v0.3 1

Business Plans

Part 2Taken from http://www.bplans.com/hurdleonline

http://www.sba.gov/starting/indexbusplans.html

v0.3 2

Initial Business Plan Assignment• Mission/Objectives – what’s the true nature of your

business (don’t be too narrow), how will you build customer satisfaction, what is your workplace philosophy, what value to the customer do you offer

• Keys to success – limit to three and focus on those

• Target Market – good educated guess

• Competitive Advantage – what distinguishes you and your product

• Basic Strategies – how will you develop the company and products

v0.3 3

Simplified Business Plan Outline

• Executive Summary

• Company Summary

• Product Description

• Market Analysis Summary

• Strategy and Implementation Summary

• Management Summary

• Financial Plan

v0.3 4

Company Summary - Legal

• Types of Business Entities– Sole Proprietorship

• Pros - simple, inexpensive up front• Cons - personal responsibility to creditors• Tax treatment is straight through to your personal return

– Partnership• Pros – partnership agreement serves as legal core, defines

levels of risk, buy-out agreements, etc.• Cons – requires good attorney, can be complex• Tax treatment is usually straight through to your personal

return

v0.3 5

Company Summary - Legal• Types of Business Entities (Cont.)

– C Corporation • Pros – used by majority of companies, best shielding from liability,

best non-tax benefits, best for raising money and going public• Cons – profits taxed twice (taxed on income, then dividends

distributed to shareholders also taxed)• Tax treatment – C Corporation pays its own taxes

– S Corporation• Pros – used by smaller firms (25 owners maximum), profits taxed

once• Cons – less shielding from liability than C Corp.• Tax treatment – S Corporation can pass profits or losses directly to

owners

– LLC (next page)

v0.3 6

Limited Liability Company (LLC)• Advantages

– Owners not responsible for debts and liabilities of business, so creditors cannot pursue owner’s personal assets (in sole proprietorship or general partnership, this is not true)

– Taxed only once – income or loss is passed through to owner’s personal income tax statement

– Has fewer annual reporting requirements than corporations– Can form any organizational structure agreed upon by the owners

• Disadvantages– Different states treat LLCs differently, you need to investigate a

particular’s states rules– May not be taken as seriously by outside investors

• In the state of Mississippi, formation of an LLC costs $50– If your company provides engineering services, then one of your officers

has to be a Professional Engineer, and has to pay a $50 fee each year– http://www.pepls.state.ms.us/COAengineering.pdf

From: http://www.bizfilings.com/learning/benefitsllc.asp

v0.3 7

Company Trademarks

• Trademarks law protects product names, logos, trade names, slogans.

• US Patent and Trademark Office website www.uspto.gov

v0.3 8

More on Trademarks• A trademark™ can be registered or

unregistered– Registered trademarks offer more legal protection,

but takes effort/money to acquire

• Trademarks (™ or ) must be actively protected by the company– Anytime the company uses it, must include ™ or

(first time use in a document presentation)– The company must actively seek to keep others from

using trademarks without permission

v0.3 9

Company Names

• Can’t reserve a name completely, but company has rights to its identity.

• Types– Your own name– “Doing Business As” (county

registration)– Corporation (state registration)

v0.3 10

Company Internet Domain NamesCan look in NSI Registrar database using searchers such as www.networksolutions.com/cgi-bin/whois/whois

- to find available second-level names (example.com or example.biz) and - to find links to help register names-Very cheap to register domain names

- a few $ for multiple years- Be careful of scams! (you have registered myname.com, and you get a renewal notice on mycom.info even though you did not register it.-Beware of squatters – if you let the domain registration run out, then somebody else may grab it and then hold it hostage.

.

v0.3 11

Company Location & Facilities

• Describe– Offices and locations and function of each

– Size (square footage)

– Lease arrangements (etc.)

– Internet services

– All location & facilities factors that sell your company

v0.3 12

Company Strategy

• Describe– Value proposition

ex. reliability and service for a price

– Competitive Edge• Proprietary technology protected by patents

• Website name

• Headstart in area

v0.3 13

Company Start-Up Costs

• Start-Up Expenses – include only those that come before the start of the plan. Those that come after go in profit and loss table.

• Expenses – those items that are deductible against income

v0.3 14

Start-Up Plan - ExpensesLegal $1,000

Prototype Dev. $15,000

Initial Advertising $1,000

Insurance $500

Expensed Equipment $4,000

Other $1,000

Total Start-up Expense $22,500

For an engineering company, initial prototype development is probably the highest cost. The legal cost above would greatly increase if a patent was included ($10,000 to $20,000).

v0.3 15

Start-Up Plan - AssetsCash Requirements $25,000

(cash may need to change as you get better estimates for cash flow)

Other Short-Term Assets $7,000

Total Short-Term Assets $32,000

Long-Term Assets 0

Total Assets $32,000

Short term asset: can be easily converted into cash within one calendar year (cash, money market account, checking account, accounts receivable). Long term assets are things like real-estate, machinery. http://www.businesstown.com/accounting/basic-sheets.asp

v0.3 16

Why is ‘cash’ a Startup cost?

• When you open the doors of your business, it needs cash on hand to operate– Used for additional expenses after door opening but before new

cash inflow from product sales

– To generate cash flow, you need to prime the pump!

– A company generally cannot operate with zero dollars in the bank account.

• Thus, cash on hand at startup is an ASSET, and also an initial COST, as you need it in order to open the doors.

• This cash has to come from somewhere – it will come from your initial investors.

v0.3 17

Total Start-Up Plan Requirements

Total Start-up Expense $22,500

Total Assets $32,000

Total Start-Up Requirements $54,500

v0.3 18

Start-Up Funding – InvestmentsInvestor 1 $20,000

Investor 2 $20,000

Other $0

Total Investment $40,000

If you do not have outside investors, then the ‘investors’ are yourself and your partners. You are transferring money from your private bank account into the company’s startup bank account. The money is no longer yours – it is now an asset of the company.

v0.3 19

Start-Up Funding – LiabilitiesShort-Term Liabilities

Unpaid Expenses $0

Short-Term Loans $14,500

Interest-Free Short-Term Loans $0

Subtotal Short-Term Liabilities $0

Long-Term Liabilities $0

Total Liabilities $14,500

Liabilities are debts and obligations owed by the business to outside creditors.

In this case, borrowed some money to help fund startup costs. Total startup costs must be covered by investment + liabilities

borrow money to cover investor shortfall

v0.3 20

Start-Up Table SummaryTotal Start-Up Expenses $22,500Total Assets $32,000Total Start-Up Requirements $54,500

Total Investment $40,000Total Liabilities $14,500Investment + liabilities $54,500

Loss at Start-Up (Investment - Capital) ($22,500)Total Capital (Assets – Liabilities) $17,500Total Capital and Liabilities $32,000Checkline (total investment – capital – loss at startup = 0) 0The loss at Start-up is equal to startup expenses if everything is done correctly.

Investment– capital = loss at startup

for correct accounting. If you have more investment, you typically transfer this extra investment to startup cash, so loss at startup just becomes equal to startup expenses. Observe that more liabilities decreases capital (which is a measure of the company’s net worth)

Match

v0.3 21

Rule of Accounting

Capital = Assets – Liabilities

This is company’s Net Worth

Capital: the net worth of a business, that is, the amount by which assets exceed its liabilities. http://www.investorwords.com/694/capital.html

v0.3 22

Product Description

• Describe the product– What the product is– How much it cost– Who purchases it

• Think about customer needs and benefits– Use this to as possible way of generating new ideas

• Do competitive comparison– What buyer choices are available– How does you product line compare to other companies

v0.3 23

Product Description

• Describe what goes into your product– What are the sources of vital components

• Describe the product– What the product is

– How much it cost

– Who purchases it

• Think about customer needs and benefits– Use this to as possible way of generating new ideas

v0.3 24

Product Description (cont.)

• Describe future products– How will they be developed– What is the relationship to present products– What are the market needs

• Include sales literature– Advertisements– Brochures– Tech. Specs.

v0.3 25

Business Plan Assignment 2

• Executive Summary

• Company Summary

• Product Description

• Market Analysis Summary

• Strategy and Implementation Summary

• Management Summary

• Financial Plan