How does it cost to start a small business

how much start up capital for small business how to start a small business and be successful and how to start a small business at home with no money
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Published Date:04-07-2017
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TABLE OF CONTENTS Introduction 1 Personal Assessment 2 Steps to Starting a Small Business 3 Business Plan Outline 14 Ways to Legally Structure a Business and Registering a Business Name 21 Licenses, Permits and Other Regulations 26 Business Taxes 29 Being Self-Employed 32 Hiring Employees 34 Financing a Business 40 Managing a Business 43 Insurance 46 Selling to Government 48 Procurement Technical Assistance Centers (PTAC’s) 49 Now What? 50 Appendix A – Employee or Independent Contractor 51 Appendix B – Required Workplace Posters 53 Appendix C – Small Business Development Centers (MI-SBDCs) 55 Appendix D – Business Resource Centers (BRCs) 57 Appendix E – Index of State and Federal Government Websites 59 Appendix F – About the Small Business Administration (SBA) 61 Revised October 2014 Welcome to the Guide to Starting and Operating a Small Business: Helping businesses to open and grow is a key activity of the Michigan Economic Development Corporation (MEDC) and state government in general. Starting a business can be a complex and difficult process. This Guide is designed to ease a person’s entry into the business world, outlining as clearly as possible many of the issues and questions facing prospective and existing entrepreneurs. Information included in this guide is both general and Michigan-specific: Steps and process for starting a business; different forms of business organization; key elements of a business plan; complying with federal, state and local tax obligations; basics related to management, hiring, marketing, and more. Though this guide is not a substitute for legal or financial counsel, it is an information resource and quick reference designed to make the process of starting and operating a business in Michigan a little less overwhelming. The information in this publication was accurate at time of publication, but it is subject to change due to revisions in law and administrative policies. Between published revisions, an online version is updated periodically if significant changes occur. The online PDF version can be accessed at: In addition to this Guide, there are many other resources available for starting and operating a business in Michigan: • Michigan Small Business Development Centers (MI-SBDCs) • SCORE Counselors to America’s Small Businesses • Assistance and counseling are also available from local economic development organizations, trade associations, local chambers of commerce, schools, community colleges, universities and public libraries. This Guide will help you get started For additional information, visit, contact any one of the MI-SBDC offices located around the state, or call MI-SBDC headquarters at Grand Valley State University: 616.331.7480. Sincerely, Carol Lopucki State Director Michigan Small Business Development Center 1 PERSONAL ASSESSMENT Are You Ready to Start a Business? – A short personal assessment tool. Being your own boss is wonderfully exciting, but isn’t for everyone. Anyone considering starting a business needs first to consider if they are suited for it, personally and professionally. There is no right or wrong answer to each of these questions. This is a self-evaluation to help you think through critical aspects of your personal and business readiness to be self-employed. It is designed to help you assess your reasons and qualifications for going into business, to help you set personal and business goals, consider if this is the right time to start a business, if you have the freedom, flexibility and resources to start a business, to consider your health and stamina, and how you will balance family and business. Suggestion: It is recommended that you bring a completed version of this self-assessment to your first MI-SBDC counseling session. It will provide a profile of you and your readiness and help your counselor become acquainted with you. To self-assess, ask yourself the following questions and answer as honestly and in as much detail as possible. SELF ASSESSMENT: Are You Ready To Be In Business? 1. Why do I want to start a business? OR Why am I in business? 2. Specifically, what kind of business do I want to start (or am I in)? 3. Why do I believe I can make this type of business work? 4. Why do I believe this type of business is sustainable? 5. What education, skill or experience do I have in this industry? 6. What is my true purpose and/or the goal I hope to accomplish with this business? 7. What is the financial goal I am seeking to achieve? 8. If I will need financing, do I have the resources and credit worthiness necessary to be eligible? High credit score plus assets, collateral and good financial history. 9. What are my strengths? 10. What are my weaknesses? 11. What is my physical, mental and emotional health and stamina? 12. What knowledge and skills do I have to start and control the day-to-day operations of a business? 13. Do I know and understand the technology necessary to be competitive in this business? 14. Do I have good judgment in people and ideas? 15. What sacrifices and risks am I willing to take to be successful? 16. What will it take for me to balance personal life and business demands? 2 STEPS TO STARTING A SMALL BUSINESS “What do I need to do and w hat comes first?” That’s the question most often asked by people considering starting a business. There is a logical sequence of actions and a process for starting a business. MI-SBDC has created a “checklist” of that process: “Steps to Starting a Business” charts the tasks in recommended order to help you stay on track, manage the various steps, and give you the confidence of knowing you have considered all the essential elements. An explanation of each step follows the chart. 3 STEPS TO STARTING A BUSINESS (CONTINUED) 1. Select a business idea. Step 1 is deciding on what type of business you want to start. Many people choose to start a business around something they know and are passionate about. The first question every would-be business owner needs to ask about his/her product or service idea: “What PROBLEM does it SOLVE or what NEED does it FILL?” There are many reasons why consumers make purchase decisions, but the primary one is need. Market research will help you answer this question. 2. Market Research (Feasibility) Market research is the first and most important task you need to accomplish BEFORE you start your business, to determine if your idea is feasible, which according to Webster’s Dictionary means “capable of being done; suitable.” Market research is the gathering of facts and figures to make an informed decision about the market potential for your business, about the prospects for success and the direction your business will take. A. Type of Research Needed: Industry, market, customers, competition. You’ll be looking for answers to questions like: How big is the industry my business fits into? What are the trends of that industry? How will my idea benefit customers? Who and how many potential customers are there? How many competitors are there? What is unique about my product or service? What will motivate customers to buy from me? The following describes the type of research needed using the example of a pizza parlor, which is part of the fast food industry:  Industry is the BIG PICTURE of what’s happening in the “total world” of your particular type of business. Look for answers to questions like: What’s happening in the fast food industry these days – how many pizzas get sold in the US or Michigan each year, are there increased sales, specialty pizzas, healthier alternatives, changes in sizes or packaging, more or less pizza parlors in and out of business, etc? What’s the BIG PICTURE in the pizza world? • Market is population of consumers or businesses that buy your particular product or service – you can generally define them by a common set of characteristics. Market segments are groups within that population that you can define by even more specific set or sets of characteristics. Questions to answer could include: Who and how many folks are buying fast food in the area or location I’m considering? How often do they buy? Can I group and identify them based on any common characteristics such as age or ethnicity?  Customers are the individual people or businesses that will buy your product or service. A good exercise is to define your ideal customer and work backwards – where there’s one you can find another just like it, then another, and so on. How many households exist in my geographic area? How many of these eat pizza, and how often? How much pizza are these prospective customers likely to purchase in a year? (Customers x frequency x price = market potential.) • Competition is any business that sells a product or service that is exactly like what you want to do (DIRECT) or that may be similar to or an alternative to your product or service (INDIRECT). Where are other pizza shops? What are they like? What and where are other fast food, and/or grocery store food options? Why would these prospective customers buy your pizza (and not the other choices)? Is there an unmet need, am I offering something totally unique, are they dissatisfied with other choices? 4 B. How and where to do research (secondary) • Local Library. The best source of information is still the library. Many have business librarians and/or space dedicated to business reference materials. Look for information in sources and references related to your particular type of business, such as periodicals, trade journals, newspapers, industry association and other reference books. Some of the books in which you might find information include: • Directory of Trade Associations • Trade Journals and Industry Publications • Encyclopedia of American Industries • Standard and Poor’s Industry Surveys • IBIS World Industry Market Research • Encyclopedia of Global Industries • Standard Industrial Classification Manual (statistics) • Economic Census, i.e., Census of Retail Trade, Census of Wholesale Trade, or Census of Selected Services • Other governmental statistic sources published by federal, state, and local agencies • RMA (Risk Management Association) Annual Statement Studies • Internet. To get the most out of Internet searches and make the best use of your time, it is important to define your search fields as precisely as possible. The following are suggestions for more effective and efficient internet searches: • Use your search engine tutorial on how to do effective searches. There are tips and tricks for getting the best results, and knowing them will save you time and energy in the long run. • Make a list of all the keywords and strings of keywords associated with your type of business. • As you search, keep track of which key words or strings of key words you used so you don’t end up duplicating the search at a later time. • Save time by visually scanning the search results to see if a result site contains potentially significant information. If it does, print out the materials for later reading and highlighting of relevant facts and the URL so you can find your way back to the site if you need to, and also to be able to cite the source in your business plan. • The Michigan Electronic Library provides all Michigan residents with free access to online research tools, full-text articles, books, and other more: C. What information to collect: The following is a sampling of questions for which one might seek answers for market research. Included is a sampling of potential sources of answers and information in each research category. For an easy to follow list, see the “Market Research Information Checklist” located on page 7. Industry Question: What is the growth/decline of my industry? • Industry reports and/or magazine/newspaper articles • Industry Associations – see the Small Business Sourcebook by Gale Research. Most public libraries have this reference book. Question: What are the associations relating to my industry? • Encyclopedia of Associations – reference book at public library. • Small Business Sourcebook by Gale Research. Most public libraries have this reference book. Question: What are the trends in my industry? • Find industry profiles at • Industry reports and/or magazine/newspaper articles 5 Market/Customers Question: What are the spending habits of the consumers of my market? • Industry reports and/or magazine/newspaper articles • Federal Statistics Question: What are the demographics (characteristics) of my market? • Sourcebook for Zip Code Demographics – reference book at the library – some SBDC sites may have this information on hand for your area. • Census reports can be found at the library or online at • Complete a site ring demographic analysis at – DemographicsNow. Question: Who is the typical customer or target market for my business? • Industry reports – and/or check out trade journals for your industry and type of business – may be available at your local library. • Magazine/newspaper articles • Talk to people in the industry Competition Question: Who are my competitors? • DemographicsNow: Business and People • • • • D. Other forms of research (primary) • Surveys: Build and conduct your own survey or focus group to gather information from businesses or persons who might be potential customers. • Visit and “shop” the competition to observe and compare. An easy to use chart for gathering and recording information on your competition is available on page 8, “Competition: Observe and Compare Matrix.” 1. Identify the most important product and/or service features and attributes for your type of business – what matters most to customers related to purchasing this product or service. 2. Record the details of your experience related to each feature/attribute for 3-5 of your primary competitors. 3. On a scale of 1-5 (with 1 being poor and 5 being excellent) assign a rating to each competitor’s performance as it relates to the features and attributes. 4. Look for the strongest competitors (biggest total score or features/attributes that rank very high) to identify your competition’s strengths, which you are going to have to work hard to overcome. 5. Look for the weakest points (low feature/attribute rankings) among your competitors, which will be opportunities for you to take advantage. • Study similar businesses’ advertising and websites. • Talk to non-competitors. Sometimes others in a business like the one you are interested in starting might be willing to share first-hand information, even become a mentor, if they are not in direct competition with you, perhaps they are outside your geographic service area. • Hired research. There are many companies that will conduct market research for a fee and they can easily be found through the internet. • College or university marketing students. Many schools offering business courses, specifically in marketing, are looking for “real world” projects in which to involve their students. Check around your area for schools that offer marketing courses. Identify the professors teaching those courses and contact them directly. Timing may be an issue as they would have to plan your project into their course and it might take a term or two before that could happen. Additional Resources: Market Research Information Checklist – pg. 7 Competition: Observe and Compare Matrix – pg. 8 6 Market Research Information Checklist Gather information for all the items that relate specifically to your type of business. Industry  Quantity of product/service purchased  Associations related to my industry at each purchase  Size of industry  Average dollars spent annually on this  Growth potential type of purchase  Historical trends (growth/decline)  Customer preferences and perceptions  Seasonal or economic trends (quality, convenience, brand and image,  Other related industries exclusiveness, mass appeal….)  Distribution channels  Opportunities indicated Customer Profile – Businesses by  Threats indicated segment  Other  Industries, markets, or segments  Products or services Market  Number of employees  Businesses (B2B) or consumers (B2C) or  Length of time in business both  Geography, location  Total number of potential buyers  Purchasing patterns – how much, how  Segments – groups with similar often attributes  Purchasing process  Segment with greatest need, demand  Outsourcing  Market trends – political, social,  Local, national, or international environmental purchaser  Economic factors that influence the Customer Profile – Consumers by market segment  Government policies that influence the  Size of group market  Predominant gender  Age Competition  Ethnicity  Direct competitors  Education level  Indirect competitors  Occupation  Potential future competitors  Income level  Annual sales and revenue  Average amount of debt  Marketing and advertising methods and  Home owner or renter results  Car owner  Geography, location  Marital status  Distribution channels  Family status - of children or not  Outsources  Pets – Type and number  Sources for production, services,  Media activity – magazines, newspapers, inventory, other social media, television, radio, smart phone, other Competition Comparison (see p. 8)  Purchase preferences – in person,  Strengths internet, phone, catalog, other  Weaknesses  Product and/or service characteristics  Opportunities to differentiate most highly valued by purchaser  Other ___________________________  Payment preference – cash, credit  Frequency of purchase 7 Competition: Observe and Compare Matrix “Shopping the competition” – put yourself in a customer’s shoes Taking a detailed look at what and how your competition delivers products and/or services – from the eyes of a customer will help you identify their strengths and weaknesses, to build both offensive and defensive strategies to differentiate yourself and compete effectively. Copy this chart and use it to gather information about each of your 3 to 5 top competitors. Then compare the results side by side. ANALYSIS MATRIX COLUMN 1: Identify the most important product and/or service features and attributes that are important to customers in deciding where to buy, such as: Location, hours of operation, product mix, product quality, delivery options, customer service, discounts, incentives, etc. COLUMN 2: After your visit to the competitor, record details on how the competition served you as a customer related to each of those important features. COLUMN 3: Rank each feature on a scale of 1-5 (with 1 being poor and 5 being excellent), based on the competitor’s performance relating to that feature. LOW ranks show you opportunities for differentiation. High ranks show where you have to work hard to be as good or better. TOTAL SCORE: Add up your rankings for each competitor and see who might be your toughest competition. You need to find a way to be better or different than the BEST. And the best competitor is likely to be a model of success from which you can learn. Competitor Name __________________________ Date _______________ Features/Attributes that NOTES on how the competition served or Rank are IMPORTANT to the delivered this important feature. Customer TOTAL SCORE 8 3. Startup Cost Analysis (Feasibility) The business you have in mind may not be the business model you can afford. One of the most common reasons businesses fail is “hitting a financial wall” either before opening or soon thereafter, as a result of one or more contributing factors such as: An insufficient estimate of the true cost of starting what you have in mind and finding out you need to spend more than you have to get it open or keep it going; an unrealistic expectation about resources you might tap into because you find out too late that there aren’t any grants and startup loans are difficult to obtain; or a misconception about how quickly you will start making money, meaning you might need sources of cash to keep a business afloat until it does start making money. An in-depth startup cost analysis will provide you a more realistic, documented idea of the cost to start the business you have in mind, and will allow you then to match it to the reality of your available resources and/or your ability to get conventional financing. This may lead to refining your idea to make your startup possible, based on your personal situation. The good new s is that w here there’s a w ill there is a w ay Not having the funding resources does not mean you won’t be able to start the business. It does mean you will have to rethink how you’ll start. The majority of businesses start by “bootstrapping” – starting with what you have at hand, perhaps working at it part time, building slowly but steadily. Every large business started as a small business, many of them building and growing one success or customer at a time. The following is a summary of categories of common startup costs. Some of these may apply to your business and some may not but chances are there are some on the list you hadn’t thought of. For example: If you are relying on your business to pay your personal bills, you need to factor in living expenses for a moderate period of time until the business can afford to “pay you a wage.” Another example: One of the top reasons for business failures is not having enough cash to ride out the business ramp-up time. It’s important to factor in cash to cover expenses until the business is projected to reach breakeven. In other words, if sales are not generating enough cash to cover all the bills and you have no other savings or loans to tap into, how will you pay the rent, or utilities, or…..? 9 Startup Cost Analysis Summary For each item on this list, there should be an accompanying list itemizing the detail. Land and Buildings Purchase down payment or pre-paid lease _______________ Closing costs _______________ Remodeling/build out _______________ Utility deposits _______________ Other _______________ Equipment Furniture _______________ Fixtures _______________ Production machinery/equipment _______________ Computers/software _______________ Telecommunication equipment _______________ Cash registers/POS systems _______________ Vehicles _______________ Signs _______________ Shipping and installation _______________ Other _______________ Materials and Supplies Starting inventory _______________ Production materials/components _______________ Office supplies _______________ Marketing, Image and Branding Marketing and design consultants/planning _______________ Advertising _______________ Promotional items/activities _______________ Other _______________ Operations Fees and Expenses Professional fees (accountant, lawyer, etc.) _______________ Patent/trademark fees _______________ Insurance (Health, Life, Fire, Liability, other) _______________ Licenses and permits _______________ Trade association memberships _______________ Personal Living Expenses From last paycheck to opening day _______________ 3-6 months after opening day _______________ Moving expenses _______________ Cash Reserve/Contingency/Working Capital Opening expenses _______________ Wages/salaries _______________ Other _______________ TOTAL __________________ 10 Sources of Financing / Startup Resources Once you know the cost to start your business, there are resource and finance issues to consider: • How much do you need to start and where will it come from? Your savings? Selling your car? Asking your friends or family? Some of the more common forms of personal financial resources are: • Savings • Home Equity • Cash Value of Life Insurance • Credit Cards • Retirement Plans • Keeping your day job • Working part time as you build your business • GRANTS: Are you hoping for a grant? We’ve all seen the infomercials, websites, advertising, or received robo-phone calls, telling us there is "millions in free money." The myth of “free money” has been around for decades, and clever scammers are only too happy to sell you a book or offer to write a grant – for a very hefty fee without delivering anything that provides you with the results you sought. The fact is that the U. S. government does have grant programs but generally speaking, virtually all grant money flows to local governments, state agencies, and nonprofits. If you still want to look for grants, you can search at The following is excerpted from “SBA does not provide grants for starting and expanding a business. SBA has authority to make grants to non-profit and educational organizations in many of its counseling and training programs, but does not have authority to make grants to small businesses. Some business grants are available through state and local programs, nonprofit organizations and other groups.... Grant funding is generally restricted to very specific audiences. These grants are not necessarily free money, and usually require the recipient to match funds or combine the grant with other forms of financing such as a loan. The amount of the grant money available varies with each business and each grantor.” • LOANS: Are you hoping to get a loan? Traditional and non-traditional lenders have criteria on which they qualify or reject business loan requests. The following three are primary considerations: o CHARACTER: What is your credit history and score? Lenders are looking for reliable borrowers who have demonstrated responsibility and have a high credit score (700 and above) over a period of at least 3-5 years. o CASH: Lenders expect you to have “skin in the game” and be able to put up 20-30% of the total startup cost either as cash or cash plus equity investment. o COLLATERAL: Lenders generally expect you to pledge assets against the loan that have a net value greater than the loan amount. Keep in mind that purchase value isn’t resale value and banks discount the value of even brand new equipment to what they think they could get if they have to sell it to satisfy the debt. o SBA Loans: The SBA does not directly make loans but does have a variety of loan guarantee and/or support programs available through commercial lenders and Certified Development Financial Institutions (CDFI’s). For more information visit • CROWD FUNDING: Crowd funding is a relatively new form of raising funds to support ideas or projects by contributions or loans from individuals or interested parties through a networked and publicly observable platform. It is being used in support of a wide variety of activities from artists and journalists, political campaigns, charitable purposes, invention development, entrepreneurship, to scientific research and more. Various platforms offering this type of funding can be searched on the internet. Because it is relatively new, the state and federal rules governing these kinds of solicitations and securities are still evolving, so it is strongly recommended to seek professional advice before engaging in crowd funding. For more information on this and other forms of financing, see the section “Financing a Business” beginning on page 40. 11 Decision Point – Is it Feasible? Once you’ve gathered and reviewed your market research and financial information, you can make knowledge-based decisions – to go forward as you intended or to modify your plan. • Weigh the facts and make decisions based on what you KNOW, not “think” or “feel”. • Is there a need in the marketplace for your product or service? • Can you generate enough sales to achieve your personal and business goals? • Can you justify the investment and risk? Most entrepreneurs adjust their original concept in some way, and quite often a smaller scale startup is the option chosen. Always be prepared for the possibility that expenses will be more than you projected, or that sales will develop more slowly than you expected. NOTE: Once you have made the decision to proceed, Steps 4, 5 and 6 w ill happen somew hat simultaneously, though they are numbered according to a recommended sequence. 4. Write a Business Plan WHY In spite of the fact that one of the major reasons for business failures is lack of planning, just mentioning the task of “creating a written business plan” makes many aspiring (and existing) entrepreneurs cringe. There’s no question it does take time and commitment: For research, organizing information, evaluating, and writing down your actionable plan. So why should every entrepreneur go to the trouble of creating a written business plan? 1. If you’re looking for financing or investment, lenders and investors require a written plan. A completed business plan provides the information needed, and communicates your ideas to others, as the basis of a financial proposal. A decision on whether to extend financing, investment, or credit will be based on all the information in the business plan, not just the financials. 2. But the most important reason is YOU It’s not enough to “have it all in your head” since ideas and thoughts aren’t a plan – they are like an assortment of clouds that change from minute to minute depending on how the winds blow. The process of putting a business plan together, including the information-gathering, thought and analysis, and activity of writing out the information you’ve discovered along with your ideas and measurable goals forces you to see the business project in its entirety, including its strengths and shortcomings. 3. Writing your business plan is a virtual simulation. Before you invest a chunk of money, it allows you to get to know the economic environment, test the financial scenarios, identify and locate your markets, figure out the what/how/when/why of operations and management, and more. It allows you to consider and adjust, to pinpoint needs or opportunities that might otherwise be overlooked. Writing a business plan is a method for reducing your risk as well as increasing your chances for success 4. Once launched, your written business plan is a management tool, providing benchmarks and milestones you can use as measures of your success. A business plan provides a set of decisions and assumptions about the business and the economy, so comparing actual events to your decisions and assumptions provides the basis for day-to-day decision-making. In addition, the business plan can be used to communicate the goals of the business to employees and as a reminder to management, keeping everyone coordinated and heading in the same direction. 12 FRAMEWORK/ORGANIZATION OF THE BUSINESS PLAN Business planning is the framework to structure concepts and information about a project. There is no exact formula for putting a business plan together and there are many different outlines and sample business plans available, each one a little different in order and organization than the next. How long will the plan be? On average, 12-16 pages. The complexity of a business plan will vary with the type of business, and the length will reflect that complexity. MI-SBDC recommends the following order and basic content, as shown in MI-SBDC Business Plan Outline, which follows this overview. Business Plan Overview : Name of business, principals names and contact information • Cover Page • Table of Contents: If it is a lengthy or extremely detailed business plan, a table of contents will help the reader find his/her way. • Executive Summary: 1-2 pages that summarize the major highlights of the overall plan. This section is written last and may be used as a stand-alone document or marketing tool. Remember that the executive summary is the single most important part. Many people will not read past the summary. These are completed AFTER the plan is written. As such, you will find them in the Business Plan Outline at the end, rather than the beginning. • Section 1 Company Introduction: This is a description of your company, and an opportunity to apply an “elevator pitch” to describe the key or unique aspects of your business. Elements generally covered in this introduction include: Mission/vision for your company; Overview – history, capabilities; Products or services; Competitive advantage; Location, hours, and legal structure. • Section 2 Marketing and Sales: Here’s where all the market research you did plugs in and makes sense Industry analysis – scope, nature, size, growth, trends; Customers’ – profile, geography, buying behavior, problem solved or need filled; Market analysis – size, trends, primary and secondary target markets, growth potential; Competition – who, what, where, how, strengths, weaknesses, opportunities, threats (SWOT analysis); Marketing and Sales Plan including benefits/features analysis – value proposition, strategic partners, and pricing; Marketing and Communications Plan including advertising, promotions, publicity actions and costs; Sales Plan including sales force, distribution, customer service, warranties. • Section 3 Management and Operations: Describe how the business will run and how organizational responsibilities will be assigned including the management team, other key personnel/contractors, staffing objectives, HR budget, Board of Directors/Advisors, work processes – inventory, production, quality control, subcontractors, facilities and equipment, research and development (if applicable). • Section 4 – Financials: Finalize startup cost, identify the basis for financial projections with a list of assumptions (“show your math” in how you came up with sales numbers and/or expense amounts); 2-3 years of projections including Cash Flow, Income and Expense (P&L), and Balance Sheet; identify existing debt terms/conditions (if applicable) and possible exit strategy. • Appendix: Include copies of any documents that may be referenced in the business plan or items that may be relevant to the persons reading the plan such as list of owners (over 20% stock), personal financial statements on all owners, tax returns, principal’s resumes, letters of recommendation, purchase agreements, site plans. Most everyone needs help in putting a business plan together. There are several well-written brochures and books available at libraries and bookstores for guidance. Most large accounting firms have manuals available. Various legal and financial consultants are listed in the Yellow Pages and online. For more assistance, contact your local MI-SBDC or online at: 13 Business Plan Outline 1. COMPANY INTRODUCTION Introduce and describe your company. How was your company formed? How long has your company been in operation? What is the current legal structure? Does your company hold any patents? You may want to highlight the following elements within this section: • Overview of company history/capabilities • Product description, present state of development • Past customers and performance (if any) • Intellectual property status (if applicable) • Commercialization strategies (brief summary, if appropriate) • SWOT analysis (your strengths, weaknesses, opportunities and threats) 2. MARKETING AND SALES Industry Analysis Paint a picture of what your specific industry is doing. For your company to be successful, you need to be aware of what is happening in the industry overall, so that you can position your company to take advantage of growth or unique market opportunities. Similarly, industry awareness will help ensure that your sales projections are realistic. Is the industry large enough to support another supplier? How fast is your industry growing (sales , number of customers, profits)? Are there specific segments growing faster than others? Which industry associations exist and prove to be useful resources? What data is provided by government sources? You may want to highlight the following elements within this section: • Identify trade associations that support your product/service area • Current industry status and trends • New products or services in the industry • Economic/political issues that may be of impact Market Analysis Provide a good description of your market (all who might buy your product or service), then group them into primary and secondary markets. Your primary market is the group that is likely to buy the largest quantity of your product, or that is likely to buy more of your most profitable product. Secondary market includes those customers who will buy, but probably not at the same volume level as your primary target. Next you should estimate how large your target markets are (number of potential customers, how much are they likely to spend in a given year). Then, predict how fast your target markets will grow. Be realistic. Even if every customer loves your product, they all have limits on their ability to spend. You may want to highlight the following elements within this section: • Define primary and secondary markets • Market size and trends • Quantify available markets • Predicted annual growth rate of markets Customers It is important for a company to know exactly who they are targeting with their products/services, where the customers are located, why they are interested in the product/service, and when/how/why they will purchase the product/service. Describe your ideal customer in terms of their attributes or demographics (age, gender and income or business type, size and location) so that your selling approach will make sense to them. 14 You may want to highlight the following elements within this section: • Description of target market (who is your ideal customer?) • Geographic area for target market (within 60 mile radius? nationwide?) • Problem that company is solving for the market (what do they need?) • Buying behavior (how often, how many products?) • Decision making process (how much lead time, is it a group decision?) Competition Who is your competition? Competitors include other suppliers who provide similar products (direct competitors) as well as those who provide a product in the same general category (indirect competitors). For example, a retail video rental store competes with other video rental companies, and also with other forms of entertainment such as movie theatres, HBO, etc.) How much of the market do your competitors hold? Who has the largest share of the market and what are their strengths and weaknesses? In which areas does your company have a competitive advantage over your competitors? Are there products or services that may threaten your company’s ability to produce a profit? You may want to highlight the following elements within this section: • Indirect & direct competitors? Who are they? • Competition analysis (strengths and weaknesses, how you might differentiate) • Market share held by competitors Marketing/Sales Plan Your Marketing and Sales Plan needs to focus on the key characteristics of your target customers, their demographics and buying behavior, and their attitudes about your product. Why will a customer buy from you and not a competitor? Set realistic sales goals that recognize the size of your industry, the size of your target market, how strong your competitors may be, and your ability to produce the product. Understanding your customers will also help you determine your sales force and distribution plans. Does your product require a direct sales approach? Will customers feel comfortable ordering online? Do customers need to see the product before purchasing? How many contacts will they need before agreeing to purchase? Once you know your sales targets, you can plan your communications strategy around how many prospects you need to reach. Customers need to be aware of your company; and they have to want your product, have the ability to purchase it, and be satisfied with their purchase so that they will purchase again and also spread your name to others. Your advertising needs to include the media (such as print ads, radio, direct mail, billboards, events, publicity) that best reach your target market. And you will need to get the word out on a regular basis, so draft your communications plan onto a calendar, with regular communications activities throughout the year. Often, partnering with a company that provides a complementary product can open the door to a broad base of potential customers. (For example, a Subway Shop may open next to a gas station.) Pricing is an important part of your marketing mix. Estimate sales at various price levels. Investigate your target customers’ expectations about price in addition to what your costs are. You may want to highlight the following elements within this section: • Marketing and sales objectives • Current customer profile (if applicable) • Potential customers feature/benefit analysis (what are customers looking for?) • Potential teaming partners: who are they, why selected (if appropriate) • Pricing: price points, margins and levels of profitability at various levels of sales • Sales plan: sales force analysis, sales expectations for sale people, distribution channels, margins for intermediaries, customer service and warranties • Advertising: Year 1 detailed marketing communications plan including implementation plan; Year 2-5 general plan, marketing budget/costs, assumptions 15 3. MANAGEMENT AND OPERATIONS Your Management and Operations section needs to focus on the management team and the experience and skill they bring to the business as well as how you will manage the company, who will be responsible for running the day-to-day operation and how it will be implemented. Even the best and brightest entrepreneurs cannot do everything. Identify key work areas that will ensure customer satisfaction and company growth and make sure staff understands their responsibilities. This ranges from how the telephone should be answered to what is your return policy to how do we reach more customers, to what is the most cost effective level of inventory? Human Resources Plan Who is on your management team? How many staff members will you hire and in which roles? How much money will you spend? What are your goals for staffing? Estimate the costs and benefits of full- time, part-time and contract employees. How will new employees be trained? Critical areas include Operations, Sales, and Finance, and each function needs to be defined. How will decisions be made? Where are your greatest strengths? What skill areas and team members need to be added? You may want to highlight the following elements within this section: • Management team • Staffing objectives • Organizational structure growth for 3-5 years • Key individuals to be recruited • Human resource budget • Board of Directors, Research Advisory Board (if appropriate) Operations Plan You may want to highlight the following elements within this section: • Basics on how work will be processed • Use of subcontractors • Quality control • Market Analysis • Facility needs • Manufacturing needs • Budget requirements Research and Development Plan Plan for your company’s future and growth. Whether you will be developing new products or expanding to additional locations, a growth plan is important. What are your goals and plans in this area? What obstacles do you foresee while trying to achieve your objectives? Will you require additional financing to obtain your research and development objectives? You may want to highlight the following elements within this section: • Research and Development objectives • Milestones and contingency plans • Difficulties and risks and how to overcome them • Special budget needs 4. FINANCIALS In a narrative as well as charted, identify the financial goals and plans for your company. What do you need and how will you obtain it? What is your company’s financial history? Start by estimating your monthly costs, both fixed and variable. That total tells you at a minimum what you need to generate in revenue – and then you can work backwards and calculate how many products you’d need to sell, or how many hours of service you’d need to complete, to at least break even (income = expenses). 16 The following elements should be included in this section: • Assumption page - A list of your explanation for the numbers in the financial projection. An uninformed reader should be able to understand how the figures being presented were derived. • Cash flow projections -This will compare the money coming in to the money going out on a month-by-month basis. Can you pay your monthly bills? • 2-5 years profit & loss statements - Why? Because some bankers do not have credit analysts to help with this aspect. Also, the credit analyst may need to prepare ratio analysis. In addition, as the business owner, you need to know if your company is growing financially and according to your targeted goals. • Financing needed and equity/debt options - Ask for what you have assumed in the financial projection. For example, if the projection assumes a 50,000 at 7.5% for 10 years, that is what you ask for. • Use of funds -Tell how the money borrowed/invested will be spent. • Alternative scenarios - Some situations are best represented by developing more than one set of financial projections. One may want to present a "best case" and "worst case" scenario. • Terms and conditions of any previous financing One needs to talk about existing debt and equity arrangements. • Commercialization/strategy (if applicable). Some business plans take an idea or invention from conception to the market place. One needs to address those issues as the timeframe for such a project is usually very long. • Exit strategy - How is the money going to be extracted from the business? Do you plan to sell the business? Will your children inherit it? APPENDIX Supporting documents related to content you have referenced in your plan, which you or another reader may wish to refer to for more detail or verification, may include the following: • Principal’s resumes and/or list of owners with over 20% of the stock • Personal income tax forms if required • Letters of recommendation • Site plans • Contracts And now that the plan is complete…. Cover Page (Allow one full page in actual document) Every business plan needs a cover page. The cover should show the following information (fill in for your business): Company Name Address City, State Zip Web Site Address Company Owner’s Name Email Address Phone Number / Fax Number Company Logo (if available) Date leave blank if you don’t know yet) Organization name and address the business plan is submitted to ( 17 Table of Contents (Allow one full page in actual document) Come back to this section and fill in the page numbers when the business plan is complete. Table of Contents: Page Number Executive Summary xx Company Introduction xx Marketing and Sales xx Industry Analysis Market Analysis Customers Competition Marketing/Sales Plan Management and Operations xx Human Resources Plan Operations Plan Research & Development Plan Financials xx Financial narrative Assumptions Sources and Uses of Funds Cash flow projections Appendix xx EXECUTIVE SUMMARY The Executive Summary section provides an overview of the Business Plan, highlighting the primary ideas from each of the business plan components. Also, include in this section the purpose for writing the plan, i.e., “to obtain financing.” Even though this section comes first in the business plan, it is written after all of the other sections have been completed, as a one or two page summary of the highlights. The order in which the highlights are presented depends on the audience that will be reading it. For example, if the plan will be read by an investor, it might be best to lead off with strong financial highlights. • Company Introduction • Marketing/Sales Plan • Industry Analysis • Human Resources Plan • Customers • Operations • Market Analysis • R&D Plan (if appropriate) • Competition • Financials 18

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