New Product Money2018-09-13T20:07:59+00:00


7.  Business Planning And Raising Money


Preparing A Written Business Plan:
Why It Can Be So Important


If you are interested in bringing a new product to market with the aim of making a profit you are engaged in a business venture, and should proceed accordingly.


As they say – if you fail to plan your business, plan for your business fail. It is tough enough to succeed with the development of a new product when you have a plan and know where you are going (and why). Moving forward blindly, and developing a product by the seat-of-your-pants without research or a plan for success is almost a sure fire way to make big mistakes, lose a great deal of time and money, and ultimately fail.


A business plan is a document that summarizes the operational and financial objectives of a business and contains the detailed plans and budgets showing how the objectives are to be realized. For anyone starting a business venture, such as bringing a new product to market, it’s a vital early step.


When it comes to bringing a new product to market perhaps the most important reason to have a business plan is that it is almost always necessary to have one in order to raise money from investors or lenders. Because successful product development is usually so expensive, there is an excellent chance that you will need to receive money from lenders or investors in order to turn your idea into an actual product that is successfully selling in the market.


In general, a successful business plan will usually include something about each of the following areas, since these are what make up the essentials of a good business plan.


The following information comes from the U.S. small business administration, an excellent resource for those contemplating a new business venture (www.sba.gov):


ELEMENTS OF A BUSINESS PLAN
  • Executive Summary

  • The executive summary is a very important section of your business plan. It provides a brief overview of the business plan along with a history of your business (if any). This section tells the reader where the business is currently at, and where you want to take it. It’s the first thing readers refer to. Accordingly, it is often the part that will either interest them and make them want to keep reading the plan or make them want to stop and proceed no further. Perhaps most importantly, the executive summary tells the reader why you think the proposed business will be successful. The executive summary is the last section written. After all the details of your plan have been worked out, it is easier to summarize it in no more than a few pages.


  • Market Analysis

  • The market analysis section must demonstrate your knowledge of the particular industry that your business is, or will be, in. It should discuss the general conclusions of your marketing research. The specific details of the marketing research should be in an appendix section of the business plan. This section should include: an industry description and outlook, target market information, market test results, lead times, and an evaluation of your competition.


  • Company Description

  • Without going into too much detail, the company description section should include information about the nature of your business as well as list the primary factors that you believe will make your business a success. When discussing the nature of your business, or explaining why you want to be in business, list the customer needs that you are trying to satisfy. Include the ways in which you plan to satisfy customer needs or wants using your products or services. Also list the specific individuals and/or organizations that you have identified as having these needs. Important factors for your anticipated success might include a superior ability to satisfy customers’ needs, highly efficient methods of delivering a product or service, outstanding personnel, or a key location. Each of these could give your business a competitive advantage.


  • Organization And Management

  • This section should include: your company’s organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors. Who does what in your business? What is their background and why are you bringing them into the business as board members or employees? What are they responsible for? These may seem like unnecessary questions to answer in a one- or two-person organization, but the people reading your business plan want to know who’s in charge, so tell them. Give a detailed description of each division or department and its function.


    This section should include who’s on the board (if you have an advisory board) and how you intend to keep them there. What kind of salary and benefits package do you have for your people? What incentives are you offering? How about promotions? Reassure your reader that the people you have on staff are more than just names on a letterhead. Experts agree that one of the strongest factors for success in any growth company is the ability and track record of its owner/management, so let your reader know about the key people in your company and their backgrounds.


  • Marketing And Sales Management

  • Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. There is no single way to approach a marketing strategy; your strategy should be part of an ongoing self-evaluation process and unique to your company. However, there are steps you can follow which will help you think through the strategy you would like to use.


  • Service Or Product Line

  • What are you selling? In this section, describe your service or product, emphasizing the benefits to potential and current customers. For example, don’t tell your readers which 89 foods you carry in your "Gourmet to Go" shop. Tell them why busy, two-career couples will prefer shopping in a service-oriented store that records clients’ food preferences and caters even the smallest parties on short notice.


    Focus on the areas where you have a distinct advantage. Identify the problem in your target market for which your service or product provides a solution.


    Give the reader hard evidence that people are, or will be, willing to pay for your solution. List your company’s services and products and attach any marketing/promotional materials. Provide details regarding suppliers, availability of products/services, and service or product costs. Also include information addressing new services or products which will soon be added to the company’s line.


  • Funding Request

  • In this section, you will request the amount of funding you will need to start or expand your business. If necessary, you can include different funding scenarios, such as a best and worst case scenarios, but remember that later, in the financial section, you must be able to back up these requests and scenarios with corresponding financial statements.


    You will want to include the following in this section: your current funding requirement, your future funding requirements over the next five years, how you will use the funds you receive, and any long-range financial strategies that you are planning that would have any type of impact on your funding request.


    When you are outlining your current and future funding requirements, be sure to include the amount you want now and the amount you want in the future, the time period that each request will cover, the type of funding you would like to have (i.e., equity, debt), and the terms that you would like to have applied.


    How you will use your funds is very important to a creditor. Is the funding request for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.


    Last of all, make sure that you include any strategic information related to your business that may have an impact on your financial situation in the future, such as: going public with your company, having a leveraged buyout, being acquired by another company, the method with which you will service your debt, or whether or not you plan to sell your business in the future. Each of these are extremely important to a future creditor, since they will directly impact your ability to repay your loan(s).


  • Financials

  • The financials should be developed after you’ve analyzed the market and set clear objectives. That’s when you can allocate resources efficiently. The following is a list of the critical financial statements to include in your business plan packet.


    Historical Financial Data


    If you own an established business, you will be requested to supply historical data related to your company’s performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business.


    The historical financial data you would want to include would be your company’s income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to 3 to 5 years). Often creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.


    Prospective Financial Data


    All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, you should supply monthly or quarterly projections. After that, you can stretch it to quarterly and/or yearly projections for years 2 through 5.


    Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies. It’s much better if you catch mistakes before they do. If you have made assumptions in your projections, be sure to summarize what you have assumed. This way, the reader will not be left guessing.


    Finally, include a short analysis of your financial information. Include a ratio and trend analysis for all of your financial statements (both historical and prospective). Since pictures speak louder than words, you may want to add graphs of your trend analysis (especially if they are positive).


  • Appendix

  • The appendix section should be provided to readers on an as-needed basis. In other words, it should not be included with the main body of your business plan. Your plan is your communication tool; as such, it will be seen by a lot of people. Some of the information in the business section you will not want everyone to see, but, specific individuals (such as creditors) may want access to this information in order to make lending decisions. Therefore, it is important to have the appendix within easy reach. The appendix would include:


    • Credit history (personal & business)

    • Resumes of key managers

    • Product pictures

    • Letters of reference

    • Details of market studies

    • Relevant magazine articles or book references

    • Licenses, permits, or patents

    • Legal documents

    • Copies of leases

    • Building permits

    • Contracts

    • List of business consultants, including attorney and accountant

Previous Guide Section
Next Guide Section



7.  Business Planning And Raising Money


Preparing A Written Business Plan:
Why It Can Be So Important


If you are interested in bringing a new product to market with the aim of making a profit you are engaged in a business venture, and should proceed accordingly.


As they say – if you fail to plan your business, plan for your business fail. It is tough enough to succeed with the development of a new product when you have a plan and know where you are going (and why). Moving forward blindly, and developing a product by the seat-of-your-pants without research or a plan for success is almost a sure fire way to make big mistakes, lose a great deal of time and money, and ultimately fail.


A business plan is a document that summarizes the operational and financial objectives of a business and contains the detailed plans and budgets showing how the objectives are to be realized. For anyone starting a business venture, such as bringing a new product to market, it’s a vital early step.


When it comes to bringing a new product to market perhaps the most important reason to have a business plan is that it is almost always necessary to have one in order to raise money from investors or lenders. Because successful product development is usually so expensive, there is an excellent chance that you will need to receive money from lenders or investors in order to turn your idea into an actual product that is successfully selling in the market.


In general, a successful business plan will usually include something about each of the following areas, since these are what make up the essentials of a good business plan.


The following information comes from the U.S. small business administration, an excellent resource for those contemplating a new business venture (www.sba.gov):


ELEMENTS OF A BUSINESS PLAN
Executive Summary

The executive summary is a very important section of your business plan. It provides a brief overview of the business plan along with a history of your business (if any). This section tells the reader where the business is currently at, and where you want to take it. It’s the first thing readers refer to. Accordingly, it is often the part that will either interest them and make them want to keep reading the plan or make them want to stop and proceed no further. Perhaps most importantly, the executive summary tells the reader why you think the proposed business will be successful. The executive summary is the last section written. After all the details of your plan have been worked out, it is easier to summarize it in no more than a few pages.


Market Analysis

The market analysis section must demonstrate your knowledge of the particular industry that your business is, or will be, in. It should discuss the general conclusions of your marketing research. The specific details of the marketing research should be in an appendix section of the business plan. This section should include: an industry description and outlook, target market information, market test results, lead times, and an evaluation of your competition.


Company Description

Without going into too much detail, the company description section should include information about the nature of your business as well as list the primary factors that you believe will make your business a success. When discussing the nature of your business, or explaining why you want to be in business, list the customer needs that you are trying to satisfy. Include the ways in which you plan to satisfy customer needs or wants using your products or services. Also list the specific individuals and/or organizations that you have identified as having these needs. Important factors for your anticipated success might include a superior ability to satisfy customers’ needs, highly efficient methods of delivering a product or service, outstanding personnel, or a key location. Each of these could give your business a competitive advantage.


Organization And Management

This section should include: your company’s organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors. Who does what in your business? What is their background and why are you bringing them into the business as board members or employees? What are they responsible for? These may seem like unnecessary questions to answer in a one- or two-person organization, but the people reading your business plan want to know who’s in charge, so tell them. Give a detailed description of each division or department and its function.


This section should include who’s on the board (if you have an advisory board) and how you intend to keep them there. What kind of salary and benefits package do you have for your people? What incentives are you offering? How about promotions? Reassure your reader that the people you have on staff are more than just names on a letterhead. Experts agree that one of the strongest factors for success in any growth company is the ability and track record of its owner/management, so let your reader know about the key people in your company and their backgrounds.


Marketing And Sales Management

Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. There is no single way to approach a marketing strategy; your strategy should be part of an ongoing self-evaluation process and unique to your company. However, there are steps you can follow which will help you think through the strategy you would like to use.


Service Or Product Line

What are you selling? In this section, describe your service or product, emphasizing the benefits to potential and current customers. For example, don’t tell your readers which 89 foods you carry in your "Gourmet to Go" shop. Tell them why busy, two-career couples will prefer shopping in a service-oriented store that records clients’ food preferences and caters even the smallest parties on short notice.


Focus on the areas where you have a distinct advantage. Identify the problem in your target market for which your service or product provides a solution.


Give the reader hard evidence that people are, or will be, willing to pay for your solution. List your company’s services and products and attach any marketing/promotional materials. Provide details regarding suppliers, availability of products/services, and service or product costs. Also include information addressing new services or products which will soon be added to the company’s line.


Funding Request

In this section, you will request the amount of funding you will need to start or expand your business. If necessary, you can include different funding scenarios, such as a best and worst case scenarios, but remember that later, in the financial section, you must be able to back up these requests and scenarios with corresponding financial statements.


You will want to include the following in this section: your current funding requirement, your future funding requirements over the next five years, how you will use the funds you receive, and any long-range financial strategies that you are planning that would have any type of impact on your funding request.


When you are outlining your current and future funding requirements, be sure to include the amount you want now and the amount you want in the future, the time period that each request will cover, the type of funding you would like to have (i.e., equity, debt), and the terms that you would like to have applied.


How you will use your funds is very important to a creditor. Is the funding request for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.


Last of all, make sure that you include any strategic information related to your business that may have an impact on your financial situation in the future, such as: going public with your company, having a leveraged buyout, being acquired by another company, the method with which you will service your debt, or whether or not you plan to sell your business in the future. Each of these are extremely important to a future creditor, since they will directly impact your ability to repay your loan(s).


Financials

The financials should be developed after you’ve analyzed the market and set clear objectives. That’s when you can allocate resources efficiently. The following is a list of the critical financial statements to include in your business plan packet.


Historical Financial Data


If you own an established business, you will be requested to supply historical data related to your company’s performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business.


The historical financial data you would want to include would be your company’s income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to 3 to 5 years). Often creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.


Prospective Financial Data


All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year’s documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, you should supply monthly or quarterly projections. After that, you can stretch it to quarterly and/or yearly projections for years 2 through 5.


Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies. It’s much better if you catch mistakes before they do. If you have made assumptions in your projections, be sure to summarize what you have assumed. This way, the reader will not be left guessing.


Finally, include a short analysis of your financial information. Include a ratio and trend analysis for all of your financial statements (both historical and prospective). Since pictures speak louder than words, you may want to add graphs of your trend analysis (especially if they are positive).


Appendix

The appendix section should be provided to readers on an as-needed basis. In other words, it should not be included with the main body of your business plan. Your plan is your communication tool; as such, it will be seen by a lot of people. Some of the information in the business section you will not want everyone to see, but, specific individuals (such as creditors) may want access to this information in order to make lending decisions. Therefore, it is important to have the appendix within easy reach. The appendix would include:


Credit history (personal & business)

Resumes of key managers

Product pictures

Letters of reference

Details of market studies

Relevant magazine articles or book references

Licenses, permits, or patents

Legal documents

Copies of leases

Building permits

Contracts

List of business consultants, including attorney and accountant

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