Business Planning. Presentation for: Northwest Agriculture Business Center November 11, Traci Stark

Transcription

1 Business Planning Presentation for: Northwest Agriculture Business Center November 11, 2008 Traci Stark

2 Overview SBDC Program The Foundation of Your Business Plan Key Issues for Developing Your Business Gathering Data by Building Backwards Business Plan Outline Using Your Business Plan to Get Financing Calculating Break-Even

3 Small Business Development Centers No-cost Advising Services Business Plans Start-up Assistance Financial Analysis Marketing Demographic & Industry Data SBDC Network 26 Offices around the state Research Center in Bellingham

4 Key Issues for Developing Your Business Start with the end in mind Set goals Build backwards exercise

5 Build Backwards Exercise What is our revenue goal? How many customers does it take to reach the goal? Where do we find this many customers? Describe what will attract them to us? What additional resources do we need? Where can we start right now?

6 Example Annual Revenue Goal = $480,000 Average Monthly Sales = $40,000 Average Purchase Per Customer? Average Number of Customers Per Month? $1, Customers per month $4, Customers per month $ Customers per month What is realistic?

7 Other Ways to Set Goals X Number of New Customers Annual Revenue Growth X% Improve Margins by X% Increase Owner Salary to $XX,XXX Calculate Break-Even (we ll go into more detail on this in a little while.)

8 Business Plan Outline Executive Summary Accompanied by: Company Description Products & Services Marketing Operations Management & Organization Cash Flow Projections Business and Personal Financial Statements

9 Business Plan Outline Executive Summary Write this section last. If you had 5-10 minutes to explain the basics, what would you say? If you re seeking a loan include amount you need, what you re using it for, and how you re going to pay it back. (cash flow projections)

10 Business Plan Outline Company Description Include a brief history of your company. What does your company do? Who are the owners and what do they do? What are your goals for the future?

11 Business Plan Outline Products & Services What are you selling? Describe price and quality levels. Describe the special features and benefits of your products and services. What is your competitive advantage? (How do you differentiate your business from your competition?)

12 Business Plan Outline Marketing Customers Competition Economics Strategy

13 Business Plan Outline Marketing Customers Who is my ideal customer; my most profitable customer? How do I get more of them? Where are they? How should I segment my customers? Demographics; Lifestyles

14 Business Plan Outline Marketing Competition Who are your major competitors? Compare your products and services with your competitors. SWOT Analysis Strengths Weaknesses Opportunities Threats

15 Business Plan Outline Marketing Economics What are the characteristics of your industry: growing, declining, changing? Is it becoming more competitive? What are the barriers to entry? Summarize the key trends you identify and how they could impact your company s success.

16 Business Plan Outline Marketing Strategy How do you promote, advertise, and sell? What vehicle do you use to reach your customers? What message are you delivering? Benefits vs. Features Make sure your strategy is consistent with what you ve said so far.

17 Business Plan Outline Operations Production Location Personnel Inventory Legal Environment

18 Business Plan Outline Management & Organization Who has management responsibilities? What experience do they bring? Include resumes for all key managers.

19 Business Plan Outline Additional Data: Cash Flow Projections CASHFLOW.xls Profit & Loss and Balance Sheet Typically three years Personal Financial Statements

20 Expanding or Developing your Business Often Means FINANCING What are lenders looking for? What can you do to prepare?

21 Why Write a Business Plan? o Tells the lender everything they need to know: Why do you need a loan? How much do you need? How are you going to use the loan? How are you going to pay the loan back? o Provides you with: o Strategic direction o Tool for benchmarking

22 FINANCING The 5 Cs of Credit CHARACTER CAPACITY CAPITAL CONDITIONS COLLATERAL

23 FINANCING The 5 Cs of Credit What is management s reputation in the industry and community? Experience in business and in your industry will be important. Do you have good credit? Are you trustworthy? Often, banks don t differentiate between the business and the business owner. CHARACTER Capacity Capital Conditions Collateral

24 FINANCING The 5 Cs of Credit Do you have the ability to repay the loan? How much debt can your company handle? Lender will look at: Cash flow Borrowing history Track record for repayment Probability of successful repayment Past performance is a successful indicator of future performance. Character CAPACITY Capital Conditions Collateral

25 FINANCING The 5 Cs of Credit How much money have you invested in the business? Have you been willing to put yourself at risk? How prepared are you to use your own personal resources to support the business? Investors want to see that you have a financial commitment to the business. Character Capacity CAPITAL Conditions Collateral

26 FINANCING The 5 Cs of Credit What are the current economic conditions? What are the trends for your industry? How does your business fit in? Lenders will look at the overall climate and how it might affect your business. Character Capacity Capital CONDITIONS Collateral

27 FINANCING The 5 Cs of Credit Bankers will look for a secondary source of repayment Pledging assets such as equipment, real estate, A/R, inventory Personal guarantees Typically 100 to 125% is expected Character Capacity Capital Conditions COLLATERAL

28 FINANCING Top Issues According to Lenders Unproven = risky Is there an established market? Do you have a realistic plan? Won t typically loan based on prospect Do you understand all the different roles you have to play? Management; operations; human resources; accounting Experience is key Financial/managerial experience? Degree/classes/training to supplement Do you understand your market? How are you going to sell your product?

29 Financial Resources SCOG Skagit Council of Governments Small Business Administration 7a & 504 Guarantee Loan Programs Office of Minority & Women s Business Enterprises Linked Deposit Program USDA Rural Development Business & Industry Guaranteed Loan Program Skagit Council of Governments Revolving Loan Fund

30 Break-Even Calculation Break-even analysis identifies that point where revenues exactly cover costs no profit is generated and no loss is incurred.

31 Break-Even Calculation Step 1 Classify expenses from your income statement into two categories: fixed or variable Income Statement Sales 100,000 COGS (40,000) Gross Profit 60,000 Advertising 2,000 Insurance 4,000 Rent 12,000 Supplies 1,000 Utilities 3,000 Wages 20,000 Total Expenses 42,000 Net Profit 18,000 V F F F F F F Variable expenses vary proportionally to sales; Do sales cause this cost? Variable expenses typically include: Direct Labor Direct Materials Commissions

32 Break-Even Calculation Step 2 Determine the variable expense percentage (total variable expense as a % of sales = Expense / Sales) Income Statement Sales 100, % COGS (40,000) 40% Variable Cost % Gross Profit 60,000 Advertising 2,000 Insurance 4,000 Rent 12,000 Supplies 1,000 Utilities 3,000 Wages 20,000 Total Expenses 42,000 Net Profit 18,000 60% 2% 4% 12% 1% 3% 20% 42% 18% Contribution Margin

33 Break-Even Calculation Step 3 Calculate Break-even Income Statement Sales 100, % COGS (40,000) 40% Variable Cost % Gross Profit 60,000 Advertising 2,000 Insurance 4,000 Rent 12,000 Supplies 1,000 Utilities 3,000 Wages 20,000 Total Expenses 42,000 Net Profit 18,000 60% 2% 4% 12% 1% 3% 20% 42% 18% Contribution Margin Break-even = Fixed Costs Contribution Margin BE = 42,000 60% BE = 70,000

34 Business Resources WSBDC existing 2+ years, growing, financing EDASC business resources and support Skagit Valley College - Business Resource Center SBA any stage of entrepreneur SCORE new businesses pre start up NWWBC young businesses, micro loans

35 Contact Information Traci Stark Director of Business Development SBDC Certified Business Advisor Economic Development Association of Skagit County 204 West Montgomery; PO Box 40 Mount Vernon, WA