Starting a Small Business

The Business Plan

A business plan is a formal statement of a set of goals, the reasons they are believed attainable, and the plan for reaching those goals.

Learning Objectives

Name the components that make up a business plan

Key Takeaways

Key Points

  • The key elements of a business plan include a comprehensive set of relevant information—from market analysis to company financials.
  • If the company is seeking funding the business plan gives potential investors an understanding of your proposed business and the money required.
  • The business plan is a critical vehicle for communicating both internally and externally how a company intends to conduct business.
  • A business plan establishes goals and objections that allow the leadership to assess how well a company is doing based on its established goals and objections.

Key Terms

  • market analysis: Provides the specific industry, market, and competitive analysis information needed to understand where and how the company is positioned in the overall market.
  • Financial Projections: The financials provide information on the proposed spending and revenues of the company, typically for the first 3 to 5 years of operation. Again,if funding is required this section details the expected cash flows and other critical financial projections to allow potential investors to understand the risks and returns they can expect
  • Executive Summary: The executive summary is a snapshot of your business plan as a whole and touches on your company profile and goals.
  • business plan: a summary of how a venture owner, manager, or entrepreneur intends to organize an entrepreneurial endeavor and implement activities necessary and sufficient for the venture to succeed

A business plan is a formal statement of a set of business goals, the reasons they are believed attainable, and the plan for reaching those goals. It may also contain background information about the organization or team attempting to reach those goals. Business plans may also target changes in perception and branding by the customer, client, taxpayer, or larger community.

Essential Elements of a Business Plan

The key elements of a business plan include a comprehensive presentation of relevant information, from market analysis to company financials. If the company is seeking funding, the business plan gives potential investors an understanding of your proposed business and the money required. The following categories are important inclusions in any business plan:

  • Business Plan Executive Summary: The executive summary is a snapshot of your business plan as a whole and touches on your company profile and goals. This section offers tips on what to include and how to keep it brief and succinct.
  • Market Analysis: Provides the specific industry, market, and competitive analysis information needed to understand where and how the company is positioned in the overall market.
  • Company Description: Company description answers certain questions. What do you do? What differentiates your business from current providers? Which markets do you serve?
  • Marketing & Sales Management: The marketing and sales section explains how the company plans to market your business and what is your sales strategy. It outlines in the broadest sense how your firm will communicate with potential customers and suppliers.
  • Service or Product Line: Service and product lines details exactly what your firms sells and how does it deliver value to your customers. Information about the firm’s R&D activities and the product lifecycle should be included in this section.
  • Funding Request: If you are seeking funding for your business, find out what information you need to include in your plan to ensure success.
  • Financial Projections: The financials provide information on the proposed spending and revenues of the company, typically for the first 3 to 5 years of operation. Again,if funding is required this section details the expected cash flows and other critical financial projections to allow potential investors to understand the risks and returns they can expect.
  • Appendix: An appendix is optional, but a useful place to include resumes of the leadership team, permits, leases, and and any other pertinent information that is material to the operations of the company.
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Business Plan: Preparing A Business Plan

Types of Ownership

A company has several options when it comes to the legal structure of ownership.

Learning Objectives

Discuss the different types of ownership available to small business owners

Key Takeaways

Key Points

  • A small business is a business that is privately owned and operated, with a small number of employees and a relatively low volume of sales.
  • Market factors and other key criteria, such as tax implications, should be considered with regard to the legal structure of a company.
  • Each of the types of ownership comes with its own inherent advantages and disadvantages and as a result its own risks and potential rewards.

Key Terms

  • Sole Proprietorship: A business owned by one person. The owner of the business has total and unlimited personal liability of the debts incurred by the business.
  • partnership: A partnership is a form of business in which two or more people operate for the common goal of making profit. Each partner has total and unlimited personal liability of the debts incurred by the partnership.
  • limited liability: A situation in which the liability of the owners of a business is limited to the full, paid-up value of the share capital. In the United States and some other countries, a limited company is known as either a corporation or a limited liability company (LLC).

Types of Ownership

A small business is a business that is privately owned and operated, with a small number of employees and relatively low volume of sales. Small businesses are normally privately-owned corporations, cooperatives, partnerships, or sole proprietorships.

Private Limited Company (Ltd)

A small to medium-sized business that is often run by the family or the small group who owns it. The owners and managers are only liable for the business up to the amount they have invested in the company, and are not liable for the debts incurred by the company unless they have signed a personal guarantee.

Public Limited Company

A business with limited liability, and a wide variety of shareholders. The owners and managers are only liable for the business up to the amount they have invested in the company, and are not liable for the debts incurred by the company (unless they have signed a personal guarantee, which usually is not the case for a large corporation).

Unlimited Liability

A situation in which owners of a business are liable for all the debts that the business may incur.

Limited Liability

A situation in which the liability of the owners of a business is limited to the full, paid-up value of the share capital. In the United States and some other countries, a limited company is known as either a corporation or a limited liability company (LLC).

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Limited Liability Company (LLC): A situation in which the liability of the owners of a business is limited to the full, paid-up value of the share capital. In the United States and some other countries, a limited company is known as either a corporation or a limited liability company.

Sole Proprietorship

A business owned by one person. The owner may operate on his own or may employ others. The owner of the business has total and unlimited personal liability of the debts incurred by the business.

Partnership

A partnership is a form of business in which two or more people operate for the common goal of making profit. Each partner has total and unlimited personal liability of the debts incurred by the partnership.

Cooperative Business

Cooperative businesses are often referred to as a co-ops. The cooperative business structure is for-profit, with limited liability, but with members of the co-op sharing decision-making authority. Co-ops normally fall into three types: (1) Consumer co-ops, (2) producer co-ops (common in agriculture) and (3) worker-owned companies. Co-ops are fundamental to the ideology of economic democracy.

Financing Company Operations

A company can be self-financed or financed through the solicitation and participation of outside investors.

Learning Objectives

List the different financing options for small businesses

Key Takeaways

Key Points

  • Financing the operation of a company can come from within the firm itself or by using external resources.
  • How a company is financed has implications for how profits and potential liabilities are distributed.
  • The participation of external sources of funding may bring other benefits outside rather than just the funds themselves.

Key Terms

  • Bootstrapping: Financial bootstrapping is a term used to cover different methods when someone wants to avoid using the financial resources of external investors. The use of private credit card debt is the most known form of bootstrapping, but a wide variety of methods are available for entrepreneurs. While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company.

A company can be self-financed or financed through the solicitation and participation of outside investors.

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NGO Financing: A non-governmental organization (NGO) is a legally constituted organization created by natural or egal persons that operates independently from any form of government.

Self Funding

Financial bootstrapping is a term used to cover different methods for avoiding the use of financial resources that come from external investors. The use of private credit card debt is the most known form of bootstrapping, but a wide variety of methods are available for entrepreneurs. While bootstrapping involves a risk for the founders, the absence of any other stakeholder gives the founders more freedom to develop the company.

There are different types of bootstrapping:

  • Owner financing
  • Sweat equity
  • Minimization of the accounts receivable
  • Joint utilization
  • Delaying payment
  • Minimizing inventory
  • Subsidy finance
  • Personal Debt

External Financing

Many businesses need more capital than can be provided by the owners themselves. In this case, a range of options are available including:

  • Angel investors
  • Venture capital investors
  • Crowd funding
  • Hedge Funds
  • Alternative asset management

Some of these sources provide not only funds, but also financial oversight, accountability for carrying out tasks and meeting milestones, and in some cases, business contacts and experience. In many cases, these services are in return for an equity stake.

In short, financing the operations of a company can come from within the firm itself or by using external resources. How a company is financed has implications for how profits and potential liabilities are distributed

Many successful companies, including Dell Computers and Facebook, were founded using financial bootstrapping.

The participation of external sources of funding may bring other benefits outside of the funds themselves.

The Small Business Administration

The Small Business Administration (SBA) is a United States government agency that provides support to entrepreneurs and small businesses.

Learning Objectives

Key Takeaways

Key Points

  • The U.S. government actively supports the creation of new business and the expansion of existing companies through the SBA.
  • The SBA promotes commerce in the U.S. in a number of ways, from simple advice and information to actual funding.
  • Many of the new jobs in the U.S. economy are created by small businesses.

Key Terms

  • organization chart: A graphic display of reporting relationships in an organization, sometimes displaying position titles and position holders.
  • organigraph: Organigraphs expose critical associations and competitive opportunities as opposed to viewing all parties, departments, and business units as separate entities. They also reveal relationships between departments, products, supply chains, and more within an organization that might not otherwise be apparent.

The Small Business Administration

The Small Business Administration (SBA) is a United States government agency that provides support to entrepreneurs and small businesses. The mission of the Small Business Administration is “to maintain and strengthen the nation’s economy by enabling the establishment and viability of small businesses and by assisting in the economic recovery of communities after disasters. ” The agency’s activities are summarized as the 3 Cs of capital, contracts, and counseling. Many of the new jobs in the U.S. economy are created by small businesses

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The Small Business Administration: Seal of the U.S. Small Business Administration

SBA loans are made through banks, credit unions, and other lenders who partner with the SBA. The SBA provides a government-backed guarantee on part of the loan. Under the Recovery Act and the Small Business Jobs Act, SBA loans were enhanced to provide up to a 90 percent guarantee in order to strengthen access to capital for small businesses after credit froze in 2008. The agency had record lending volumes in late 2010.

The SBA helps lead the federal government’s efforts to deliver 23% of prime federal contracts to small businesses. Small business contracting programs include efforts to ensure that certain federal contracts reach woman-owned and disabled veteran-owned small businesses.

SBA has at least one office in each U.S. state. In addition, the agency provides grants to support counseling partners, including approximately 900 Small Business Development Centers (often located at colleges and universities); 110 Women’s Business Centers; and SCORE, a volunteer mentor corps of retired and experienced business leaders with approximately 350 chapters. These counseling services provide services to over one million entrepreneurs and small business owners annually.