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Before You Buy That Business Plan Template by Henry Funk
Writing a business plan can feel like a daunting task and you may be tempted to take a shortcut.
But is buying a business plan template or software program always the right choice? No.
Don’t get me wrong, if you are just looking to put your business strategy on paper to use as a “play book” for your management team, consider the shortcut. However, if are using your business plan to raise startup capital from an investor, I’d strongly discourage the template or software.
Why?
Because I get to see a lot of business plans every month. Some are from friends who actively invest in startups and small business. Others come directly from entrepreneurs looking for help. Guess where the “shortcut” business plans go. My friends in the VC and investment community assure me that 100% of them end up in the trash.
So if you’re looking to write a business plan to raise capital, consider the following tips.
1. Get the facts right: So many entrepreneurs go about the business plan writing phase as follows. “I’ll write my business plan and submit it to VCs. If that doesn’t work, I’ll send it out to some Angel networks. If that fails, I’ll show it to some bankers. If that doesn’t work, then I’ll…” That’s not how it works! The investor world is not a pyramid structure with VC’s at the top and the loan shark at the bottom. Each investor group is a separate silo. The rules of engagement with them are unique to each of them. From the qualifications to deal structure to exit strategy, VC deals look, act and smell like VC deals. The same is true of the other silos. So get your facts right and don’t assume that one-size (of business plan) fits all.
2. Ask yourself who your target audience is: Is your ideal investor a VC, a sophisticated Angel investor, a wealthy friend/family member, a grant committee or banker? Each of these audiences require a very different business plan and funding offering. Do some homework on each group’s M.O, needs and requirements. If you do your homework correctly, you’ll find yourself leaning toward a single target audience.
3. Build your business plan around your target audience: If you qualify for VC funding, then develop your entire business plan and presentation around their needs. Instead, if your audience is a grant committee, then cater to their needs. Keep in mind that only a fraction of 1% of all business plans get VC funding. About the same percentage earn Angel funding. Check my blog for more on that topic.
4. Get expert guidance: Find someone in your target audience to mentor you and review your business plan as it takes shape. If you are going after banks, find a banker to mentor you. Let your target audience tell you how well your business plan is resonating with them. It will keep you from going too far down the path only to find that your business plan isn’t working to achieve it’s objective.
5. “Get real” on valuation: One of the big reasons a lot of good business plans go unfunded is because the entrepreneur has over-valued their company. You have big dreams and goals for your company. We get that. However, when it’s at the idea/seed stage, your company is probably not worth ten million or even a million bucks. Don’t go to the market asking for $100,000 of investor capital in exchange for 5% of your company at the seed stage. I don’t care if your company is the next facebook or Coca Cola. It isn’t yet. Your investor is going to need a significant position in your company to provide you with seed funds of $100,000. Don’t worry, as you perform, you can buy back or earn back your equity. A good legal expert can guide you through structuring the right offer.
6. Have a Plan B: The reality is that we live in “interesting” economic times. Even some of the best business ideas and management teams are sitting on the sidelines unfunded right now. A good strategic plan should include a play book for “when we get funded” as well as a play book for “if we don’t get funded”. Be wise and figure out how you can get your company up, running and generating revenues without investor capital. That will dramatically improve your chances of success (and long-term funding).
Joe Abraham is Managing Director of En Corpus Group, a business development and advisory firm specializing in small business and startups. He has been involved as founder, executive or advisor in the startup, growth and sale of over 20 companies. In addition to being a featured expert for several publishers, he is a sought after speaker on the topics of entrepreneurship and the next generation of busi
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Five Management Benefits of Over-Delivering to Employees
By Martin Haworth
Giving your people what they expect from an employer is not a major challenge. The simple things like getting paid the right amount and on time, having reasonable working conditions and being respected are pretty much the minimum (and so often what employers find a tough act to deliver on, simple though it might sound).
Going a bit further can have a profound influence on how employees respond. That extra mile will have a huge impact on how well they do their job, how long they stay with you and how they interact with each other and their customers too.
Over-delivering to your people has great advantages. They are ready and waiting for you to be like all the other bosses they’ve had before and as such, in a quirky and almost negative sort of way, they expect you to be no better.
So when you are, it’s a huge void filled. And they will love you for it!
Here are five key benefits that you will gain by going just that little bit further for them, that will make a difference in so many ways!
• Building Trust – when you do a little more beyond expectations, it builds the trust between you and your team members. Trust is a critical aspect of the relationships that you build – and more. When you want to be trusted, over-delivery is a big plus, because employees recognize that you care for them more than they are used to.
• Developing Relationships – by doing that bit more than expected, the partnership is strengthened, extended even. With this you will be able to get back at least as much as you put in.
• Making Deposits – as Stephen Covey describes in ‘The Seven Habits of Highly Effective People’, by going that bit further with what you do, you create a deposit in the emotional bank account between you. These deposits need to be in there before you can ask for withdrawals, especially when you want them to go that ‘extra mile’.
• Showing the Way – if you want your people to behave in a particular way, you need to be an exemplar of what you want from them yourself. By regularly over-delivering – naturally rather than just when you want something – you will start to see them emulate your behaviors too.
• Being Innovative – and often the way you over-deliver will show that you can be creative in the way you work with others. This creativity encourages others to come up with their own innovative ways to respond to other colleagues needs as well.
Overdelivery need not be rocket science for your people to feel special. If you are prepared to go a little further for them, there are rewards out there that are pretty much untapped as yet.
(c) 2010 Martin Haworth. This is a short excerpt from one of 52 lessons in management development at Super Successful Manager!, an easy to use, step-by-step weekly development program for managers of EVERY skill level. Find out more at http://www.SuperSuccessfulManager.com.
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Trying to solve a quality control problem in your business? Try this simple but effective technique: Ask the question. Question the answer. Repeat.
Most of the time, quality control problems—products not manufactured to spec, late deliveries, wrong product delivered, etc.—occur because a process needs to be modified or eliminated. It probably made sense when it was started, but circumstances have changed and now the process causes problems instead of preventing them.
The problem you run into is that the workers have reached a comfort zone and do not want to change, or they have been doing something for so long that they cannot remember the real reason they started the process in the first place. Whatever the case, when you try to find out why something is done a certain way, it is unlikely you will get the right answer the first time you ask the question. Instead of the cause of the problem, you are more likely to uncover another symptom.
So you have to keep asking until you have an answer that makes sense. Here are some examples I’ve encountered during my career:
- Documentation clerks were unable to get their work done in a timely manner. When asked why, their first response was that there were too many documents for just two people to process. If I stopped there, I would assume the issue was not enough manpower, and that hiring another person would solve the problem. Further questioning, however, revealed that the reason it too so long to process the paperwork was because there were many errors in the documents; the real problem was the loan officers did not know how to prepare the documents. So the issue was not manpower, it was education. Once the loan officers learned how to correctly prepare the documents, the documentation clerks were able to process the documents more quickly, and complete all their work in a timely fashion.
- A furniture shipping company would deliver furniture assembled if the delivery was local, but unassembled if the delivery was out of town. When asked why, the workers said that it was simply a fact that the longer the distance, the more likely that furniture would be damaged. This was hard to understand and accept because we knew that moving companies would move assembled furniture great distances without it ever getting damaged. It turned out that the problem was not really the distance the furniture had to travel, but the type of truck that was used for local and out of town delivery. The local trucks were equipped with racks and tie-downs that could be used to secure the furniture, but the out-of-town trucks were not. Of course, if the furniture was not properly secured, there was a greater chance of it getting damaged, especially if it had to travel a long distance. Once the out-of-town trucks were modified to enable securing of the merchandise, the company was able to deliver assembled furniture to out-of-town customers.
- The owner of a logistics company was constantly running short of cash, even though he had vendor credit and some customers paid him in advance. When I asked him why he was having this problem, he replied that he thought it was because his expenses were too high, and he needed help in learning how to manage them. It turned out that he had actually done a good job of keeping his expenses as low as possible, but had failed to include a profit margin in his pricing. Thus he had enough to cover his supplier costs, but little left over to cover some of the ordinary and extraordinary expenses that all businesses incur. Once he began to add the proper profit, his situation improved.
So keep this in mind next time you try to solve a problem. The ultimate cause of the problem may not be what you first think it is, and the first answer you get is not necessarily the one that solves the problem.
Here’s an excerpt from a good article on raising money written by Roxanne Allaire, of Roxx Consulting Service, Inc. You can find the original at her blog, Grow a Prosperous Enterprise.
Yes…money is tight, investors are being highly selective with their funds, and they are interested in a return on their investment in the form of profits. As mentioned in my first post of this series (I Continue Meet Scientists and Business Owners Who Need To Do MORE To Attract Capital Funding), this implies big opportunity for the fit-minded!
Times like these bring out the best in innovative science and discovery, because the fit-minded will adapt and change what they’ve been doing. They will employ new strategies and a well-defined process to attract funding.
The Wrong Way To Attract Capital Funding:
In my opinion, there is only one wrong way to attract capital funding: Keep doing what you did last year! Instead of growing a prosperous enterprise, you will grow a cynical attitude.
Investors and other financiers know passion when it presents itself. You cannot have both cynicism and passion for the future of your company, research and products. Great companies and innovations grow on passion!
If you have it in your head that investors “can’t see the possibilities”, OR “all they care about is profit”, you are going to be absolutely correct! Your behaviors – being influenced by your mindset – will in turn influence your investors’/financiers’ perceptions of you, your company, and your future.
Do any of these behaviors sound like you?
== Click here to read the rest of Roxanne’s excellent article. ==
If you have read some of my other posts, you will know that I often caution against confusing profits with cash. Too often, business managers assume that, because they have earned profits, they will be able to pay for operational expenses. However, you cannot pay for anything with profits—you need cash, which means you need a good system for ensuring that you can collect your receivables in a timely manner. You can read more on this topic by reading the articles in the credit management and cash flow sections of this blog.
The basic mantra is: profits are not cash. In my post about getting more cash from your receivables I amended the mantra so it is now: Profits are not cash. But receivables are cash. I now need to make one more amendment so the mantra is now as follows:
Profits are not cash. But receivables are cash, and so is inventory.
Are you short of funds for paying salaries, vendors, operational expenses or other items? Have you taken a look at your inventory to see where you squeeze out a bit more money? You might be surprised just how much money you have laying around in stock that is obsolete, damaged, out of season, etc. Here are some things to consider:
- Do you know exactly how much inventory you have? How often do you do a physical count of your inventory? What systems and controls do you have in place to minimize overages or shortages when you do take a physical inventory? It doesn’t do you much good to view your inventory stock as a possible cash resource if you can’t be confident that your inventory on your books matches the inventory in your warehouse.
- How much of your inventory is obsolete? This doesn’t only include items that no one will buy; it also includes items that no one will ever buy at your current sales price. You are only fooling yourself if you do not regularly take an honest look at your inventory and mark the value down to market.
- Is it better to hold or sell some of your current inventory? Obviously, it is better to get rid of obsolete inventory because it is very likely that your cost of carrying the inventory is greater than the value of the inventory. But what about inventory that is not obsolete, but just old? Does it really make sense to hold on to the inventory, even at reduced prices, until it sells, or does it make sense to find someone who will take the whole lot off your hands for a reasonable sum? Keep in mind that having cash in hand puts you in a better position to gain supplier discounts on newer inventory that you can sell at higher margins.
- Do you have the correct amount of inventory? If you have too much inventory, then you have cash tied up in an asset that is semi-liquid. In bad times, it will be difficult to convert the inventory to cash; in good times, you are losing money because you can probably get a better return on your money if it is invested elsewhere. If you have too little inventory, you are probably losing sales because you cannot meet customers’ demands.
- When do you pay your vendors? Do you pay as soon as you receive the invoice from your vendor? Do you have credit terms with your vendors? If you can obtain payment terms from your vendors, you should take advantage of this. Vendor financing is often unsecured, and can be one of the least expensive methods of financing your business. If your terms are favorable enough, you may find yourself in a position where you do not have to pay the vendor until after you have been paid by your customer. There is the added benefit that, in bad times, your vendor, who would probably prefer to avoid having to take back his product, will work with you until you are able to sell the product.
- How effective is your pricing policy? Are you using pricing effectively as a strategy to move your goods? Do you know if yours is a seasonal business and, if so, when is your peak season and your low season? Are you aware of what your competitors charge and how you compare to your competition in terms of price?
- What is your inventory mix? Do you have too many individual inventory items? Or too few? If you have a large quantity of individual items, perhaps you would be better off reducing the total number of items you carry. Fewer items means less mistakes when it comes to counting inventory. You also gain a cost advantage when you buy product because you will buy larger quantities of each item. If you have too few items, you are missing an opportunity to increase sales by not offering a variety of choices to your customer. Keep in mind that one way to increase inventory is to have more accessory items, which can increase the value of a sales invoice, and enable you to sell more product without cutting into sales of your best selling items.
So take a walk through your warehouse and look at every inventory item as a pile of cash. Ask yourself: “What can I do to get this pile of cash out of my warehouse and into my bank account as soon as possible?” You might be surprised at just how creative you can be.
When you stop and think about it, it is amazing how many different choices we have to pay for the products and services we can buy. We can pay in person, over the phone or on the internet. We can pay by American Express, Discover, Visa, Mastercard, PayPal, store credit card, debit card, check and cash.
However, we cannot use sales as a form of payment. This is important because, too often, business owners make the mistake of thinking that once a sale is made, they have cash to spend. While this is true if your sales are on a cash basis (assuming you receive the cash at the time of the sale), if you sell on credit you must always remember the old adage: there is no sale until the money is in the bank.
It is a saying you forget at your own peril. Those who cannot remember find themselves “asset-rich and cash poor.” In this case the asset is your accounts receivable. When this happens to you, you will find yourself in a situation where your business is thriving, yet you cannot meet your daily operational expenses.
Maybe this has already happened to you. If so, are you frustrated because you continue to sell your product or service, maybe even to grow your business, but you still struggle to pay your bills when they are due? Why is it that you do not have enough money on hand even though sales are good?
To find the answer, you have to look at your collection process (I am assuming you have a good credit policy in place and that you follow your policy guidelines when extending credit to your customers). Once we close a sale, our focus tends to be on closing the next one, not following up on the one just completed. We assume that we will collect the customer’s payment in due course, so we tend not to worry about it too much.
Instead, we most often worry about a customer’s payment only when the customer fails to make the payment on time. Interestingly, it is a shortage of cash that makes us realize the customer is late. That is backwards. You should be monitoring your cash flow weekly, if not daily, so you know ahead of time that you will be short of cash.
So what can you do to squeeze a little more cash out of your accounts receivable? Here are some things to consider:
- Do you call the customer before the payment is due to ensure there are no problems? If you do not deliver as promised, customers will not pay—and they won’t always call you to fix the problem. Instead, they will just wait for you to call them. So call your customer after delivery, or at least a few days before the bill is due, to make sure that they are satisfied with your service.
- Do you allow customers to give themselves a credit if they dispute the amount they owe you? Often, if a customer feels you have overcharged, they will deduct the overage from the amount they owe, and send you the net amount. This is not a practice you should allow. Not only does it affect your cash flow, but it in the long term it unnecessarily complicates your accounting records and the problem resolution process.
- Do you have a process for ensuring that your invoices are prepared correctly and on a timely basis? Anything you can do to shorten the time between delivery of product and service and submission of an invoice will help you get paid sooner.
- Do you bill the customer once you have completed the service or delivered the product? Or do you just bill the customer once a month? In most cases, a monthly billing is sufficient. However, if you have just completed an unusually large order, it is not only appropriate, but necessary, for you to bill the customer as soon as possible. In such cases, you have likely incurred significant, extraordinary expenses yourself, and will owe money to vendors who may not be interested in waiting until your customers pay you.
- Do you always submit your bill in time to meet your customer’s internal deadlines? Many companies only cut checks to pay invoices on specific days of the month. If your invoice arrives after that date, too bad for you. You just have to wait 30 days for the next payment date to get your money. This is especially true if you are selling to very large companies.
- Do you prepare an accounts receivable aging and are you diligent about following up on delinquent accounts? Resolve to do something about delinquent accounts, even if it means that you must collect less than 100% of what is due. Ultimately, any cash you receive is more than you have now, and part of something is better than 100% of nothing. Also, remember that if you have a credit line to finance accounts receivable, no lender will give you credit for anything that is more than 90 days past due, so it is imperative that you stay on top of delinquent accounts until they are paid.
Ever have one of those moments when you unexpectedly find a little bit of cash? Maybe it happened when you were taking clothes out of the wash and saw a few coins lying on the bottom. Or maybe it happened when you were looking for the remote control for the TV and when you put your hand inside the back of the couch you felt some loose change. My favorite is when I put on a pair of jeans I haven’t worn for a while and come across some paper money — a $20 bill if I’m lucky.
So all of us have some cash lying around the house, hidden in places we don’t expect. Wouldn’t it be better if we knew where it was so we could use it? I know I always find the hidden money AFTER I have a need for extra cash.
It’s the same way in business. Your company probably has lots of hidden cash tucked away in little nooks and crannies, and if you found all of it, you’d probably be surprised at just how much it was. I’ll post a series of articles that take a look at where some of this money may be hiding. Let’s start with personnel expenses.
Employee expense is often the largest, or one of the largest, expenses any company incurs. You have a couple of options here. Of course, the quickest way to get more cash is to fire a bunch of people, but letting people go simply for the sake of saving money is almost never a good idea. You may save some cash now, but most of the time it will cost you much more in the future. Reducing staff is something that has to be done strategically. Consider moving people around instead of letting them go; maybe one department has too many people and another area doesn’t have enough help. Could you earn more revenues and profits if you shifted your human resources to another area of your business?
Keep in mind that you can manage your personnel expense by cutting staff or by not hiring additional staff. If you are thinking of hiring additional people, first take a look at your internal processes. Can they be streamlined so they can be done by fewer people, thus freeing up some employees to work in other, revenue-producing areas of your business? The answer is probably yes; typically, any process in use for some period of time is a good candidate for revision or modification.
Take a look at your benefits plan and related tax benefits. Is there a way to restructure your plan so you achieve additional tax savings while your employees receive the same or greater benefits?
Do you use a recruiter to hire staff? If so, consider offering employees a bonus if they refer someone that you eventually hire so you don’t have to pay the recruiter’s fee. Also, remember that the bonus does not have to be all cash—it can be part cash, part tickets to a play, a night in a hotel where you have a corporate account, etc.
Speaking of bonuses, consider offering a bonus to employees if they come up with viable ways to save money. After all, your staff is doing the job day to day, and is more likely than you to know how your company can save money in a given area.
Use This Job Candidate’s Checklist in Your Hiring Process
Here are 10 more factors that can cause a job candidate to be eliminated from an interview process, the second half of a list provided by Lois D. Meyer, Senior Partner, of the Lucas Group. The list is intended for job candidates but I thought it is just as useful for employers to use as a tool when evaluating candidates. Some of the items may not be new, but it never hurts to review the basics.
Did the job candidate:
- Fail to express thanks for your time?
- Ask few or no questions about the job, which indicates either a lack of interest in the job or stupidity, both of which are fatal mistakes?
- Give indefinite responses to your questions, which make the candidate sound evasive?
- Appear to be overbearing, over aggressive, conceited with a superiority or “know it all” attitude?
- Demonstrate an inability to express himself or herself clearly, i.e., used poor diction, bad grammar, slang, mumbling, speaking too low, etc.?
- Show a lack of planning for a career, with no purpose, no goals set
forth?
- Appear to lack confidence and poise, i.e., was nervous, ill at ease, and tense?
- Fail to participate in the interview, for example pay no attention to what you are saying, let his or her eyes wander around the room, etc.?
- Make it clear they were unwilling to start at the bottom, and appear to expect too much too soon?
- Make excuses and hedge about unfavorable factors in their career record?
You Don’t Have the Cash Until You Have the Cash
There is a direct relationship between a sale and the cash in your pocket. If you have the cash, you have a sale. If you don’t have the cash, you don’t have the sale.
So many things can occur to prevent you from getting cash when you expect it, starting with the buyer’s payment process, continuing with your receivables collection process and ending with your bank’s deposit receipt processes. Consider these examples:
Buyer’s Payment Process
- Items must be received in good order and checked against the purchase order and your invoice.
- What if items are missing or damaged?
- What if the buyer receives the incorrect number of items?
- What if the buyer receives the right item but the specs are wrong (you sent 1 inch widgets instead of 2 inch widgets).
- Purchasing must instruct Accounting to pay the bill.
- What if Purchasing delays in approving payment?
- What if the person who writes and/or approves the checks is out sick?
- What if management, in an effort to improve cash management, decides to delay sending the check?
Your Receivables Collection Process
- The invoice must be prepared and sent to the buyer.
- What if the invoice is incorrect as to amount or quantity?
- What if the invoice gets sent to the wrong address or wrong person?
- What if you miss the deadline for submitting the invoice to the buyer so you can be paid this month?
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- You must collect the money.
- What if the buyer sends payment to the wrong address?
- What if the buyer delays payment, claiming an error when you know the invoice is correct?
- What if the buyer, unknown to you, is having financial problems and cannot pay?
The Bank’s Deposit Receipt Process
- Your deposit has to be credited to your account.
- What if the bank credits someone else’s account because the teller transposed the numbers when entering your account number?
- What if the bank refuses to accept the check for deposit because it is a third party check?
- What if the check bounces a few days after you deposit it because the buyer’s bank account has insufficient funds to cover the check?
- You must have good funds, available for use
- What if the bank places a hold on your deposit?
- What if you are paid by wire transfer, but the instructions are not correct, so the money never gets to your account?
- What if you are paid by ACH or wire transfer and, though the funds are sent today, they will not arrive into your account for a day or two?
Some of the preceding hypotheticals may seem outlandish but I assure you that either me or my clients have experienced at least one of them. Assume nothing, and don’t rest until you know you actually have the money in your possession.
Not Until The Cash Is In The Bank
If you are not clear on when and how a sale occurs in your business, you can never manage your company properly.
So what is a sale? If you use accrual accounting, then a sale is defined this way:
The seller delivers goods to the buyer.
The buyer accepts the goods and either pays the seller or incurs an obligation to pay the seller.
If you use cash accounting, however, a sale is defined this way:
The seller delivers goods to the buyer.
The buyer accepts the goods and pays cash to the seller.
To be prudent, always use the cash definition of a sale even if you use accrual accounting in your business. Why? Because, simply put, until you have the cash, you don’t have the cash. As a former client of mine was very fond of saying:
“It’s not a sale until the buyer pays, the money is deposited and you have good funds.”
Good funds means you have:
- Received an electronic wire transfer OR
- Deposited cash into your bank account OR
- You have deposited a check and the funds have cleared.
To summarize:
- It is not a sale if you deliver and the customer has promised to pay.
- It is not a sale if you deliver and send an invoice.
- It is not a sale if you receive a check from your customer.
- It is not a sale if you deposit your customer’s check in the bank.
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