i want to buy a business plan

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I want to buy a business plan resume template college senior

I want to buy a business plan

Many small business owners make use of the business for personal needs. They may buy products they personally use and charge them to the business or take vacations using company funds, go to trade shows with their spouses, etc. You have to use your analytical skills and those of your accountant, to determine what the actual financial net worth of the company is. Financial statements for the past five years. Evaluate these statements, including all books and financial records, and compare them to their tax returns.

This is especially important for determining the earning power of the business. The sales and operating ratios should be examined with the help of an accountant familiar with the type of business you are considering.

Sales records. Although sales will be logged in the financial statements, you should also evaluate the monthly sales records for the past 36 months or more. Break sales down by product categories if several products are involved, as well as by cash and credit sales.

This is a valuable indicator of current business activity and provides some understanding of cycles that the business may go through. Compare the industry norms of seasonal patterns with what you see in the business. Also, obtain the sales figures of the 10 largest accounts for the past 12 months.

If the seller doesn't want to release his or her largest accounts by name, it's fine to assign them a code. You're only interested in the sales pattern. Complete list of liabilities. Consult an independent attorney and accountant to examine the list of liabilities to determine potential costs and legal ramifications. Find out if the owner has used assets such as capital equipment or accounts receivable as collateral to secure short-term loans, if there are liens by creditors against assets, lawsuits, or other claims.

Your accountant should also check for unrecorded liabilities such as employee benefit claims, out-of-court settlements being paid off, etc. All accounts receivable. Break them down by 30 days, 60 days, 90 days and beyond. Checking the age of receivables is important because the longer the period they are outstanding, the lower the value of the account. You should also make a list of the top 10 accounts and check their creditworthiness.

If the clientele is creditworthy and the majority of the accounts are outstanding beyond 60 days, a stricter credit collections policy may speed up the collection of receivables. All accounts payable. Like accounts receivable, accounts payable should be broken down by 30 days, 60 days, and 90 days.

This is important in determining how well cash flows through the company. On payables more than 90 days old, you should check to see if any creditors have placed a lien on the company's assets. Debt disclosure. This includes all outstanding notes, loans and any other debt to which the business has agreed. See, too, if there are any business investments on the books that may have taken place outside of the normal area. Look at the level of loans to customers as well.

Merchandise returns. Does the business have a high rate of returns? Has it gone up in the past year? If so, can you isolate the reasons for returns and correct the problem s? Customer patterns. If this is the type of business that can track customers, you will want to know specific characteristics concerning current customers, such as: How many are first-time buyers?

How many customers were lost over the past year? When are the peak buying seasons for current customers? What type of merchandise is the most popular? Marketing strategies. How does the owner obtain customers? Does he or she offer discounts, advertise aggressively, or conduct public-relations campaigns?

You should get copies of all sales literature to see the kind of image that is being projected by the business. When you look at the literature, pretend that you are a customer being solicited by the company. How does it make you feel? This can give you some idea of how the company is perceived by its market. Advertising costs.

Analyze advertising costs. It is often better for a business to postpone profit at year-end until the next year by spending a lot of money on advertising during the last month of the fiscal year. Price checks. Evaluate current price lists and discount schedules for all products, the date of the last price increase, and the percentage of increase. You might even go back and look at the previous price increase to see what percentage it was and determine when you are likely to be able to raise prices.

Here again, compare what you see in the business you are looking at, with standards in the industry. Industry and market history. You should analyze the industry as well as the specific market segments of the business targets. You need to find out if sales in the industry, as well as in the market segment, have been growing, declining, or have remained stagnant.

This is very important to determine future profit potential. Location and market area. Evaluate the location of the business and the market area surrounding it. This is especially important to retailers, who draw the majority of their business from the primary trading area. You should conduct a thorough analysis of the business's location and the trading areas surrounding the location including economic outlook, demographics and competition.

For service businesses, get a map of the area covered by the business. Find out, based on the locations of various accounts, if there are any special requirements for delivering the product, or any transportation difficulties encountered by the business in getting the product to market. Reputation of the business.

The image of the business in the eyes of customers and suppliers is extremely important. As we mentioned, the image of the business can be an asset, or a liability. Interview customers, suppliers and the bank, as well as the owners of other businesses in the area, to determine the reputation of the business. Seller-customer ties.

You must find out if any customers are related or have any special ties to the present owner of the business. How long has any such account been with the company? What percentage of the company's business is accounted for by this particular customer or set of customers? Will this customer continue to purchase from the company if the ownership changes? Inflated salaries. Some salaries may be inflated or perhaps the current owner may have a relative on the payroll who isn't working for the company.

All of these possibilities should be analyzed. List of current employees and organizational chart. Current employees can be a valuable asset, especially key personnel. Evaluate the organizational chart to understand who is responsible to whom. You must also look at the management practices of the company and know the wages of all employees and their length of employment.

Examine any management-employee contracts that exist aside from a union agreement, as well as details of employee benefit plans; profit-sharing; health, life and accident insurance; vacation policies; and any employee-related lawsuits against the company. OSHA requirements. Find out if the facility meets all occupational safety and health requirements and whether it has been inspected.

If you feel that the seller is "hedging" on this and you see some things you feel might not be safe on the premises, you can ask the Occupational Safety and Health Administration OSHA to help you with an inspection. As a prospective buyer of a business that may come under OSHA scrutiny, you need to be certain that you are not buying an unsafe business. Some sellers may perceive your asking for OSHA's help as a dirty trick. But you must realize that as a prospective, serious buyer, you need to protect your position.

Establish what type of insurance coverage is held for the operation of the business and all of its properties as well as who the underwriter and local company representative is, and how much the premiums are. Some businesses are underinsured and operating under potentially disastrous situations in case of fire or a major catastrophe.

If you come into an underinsured operation, you could be wiped out if a major loss occurs. Product liability. Product liability insurance is of particular interest if you're purchasing a manufacturing company. Insurance coverage can change dramatically from year to year, and this can markedly affect the cash flow of a company. No decision is more emotionally charged than deciding upon a price for an existing business. The owner has one idea of how much the business is worth, while the buyer will typically have another viewpoint.

Each party is dealing from a different perspective and usually the one who is best prepared will have the most leverage when the process enters the negotiating stage. Keep in mind that most sellers determine the price for their business arbitrarily or through a special formula that may apply to that industry only. Either way, there usually aren't very many solid facts upon which to base their decisions.

Price is a very hard element to pin down and, therefore, is for the buyer to assess. There are a few factors that will influence price, such as economic conditions. Usually, businesses sell for a higher price when the economy is expanding, and for a much lower price during recessions. Motivation also plays an important factor. How badly does the seller want out? If the seller has many personal financial problems, you may be able to buy the business at a discount rate by playing the waiting game.

On the other hand, you should never let the seller know how badly you want to buy the business. This can affect the price you pay adversely. Beyond these factors, you can determine the value of a business using several different methods discussed below. Simply put, some owners gauge the value of their business by using a multiplier of either the monthly gross sales, monthly gross sales plus inventory, or after-tax profits. While the multiplier formula may seem complex and quite accurate to begin with, if you delve a little deeper and look at the components used to arrive at the stated value, there is actually very little to substantiate the arrived at price.

Most of the multipliers aren't based on fact. For example, individuals within a specific industry may claim that certain businesses sell at three times their annual gross sales, or two times their annual gross sales plus inventory. Depending on which formula the owner uses, the gross sales are multiplied by the appropriate number, and a price is generated.

Of course, you can check the monthly sales figure by looking at the income statement, but is the multiplier an accurate number? After all, it has been determined arbitrarily. There usually hasn't been a formal survey performed and verified by an outside source to arrive at these multipliers. In addition, even if the multiplier was accurate, there is such a large spread between the low and high ends of the range that it really just serves as a ballpark figure.

This is true whether a sales or profit multiplier is used. In the case of a profit multiplier, the figure generated becomes even more skewed because businesses rarely show a profit due to tax reasons. Therefore, the resulting value of the business is either very small or the owner has to use a different profit factor to arrive at a higher price. Don't place too much faith in multipliers. If you run across a seller using the multiplier method, use the price only as an estimate and nothing more.

This is a fairly accurate way to determine the price of a business, but you have to exercise caution using this method. To arrive at a price based on the book value, all you have to do is find out what the difference is between the assets and liabilities of a company to arrive at its net worth.

This has usually been done already on the balance sheet. The net worth is then multiplied by one or two to arrive at the book value. This might seem simple enough. To check the number, all you have to do is list the company's assets and liabilities. Determine their value, arrive at the net worth, and then multiply that by the appropriate number. Assets usually include any unsold inventory, leasehold improvements, fixtures, equipment, real estate, accounts receivable, and supplies.

Liabilities can be anything. They might even include the business itself. Usually, though, you want to list any unpaid debts, uncollected taxes, liens, judgments, lawsuits, bad investments--anything that will create a cash drain upon the business.

Now here is where it gets tricky. In the balance sheet, fixed assets are usually listed by their depreciated value, not their replacement value. Therefore, there really isn't a true cost associated with the fixed assets. That can create very inconsistent values. If the assets have been depreciated over the years to a level of zero, there isn't anything on which to base a book value. The most common means of judging any business is by its return on investment ROI , or the amount of money the buyer will realize from the business in profit after debt service and taxes.

However, don't confuse ROI with profit. They are not the same thing. ROI is the amount of the business. Profit is a yardstick by which the performance of the business is measured. Typically, a small business should return anywhere between 15 and 30 percent on investment.

This is the average net in after-tax dollars. Depreciation, which is a device of tax planning and cash flow, should not be counted in the net because it should be set aside to replace equipment. Eventually equipment does wear out and must be replaced, and it sometimes has to be replaced much sooner than you expect.

This is especially true when considering a business with older equipment. The wisdom of buying a business lies in its potential to earn money on the money you put into it. You determine the value of that business by evaluating how much money you are going to earn on your investment. The business should have the ability to pay for itself. If it can do this and give you a return on your cash investment of 15 percent or more, then you have a good business. This is what determines the price.

If the seller is financing the purchase of the business, your operating statement should have a payment schedule that can be taken out of the income of the business to pay for it. Does a percent net for a business seem high? Everybody wants to know if a business makes two, three, or 10 times profit.

They hear price-earning ratios tossed around, and forget that such ratios commonly refer to companies listed on the stock exchange. In small business, such ratios have limited value. A big business can earn 10 percent on its investment and be extremely healthy. The big supermarkets net two or three percent on their sales, but this small percentage represents enormous volume. Small businesses are different. The small business should typically earn a bigger return because the risk of the enterprise is higher.

The important thing for you, as a buyer of a small business, is to realize that regardless of industry practices for big business, it's the ROI that you need to worry about most. Is it realistic? Our target market includes customers visiting the Shenandoah National Forest; last year , people visited the area during spring, summer, and fall months. Over time, however, we do expect equipment rentals and sales to increase as the popularity of cycling continues to rise.

In particular we forecast a spike in demand in since the national road racing championships will be held in Richmond, VA. According to the latest studies, recreation spending in our target market has grown by 14 percent per year for the past three years. In addition, we anticipate greater than industry-norm growth rates for cycling in the area due to the increase in popularity of cycling events like the Alpine Loop Gran Fondo.

Out target market has one basic need: The availability to source bicycle rentals at a competitive price. Our only other competition are the bike shops in Harrisonburg, VA, and our location will give us a competitive advantage over those and other companies who try to serve our market. For example, you might decide to provide information about Market Segments. In our case, the cycling rental business does not require much segmentation. Rentals are typically not broken down into segments like "inexpensive," "midrange," and "high-end.

Although you'll notice in our Products and Services section, we decided to provide "high-end" rentals. But say you decide to open a clothing store. You could focus on high fashion, or children's clothes, or outdoor wear, or casual--you could segment the market in a number of ways. If that's the case, provide detail on segmentation that supports your plan.

Providing great products and services is wonderful, but customers must actually know those products and services exist. That's why marketing plans and strategies are critical to business success. Duh, right? But keep in mind marketing is not just advertising. Marketing--whether advertising, public relations, promotional literature, etc. Like any other investment you would make, money spent on marketing must generate a return. Otherwise why make the investment? While that return could simply be greater cash flow, good marketing plans result in higher sales and profits.

So don't simply plan to spend money on a variety of advertising efforts. Do your homework and create a smart marketing program. The Sales and Marketing section for our cycling rental business could start something like this:. While customers in the counties surrounding the George Washington National Forest make up 35 percent of our potential customer base, much of our market travels from outside that geographic area.

We will not be the low-cost provider for our target market. Our goal is to provide mid- to high-end equipment. However, we will create web-based loyalty programs to incent customers to set up online profiles and reserve and renew equipment rentals online, and provide discounts for those who do. Over time we will be able to market specifically to those customers. Just as in the Market Opportunity section, you may want to include a few more categories.

For example, if your business involves a commission-compensated sales force, describe your Sales Programs and incentives. If you distribute products to other companies or suppliers and those distribution efforts will impact your overall marketing plans, lay out your Distribution Strategy. The key is to show you understand your market and you understand how you will reach your market. Marketing and promotions must result in customers--your goal is to thoroughly describe how you will acquire and keep your customers.

Also keep in mind you may want to include examples of marketing materials you have already prepared, like website descriptions, print ads, web-based advertising programs, etc. While you don't need to include samples, taking the time to create actual marketing materials might help you better understand and communicate your marketing plans and objectives. Make sure your Sales and Marketing section answers the "How will I reach my customers? The Competitive Analysis section of your business plan is devoted to analyzing your competition--both your current competition and potential competitors who might enter your market.

Every business has competition. Understanding the strengths and weaknesses of your competition--or potential competition--is critical to making sure your business survives and grows. While you don't need to hire a private detective, you do need to thoroughly assess your competition on a regular basis even if you plan to run only a small business. In fact, small businesses can be especially vulnerable to competition, especially when new companies enter a marketplace.

Competitive analysis can be incredibly complicated and time-consuming, but it doesn't have to be. Here is a simple process you can follow to identify, analyze, and determine the strengths and weaknesses of your competition.

First, develop a basic profile of each of your current competition. For example, if you plan to open an office supply store, you may have three competing stores in your market. Online retailers will also provide competition, but thoroughly analyzing those companies will be less valuable unless you also decide you want to sell office supplies online.

Although it's also possible that they--or, say, Amazon--are your real competition. Only you can determine that. To make the process easier, stick to analyzing companies you will directly compete with. If you plan to set up an accounting firm, you will compete with other accounting firms in your area.

If you plan to open a clothing store, you will compete with other clothing retailers in your area. Again, if you run a clothing store, you also compete with online retailers, but there is relatively little you can do about that type of competition other than to work hard to distinguish yourself in other ways: great service, friendly salespeople, convenient hours, truly understanding your customers, etc.

Once you identify your main competitors, answer these questions about each one. And be objective. It's easy to identify weaknesses in your competition, but less easy and a lot less fun to recognize how they may be able to outperform you:. While these questions may seem like a lot of work to answer, in reality the process should be fairly easy. You should already have a feel for the competition's strengths and weaknesses--if you know your market and your industry.

Keep in mind competitive analysis does more than help you understand your competition. Competitive analysis can also help you identify changes you should make to your business strategies. Learn from competitor strengths, take advantage of competitor's weaknesses, and apply the same analysis to your own business plan. It can be tough to predict when and where new competitors may pop up.

For starters, regularly search for news on your industry, your products, your services, and your target market. But there are other ways to predict when competition may follow you into a market. Other people may see the same opportunity you see.

Think about your business and your industry, and if the following conditions exist, you may face competition does the road:. In general terms, if serving your market seems easy you can safely assume competitors will enter your market. A good business plan anticipates and accounts for new competitors.

The Competitive Analysis section for our cycling rental business could start something like this:. Our nearest and only competition is the bike shops in Harrisonburg, VA. Our next closest competitor is located over miles away. The in-town bike shops will be strong competitors. They are established businesses with excellent reputations. On the other hand, they offer inferior-quality equipment and their location is significantly less convenient. We do not plan to sell bicycles for at least the first two years of operation.

However, sellers of new equipment do indirectly compete with our business since a customer who buys equipment no longer needs to rent equipment. Later, when we add new equipment sales to our operation, we will face competition from online retailers. We will compete with new equipment retailers through personalized service and targeted marketing to our existing customer base, especially through online initiatives.

And so on While your business plan is primarily intended to convince you that your business makes sense, keep in mind most investors look closely at your competitive analysis. A common mistake made by entrepreneurs is assuming they will simply "do it better" than any competition. Experienced businesspeople know you will face stiff competition: showing you understand your competition, understand your strengths and weaknesses relative to that competition, and that you understand you will have to adapt and change based on that competition is critical.

And, even if you do not ever plan to seek financing or bring in investors, you absolutely must know your competition. The next step in creating your business plan is to develop an Operations Plan that will serve your customers, keep your operating costs in line, and ensure profitability. Your ops plan should detail strategies for managing, staffing, manufacturing, fulfillment, inventory--all the stuff involved in operating your business on a day-to-day basis.

Fortunately, most entrepreneurs have a better handle on their operations plan than on any other aspect of their business. After all, while it may not seem natural to analyze your market or your competition, most budding entrepreneurs tend to spend a lot of time thinking about how they will run their businesses.

Operations plans should be highly specific to your industry, your market sector, and your customers. Instead of providing an example like I've done with other sections, use the following to determine the key areas your plan should address:. You should think through and create a detailed plan for each category, but you won't need to share the results with the people who read your business plan. Think of Operations as the "implementation" section of your business plan.

What do you need to do? How will you get it done? Then create an overview of that plan to make sure your milestones and timeline make sense. Many investors and lenders feel the quality and experience of the management team is one of the most important factors used to evaluate the potential of a new business. But putting work into the Management Team section will not only benefit people who may read your plan.

It will also help you evaluate the skills, experiences, and resources your management team will need. Addressing your company's needs during implementation will make a major impact on your chances for success. The Management Team section for our cycling rental business could start something like this:. Joe has over 20 years experience in the cycling business. He served for 10 years as a product manager for Acme Bikes.

After that he was the operations manager of Single Track Cycles, a full-service bike shop located in Bend, Oregon. A complete resume for Mr. Rouleur can be found in the Appendix. Mary was the U. Mountain Biking National Champion. She worked in product development for High Tec frames, creating custom frames and frame modifications for professional cyclists.

She also has extensive customer service and sales experience, having worked for four years as the online manager of Pro Parts Unlimited, an online retailer of high-end cycling equipment and accessories. For example, if you manufacture a product or provide a service and will hire a key skilled employee, describe that employee's credentials. Otherwise, include staffing plans in the Operations section. One key note: Don't be tempted to add a "name" to your management team in hopes of attracting investors.

Celebrity management team members may attract the attention of your readers, but experienced lenders and investors will immediately ask what role that person will actually play in the running of the business--and in most cases those individuals won't play any meaningful role. If you don't have a lot of experience--but are willing to work hard to overcome that lack of experience--don't be tempted to include people in your plan who will not actually work in the business.

If you can't survive without help, that's okay. In fact, that's expected; no one does anything worthwhile on their own. Just make plans to get help from the right people. Finally, when you create your Management section, focus on credentials but pay extra attention to what each person actually will do. Experience and reputation are great, but action is everything. Financial projections and estimates help entrepreneurs, lenders, and investors or lenders objectively evaluate a company's potential for success.

If a business seeks outside funding, providing comprehensive financial reports and analysis is critical. But most important, financial projections tell you whether your business has a chance of being viable--and if not let you know you have more work to do.

It's easy to find examples of all of the above. Even the most basic accounting software packages include templates and samples. You can also find templates in Excel and Google Docs. A quick search like "google docs profit and loss statement" yields plenty of examples. Or you can work with an accountant to create the necessary financial projections and documents.

Certainly feel free to do so, but first play around with the reports yourself. While you don't need to be an accountant to run a business, you do need to understand your numbers, and the best way to understand your numbers is usually to actually work with your numbers.

But ultimately the tools you use to develop your numbers are not as important as whether those numbers are as accurate as possible--and whether those numbers help you decide whether to take the next step and put your business plan into action. Then Financial Analysis can help you answer the most important business question: "Can we make a profit?

Some business plans include less essential but potentially important information in an Appendix section. You may decide to include, as backup or additional information:. Keep in mind creating an Appendix is usually only necessary if you're seeking financing or hoping to bring in partners or investors. Initially the people reading your business plan don't wish to plow through reams and reams of charts, numbers, and backup information. If one does want to dig deeper, fine--he or she can check out the documents in the Appendix.

While you may use your business plan to attract investors, partners, suppliers, etc. Because ultimately it's your time, your money, and your effort on the line. Top Stories. Top Videos. So first let's gain a little perspective on why you need a business plan. Be as objective and logical as possible. What may have seemed like a good idea for a business can, after some thought and analysis, prove not viable because of heavy competition, insufficient funding, or a nonexistent market.

Sometimes even the best ideas are simply ahead of their time. Serve as a guide to the business's operations for the first months and sometimes years, creating a blueprint for company leaders to follow. Communicate the company's purpose and vision, describe management responsibilities, detail personnel requirements, provide an overview of marketing plans, and evaluate current and future competition in the marketplace.

Create the foundation of a financing proposal for investors and lenders to use to evaluate the company. Who must your business plan convince? And if you're not convinced, fine: Take a step back and refine your ideas and your plans. Who can your business plan convince? As you map out your plan, you may discover issues or challenges you had not anticipated. Now let's look at the first section of your business plan: The Executive Summary.

A brief description of products and services A summary of objectives A solid description of the market A high-level justification for viability including a quick look at your competition and your competitive advantage A snapshot of growth potential An overview of funding requirements.

Your Summary can serve as a guide to writing the rest of your plan. The following is how an Executive Summary for a bicycle rental store might read. The economic outlook indicates fewer VA, WV, NC, and MD cycling enthusiasts will travel outside the region The park has added a camping and lodging facilities that should attract an increased number of visitors The park has opened up additional areas for trail exploration and construction, ensuring a greater number of single-track options and therefore a greater number of visitors.

Initial growth will be moderate as we establish awareness in the market Initial equipment purchases will stay in service for an average of three to four years; after two years we will begin investing in "new" equipment to replace damaged or obsolete equipment Marketing costs will not exceed 14 percent of sales Residual profits will be reinvested in expanding the product and service line. What you will provide What you need to run your business Who will service your customers, and Who your customers are.

Identify your industry. Retail, wholesale, service, manufacturing, etc. Clearly define your type of business. Identify your customer. You cannot market and sell to customers until you know who they are. Explain the problem you solve. Successful businesses create customer value by solving problems. In our rental example, one problem is cycling enthusiasts who don't--or can't--travel with bikes. Another problem is casual cyclists who can't--or choose not to--spend significant sums on their own bikes.

The rental shop will solve that problem by offering a lower-cost and convenient alternative. Show how you will solve that problem. Our rental shop will offer better prices and enhanced services like remote deliveries, off-hours equipment returns, and online reservations. If you are still stuck, try answering these questions. Some may pertain to you; others may not. Who is my average customer? Who am I targeting? Unless you plan to open a grocery store, you should be unlikely to answer, "Everyone!

How will I overcome that paint point? Where will I fail to solve a customer problem, and what can I do to overcome that issue? In our rental example, one problem is a potential lack of convenience; we will overcome that issue by offering online reservations, on-resort deliveries, and drive-up equipment returns. Where will I locate my business? What products, services, and equipment do I need to run my business? What skills do my employees need, and how many do I need?

How will I beat my competition? How can I differentiate myself from my competition in the eyes of my customers? You can have a great plan to beat your competition, but you also must win the perception battle among your customers. If customers don't feel you are different, then you aren't truly different. Perception is critical. Provide high-quality equipment, sourcing that equipment as inexpensively as possible through existing relationships with equipment manufacturers and other cycling shops Use signage to attract visitors traveling to the national forest, highlighting our cost and service advantage Create additional customer convenience factors to overcome a perceived lack of convenience for customers planning to ride roads and trails some distance away from our shop Develop customer incentive and loyalty programs to leverage customer relationships and create positive word of mouth.

Are products or services in development or existing and on the market? What is the timeline for bringing new products and services to market? What makes your products or services different? Are there competitive advantages compared with offerings from other competitors? Are there competitive disadvantages you will need to overcome? And if so, how? Is price an issue?

Will your operating costs be low enough to allow a reasonable profit margin? How will you acquire your products? Are you the manufacturer? Do you assemble products using components provided by others? Do you purchase products from suppliers or wholesalers? If your business takes off, is a steady supply of products available? The following is a breakdown of anticipated rental price points, per day and per week:. Customers can extend the rental term online without visiting the store. A grace period of two hours will be applied to all rentals; customers who return equipment within that two-hour period will not be charged an additional fee.

Newer equipment inventory with higher perceived quality Price points 15 percent below the competition Online renewals offering greater convenience A liberal return grace period that will reinforce our reputation as a customer-friendly rental experience. What is the size of the market? Is it growing, stable, or in decline? Is the overall industry growing, stable, or in decline? What segment of the market do I plan to target?

What demographics and behaviors make up the market I plan to target? Is demand for my specific products and services rising or falling? Can I differentiate myself from the competition in a way customers will find meaningful? If so, can I differentiate myself in a cost-effective manner? What do customers expect to pay for my products and services? Are they considered to be a commodity or to be custom and individualized?

Your potential customers. In general terms, potential customers are the people in the market segment you plan to target. Say you sell jet skis; anyone under the age of 16 and over the age of 60 or so is unlikely to be a customer. Plus, again in general terms, women make up a relatively small percentage of jet ski purchasers. Determining the total population for the market is not particularly helpful if your product or service does not serve a need for the entire population.

Most products and services do not. Total households. In some cases determining the number of total households is important depending on your business. For example, if you sell heating and air conditioning systems, knowing the number of households is more important than simply knowing the total population in your area.

While people purchase HVAC systems, "households" consume those systems. Median income. Spending ability is important. Does your market area have sufficient spending power to purchase enough of your products and services to enable you to make a profit?

Some areas are more affluent than others. Don't assume every city or locality is the same in terms of spending power. A service that is viable in New York City may not be viable in your town. Income by demographics. You can also determine income levels by age group, by ethnic group, and by gender.

Again, potential spending power is an important number to quantify. Senior citizens could very well have a lower income level than males or females age 45 to 55 in the prime of their careers. Or say you plan to sell services to local businesses; in that case, try to determine the amount they currently spend on similar services. Always remember it's much easier to serve a market you can define and quantify. What is your market? Include geographic descriptions, target demographics, and company profiles if you're B2B.

In short: Who are your customers? What segment of your market will you focus on? What niche will you attempt to carve out? What percentage of that market do you hope to penetrate and acquire? What is the size of your intended market? What is the population and spending habits and levels? Why do customers need and why will they be willing to purchase your products and services?

How will you price your products and services? Will you be the low cost provider or provide value-added services at higher prices? Is your market likely to grow? How much? How can you increase your market share over time? Recreational sports in general and both family-oriented and "extreme" sports continue to gain in exposure and popularity. Western VA and eastern WV have experienced population growth rates nearly double that of the country as a whole.

Industry trends show cycling has risen at a more rapid rate than most other recreational activities. You may want to add other categories to this section based on your particular industry. The key is to define your market--and then show how you will serve your market. Here are some of the basic steps involved in creating your marketing plan:.

Focus on your target market. Who are your customers? Who will you target? Who makes the decisions? Determine how you can best reach potential customers. Evaluate your competition. Your marketing plan must set you apart from your competition, and you can't stand out unless you know your competition.

It's hard to stand out from a crowd if you don't know where the crowd stands. Know your competitors by gathering information about their products, service, quality, pricing, and advertising campaigns. In marketing terms, what does your competition do that works well? What are their weaknesses? How can you create a marketing plan that highlights the advantages you offer to customers? Consider your brand. How customers perceive your business makes a dramatic impact on sales.

Your marketing program should consistently reinforce and extend your brand. Before you start to market your business, think about how you want your marketing to reflect on your business and your products and services. Marketing is the face of your to potential customers--make sure you put your best face forward.

Focus on benefits. What problems do you solve? What benefits do you deliver? Customers don't think in terms of products--they think in terms of benefits and solutions. Your marketing plan should clearly identify benefits customers will receive. Focus on what customers get instead of on what you provide. Take Dominos; theoretically they're in the pizza business, but really they're a delivery business. Focus on differentiation. Your products and services have to stand out from the competition in some way.

How will you compete in terms of price, product, or service? What is your budget for sales and marketing efforts? How will you determine if your initial marketing efforts are successful? In what ways will you adapt if your initial efforts do not succeed? Will you need sales representatives inside or external to promote your products? Can you set up public relations activities to help market your business? Road signage.

Access to the forest is restricted to a few primary entrances, and visitors reach those entrances after traveling on one of several main roadways. Since customers currently rent bicycles in the local town of Harrisonburg, road signage will communicate our value proposition to all potential customers. Web initiatives. Our website will attract potential visitors to the resort.

We will partner with local businesses that serve our target market to provide discounts and incentives. Promotional events. We will hold regular events with professional cyclists, like demonstrations and autograph signings, to bring more customers to the store as well as to extend the athletes' "brand" to our brand.

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Understandably, not all sellers will be open to this option, since they more likely than not want to wash their hands and walk away from the sale. Option 6: Debt financing. Buying a business will give you tons of documents to approach a bank or alternative lender with for financing: financial histories, tax returns, employee records, cash flow analyses, inventory and equipment valuations, and much more.

Term loan. SBA loan. Small Business Administration. Instead, the SBA guarantees a big portion of the loans you can take out from a bank or alternative lender. For buying an existing business, the 7 a loan program is the way to go. It works pretty similarly to the above term loans, with a set repayment schedule and a lump sum of cash upfront. Asset-based financing. You can use three different kinds of assets as collateral for financing:.

Choose one—or all three—to help you finance the right amount for your business acquisition. How debt financing is different when buying an existing business. As we mentioned before, getting a business acquisition loan is typically easier because the lender has a history to assess. But just like with any business loan, lenders will scrutinize all of the following:. However, the SBA recently made some changes that make it easier for buyers to obtain SBA 7 a loans for buying a business. The rest can come in the form of a seller's note as long as the seller agrees to be on full standby—meaning that the seller won't be paid back on their note until after the bank is paid.

The last step in our buying an existing business checklist is to close the deal. Bill of sale. When buying an existing business, this document will prove the actual sale of the business, officially transferring ownership of the business's assets from the seller to you. Adjusted purchase price. This is the final count of the cost of your purchase, including all prorated expenses—like rent, utilities, and inventory.

Does the business you're buying come with any vehicles? If so, you might have to transfer ownership with the local DMV—make sure to get the right forms completed by the time of sale. Patents, trademarks, and copyrights. Similarly, when buying an existing business, all patents, trademarks, and copyrights might require certain forms to get transferred to you, the new owner.

Non-compete agreement. This document should be drafted in the case that the seller is staying on as an employee. Make sure to file this agreement if so. Asset acquisition statement. Bulk sale laws. Bulk sale laws have to do with the sale of business inventory and are designed to prevent business owners from evading creditors by transferring ownership of the business to someone else. To comply, prospective buyers usually have to notify the local tax or financial authority about the pending sale.

And that's everything you need to know about how to buy a small business. But knowing how to do it is one thing, knowing why you're doing it is another. So let's talk about reasons for buying a business. Buying a business is kind of like being in the market for a home.

Now that you know how to buy an existing business, let's go over why you might want to. Here are some benefits of buying a business:. Proven business concept. When launching a brand-new business, the bulk of your time will be spent on the planning phase. An established brand and business brand identity whether or not you want to change it, people know it. Vendor and supplier base, plus manufacturing resources.

Existing employees who can share their knowledge and expertise. An understanding of your competition and market. Granted, each of these things may not be in great condition, and the business might not be turning a profit yet. However, buying an existing business means it has some structure already in place, which will save you time upfront, letting you quickly see what you need to zero in on. Lower operating costs. One of the major benefits of buying a business is that the operating costs are lower.

Instead, you can pour more cash into expanding the business and adapting it to your vision. Easier to obtain financing. All this makes investors more likely to invest in the business and can make lenders more comfortable in giving you a business acquisition loan. The current owners can even participate in financing the transfer of ownership by giving you a loan more to come on this in a bit.

Intellectual property is on the table. If your business-to-be has patented their products or has a copyrighted slogan or trademarked logo that wins over customers, then that intellectual property value will probably transfer over to you in the acquisition. That means when you buy a business, you sometimes buy more than what the eye can see.

What if you turned this small business into a national franchise? All of a sudden, that patent and copyright becomes a lot more valuable. Patents, copyrights, and trademarks are often included in sales of software companies, tech businesses, and creative businesses e. What goes up must come down, right? Now for the drawbacks of buying a business:. Higher upfront purchasing costs. In fact, those purchasing costs might be greater than what it would take you to start a new business.

Design work, from logo to store interior. Time, effort, and money spent testing out products. Refined processes, procedures, and policies. Income stream if the business is already profitable. Intellectual property, such as copyrights, patents, and trademarks. All of these items will be the subject of negotiations between the buyer and seller and factor into the final purchase price when buying an existing business.

Unfamiliarity with the details. This is especially true if you are entering an industry that you lack experience in. Risk of a hidden problem. Ever watch a show where the second a buyer closes on a house, they find out the inspector missed a massive crack in the foundation? Too late to go back on that purchase now! For example, equipment could be damaged, or the brand might have a bad reputation.

Once you buy a business, you buy those issues, like it or not. You should now know to buy a business safely, smartly, and successfully. Buy a business with knowledge of the pros and cons. There are many avenues to find the right business for sale, both offline and online. Ask fellow business owners, or visit a site like BizBuySell. During due diligence, get as much information on the business as you can so you know all the details about the business before you purchase it. Evaluating a fair price for a business can be complicated, but the income, asset, and market methods are the three main ways.

Get professional assistance when you need it, from an accountant, lawyer, or business valuation professional. The most popular debt financing options for financing a business acquisition are term loans and SBA loans. After closing the deal, make sure you comply with all local laws that may impact your transaction, such as bulk sale laws. Many or all of the products featured here are from our partners who compensate us. This may influence which products we write about and where and how the product appears on a page.

However, this does not influence our evaluations. Our opinions are our own. Here is a list of our partners and here's how we make money. Buying an existing business checklist. Step 1: Figure out what type of business you want to buy. Step 2: Search for businesses that are for sale. Craigslist ads. Working with a business broker. Step 3: Understand why an existing business is up for sale. Be on the lookout for:.

Competitors that are far ahead. Existing business debts. Step 4: Narrow in on a business that aligns with your budget, goals, and resources. Step 5: Do your due diligence. Tax returns. Balance sheets. Cash flow statements. Accounts payable. Debt disclosures. Advertising costs. Its quality. And other similar questions. Customer lists. Step 6: Evaluate the price of the business with the earnings, assets, or market approach.

Step 7: Secure the capital needed to make the purchase. Unpaid invoices. Business credit score. Annual revenue. Time in operation. Balance sheet. Cash flow. Outstanding debts. Step 8: Close the deal with the appropriate documents. Reasons to buy a business. You don't have to start at square one to become an entrepreneur.

Buying an existing business offers you the opportunity to work for yourself without all the challenges and risks of a startup. This head start comes at a cost, however. And if your personal savings don't cover the cost of your purchase, chances are you'll be looking to apply for a business loan.

Depending on a range of factors, you may be able to get a loan to buy an existing business, but first you'll have to size up your needs and requirements, prepare the right information and documents, and shop for the right lender. When you're buying an existing business, lenders want to know about both you and the business you want to buy. That's fair: Up to this point, you and your prospective business have had two entirely independent histories.

As they would with any loan, lenders want to know about your personal credit history. Do you have a history of successfully managing debt? Do you handle credit responsibly? They'll want information about your income, your current business if you have one and any relevant experience that makes you a good candidate for running this new business successfully.

Here's a short list of items to prepare:. If you already own a business and are looking to acquire another to expand operations or change your business model, lenders will also want to know about the financial health of your existing company. Check with your lender for a full list of financial information they require, but be prepared to provide the following:.

Further, they'll want to make sure your business strategy is sound and that your proposed business purchase has the income potential to allow you to repay your loan. Proving that could require showing:. Before you can apply for a loan , you need to assemble some basic information. Many of the answers you need will require input from the seller.

Although this may seem cumbersome, it's also an opportunity to get some cold, hard facts about the business you're hoping to buy. The Small Business Administration SBA recommends working with an accountant and an attorney to help you navigate the sales process.

Together, they can help you accomplish key objectives, such as:. Business loans are available from a variety of sources. Your current bank or credit union or the one your prospective business uses is an obvious starting point, but you can also shop around for small business lenders. Online lending platforms like Fundera connect small business borrowers with multiple lending sources for a range of business loans including Small Business Administration SBA loans , business lines of credit and term loans.

For many small business owners, SBA loans work where other lending options do not. The SBA doesn't make loans to small businesses; instead, it guarantees loans from lenders like banks and credit unions, which takes some of the risk out of lending. As a result, SBA loans typically have favorable interest rates, but also have specific criteria borrowers must meet to qualify.

Some alternative lenders also offer small business financing. Additional Ways to Finance Buying a Business Getting a loan to fund a business purchase isn't your only option. If you can't find a willing lender or your approved loan amount doesn't cover the cost of the business, consider these alternative funding ideas:.

Negotiate seller financing. Although some sellers are looking to cash out and never look back, some may be open to being paid over time. You can negotiate this type of financing into your sales agreement and skip the bank altogether. Borrow from friends and family. This is not an option to be taken lightly: The emotional cost of defaulting on your loved ones is astronomical. But if you're confident in your ability to repay and are willing to write up an ironclad loan agreement, this can be a viable funding source.

Seek out investors or partners. You can share the investment—and the equity in your business. Just be aware that doing so will affect how you operate your business, who's in control and how profits are distributed.

Use your personal funds.

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Does the business have a high rate of returns? Has it gone up in the past year? If so, can you isolate the reasons for returns and correct the problem s? Customer patterns. If this is the type of business that can track customers, you will want to know specific characteristics concerning current customers, such as: How many are first-time buyers?

How many customers were lost over the past year? When are the peak buying seasons for current customers? What type of merchandise is the most popular? Marketing strategies. How does the owner obtain customers? Does he or she offer discounts, advertise aggressively, or conduct public-relations campaigns?

You should get copies of all sales literature to see the kind of image that is being projected by the business. When you look at the literature, pretend that you are a customer being solicited by the company. How does it make you feel? This can give you some idea of how the company is perceived by its market. Advertising costs. Analyze advertising costs. It is often better for a business to postpone profit at year-end until the next year by spending a lot of money on advertising during the last month of the fiscal year.

Price checks. Evaluate current price lists and discount schedules for all products, the date of the last price increase, and the percentage of increase. You might even go back and look at the previous price increase to see what percentage it was and determine when you are likely to be able to raise prices.

Here again, compare what you see in the business you are looking at, with standards in the industry. Industry and market history. You should analyze the industry as well as the specific market segments of the business targets. You need to find out if sales in the industry, as well as in the market segment, have been growing, declining, or have remained stagnant.

This is very important to determine future profit potential. Location and market area. Evaluate the location of the business and the market area surrounding it. This is especially important to retailers, who draw the majority of their business from the primary trading area. You should conduct a thorough analysis of the business's location and the trading areas surrounding the location including economic outlook, demographics and competition.

For service businesses, get a map of the area covered by the business. Find out, based on the locations of various accounts, if there are any special requirements for delivering the product, or any transportation difficulties encountered by the business in getting the product to market. Reputation of the business.

The image of the business in the eyes of customers and suppliers is extremely important. As we mentioned, the image of the business can be an asset, or a liability. Interview customers, suppliers and the bank, as well as the owners of other businesses in the area, to determine the reputation of the business.

Seller-customer ties. You must find out if any customers are related or have any special ties to the present owner of the business. How long has any such account been with the company? What percentage of the company's business is accounted for by this particular customer or set of customers? Will this customer continue to purchase from the company if the ownership changes? Inflated salaries. Some salaries may be inflated or perhaps the current owner may have a relative on the payroll who isn't working for the company.

All of these possibilities should be analyzed. List of current employees and organizational chart. Current employees can be a valuable asset, especially key personnel. Evaluate the organizational chart to understand who is responsible to whom. You must also look at the management practices of the company and know the wages of all employees and their length of employment.

Examine any management-employee contracts that exist aside from a union agreement, as well as details of employee benefit plans; profit-sharing; health, life and accident insurance; vacation policies; and any employee-related lawsuits against the company. OSHA requirements. Find out if the facility meets all occupational safety and health requirements and whether it has been inspected.

If you feel that the seller is "hedging" on this and you see some things you feel might not be safe on the premises, you can ask the Occupational Safety and Health Administration OSHA to help you with an inspection. As a prospective buyer of a business that may come under OSHA scrutiny, you need to be certain that you are not buying an unsafe business.

Some sellers may perceive your asking for OSHA's help as a dirty trick. But you must realize that as a prospective, serious buyer, you need to protect your position. Establish what type of insurance coverage is held for the operation of the business and all of its properties as well as who the underwriter and local company representative is, and how much the premiums are. Some businesses are underinsured and operating under potentially disastrous situations in case of fire or a major catastrophe.

If you come into an underinsured operation, you could be wiped out if a major loss occurs. Product liability. Product liability insurance is of particular interest if you're purchasing a manufacturing company. Insurance coverage can change dramatically from year to year, and this can markedly affect the cash flow of a company.

No decision is more emotionally charged than deciding upon a price for an existing business. The owner has one idea of how much the business is worth, while the buyer will typically have another viewpoint. Each party is dealing from a different perspective and usually the one who is best prepared will have the most leverage when the process enters the negotiating stage. Keep in mind that most sellers determine the price for their business arbitrarily or through a special formula that may apply to that industry only.

Either way, there usually aren't very many solid facts upon which to base their decisions. Price is a very hard element to pin down and, therefore, is for the buyer to assess. There are a few factors that will influence price, such as economic conditions.

Usually, businesses sell for a higher price when the economy is expanding, and for a much lower price during recessions. Motivation also plays an important factor. How badly does the seller want out? If the seller has many personal financial problems, you may be able to buy the business at a discount rate by playing the waiting game. On the other hand, you should never let the seller know how badly you want to buy the business. This can affect the price you pay adversely.

Beyond these factors, you can determine the value of a business using several different methods discussed below. Simply put, some owners gauge the value of their business by using a multiplier of either the monthly gross sales, monthly gross sales plus inventory, or after-tax profits.

While the multiplier formula may seem complex and quite accurate to begin with, if you delve a little deeper and look at the components used to arrive at the stated value, there is actually very little to substantiate the arrived at price. Most of the multipliers aren't based on fact. For example, individuals within a specific industry may claim that certain businesses sell at three times their annual gross sales, or two times their annual gross sales plus inventory. Depending on which formula the owner uses, the gross sales are multiplied by the appropriate number, and a price is generated.

Of course, you can check the monthly sales figure by looking at the income statement, but is the multiplier an accurate number? After all, it has been determined arbitrarily. There usually hasn't been a formal survey performed and verified by an outside source to arrive at these multipliers. In addition, even if the multiplier was accurate, there is such a large spread between the low and high ends of the range that it really just serves as a ballpark figure.

This is true whether a sales or profit multiplier is used. In the case of a profit multiplier, the figure generated becomes even more skewed because businesses rarely show a profit due to tax reasons. Therefore, the resulting value of the business is either very small or the owner has to use a different profit factor to arrive at a higher price.

Don't place too much faith in multipliers. If you run across a seller using the multiplier method, use the price only as an estimate and nothing more. This is a fairly accurate way to determine the price of a business, but you have to exercise caution using this method. To arrive at a price based on the book value, all you have to do is find out what the difference is between the assets and liabilities of a company to arrive at its net worth.

This has usually been done already on the balance sheet. The net worth is then multiplied by one or two to arrive at the book value. This might seem simple enough. To check the number, all you have to do is list the company's assets and liabilities. Determine their value, arrive at the net worth, and then multiply that by the appropriate number.

Assets usually include any unsold inventory, leasehold improvements, fixtures, equipment, real estate, accounts receivable, and supplies. Liabilities can be anything. They might even include the business itself. Usually, though, you want to list any unpaid debts, uncollected taxes, liens, judgments, lawsuits, bad investments--anything that will create a cash drain upon the business.

Now here is where it gets tricky. In the balance sheet, fixed assets are usually listed by their depreciated value, not their replacement value. Therefore, there really isn't a true cost associated with the fixed assets. That can create very inconsistent values. If the assets have been depreciated over the years to a level of zero, there isn't anything on which to base a book value.

The most common means of judging any business is by its return on investment ROI , or the amount of money the buyer will realize from the business in profit after debt service and taxes. However, don't confuse ROI with profit. They are not the same thing.

ROI is the amount of the business. Profit is a yardstick by which the performance of the business is measured. Typically, a small business should return anywhere between 15 and 30 percent on investment. This is the average net in after-tax dollars. Depreciation, which is a device of tax planning and cash flow, should not be counted in the net because it should be set aside to replace equipment.

Eventually equipment does wear out and must be replaced, and it sometimes has to be replaced much sooner than you expect. This is especially true when considering a business with older equipment. The wisdom of buying a business lies in its potential to earn money on the money you put into it. You determine the value of that business by evaluating how much money you are going to earn on your investment.

The business should have the ability to pay for itself. If it can do this and give you a return on your cash investment of 15 percent or more, then you have a good business. This is what determines the price.

If the seller is financing the purchase of the business, your operating statement should have a payment schedule that can be taken out of the income of the business to pay for it. Does a percent net for a business seem high? Everybody wants to know if a business makes two, three, or 10 times profit.

They hear price-earning ratios tossed around, and forget that such ratios commonly refer to companies listed on the stock exchange. In small business, such ratios have limited value. A big business can earn 10 percent on its investment and be extremely healthy. The big supermarkets net two or three percent on their sales, but this small percentage represents enormous volume. Small businesses are different.

The small business should typically earn a bigger return because the risk of the enterprise is higher. The important thing for you, as a buyer of a small business, is to realize that regardless of industry practices for big business, it's the ROI that you need to worry about most. Is it realistic? If the price is realistic for the amount of money you have to invest, then you can consider it a viable business. Valuing a business based on capitalized earnings is similar to the return-on-investment method of assessment, except normal earnings are used to estimate projected earnings, which are then divided by a standard capitalization rate.

So what is a standard capitalization rate? The capitalization rate is determined by learning what the risk of investment in the business would be in comparison to other investments such as government bonds or stock in other companies. For instance, if the rate of return on investment in government bonds is 18 percent, then the business should provide a return of 18 percent or better on the investment into it. To determine the value of a business based on capitalized earnings, use the following formula:.

If your capitalization rate is 18 percent, then the value of the business would be:. Generally, a good capitalization rate for buyouts will range between 20 to 40 percent. If the seller is asking much more than what you've determined the capitalized earnings to be, then you will have to try and negotiate a lower price. Some business owners try to sell goodwill as an asset. Normally, in everyday accounting procedures, most companies put down perhaps one dollar as the value of goodwill.

There is no doubt that goodwill has value, particularly if the business has built up a regular trade and a strong base of accounts. But it is the financial value of the accounts, not their psychological value, that should be placed on any financial statements. Goodwill as such is not an asset.

You as a buyer would assess the business based on the return on investment. Certain rules of the game may change when you enter the fields of acquisition and merger. Suppose you buy out your competition, merge all your facilities, and double your volume. Now the labor and overhead factors are much lower. Thus, even if the seller was losing perhaps 5 percent a year, if you bring them into your company, which is making 15 percent a year, it might allow you to increase sales and end up making 20 percent.

Deciding on a price, however, is just the first step in negotiating the sale. More important is how the deal is structured. David H. Troob, chairman of Geneva Companies, a national mergers and acquisitions services firm, suggests that you should be ready to pay 30 to 50 percent of the price in cash, and finance the remaining amount. You can finance through a traditional lender, or sellers may agree to "hold a not," which means they accept payments over a period of time, just as a lender would.

Many sellers like this method because it assures them of future income. Other sellers may agree to different terms--for example, accepting benefits such as a company car for a period of time after the deal is completed. These methods can cut down the amount of upfront cash you need; Troob advises, however, that you should always have an attorney review any arrangements for legality and liability issues.

An individual purchasing a business has two options for structuring the deal assuming the transaction is not a merger. The first is asset acquisition, in which you purchase only those assets you want. On the plus side, asset acquisition protects you from unwanted legal liabilities since instead of buying the corporation and all its legal risks , you are buying only its assets. On the downside, an asset acquisition can be very expensive.

The asset-by-asset purchasing process is complicated and also opens the possibility that the seller may raise the price of desirable assets to off-set losses from undesirable ones. The other option is stock acquisition, in which you purchase stock. When you need to attract talent, you need something to show prospective employees since you're still in the startup phase.

Early on, your business is more of an idea than a reality, so your business plan can help prospective employees understand your goals--and, more important, their place in helping you achieve those goals. Potential joint ventures. Joint ventures are like partnerships between two companies. A joint venture is a formal agreement to share the work--and share the revenue and profit.

As a new company, you will likely be an unknown quantity in your market. Setting up a joint venture with an established partner could make all the difference in getting your business off the ground. But above all, your business plan should convince you that it makes sense to move forward. Maybe the market isn't as large as you thought. Maybe, after evaluating the competition, you realize your plan to be the low-cost provider isn't feasible since the profit margins will be too low to cover your costs.

Or you might realize the fundamental idea for your business is sound, but how you implement that idea should change. Maybe establishing a storefront for your operation isn't as cost-effective as taking your products directly to customers--not only will your operating costs be lower, but you can charge a premium since you provide additional customer convenience.

Think of it this way. Successful businesses do not remain static. They learn from mistakes, and adapt and react to changes: changes in the economy, the marketplace, their customers, their products and services, etc. Successful businesses identify opportunities and challenges and react accordingly. Creating a business plan lets you spot opportunities and challenges without risk. Use your plan to dip your toe in the business water.

It's the perfect way to review and revise your ideas and concepts before you ever spend a penny. Many people see writing a business plan as a "necessary evil" required to attract financing or investors. Instead, see your plan as a no-cost way to explore the viability of your potential business and avoid costly mistakes.

The Executive Summary is a brief outline of the company's purpose and goals. While it can be tough to fit on one or two pages, a good Summary includes:. I know that seems like a lot, and that's why it's so important you get it right. The Executive Summary is often the make-or-break section of your business plan. A great business solves customer problems. If your Summary cannot clearly describe, in one or two pages, how your business will solve a particular problem and make a profit, then it's very possible the opportunity does not exist--or your plan to take advantage of a genuine opportunity is not well developed.

So think of it as a snapshot of your business plan. Don't try to "hype" your business--focus on helping a busy reader get a great feel for what you plan to do, how you plan to do it, and how you will succeed. Since a business plan should above all help you start and grow your business, your Executive Summary should first and foremost help you do the following. Think of it as a written elevator pitch with more detail, of course.

Your Summary describes the highlights of your plan, includes only the most critical points, and leaves out less important issues and factors. As you develop your Summary, you will naturally focus on the issues that contribute most to potential success. If your concept is too fuzzy, too broad, or too complicated, go back and start again. Most great businesses can be described in several sentences, not several pages. Your business plan walks the reader through your plan. What ranks high in terms of importance?

Product development? Acquiring the right location? Creating strategic partnerships? Once your Summary is complete, you can use it as an outline for the rest of your plan. Simply flesh out the highlights with more detail. Then work to accomplish your secondary objective by focusing on your readers. Even though you may be creating a business plan solely for your own purposes, at some point you may decide to seek financing or to bring on other investors, so make sure your Summary meets their needs as well.

Work hard to set the stage for the rest of the plan. Let your excitement for your idea and your business shine through. In short, make readers want to turn the page and keep reading. Just make sure your sizzle meets your steak by providing clear, factual descriptions. Blue Mountain Cycle Rentals will offer road and mountain bike rentals in a strategic location directly adjacent to an entrance to the George Washington National Forest.

Our primary strategy is to develop Blue Mountain Cycle Rentals as the most convenient and cost-effective rental alternative for the thousands of visitors who flock to the area each year. Once underway, we will expand our scope and take advantage of high-margin new equipment sales and leverage our existing labor force to sell and service those products. Within three years we intend to create the area's premier destination for cycling enthusiasts.

Blue Mountain Cycle Rentals will be located at Mountain Drive, a location providing extremely high visibility as well as direct entry and exit from a primary national park access road. The owner of the company, Marty Cycle, has over 20 years experience in the bicycle business, having served as a product manager for Acme Cycles as well as the general manager of Epic Cycling.

Because of his extensive industry contacts, initial equipment inventory will be purchased at significant discounts from OEM suppliers as well by sourcing excess inventory from shops around the country. Because of the somewhat seasonal nature of the business, part-time employees will be hired to handle spikes in demand. Those employees will be attracted through competitive wages as well as discounts products and services.

While the outdoor tourism industry as a whole is flat, the park expects its number of visitors to grow over the next few years. The market potential inherent in those visitors is substantial. According to third-party research data, approximately 30 percent of all cyclists would rather rent than transport their own bicycles, especially those who are visiting the area for reasons other than cycling.

The cycling shops located in Harrisonburg, VA, are direct and established competitors. Our two primary competitive advantages will be location and lower costs. Our location is also a key disadvantage where non-park rentals are concerned. We will overcome that issue by establishing a satellite location in Harrisonburg for enthusiasts who wish to rent bicycles to use in town or on other local trails.

We will also use online tools to better engage customers, allowing them to reserve and pay online as well as create individual profiles regarding sizes, preferences, and special needs. Blue Mountain Cycle Rentals expects to earn a modest profit by year two based on projected sales. Our projections are based on the following key assumptions:. Direct cost of sales is projected to average 60 percent of gross sales, including 50 percent for the purchase of equipment and 10 percent for the purchase of ancillary items.

Keep in mind this is just a made-up example of how your Summary might read. Also keep in mind this example focused on the rental business, so a description of products was not included. They'll show up later. If your business will manufacture or sell products, or provide a variety of services, then be sure to include a Products and Services section in your Summary. In this case the products and services are obvious, so including a specific section would be redundant.

Bottom line: Provide some sizzle in your Executive Summary, but make sure you show a reasonable look at the steak, too. Providing an overview of your business can be tricky, especially when you're still in the planning stages. If you already own an existing business, summarizing your current operation should be relatively easy; it can be a lot harder to explain what you plan to become.

Think about what products and services you will provide, how you will provide those items, what you need to have in order to provide those items, exactly who will provide those items, and most important, whom you will provide those items to. Consider our bicycle rental business example. It's serves retail customers. It has an online component, but the core of the business is based on face-to-face transactions for bike rentals and support.

So you'll need a physical location, bikes, racks and tools and supporting equipment, and other brick-and-mortar related items. You'll need employees with a very particular set of skills to serve those customers, and you'll need an operating plan to guide your everyday activities.

In our example, defining the above is fairly simple. You know what you will provide to meet your customer's needs. You will of course need a certain quantity of bikes to service demand, but you will not need a number of different types of bikes. You need a retail location, furnished to meet the demands of your business. You need semi-skilled employees capable of sizing, customizing, and repairing bikes. In other businesses and industries, answering the above questions can be more difficult.

If you open a restaurant, what you plan to serve will in some ways determine your labor needs, the location you choose, the equipment you need to purchase. And, most important, it will help define your customer. Changing any one element may change other elements; if you cannot afford to purchase expensive kitchen equipment, you may need to adapt your menu accordingly. If you hope to attract an upscale clientele, you may need to invest more in purchasing a prime location and creating an appealing ambience.

Once you work through this list you will probably end up with a lot more detail than is necessary for your business plan. That is not a problem: Start summarizing the main points. For example, your Business Overview and Objectives section could start something like this:.

Blue Mountain Cycle Rentals is a new retail venture that will be located at Mountain Drive, directly adjacent to an extremely popular cycling destination. Our initial goal is to become the premier provider for bicycle rentals. We will then leverage our customer base and position in the market to offer new equipment sales as well as comprehensive maintenance and service, custom equipment fittings, and expert trail advice. You could certainly include more detail in each section; this is simply a quick guide.

And if you plan to develop a product or service, you should thoroughly describe the development process as well as the end result. The key is to describe what you will do for your customers--if you can't, you won't have any customers. In the Products and Services section of your business plan, you will clearly describe--yep--the products and services your business will provide. Keep in mind that highly detailed or technical descriptions are not necessary and definitely not recommended.

Use simple terms and avoid industry buzzwords. On the other hand, describing how the company's products and services will differ from the competition is critical. So is describing why your products and services are needed if no market currently exists. For example, before there was Federal Express, overnight delivery was a niche business served by small companies.

FedEx had to define the opportunity for a new, large-scale service and justify why customers needed--and would actually use --that service. Patents, copyrights, and trademarks you own or have applied for should also be listed in this section. Depending on the nature of your business, your Products and Services section could be very long or relatively short.

If your business is product-focused, you will want to spend more time describing those products. If you plan to sell a commodity item and the key to your success lies in, say, competitive pricing, you probably don't need to provide significant product detail.

Or if you plan to sell a commodity readily available in a variety of outlets, the key to your business may not be the commodity itself but your ability to market in a more cost-effective way than your competition. But if you're creating a new product or service , make sure you thoroughly explain the nature of the product, its uses, and its value, etc.

In the cycling rental business example we've been using, products and services could be a relatively simple section to complete or it could be fairly involved. It depends on the nature of the products the company plans to rent to customers. If Blue Mountain Cycling Rentals plans to market itself as a provider of high-end bikes, describing those bikes--and the sources for those bikes--is important, since "high-end cycling rentals" is intended to be a market differentiation.

If the company plans to be the low-cost provider, then describing specific brands of equipment is probably not necessary. Also, keep in mind that if a supplier runs out of capacity--or goes out of business altogether--you may not have a sufficient supply to meet your demand. Plan to set up multiple vendor or supplier relationships, and describe those relationships fully.

Remember, the primary goal of your business plan is to convince you that the business is viable--and to create a road map for you to follow. The Products and Services section for our cycling rental business could start something like this:. Blue Mountain Cycle Rentals will provide a comprehensive line of bicycles and cycling equipment for all ages and levels of ability.

Since the typical customer seeks medium-quality equipment and excellent services at competitive prices, we will focus on providing brands like Trek bikes, Shimano footwear, and Giro helmets. These manufacturers have a widespread reputation as mid- to high-level quality, unlike equipment typically found in the rental market.

Blue Mountain Cycle Rentals will have clear advantages over its primary competitors, the bike shops located in Harrisonburg, VA:. Expansion will allow us to move product offerings into new equipment sales. We will also explore maintenance and fitting services, leveraging our existing maintenance staff to provide value-added services at a premium price.

When you draft your Products and Services section, think of your reader as a person who knows little to nothing about your business. Be clear and to the point. Think of it this way: The Products and Services section answers the "what" question for your business.

Make sure you fully understand the "what" factor; you may run the business, but your products and services are its lifeblood. Market research is critical to business success. A good business plan analyzes and evaluates customer demographics, purchasing habits, buying cycles, and willingness to adopt new products and services. The process starts with understanding your market and the opportunities inherent in that market.

And that means you'll need to do a little research. Before you start a business you must be sure there is a viable market for what you plan to offer. That process requires asking, and more importantly answering, a number of questions. The more thoroughly you answer the following questions, the better you will understand your market. Start by evaluating the market at a relatively high level, answering some high-level questions about your market and your industry:. Fortunately, you've already done some of the legwork.

You've already defined and mapped out your products and services. The Market Opportunities section provides a sense-check of that analysis, which is particularly important since choosing the right products and services is such a critical factor in business success. But your analysis should go further: Great products are great, but there still must be a market for those products. Ferraris are awesome, but you're unlikely to sell many where I live. So let's dig deeper and quantify your market.

Your goal is to thoroughly understand the characteristics and purchasing ability of potential customers in your market. A little Googling can yield a tremendous amount of data. The key is to understand the market in general terms and then to dig deeper to understand whether there are specific segments within that market--the segments you plan to target--that can become customers and support the growth of your business.

Also keep in mind that if you plan to sell products online the global marketplace is incredibly crowded and competitive. Any business can sell a product online and ship that product around the world. On the other hand, if you live in an area with 50, people and there's only one bicycle shop, you may be able to enter that market and attract a major portion of bicycle customers in your area.

After you complete your research you may feel a little overwhelmed. While data is good, and more data is great, sifting through and making sense of too much data can be daunting. For the purposes of your business plan, narrow your focus and focus on answering these main questions:. The Market Opportunities section for our cycling rental business could start something like this:.

While we expect sales to rise, for the purposes of performing a conservative analysis we have projected a zero growth rate for the next three years. In those states 2,, people visited a national forest last year. Our target market includes customers visiting the Shenandoah National Forest; last year , people visited the area during spring, summer, and fall months. Over time, however, we do expect equipment rentals and sales to increase as the popularity of cycling continues to rise.

In particular we forecast a spike in demand in since the national road racing championships will be held in Richmond, VA. According to the latest studies, recreation spending in our target market has grown by 14 percent per year for the past three years. In addition, we anticipate greater than industry-norm growth rates for cycling in the area due to the increase in popularity of cycling events like the Alpine Loop Gran Fondo.

Out target market has one basic need: The availability to source bicycle rentals at a competitive price. Our only other competition are the bike shops in Harrisonburg, VA, and our location will give us a competitive advantage over those and other companies who try to serve our market. For example, you might decide to provide information about Market Segments. In our case, the cycling rental business does not require much segmentation.

Rentals are typically not broken down into segments like "inexpensive," "midrange," and "high-end. Although you'll notice in our Products and Services section, we decided to provide "high-end" rentals. But say you decide to open a clothing store. You could focus on high fashion, or children's clothes, or outdoor wear, or casual--you could segment the market in a number of ways.

If that's the case, provide detail on segmentation that supports your plan. Providing great products and services is wonderful, but customers must actually know those products and services exist. That's why marketing plans and strategies are critical to business success. Duh, right? But keep in mind marketing is not just advertising. Marketing--whether advertising, public relations, promotional literature, etc.

Like any other investment you would make, money spent on marketing must generate a return. Otherwise why make the investment? While that return could simply be greater cash flow, good marketing plans result in higher sales and profits. So don't simply plan to spend money on a variety of advertising efforts.

Do your homework and create a smart marketing program. The Sales and Marketing section for our cycling rental business could start something like this:. While customers in the counties surrounding the George Washington National Forest make up 35 percent of our potential customer base, much of our market travels from outside that geographic area.

We will not be the low-cost provider for our target market. Our goal is to provide mid- to high-end equipment. However, we will create web-based loyalty programs to incent customers to set up online profiles and reserve and renew equipment rentals online, and provide discounts for those who do.

Over time we will be able to market specifically to those customers. Just as in the Market Opportunity section, you may want to include a few more categories. For example, if your business involves a commission-compensated sales force, describe your Sales Programs and incentives. If you distribute products to other companies or suppliers and those distribution efforts will impact your overall marketing plans, lay out your Distribution Strategy.

The key is to show you understand your market and you understand how you will reach your market. Marketing and promotions must result in customers--your goal is to thoroughly describe how you will acquire and keep your customers. Also keep in mind you may want to include examples of marketing materials you have already prepared, like website descriptions, print ads, web-based advertising programs, etc.

While you don't need to include samples, taking the time to create actual marketing materials might help you better understand and communicate your marketing plans and objectives. Make sure your Sales and Marketing section answers the "How will I reach my customers? The Competitive Analysis section of your business plan is devoted to analyzing your competition--both your current competition and potential competitors who might enter your market.

Every business has competition. Understanding the strengths and weaknesses of your competition--or potential competition--is critical to making sure your business survives and grows. While you don't need to hire a private detective, you do need to thoroughly assess your competition on a regular basis even if you plan to run only a small business. In fact, small businesses can be especially vulnerable to competition, especially when new companies enter a marketplace.

Competitive analysis can be incredibly complicated and time-consuming, but it doesn't have to be. Here is a simple process you can follow to identify, analyze, and determine the strengths and weaknesses of your competition. First, develop a basic profile of each of your current competition. For example, if you plan to open an office supply store, you may have three competing stores in your market. Online retailers will also provide competition, but thoroughly analyzing those companies will be less valuable unless you also decide you want to sell office supplies online.

Although it's also possible that they--or, say, Amazon--are your real competition. Only you can determine that. To make the process easier, stick to analyzing companies you will directly compete with. If you plan to set up an accounting firm, you will compete with other accounting firms in your area. If you plan to open a clothing store, you will compete with other clothing retailers in your area.

Again, if you run a clothing store, you also compete with online retailers, but there is relatively little you can do about that type of competition other than to work hard to distinguish yourself in other ways: great service, friendly salespeople, convenient hours, truly understanding your customers, etc. Once you identify your main competitors, answer these questions about each one. And be objective.

It's easy to identify weaknesses in your competition, but less easy and a lot less fun to recognize how they may be able to outperform you:. While these questions may seem like a lot of work to answer, in reality the process should be fairly easy. You should already have a feel for the competition's strengths and weaknesses--if you know your market and your industry.

Keep in mind competitive analysis does more than help you understand your competition. Competitive analysis can also help you identify changes you should make to your business strategies. Learn from competitor strengths, take advantage of competitor's weaknesses, and apply the same analysis to your own business plan. It can be tough to predict when and where new competitors may pop up. For starters, regularly search for news on your industry, your products, your services, and your target market.

But there are other ways to predict when competition may follow you into a market. Other people may see the same opportunity you see. Think about your business and your industry, and if the following conditions exist, you may face competition does the road:. In general terms, if serving your market seems easy you can safely assume competitors will enter your market. A good business plan anticipates and accounts for new competitors. The Competitive Analysis section for our cycling rental business could start something like this:.

Our nearest and only competition is the bike shops in Harrisonburg, VA. Our next closest competitor is located over miles away. The in-town bike shops will be strong competitors. They are established businesses with excellent reputations. On the other hand, they offer inferior-quality equipment and their location is significantly less convenient. We do not plan to sell bicycles for at least the first two years of operation.

However, sellers of new equipment do indirectly compete with our business since a customer who buys equipment no longer needs to rent equipment. Later, when we add new equipment sales to our operation, we will face competition from online retailers. We will compete with new equipment retailers through personalized service and targeted marketing to our existing customer base, especially through online initiatives.

And so on While your business plan is primarily intended to convince you that your business makes sense, keep in mind most investors look closely at your competitive analysis. A common mistake made by entrepreneurs is assuming they will simply "do it better" than any competition. Experienced businesspeople know you will face stiff competition: showing you understand your competition, understand your strengths and weaknesses relative to that competition, and that you understand you will have to adapt and change based on that competition is critical.

And, even if you do not ever plan to seek financing or bring in investors, you absolutely must know your competition. The next step in creating your business plan is to develop an Operations Plan that will serve your customers, keep your operating costs in line, and ensure profitability. Your ops plan should detail strategies for managing, staffing, manufacturing, fulfillment, inventory--all the stuff involved in operating your business on a day-to-day basis.

Fortunately, most entrepreneurs have a better handle on their operations plan than on any other aspect of their business. After all, while it may not seem natural to analyze your market or your competition, most budding entrepreneurs tend to spend a lot of time thinking about how they will run their businesses.

Operations plans should be highly specific to your industry, your market sector, and your customers. Instead of providing an example like I've done with other sections, use the following to determine the key areas your plan should address:. You should think through and create a detailed plan for each category, but you won't need to share the results with the people who read your business plan. Think of Operations as the "implementation" section of your business plan. What do you need to do? How will you get it done?

Then create an overview of that plan to make sure your milestones and timeline make sense. Many investors and lenders feel the quality and experience of the management team is one of the most important factors used to evaluate the potential of a new business. But putting work into the Management Team section will not only benefit people who may read your plan.

It will also help you evaluate the skills, experiences, and resources your management team will need. Addressing your company's needs during implementation will make a major impact on your chances for success. The Management Team section for our cycling rental business could start something like this:. Joe has over 20 years experience in the cycling business. He served for 10 years as a product manager for Acme Bikes. After that he was the operations manager of Single Track Cycles, a full-service bike shop located in Bend, Oregon.

A complete resume for Mr. Rouleur can be found in the Appendix. Mary was the U. Mountain Biking National Champion. She worked in product development for High Tec frames, creating custom frames and frame modifications for professional cyclists. She also has extensive customer service and sales experience, having worked for four years as the online manager of Pro Parts Unlimited, an online retailer of high-end cycling equipment and accessories.

For example, if you manufacture a product or provide a service and will hire a key skilled employee, describe that employee's credentials. Otherwise, include staffing plans in the Operations section. One key note: Don't be tempted to add a "name" to your management team in hopes of attracting investors.

Celebrity management team members may attract the attention of your readers, but experienced lenders and investors will immediately ask what role that person will actually play in the running of the business--and in most cases those individuals won't play any meaningful role. If you don't have a lot of experience--but are willing to work hard to overcome that lack of experience--don't be tempted to include people in your plan who will not actually work in the business.

If you can't survive without help, that's okay. In fact, that's expected; no one does anything worthwhile on their own. Just make plans to get help from the right people. Finally, when you create your Management section, focus on credentials but pay extra attention to what each person actually will do. Experience and reputation are great, but action is everything. Financial projections and estimates help entrepreneurs, lenders, and investors or lenders objectively evaluate a company's potential for success.

If a business seeks outside funding, providing comprehensive financial reports and analysis is critical. But most important, financial projections tell you whether your business has a chance of being viable--and if not let you know you have more work to do. It's easy to find examples of all of the above. Even the most basic accounting software packages include templates and samples. You can also find templates in Excel and Google Docs. A quick search like "google docs profit and loss statement" yields plenty of examples.

Or you can work with an accountant to create the necessary financial projections and documents. Certainly feel free to do so, but first play around with the reports yourself. While you don't need to be an accountant to run a business, you do need to understand your numbers, and the best way to understand your numbers is usually to actually work with your numbers. But ultimately the tools you use to develop your numbers are not as important as whether those numbers are as accurate as possible--and whether those numbers help you decide whether to take the next step and put your business plan into action.

Then Financial Analysis can help you answer the most important business question: "Can we make a profit? Some business plans include less essential but potentially important information in an Appendix section. You may decide to include, as backup or additional information:. Keep in mind creating an Appendix is usually only necessary if you're seeking financing or hoping to bring in partners or investors.

Initially the people reading your business plan don't wish to plow through reams and reams of charts, numbers, and backup information. If one does want to dig deeper, fine--he or she can check out the documents in the Appendix. While you may use your business plan to attract investors, partners, suppliers, etc. Because ultimately it's your time, your money, and your effort on the line.

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How To Write a Business Plan To Start Your Own Business

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