Business Plans 101

A business plan acts as a road map or compass; without it you will get lost in your business.

The biggest mistake is simply putting it off.

A plan contains a description of your business, an evaluation of your main competitors and several financial calculations.

But why are so many people so afraid or intimidated to write these plans of actions?

Many new business owners are so over-enthusiastic about their business concept, that they are desperately eager to begin and do not have the patience to look at the economic realities involved in their business.

Filling out the many financial forms in your plan can be an overwhelming process for any new business owner. Many are so intimidated by the financial calculations that they want to skip this process. If you recognize either of these tendencies in yourself, it is even more important that you prepare your financial calculations carefully and pay attention to what they tell you. Do not try to get out of it by telling yourself that your financial estimates will be wildly off base and yield useless results.

To alleviate this type of intimidation many have with a plan, it is imperative that Certified Public Accountants, bookkeepers, business plan or financial consultants be a part of your business support team. If you do not have these experts to assist you with your plans, you can take a course in accounting and buy the latest accounting programs.

Other resources to help you write a business plan include books, colleges and universities that work with Small Business Development Centers and counselors and mentors at the Service Corps of Retired Executives (SCORE). They provide low-cost classes on how to write business plans from $40 to $60.

Remember you are the brains of your business; your accountant is the heart and your attorney is the lungs. An accountant helps you keep track of your money and an attorney helps you protect it.

Since over 90% of start-up businesses are funded by private sources such as retirement or pension plans, unemployment insurance payments, savings accounts, divorce settlements, child support payments, etc., many people skip the business plan stage.

Even if you do not need money to start your business, writing a plan will help you see if your idea will be strong from the start. Without a plan, you leave far too many things to chance.

If you started your business without writing a plan of action and now you are close to running out of funds, then chances are you need to write an expansion business plan to look for other financing options while you move your business to the next level.

When seeking out funding for your business you need to make yourself known to financing sources well in advance of asking for financial help; approach multiple sources of financing; educate yourself on the available financing options; know which options are available to your type of service or product; determine which options to pursue at various phases of your company’s growth and always be ready to prepare your business for financing.

You definitely will need a plan if you are going to apply for a business loan, need investors, have business partners, have a management team, or are selling the business.

You can use your plan as a tool to generate interest from financiers, prospective employees and strategic partners.

Before you even start to write your plan, get copies of loan applications used by banks, commercial finance companies, and government. These applications will give you a good idea of how much financial information you will need to include in the business plan.

The most standard plan is a start-up plan, which defines the steps for a new business and the expansion plan which will take the business to the next level or to a larger market.

The plan count is not a good way to estimate how good your plan will be. Instead, measure the plan by readability. A good plan should provide a reader with a general idea of what a business owner is trying to accomplish after skimming or browsing over it for 15 minutes. The more standard start-up and expansion plans developed for showing outsiders normally run 20-40 pages of text, easy to read, well-spaced text, formatted in bullets, illustrated by business charts and short financial tables, plus financial details in appendices. Never write a business plan 50 or more pages.

At a minimum, your plan should have the following sections: Executive Summary, Company Description, Product or Service, Market Analysis, Strategy and Implementation, Web Plan Summary, Management Team, and Financial Analysis.

The most important part of your plan is the Executive Summary. The Executive Summary is an outline of the entire business plan. If you do not have a good Executive Summary, chances are the SBA, bankers and potential investors will not read the entire business plan.

Just remember that the most important audience for a business plan is YOU! Only you are accountable to all of the statements, claims, stats and facts inside of your business plan.

Remember by skipping the business plan stage chances are your business will face many, many risks and you might find yourself out of business within 2 to 5 years.

An 8 Step Process For Designing A Chart of Accounts

Many business owners and bookkeepers are confused by what accounts should be used in their chart of accounts. When there is unclarity about the design of the chart of accounts, one of three things usually happen:

* There are not enough accounts. When this happens, there isn’t enough detail in the financial reports to get information about what is happening in the business.

* There are too many accounts. This leads to too much detail on the financial reports, so they are difficult to read and use for high level decision making. This can also cause bookkeeping errors as the bookkeeping staff can easily become confused about where to record transactions.

* The account names are confusing. This also can lead to confusion and inconsistency in recording transactions. In addition, accounting staff and business management may not be on the same page with how accounts are being used.

How do you design a chart of accounts to ensure you can get good, clear, and consistent reporting information? First, you must realize that you’re in control of the chart of accounts and it’s up to you to design it. You could just have one account on the profit and loss statement called “expense”, but that wouldn’t give you good information, would it? We have to find the balance between too little and too much detail. Here’s an 8 step process to help you determine what should be on your chart of accounts.

1. If you’re designing accounts for a new business, begin with a standard chart of accounts (QuickBooks has several to choose from for various industries) and then add to it as described below.

2. Add accounts for income that is specific to your business and occurs regularly. You can have just one revenue line, but chances are you earn revenue from more than one type of product or service. Use a more general account for anything that does not occur regularly.

3. Add cost of goods sold accounts that correspond with your revenue accounts. If you have web design revenue, you would also have web design cost of goods sold.

4. Add expense, asset, and liability accounts that are specific to your business and make sense to you.

Now you have a chart of accounts for your business, but we’re not done. You need to review it again while asking the following questions:

5. Do I really need this account or is there a similar account where the information could be gathered? If so, would viewing those two accounts together be more helpful?

6. Is it obvious what types of transactions would belong in this account? If your account name doesn’t make sense to you or the accounting staff, rename it to something that is logical to you.

7. Why will I need to see this information on my income statement or balance sheet? How will this information be used later? If you don’t really need to see it separately, perhaps the data belongs in another account.

8. Is there another way to get this information if I use a more general account type? For example, could you track departments by class in QuickBooks and eliminate accounts for specific departments? If so, set up the other tracking mechanisms and utilize the generalized account.

Each time you think you may need to add an account to your chart of accounts, ask yourself these questions first. Selectively adding accounts will lead to better visibility into your operations. If you’re unable to answer the above questions to guide your chart of accounts design, you should have an accounting consultant help you with the process. If you’re not getting the information you need from your financial reports, a redesign of how you gather and view information may be in order.

Copyright (c) 2010 Kelly Totten

How to Create a Successful Business Plan

A good business plan enables you to build a strong foundation for your business, provides it integrity and helps to make you responsible towards your business. So, a proper business plan is inevitable in the success of a business. Charting a business plan can be nerve-racking, but with the right steps, it is a cake-walk.

Major sections of a business plan:

1. Executive Summary: Being the most critical section of a business plan, it is the first section that a reader sees. For the sake of perfection, you can write this section after you complete all other sections. It should provide a snapshot of your business, a mission statement, business history, current profile, founder’s details, locations, services offered, number of staff, future plans, and current profile in brief.

2. Market Analysis: This section indicates how well you have researched the prevalent market conditions. The chances of success, details of your industry, growth rate, market shares, current market trends, customer details, details of competitors and their products, comparative study of the products with respect to their strengths and weaknesses and so on can be included.

3. Company Description: This section provides a high level perspective of your industry and company, which helps the reader understand the relation between the two. It includes nature of your industry, company history, target customers, potential solutions that you will offer to target customers, and so on.

4. Organization and Management: This section should deal with how your staff is organized. The organization hierarchies, division of labor, profiles of managers, Board of Directors and Company Owner are to be included. This section should also include details of salary, perks and incentives.

5. Marketing and Sales Management: This section should help you to decide the marketing strategies for the sale of your goods and services.

6. Product Details: As the name indicates, this section describes the products or services that your business proposes to offer. You will need to provide details of current market research, benefits of products to customers, competitive advantages and copy rights or trade secrets with respect to your product.

7. Funding request: This section includes all that a bank or investor would need to know to understand the funding requirements of your business.

8. Financials: This section provides support, if you request for outside funding. Unless it is a startup company, this section should include your company’s financial track record for the past few years.

9. Appendices: This is where you will include all those details which you will not be able to fit into the other sections, but your readers might want to see.

While charting your business plan, you should think of the various audiences like bankers, investors, and professionals. Keeping properly formatted, short paragraphs is highly recommended in a business plan. You can include bulleted points to highlight the important points. It is nice to include complex data in the form of tables, or charts.