Street Food Success What NextModule 4

Costs to develop the business model from where it is

Raising finance for start-up requires careful planning. The entrepreneur needs to decide:• How much finance is required?• When and how long the finance

is needed for?• What security (if any) can be

provided?• Whether the entrepreneur is

prepared to give up some control (ownership) of the start-up in return for investment?

Set-up costs • These are costs that are incurred before the business

starts to trade and would include such things as:

• Fixed assets that the business needs before it can begin to trade

• Lease or freehold cost of premises or additional units

• Legal fees to set up the lease or freehold

• Fit out in case of fixed premises

• Catering equipment, POS equipment

• Front of house equipment, for table, chairs etc.

• License or franchise legal fees if license or franchise model is chosen

• Manufacturing costs, plant , testing , label printing, consultancy, if manufacturing route is chosen

• Miscellaneous items / contingency (at least 10% of the total of the above)

Continued… Growth and Further Development

• One way of categorising the sources of finance for a start-up is to divide them into internal and from external providers.

Working capital • Ongoing costs involved in

the business running:

• Stocks

• Wages to staff

• Owners drawings

• Insurance

• Training of staff

• Advertising / marketing

• Professional membership

• Transport

• Print post stationary

• Phones

• Accountancy / bookkeeping

Sources of finance, banks, crowd funding, business angels- what you will need to have in

place before you start looking for financeFunds can also be raised from different types of source as follows:

• Internal sources of finance

• External sources

• Self-funding

• Bank loan

• Debentures

• A mortgage

• Hire purchase

• Leasing

• Hire / Rental

• Grants from charities or the government

• Venture Capital

• Business angels

• Crowd funding

• Friends and family

Internal Sources External Sources Internal sources are funds found inside the business External sources of finance are found outside the business, and

can be short or long term.

For example, profits can be kept back to finance expansion. Alternatively the business can sell assets (items it owns) that are no longer really needed to free up cash.

Short-term sources of external finance and include: An overdraft facility, where a bank allows a firm to take out

more money than it has in its bank account. Trade credits, where suppliers deliver goods now and are

willing to wait for a number of days before payment. Factoring, where firms sell their invoices to a factor such as a

bank. They do this for some cash right away, rather than waiting 28 days to be paid the full amount.

If the business is incorporated it may also be possible to sell shares

Sources of external long term finance include; self- funding, leasing, bank loan, a mortgage, hire/ rental etc..

Key Examples of External Sources

Self FundingPRO’s CON’s

You get all the profits and retain control of the business.

• You might not have anything to fall back on if your business hits hard times.

You don’t have any interest repayments or loan charges, unless you've decided to re- mortgage your home.

If you decide to re mortgage your home, it could be at risk if you don’t keep up repayments

It shows your commitment to potential investors or lenders.

• It’s very limiting for most entrepreneurs

Bank Loans PRO’s CON’s

A repayment schedule means you can forward-plan your finances.

• Banks can be reluctant to loan money to young businesses with short business track record. In fact, business lending by banks has dropped generally in recent years.

You don’t give up equity in your business. • Interest rates can be hefty

It's likely that you will have to stump up at least some of the money yourself.

You may be asked to guarantee the loan by using your personal assess such as a home, so if the business fails you could lose your home

Grants from Charities

PRO’s CON’s

• The money does not have to be paid back.

• The application process can be a long, arduous process, taking up a lot of your time.

• You retain control of your business. • The money will usually only cover a small proportion of your costs

PRO’s CON’s

You do not have to give away equity in your business or intellectual property rights.

You must invest time and money in creating an attractive project page, and make a compelling video

You can take advantage of your backer’s social media clout to help spread the word about your new project and reach new customers.

You must pay taxes on any pledges that are not donations and that are not used in the creation of the rewards for backers. This is because you must invest most of the money in fulfilling the rewards that you promised backers

You can get feedback early-on in the innovation process through the comments section of your projects and on updates.

You risk the chance of having your product or idea ripped off.

Backers and pledges can be used a validation of your target market. This is data you can bring to angel investors or venture capitalists for future investment.

You must spend time marketing the project, reaching out to reporters, and being attentive to backers.

You risk embarrassment if you fail

Crowd Funding

What you need to get in place before you start looking for funding

Don't forget, starting your own business inevitably involves an element of risk, and increasing your debt through loans and overdrafts all adds to that risk.

Expect to answer questions such as: • Why do you want the money? • What will you use the money for? • How much are you personally putting into the business? • How much do you need to borrow? • How and when do you plan to repay it? • Do you have any security?

Accounting and book keeping - DIY Booking

Typically when a new business owner starts out they either can’t afford a bookkeeper or think they can do the bookkeeping on their own. It is a good idea for a business owner to do the bookkeeping in the early stages of the business so that they understand the financial aspect of their business.

This will prove invaluable when analysing your financial reports later on in the life of the business. Usually once a business owner gets overwhelmed by their bookkeeping you know that it’s time that you changed.

DIY BookingSix simple steps to keep your business financials organised:

1. Get some type of accounting software –such as QuickBooks or Xero as both of these are accounting software for those who don’t necessarily understand accounting. Very user friendly and widely used in the business world.

2. Enter everything and reconcile - if you enter each transaction that hits your bank account, credit card accounts etc. you can’t go wrong. Use the reconciliation function in your accounting software to balance your statements every month.

3. Don’t intermingle personal expense, get a separate bank account, credit card etc. for yourself and your business. There is no need to ever bring your personal accounts into your business bookkeeping system.

DIY Booking – Continued 4. Sometimes doing nothing is better than doing

anything – the worst thing you can do is do half of the job. Enter some stuff, but not everything. Enter invoices, bills etc. even though you don’t know what you are doing. If you are confused or lost, hire a bookkeeper. The bill to clean up the mess you created will be motivation enough to just outsource it from the beginning.

5. Develop a filing system - a good filing system is not a box full of receipts. Use some file folders with the letters of the alphabet on it.

These simple steps will keep you organised financially. Eventually you will become too busy and notice that you are spending too much time doing your bookkeeping and not enough time doing what you love; running your business. That’s the time to go professional!

Choosing the right Book keeperWhen it comes to choosing the right bookkeeper for you and your business, there are a number of things you need to consider and some key questions you need to ask:

• Are they a ‘real’ bookkeeper?• Are they qualified? • Do they have bookkeeping experience in

businesses similar to yours?• Do you want them to work at your

premises?• Do they have Professional Indemnity

insurance?• Anything else?

Useful additional questions to ask:• If they can use the same software as you use, or, can they advise

you on suitable software for your business?• Are they proactive? Can they support your business as and when

you require it?• Can you work with them? Do you know, like and trust them?• Can you build up a good rapport with your bookkeeper and/or

staff (not just the owner)?• Can they work with your accountant (if you have one) or can

they suggest one (or more) that may suit you and your business?• Not all bookkeepers are the same, so shop around for the best

match for your business and remember, that may not necessarily mean the lowest cost service around, like with most professions, there’s a difference between ‘cost’ and ‘value’. If you ask the right questions, you’ll have a much better chance of finding the right bookkeeper at the right price for you.

Choosing the right accountantChoosing the right accountant is one of the most important decisions a small business can make. A good one can save you time and help your business grow; a bad one could cost you much needed money. Yet with thousands to choose from, it can be a daunting call to make. So when it comes to selecting and working with an accountant, what are the questions every small business owner should ask so as to make the most informed choice?

• Why should I hire you?• Could my money work harder?• Are we a good match?• Are things working out?

Why Should I Hire You?

Clive Lewis, head of enterprise at The Institute of Chartered Accountants in England and Wales (ICAEW) states the importance of hiring an accountant: “If you get the wrong person, you can miss out on things you should know,” he explains, “and that can be very costly.”

Charlotte Chung, senior policy advisor at the ACCA, says the key thing to query during the hiring process is how the accountant will add financial value to your company.

Take your time with research, both Lewis and Chung advise meeting with a least three candidates before making a final choice, and ask the fundamental questions.

Check what are their qualifications, and are they regulated by a professional body

Lewis, recommends speaking to others in your sector to get second opinions about their reputation.

Having the right questions ready boils down to doing your homework

Could my money work

harder?

James Richardson is a company director at an accountancy firm specialising in start-ups. He says most people believe an accountant will just be looking after annual accounts and tax compliance. However, “that’s only a small portion of what a good accountant can – and should – be doing for you.”

They can help you raise capital by finding grants, government funding pots, and tax relief schemes,” he explains. “They can help you sell shares in the business, crowdfund or find angel investment. People tend to say, can you balance my books? What they should be asking is: what am I entitled to that I don’t know about?”

The money an accountant can save your business must naturally be weighed against the costs of employing them. Richardson says the question he often hears – “why should I pay you to do this?” – is therefore a valid one. “Start-ups are cost conscious, so ask what you can do yourself. For example, I would point people toward online bookkeeping software such as Xero and Clear Books.”

Clive Lewis says there’s “no need to be polite” when it comes to asking about an accountant’s fees. “You must ask, how much will this cost?” he says. “Also ask, when will you bill me? Some charge annually, monthly or hourly. Talk money up front, otherwise you’ll be in for a shock once you’ve committed.”

Are we a good match?

The right accountant will have more than just prestige – it’s important they understand small business needs, and are able to offer relevant insight.

“Small businesses can be naïve about their requirements, that’s why it’s so important to ask an accountant if they work with small businesses, or have expertise in your sector,” (Lewis).

Accountants offer differing levels of engagement, so make sure to establish how often you’ll be in contact, and whether you’ll correspond by email or telephone, advises Lewis. Less contact often means less costs, but can make it difficult to ask questions or spot issues.

At a larger firm, the person you initially meet or speak to on the phone might not be the person actually handling the work, he also reminds. “Ask who will be dealing with your account on a day-to-day basis. You’ve got to be satisfied that you’re not being palmed off to the office junior; that the person in charge of your case understands your business.”

Are things working

out?

Once you’ve chosen an accountant, measuring their performance is an ongoing process. Chung says a great way to do this is to hold monthly meetings where you can ask for their view on the business and its finances. “If their view is close to yours, that’s a good sign,” she says. “But you do still want to see a degree of challenge and initiative - if you only hear what you expect, that’s not a good sign.”

Assessing performance is also about watching whether your accountant asks the right questions of you, too. Lewis says a good accountant will be “pro-active”, ringing you up at least every three months to see how the business is progressing.

Richardson also believes a healthy relationship is defined by ongoing conversation and information sharing, which ultimately leads to trust. “The way to get the most out of your accountant is to engage in dialogue,” he says. “Ask questions, but also be forthcoming. The more you share about your business, the more you will get out of the relationship.”

• Click the link to watch a short video on selecting the right accountant for your business:

https://www.youtube.com/watch?v=kQfc_PRFrAQ

Monitoring PerformanceOnce your business is established and running well, you may be inclined to let things continue to run as they are.

However, it's actually time to plan again. After the crucial early stages, you should regularly review your progress, identify how you can make the most of the market position you've established and decide where to take your business next. You will need to revisit and update your business plan with your new strategy in mind and make sure you introduce the developments you've noted.

You need to look again at the essential process, detailing the stages you should go through to assess how well your business is performing, highlighting your strengths and areas that could be improved and suggesting the actions you need to take to implement the improvements that you've identified.

Why it's vital to review the progress of your business

• Assess your core activities• Assess your business efficiency• Review your financial position• Conduct a competitor analysis• Conduct a customer and market analysis• Use your review to redefine your business goals• Models for your strategic analysis• Breaking down your strategic review

Reviewing your progress will be particularly useful if you feel :• uncertain about how well the business is performing• unsure if you're getting the most out of the business or

making the most of market opportunities• your business plan may be out of date, e.g. you haven't

updated it since you started trading• your business is moving in a direction different to the

one you had planned• the business may be becoming unwieldy or

unresponsive to market demands• It is also useful if you have decided that your company is

ready to move on to another level.

Setting the directionA clear business strategy will help to answer any concerns and show practical ways forward.Questions you might want to ask include:

• What's my direction? To answer this you need to look at where you are now, where you want to go over the next three to five years and how you intend to get there.

• What are my markets - now and in the future? Which markets should I compete in, how will they change and what does the business need in order to be involved in these sectors?

• How do I gain market advantage? How can the business perform better than the competition in my chosen markets?

Continued… • What resources do I require to succeed?

What skills, assets, finance, relationships, technical competence and facilities do I need to compete? Have these changed since I started?• What business environment am I

competing in? What external factors may affect the business' ability to compete?• How am I measuring success?

Remember, measures of performance may change as your business matures.

Assess your core activitiesKey questions about your products or servicesIt's useful to address these questions:• How effectively are you matching your goods and services

to your customers' needs? If you're not quite sure what those needs are, you could carry out further market or customer analysis. See the page in this guide on how to conduct customer market analysis.

• Which of your products and services are succeeding? Which aren't performing as planned? Decide which products and services offer both a high percentage of sales and high profit margins.

Continued…• What's really behind the problems of a product or

service? Consider areas such as pricing, marketing, sales and after-sales service, design, packaging and systems during your review. Look for "quick wins" that give you the breathing space to make more fundamental improvements.

• Are you reviewing costs frequently? Are you keeping a close enough eye on your direct costs, your overheads and your assets? Are there different ways of doing things or new materials you could use that would lower your costs? Consider ways in which you can negotiate better deals with your suppliers.

Assess your business efficiency• Many new businesses work in a short-term,

reactive way. This offers flexibility - but can cost time and money as you move from getting the business going to concentrating on growing and developing it.

• The best option is to balance your ability to respond rapidly with a clear overall strategy. This will help you decide whether the actions you take are appropriate or not.

• At this stage you should ask yourself if there are any internal factors holding the business back, and if so, what can you do about them?

Consider the various aspects of your business in turn.

• Premises• Facilities• Information technology• People and skills• Professional skills

REVIEW YOUR FINANCIAL POSITION• Businesses often fail because of poor

financial management or a lack of planning. Often the business plan that was used to help raise finance is put on a shelf to gather dust.

• When it comes to your business' success, therefore, developing and implementing sound financial and management systems (or paying someone to do it for you) is vital.

• Updating your original business plan is a good place to start.

Premises • What are your long-term

commitments to the property?• What are the advantages and

disadvantages of your current location?• Do you have room to grow, or the

flexibility to cut back if necessary?• If you move premises, what will be

the cost? Will there be long-term cost savings and improvements in efficiency?

Facilities If you manufacture products, how

modern is your equipment? What is the capacity of your current

facility compared to existing and forecast demand?

How will you fund any improvements? How do you compare with your

competition?

Information Technology • What management information and other IT

systems do you have in place?• Will these systems cater for any proposed

expansion?• Will they really make a difference to the

quality of product or service your business provides? If they don't, can you change them to make sure they do?• Do you make best use of technology such as

wireless networking and mobile telephony to allow for more flexible working?

People and Skills • Do you have the right people to achieve

your objectives?• Do they know what is expected of

them?• Do you operate a training and

development plan?• Do you pay as well as the competition?• Do you suffer from high staff turnover?

Are staff motivated and satisfied?https://www.youtube.com/watch?v=_nQcNP6L3C4

Professional Skills Do you have the right management

team in place for growth? Do you have the skills available that

you need in areas such as human resources, sales and IT?

Do your staff need new or improved skills or to be retrained?

When reviewing your financesYou might want to consider the following:

• Cash flow - this is the balance of all of the money flowing in and out of your business. Make sure that your forecast is regularly reviewed and updated.

• Working capital - have your requirements changed? If so, explain the reasons for any movement. Compare this to the industry norm. If necessary, take steps to source additional capital.

• Cost base - keep your costs under constant review. Make sure that your costs are covered in your sale price - but don't expect your customers to pay for any business inefficiencies.

• Borrowing - what is the position of any lines of credit or loans? Are there more appropriate or cheaper forms of finance you could use?

• Growth - do you have plans in place to adapt your financing to accommodate your business' changing needs and growth?

Conduct a competitor analysisWhat you need to know• The type of competitor information that will be

really useful to you depends on the type of business you are and the market you're operating in. Questions to ask about your competitors include:

• who they are

• what they offer

• how they price their products

• what the profile and numbers of their customers are compared to yours

• what their competitive advantages and disadvantages are compared to yours

• what their reaction to your entry into the market or any product or price changes might be

You will probably find it useful to do a SWOT (strengths, weaknesses, opportunities, threats) analysis. This will show you how you are doing in relation to the market in general and specifically your closest competitors. See the page in this guide on models for your strategic analysis.How to find out more• There are three main ways to find out more about your

competitors:• What they say about themselves - sales literature,

advertisements, press releases, shared suppliers, exhibitions, websites, competitor visits, company accounts.

• What other people say about them - your sales people, customers, local directories, the Internet, newspapers, analysts' reports, market research companies.

• Commissioned market research - if you need more detailed information, you might want to commission specific market research.

Exercise: take a look at the link below and see if you decide what the key elements are to doing a successful competitive analysis!!http://www.sswm.info/sites/default/files/reference_attachments/SAASNET%20NO%20YEAR%20Competitive%20Analysis_0.pdf

Conduct a customer and market analysis

When you started your business, you probably devised a marketing plan as part of your overall business plan. This would have defined the market in which you intended to sell and targeted the nature and geographical distribution of your customers.From that strategy you would have been able to produce a marketing plan to help you meet your objectives. When you're reviewing your business' performance, you'll need to assess your customer base and market positioning as a key part of the process. You should update your marketing plan at least as often as your business plan.

Continued…Revisiting your markets• A business review offers you the opportunity to stand back from the activity

outlined in your plan and look again at factors such as:• changes in your market• news and emerging services• changes in your customers' needs• external factors such as the economy, imports and new technology• changes in competitive activity

Asking your customers for feedback on your business' performance will help to identify where improvements can be made to your products or services, your staffing levels or your business procedures.At the same time, it is important to remember that while reviews of this kind can be very effective - they can give your business the flexibility it needs to beat off stiff competition at short notice - it is important to think through the implications of any changes. In the new phase of your business you'll need to plan your finances and resourcing carefully at all times.

Use your review to redefine your business goals

To remain successful it's vital that you regularly set time aside to ask the following key strategic questions:

• Where is the business now?

• Where is it going?

• How is it going to get there?

Often businesses are able to work out where they want to go but don't draw up a roadmap of how to get there. If this happens, a business will lack the direction needed to turn even carefully laid plans into reality.

At the end of any review process, therefore, it's vital that work plans are prepared to put the new ideas into place and that a timetable is set. Regularly reviewing how the new plan is working and allowing for any teething problems or necessary adjustments is important too. Today's business environment is exceptionally dynamic and it is likely that you will need regular reviews, updates and revisions to your business plan in order to maintain business success.

Continuous improvement• In addition, a simple planning cycle can greatly enhance

your ability to make changes in your business routine if necessary. Good planning helps you anticipate problems and adapt to change more easily.

Expert input• You may find at this stage in your business' development

that you need external skills to help you with the changes you have to make. In this case you might consider:

• employing skilled consultants in areas where you cannot afford to develop in house skills

• appointing an experienced non-executive director who can provide a regular, impartial assessment of what you are doing

• using a management consultant to help you identify how you can strengthen or change your management structure to grow the business.

Models for your strategic analysis

There are a number of useful business-analysis models that may help you think more strategically about your business.

The SWOT analysis (strengths, weaknesses, opportunities, threats) is one of the most popular. This involves looking at the strengths and weaknesses of your business' capabilities, and any opportunities and threats to your business. Once you've identified all of these, you can assess how to capitalise on your strengths, minimise the effects of your weaknesses, make the most of any opportunities and reduce the impact of any threats.

Continued… Opportunities and threats in the external environmentIt's important to remember that opportunities can also be threats - for example, new markets could be dominated by competitors, undermining your position. Equally, threats can also be opportunities -for example, a competitor growing quickly and opening a new market for your product or service could mean that your market expands too.A SWOT analysis can provide a clear basis for examining your business performance and prospects. It can be used as part of a regular review process or in preparation for raising finance or bringing in consultants for a review.Once you have collected information on your organisation's internal strengths and weaknesses, and external opportunities and threats, enter this data into a simple table.

Breaking down your strategic review

As owner-manager of your business or as a member of its management team, you should stand back once in a while and review your business' performance.

The areas you need to look at are:

• Your market performance and direction - how well you are performing through your sales results, which markets to aim for next and how to improve your performance.

• Your products and services - how long your existing products will meet your customers' needs and any plans for renewal.

• Operational matters - your premises, your methods, technologies used, your processes, IT and quality. Are there any internal issues that are holding your business back?

• Financial matters - how your business is financed, levels of retained profit, the sales income generated and your cash flow.

• Your organisation and your people - your structures, people planning issues, training and development.

Next steps

• The five steps above will give you a clear indication of any issues that you need to address quickly in order to maintain your business in its early stages.

• If you feel all of the areas above are strong, you can start to plan for the next phase and build a cohesive strategy to develop your business. However, if there are areas that need attention, deal with them now so that you can move forward. There are a variety of growth options for every business - it's important that you settle on the right one for you.

• Also, once you've isolated your best route for developing your business, you can boost your chances of success by planning it carefully and monitoring your progress against an updated business plan.

Writing a crowd funding proposal

Having a crystal clear proposition that’s summarised in just a few short sentences is critical. Why? Because by addressing the points below you’ll be able to summarise why people should invest in your idea and, ultimately, buy your product. Think of it as your written elevator pitch.

Of course it doesn’t answer every possible question anyone's going to have, but it will be enough to motivate people to keep listening to what you have to say. Specifically, you’ll give people a clear understanding of what the business does, who it’s for and why it will be a success. And after all, people want to invest in businesses that will be successful.

• First impressions• Creating your pitch page• Use clear, succinct and

personable language• Your video• Rewards• Pitch promotion activity

• Your value proposition• Set an achievable target• Have a realistic valuation• Business plan• Financial forecasts• Exit strategy• Pitch promotion plan

Writing a business planThere are three main ways to write a business plan:

1. Pay someone to write the business plan.

2. Write a business plan yourself using Microsoft® Word and Excel.

3. Write it using specialist software

Here are the reasons why specialist software is the easiest way to write a business plan:• Offers significant time saving

• Provides the structure

• Includes hundreds of examples

• Ensures you do not leave out any sections

• Makes the numbers part easy

• Free business plan support available

• Signposts relevant resources at appropriate points

• Designed specifically for producing a business plan

• Increases your chances

Sample Business Plan: Java Culture • Coffee bar is determined to become a daily necessity for local coffee

addicts, a place to dream of as you try to escape the daily stresses of life and just a comfortable place to meet your friends or to read a book, all in one.

• With the growing demand for high-quality gourmet coffee and great service, Java Culture will capitalize on its proximity to the University of Oregon campus to build a core group of repeat customers. Java Culture will offer its customers the best prepared coffee in the area that will be complimented with pastries, as well as free books that its patrons can read to enjoy their visit.

• The company will operate a 2,300 square foot coffee bar within a walking distance from the University campus. The owners have secured this location through a three-year lease with an option for extending. They have also provided £140,000 of the required £170,000 start-up funds. The remaining capital will be obtained through a Bank loan.

• The company is expected to grow sales revenue from £584,000 in year one to £706,000 in year three. As Java Culture will strive to maintain a 65% gross profit margin and reasonable operating expenses, it will see net profits grow from £100,000 to £125,000 during the same period.

• Objectives- Java Culture's objectives for the first year of operations are:1. Become selected as the "Best New Coffee Bar in the area" by the local restaurant guide.2. Turn in profits from the first month of operations.3. Maintain a 65% gross margin.

• Keys to success 1. Store design that will be both visually attractive to customers, and designed for fast and efficient operations.2. Employee training to insure the best coffee preparation techniques.3. Marketing strategies aimed to build a solid base of loyal customers, as well as maximizing the sales of high margin

products, such as espresso drinks.

• Mission Java Culture will make its best effort to create a unique place where customers can socialise with each other in a comfortable and relaxing environment while enjoying the best brewed coffee or espresso and pastries in town. We will be in the business of helping our customers to relieve their daily stresses by providing piece of mind through great ambience, convenient location, friendly customer service, and products of consistently high quality. Java Culture will invest its profits to increase the employee satisfaction while providing stable return to its shareholders.

1st Stage: Preparation

2nd Stage: Company Summary • Company ownership

• Start up summary

• Company locations and facilities

3rd Stage • Product Description • Sales Literature

4th Stage: Market Analysis Summary

• Market segmentation • Target market segment strategy • Market needs• Industry analysis • Competition and buying patterns

5th Stage • Competitive Edge • Sales Strategy • Sales forecast

6th Stage • Management team • Management team gaps• Personnel plan

7th Stage • Important Assumptions • Projected cash flow• Project profit and losses • Project balance sheet