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June 2013 Tip of the Month

Hey, with all the national media surrounding Marty’s son jumping on to New York City’s train tracks to save a seizure victim from an oncoming train (just Google New York Post Dr. Ben Abo June 21), no one reminded us we forgot our June Tip of the Month.  Here she be…..

Large or Small, Formal or Informal - You Need a Business Plan

A good business plan is a necessary tool which incorporates the goals, timetable, financial projections, market research, personnel and product or service development for your projected or existing business.  Abo and Company has given guidance and frequently spoken on the development, presentation and ongoing utilization of your business plan.  We thought we’d provide examples of deficiencies in business plans we’ve come across in our travels. 

A business plan and a financial proposal are closely related.  In fact, a good business plan, updated periodically, makes the most powerful financing proposal a small business can have.  If you follow proper guidelines (remembering to adapt them to suit your particular business situation), then you will not only know exactly what amount of money you need to make your deal work, you will also know and understand what kind of financing to seek and who is most likely to offer it.

This knowledge alone helps you establish credibility.  By presenting a clearly thought out, well documented financing plan, you will show what you want to do, how to do it, and how the loan will be repaid or the investment appreciate.

By the way, because of all of the valuation work and forensic analysis Abo and Company does, by necessity, we maintain and access considerable databases, in-depth and updated industry reports/analysis, economic data, peer group information, etc. There may very well be a good deal of non-technical information to help familiarize a client in need with the particulars and nuances of various types of businesses, professions, trades and industries. You may want to confer with Marty Abo or Mark Kravitz at Abo and Company in this regard.

(Note:  These examples are not listed in a particular order of importance.)

  • What about quantity discounts being included in your sales projections?
  • Salaries should be at gross, not net.
  • What about interest earnings on idle funds
  • Consider marketing referral networks.
  • How will you maintain a given market level of revenue activity after it is attained?
  • Start with a simple “Statement of Purpose” or “Corporate Mission” rather than puffy descriptions of business and financial needs.  The investment, its use and expected effects on the business will be supported by the rest of the business plan. 
  • Delete negative comments concerning “poor cash flow,” “problems we’ve had,” etc.  Investors, reviewing accountants and other financial analysts will focus on these types of comments. 
  • Put page numbers in the Table of Contents since the readers often need to refer to specific areas of interest and concern. 
  • Appreciate the critical importance of complete marketing information.  Look to citations from authorities, studies, etc. to document how they defined the market and how and why you think you can capture the percentage you’ve indicated.
  • Rather than traditional resumes, try to pinpoint management’s experience and how that experience relates to this market. 
  • At least address the fact that copyrights, intellectual and other property rights and trademarks, are not needed to maintain proprietary rights.  Describe how other companies won’t be able to invade your technology and resultant markets.
  • How would you expand your market (i.e. new products, enhancements, advertising, tele-marketing, refurbishing units for resale, etc.?).  For example, it would seem that maintenance contracts in the aftermarket would be very lucrative.  On the other hand, you may not want to introduce any new products here because your investor would be getting a piece of this action. 
  • Will you market your product locally, regionally, nationally, or internationally?  Can you support such a distribution system?
  • Consider coop advertising/marketing arrangements with suppliers/customers & the building of marketing referral networks. 
  • Maintenance contracts in the aftermarket can be lucrative.  Consider maintenance income & maintenance/warranty costs.
  • In the personnel section, there should be an indication that these skills are available.  Do we assume that one of the officers will assume the responsibility for sales or marketing director?  If so, the business plan should say so.
  • Do the projections reflect the learning curve or total costs of training these specialized individuals?
  • The business plan should identify exactly how the funds are to be spent (i.e., similar to a prospectus’ requirement of “For a Use of Proceeds”).  You may want to do this even if it’s merely to pay off loans, fund officer’s compensation, etc., which may be considered negative attributes.  Whether or not this information is disclosed in the actual presentation, you should complete this exercise for your own business planning.
  • Commentary should be made on the inventory (i.e., need funds for initial purchase, build up, etc.).
  • If a large inventory is required, can you handle the volume?  Will warehousing costs be increased?
  • You need comprehensive and detailed footnotes and listed assumptions to projections?  Very important to show exactly how figures are arrived at and the specific assumptions used.
  • Have you considered discount terms, bad debts, financing charges, dealers versus manufacturer reps, sales returns, etc?  How about in your projections?
  • Does the cost of goods sold figures include any of the officers’ compensation?  Probably not unless they were involved in quality control