Entrepreneurship Unit 3

Purpose of Business Plan

Purpose of Business Plan

• To plan and set objectives of business

• To convince others to invest in your business

To plan and set objectives of business, you must:

• organize and analyze critical data

• Describe products / services

• Identify customers and markets

• Determine if it can meet financial goals.

Who might you convince to invest in your business?

Bankers, investors (crowd funding), partners, potential management.

Components of Business Plan

• Executive Summary

• Description + analysis of business

• Proposed market / promotional plan

• Proposed financing plan

Executive Summary

Mission statement and summary of the business. Even though this is the first page of the document, it is usually written last bc you’re summarizing the plan. The mission statement has the goals of the company.

Description and Analysis of Business Situation

Includes history and background of idea, market research, description of business, self- analysis, customer/business location, business organization.

Proposed market / Promotional Plan

Products / services you will offer. How you will promote your business.

Proposed plan

Income statement, cost of goods sold, operating expenses.

Available Sources for Business Plan Information

Chamber of commerce

SBA (Small Business Administration)

SCORE (service corps of retired executives)

Small Business Development Centers (1 on 1 assistance) (workshops) (free!)

Trade Associations

Publications

Internet Sites

Professional Business Consultants

Gov. agencies; division of commerce

Small Business Administration

It offers financial + mentor assistance. Gives special assistance to women, minorities, and the physically challenged.

Types of Legal Ownership

Sole Proprietorship, Partnership, Corporation

Corporation Types

Sub Chapter S Corporation, C Corporation, Benefit Corporation.

Sole Proprietorship Characteristics

• Owned and operated by one person

• Easy to create

• Owner receives all profits, incurs any losses, and is liable for the debts of the business.

• Most enterprises often switch to another form that provides more personal financial protection as the business grows.

• Least regulated form of ownership

Sole Proprietor Advantages

• Easy+ inexpensive to create

• Least regulated form of ownership

• Owner receives all profits

• Business pays no taxes, pays cheaper personal income taxes.

Sole Proprietor Disadvantages

• Unlimited liability

• Full responsibility for debts

• May have insufficient skills

• Owners personal assets are at risk (house, car)

• Upon death, business dissolves

Partnership Characteristics

• Business with 2 or more people

• Partners don’t have to share a business equally

• Partnerships make agreements on how the interests are divided and spelled out. (how much each gets of profits and ownership)

Partnership Advantages

• Inexpensive and easy to create

• Share ideas, abilities, and financial obligation with others'

• Owners pay taxes individually for cheaper than corporate tax rate.

Partnership Disadvantages

• Difficult to dissolve

• Personality conflicts

• Both liable for each others actions

Corporation Characteristics

• Registered by state, operates apart from its owners.

• Lives on after owners die or sell interest

• Ownership is represented by shares of stock, private or public.

Corporation Advantages

• Separate legal entities from the owners

• Perpetual existence

• Shareholders liability is limited to the amount invested.

Corporation Disadvantages

• Officers of corporations may be personally liable

• Expensive to start, legal paperwork

• Owners are double taxed (profits + income)

C Corporation Characteristics

• Most common corporation form for large business

• Status may assist in getting loans

• Shareholders are owners

• Required to have an elected board of directors to make decision for business

Subchapter S Corporation Characteristics

• Designed for owners of smaller companies who want protection of corporation but avoid double taxation

• Pass through tax: profits are taxed once at the shareholders personal tax rate

• Smaller private corporation founders hold all or majority of stock.

• Shareholders are liable to the amount invested

LImited Liability Corporation Characteristics

• Pass through tax

• Liability is limited

Benefit and Non-Profit Corporations

These companies make positive impacts on society.

Organizational Structure

A plan which shows how the jobs in your company relate to one another. Bigger companies need more layers of management.

Federal EIN

Employer Identification Number, nearly all business are required to register: Dept. of Commerce, division of Corporations + Commerce Code, Dept. of Workforce services, State Tax Commission, Labor Commision, Internal Revenue Service, Local Municipalities to obtain a business license.

Business License Information

• Insure that businesses are safe to the public

• Bus- might be inspected for zoning, building, and working requirements before receiving license

• Ensures employee + public health, safety, and welfare.

Marketing Mix (4 P’s)

Product (What are you selling?)

Price (How much is it?)

Place (Where can I get it?)

Promotion (Why should I buy it?)

Inventory Methods

Keeping track of available stock of goods.

Perpetual Inventory

Tracking inventory on a daily basis as it arrives or is sold. Computers allow accurate and up-to-date information.

Physical Inventory

Mistakes can be made, items are stolen or lost. Conducting a physical count of inventory is a good idea and should be done periodically to get actual numbers.

Just-in-Time

Suppliers ship inventory just before it’s used to keep stock at a minimum.

Cost Plus Strategies

Mark up:

Cost based (used for service, high price or tax items, cars, furniture) (Cost + (%)Mark up = Price

Competition-based: (lower or raise price of products/services based on competition

Demand-based: (price is raised or lowered based on supply + demand)

Psychological Pricing

Odd/even (odd suggests bargain, even suggests better quality)

Prestige Pricing (Denotes status)

Price Lining (Pricing items in low, moderate, and high-priced categories)

Promotional Pricing (Lower prices offered for a limited time)

Multiple Unit Pricing (Items priced in multiples to suggest a bargain and to increase volume sales (3 for $1))

Bundle Pricing (Bundling several complementary products together and selling them for a lower combined-price.

Discount Pricing Method

Offers customers reductions from regular price.

• Cash discounts: given for prompt payment

• Quantity discounts (the larger the order, the cheaper the per-unit price)

• Trade discounts (given to distribution channel members who provide marketing functions)

• Promotional discounts (given to wholesalers + retailers for carrying out manufacturer promotions. May be in cash or promotional materials, supplied by the manufacturer.)

• Seasonal discounts (given to customers who buy seasonal items in the off-season.

Credit

Allows customers to obtain products/services with the promise to pay later. This risks the chance of late payments or defaulting (don’t pay at all). It costs the business money in service fees to accept credit cards.

Channel of Distribution

The path a product takes from producer to final user.

Direct: distribution is straight from manufacturer to consumer.

Indirect: distribution includes intermediaries.

4 areas of Promotional Mix

Advertising (paid non-personal presentation of ideas directly toward mass audience)

Publicity (free placement of newsworthy items about company, ie in the media)

Personal Selling (giving an oral presentation to 1 or more potential buyers)

Promotions (use of incentives or interest building activities to create demand)

Advertising Methods

Broadcast (TV, radio)

Print (magazines, newspapers, catalogs)

Outdoor + Transit (billboards, bus)

Internet (banner ads)

Publicity Methods

News releases

Feature articles

Press conference

Seek interviews

Public Relations

Any activity that creates goodwill for a business.