Test 3 10 11 12 16 o Purpose of a business plan o 1 Reality check of the entrepreneur o 2 Living guide to the business o 3 Statement of intent for interested parties investors bankers strategic partners they will all view the business plan from a different perspective o Investors interests o Rate of growth how fast it is going to grow when that growth will take place what will ensure that the growth goes according to plan o Return on investment how and when the investors will get their money back how much gain on investment will they see o Degree of risk how their investment is used how risky o Degree of protection how well their investment is protected o Bankers Lenders Interests and concerns o Company margins and cash flow projections o The amount of money needed a specific amount that can be justified with accurate calculations o The kind of positive impact the loan will have on the business Lenders want to know that the money they are lending is not going to pay off old deby or to pay salaries but improve the business financials o The kinds of assets the business has for collateral Not all assets are created equal o How the business will repay the loan Lenders are interested in the earning potential of the business over the life of the loan o How the bank will be protected if the business does not meet its projections Lenders want to know that the entrepreneur has a contingency plan for situations where major assumptions prove to be wrong o The entrepreneur s stake in the business Lenders feel more confident about lending to a business in which the entrepreneur has substantial monetary investment o Strategic Partners and Alliances o 1 Licenses for manufacturing and assembly o 2 Supply of raw materials in exchange for equity interest o 3 Formal or informal partnership agreements o May take the form of formal partnership agreements o Start with a compelling pitch o Prepare an elevator pitch Brief statement of the business concept o Answer why now what need is being served can the founding team serve the need o Start the business planning process with a website o The first place a person goes to research a product is the internet o Wait to put out a website until it is ready for customers to see o Caution proprietary information that is not protected by patents should not be put on the site o It is important to differentiate yourself from the competition o The internet is the perfect place to communicate a new venture s message o A new business can look as successful and established as any large company o Tasks to guide the preparation of the plan o identify who is responsible for what information must be gathered about the industry market customer o develop a timeline based on tasks identified make this realistic o hold the team to the timeline o Mistakes in developing the business plan o Projecting rapid growth beyond the capabilities of the founding team o Envisioning a three ring circus with only one ringleader o Reporting performance that exceeds industry averages o Underestimating the venture s need for capital o Mistaking tactics for strategy o Using price as a market strategy for a product service o Not investing in the business o Successfully presenting the business plan o Keep the presentation to less than 30 minutes o Tell a compelling story first o Do not use a podium to speak o Move about without distracting the audience o Maintain eye contact with everyone o Make the visual aids simple o CEO should do the presentation o Use live demonstrations o Practice in advance o Answering questions o Answering the questions from investors o They like to ask questions that they already know the answer to o They like to ask trick questions o They like to ask questions that addresses specific needs and concerns o Founding team can join the CEO for questions o If you do not know the answer that is okay o Types of Legal Forms o Sole Proprietorship Partnership Limited Liability Company LLC Corporation C or Subchapter S o One of the most important business decisions you can make but usually decided because of tax and legal ramifications Sole Proprietor More than 76 of all businesses are sole proprietorships in the United States The owner is the only person responsible for the activities of the business and the one who can enjoy the profits and suffer the loses Advantage o Easy and inexpensive to create o 100 of ownership profits stay with the owner o Complete decision making authority for the owner o Income is taxed only at the owner s personal income tax rate Disadvantage o No major reporting requirements exist o Owner has unlimited liability for all claims against the business all debts must be paid from the owner s assets o Difficult for the owner to raise debt capital o Survival of the business depends upon the owner Partnership two or more people agree to share the assets liabilities and profits of a business There are two types General and Limited General all partners assume unlimited personal liability and responsibility for management of the business Limited the general partners have unlimited liability but they seek investors who have a limited liability Secret partners active but not publicly known Silent partners provide capital but do not actively participate in management Dormant partners generally not known publicly and are not active but still share the profits and loses People like them because you can pool your resources Advantages o Have same advantages as sole proprietorships o Shared risk of doing business o Shared partner clout with multiple financial statements o Shared ideas expertise decision making o Partners receive pass through earnings and losses taxed at their personal tax rates Disadvantages o Partners are personally liable for all business debts o Individual partners can bind the partnership and obligations contractually o Partnership dissolution results when a partner leaves or dies unless otherwise stated in partnership agreement o Partners can be sued individually for the full amount of partnership debt Partnership Agreement Based on the Uniform Partnership Act it defines the relationship between partners in terms of business responsibilities profit sharing and transfer of interest Buy Sell Agreement a binding contract between two partners with three clauses that addresses these issues Who is entitled to purchase departing partner s share What events trigger a buyout What is the price to be paid for the partner s interest Key Person life insurance