Investments
Alternative investments refer to assets that fall outside the traditional categories of stocks, bonds, and cash: real estate, commodities, currencies (including cryptocurrencies), private equity, or hedge funds.
Risk varies within asset classes as well. For example, some stocks, such as those of large, well-established companies (called " blue chips "), generally have less risk than stocks of smaller, newer companies. Similarly, government bonds typically have less risk than corporate bonds. Below is a cheat sheet on the relative risk of different assets.
Relative Risk Cheat Sheet | ||
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Asset Class | Investment Type | Relative Risk |
Large-cap stocks | Moderate | |
Midcap stocks | Moderate-High | |
Small-cap stocks | High | |
International stocks (developed markets) | Moderate-High | |
International stocks (emerging markets) | High | |
U.S. Treasurys | Low | |
Investment-grade corporate bonds | Low-Moderate | |
High-yield corporate bonds | Moderate-High | |
International bonds (developed markets) | Moderate | |
International bonds (emerging markets) | High | |
Certificates of deposit (CDs) | Low | |
Money market funds | Low | |
Commodities | High | |
Cryptocurrencies | Very High | |
Hedge funds | High | |
Private equity | High | |
Real estate / real estate investment trusts (REITs) | Moderate-High |
Remember, your asset allocation strategy is the backbone of your investment plan. By diversifying your investments and regularly reassessing your strategy, you'll be better positioned to weather market ups and downs and achieve your long-term financial objectives. In addition, if you buy shares in a mutual or exchange-traded fund ( ETF ) that holds these assets, your risk from that fund will be similar.
For this and other steps, don't hesitate to get guidance from a financial professional who can help you develop a diversified portfolio that aligns with your needs and goals.
With your asset allocation strategy in place, it's time to choose the particular assets you'll have in your portfolio. If you've chosen 30% should be bonds—which bonds? If 60% stocks—which stocks?
The first thing to decide in this step is whether you want to actively manage your portfolio or not. This choice will then affect everything else you do:
Actively managing your portfolio means taking a hands-on approach. You're directly involved in deciding what assets to buy (and later sell), typically through a mix of stocks, bonds, and other investments. However, building a favorably diversified portfolio—it's common to say you need at least 25 to 30 different equities to diversify enough across sectors and geography—requires a lot of time and funds upfront. And that's before you get to your portfolio's other asset classes.
If you don't have the time or the funds to do that on your own, you'll want to consider passively managing your portfolio by investing in mutual and exchange-traded funds (ETFs) as a cost-effective and timesaving way to gain instant exposure to a diversified set of assets. These funds pool money from investors like you to buy a basket of securities.
To add some confusion we'll clear up quickly: these funds are split among active and passively managed funds. It means the same thing as for your portfolio: if you've chosen this route, you're already passively investing in a fund with a basket of securities. Now, that basket itself can be an actively managed fund (in which case, the fund's management is trading the securities to meet its profile) or a passively managed one, which means that what's in the index isn't decided by the managers, but by mirroring an index like the S&P 500.
Actively managed funds are overseen by professional fund managers who aim to beat market benchmarks through strategic investment decisions. Passively managed funds seek to match market benchmarks. The latter are almost always index funds, which can be an excellent choice for many picking their first investments. These are designed to track the performance of a specific market index, such as the S&P 500 for U.S. stocks or the Bloomberg Barclays U.S. Aggregate Bond Index for U.S. bonds.
You can also buy shares in index funds that represent various asset classes and economic sectors to construct a well-diversified portfolio. For each part of your asset allocation, you can buy a percentage in a fund that matches diversification for stocks, bonds, etc. You can also find ETFs and mutual funds that are diversified across assets so that you might be comfortable with them making up much of your own portfolio. Many Americans do this with each paycheck, as they put more money into target-date funds (funds that are actively managed to change over time to meet a specific retirement date) that make up much of their own portfolio. ( For more help in this area, see our How to Pick Your Investments . )
Your risk-reward profile will change over the years, tilting further away from risk the closer you get to retirement.
The key to long-term investing lies in ongoing management—even if you're "passively" managing your portfolio. This includes monitoring your investments, measuring performance, and adjusting as needed. To ensure your portfolio is on track, you'll need to regularly check on your investments and measure their performance against the benchmarks you established in Step 2, whether quarterly or semiannually. When assessing your portfolio's performance , you'll want to ask the following:
Each year, you'll review your portfolio and also address any broader changes in perspective you might have:
If your annual review reveals that your portfolio no longer aligns with your risk-reward profile or target allocation, it's time to rebalance. This means selling investments that have exceeded their target allocations and buying investments that are underrepresented in your portfolio. For example, if your target allocation is 60% stocks and 40% bonds, and changes in the market mean your portfolio is now 70% stocks and 30% bonds, you'll need to sell some stocks and buy more bonds to restore your original allocation.
When investing to reach lifelong objectives, the portfolio planning process never stops. Many events could change your outlook and needs as you move through your life. As these occur or as market and economic conditions dictate, the portfolio planning process begins anew. At that point, you can restart these five steps to ensure that you have the right investment strategy in place.
Annual reassessment allows you to adapt to changes in your financial situation or objectives, ensuring your investment strategy remains aligned with your goals.
Successful portfolio monitoring involves regular reviews, understanding market changes, and adjusting strategies to stay aligned with your financial goals .
Purchasing a home is a significant event in your life and for your portfolio since whatever part of the home you own (called the " home equity ") is now essentially part of your investment portfolio. You may need to shift some of your investments toward more liquid and stable assets to ensure you have enough funds for the down payment, closing costs, and ongoing mortgage payments.
This may involve temporarily reducing your exposure to riskier assets, such as stocks, and increasing your allocation to cash or short-term bonds. As you update your investment strategy to accommodate your home purchase, consider how your home equity and mortgage fit into your overall asset allocation and long-term financial goals. Maintaining a diversified portfolio is essential while recognizing that your home can play a significant role in your financial security and wealth-building efforts over time.
Creating a successful investment portfolio requires careful planning and ongoing management. By following the five steps outlined in this article, you'll have in place a personalized investment strategy that aligns with your financial goals, risk tolerance, and life circumstances.
The first step is to assess your present financial situation and set clear, quantifiable investment goals. Next, establish your risk-return profile to determine the appropriate balance between potential rewards and acceptable levels of risk. You can then allocate your assets in a diversified manner. When selecting specific investments, consider your preference for active or passive management. Finally, remember that portfolio planning is an ongoing process that requires regular monitoring, performance measurement, and rebalancing.
As you move through different stages of life, your financial goals and circumstances may change, requiring adjustments. At each point, don't hesitate to seek guidance from a trusted financial professional who can provide valuable insights and support throughout your investment journey.
If you are planning to start, grow or sell a business, it is almost essential you have a plan of attack.
A traditional business plan is much more than a general list of things that you need to do.
An effective plan focuses on short-term and long-term business goals, with information that outlines how you intend to reach them.
A formal business plan will be one of the most valuable tools that you will use in raising capital from investors and for building and growing your business.
Like the businesses themselves, business plans come in many types and forms.
Oftentimes even established business owners and managers underestimate the effectiveness of a qualified business plan.
Some mistakenly think business plans are only used in the venture capital world of start-up finance.
This simply is not true. Enterprise planning is often required for anything from SBA lending and debt financing to internal planning and partnership qualification.
Many find they regularly refer to a previously-written business plan to ensure they stay on track and under budget.
A business plan can also help you establish a framework for your dream business, including structure and planning goals.
In addition, business planning is often a fluid process and a living document, with changes occurring mid-stream which means those best prepared have already done their homework and are prepared to pivot.
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You will essentially create two plans. The first is known as the internal or initial start-up business plan . This plan includes your company’s mission statement, product/service description, marketing strategy plan and initial start-up goals. Most importantly, the initial plan will also include a market analysis. Performing research on the market helps both internal managers understand whether the business concept or business idea is viable and worth pursuing and to attract investors.
If it is, the initial plan will morph into something suitable for angel investors, venture capitalists and private equity groups. Typically, your final secondary plan will incorporate the details in your initial start-up plan into a more finalized version ready for publication. InvestmentBank.com assists throughout this entire process.
How you go about your business plan process is dependent on the audience for which it will be created.
For example, if you will be seeking a business loan, you need to create business plan for bank loans . Conversely, if you are seeking investment capital in equity financing, you’ll most likely need a venture capital business plan . Regardless of the audience any typical business plan will generally include the following:
Discovering a business idea is the first step towards creating a business model hypothesis. Specifically, a business idea worth investigating further is a “proto-business model” – the embryo of a viable business model. The business idea is essentially your best guess that describes your Value Proposition (the thing you want to sell) and your Customer Segment(s) (the target customers you want to sell to). This is your initial pass at creating a viable Value Proposition – Customer Segment “fit”.
At a minimum, a business idea worth investigating further should have one or more Customer Segments and a corresponding Value Proposition to match each Customer Segment. Completing the following steps will validate that your business idea is worth investigating further.
A business plan may contain many types of information depending on the nature, size, and financing needs of the company. One general business plan template can be developed with the help of our JDs, MBAs and expert business planning professionals. While various institutions like the Small Business Administration (SBA) help provide guidelines, it is often best to get your detailed business plan drafted by professionals who know what it takes to get funded and what investors are looking for when they sift through thousands of plans.
This is the title or cover page. This page will contain the information of the names and addresses of business enterprise and entrepreneurs, a paragraph describing the nature of business, and the vision and mission statement of the company.
An executive summary of the comprehensive business plan report should be presented within four pages, summarizing the whole report and emphasizing on business purpose, industry analysis, market opportunity, key elements of the business, revenue, and planning.
This segment of a viable business plan will show the present conditions of the industry, in which the entrepreneur desires to enter. This section should include present and future outlook and demographic developments, analysis of competitors, market segmentation, and industry financial forecasts.
In this segment of the business plan a detailed picture of the venture should be outlined with particular reference to products, services, office equipment, machinery, personnel, size of business, and background of entrepreneurs.
This portion of the business plan is indeed an operational plan. The operational activities of manufacturing, trading and service business are different. So the operational plans of different types of enterprises will be different. For example operational plan of a manufacturing business may cover unique aspects such as manufacturing process,equipment, names of the providers of the raw materials and other inputs of the production process, and so on.
It includes market condition, market strategy, and future market prospect. The pricing, promotion, distribution, product forecasts, and controls should be evaluated carefully for the business plan.
This section includes forms of the ownership, identification of partners or major shareholders, the authority of the managers, management-team background, and the duties and responsibilities of members of the organization.
It is very important for any business plan to assess all the possible risks that may affect the enterprise, prior to starting the business. Assessment of risk must include evaluation of the weaknesses of the enterprise, latest technologies, and contingency plans.
This section shows financial viability of the business plan, in which the entrepreneur must prepare forecasted income statement, cash flow estimates, forecasted balance sheet, break-even analysis, and sources and usages of funds. This section will be scrutinized to determine the profitability and sustainability of the enterprise by the investors, such as the bankers or venture capitalists.
It contains all the backup materials such as legal documents, market research data, lease contracts, and price forecasts from suppliers.
These are the general contents of a business plan that are suggested by the experts, but these contents may vary from business to business. A good business plan should be comprehensive enough to provide a complete picture and understanding of the venture regarding its present status and future growth potential to the prospective investors and other interest groups.
Traditional business plans come in many types. They include strategic plans, expansion plans, investment plans, growth plans, operational plans, internal plans, annual plans, feasibility plans, product plans, and many more.
The various types of business plans will always matche the specific business situation. For instance, it is not necessary to add all the background information that is known already, while preparing a plan to use internally and not circulating it to financial institutions or investors. Investors always look for information on the description of the management team, while bankers always look for financial background or history of the company.
The various types of business plans are due to the specific case differences:
Start-up plan is the most standard plan that explains the steps for a developing new business. Start-up plans often include standard topics such as the organization, product or service offering, market place, business forecasts, strategy, management team, implementation milestones, and financial analysis. Sales forecast, profit and loss statement, cash flow statements, balance sheet, and probably a few other tables are included in the financial analysis.
First year monthly projections are shown in the start-up plan, which usually begins with an abstract and ends with appendix.
Click on the following link to learn more about how we approach startup investing .
Business plans that are not usually intended for external investors, financial institutions, or any other third parties are called Internal plans. A detailed description of the organization or the management team may not be included in it. Detailed financial projections like budgets and forecasts may or may not get included in Internal plans. Instead of presenting the whole business plan in the form of paragraph text, Internal plans display the main points in the form of bullet points in slides.
Operations plan can be referred to as Internal plan, which is also known as an annual plan. More detailed information on specific dates, implementation milestones, deadlines, and teams and managers responsibilities are given in Operations plan.
Strategic planning usually does not focus on specific responsibilities and detailed dates, rather it focuses on setting high priorities and high-level options and is also referred to as an internal plan. Unlike most other internal plans, it includes data in the form of bullet points in slides. Organization or management team descriptions are not included in it. Also, some of the financial information is not explained in detail and left while preparing strategic plans.
Some business plans focuses on specific areas of the business or a subcategory of the business, and these plans are referred to as a growth plan or an expansion plan or a new product plan. Depending on whether these business plans are linked to new investments or loan applications, they could be classified as internal plans or not. For instance, like a start-up plan developed for investors, an expansion plan that requires new investment would also have detailed description of the company and its management teams background data. These details will also be required for loan applications. But, these descriptions are skipped in an internal business plan, which is used to design the steps for growth or expansion that is funded internally within the organisation. Although, detailed financial projections might not be given, forecast of the sales as well as the expenses for the new business venture is at least included in more detail.
A very simple start-up plan is the feasibility plan, which include an abstract, mission statement, market analysis, keys to long-term success, and initial cost analysis, pricing, and projected expenses. Feasibility plans helps to analyze whether it is good to continue with a plan or not, to find if the business plan is worth continuing.
Writing a business plan is a highly collaborative affair between the entrepreneur(s) and the business plan writer. The more complex the plan is, the more both the entrepreneur(s) and the business plan writer will need to communicate and collaborate in order to produce a professional, marketable business plan. The business plans we write fall into six general categories. We will discuss each in detail below.
These are business plans for new companies that are 1) trying to raise startup capital to launch the business and 2) the business will serve a clearly defined target market with a service or product that already exists. These business plans are usually the least complex to write because the business models
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(new business, well defined industry and target market, seeking equity financing) | 30 | $2,250 |
(new business, well defined industry and market, seeking debt financing) | 35 | $2,625 |
The hourly fee for work over the project’s estimated number of hours is $20 per hour.
Type 1 and Type 2 business plans are written in five distinct units. Each unit reflects a progressive step in putting the business plan together. Before we can begin writing each unit, we must receive feedback to specific questions that we will send you concerning the topics covered in each specific unit. After we complete each of the first four units, we will send you a draft of that unit in a Microsoft Word document. You will then have the opportunity to review unit draft and critique or clarify it.
We will make any necessary changes needed for each unit draft. The fifth and final unit will be integrating the information in each of the previous four units into a final, complete business plan. You will then have the opportunity to review and critique that completed business plan draft. We will then correct any and all discrepancies in that final complete draft.
Unit 1 | – Specific questions about The Market- Specific questions about The Product/Services- Specific questions about The Industry/Competition | The Target Market The Product/ServicesThe Industry/Competition |
Unit 2 | – Step by step instructions and questions for Excel template #1: Sales Forecast, Startup Expenses, Personnel & Management, and Financial Projections- Excel Template #1 | Sales ForecastStartup ExpensesPersonnel & ManagementFinancial Projections |
Unit 3 | – Specific questions about The Management Team- Specific questions about The Marketing Plan- Specific questions about The Company | The Management TeamThe Marketing PlanThe Company |
Unit 4 | – Specific questions about The Financial Plan- Specific questions about The Executive Summary | The Financial PlanThe Executive Summary |
Unit 5 | Plan AssemblyFinal Revision |
The entire business planning process of writing a Type 1 or Type 2 business plan depends upon our general workload and the speed with which you respond to our requests for information about your business. We estimate that either a Type 1 or Type 2 business plan will take generally 10 to 15 work days to complete (two to three weeks).
These are business plans for existing companies that are 1) trying to raise capital for a new business project or idea and 2) the business project is serving a clearly defined market with a service or product that already exists.
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(existing business, well defined industry and market, seeking equity financing) | 60 | $4,500 |
(existing business, well defined industry and market, seeking debt financing) | 70 | $5,250 |
Type 3 and Type 4 business plans are written in six distinct units. Each unit reflects a progressive step in putting the business plan together. Before we can begin writing each unit, we must receive feedback to specific questions that we will send you concerning the topics covered in each specific unit. After we complete each of the first five units, we will send you a draft of that unit in a Microsoft Word document. You will then have the opportunity to review the draft of each unit and critique or clarify it. We will change or modify any discrepancies you have with the drafts of each unit. The final unit will be integrating the information in each of the five units into a final, complete business plan. You will then have the opportunity to review and critique that completed business plan draft. We will then correct any and all discrepancies in that final complete draft.
Unit 1 | – Specific questions about The Company- Step by step instructions for Excel Template #1: Performance to Date- Excel Template #1 | The Company |
Unit 2 | – Specific questions about The Market- Specific questions about The Product/Services- Specific questions about The Industry | The MarketThe Product/ServicesThe Industry |
Unit 3 | – Step by step instructions and questions for Excel template #2: Sales Forecast, Startup Expenses, Personnel & Management, and Financial Projections- Excel Template #2 | Sales ForecastStartup ExpensesPersonnel & ManagementFinancial Projections |
Unit 4 | – Specific questions about The Management Team- Specific questions about The Marketing Plan | The Management TeamThe Marketing Plan |
Unit 5 | – Specific questions about The Management Team- Specific questions about The Executive Summary | The Financial PlanThe Executive Summary |
Unit 6 | Plan AssemblyFinal Revision |
The entire process of writing a Type 3 or Type 4 business plan depends upon our general workload and the speed with which you respond to our requests for information about your business. We estimate that either a Type 3 or Type 4 business plan will take generally 15 to 20 work days to complete (three to four weeks).
These are business plans for classic startup companies that are trying to create new products or services to serve new or reimagined markets. These companies are usually looking to raise equity capital from angel investors and venture capital firms. These business plans are far more difficult to write because their business models are largely unproven.
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(new business, undefined or new industry and market, seeking equity financing) | 110 | $8,250 |
Type 5 business plans are written in five distinct units. Each unit reflects a progressive step in putting the business plan together. Before we can begin writing each unit, we must receive feedback to specific questions that we will send you concerning the topics covered in each specific unit. After we complete each of the first four units, we will send you a draft of that unit in a Microsoft Word document. You will then have the opportunity to review unit draft and critique or clarify it. We will make any necessary changes needed for each unit draft. The fifth and final unit will be integrating the information in each of the previous four units into a final, complete business plan. You will then have the opportunity to review and critique that completed business plan draft. We will then correct any and all discrepancies in that final complete draft.
Unit 1 | – Specific questions about The Market- Specific questions about The Product/Services- Specific questions about The Industry/Competition | The MarketThe Product/ServicesThe Industry/Competition |
Unit 2 | – Step by step instructions and questions for Excel template #1: Sales Forecast, Startup Expenses, Personnel & Management, and Financial Projections- Excel Template #1 | Sales ForecastStartup ExpensesPersonnel & ManagementFinancial Projections |
Unit 3 | – Specific questions about The Management Team- Specific questions about The Marketing Plan- Specific questions about The Company | The Management TeamThe Marketing PlanThe Company |
Unit 4 | – Specific questions about The Financial Plan- Specific questions about The Executive Summary | The Financial PlanThe Executive Summary |
Unit 5 | Plan AssemblyFinal Revision |
The entire process of writing a Type 5 business plan depends upon our general workload and the speed with which you respond to our requests for information about your business. Also, the novelty and newness of the industry you are entering and the market you will be serving are real wild card variables in terms of how much time the business plan will take to complete. We estimate that a Type 5 business plan will take generally 25 to 40 work days to complete (five to eight weeks).
These are business plans for existing companies that are attempting to create new products or services to serve new or reimagined markets. The markets these companies are trying to serve with their new products and services are either undefined or completely new. Usually these companies are seeking financing to raise equity capital (because these business projects are usually risky), but sometimes raising debt capital may be an options for them. These business plans are as difficult to write as Type 5 plans.
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(existing business, undefined or new industry and market, seeking either equity or debt financing) | 120 | $9,000 |
Type 6 business plans are written in six distinct units. Each unit reflects a progressive step in putting the business plan together. Before we can begin writing each unit, we must receive feedback to specific questions that we will send you concerning the topics covered in each specific unit. After we complete each of the first five units, we will send you a draft of that unit in a Microsoft Word document. You will then have the opportunity to review the draft of each unit and critique or clarify it. We will change or modify any discrepancies you have with the drafts of each unit. The final unit will be integrating the information in each of the five units into a final, complete business plan. You will then have the opportunity to review and critique that completed business plan draft. We will then correct any and all discrepancies in that final complete draft.
The entire process of writing a Type 6 business plan depends upon our general workload and the speed with which you respond to our requests for information about your business. Also, the novelty and newness of the industry you are entering and the target market you will be serving are real wild card variables (in terms of how much time the business plan will take to complete). We estimate that a Type 6 business plan will take generally 25 to 40 work days to complete (five to eight weeks).
Running a Business Is Tough, Especially Without a Business Plan
If you are running a business, it’s very important to have a business plan made up and it’s just as important to stick to your business plan once you create it. When you have a business plan you are setting objectives for yourself and you are establishing the priorities you have for your business. It also makes it much easier to reach the goals that you set for yourself as well which is always crucial in a business.
Think of your business plan as a map for your business, without this map you and the way you run your business are traveling blindly which is very dangerous. You want to have a clear idea of where your business is headed and where you want it to go and a business plan outlines what will steer you in the right direction.
Looking for a Loan?
If you are looking to get a loan for your business, you’re going to need a definite business plan. Most banks won’t even consider giving you a loan until they see a business plan. If you don’t have a business plan they’ll think of you as a risk since you don’t truly know where you want your business to go. When you present your business plan to a bank to get the loan you desire be sure that you go over what your business is all about and why you started it. You will also want to list for them what you see in the future of your business as well.
Looking for a Business Investment?
Having a business plan doesn’t mean that you will surely get the investment you desire but not having a business plan will surely mean you will not get the investment you desire. Investors need to know what exactly they are investing in and they will look to your business plan to understand what the idea of the business is, your businesses track records, the technology behind your business and of course yourself. You will absolutely not get a business investment without having a business plan because the investors won’t have anything to help them understand what your business is all about.
Have Business Partners?
A business plan is what defines your agreements that you have made with your business partners which means you’ll have a lot of issues if you don’t have a business plan if you are in this business with more than just yourself. A business plan is the only way to keep everything between you and your partners fair and it ensures that everyone knows what the ground rules are for the business and where each and every one of you stand.
Communicating with a Management Team Won’t Work Without a Business Plan
How can you and your management team effectively run your business without being able to see where you all want it to go? The answer is, you can’t. You can’t steer your business down the right path if nobody knows exactly where it should be going and your management team will feel the exact same way. There will be a lot of different problems that will come up during the day-to-day work and it will be very challenging for you to face them and communicate all of these problems when you or your management team don’t truly know where the problem falls under in the business plan.
Do you need a business valuation?
Whether you need to place a value on your business to sell it or for taxes, a business plan is an essential part in this. It’s always important to know what your business is worth even if you don’t plan on selling it at all, you may need to know what it’s worth when it comes to planning an estate or an unexpected divorce could come up. You always should know what your business is worth an a business plan will help you understand that and keep track of it.
When it comes to developing a business plan, many people believe that it’s too difficult or it’s just too time consuming to do but what those people don’t realize is that putting together a business plan will save you in many ways and you it will help your business in more ways than you can imagine.
Developing a business plan is not that much of a challenge and it will very valuable to you in the future. Nobody should ever try to do something big without planning it first and this includes running a business. You have all these business plans in your head so just lay those plan out on paper so you have tangible evidence of your business and what you want to do with it.
A business plan a very crucial part in creating and owning a business so take the time and effort in creating one and you will benefit from it much more than you think and you’re business will run much more smoothly.
A business plan’s executive summary section provides a round-up of the main points of your business plan. Although the summary will appear at the top of the final printed piece, the majority of business plan developers do not write the executive summary until the last moment. The summary forms the gateway to the remainder of the plan. If you do not write a business plan executive summary it well, your target audience will not read beyond the executive summary.
What should be included in an executive summary?
When a regular business plan is being written, the following should usually be incorporated into the opening paragraph of the executive summary:
• The name of the business • The location of the business • The service or product being offered • The aim of the plan
A further paragraph should underline significant points, for example projected profits and sales, profitability, unit sales, and keys to success. Give the details you need everyone to notice. This is also a sensible point at which to include a highlights chart, a bar chart depicting gross margin, profits before taxes and interest, and sales for the three years to come. These numbers must be explained and cited in the text.
Different summaries are required for different plans
Internal plans, for example annual or strategic plans, or operations plans, do not need such formal executive summaries. With such a plan, make its purpose obvious, and be certain that all the highlights are mentioned, but other details – such as the description of your service or product, and location – may not need to be repeated.
Be concise with your summary
If investment is what you are seeking, mention this in your executive summary, specifying the amount of investment required and the level of equity ownership that will be provided in return. It is also a good idea to include some highlights regarding your competitive advantage and your management team.
If it is a loan that you are looking for, say so in the executive summary, specifying the sum required. Do not include details of the loan.
What is the right length for an executive summary? There are differing views from experts about the ideal length of an executive summary. Some recommend taking only one or two pages, while others suggest a more in-depth approach, with the summary lasting for anything up to ten pages and including sufficient information to be used instead of the full plan. Although it was once common to write business plans of 50 or more pages, today’s lenders and investors expect a more focused, concise plan.
A single page is the perfect length for an executive summary. Keep everything brief, emphasizing the major aspects of your plan. You are not trying to explain every last detail, simply piquing your readers’ interest about the rest of the plan and encouraging them to read further.
Be careful not to confuse a summary memo with an executive summary. The executive summary is the opening section of a business plan, while a summary memo is a distinct publication, usually running to no more than five or ten pages; this is intended as a substitute for the full plan for the benefit of those who are not yet in a position to read the full plan.
In general, a financial plan is a set of steps or goals put together for the business which is intended to help attain and accomplish a final financial goal. It shows the future and current financial state of a business by using known variables to forecast future cash flows, asset values and withdrawal plans. The plan shows financial viability of the business plan, in which the entrepreneur must prepare forecasted income statement, cash flow estimates, forecasted balance sheet, break-even analysis, and sources and usages of funds.
Why is a financial plan important? Investors and bankers must have an incentive to invest in your business. Profitability gives them an incentive to invest. If your plan is weak and unorganized it will portray your business as unsustainable. Investors and banks will see you only as a risk and be unlikely to give the kind of capital needed for your business. For this reason you need to create a solid financial plan which will convince investors that your business is worth investing in.
Here at InvestmentBank.com we will design for you a financial plan intended to demonstrate to the bank and your investors that your business is sustainable and profitable. We cannot guarantee you the investments you are hoping for, but we can guarantee that if you don’t have a plan, you will also not receive your hopeful investments. Let us guide you in the planning process.
One core component of market analysis is market forecasting and proforma financial statement drafting. The future trends, characteristics, and numbers in your target market are projected in market analysis. In a standard analysis process, the projected number of potential customers is divided into segments.
Generally, market size is not the only factor that is determined, but the market value is also very important. For instance, small business customers spend around 4 times as much as the home office customer, even though they are 2.5 times smaller than their high-end home segment in terms of customer size. So, in terms of dollar value, the small business market is often considered very important.
Market value is calculated through simple mathematics. The number of potential customers in the market is multiplied by the average purchase per customer. Market value is calculated by taking the average number of customers in each segment over a period of time and then multiplied that figure by the average purchase per customer. In market analysis table, the other items are only subjective qualities that help with marketing. These points are allotted to people who are assigned in preparing marketing information.
Reality Checks Reality checks are always important for market forecast. Finding a way to check reality, while performing a forecast is essential. If you are able to estimate your total market value, then you would relate that figure to the estimate sales of all their competitors to check if the 2 figures relate to each other. The import and export value and production values are checked in an international market to find whether the annual shipments estimates appear to be somewhere in the same range as the estimated figures. To check your results with the forecast, you might also check for some given years with the vendors, who sold products to this market. Macroeconomic data can also be overlooked to confirm the size of this market compared to other markets with same characteristics.
Target Focus Review
Market analysis should help in the development of strategic market focus, which means selecting the key target markets. This is considered the critical foundation of strategy. We speak on this as market positioning and segmentation.
Company will not try to address the needs of all market segments under normal circumstances. While selecting target market segments, understand the inherent market differences, competitive advantage, keys to success, and strengths and weaknesses (SWOT analysis) of your organization. Everyone wants to focus on the best market segment, but the market segment with the maximum growth or the largest market segments, might not be necessarily the best one to address. The best market segment to address would be the one that matches your own company profile.
It is not a good idea to use page count as a gauge to determine the length of a business plan. A business plan with 20 pages of text alone can be considered to be longer than a 35-page plan which is well laid out with bullet points, helpful images of products or locations and charts that highlight vital projections.
In fact, a plan should be measured by its readability as well as the summary provided. If the business plan is prepared keeping these aspects in mind, the reader will be able to get an overall idea in about 15 minutes by quickly browsing through the key points.
Illustrations, headings, format and white space contribute to improving the appeal of the business plan. The summary section is a very important aspect of any business plan. The salient points of the business plan must be clearly visible to the reader as it is done in a presentation.
It is unfortunate that many people still tend to measure the worth of a business plan by the number of pages in it. In this connection, some of the key aspects to be kept in mind are as follows:
A standard expansion or start-up plan prepared for presentation to outsiders can have 20 to 40 pages. However, it should be easy to read with text well spaced and have bullet point formatting, illustrations in the form of business charts and financial tables in the condensed form. The details of financial aspects can be organized in appendices.
However, the length of the business plan is decided by its nature and the purpose for which it is prepared. Some of the questions that can be considered when drafting out a business plan in order to decide on its length are:
The form of the business plan is actually decided by the requirement for which it is to be prepared.
Often, venture contests specify a limit of 30 pages or 40 pages at times, but rarely 50 pages, including the appendices that contain detailed financial statements, for a business plan. Some contestants make very bad options because of page restrictions and cram the content using thick texts and bold typefaces, making it worse and not better.
Most often, good plans have as many as 30 to 40 pages . The plans have 20 to 30 pages of text, excluding graphics to illustrate locations, menus, designs, etc. and appendices consisting of team leaders’ resumes, monthly financial projections, etc. Some pages may have to be included for standard financials. This calls for tables for sales, income and cash flow statement, balance sheet and personnel on a monthly basis. In the body of the plan, annual numbers may also have to be included.
It is not prudent to reduce the length of the plan by cutting down on helpful graphics. Readability is more important than the length. Making use of business charts to illustrate numbers makes it easier to understand. Make use of drawings and photographs to depict locations, sample menus and products. It is important to use as much illustration as possible. Finally, extra graphics such as clip art that are not relevant to the matter at hand may better be avoided.
Proper market forecasting helps provide budgetary allocation for coming market trends, innovative shifts and internal financial allocation. It is a key component of proforma financial statements and professional market research . Intelligent estimates are best backed by quality, time-intensive research. That’s where we come in. Rather than producing a business plan based on educated guesswork, we use a litany of some of the industry’s best market research tools available to some of the most prestigious universities. Many a business plan software tools can also aid in your research work. Typically business plan software also includes industry-specific templates, which can help with how you approach your niche or even the broader market.
Today’s technology provides access to large data-sets for current and past information. Obtaining the data is not difficult. We help to analyze, interpret and make qualitative assumptions about future trends. By using both qualitative and quantitative approaches we work to derive parallel data forecasts for future trends within your business, your industry and the market as a whole. The future may be uncertain, but with the help of expert modeling, it can be simplified, understood and, in some cases, accurately predicted.
Many business planners lack the luxury of funding a previously-published market forecast from which to glean relevant data. In many cases, free published forecasts can help to paint a meaningful picture. However, when professional forecasts are not forthcoming on market size, supply/demand metrics and potential company penetration, it is usually left up to thoughtful opinion and expert “reverse engineering” to determine any meaningful dribble from the data.
Without free forecasts, a business owners may feel forced to purchase expensive data sets, market research reports and published articles to determine helpful data about the potential of a business idea. Where we can, we utilize past relationships and access to thousands of reports through expensive subscriptions to find the data-set that best fits your business goals for the plan you may be crafting.
Apart from the more obvious sources like the Internet, library references and popular publications, we provide access to industry-specific reports and paid-for research studies not accessible to would-be entrepreneurs. We fully recognize that data forecasting is part art and part science, but we prefer to adhere to more quantitative methods so as to make your business plan as convincing and relevant as possible for its particular audience.
Extrapolation of past data with large populations and data-sets helps to provide reliable predictions about future trends and outcomes. Understanding past growth, market saturation and the competing forces that can impact a company’s success in market entrance are absolutely vital components of the marketing portion of your business plan. Past data is never a fail safe, but it can act as a healthy gauge of future trends in a marketplace.
When no relevant data on current conditions within your market can be found, we work with the available numbers to create plausible models that form convincing arguments for your particular plan goals.
Perhaps the greatest downfall of many potentially-successful business plans is the disconnect between gathered data, assumptions, external and internal market forces and projections. Without a common sense litmus test, many plans fail to deliver relevant metrics to help make business funding possible. Performing common sense tests often requires qualitative work outside the realms of the given data. Making phone calls to Chambers of Commerce, trade organizations and market reporting agencies to obtain a wider base and deeper foundation of information is extremely helpful when crafting assumptions.
Making wild guesses about targets, markets and industries without thoughtful research can be detrimental to fulfilling the goals of your particular business plan. BusinessPlanning.org helps to remove the guesswork and provide your business with relevant data from which to tell a compelling story.
Correctly identifying the structure and competitive dynamics of the industry you are proposing to enter will create a good general point of reference for judging whether you should enter it or not. If the general industry profile does not appear attractive to you, and you are planning to offer value propositions that have close industry substitutes, then this may be an important signal that your proposed venture may need to be reconsidered. But if the industry profile looks attractive, then this could be a sign that you are on to something.
A fantastic tool to analyze an industry that serves a Defined Existing Market is Porter’s Five Forces Model. Michael Porter is a professor at Harvard Business School and published this strategy model in his seminal work, Competitive Strategy . Porter’s model is powerful. It demonstrates how an industry’s attractiveness to either its current competitors or a new entrant is an amalgam of disparate, and sometimes contradictory, factors.
To help determine if your business idea will be worth the investment of time, money and energy, you will conduct two sequential analyses using the Five Forces Model. The first Five Forces analysis will be of the overall industry that you are contemplating to enter. The second Five Forces analysis will be of the particular market segment(s) you would be choosing to serve with your Value Proposition(s).
The figure below illustrates how Porter’s model works by focusing on the five forces that shape competition within an industry: 1) the risk of entry by potential competitors, 2) the intensity of the rivalry among established companies within an industry, 3) the bargaining power of suppliers, 4) the bargaining power of buyers, and 5) the similarity of substitutes to an industry’s value propositions.[1]
The main point of Porter’s Five Forces Model is as follows. The stronger that one of the five competitive forces becomes, the greater the overall competitive rivalry becomes within the industry. The more intense the competitive rivalry becomes, the harder it is for ventures within the industry to raise prices or maintain high prices to reap greater profits. The less in average profits that a firm in the industry is able to earn, the more intense the rivalry for customer demand is among the industry’s rival competitors.
The opposite is true also. The weaker that one of the five competitive forces becomes, the less intense the overall competitive rivalry among the industry’s firms is. If rivalry amongst the industry’s firms decreases, the easier it becomes for the industry’s competitors to raise either raise prices or reduce their cost structure (by lowering their value propositions’ quality) and ultimately earn higher profits. The higher the average level of industry profits, the less intense the rivalry for customer demand will be among the industry’s rival competitors.
The importance of each of the five forces is situationally dependent upon the unique facts and circumstances of each industry. For example, the overall threat of new market entrants might be insignificant in determining whether an entrepreneur wants to enter an industry in its growth phase, but it may be a paramount factor in a mature industry.
I developed another diagram (below) to show how the five forces within Porter’s model interact with each other. As you can see, four of the forces (risk of entry by potential competitors, bargaining power of suppliers, bargaining power of buyers, and threat of new entrants) each act upon the fifth force – the intensity of rivalry among the industry’s competitors. This means that if the bargaining power an industry’s buyers increases, the intensity of rivalry among industry competitors will increase. This causal relationship works in only one direction – a change in any of the forces ultimately either increases or decreases the intensity of rivalry among the industry’s competitors. Therefore a change in the intensity of rivalry will not cause change in one of the other four forces.
[1] Charles W. L. Hill and Gareth R. Jones, Strategic Management Theory , Eighth Edition, Houghton Mifflin Company, pg. 45, 2008.
Macroenvironmental forces are changes in the broader economic, political/legal, social, technological, demographic, and global forces beyond the industry being examined. Any one of these six forces can change or effect any one of an industry’s five internal competitive forces. In conducting an industry’s initial Five Forces analysis – which is a snapshot measurement of an industry’s present competitive environment – these macroenvironmental forces are automatically accounted for. They are already included because an industry’s competitive environment is an aggregate of these turbulent and often conflicting forces. But entrepreneurs and business owners must also make educated guesses about how macroenvironmental trends and forces will shape the industry’s attractiveness into the future, both in the short run and in the long run.
Below is a diagram that visually represents how each of these seven forces can affect an industry’s Five Forces as the future unfolds.
The following is a detailed analysis of the seven macroenvironmental forces touched upon above.
Macroeconomic forces affect the general economic well-being of the nation or the region in which an industry operates. [1] The following are the major macroeconomic forces that can affect an industry’s ability to deliver an adequate economic return.
Legal and political forces are the results of changes in laws and regulations within the country your business operates in. [3] Political and legal developments can be both opportunities and threats. The following are the major legal and political changes that can impact the fortunes of industries.
Social forces are changes in the social mores and values of a society and how they affect any particular industry. Social changes can create both opportunities and threats for any industry.
Technological change is a primary driver of Schumpeter’s “perennial gale of creative destruction” among business ventures. Technological forces can render established, profitable value propositions obsolete virtually overnight and usher into existence exiting new business ventures. Because of the dual role technological change (both creative and destructive) plays in our society, it can be both an opportunity and a threat.
Demographic forces are changes in the characteristics of a population of people. These characteristics can be sex, age, education, race, national origin, social class… Changes in demographics can present businesses with both opportunities and threats.
Global forces are changes that occur within and beyond the borders of the country a business is operating within and affect how a company can operate on the international stage. Global forces can present both opportunities and threats to an industry.
[1] Charles W. L. Hill and Gareth R. Jones, Strategic Management Theory , Eighth Edition, Houghton Mifflin Company, pg. 66, 2008.
[2] Charles W. L. Hill and Gareth R. Jones, Strategic Management Theory , Eighth Edition, Houghton Mifflin Company, pg. 68, 2008.
[3] Charles W. L. Hill and Gareth R. Jones, Strategic Management Theory , Eighth Edition, Houghton Mifflin Company, pg. 70, 2008.
A good Five Forces analysis will cause you to sift through a lot of data, much of it conflicting and confusing. Below is a series of scorecards that try to condense the most important points from your Five Forces analysis and present them to you in an easily understandable format.
The scorecards rate the attractiveness of an industry’s five forces from the perspective of a new venture attempting to enter the industry . Each force gets its own scorecard. Each scorecard has the main factors that help determine the strength the force exerts upon the industry. A factor’s attractiveness is rated on a five category scale that ranges from Highly Unattractive, Mildly Unattractive, Neutral, Mildly Attractive, to Highly Attractive. For each factors’ rating, the top line (yellow) indicates the level of the factor’s level of attractiveness at present. The bottom line (green) is the entrepreneur’s rating of what he or she thinks each factors’ level of attractiveness will be in the future. The level of future attractiveness for a factor is determined by analyzing how macroenvironmental forces will affect the industry in the future.
Directly below is a hypothetical example scorecard of an industry’s intensity of rivalry:
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| Highly Concentrated | Fragmented | |||||
| Falling | Rising | |||||
| Little or None | Highly Differentiated | |||||
| High Fixed Costs | Low Fixed Costs | |||||
| High | Low | |||||
Remember, none of this is exact science. There is no mathematical formula that determines whether you should enter an industry or not. The purpose of this exercise is to ensure that you, the entrepreneur, have thoroughly thought about the nature and future of the competitive environment you are proposing to jump into.
Force One: Intensity of Rivalry among Industry Competitors
Force Two: Risk of Entry by Potential Competitors
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| Very High | Little | |||||
| Significant | Insignificant | |||||
| High | Low | |||||
| High | Low | |||||
| High | Low | |||||
| High | Low | |||||
Force Three: The Bargaining Power of Buyers
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| Very Big; Few | Small; Numerous | |||||
| High | Low | |||||
| Little or None | Significant | |||||
| High | Low | |||||
| High | Low | |||||
Force Four: The Bargaining Power of Suppliers
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| Highly Substitutable | Little or No Substitutability | |||||
| High | Low | |||||
| High | Low | |||||
| Low | High | |||||
Force Five: The Availability and Similarity of Substitutes to an Industry’s Value Propositions
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| High | Low | |||||
| High | Low | |||||
| High | Low | |||||
And finally, the table below is a final snapshot evaluation of the industry’s attractiveness. To fill out this table, you should look at your ratings in the tables above as guidelines. The importance of the forces, and the factors that comprise them, will change from industry to industry. It will ultimately depend upon the unique facts and circumstances of each industry being evaluated. Therefore you will have to use your best judgment.
Overall Evaluation of Industry’s Attractiveness
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| High | Low | |||||
| High | Low | |||||
| High | Low | |||||
| High | Low | |||||
| High | Low |
Profitable industries are like chum in the water for new competitors. The smell of money to be made will attract potential competitors to circle an industry, try to enter it and look for an easy meal. The only thing stopping a myriad of potential competitors from entering an industry are barriers to entry – a business version of a steel shark cage.
Profitable industries attract new market entrants – potential competitors. Potential competitors are companies that are not currently competing in an industry, but possess the ability to do so if they choose. Theoretically, if it cost nothing to form a company and enter an industry serving a profitable market, new firms would flood into that industry until the industry’s average profit margin shrank to zero. But we don’t live in a frictionless, theoretical world and different industries have wildly different levels of profitability. Barriers of entry are what discourages new companies from entering a profitable market and making a killing.
Barriers of entry benefit established companies within an industry by protecting them from new competition and preserving their profit margins. Low barriers of entry leave an industry wide open to new market entrants. The results to an industry with low barriers of entry are lower profits for the companies within that industry will inevitably result.
Therefore, established firms within an industry have great incentive to erect barriers of entry to keep the number of potential rivals to a minimum. Some barriers of entry are passive and a natural result of the industry’s operations. An example of this is economies of scale. But companies often take active steps to discourage new companies from entering their industries. Examples of this are when companies create brand loyalty or try to purposely raise their customers’ switching costs. The reason is simple – the more companies that enter the industry, the more difficult it is for established companies to maintain their market share and protect their profits.
The risk of entry by potential competitors is a function of the industry’s profitability and the height of its barriers to entry. The higher an industry’s average profit margin, the more enticing it is for new competitors to jump into the fray and wrestle market share from the incumbent companies. High barriers to entry can deter potential competitors from trying to enter an industry and serve its market segments. The higher the cost of entry into an industry, the weaker the competitive force (the risk of entry by potential competitors) is and generally translates into higher average industry profits. Important barriers to entry include the following:
Capital Requirements – If it takes a great amount of money or assets to enter the industry, this can be a significant barrier of entry for firms who wish to enter it. Usually industries with high fixed costs have high capital requirements (i.e. factories, warehouses, computing assets…).
Economies of Scale – Economies of scale is where the companies in an industry enjoy diminishing per unit costs for their value propositions as the volume produced increases.
Brand Loyalty – Consumers often have preferences for the value propositions offered by established companies due to familiarity and reputation.
Absolute Cost Advantages – Other entrants cannot hope to match the established firms within the industry’s cost structure. Absolute cost advantages arise from three sources: 1) possessing unique and critical resources (patents, trade secrets, or accumulated experience), 2) control of particular inputs of production (i.e. fertile farm land, a prime piece of commercial real estate…), 3) access to cheaper funds because existing companies represent lower risks than new entrants.
Customer Switching Costs – High customer switching costs occur when customers resist spending the time, money and energy to switch from the current supplier of a value proposition to one offered by a different company, even though that alternative value proposition may be of greater value.
Government Regulation – Government regulations, and the lack of them, can be a significant barrier of entry for potential new entrants into an industry. An example of this would be environmental regulations placed on coal mining companies and their operations.
We will now dig deeper into how to identify and analyze these potential barriers of entry, and ultimately understand how they affect the competitive rivalry within an industry.
Capital costs mean the startup costs of your business idea that must be incurred before you can commence operations. Basically, this is the total amount of money you need to spend (on equipment, employees, facilities, legal, accounting….) before you can hang your “Were Open!” sign in your shop window. For some asset intensive businesses, such as a full service health club or a golf course, initial capital costs can be extensive. For other businesses that use relatively few assets, such as an internet marketing business or a hotdog stand, initial capital costs can be relatively small.
For many aspiring entrepreneurs without a lot of financial resources, capital costs can be the most daunting barrier of entry of all. Many industries are able to maintain decent profit margins simply because the capital costs required to enter the industry are significant and insurmountable for many. Also, your time can be thought of as a capital asset too. Your investment of time in pursuing a business endeavor represents an opportunity cost on your part – you are giving up time that you could be working for someone else (and the income that entails) in exchange for pursuing your entrepreneurial ambitions. For example, it may take $100,000 and one year of full time work to create and open a business. If you had to give up a $50,000 per year job in order to pursue the endeavor, the real capital cost for you to start your business would be $150,000, not $100,000.
Another example of this would be opening a law practice. Legal services, in the United States, is a fragmented industry that has an average industry profit of 19.5%. This is a very attractive profit margin. Furthermore, the capital cost required to start a legal practice – purely from creating the actual legal services business – is relatively small. A lawyer needs a laptop, access to research materials, a place to meet clients, and some office equipment. This may cost as little as $10,000 in initial startup capital. But this does not represent the actual capital cost to start a law firm. To actually open a law firm and practice law, a lawyer would have needed to: 1) obtain a law degree (lets estimate $120,000), not work for three years while going to law school (lets estimate $150,000 for three cumulative years), get a state bar card ($3,500 for the test and the study course), and not work for three months while studying for the bar (lets estimate $12,500). Then, an only then, a lawyer could spend $10,000 on opening a legal practice. The real cost of this venture, both in absolute capital costs and opportunity costs, would be $296,000.
So the real capital cost of opening a law firm and practicing law (and being in an industry with an attractive 19.5% profit margin) may be at least nearly $300,000. This capital cost represents a serious barrier of entry to many people who would want to enter this industry, but balk at the $300,000 price tag that it requires.
Higher Barriers of Entry | Lower Industry Competitive Rivalry | Higher Average Industry Profit Margins | |
Lower Barriers of Entry | Higher Industry Competitive Rivalry | Lower Average Industry Profit Margins |
Key Questions:
Economies of scale arise when unit costs fall as a firm expands its output. In other words, the more of a value proposition a company produces, the less per unit the company pays to produce those value propositions. Sources of scale economies include 1) cost reductions gained by efficiently creating a massed produced output, 2) discounts on bulk purchases of raw materials, and 3) cost benefits gained from spreading production costs and marketing and advertising over a large production volume. Some industries benefit greatly from economies of scale (i.e. the beer industry, the auto industry…). Other industries do not enjoy economies of scale much at all (i.e. nail salons, massage therapy, dry cleaners…).
The following are examples of economies of scale: 1) when the creator of a product gets bulk discounts on the purchases of raw materials for their products, 2) spreading fixed production costs over a large production volume, 3) cost reductions through mass-producing a standardized output, 4) cost savings associated with spreading marketing and advertising costs over a large volume of output. Most manufacturing industries, such as pulp and paper products or textiles, are examples of industries with economies of scale. If economies of scale are a factor in an industry, then many small producers are at a disadvantage because their per-unit costs will be higher than that of their larger competitors.
An industry whose rivals have significant economies of scale creates powerful barriers to entry for an aspiring new entrant to overcome. First, the established firms will have a substantial cost advantage over a new rival. Second, because high economies of scale imply high fixed costs (equipment, facilities), it is critical that these companies protect their market share at all costs. If their sales volumes decrease, this can render them incapable of sustaining their high fixed costs.
Companies, who try to match the existing industry competitors’ economies of scale, must enter the industry as a large producer to overcome this problem. But to do so, it must raise enough capital (to purchase the necessary assets and facilities) to match its competitors’ economies of scale. This becomes another barrier of entry in itself. Furthermore, if a new company enters an industry with a large capital investment (to match current industry competitors’ economies of scale), the increased supply of products the new company brings to the market risks depressing prices and may trigger a price war with established industry competitors.
Brand loyalty is when consumers develop and hold a preference for a particular company’s brand of value propositions. Significant brand loyalty makes it difficult for new market entrants to wrestle market share away from established industry brands. Examples of value propositions with strong brand loyalty are mass consumer products such as beer (Budweiser, Coors and Miller), soft drinks (Coca Cola and Pepsi), or tobacco products (Marlborough and Winston-Salem’s).
A company can also cultivate brand loyalty by developing innovative value propositions. Probably the most successful major company over the last decade that has leveraged innovative value propositions into brand loyalty has been Apple.
A venture may be able to sidestep an industry’s brand loyalty barriers of entry by entering the premium category of product markets. An example would be Dry Soda or small craft micro-brewers.
Significant brand loyalty makes it difficult for new entrants to take market share away from established industry brands. A company faces the daunting task of not only convincing consumers to buy its value propositions, but also to choose not to buy value propositions they already like and feel comfortable with.
Absolute Cost Advantages are when an established venture has an insurmountable cost advantage, meaning that new entrants cannot possibly hope to match the incumbent companies’ lower cost structure. Absolute cost advantages can arise from: 1) superior production operations and processes due to access to unique assets (i.e. patents, copyrights, or fertile farmland), 2) accumulated skill and expertise, 3) exclusive or relatively favorable control of their value propositions’ inputs (labor, materials, equipment, or management skill), and 4) access to cheaper capital due to their lower business risk when compared to a new market entrant. Also, access to superior distribution channels could be considered an absolute cost advantage. If established companies have absolute cost advantages, then the threat of entry as a competitive force will be weaker.
A new market entrant must be especially careful in attempting to directly compete with entrenched industry competitors that have absolute cost advantages. If a new entrant enters an industry where there are established competitors who have lower cost structures, the established firms can lower the price of their value propositions to eliminate the new entrant. This could erase any ability for the new market entrant to ever earn a profit. If this threat is credible, it can be a barrier of entry for new market entrants.
Customer switching costs are the time, energy, and money necessary for them to switch from the value propositions offered by an established company to those of a new market entrant. If switching costs are high, customers will be unlikely to change even if the new product is superior to other market substitutes and alternatives. An example would be the switching costs associated with leaving the Microsoft Windows operating system or the QWERTY keyboard. Other value propositions in the market may be better/faster, but consumers often find themselves resistant to change because the time or hassle of switching to a better product or service proves prohibitive.
K ey Questions:
Government regulations create politically and legally defined barriers of entry for many industries. Government regulations can increase barriers of entry for market entrants and potentially reduce competition. An example would be food safety regulations or anti-pollution laws. Also, in industries where economies of scale are a powerful force, the absence of regulations can lead to an intense concentration of market share in the hands of a few firms. This can create barriers of entry that are extremely difficult for a new market entrant to overcome. To sum up, high regulation within an industry usually leads to higher barriers of entry, but not always.
Generally Higher Barriers of Entry | Generally Lower Industry Competitive Rivalry | Generally Higher Average Industry Profit Margins | |
Generally Lower Barriers of Entry | Generally Higher Industry Competitive Rivalry | Generally Lower Average Industry Profit Margins |
Below is a chart that summarizes how the six types of barriers of entry affects industry attractiveness from both the perspective of a new market entrant and an industry incumbent.
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Generally Unattractive for New Entrant | Generally Attractive for New Entrant | ||
Beneficial for Incumbents | A Threat for Incumbents | ||
Generally Unattractive for New Entrant | Generally Attractive for New Entrant | ||
Beneficial for Incumbents | A Threat for Incumbents | ||
Generally Unattractive for New Entrant | Generally Attractive for New Entrant | ||
Beneficial for Incumbents | A Threat for Incumbents | ||
Generally Unattractive for New Entrant | Generally Attractive for New Entrant | ||
Beneficial for Incumbents | A Threat for Incumbents | ||
Generally Unattractive for New Entrant | Generally Attractive for New Entrant | ||
Beneficial for Incumbents | A Threat for Incumbents | ||
Generally Unattractive for New Entrant | Generally Attractive for New Entrant | ||
Beneficial for Incumbents | A Threat for Incumbents |
Estimating the size of the market you want to enter is the first critical step in testing the feasibility of your business idea. This is a lot like cliff diving. If you are going to jump off a cliff into a pool of water far below, it’s a really good idea to know beforehand just how deep the water is. If you jump without finding out (or at least making an educated guess based on objective facts), you run the very real risk of getting hurt. Bad.
The first order of business in determining the sizes of the various market types for your business idea’s value proposition(s) is to correctly define the parameters of the market types you are trying to measure. This may sound rather simple, but it is honestly the hardest and most frustrating part of this process. Estimating a market size is the epitome of the phrase “garbage in – garbage out.” If you incorrectly define the boundaries of the type of market you are trying to size up, your entire estimate (and the basis for all of your future financial projections) won’t really be worth the paper it is printed on.
So, creating a quality market size estimate that’s based upon good, logical assumptions, is the first step in determining if your business idea can support a potentially successful business model. To make a quality market size estimate, you should roughly measure the size of each relevant market type for your business idea’s value propositions. By understanding the rough size of each of these market types, you can roughly gauge how much revenue (based upon your market share assumptions) your business idea could generate in the present and going forward into the future. Determining which market types to estimate the size of depends upon the type of market your business idea is attempting to serve. These general market types are Defined Exiting Markets, Cloned Markets, Re-segmented Markets, or a New Markets.
A market is a group of customers that have the willingness to buy a particular type of value proposition. When determining the size of the markets for your proposed business idea’s value proposition(s), you may use all or some combination of the following market type definitions.
For practical purposes, you can think of both the SOM and TM as a portions of the SAM, the SAM as a portion of the TAM, and the TAM as a portion of the TID. Both the SOM and TM are separate business concepts that measure different things. The SOM estimates your proposed value proposition’s penetration of the SAM. The TM estimates the size of the group of people for whom your proposed value proposition is specifically designed for.
I know, it’s a lot of acronyms to keep straight. But estimating the sizes of the TIM, TAM, SAM, TM and SOM are important for determining if the market size for your business idea’s value proposition(s) can support your entrepreneurial ambitions and business goals. The following are three generalizations – rule-of-thumb explanations – of what market sizes are necessary to support a particular business type, development path and outcome.
This type of company is usually entering a cloned, re-segmented, blue ocean or new market, or a defined existing market with a new product. They usually seek traditional angel investor and venture capital funding. Rapid scalability an achieving high market share is the key to this type of company. Often the founders of scalable, high growth companies have either an Initial Public Offering (IPO) or the sale of the company to a Fortune 500 corporation as their exit strategy .
These companies require a SAM large enough to support potential company EBITDA (after the company has successfully scaled its operations) of at least somewhere between $10 million to $20 million per year. Publically traded companies, on average, often trade for 10x their annual EBITDA or greater. This, depending upon the company’s industry and whether or not its founders and investors want it to have an IPO, would probably put the company’s valuation at greater than $100 million. A $100 million valuation is a safe rough estimate for whether a company will be able to both afford to go public and financially benefit from an IPO.
So, armed with these rough guidelines, to create a scalable, high growth company that proposes to enter an industry with a 10 percent average EBITDA and capture 10 percent of that industry’s market share, would need to at least generate $100 million per year in revenue ($10 million per year in EBITDA divided by the industry EBITDA average of 10 percent). To achieve this annual EBITDA target and a 10 percent SAM penetration, the overall SAM size would need to be $1 billion ($100 million per year in revenue divided by a 10 percent penetration of the market by the company).
This type of company can be entering a Defined Existing Market, Cloned Market, Re-segmented Market, or Blue Ocean Market. They do not enter New Markets with New Products due to the incredible amount of time, business risk and resources that would be required. These businesses usually seek capital from the founders, founders’ friends and family, non-bank lenders, bank and institutional lenders, and some angel investors. Rapid scalability is usually not a primary goal for these business ventures. They often prioritize strong, stable profits and cash flow for their owners above all else. Exit strategies for these companies’ founders include selling the company to a third party such as another privately held business or private equity group, passing on the business to heirs, or simply holding on to the business. These types of businesses often make excellent cash cows.
Successful, mid-sized privately held businesses are usually valued between $5 million and $50 million. These businesses, as a rough rule of thumb and depending upon the industry, are usually valued at 3x to 5x their average yearly EBITDA. So, a $30 million dollar privately held business would need an average yearly EBITDA of between $6 and $10 million per year ($6 million per year if the business valuation ratio would be 5x; $10 million if the business valuation ratio would be 3x).
Lifestyle businesses are undertaken by entrepreneurs who want to create their own jobs and/or to support the conscious lifestyle choices of the entrepreneur (hobbies, schedules, living location…). This type of company usually solely enters Defined Existing Markets. Many, if not most, of the entrepreneurs who start lifestyle businesses do not begin their business ventures with any particular exit strategy in mind. Instead, the primary financial goal of these entrepreneurs is usually to generate enough cash flow to support their lifestyle needs. These businesses usually seek capital from the founders, bootstrap financing, and the founders’ friends and family. Rapid scalability is usually not a primary goal for these business ventures.
The market size necessary to support a lifestyle business really depends upon the needs and wants of each individual entrepreneur. The variables used to determine a rough estimate of the minimum market size needed to support a lifestyle business are: 1) the entrepreneurs’ desired minimum yearly EBITDA (include the entrepreneurs’ salaries in with EBITDA), 2) the average EBITDA ratio for a firm competing within the industry you are proposing to enter, and 3) the entrepreneurs’ assumption of how much of their proposed business idea’s SAM they will be able to capture.
For example, if an entrepreneur’s goal is to earn at least $120,000 (in EBITDA and salary) from the lifestyle business per year, the average EBITDA ratio for the proposed business idea’s industry is 15 percent of annual revenue, and the entrepreneur assumes she can capture 10 percent of the SAM she proposes to enter, then the minimum necessary SAM size needed to support the business venture would be $8 million ($120,000 divided by a 15 percent EBITDA ratio divided by a 10 percent SAM penetration equals $8,000,000).
The following chart summarizes the rule-of-thumb market size needs of the business types analyzed above:
Targeting a specific audience is most effective strategy when creating a marketing campaign. The more specific of a customer base a campaign can reach, the more dollars per potential customer a campaign will make. This is why companies will allocate a large amount of resources in order to find the audience that they are looking for. By doing this, you can create a marketing budget as effectively as possible and maximize your results. Knowing or choosing exactly who you are getting your message to has proven to be the most effective method of forming a marketing campaign. Once you have identified your target audience, the hard part is figuring out how to reach it. Below, we will discuss ways to do so.
The goal of any marketing campaign is to give the most amount of information about a product or service to the prospective customer possible. The more the customer knows, the more likely they are to take action. The more that is known about that customer, the more likely it is that you can communicate that information effectively. Using information about your customer base will help you make connections that they can relate to and in turn, they will be more likely to respond to your campaigns call to action.
There are four main ways that are commonly used in identifying targeted markets.
Geographic: This includes the location, the geographical size and makeup of the area and other environmental factors such as climate.
Demographics: This includes age, gender, income, average family size, average education, and the types of jobs that are in the geographic area.
Psychographics: This involves factors such as the personality that you area tends to take on, what and how people behave that live in that area and also factors that will affect the way your potential customers will use your product or service. Will they use it often not so often? Is it a necessity or luxury?
Behaviors: This has more to do with how your potential customers will react to things such as price changes and price points, how they will react based on what information is given to them, and what types of marketing campaigns they are most likely to respond favorably to. All of these factors can be used to help determine how a population will respond to a specific marketing campaign. Likewise, you can a marketing campaign that will increase conversions based on the information gathered above.
One of the fundamentals of marketing focuses on the benefits to cost trade-off. Understanding how customers will weigh the potential benefits of a product or service versus the costs to obtain that product or service is critical when designing a marketing campaign. Ask yourself, how will your customer gain monetarily or in other ways from purchasing your product or service? Though it is not always achievable, satisfying this is the most effective ways to create sales.
To better understand how they will you this trade-off, ask yourself the following questions.
Understanding the effect that your product or service will have on the customer will serve as an invaluable tool when designing an effective marketing campaign.
As mentioned in the beginning, understanding, identifying and reaching a target audience is the most effective way creating a marketing campaign that will give you the best results possible relative to the budget and time you are allotted. Ignoring these factors can costs you money and can be the difference between a successful and unsuccessful marketing campaign.
It’s important to define the nature of your involvement, in both depth and scope, in the business you are founding. An entrepreneur’s involvement in his own business can range from being a full-time manager/employee (active ownership) to that of a hands-off investor (passive ownership).
An active owner materially participates in the day-to-day activities of the business. Most business owners and entrepreneurs actively participate in their businesses in some way, shape or form. Many work full-time in their businesses as employee/managers, drawing both a paycheck and profits (if there are any).
The definition of a passive owner is a little trickier to nail down. A passive business owner does not participate in the day-to-day activities of the business he or she owns. The IRS states that passive income can only come from two possible sources: rental activities or “ trade or business activities in which you do not materially participate .” Within the context of entrepreneurial endeavors some examples of passive income are:
Receiving passive income is delightful. The hard part is usually accumulating enough assets in the first place to begin receiving passive income from them (rents or passive business activities). Examples, where an entrepreneur can derive passive income from her investments, are:
Most entrepreneurs who start businesses have one of two basic plans for their involvement in their enterprises.
1. The entrepreneur(s) plan to be heavily involved in the lean startup plan and operations over a period of a couple of years. Then, at some undetermined point in the future, they plan to hire a manager and then run the company as a passive investment.
2. The entrepreneur(s) are essentially creating a job for themselves. They plan on working in the enterprise as an open-ended, long-term committment.
Starting and/or running a business is a complex and daunting task. Identifying both potential roadblocks and opportunities well in advance is essential for businesses of any size to outmaneuver the competition and gain a foothold as a dominant market leader. But over one-half of all new businesses will fail within five years of their founding. The vast majority of all new businesses never achieve the financial success originally envisioned by the founders. These new businesses and start-ups begin with energetic enthusiasm, but unfortunately, many business plans fall short due to various reasons: lack of capital, a flawed business strategy, unrealistic expectations, or they lack the people with the required skills and expertise to succeed.
Business plans may be required for any number of reasons. Here are a few of the most common business plan needs.
The reasons for creating a business plan can be as varied as the businesses themselves. Each plan requires a unique approach to the industry you are in, the market you intend to serve, and your financial needs. That’s where we come in.
Creating a professional business plan can help mitigate these risks, raise capital from potential investors and put the company on the path to success. A good business plan helps to focus an entrepreneur’s mind on accomplishing the tasks necessary to make his or her business succeed. A business plan is not a static document. It is a logical series of informed assumptions that are relevant at the time the plan is written. As soon as market and industry conditions begin to change (which usually happens about five minutes after the plan is written), the plan begins becoming obsolete. For the entrepreneur, the value in the business plan isn’t necessarily the plan itself. Instead, its real value lies in the process – the research, thought and inquiry – in creating it.
We will work with you from start to finish to create a professional business plan that will help you accomplish your objectives. We will ask the necessary questions, help you find the answers, and organize your ideas into a coherent plan. From researching your market and industry to producing realistic, justifiable pro forma financial statements (cash flow, income statements & balance sheet), we will craft a document that can help you accomplish your business objectives.
So your business needs a plan. The question is, what kind of plan does it need? Please check out our business plan menu options and pricing here.
If you already have a business plan and would like to have it reviewed by a professional business plan consultant, then this is the right service for you. We will review and critique your business plan with an investor’s eye, scrutinizing it for financial errors, grammatical errors, and weak or unrealistic assumptions. We will also point out what you did right. Our business plan review service is an efficient and affordable way to ensure that your business plan is as good as it can be. Our business plan review services are provided at a substantial discount to our normal hourly rates. Depending on your needs and budget, we offer three levels of business plan review services:
– We will spend 2 and 1/2 hours reviewing your materials. We will then provide a written evaluation and critique your plan and financial model.
– We will spend 30 minutes consulting with you on the telephone, answering any questions you may have and offering additional guidance.
– Optional: if you have made any changes to your business plan, based upon the evaluations and critiques we made in our first examination of your materials, we can offer subsequent reviews of the improvements you have made to your plan. In these subsequent reviews, we will spend up to 2 hours examining your materials again.
– Flat Rate Price: $297 for first review; $147 for subsequent reviews
– All information you provide will be treated confidentially.
– Fees are payable in advance and are non-refundable. If you decide you no longer want a business plan review after you have made payment, we will provide an equivalent amount of consulting firm services of your choosing (3 hours for the Standard Evaluation and Review).
– Once you submit your plan for review, please allow two business days to schedule an initial discussion so that we can understand your needs and tailor our review for your specific situation. This allows us to make sure you get the most out of this process.
– Depending on our existing workload, please allow up to 5 business days for us to complete the review following this initial discussion.
– All reviews are provided on a best efforts basis. You are ultimately responsible for the accuracy of the information in your business plan (and related materials).
– You agree to defend, indemnify, and hold us harmless from and against all third party claims, losses, or damage which we incur and which arise from or are attributable to our role in this business plan review.
We believe that we have the most transparent and customer friendly pricing strategy on the market.
For someone writing their first business plan, even for simple small businesses, the process can take upwards of 100 hours of time. Often, it takes more than 200 hours . For complex business plans (business plans for unproven business models and undefined markets), the process can often take more than 400 hours. Because we have considerable experience and skill at writing plans, we estimate that, on average, that we can complete an average business plan (depending upon its type, audience and complexity) in the range of 30 to 120 hours.
The range between 30 and 120 hours depends upon three general factors that contribute to a business plan’s complexity. The first factor is whether the plan is for a new business or a business already in existence, The second factor is whether the business’s industry and market are well defined (for example: dry cleaners, dollar stores, organic vegetable farms, family restaurants…) or if the market or industry is new and untested. The third factor is who is the audience for the business plan: equity investors, debt lenders or the internal management of an existing business.
Note: unless your business idea is exploiting a new market or market niche, or offering customers a product or service that is radically different from what is currently offered to the market, then only on rare occasions will your business plan require longer than 70 hours to complete.
From three factors above, we can generally estimate the average number of hours the plan will take to complete, and therefore we can charge a base flat fee for the project. We Our base flat fee rates are the product of our estimated number of hours times our business plan writing hourly rate. For our business plan writing, we charge $75 per hour.
The business plans we produce fall into the following six general categories:
Type of Business Plan (based upon the three descriptive factors above) | Business Plan Hourly Rate | Estimated Time Needed to Complete the Business Plan | Flat Rate Fee |
Type 1:New BusinessWell Defined Industry and MarketEquity Financing | $75 | 30 hours | $2,250 |
Type 2:New BusinessWell Defined Industry and MarketDebt (Loan) Financing | $75 | 35 hours | $2,650 |
Type 3:New BusinessUndefined or New Industry and MarketEither Debt or Equity Financing | $75 | 110 hours | $8,250 |
Type 4:Existing BusinessWell Defined Industry and MarketEquity Financing | $75 | 60 hours | $4,500 |
Type 5:Existing BusinessWell Defined Industry and MarketDebt (Loan) Financing | $75 | 70 hours | $5,250 |
Type 6:Existing BusinessUndefined or New Industry and MarketEither Debt or Equity Financing | $75 | 120 hours | $9,000 |
But often, due to unseen factors (a change in the business plan format scope and direction), a plan may take longer than the anticipated range. Often project extensions occur when it becomes necessary to modify or change the focus of the business plan due to unforeseeable factors (i.e. new market research, assumptions are proven wrong, the founders choose to shift or expand the scope of the business…). So, if your business plan takes longer than the anticipated number of hours to produce, we will charge you at only $20 per hour beyond the original estimated time frame.
This ensures the following:
– By using our pricing formula (flat fee plus $20 per hour beyond the estimated project timeframe) versus using only a fixed billable hour rate, we mitigate any incentive to “run the meter” and unnecessarily inflate the price of your solid business plan. Our goal is to maximize our income per hour for each plan that we produce. Therefore, if we end up going beyond the project’s estimated timeframe, this means we will be working at a significant discount ($20 per hour after the end of the project’s initial timeframe estimate).
– We use our pricing formula also gives us some measure of protection against unforeseen changes to the project’s scope or direction. Creating a lean business plan is a dynamic process. Information discovered or uncovered during the plan writing process can change the focus, scope and goals of the project. Also, by charging a modest hourly rate beyond a predetermined period, helps to focus and frame exactly what you want in your business plan.
– Ultimately, our system encourages both you and us to remain disciplined, efficient and to maximize the value of each other’s time.
For example: You task us with writing a Type 1 business plan. The project takes 50 hours to complete because the scope changed in the middle of the project. Under these circumstances, the final price for the project would be the Type 1 business plan flat fee ($2,250) plus $20 per hour for every hour spent on the project over 30 hours (20 hours x $20/hour = $400). Therefore, the final complete price for the project would be $2,650 ($2,250 + $400 = $2,650).
Preparing an expert business plan can be extremely time-consuming. While the process of mastering and completing your plan may be helpful in understanding the business dynamics, corporate strategy and overall financial and marketing model, it can take you away from operational support that is vital for day-to-day operations. That is where our business planning services come into play. We help business owners in crafting expert MBA-level business plans for internal management buy-in as well as external business funding needs.
Companies often create business plans to obtain financing from venture capitalists, private equity groups and angel investors. Your particular plan will be dependent on the industry you play in, the financing you are seeking to obtain and your overall strategy for execution. Finding the key strengths, knowing potential flaws and being conversant with competitive forces in the industry are only a few of the necessary components of your completed plan. In other words, a full SWOT analysis may be necessary.
Regardless of whether you write a business plan yourself or outsource it to one of the expert members of our qualified MBA team, it is helpful to have a second pair of eyes to edit and provide constructive feedback. You plan and pitch will help to make or break your financing efforts. Don’t skimp on quality. You need to show off your financial health.
Being conversant in finance is certainly not a requirement to operate or be successful in business. Having great financials, including thoughtful projected and proforma financial statements is a must for any entrepreneur seeking to secure funding or internal management buy-in. We help to craft properly-structured financial plans for your business using historical data and realistic assumptions.
Obtain financing for your business with an professionally crafted financial plan as part of your overall strategy.
Business plans are great, but execution is the name of the game. Without a proper marketing plan coupled with flawless execution, your business may eventually disappear.
We work directly with the entrepreneurs themselves to craft detailed, specific and attainable goals and strategies to take your product or service to market. For the seasoned entrepreneur, this may be “old hat,” but having an expert business plan consultant in your corner is helpful to the proper execution of your overall strategy. While there are many business plan software providers on the market, you will still need the human-touch element to really make business plan sing.
If you are seeking funding from any number of sources or simply need help crafting a plan to help you take your business to the next level, we can help. Contact us today to find out more.
Calculation assumptions, basic purchase information, mortgage calculation, cash to purchase, cash flow and equity accumulation.
INCOME ANALYSIS | YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | YEAR 10 | YEAR 20 | YEAR 30 |
---|---|---|---|---|---|---|---|---|
Gross Scheduled Income | ||||||||
Less Vacancy Allowance | ||||||||
Gross Operating Income | ||||||||
Property Taxes | ||||||||
Insurance | ||||||||
Utilities | ||||||||
Homeowners Association | ||||||||
Maintenance Reserve | ||||||||
Property Management | ||||||||
Total Operating Expenses | ||||||||
Net Operating Income | ||||||||
Capitalization (Cap) Rate (%) | ||||||||
Less Mortgage Expense | ||||||||
CASH FLOW | ||||||||
Cash on Cash Return | 4.8% | 6.1% | 7.5% | 8.9% | 10.4% | 18.7% | 41.4% | 75.3% |
EQUITY ANALYSIS | YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | YEAR 10 | YEAR 20 | YEAR 30 |
Property Value | $150,000 | $156,000 | $162,240 | $168,730 | $175,479 | $213,497 | $316,027 | $467,798 |
Plus Appreciation | $6,000 | $6,240 | $6,490 | $6,750 | $7,020 | $8,540 | $12,642 | $18,712 |
Less Mortgage Balance | $118,659 | $117,228 | $115,701 | $114,071 | $112,333 | $101,731 | $66,798 | $0 |
TOTAL EQUITY | $37,341 | $45,012 | $53,029 | $61,409 | $70,166 | $120,306 | $261,871 | $486,510 |
Total Equity (%) | 24% | 28% | 31% | 35% | 38% | 54% | 80% | 100% |
FINANCIAL PERFORMANCE | YEAR 1 | YEAR 2 | YEAR 3 | YEAR 4 | YEAR 5 | YEAR 10 | YEAR 20 | YEAR 30 |
---|---|---|---|---|---|---|---|---|
Cumulative Net Cash Flow | $1,686 | $3,823 | $6,432 | $9,531 | $13,143 | $19,651 | $34,042 | $60,237 |
Cumulative Appreciation | $6,000 | $12,240 | $18,730 | $25,480 | $32,500 | $41,040 | $53,682 | $72,394 |
Total Net Profit if Sold | - | $1,309 | $9,548 | $18,158 | $27,158 | $78,674 | $224,020 | $454,393 |
Annualized Return (IRR) | - | 10.9% | 15.7% | 17.6% | 18.4% | 18.6% | 17.5% | 16.9% |
Starting and running a successful business requires proper planning and execution of effective business tactics and strategies .
You need to prepare many essential business documents when starting a business for maximum success; the business plan is one such document.
When creating a business, you want to achieve business objectives and financial goals like productivity, profitability, and business growth. You need an effective business plan to help you get to your desired business destination.
Even if you are already running a business, the proper understanding and review of the key elements of a business plan help you navigate potential crises and obstacles.
This article will teach you why the business document is at the core of any successful business and its key elements you can not avoid.
Let’s get started.
Business plans are practical steps or guidelines that usually outline what companies need to do to reach their goals. They are essential documents for any business wanting to grow and thrive in a highly-competitive business environment .
A business plan gives companies an idea of how viable they are and what actions they need to take to grow and reach their financial targets. With a well-written and clearly defined business plan, your business is better positioned to meet its goals.
A business plan is not just important at the start of a business. As a business owner, you must draw up a business plan to remain relevant throughout the business cycle .
During the starting phase of your business, a business plan helps bring your ideas into reality. A solid business plan can secure funding from lenders and investors.
After successfully setting up your business, the next phase is management. Your business plan still has a role to play in this phase, as it assists in communicating your business vision to employees and external partners.
Essentially, your business plan needs to be flexible enough to adapt to changes in the needs of your business.
As a business owner, you are involved in an endless decision-making cycle. Your business plan helps you find answers to your most crucial business decisions.
A robust business plan helps you settle your major business components before you launch your product, such as your marketing and sales strategy and competitive advantage.
Many small businesses fail within their first five years for several reasons: lack of financing, stiff competition, low market need, inadequate teams, and inefficient pricing strategy.
Creating an effective plan helps you eliminate these big mistakes that lead to businesses' decline. Every business plan element is crucial for helping you avoid potential mistakes before they happen.
Having an effective plan increases your chances of securing business loans. One of the essential requirements many lenders ask for to grant your loan request is your business plan.
A business plan helps investors feel confident that your business can attract a significant return on investments ( ROI ).
You can attract and retain top-quality talents with a clear business plan. It inspires your employees and keeps them aligned to achieve your strategic business goals.
Starting and running a successful business requires well-laid actions and supporting documents that better position a company to achieve its business goals and maximize success.
A business plan is a written document with relevant information detailing business objectives and how it intends to achieve its goals.
With an effective business plan, investors, lenders, and potential partners understand your organizational structure and goals, usually around profitability, productivity, and growth.
Every successful business plan is made up of key components that help solidify the efficacy of the business plan in delivering on what it was created to do.
Here are some of the components of an effective business plan.
One of the key elements of a business plan is the executive summary. Write the executive summary as part of the concluding topics in the business plan. Creating an executive summary with all the facts and information available is easier.
In the overall business plan document, the executive summary should be at the forefront of the business plan. It helps set the tone for readers on what to expect from the business plan.
A well-written executive summary includes all vital information about the organization's operations, making it easy for a reader to understand.
The key points that need to be acted upon are highlighted in the executive summary. They should be well spelled out to make decisions easy for the management team.
A good and compelling executive summary points out a company's mission statement and a brief description of its products and services.
An executive summary summarizes a business's expected value proposition to distinct customer segments. It highlights the other key elements to be discussed during the rest of the business plan.
Including your prior experiences as an entrepreneur is a good idea in drawing up an executive summary for your business. A brief but detailed explanation of why you decided to start the business in the first place is essential.
Adding your company's mission statement in your executive summary cannot be overemphasized. It creates a culture that defines how employees and all individuals associated with your company abide when carrying out its related processes and operations.
Your executive summary should be brief and detailed to catch readers' attention and encourage them to learn more about your company.
Here are some of the information that makes up an executive summary:
Your business description needs to be exciting and captivating as it is the formal introduction a reader gets about your company.
What your company aims to provide, its products and services, goals and objectives, target audience , and potential customers it plans to serve need to be highlighted in your business description.
A company description helps point out notable qualities that make your company stand out from other businesses in the industry. It details its unique strengths and the competitive advantages that give it an edge to succeed over its direct and indirect competitors.
Spell out how your business aims to deliver on the particular needs and wants of identified customers in your company description, as well as the particular industry and target market of the particular focus of the company.
Include trends and significant competitors within your particular industry in your company description. Your business description should contain what sets your company apart from other businesses and provides it with the needed competitive advantage.
In essence, if there is any area in your business plan where you need to brag about your business, your company description provides that unique opportunity as readers look to get a high-level overview.
Your business description needs to contain these categories of information.
The market analysis section should be solely based on analytical research as it details trends particular to the market you want to penetrate.
Graphs, spreadsheets, and histograms are handy data and statistical tools you need to utilize in your market analysis. They make it easy to understand the relationship between your current ideas and the future goals you have for the business.
All details about the target customers you plan to sell products or services should be in the market analysis section. It helps readers with a helpful overview of the market.
In your market analysis, you provide the needed data and statistics about industry and market share, the identified strengths in your company description, and compare them against other businesses in the same industry.
The market analysis section aims to define your target audience and estimate how your product or service would fare with these identified audiences.
Market analysis helps visualize a target market by researching and identifying the primary target audience of your company and detailing steps and plans based on your audience location.
Obtaining this information through market research is essential as it helps shape how your business achieves its short-term and long-term goals.
Here are some of the factors to be included in your market analysis.
Here is some of the information to be included in your market analysis.
A marketing plan defines how your business aims to reach its target customers, generate sales leads, and, ultimately, make sales.
Promotion is at the center of any successful marketing plan. It is a series of steps to pitch a product or service to a larger audience to generate engagement. Note that the marketing strategy for a business should not be stagnant and must evolve depending on its outcome.
Include the budgetary requirement for successfully implementing your marketing plan in this section to make it easy for readers to measure your marketing plan's impact in terms of numbers.
The information to include in your marketing plan includes marketing and promotion strategies, pricing plans and strategies , and sales proposals. You need to include how you intend to get customers to return and make repeat purchases in your business plan.
Sales strategy defines how you intend to get your product or service to your target customers and works hand in hand with your business marketing strategy.
Your sales strategy approach should not be complex. Break it down into simple and understandable steps to promote your product or service to target customers.
Apart from the steps to promote your product or service, define the budget you need to implement your sales strategies and the number of sales reps needed to help the business assist in direct sales.
Your sales strategy should be specific on what you need and how you intend to deliver on your sales targets, where numbers are reflected to make it easier for readers to understand and relate better.
Providing transparent and honest information, even with direct and indirect competitors, defines a good business plan. Provide the reader with a clear picture of your rank against major competitors.
Identifying your competitors' weaknesses and strengths is useful in drawing up a market analysis. It is one information investors look out for when assessing business plans.
The competitive analysis section clearly defines the notable differences between your company and your competitors as measured against their strengths and weaknesses.
This section should define the following:
In your business plan, you need to prove your industry knowledge to anyone who reads your business plan. The competitive analysis section is designed for that purpose.
Management and organization are key components of a business plan. They define its structure and how it is positioned to run.
Whether you intend to run a sole proprietorship, general or limited partnership, or corporation, the legal structure of your business needs to be clearly defined in your business plan.
Use an organizational chart that illustrates the hierarchy of operations of your company and spells out separate departments and their roles and functions in this business plan section.
The management and organization section includes profiles of advisors, board of directors, and executive team members and their roles and responsibilities in guaranteeing the company's success.
Apparent factors that influence your company's corporate culture, such as human resources requirements and legal structure, should be well defined in the management and organization section.
Defining the business's chain of command if you are not a sole proprietor is necessary. It leaves room for little or no confusion about who is in charge or responsible during business operations.
This section provides relevant information on how the management team intends to help employees maximize their strengths and address their identified weaknesses to help all quarters improve for the business's success.
This business plan section describes what a company has to offer regarding products and services to the maximum benefit and satisfaction of its target market.
Boldly spell out pending patents or copyright products and intellectual property in this section alongside costs, expected sales revenue, research and development, and competitors' advantage as an overview.
At this stage of your business plan, the reader needs to know what your business plans to produce and sell and the benefits these products offer in meeting customers' needs.
The supply network of your business product, production costs, and how you intend to sell the products are crucial components of the products and services section.
Investors are always keen on this information to help them reach a balanced assessment of if investing in your business is risky or offer benefits to them.
You need to create a link in this section on how your products or services are designed to meet the market's needs and how you intend to keep those customers and carve out a market share for your company.
Repeat purchases are the backing that a successful business relies on and measure how much customers are into what your company is offering.
This section is more like an expansion of the executive summary section. You need to analyze each product or service under the business.
An operations plan describes how you plan to carry out your business operations and processes.
The operating plan for your business should include:
This section should highlight how your organization is set up to run. You can also introduce your company's management team in this section, alongside their skills, roles, and responsibilities in the company.
The best way to introduce the company team is by drawing up an organizational chart that effectively maps out an organization's rank and chain of command.
What should be spelled out to readers when they come across this business plan section is how the business plans to operate day-in and day-out successfully.
Bringing your great business ideas into reality is why business plans are important. They help create a sustainable and viable business.
The financial section of your business plan offers significant value. A business uses a financial plan to solve all its financial concerns, which usually involves startup costs, labor expenses, financial projections, and funding and investor pitches.
All key assumptions about the business finances need to be listed alongside the business financial projection, and changes to be made on the assumptions side until it balances with the projection for the business.
The financial plan should also include how the business plans to generate income and the capital expenditure budgets that tend to eat into the budget to arrive at an accurate cash flow projection for the business.
Base your financial goals and expectations on extensive market research backed with relevant financial statements for the relevant period.
Examples of financial statements you can include in the financial projections and assumptions section of your business plan include:
Revealing the financial goals and potentials of the business is what the financial projection and assumption section of your business plan is all about. It needs to be purely based on facts that can be measurable and attainable.
The request for funding section focuses on the amount of money needed to set up your business and underlying plans for raising the money required. This section includes plans for utilizing the funds for your business's operational and manufacturing processes.
When seeking funding, a reasonable timeline is required alongside it. If the need arises for additional funding to complete other business-related projects, you are not left scampering and desperate for funds.
If you do not have the funds to start up your business, then you should devote a whole section of your business plan to explaining the amount of money you need and how you plan to utilize every penny of the funds. You need to explain it in detail for a future funding request.
When an investor picks up your business plan to analyze it, with all your plans for the funds well spelled out, they are motivated to invest as they have gotten a backing guarantee from your funding request section.
Include timelines and plans for how you intend to repay the loans received in your funding request section. This addition keeps investors assured that they could recoup their investment in the business.
Exhibits and appendices comprise the final section of your business plan and contain all supporting documents for other sections of the business plan.
Some of the documents that comprise the exhibits and appendices section includes:
The choice of what additional document to include in your business plan to support your statements depends mainly on the intended audience of your business plan. Hence, it is better to play it safe and not leave anything out when drawing up the appendix and exhibit section.
Supporting documentation is particularly helpful when you need funding or support for your business. This section provides investors with a clearer understanding of the research that backs the claims made in your business plan.
There are key points to include in the appendix and exhibits section of your business plan.
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Need support creating your business plan? Check out these business plan examples for inspiration and guidance.
Any aspiring entrepreneur researching how to start a business will likely be advised to write a business plan. But few resources provide business plan examples to really guide you through writing one of your own.
Here are some real-world and illustrative business plan examples to help you craft your business plan .
The business plan examples in this article follow this template:
Your executive summary is a page that gives a high-level overview of the rest of your business plan. While it appears at the beginning, it’s easiest to write this section last, as there are details further in the report you’ll need to include here.
In this free business plan template , the executive summary is four paragraphs and takes a little over half a page. It clearly and efficiently communicates what the business does and what it plans to do, including its business model and target customers.
You might repurpose your company description elsewhere, like on your About page , social media profile pages, or other properties that require a boilerplate description of your small business.
Soap brand ORRIS has a blurb on its About page that could easily be repurposed for the company description section of its business plan.
You can also go more in-depth with your company overview and include the following sections, like in this business plan example for Paw Print Post:
This section outlines how you registered your business —as an LLC , sole proprietorship, corporation, or other business type : “Paw Print Post will operate as a sole proprietorship run by the owner, Jane Matthews.”
“Paw Print Post sells unique, one-of-a-kind digitally printed cards that are customized with a pet’s unique paw prints.”
“Paw Print Post operates primarily in the pet industry and sells goods that could also be categorized as part of the greeting card industry.”
“Jane Matthews, the founder of Paw Print Post, has a long history in the pet industry and working with animals, and was recently trained as a graphic designer. She’s combining those two loves to capture a niche in the market: unique greeting cards customized with a pet’s paw prints, without needing to resort to the traditional (and messy) options of casting your pet’s prints in plaster or using pet-safe ink to have them stamp their ’signature.’”
“Jane will have Paw Print Post ready to launch at the Big Important Pet Expo in Toronto to get the word out among industry players and consumers alike. After two years in business, Jane aims to drive $150,000 in annual revenue from the sale of Paw Print Post’s signature greeting cards and to have expanded into two new product categories.”
“Jane Matthews is the sole full-time employee of Paw Print Post but hires contractors as needed to support her workflow and fill gaps in her skill set. Notably, Paw Print Post has a standing contract for five hours a week of virtual assistant support with Virtual Assistants Pro.”
Your mission statement may also make an appearance here. Passionfruit shares its mission statement on its company website, and it would also work well in its example business plan.
The market analysis consists of research about supply and demand , your target demographics, industry trends, and the competitive landscape. You might run a SWOT analysis and include that in your business plan.
Here’s an example SWOT analysis for an online tailored-shirt business:
You’ll also want to do a competitive analysis as part of the market research component of your business plan. This will tell you which businesses you’re up against and give you ideas on how to differentiate your brand. A broad competitive analysis might include:
This section of your business plan describes your offerings—which products and services do you sell to your customers? Here’s an example for Paw Print Post that explains its line of custom greeting cards, along with details on what makes its products unique.
It’s always a good idea to develop a marketing plan before you launch your business. Your marketing plan shows how you’ll get the word out about your business, and it’s an essential component of your business plan as well.
The Paw Print Post focuses on four Ps: price, product, promotion, and place. However, you can take a different approach with your marketing plan. Maybe you can pull from your existing marketing strategy , or maybe you break it down by the different marketing channels. Whatever approach you take, your marketing plan should describe how you intend to promote your business and offerings to potential customers.
The Paw Print Post example considered suppliers, production, facilities, equipment, shipping and fulfillment, and inventory. This includes any raw materials needed to produce the products.
The financial plan provides a breakdown of sales, revenue, profit, expenses, and other relevant financial metrics related to funding and profiting from your business.
Ecommerce brand Nature’s Candy’s financial plan breaks down predicted revenue, expenses, and net profit in graphs.
It then dives deeper into the financials to include:
You can use a financial plan spreadsheet to build your own financial statements, including income statement, balance sheet, and cash-flow statement.
Customer segmentation means dividing your target market into groups based on specific characteristics. These characteristics can be demographics, psychographics, behavior, or geography. Your business plan will provide detailed information on each segment, like its size and growth potential, so you can show why they are valuable to your business.
Airsign , an eco-friendly vacuum cleaner company, faced the challenge of building a sustainable business model in the competitive home appliance market. They identified three key customer personas to target:
The company utilized Shopify’s customer segmentation tools to gain insights and take action to target them. Airsign created targeted segments for specific marketing initiatives.
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The appendix provides in-depth data, research, or documentation that supports the claims and projections made in the main business plan. It includes things like market research, finance, résumés, product specs, and legal documents.
Readers can access detailed info in the appendix, but the main plan stays focused and easy to read. Here’s an example from a fictional clothing brand called Bloom:
Appendix: Bloom Business Plan
This lean business plan is meant to be high level and easy to understand at a glance. You’ll want to include all of the same sections in one-page business plan, but make sure they’re truncated and summarized:
A startup business plan is for a new business. Typically, these plans are developed and shared to secure funding . As such, there’s a bigger focus on the financials, as well as on other sections that determine viability of your business idea—market research, for example:
Your internal business plan is meant to keep your team on the same page and aligned toward the same goal:
A strategic, or growth, business plan is a big-picture, long-term look at your business. As such, the forecasts tend to look further into the future, and growth and revenue goals may be higher. Essentially, you want to use all the sections you would in a normal business plan and build upon each:
Your feasibility business plan is sort of a pre-business plan—many refer to it as simply a feasibility study. This plan essentially lays the groundwork and validates that it’s worth the effort to make a full business plan for your idea. As such, it’s mostly centered around research:
Nonprofit business plans are used to attract donors, grants, and partnerships. They focus on what their mission is, how they measure success, and how they get funded. You’ll want to include the following sections in addition to a traditional business plan:
Building a good business plan serves as a roadmap you can use for your ecommerce business at launch and as you reach each of your business goals. Business plans create accountability for entrepreneurs and synergy among teams, regardless of your business model .
Kickstart your ecommerce business and set yourself up for success with an intentional business planning process—and with the sample business plans above to guide your own path.
How do i write a simple business plan.
To write a simple business plan, begin with an executive summary that outlines your business and your plans. Follow this with sections detailing your company description, market analysis, organization and management structure, product or service, marketing and sales strategy, and financial projections. Each section should be concise and clearly illustrate your strategies and goals.
The best business plan format presents your plan in a clear, organized manner, making it easier for potential investors to understand your business model and goals. Always begin with the executive summary and end with financial information or appendices for any additional data.
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Table of contents, financial plan overview.
A financial plan is a comprehensive document that charts a business's monetary objectives and the strategies to achieve them. It encapsulates everything from budgeting and forecasting to investments and resource allocation.
For small businesses, a solid financial plan provides direction, helping them navigate economic challenges, capitalize on opportunities, and ensure sustainable growth.
The strength of a financial plan lies in its ability to offer a clear roadmap for businesses.
Especially for small businesses that may not have a vast reserve of resources, prioritizing financial goals and understanding where every dollar goes can be the difference between growth and stagnation.
It lends clarity, ensures informed decision-making, and sets the stage for profitability and success.
Role of financial planning in business success.
Financial planning is the backbone of any successful business endeavor. It serves as a compass, guiding businesses toward profitability, stability, and growth.
With proper financial planning, businesses can anticipate potential cash shortfalls, make informed investment decisions, and ensure they have the capital needed to seize new opportunities.
For small businesses, in particular, tight financial planning can mean the difference between thriving and shuttering. Given the limited resources, it's vital to maximize every dollar and anticipate financial challenges.
Through diligent planning, small businesses can position themselves competitively, adapt to market changes, and drive consistent growth.
Every financial plan comprises several core components that, together, provide a holistic view of a business's financial health and direction. These include setting clear objectives, estimating costs , preparing financial statements , and considering sources of financing.
Each component plays a pivotal role in ensuring a thorough and actionable financial strategy .
For small businesses, these components often need a more granular approach. Given the scale of operations, even minor financial missteps can have significant repercussions.
As such, it's essential to tailor each component, ensuring they address specific challenges and opportunities that small businesses face, from initial startup costs to revenue forecasting and budgetary constraints.
Identifying business's short-term and long-term financial goals.
Every business venture starts with a vision. Translating this vision into actionable financial goals is the essence of effective planning.
Short-term goals could range from securing initial funding and achieving a set monthly revenue to covering startup costs. These targets, usually spanning a year or less, set the immediate direction for the business.
On the other hand, long-term financial goals delve into the broader horizon. They might encompass aspirations like expanding to new locations, diversifying product lines, or achieving a specific market share within a decade.
By segmenting goals into short-term and long-term, businesses can craft a step-by-step strategy, making the larger vision more attainable and manageable.
Profitability and cash flow, while closely linked, are distinct concepts in the financial realm. Profitability pertains to the ability of a business to generate a surplus after deducting all expenses.
It's a metric of success and indicates the viability of a business model . Simply put, it answers whether a business is making more than it spends.
In contrast, cash flow represents the inflow and outflow of cash within a business. A company might be profitable on paper yet struggle with cash flow if, for instance, clients delay payments or unexpected expenses arise.
For small businesses, maintaining positive cash flow is paramount. It ensures that they can cover operational costs, pay employees, and reinvest in growth, even if they're awaiting payments or navigating financial hiccups.
Fixed vs variable costs.
When embarking on a new business venture, understanding costs is paramount. Fixed costs remain consistent regardless of production levels. They include expenses like rent, salaries, and insurance . These are predictable outlays that don't fluctuate with business performance.
Variable costs , conversely, change in direct proportion to production or business activity. Think of costs associated with materials for manufacturing or commission for sales .
For a startup, delineating between fixed and variable costs aids in crafting a more dynamic budget, allowing for adaptability as the business scales and evolves.
Startups often grapple with numerous upfront costs. From purchasing equipment and setting up a workspace to initial marketing campaigns, these one-time expenditures lay the foundation for business operations.
They differ from ongoing expenses like utility bills, raw materials, or employee wages that recur monthly or annually.
For a small business owner, distinguishing between these costs is critical. One-time expenditures often demand a larger chunk of initial capital, while ongoing expenses shape the monthly and annual budget.
By categorizing them separately, businesses can strategize funding needs more effectively, ensuring they're equipped to meet both immediate and recurrent financial obligations.
Personal savings.
This is often the most straightforward way to fund a startup. Entrepreneurs tap into their personal savings accounts to jumpstart their business.
While this method has the benefit of not incurring debt or diluting company ownership, it intertwines the individual's personal financial security with the business's fate.
The entrepreneur must be prepared for potential losses, and there's the evident psychological strain of putting one's hard-earned money on the line.
Loans can be sourced from various institutions, from traditional banks to credit unions . They offer a substantial sum of money that can be paid back over time, usually with interest .
The main advantage of taking a loan is that the entrepreneur retains full ownership and control of the business.
However, there's the obligation of monthly repayments, which can strain a business's cash flow, especially in its early days. Additionally, securing a loan often requires collateral and a sound credit history.
Investors, including angel investors and venture capitalists , offer capital in exchange for equity or a stake in the company.
Angel investors are typically high-net-worth individuals who provide funding in the initial stages, while venture capitalists come in when there's proven business potential, often injecting larger sums. The advantage is substantial funding without the immediate pressure of repayments.
However, in exchange for their investment, they often seek a say in business decisions, which might mean compromising on some aspects of the original business vision.
Grants are essentially 'free money' often provided by government programs, non-profit organizations, or corporations to promote innovation and support businesses in specific sectors.
The primary advantage of grants is that they don't need to be repaid, nor do they dilute company ownership. However, they can be highly competitive and might come with stipulations on how the funds should be used.
Moreover, the application process can be lengthy and requires showcasing the business's potential or alignment with the specific goals or missions of the granting institution.
Income statement (profit & loss).
An Income Statement , often termed as the Profit & Loss statement , showcases a business's financial performance over a specific time frame. It details revenues , expenses, and ultimately, profits or losses.
By analyzing this statement, business owners can pinpoint revenue drivers, identify exorbitant costs, and understand the net result of their operations.
For small businesses, this document is instrumental in making informed decisions. For instance, if a certain product line is consistently unprofitable, it might be prudent to discontinue it. Conversely, if another segment is thriving, it might warrant further investment.
The Income Statement, thus, serves as a financial mirror, reflecting the outcomes of business strategies and decisions.
The Balance Sheet offers a snapshot of a company's assets , liabilities , and equity at a specific point in time.
Assets include everything the business owns, from physical items like equipment to intangible assets like patents .
Liabilities, on the other hand, encompass what the company owes, be it bank loans or unpaid bills.
Equity represents the owner's stake in the business, calculated as assets minus liabilities.
This statement is crucial for small businesses as it offers insights into their financial health. A robust asset base, minimal liabilities, and growing equity signify a thriving enterprise.
In contrast, mounting liabilities or dwindling assets could be red flags, signaling the need for intervention and strategy recalibration.
While the Income Statement reveals profitability, the Cash Flow Statement tracks the actual movement of money.
It categorizes cash flows into operating (day-to-day business), investing (buying/selling assets), and financing (loans or equity transactions) activities. This statement unveils the liquidity of a business, indicating whether it has sufficient cash to meet immediate obligations.
For small businesses, maintaining positive cash flow is often more vital than showcasing profitability.
After all, a business might be profitable on paper yet struggle if clients delay payments or unforeseen expenses emerge.
By regularly reviewing the Cash Flow Statement, small business owners can anticipate cash crunches and strategize accordingly, ensuring seamless operations irrespective of revenue cycles.
Importance of budgeting for a small business.
Budgeting is the financial blueprint for any business, detailing anticipated revenues and expenses for a forthcoming period. It's a proactive approach, enabling businesses to allocate resources efficiently, plan for investments, and prepare for potential financial challenges.
For small businesses, a meticulous budget is often the linchpin of stability, ensuring they operate within their means and avoid financial pitfalls.
Having a well-defined budget also fosters discipline. It curtails frivolous spending, emphasizes cost-efficiency, and sets clear financial boundaries.
For small businesses, where every dollar counts, a stringent budget is the gateway to financial prudence, ensuring that funds are utilized judiciously, fostering growth, and minimizing wastage.
Bulk purchasing.
When businesses buy supplies in large quantities, they often benefit from discounts due to economies of scale . This can significantly reduce per-unit costs.
However, while bulk purchasing leads to immediate savings, businesses must ensure they have adequate storage and that the products won't expire or become obsolete before they're used.
Regularly reviewing and renegotiating contracts with suppliers or service providers can lead to better terms and lower costs. This might involve exploring volume discounts, longer payment terms, or even bartering services.
Building strong relationships with vendors often paves the way for such negotiations.
Simple changes, like switching to LED lighting or investing in energy-efficient appliances, can lead to long-term savings in utility bills. Moreover, energy conservation not only reduces costs but also minimizes the environmental footprint, which can enhance the business's reputation.
Modern software and technology can streamline business processes. Automation tools can handle repetitive tasks, reducing labor costs.
Meanwhile, data analytics tools can provide insights into customer preferences and behavior, ensuring that marketing budgets are used effectively and target the right audience.
Regularly reviewing and refining business processes can eliminate redundancies and improve efficiency. This might mean merging roles, cutting down on unnecessary meetings, or simplifying supply chains. A leaner operation often translates to reduced expenses.
Instead of maintaining an in-house team for every function, businesses can outsource tasks that aren't central to their operations.
For instance, functions like accounting , IT support, or digital marketing can be outsourced to specialized agencies, often leading to cost savings and access to expert skills.
Encouraging employees to adopt a cost-conscious mindset can lead to collective savings. This can be fostered through incentives, regular training, or even simple practices like recycling and reusing office supplies.
When everyone in the organization is attuned to the importance of cost savings, the cumulative effect can be substantial.
Techniques for predicting future sales in a small business, past sales data analysis.
Historical sales data is a foundational element in any forecasting effort. By reviewing previous sales figures, businesses can identify patterns, understand seasonal fluctuations, and recognize the effects of past initiatives.
This information offers a baseline upon which to build future projections, accounting for known recurring variables in the business cycle .
Understanding the larger market dynamics is crucial for accurate forecasting. This involves tracking industry trends, monitoring shifts in consumer behavior, and being aware of potential market disruptions.
For instance, a sudden technological advancement can change consumer preferences or regulatory changes might impact an industry.
For small businesses, localized insights can be especially impactful. Observing local competitors, understanding regional consumer preferences, or noting shifts in the local economy can offer precise data points.
These granular details, when integrated into a larger forecasting model, can enhance prediction accuracy.
Direct feedback from customers is an invaluable source of insights. Surveys, focus groups, or even informal chats can reveal customer sentiments, preferences, and potential future purchasing behavior.
For instance, if a majority of loyal customers express interest in a new product or service, it can be indicative of future sales potential.
This technique involves analyzing a series of data points (like monthly sales) by creating averages from different subsets of the full data set.
For yearly forecasting, a 12-month moving average can be used to smooth out short-term fluctuations and highlight longer-term trends or cycles.
Regression analysis is a statistical tool used to identify relationships between variables. In sales forecasting, it can help understand how different factors (like marketing spend, seasonal variations, or competitor actions) relate to sales figures.
Once these relationships are understood, businesses can predict future sales based on planned actions or expected external events.
The cash cycle encompasses the time it takes for a business to convert resource investments, often in the form of inventory, back into cash.
This involves the processes of purchasing inventory, selling it, and subsequently collecting payment. A shorter cycle implies quicker cash turnarounds, which are vital for liquidity.
For small businesses, a firm grasp of the cash cycle can aid in managing cash flow more effectively.
By identifying bottlenecks or delays, businesses can strategize to expedite processes. This might involve renegotiating payment terms with suppliers, offering discounts for prompt customer payments, or optimizing inventory levels to prevent overstocking.
Ultimately, understanding and optimizing the cash cycle ensures that a business remains liquid and agile.
Seasonality affects many businesses, from the ice cream vendor witnessing summer surges to the retailer bracing for holiday shopping frenzies.
By analyzing historical data and market trends, businesses can prepare for these cyclical shifts, ensuring they stock up, staff appropriately, and market effectively.
Small businesses, often operating on tighter margins , need to be especially vigilant. Beyond seasonality, they must also brace for unexpected changes – a local construction project obstructing store access, a sudden competitor emergence, or unforeseen regulatory changes.
Building a financial buffer, diversifying product or service lines, and maintaining flexible operational strategies can equip small businesses to weather these unforeseen challenges with resilience.
Role of debt and equity financing.
When businesses seek external funding, they often grapple with the debt vs. equity conundrum. Debt financing involves borrowing money, typically via loans. While it doesn't dilute ownership, it necessitates regular interest payments, potentially impacting cash flow.
Equity financing, on the other hand, entails selling a stake in the business to investors. It might not demand regular repayments, but it dilutes ownership and might influence business decisions.
Small businesses must weigh these options carefully. While loans offer a structured repayment plan and retained control, they might strain finances if the business hits a rough patch.
Equity financing, although relinquishing some control, might bring aboard strategic partners, offering expertise and networks in addition to funds.
The optimal choice hinges on the business's financial health, growth aspirations, and the founder's comfort with sharing control.
A staple in the lending arena, term loans offer businesses a fixed amount of capital that is paid back over a specified period with interest. They're often used for significant one-time expenses, such as purchasing machinery, real estate , or even business expansion.
With predictable monthly payments, businesses can plan their budgets accordingly. However, they might require collateral and a robust credit history for approval.
Unlike term loans that provide funds in a lump sum, a line of credit grants businesses access to a pool of funds up to a certain limit.
Businesses can draw from this line as needed, only paying interest on the amount they use. This makes it a versatile tool, especially for managing cash flow fluctuations or unexpected expenses. It serves as a financial safety net, ready for use whenever required.
As the name suggests, microloans are smaller loans designed to cater to businesses that might not need substantial amounts of capital. They're particularly beneficial for startups, businesses with limited credit histories, or those in need of a quick, small financial boost.
Since they are of a smaller denomination, the approval process might be more lenient than traditional loans.
A contemporary twist to the traditional lending model, peer-to-peer (P2P) platforms connect borrowers directly with individual lenders or investor groups.
This direct model often translates to quicker approvals and competitive interest rates as the overheads of traditional banking structures are removed. With technology at its core, P2P lending can offer a more user-friendly, streamlined process.
However, creditworthiness still plays a pivotal role in determining interest rates and loan amounts.
In an increasingly digital age, crowdfunding platforms like Kickstarter or Indiegogo have emerged as viable financing avenues.
These platforms enable businesses to raise small amounts from a large number of people, often in exchange for product discounts, early access, or other perks. This not only secures funds but also validates the business idea and fosters a community of supporters.
Other alternatives include invoice financing, where businesses get an advance on pending invoices, or merchant cash advances tailored for businesses with significant credit card sales.
Each financing mode offers unique advantages and constraints. Small businesses must meticulously evaluate their financial landscape, growth trajectories, and risk appetite to harness the most suitable option.
Basic tax obligations for small businesses.
Navigating the maze of taxation can be daunting, especially for small businesses. Yet, understanding and fulfilling tax obligations is crucial.
Depending on the business structure—whether sole proprietorship , partnership , LLC , or corporation—different tax rules apply. For instance, while corporations are taxed on their earnings, sole proprietors report business income and expenses on their personal tax returns.
In addition to income taxes, small businesses may also be responsible for employment taxes if they have employees. This covers Social Security , Medicare , federal unemployment, and sometimes state-specific taxes.
There might also be sales taxes, property taxes, or special state-specific levies to consider.
Consistently maintaining accurate financial records, being aware of filing deadlines, and setting aside funds for tax obligations are essential practices to avoid penalties and ensure compliance.
Tax planning is the strategic approach to minimizing tax liability through the best use of available allowances, deductions, exclusions, and breaks.
For small businesses, effective tax planning can lead to significant savings.
This might involve strategies like deferring income to a later tax year, choosing the optimal time to purchase equipment, or taking advantage of specific credits available to businesses in certain sectors or regions.
Several potential deductions can reduce taxable income for small businesses. These include expenses like rent, utilities, business travel, employee wages, and even certain meals.
By keeping abreast of tax law changes and actively seeking out eligible deductions, small businesses can optimize their financial landscape, ensuring they're not paying more in taxes than necessary.
While it's feasible for small business owners to manage their taxes, the intricate nuances of tax laws make it beneficial to consult professionals.
An experienced accountant or tax consultant can not only ensure compliance but can proactively recommend strategies to reduce tax liability.
They can guide businesses on issues like whether to classify someone as an employee or a contractor, how to structure the business for optimal taxation, or when to make certain capital investments.
Beyond just annual tax filing, these professionals offer year-round counsel, helping businesses maintain clean financial records, stay updated on tax law changes, and plan for future financial moves.
The investment in professional advice often pays dividends , saving businesses from costly mistakes, penalties, or missed financial opportunities.
Setting checkpoints and milestones.
Like any strategic blueprint, a financial plan isn't static. It serves as a guiding framework but should be flexible enough to adapt to evolving business realities.
Setting regular checkpoints— quarterly , half-yearly, or annually—can help businesses assess whether they're on track to meet their financial objectives.
Milestones, such as reaching a specific sales target, launching a new product, or expanding into a new market, offer tangible markers of progress. Celebrating these victories can bolster morale, while any shortfalls can serve as lessons, prompting strategy tweaks. F
or small businesses, where agility is an asset, regularly revisiting the financial plan ensures that the business remains aligned with its overarching financial goals while being responsive to the dynamic marketplace.
Financial ratios offer a distilled snapshot of a business's health. Ratios like the current ratio ( current assets divided by current liabilities ) can shed light on liquidity, indicating whether a business can meet short-term obligations.
The debt-to-equity ratio , contrasting borrowed funds with owner's equity, offers insights into the business's leverage and potential financial risk.
Profit margin , depicting profitability relative to sales, can highlight operational efficiency. By consistently monitoring these and other pertinent ratios, small businesses can glean actionable insights, understanding their financial strengths and areas needing attention.
In a realm where early intervention can stave off major financial setbacks, these ratios serve as vital diagnostic tools, guiding informed decision-making.
In the ever-evolving world of business, flexibility is paramount. If financial reviews indicate that certain strategies aren't yielding anticipated results, it might be time to pivot.
This could involve tweaking product offerings, revising pricing strategies, targeting a different customer segment, or even overhauling the business model.
For small businesses, the ability to pivot can be a lifeline. It allows them to respond swiftly to market changes, customer feedback, or internal challenges.
A robust financial plan, while offering direction, should also be pliable, accommodating shifts in strategy based on real-world performance. After all, in the business arena, adaptability often spells the difference between stagnation and growth.
Financial foresight is integral for the stability and growth of small businesses. Effective revenue and cash flow forecasting, anchored by historical sales data and enhanced by market research, local trends, and customer feedback, ensures businesses are prepared for future demands.
With the unpredictability of the business environment, understanding the cash cycle and preparing for unforeseen challenges is essential.
As businesses contemplate external financing, the decision between debt and equity and the myriad of loan types, should be made judiciously, keeping in mind the business's health, growth aspirations, and risk appetite.
Furthermore, diligent tax planning, with professional guidance, can lead to significant financial benefits. Regular reviews using financial ratios allow businesses to gauge their performance, adapt strategies, and pivot when necessary.
Ultimately, the agility to adapt, guided by a well-structured financial plan, is pivotal for businesses to thrive in a dynamic marketplace.
What is the importance of a financial plan for small businesses.
A financial plan offers a structured roadmap, guiding businesses in making informed decisions, ensuring growth, and navigating financial challenges.
Forecasting provides insights into expected income, aiding in budget allocation, while understanding cash cycles ensures effective liquidity management.
Core components include setting objectives, estimating startup costs, preparing financial statements, budgeting, forecasting, securing financing, and tax management.
Tax planning ensures compliance, optimizes tax liabilities through available deductions, and helps businesses save money and avoid penalties.
Regular reviews, ideally quarterly or half-yearly, ensure alignment with business goals and allow for strategy adjustments based on real-world performance.
About the Author
True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.
True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.
To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .
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Table of Contents
Investment is the commitment of funds at present in some course of action with the expectation of some positive rate of return. An investment is an asset or item that is purchased with the hope that it will generate income or will appreciate it in the future.
A systematic process should be followed while investing. The general steps of the investment process are as follows:
First of all the investor should clearly spell out her/his investment objective before making an investment. The investment objective is the motive that guides the investor in choosing investment alternatives. The investment process objective should be stated in terms of both risk tolerance and return preference.
Simply stating the investment objective to make money is not enough. The investor should be clear about why s/he needs to make money. It may be for children’s education for retirement life or for safety and liquidity. Accordingly, the investor can go for the alternatives that best suit her/his investment objective.
While determining to investment objective it should be noted that there may be more than one set of investment objectives. For example, the investor may invest simultaneously for wealth maximization and liquidity.
Similarly, the investment objective once set does not remain static rather it changes over time as per the change in personal and family circumstances of investors.
a) Setting Clear Goals :
The first step in the investment process is to define your investing objectives. This involves establishing clear, measurable, and realistic financial goals.
These objectives can vary widely from one investor to another and may include goals like saving for retirement, buying a home, funding education, or achieving financial independence.
b) Time Horizon:
Consider your time horizon for achieving these goals. Short-term objectives may require more conservative investments, while long-term goals may allow for a more aggressive approach.
c) Risk Tolerance:
Assess your risk tolerance. This is a critical factor that determines the type of investments you should consider. Risk tolerance is influenced by factors such as your age, financial situation, and willingness to endure market fluctuations.
d) Liquidity Needs:
Determine your liquidity needs. Some investments may tie up your money for an extended period, so it’s important to have a balance between liquid assets (easily accessible) and illiquid assets (longer-term investments).
e) Return Expectations:
What rate of return do you expect to achieve? Be realistic about your return expectations, considering historical performance data and current market conditions.
f) Tax Considerations:
Think about tax implications. Taxes can have a significant impact on investment returns, so consider tax-efficient strategies based on your objectives.
After setting an investment objective, an investor should develop a formal investment plan consistent with the investment objective. The investment plan must specify the investor’s return preference, and risk tolerance along with the period of investment.
a) Asset Allocation:
Once you’ve defined your objectives and risk tolerance, the next step is to create an investment plan. A crucial aspect of this plan is asset allocation, which involves determining how to distribute your investment capital across different asset classes, such as stocks, bonds, real estate, and cash.
b) Diversification:
Diversification is a key principle of investing. It involves spreading your investments across various assets and sectors to reduce risk. A well-diversified portfolio can help mitigate the impact of poor-performing assets.
c) Investment Strategy:
Choose an investment strategy that aligns with your goals and risk tolerance. Common strategies include value investing, growth investing, income investing, and passive index investing.
d) Budget and Savings:
Create a budget to identify how much you can save and invest regularly. Consistent saving is essential for reaching your financial goals.
e) Emergency Fund:
Before you start investing, establish an emergency fund to cover unexpected expenses. This prevents you from having to dip into your investments prematurely.
f) Investment Accounts:
Decide which types of investment accounts are suitable for your needs, such as individual brokerage accounts, retirement accounts (e.g., 401(k), IRA), or college savings accounts (e.g., 529 plans).
After developing a proper plan for investment, an investor should analyze the alternatives available. There is a wide range of investment alternatives available for investment.
Each available alternative must be evaluated in terms of a comparative risk-return relationship. The expected return and risk associated with each alternative should be preciously measured and they should be assessed in the light of the investment objective.
After the assessment of investment alternatives, the investor should select the suitable alternatives that best suit her investment objective.
While selecting among the investment alternatives, investors should gather the information and use the information to select suitable investment vehicles. Along with risk-return preferences, investors should assess factors like tax considerations.
a) Research:
Conduct thorough research on investment alternatives. This includes studying different asset classes, individual securities, mutual funds, exchange-traded funds (ETFs), and other investment vehicles.
b) Risk and Return Analysis:
Evaluate the risk and return characteristics of each investment option. Consider historical performance, volatility, and potential future outlook.
c) Costs and Fees:
Take into account the costs associated with each investment, including management fees, trading commissions, and taxes. Minimizing expenses can enhance your overall returns.
d) Quality and Fundamentals:
Assess the quality and fundamentals of individual investments. For stocks, this might involve analyzing financial statements and business models. For bonds, examine credit ratings and interest rate risk.
e) Professional Advice:
Consider seeking advice from financial professionals or advisors, especially for complex investments or if you’re unsure about your choices.
The investor should form an investment portfolio by including the securities that are qualified in terms of risk-return relationship, tax considerations, and other factors.
In constructing a portfolio, the investor should pay attention to the diversification of risk. The portfolio of investment should maximize return and minimize the risk.
a) Asset Allocation Implementation:
Based on your investment plan, allocate your capital among chosen asset classes and investments. Ensure that your portfolio is in line with your desired asset allocation.
b) Portfolio Diversification:
Diversify within each asset class to further spread risk. For instance, within stocks, consider a mix of large-cap, mid-cap, and small-cap stocks, as well as different sectors.
c) Rebalancing:
Periodically review your portfolio and rebalance it if necessary. Rebalancing involves adjusting your asset allocation to maintain the desired risk-return profile.
d) Risk Management:
Implement risk management strategies such as setting stop-loss orders for individual investments to limit potential losses.
e) Cost Efficiency:
Opt for cost-efficient investment options, such as low-cost index funds or ETFs, to maximize returns.
This is the last step of the investment process The securities included in the portfolio may not perform as predicted or may not satisfy the investing objective.
Therefore, an investor should make periodic evaluations of the performance of the portfolio against the investment objective.
Some securities in the portfolio that stood attractive may no longer be so attractive. Thus, investors should delete such securities from their portfolios and add new ones that are attractive. Thus evaluating and revising the portfolio is an ongoing process.
a) Regular Monitoring:
Continuously monitor the performance of your investments and the overall portfolio. Use benchmarks to assess how well your portfolio is performing compared to relevant market indices.
b) Review and Adjust:
Periodically review your investment plan and objectives. Life circumstances, financial goals, and market conditions can change, so be prepared to adjust your portfolio accordingly.
c) Tax Efficiency:
Consider tax implications when making changes to your portfolio. Tax-efficient strategies can help minimize your tax liability.
d) Long-Term Perspective:
Avoid making impulsive decisions based on short-term market fluctuations. Stick to your long-term investment plan, and make adjustments based on your original objectives.
e) Seek Professional Advice:
If you are unsure about portfolio adjustments or market conditions, consult with a financial advisor or investment professional for guidance.
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Written by Dave Lavinsky
You’ve come to the right place to create your Investment Company business plan.
We have helped over 1,000 entrepreneurs and business owners create business plans and many have used them to start or grow their Investment Companies.
Below is a template to help you create each section of your Investment Company business plan.
Business overview.
NovaGrowth Investments is a startup investment company located in Aurora, Colorado. The company is founded by Thom Anderson, an investment broker from Colorado Springs, Colorado, who has amassed millions of dollars for his clients over ten years while working at Clear River Investments. Because Thom has gained an extensive following of clients who have already indicated they will follow him to his new investment company, he has made the initial steps into forming NovaGrowth Investments. Thom plans on recruiting a team of highly-qualified professionals to help manage the day-to-day operations of a premier investment company in every aspect of marketing and advising in the land acquisition investment company.
NovaGrowth Investments will provide a wide array of services for investors, in particular those related to the optimal attention and time needed to secure valuable investments on their behalf. Investors can feel confident and secure, knowing that Thom and his team are looking out for their interests in every aspect of the land acquisition process. What’s more, NovaGrowth offers customized guarantees of investment performance that are singular within the investment company industry.
The following are the services that NovaGrowth Investments will provide:
NovaGrowth Investments will target individual investors. They will also target corporate investors who are seeking land acquisitions. They will target fast-growing companies known to be seeking additional tracts of land. NovaGrowth Investments will target industry partners (cattle ranchers, horse breeders, etc) that could benefit from land acquisition as an investment.
NovaGrowth Investments will be owned and operated by Thom Anderson. He recruited Jackson Byers and Kylie Carlson to manage the day-to-day operations of the investment company and oversee human resources.
Thom Anderson is a graduate of Cambridge University in the U.K., where he graduated with an International Business bachelor’s degree. He spent five years in the U.K. sourcing land for a large investment firm as an entry-level investment advisor.
Upon his return to the U.S.,Thom obtained his investment broker’s license and was employed by Clear River Investments in Colorado Springs, Colorado. Within one year, Thom secured over 5M in investments for his clients and, within five years, he amassed over 25M in land acquisition investments on behalf of his clients.
Jackson Byers is a graduate of the University of Illinois, where he graduated with a master’s degree in Accounting. His former role at Clear River Investments was as the Associate Accountant, where he managed the normal business accounting processes for the firm. He will serve as the Staff Accountant in the startup company and will assist in overseeing the day-to-day operations of the firm.
Kylie Carlson was hired by Thom Anderson as his Assistant and worked for him at Clear River Investments for over ten years. Her new role will be the Human Resources Manager, overseeing personnel and the processes that are regulated and required by Colorado.
NovaGrowth Investments will be able to achieve success by offering the following competitive advantages:
NovaGrowth Investments is seeking $200,000 in debt financing to launch its NovaGrowth Investments. The funding will be dedicated toward securing the office space and purchasing office equipment and supplies. Funding will also be dedicated toward three months of overhead costs to include payroll of the staff, rent, and marketing costs for the marketing costs. The breakout of the funding is below:
The following graph outlines the financial projections for NovaGrowth Investments.
Who is novagrowth investments.
NovaGrowth Investments is a newly established, full-service investment company in Aurora, Colorado. NovaGrowth Investments will be the most reliable, effective and value-driven choice for private and commercial investors in Aurora and the surrounding communities. NovaGrowth Investments will provide a comprehensive menu of portfolio and land acquisition services for any potential investor to utilize. Their full-service approach includes a comprehensive seminar and helpful introductory information for first-time investors.
NovaGrowth Investments will be able to manage the investments and acquire new investments for their clients. The team of professionals are highly qualified and experienced in investment brokerage and land acquisitions. NovaGrowth Investments removes all headaches and issues of trying to locate safe and secure investments and ensures all issues are taken care of expeditiously while delivering the best customer service.
Thom Anderson is a graduate of Cambridge University in the U.K., where he graduated with an International Business bachelor’s degree. He spent five years in the U.K. sourcing land for a large investment firm as an entry-level investment advisor. Upon his return to the U.S.,Thom obtained his investment broker’s license and was employed by Clear River Investments in Colorado Springs, Colorado. Within one year, Thom secured over 5M in investments for his clients and, within five years, he amassed over 25M in land acquisition investments on behalf of his clients.
Since incorporation, NovaGrowth Investments has achieved the following milestones:
The following will be the services NovaGrowth Investments will provide:
The investment company industry is expected to grow over the next five years to over $1.3 trillion. The growth will be driven by ongoing vast opportunities for individuals and organizations seeking to grow their wealth The growth will be driven by new technology that navigating the complexities of the financial markets The growth will be driven by an increase in the interest of individuals in “making their own way” in the world The growth will be driven by the stability of land ownership as an on-going and important element in investment portfolios.
Costs will likely be reduced as technology continues to advance, allowing better-informed acquisition interest and supplemental risk mitigation Costs will likely be reduced as younger investors, such as Gen Z and millennials, continue to express an interest and desire for land acquisition investments, which indicates an increased number of sellers will enter the market due to favorable conditions.
Demographic profile of target market.
NovaGrowth Investments will target those potential individual investors in Aurora, Colorado. They will target businesses with a track record of land investments or a need for land due to company growth. NovaGrowth Investments will target industry partners (cattle ranchers, horse breeders, etc) that could benefit from land acquisition as an investment.
Total | Percent | |
---|---|---|
Total population | 1,680,988 | 100% |
Male | 838,675 | 49.9% |
Female | 842,313 | 50.1% |
20 to 24 years | 114,872 | 6.8% |
25 to 34 years | 273,588 | 16.3% |
35 to 44 years | 235,946 | 14.0% |
45 to 54 years | 210,256 | 12.5% |
55 to 59 years | 105,057 | 6.2% |
60 to 64 years | 87,484 | 5.2% |
65 to 74 years | 116,878 | 7.0% |
75 to 84 years | 52,524 | 3.1% |
NovaGrowth Investments will primarily target the following customer profiles:
Direct and indirect competitors.
NovaGrowth Investments will face competition from other companies with similar business profiles. A description of each competitor company is below.
CapitalMax Advisors is a startup investment company in Colorado Springs, Colorado. The owner, Barry Jackson, is a graduate of Purdue University and has been an investment advisor for over ten years. He recently launched Capital Max Advisors to meet what he coined, “The Great Asset Allocation” investment opportunities within the city of Colorado Springs. Barry has hired ten associates from his former employer’s company to seek investors who are primarily interested in asset allocation investments and the company is promising reduced portfolio management rates for the first six months of business.
CapitalMax Advisors is a full-service investment company with a strong following of investors who were delighted by Barry’s performance on their behalf at his former employer. The expectation is that CapitalMax Advisors will live up to their primary purpose, which is to oversee and direct asset allocation to maximize returns in substantial numbers.
Owned by Tamara and Loren Downs, WealthWise Investments is known for it’s assertive actions on behalf of clients. The company was founded in 2010 and currently offers a diverse range of investment products and services. They specialize in ETFs, mutual funds, and alternative investments. WealthWise Investments is known for its expertise in risk management, technology-driven investment strategies, and statewide reach beyond it’s home city of Colorado Springs.
WealthWise Investments offers excellent services to clients; however, clients have noted publicly that the fees and service charges are high in tandem with the asset allocation gains. There have been two complaints noted with the state regulatory agencies. Meanwhile, Tamara and Loren Downs continue to employ efforts to bring technology-driven tools into the investment company that will trim staff and distribute higher rates on behalf of investors.
FinTech Capital Management is a five-year-old company located in Denver, Colorado. The focus of the company is on financial technology investments on behalf of their client investors. Currently, the company has recorded stable and growing levels of profitability and has been tagged as an investment management firm known for its expertise in mutual funds and retirement planning They offer a sizable range of investment strategies, including equity, fixed income, and asset allocation funds. They are tech-driven and focus on research-driven investment decisions to fulfill the goals of their clients in long-term wealth creation.
In addition to tech acquisitions, FinTech Capital Management is also directed toward senior investors, with brokerage, retirement planning, wealth management, and mutual funds in their services offered. They provide a range of investment options, from individual stocks and bonds to managed portfolios and retirement accounts, many of which are perfect for those investors who have amassed a sizable portfolio, but are becoming risk-averse as they age. FinTech Capital Management is owned by The Thurgood Family Trust with the Thurgood brothers, Jonathan and Regis, responsible for day-to-day management. It has been recently suggested that the firm may be sold if the right buyers were to approach.
NovaGrowth Investments will be able to offer the following advantages over their competition:
Brand & value proposition.
NovaGrowth Investments will offer the unique value proposition to its clientele:
The promotions strategy for NovaGrowth Investments is as follows:
Word of Mouth/Referrals
Thom Anderson has built up an extensive list of contacts over the years by providing exceptional service and expertise to former clients and potential investors. The contacts and clients will follow him to his new company and help spread the word of NovaGrowth Investments.
Professional Associations and Networking
The executives within NovaGrowth Investments will begin networking in professional associations and at events within the city-wide industry groups. This will bring the new startup into focus for other companies, providing a path to increased clients and strategic partnerships within the city.
Social Media Marketing
NovaGrowth Investments will target their primary and secondary audiences with a series of text announcements via social media. The announcements will be invitations to the opening of the company, with a champagne reception and information regarding the services available at NovaGrowth Investments. The social media announcements will continue for the three weeks prior to the launch of the company.
Website/SEO Marketing
NovaGrowth Investments will fully utilize their website. The website will be well organized, informative, and list the services that NovaGrowth Investments provides. The website will also list their contact information and biographies of the executive group. The website will engage in SEO marketing tactics so that anytime someone types in the Google or Bing search engine “Investment company” or “Investment opportunities near me,” NovaGrowth Investments will be listed at the top of the search results.
The pricing of NovaGrowth Investments will be moderate and on par with competitors so customers feel they receive excellent value when purchasing their services.
The following will be the operations plan for NovaGrowth Investments. Operation Functions:
NovaGrowth Investments will have the following milestones completed in the next six months.
Key revenue & costs.
The revenue drivers for NovaGrowth Investments are the fees they will charge to clients for their investment acquisition and portfolio management services.
The cost drivers will be the overhead costs required in order to staff NovaGrowth Investments. The expenses will be the payroll cost, rent, utilities, office supplies, and marketing materials.
NovaGrowth Investments is seeking $200,000 in debt financing to launch its investment company. The funding will be dedicated toward securing the office space and purchasing office equipment and supplies. Funding will also be dedicated toward three months of overhead costs to include payroll of the staff, rent, and marketing costs for the print ads and association memberships. The breakout of the funding is below:
The following outlines the key assumptions required in order to achieve the revenue and cost numbers in the financials and in order to pay off the startup business loan.
Income statement.
FY 1 | FY 2 | FY 3 | FY 4 | FY 5 | ||
---|---|---|---|---|---|---|
Revenues | ||||||
Total Revenues | $360,000 | $793,728 | $875,006 | $964,606 | $1,063,382 | |
Expenses & Costs | ||||||
Cost of goods sold | $64,800 | $142,871 | $157,501 | $173,629 | $191,409 | |
Lease | $50,000 | $51,250 | $52,531 | $53,845 | $55,191 | |
Marketing | $10,000 | $8,000 | $8,000 | $8,000 | $8,000 | |
Salaries | $157,015 | $214,030 | $235,968 | $247,766 | $260,155 | |
Initial expenditure | $10,000 | $0 | $0 | $0 | $0 | |
Total Expenses & Costs | $291,815 | $416,151 | $454,000 | $483,240 | $514,754 | |
EBITDA | $68,185 | $377,577 | $421,005 | $481,366 | $548,628 | |
Depreciation | $27,160 | $27,160 | $27,160 | $27,160 | $27,160 | |
EBIT | $41,025 | $350,417 | $393,845 | $454,206 | $521,468 | |
Interest | $23,462 | $20,529 | $17,596 | $14,664 | $11,731 | |
PRETAX INCOME | $17,563 | $329,888 | $376,249 | $439,543 | $509,737 | |
Net Operating Loss | $0 | $0 | $0 | $0 | $0 | |
Use of Net Operating Loss | $0 | $0 | $0 | $0 | $0 | |
Taxable Income | $17,563 | $329,888 | $376,249 | $439,543 | $509,737 | |
Income Tax Expense | $6,147 | $115,461 | $131,687 | $153,840 | $178,408 | |
NET INCOME | $11,416 | $214,427 | $244,562 | $285,703 | $331,329 |
FY 1 | FY 2 | FY 3 | FY 4 | FY 5 | ||
---|---|---|---|---|---|---|
ASSETS | ||||||
Cash | $154,257 | $348,760 | $573,195 | $838,550 | $1,149,286 | |
Accounts receivable | $0 | $0 | $0 | $0 | $0 | |
Inventory | $30,000 | $33,072 | $36,459 | $40,192 | $44,308 | |
Total Current Assets | $184,257 | $381,832 | $609,654 | $878,742 | $1,193,594 | |
Fixed assets | $180,950 | $180,950 | $180,950 | $180,950 | $180,950 | |
Depreciation | $27,160 | $54,320 | $81,480 | $108,640 | $135,800 | |
Net fixed assets | $153,790 | $126,630 | $99,470 | $72,310 | $45,150 | |
TOTAL ASSETS | $338,047 | $508,462 | $709,124 | $951,052 | $1,238,744 | |
LIABILITIES & EQUITY | ||||||
Debt | $315,831 | $270,713 | $225,594 | $180,475 | $135,356 | |
Accounts payable | $10,800 | $11,906 | $13,125 | $14,469 | $15,951 | |
Total Liability | $326,631 | $282,618 | $238,719 | $194,944 | $151,307 | |
Share Capital | $0 | $0 | $0 | $0 | $0 | |
Retained earnings | $11,416 | $225,843 | $470,405 | $756,108 | $1,087,437 | |
Total Equity | $11,416 | $225,843 | $470,405 | $756,108 | $1,087,437 | |
TOTAL LIABILITIES & EQUITY | $338,047 | $508,462 | $709,124 | $951,052 | $1,238,744 |
FY 1 | FY 2 | FY 3 | FY 4 | FY 5 | ||
---|---|---|---|---|---|---|
CASH FLOW FROM OPERATIONS | ||||||
Net Income (Loss) | $11,416 | $214,427 | $244,562 | $285,703 | $331,329 | |
Change in working capital | ($19,200) | ($1,966) | ($2,167) | ($2,389) | ($2,634) | |
Depreciation | $27,160 | $27,160 | $27,160 | $27,160 | $27,160 | |
Net Cash Flow from Operations | $19,376 | $239,621 | $269,554 | $310,473 | $355,855 | |
CASH FLOW FROM INVESTMENTS | ||||||
Investment | ($180,950) | $0 | $0 | $0 | $0 | |
Net Cash Flow from Investments | ($180,950) | $0 | $0 | $0 | $0 | |
CASH FLOW FROM FINANCING | ||||||
Cash from equity | $0 | $0 | $0 | $0 | $0 | |
Cash from debt | $315,831 | ($45,119) | ($45,119) | ($45,119) | ($45,119) | |
Net Cash Flow from Financing | $315,831 | ($45,119) | ($45,119) | ($45,119) | ($45,119) | |
Net Cash Flow | $154,257 | $194,502 | $224,436 | $265,355 | $310,736 | |
Cash at Beginning of Period | $0 | $154,257 | $348,760 | $573,195 | $838,550 | |
Cash at End of Period | $154,257 | $348,760 | $573,195 | $838,550 | $1,149,286 |
What is an investment company business plan.
An investment company business plan is a plan to start and/or grow your investment company business. Among other things, it outlines your business concept, identifies your target customers, presents your marketing plan and details your financial projections.
You can easily complete your Investment Company business plan using our Investment Company Business Plan Template here .
There are a number of different kinds of investment company businesses , some examples include: Closed-End Funds Investment Company, Mutual Funds (Open-End Funds) Investment Company, and Unit Investment Trusts (UITs) Investment Company.
Investment Company businesses are often funded through small business loans. Personal savings, credit card financing and angel investors are also popular forms of funding.
Starting an investment company business can be an exciting endeavor. Having a clear roadmap of the steps to start a business will help you stay focused on your goals and get started faster.
1. Develop An Investment Company Business Plan - The first step in starting a business is to create a detailed investment company business plan that outlines all aspects of the venture. This should include potential market size and target customers, the services or products you will offer, pricing strategies and a detailed financial forecast.
2. Choose Your Legal Structure - It's important to select an appropriate legal entity for your investment company business. This could be a limited liability company (LLC), corporation, partnership, or sole proprietorship. Each type has its own benefits and drawbacks so it’s important to do research and choose wisely so that your investment company business is in compliance with local laws.
3. Register Your Investment Company Business - Once you have chosen a legal structure, the next step is to register your investment company business with the government or state where you’re operating from. This includes obtaining licenses and permits as required by federal, state, and local laws.
4. Identify Financing Options - It’s likely that you’ll need some capital to start your investment company business, so take some time to identify what financing options are available such as bank loans, investor funding, grants, or crowdfunding platforms.
5. Choose a Location - Whether you plan on operating out of a physical location or not, you should always have an idea of where you’ll be based should it become necessary in the future as well as what kind of space would be suitable for your operations.
6. Hire Employees - There are several ways to find qualified employees including job boards like LinkedIn or Indeed as well as hiring agencies if needed – depending on what type of employees you need it might also be more effective to reach out directly through networking events.
7. Acquire Necessary Investment Company Equipment & Supplies - In order to start your investment company business, you'll need to purchase all of the necessary equipment and supplies to run a successful operation.
8. Market & Promote Your Business - Once you have all the necessary pieces in place, it’s time to start promoting and marketing your investment company business. This includes creating a website, utilizing social media platforms like Facebook or Twitter, and having an effective Search Engine Optimization (SEO) strategy. You should also consider traditional marketing techniques such as radio or print advertising.
Learn more about how to start a successful investment company business:
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A good business plan guides you through each stage of starting and managing your business. You'll use your business plan as a roadmap for how to structure, run, and grow your new business. It's a way to think through the key elements of your business. Business plans can help you get funding or bring on new business partners.
Describe Your Services or Products. The business plan should have a section that explains the services or products that you're offering. This is the part where you can also describe how they fit ...
Financial forecasts. Investors will inevitably want to see your financial forecasts. You'll need a sales forecast, expense budget, cash flow forecast, profit and loss, and balance sheet. If you have historical results, you should plan on sharing those too as well as any other key metrics about your business.
Key Takeaways. A business plan is a document detailing a company's business activities and strategies for achieving its goals. Startup companies use business plans to launch their venture and to ...
Including those will be especially important if you're writing a business plan to pursue a loan or other investment. Dig Deeper: How to create financial forecasts and budgets. Appendix. ... The business model canvas is a one-page template designed to demystify the business planning process. It removes the need for a traditional, copy-heavy ...
1. Investors Are Short On Time. If your chief goal is using your business plan to secure funding, then it means you intend on getting it in front of an investor. And if there's one thing investors are, it's busy. So keep this in mind throughout writing a business plan.
1. Create Your Executive Summary. The executive summary is a snapshot of your business or a high-level overview of your business purposes and plans. Although the executive summary is the first section in your business plan, most people write it last. The length of the executive summary is not more than two pages.
Learn about the best business plan software. 1. Write an executive summary. This is your elevator pitch. It should include a mission statement, a brief description of the products or services your ...
While your plan will be unique to your business and goals, keep these tips in mind as you write. 1. Know your audience. When you know who will be reading your plan—even if you're just writing it for yourself to clarify your ideas—you can tailor the language and level of detail to them.
2. Cuttles. Cuttles helps entrepreneurs and business owners plan and grow their businesses using a fully interactive and guided business plan software. The software provides features and guides to create a startup pitch, write a business plan, define a startup team, and do budgets and financial projections.
A business plan is a written document that defines your business goals and the tactics to achieve those goals. A business plan typically explores the competitive landscape of an industry, analyzes a market and different customer segments within it, describes the products and services, lists business strategies for success, and outlines ...
Step #3: Conduct Your Market Analysis. Step #4: Research Your Competition. Step #5: Outline Your Products or Services. Step #6: Summarize Your Financial Plan. Step #7: Determine Your Marketing Strategy. Step #8: Showcase Your Organizational Chart. 14 Business Plan Templates to Help You Get Started.
The business plan admits the entrepreneur to the investment process. Without a plan furnished in advance, many investor groups won't even grant an interview. And the plan must be outstanding if ...
Step 1: Write an executive summary. Your executive summary is a concise overview of the key elements of your business plan. It summarizes the business concept, market analysis, competitive advantage, target market, financial projections, and overall strategy.
Step 5: Monitor, Measure, Rebalance. The key to long-term investing lies in ongoing management—even if you're "passively" managing your portfolio. This includes monitoring your investments ...
How you go about your business plan process is dependent on the audience for which it will be created. For example, if you will be seeking a business loan, you need to create business plan for bank loans. Conversely, if you are seeking investment capital in equity financing, you'll most likely need a venture capital business plan. Regardless ...
Although business plans can vary greatly, there are a few essential elements. Here are eight sections that a business plan should include: Executive Summary: This is an overview of the rest of your business plan. It will summarize things like your mission statement, plans, goals, structure, and financial needs.
Here are some of the components of an effective business plan. 1. Executive Summary. One of the key elements of a business plan is the executive summary. Write the executive summary as part of the concluding topics in the business plan. Creating an executive summary with all the facts and information available is easier.
7 business plan examples: section by section. The business plan examples in this article follow this template: Executive summary. An introductory overview of your business. Company description. A more in-depth and detailed description of your business and why it exists. Market analysis.
Spend as much time on your script as you have on your slides. Practice in front of your team, friends, and family before your first call with an investor. " Start by writing your key messages as ...
A business plan is like a roadmap that charts your strategy for starting and growing your business. ... The process of becoming a corporation, or incorporation, is favored by businesses that want to grow quickly through investors, as well as owners who want to pursue very specific tax and equity-building strategies. ... Non-deposit investment ...
Financial Plan Overview. A financial plan is a comprehensive document that charts a business's monetary objectives and the strategies to achieve them. It encapsulates everything from budgeting and forecasting to investments and resource allocation.. For small businesses, a solid financial plan provides direction, helping them navigate economic challenges, capitalize on opportunities, and ...
1) Determining investing objectives: 2) Developing an investment plan: 3) Evaluating and selecting investment alternatives: 4) Constructing a portfolio: 5) Evaluating and revising the portfolio: Investment is the commitment of funds at present in some course of action with the expectation of some positive rate of return.
An investment company business plan is a plan to start and/or grow your investment company business. Among other things, it outlines your business concept, identifies your target customers, presents your marketing plan and details your financial projections. You can easily complete your Investment Company business plan using our Investment ...
The first phase of the process consists of real property inspections and incorporates an increased use of data analytics to enable more accurate and informed decisions for use of available funds ...
Integrated Business Planning (IBP) is a holistic approach that integrates strategic planning, operational planning, and financial planning within an organization. IBP brings together various functions, including sales, marketing, finance, supply chain, human resources, IT and beyond to collaborate across business units and make informed ...
The Income Protection Plan's inflation-adjusted income is a structured plan where the family's income is compounded annually at a rate of 5% up to a maximum of 1.5 times the initial minimum amount.
Here are the steps guiding you to use a Systematic Investment Plan calculator: Step 1: Enter the SIP tenure in the calculator. Step 2: Simply enter the expected rate of return delivered by the fund.
The tax plan would also try to tax the wealthiest Americans' investment gains before they sell the assets or die. People with more than $100 million in wealth would have to pay at least 25 ...
Orlando-based Red Lobster will have a new CEO, Damola Adamolekun, according to an Aug. 26 news release shared by Fortress Investment Group, the parent of the company in the process of buying the ...