assumptions for each line item, breakeven analysis, personal financial statement for all owners, co-signers.
Financial plan will be highly scrutinized by your business plan reader. All the ideas, concepts and strategies discussed throughout your entire business plan form the basis for, and should flow into, your financial statements and projections in some manner. When it gets down to it, your reader wants to know if and when you will make money and become profitable. Bankers and investors are familiar with the correct content, organization and presentation of financial statements, and expect to see them in your business plan. Don't cut corners or attempt to devise your own method of financial and pro forma statement presentation.
Cash Flow Analysis & Forecast.
Companies submitting their business plans to venture capitalist investors must prepare financial forecasts, usually for a period of three to five years. Monthly statements are to be shown until the breakeven point or profitability is reached. Thereafter, quarterly statements should be prepared for two years, followed by yearly data for the remaining timeframe. It is also imperative that the forecasts include a footnote section that explains the major assumptions used to develop revenue and expense items.
Assumptions to use in forecasts:
The plan should state an average selling price per unit along with the projected number of units to be sold each reporting period. Sales prices should be competitive with similar offerings in the market and should take into consideration the cost to produce and distribute the product.
The forecast should provide accurate unit cost data over the reporting period, taking into consideration the labor, material, and overhead costs to produce each unit. A good grasp on initial product costing is recommended so it is protected against price pressure from competitors.
Forecasts should include enough of cash cushion for a major rework of the first major product of the company, at least six month' worth of burn rate. Product development expenses should be closely tied to product introduction timetables elsewhere in the plan. Investors will focus on these assumptions because further rounds of financing may be needed if major products are not introduced on time.
All other expense categories such as headcount, selling and administrative costs, space, and major promotions should be taken into consideration.
The balance sheet should agree with the income and cash flows statement. Consideration should be given to the level of inventory and capital expenditures required to support the projected sales level. Capital expenditures should be limited at the outset to current requirements. It is generally better to rent or lease capital equipment in the first few years in order to conserve cash for marketing and selling expenses that will generate sales.
The income statement is where a planner makes a case for the business potential to generate cash. This document is where the writer records revenue, expenses, capital, and cost of goods. The outcome of the combination of these elements demonstrates how much money a business made or will make, or lost or will lose, during the year. An income statement and a cash flow statement differ in that an income statement does not include details of when revenue was collected or expenses paid. Accrual accounting and cash basis accounting methods will influence the bottom line shown. While the legal implications for these methods are most pertinent to the IRS, an astute investor will detect any "slight of hand" that may be used to show the figures in the best light. For this reason a business planner should employ the skills of a CPA who is also a business oriented consultant.
An income statement projected for a business plan should be broken out by month the first year. The second year can be broken down quarterly, and annually for each year after. Analyze the results of the income statement briefly and include this analysis in the business plan. If the business already exists, include income statements for up to five previous years. As with all financial documents, having the income statement prepared or at least reviewed by a reputable accountant is money well spent. Any exceptional data should be explained.
5.2 Sources of Capital
If the business plan is aimed to attract investors, define type of capital you need, explain clearly the investor's exit strategy and how you expect to provide them with a return on their investment; note additional expected rounds of financing needed.
Types of Venture Finance
The funding package may contain various forms of finance. The three main types are ordinary shares (equity), preference shares, and loans.
Ordinary shares are proprietor's capital, and they normally carry full voting rights. They also carry the greatest risk and potentially the greatest reward, for two reasons. The first is that they are rewarded in the form of dividends after all other costs have been met. The second is that they are entitled to any surplus that remains after all other claims to capital have been met if the company is wound up. Certain classes of ordinary shares may carry deferred or preferred rights in certain respects.
Preference shares give their holders certain rights in priority to the ordinary shareholders, especially as regards entitlement to dividends and entitlement to repayment of capital if the company is wound up. They are normally rewarded at a fixed rate or dividend but may have rights to participate in profits by way of further dividend. Except in special circumstances, they do not normally carry voting rights. Sometimes, preference shares carry conversion and/or redemption rights enabling the holders either to convert their investment into ordinary shares or to realize it at a some future date.
Loans may be secured on the company's assets. In addition, they may be converted later into ordinary shares. They rank ahead of shares for the repayment of capital. The interest is at a fixed rate irrespective of the company's profits or losses and may be subject to periodic review.
There are variations within each of these classes, and there may also be other elements in the financing package.
Timing your Financing
Most popular strategy is staged financing. This is a process of timing each stage of financing to coincide with the achievement of a significant milestone.
Any investor wants to have a clear understanding of how you expect to provide them with a return on their investment. This may involve a public offering or other innovative mechanisms. Since the rate of return is their most important consideration and a public offering is sometime not an option, investors will be looking for a variety of exit strategies. The following are examples of some traditional ways for investors to realize a return on their investment.
6. Risk Management
In business, you can never allow yourself to get comfortable with the status quo, because it is always changing. Surprises may be fatal to your business.
Risk is inevitable, avoiding risk impossible. Risk management is the key, always tilting the venture in favor of reward and away from risk.
While all opportunities are associated with risk, the biggest risk is to miss them. Risk results usually not from unpredictability but from ignorance. The more you know about what you are doing, the less risk you run. If you can define risks, you can limit them. Look back on any opportunities you missed and use your past mistakes to learn how to recognize opportunities.
At any its development stage, the company faces the five major risks that change in nature as company evolves:
team and management risk.
You cannot avoid these risks, but you can manage them.
7. Technology / System Summary
Companies build up their portfolio by applying for more patents. In addition, they are licensing and cross-licensing technology. In both cases, companies with a strong portfolio are generally in a better position to negotiate.
But to maximize the value of their intellectual assets, companies must understand how they support enterprise business strategy, protect current or future product positions, provide competitive advantage, and add value through creative, nontraditional applications.
Finally, the company's intellectual asset management strategy must be formulated with an understanding of the topography of the IP world, either by geography or type of industry.
Еvery entrepreneur, starting his activities, must image the perspective necessity in financial, material, manpower and intellectual resources and their receipt sources very carefully.
Also it's necessary to know how to calculate clearly the effectiveness of using sources during the venture working process.
The entrepreneurs won't be able to make progress, it they won't plan their activities carefully and efficiently.
It is important to gather and accumulate the information about target markets' status, about competitors' position there and about one's perspectives and abilities.
By all the varieties of entrepreneurial forms, there are the key regulations, suitable in fact in almost all areas of commercial activities and for different firms, but necessary for preparing in time and get round the potential hardships and dangers and to decrease risk in your purpose's achievement.
The important task is a problem of investment's attraction, including the foreign in the acting and developing company.
It's necessary to argue and substantiate the issue of projects, requiring investment.
You need to use business plan for these and some other purposes.
It is proven that business plan is the working instrument, using at all the entrepreneur ship scopes.
Business plan describes the functioning process of the firm, the way which it's managers are going to achieve their purposes and problems of increasing the profitability of work.
A well designed business plan helps the firm to grow, conquer new positions on the market, where it is functioning to design perspective plans of one's development. From the letters analysis we can see that business plan is a regular documents.
It is updated systematically, it is amended, related to changes inside the firm and on the market, where the firm acts.
Due to the fact that business plan is a result of researching and organized working, which purpose is learning of specific line of activity of the firm (product or services) on a certain market and in the current organizational and economic conditions, it is based on:
specific production design of certain goods-making the new type of products or provision of new services (particular qualities of needs satisfaction etc.);
comprehensive analysis of production and business activities and commercial activities of organization, purpose of which is selection of it's strengths week nesses, specificity and differences from similar firms;
learning of concrete financial, techno-economic mechanisms and institutional arrangements, using at economics for realizing of concrete problem.
Business plan is one of the constituent documents which set the firm strategy.
At the same time it is based on the general concept of firm's development, develops economical and financial aspect of the strategy more carefully, give techno-economics justification to specific arrangements.
Business plan covers one of the parts of investment program, the implementation period of which is usually limited to one of a few years (often corresponding with the times of medium-term credit and long-term credit), which lets give quite economic assessment to scheduled arrangements.
Business plan help to solve a lot of problems, but the main are:
justification of economical expediency of the directions of the firms development;
calculation of expected financial results of activities, first sales volume, amount of profit, amount of income on capital;
the definition of the intended sours of funding for implementing the chosen strategy, i. e. ways for concentrating the financial resource;
the selection of workers, which are able to realize the plan.
According to the work we can see that every problem can be solved only in relation with the others.
The main and primary section of business plan is a section "Financial plan".
Every business plan is a sales tool. It must look professional and read well to be effective.
Business plan is in important thing for increasing the capital of the company.
Business plan is a base of business-proposal during the conference with a future partner.
It plays an important role in inviting the main staff of the firm for work.
So, a good prepared business plan is not only internal document of the firm, but is it also a document which can draw the investor.
Here are some general guidelines that every entrepreneur must follow to develop the overall form of a business plan.
Accessory Goods - products required by commercial operations to conduct business, such as: office copiers, automobile wheel balancers, auxiliary power supplies, air compressors, etc.
Accounts Payable - short term debts incurred as the result of day-to-day operations.
Accounts Receivable - monies due your enterprise as the result of day-to-day operations.
Accrual Based Accounting - an accounting method that enters income and expenses into the books at the time of contract versus when payment is received or expenses incurred.
Assets - all real or intellectual property owned by the enterprise that has a positive financial value.
Balance Sheet - a statement of assets and liabilities.
Barriers to Entry - conditions that create difficulty for competitors to enter the market. For example, copyrights, trademarks, patents, dedicated distribution channels and high initial investment requirements.
Break-Even Point - the point at which revenues are equal to expenses.
Business Services - services offered to commercial enterprises, such as: equipment maintenance, supplying of part time personnel, engineering, design and management consulting, etc.
Capital - the financial investment required to initiate and/or operate an enterprise.
Cash Based Accounting - an accounting method that enters income and expenses into the books at the time when payment is received or expenses incurred.
Cash Flow - the transfer of monies into and out of an enterprise.
Collateral - assets that can be pledged to guarantee a loan.
business plan market analysis
Convenience Goods - goods often used by the consumer, but the consumer is unwilling to spend shopping time to acquire them. This covers a broad spectrum of products including candy, cigarettes, drugs, newspapers, magazines and most grocery products.
Corporate Image Advertising - a corporate image ad is designed to primarily promote the enterprise and secondarily promote the products or services of the enterprise.
Cost of Goods - the direct costs involved in producing a product or service which usually includes labor and materials.
Cost of Sales - the cost of goods plus the expenses involved in selling and delivering the product or service.
Current Assets - assets that can be converted quickly to cash.
Current Liabilities - all debts incurred in the normal day-to-day business and due within one calendar year.
Debt Service - the regular payments required to keep a loan current.
Depreciation - the gradual erosion of the usability and value (possibly due to obsolescence) of an enterprise's fixed assets. In some cases depreciation can be declared as a tax deduction.
Direct Sales Method - selling direct to the end user with promotional efforts using advertising, direct mail or telephone sales.
Distributor - an enterprise that purchases your products for resale to their customers who are usually retail outlets. The distributor expects to receive a significant price discount for providing the distribution service.
Distribution Channel - the path your product follows to be delivered to the end user. This may be through distributors, retail outlets, self service outlets, vending machines, telephone sales, direct mail sales, etc.
Equity - a percentage ownership of an enterprise, usually in the form of stock.
Fashion Goods - goods where style is important and price is secondary. These products could include clothing, jewelry, furniture, draperies, and dishes, but can sometimes be stretched into other areas such as umbrellas, walking canes, cigarette holders, etc.
Fixed Assets - (sometimes called long term assets) these are usually non-liquid assets that are integral to the enterprise's day-to-day business operations such as plants, equipment, furniture and real estate.
Fixed Costs - the day-to-day cost of doing business that is pre-committed, such as salaries, insurance, lease expenses, utilities, etc.
Full Service Retail Sales Method - selling from a sales outlet directly to the end user at retail prices with sales personnel who can explain the purpose and value of the product or service.
Gross Profit - revenues less cost of sales.
Impersonal Service at Customer's Site - this service usually involves working with the customer's property and seldom deals with factors that the customer deems confidential. Examples of this type of service would be: lawn service, typewriter repair, office cleaning, trucking service, etc.
Impersonal Service at Servicer's Site - this service usually involves working with the customer's property and seldom deals with factors that the customer deems confidential. The service is traditionally provided at the servicer's enterprise. Examples of this type of service would be: auto mechanic, TV repair, etc.
Impersonal Service, Volume - this type of service is usually designed such that the same service will satisfy the needs of all customers. It is often the case that the servicer and the customer never meet. Examples of this type of service would be: classified ads, storage lockers, money changers, etc.
Income Statement - (sometimes called Profit & Loss statement) a statement of revenues and expenses.
Installation Goods - products requiring large and expensive capital investments that will have a long life. This could include homes, office buildings, manufacturing facilities, and other types of commercial facilities or equipment such as tractors, printing presses, cranes and robotic assembly line processors.
Intangible Assets - non-physical assets such as patents, trademarks, a customer base, brand recognition of your products, etc. This is sometimes called goodwill.
Inventory Turnover - a ratio for evaluating sales effectiveness. For a given accounting period divide total revenue for the product by the average retail value of the product inventory.
Licensing agreement - an agreement between two enterprises allowing one to sell the other's products or services and to use their name, sales literature, trademarks, copyrights, etc. in a limited manner.
Liquidity - the percentage of an enterprise's assets that can be quickly converted into cash.
Long Term Assets - (sometimes called fixed assets) these are usually non-liquid assets that are integral to the enterprise's day to day business operations such as plants, equipment, furniture and real estate.
Long Term Liabilities - all debts that are not current liabilities, that is, debts that are not due until at least one calendar year in the future.
Market Life Cycle - the period of time that a substantial segment of the buying public is interested in purchasing a given product or service form.
Market segmentation - is the process of dividing a broad market into smaller specific markets based on customer characteristics, Buying power, and other variables.
Market Share - the percentage of the total sales (from all sources) of a service or product represented by the sales made by your enterprise. i. e. your sales divided by total sales.
Material Goods - normally raw or processed materials such as coal or steel that will become part of the purchaser's end product.
Net Profit - total revenues less total expenses.
Net Worth - assets minus liabilities.
On-Site Sales Method - selling directly to the end user using a sales force that calls on the prospect at their home or place of business.
Partnership - a legal relationship between two or more individuals to conduct a specifically defined business.
Parts/Sub Assembly Goods - products that will normally become a part of the purchaser's end product. Examples are screws, bolts, transistors, printed circuits, electric motors, forgings, castings, etc.
Personal Service at Customer's Site - this service can be a one-to-one or one-to-many relationship between the servicer and customer, sometimes dealing with factors that the customer deems confidential. The service is traditionally provided at the customer's enterprise. Examples of this type of service would be: tutoring, consulting, etc.
Personal Service at Service's Site - this service is usually a one-on-one relationship between the customer and services, often dealing with factors the customer deems confidential. The service is traditionally provided at the service's enterprise. Examples of this type of service would be: doctor, lawyer, accountant, educational institution, etc.
Personal Service, Volume - some services deal with very high volumes but still require the "personal touch". Examples are airline services or a parcel delivery service like Federal Express.
Product Benefits Advertising - a "product benefits" ad is designed to acquaint the prospect with the strengths of the product or service and the benefits resulting from those strengths.
Product Family Advertising - a "product family" ad is designed to convince the prospect that they have a wide range of functionality to choose from today and after they buy they will not be locked into a single product or service environment in the future.
ROI - (Return on Investment) Net Profit divided by Net Worth. A financial ratio indicating the degree of profitability.
Service/Product Mix - this business, while involving both service and product, is distinct in that the quality of the service is often more important than the product received. Examples of this type of service would be: fast food, catering, telephone, etc.
Service Goods - goods viewed by the consumer as competitive products offering a standard "service" and are basically similar, so they will "shop" to get the best price. This would include such products as lawnmowers, refrigerators, television sets, automobiles, etc.
Sole Proprietorship - an enterprise that is owned by a single individual.
Specialty Goods - goods that appeal to a large segment of the buying public and are considered "special" enough that the consumer will specifically ask for the product. For instance, if you invented a cigarette that tasted good and was also proven to be good for your health, people would probably ask for the "healthy cigarette" (even if they didn't know the name). The type of product is not the issue, but rather whether the product is "special" enough that the consumers will "seek it out".
Strategic Relationships - an agreement between two or more enterprises to conduct specified business processes in a joint manner. Usually related to technology development and/or marketing and distribution efforts.
Supplies Goods - production support products that will not become a part of the purchaser's end product. Examples are drill bits, machine lubricants, wiping rags, etching chemicals, pencils, paper, paper clips, etc.
Trademark - the name of a product or service that has been legally registered as the property.
1. Belkin, Lisa, The Art of Making a Plan and Making It Happen. - New York Times. December 18, 2006.
2. Jones, Rebecca, Business Plans: Roadmaps for Growth and Success. - Information Outlook. December, 2010.
3. Kvint, Vladimir, The Global Emerging Market Strategic Management and Economics. - USA: A Modern Library Chronicles Book 2003. P.98.
4. Levi, Maurice D., International Finance The Markets and Financial Management of Multinational Business. Inc. - USA: McGrow-Hill Publishing Company 2006. P.67.
5. Pinson, Linda, Anatomy of a Business Plan. - Phoenix Business Journal. September 29, 2008.
6. Tiffany, Paul Peterson, Steven D., Business Plans For Dummies. - USA: IDG Books Worldwide, Inc. An International Data Group Company 2003. P.105.
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