The Secret to a Successful Business Plan

As a small business owner or future one, you will experience the opportunity to write a business plan. It is not an evil invention of the financial or business industry full of hoops to jump through to delay your dreams. It is a tool to help you evaluate your idea’s potential before you take to the bank or share it with other potential partners.

What is a Business Plan

A business plan is the tool to help you see how feasible your idea is and if the local community or target consumer is ready for you.  The great thing about a business plan is when you reach that stage, you already know a lot about the idea and it can simply become a way to write down what you know in an organized fashion.  You get to realize the gaps you did not know about and start to fill them in with new knowledge.

How to Write a Business Plan

Each plan is a custom one because no one business is exactly alike. All lady dress shops are not alike just as jewelry stores are not the same. Your business will not be the twin of the same concept down the street. With that in mind, you usually have three choices in writing the plan: 1) hire someone to do for you, 2) purchase business plan writing software or 3) write it yourself. It is strongly encouraged, you write it yourself to have the most knowledge of the plan and ideas and are better able to answer questions regarding the plan.

 How to Format a Business Plan

There are seven main sections of a business plan. The executive summary which capsulizes the plan and is written last is the first section. The second section is the business description where you talk about the industry, the company and the products/services to be offered to the target customer. The third part deals with marketing and how you plan on reaching the target customer. It is here you will show the need for the product/service and how many potential customers are in the market. A customer profile is usually included here also.  Your pricing strategy is discussed along with your sales strategies.

The fourth part is a study of the competition. Competitive spying is legal as long as you do not break any laws according to the law books. You need to know who are your current competitors as well as any potential future ones who currently have no storefront but could be coming. The fifth section deals how you plan on managing the business and the structure. You will also talk about the management team.  Every industry has its own set of risks so you need to address them in the sixth section.

The final section deals with financial projections and statements. You may want to enlist the assistance of a banker, accountant or a business counselor to help you prepare the necessary statements for this section. They are a balance sheet, profit and loss and cash flow and three years of projections.

A lot of research goes into writing a business plan to help make it a solid document so a potential partner will consider providing the necessary funds. As a small business owner, you are not alone in this venture. You have many resources to help you, bankers, accountants, business advisers and small business development counselors. All have the ability to provide assistance to help you move along in the writing.

Your local Small Business Technology Development Center business counselor is available to discuss your options and provide many services.  All you need to do is call 573-243-3581 and ask for Richard Proffer. 

Your Business Income Statement Has a Few Surprises

Many small business owners take their financial statements and either put them on the back burner. This lack of attention can result in the business owner being caught in a cash flow crunch or worse waking up one day to ask “where has my money gone?”

Income Statements 

The income statement or profit and loss statement is like a report card showing how your business performed over a specific time period just like when we used to get quarterly report cards from elementary school. That time period can be whatever the business owner sets it as – daily, weekly, monthly, quarterly or annually.  The most common time is monthly and it simply shows the business’s revenue and expenses. Then net income is calculated to show if there was a profit or loss.

 What are Revenue, Expenses and Net Income?

So what are revenue, expenses and net income?  Revenue is simply any money brought into the business.  Typically, income comes from some type of sales for the business. Expenses are costs or what was paid out for time period to support the business functions like sales.  The expenses listed on the income statement are typically those allowed by the IRS for tax deductions. Then net income is the reflection of how the business handled the inflow of revenue versus the outflow of expenses for the time period.

 Negative Income Statements

Many startups will show a negative on this report until they start to generate enough sales to cover the startup expenses.  It is advised that a new entrepreneur really know how long he or she feels the business will be in the “red” so enough funding can be injected into the startup.

A fact that often trips up business owners is that just because the income statement shows a profit, there may not be a “real” profit meaning the business made money during that time period. That is because non-cash expenses like depreciation and amortization are included in this report which can result in you having cash flow but no profit.

If you have questions about your financial statements, feel free to contact Richard Proffer, business development specialist for University of Missouri Extension Small Business Technology & Development Center in Cape Girardeau County.  He can be reached at 573-243-3581 or profferrd@missouri.edu.

Why Small Business Owners Need to Understand Copyrights

People see the little copyright sign daily but do they ever stop to think what it really means? We see it in books, music, or any published work daily as we go on with our day. We might hear about them on the news occasionally in dealing with who really owns a certain piece of work, art or even a product.

What is a Copyright? 

Fortunately for small business owners, the Federal Government maintains a system so everybody is able to profit from their own works. These programs give the creator or inventor legal control over how the piece or product is used.  So the copyright is the broadest protection possible in the U.S. because if it is protected it cannot be reproduced in any fashion without the expressed permission of the owner/creator who holds the copyright. There is an end date for the copyright protection and it is the author’s life plus seventy years. 

 What does the Copyright Do?

Work that can be copyrighted is literary compositions, pictures, drawings, sculptures, musical scores, sound recordings, theatrical works, dance techniques/moves, any audio-visual work and architectural drawings. If the idea or product is not physical, then it cannot be protected. The same goes for basic names, phrases, and lists of commonly held information like a phone book. It is important to note that ideas cannot be copyrighted but if it is written down or drawn out, then it can be.

How to Make a Copyright

A copyright is automatic for the creator. To help make that claim stronger, the author should include a copyright notice on the work. This notice has three parts: 1) the word copyright is on it, 2) the year it was published, and 3) the creator’s name. If you want, you can register your work at the U.S. Copyright Office which gives you a stronger claim if you ever have any legal issues arise by going to http://www.copyright.gov/.

In most cases, the creators get the copyright, but there are a few areas where someone else gets the cake. These cases are where a person was hired to do the explicit work. These works are called “Made for Hire” and include portions of a larger literary work like a magazine, film, other AV materials or items like charts.  If the work is translated it also goes to the hiring entity.

Benefits of Copyrights 

The Copyright Act of 1976 gives the copyright owner several rights including: reproduction, distribution, creating adaptations and performance and display. With these rights, the owner has the ability to decide how he wants to profit from the work.

As a small business owner, you may have come upon an idea that you feel will be the next best seller you want to be protected and make money on it.   So follow the process of copyrighting your work at http://www.copyright.gov/eco/.  

THE PRICE IS RIGHT? MAYBE OR MAYBE NOT

Pricing is one of the hardest activities an entrepreneur can do because of the ever changing market. What an entrepreneur buys today may not be the price he pays next week. How can a business owner stay on top of the roller coaster?

How to Find Your Price.

With pricing affecting almost everything, the entrepreneur has to know key pieces of the pricing puzzle.  The first piece is the “ceiling.” This is the highest price possible and still be sold. Customers will clearly indicate by their pocketbooks if the price is too high by not buying it.  The second piece is the “floor” where the cost of doing business sets the lowest price. This is usually determined by the breakeven point of a business.   The range in between the “ceiling” and the “floor” is where the ideal pricing exists. As the business owner, price experimentation may occur to find the ideal one and still covers the costs and provides a profit.

There are three general pricing rules an entrepreneur needs to keep in mind. The first is the price can’t go below costs. The old saying “you will make it up in volume” is never true and if followed, the business is doomed to experience cash flow shortages. The second one is the price can’t go above competitors or the business’s position in the market.  This means if the business has an image of a store catering to blue collar workers, then the pricing can’t be the highest in the area. If the store is appealing to a more affluent person, then the pricing could be higher than the competition if the audience will pay it. The final one is the customer decides if the price is right compared to the perceived value and benefit of the product. The better the customer sees your product as a solution to their need, the more they will pay.

Why Pricing is Important

Pricing plays an important role in any business.  It influences the business’s cost of goods, demand, competition, overall market pricing, customer perceptions and margins. Priced too high and demand goes down but the same can be said if the product is priced too low also.  Consumers may perceive the product to be of little value or not provide a solid solution to their needs, but pricing is not the controller of everything.  The entrepreneur has some control over pricing in the areas of sales volume and revenue, market share of the business, the competitive advantage of the business, company image and profitability.

A simple way to look at pricing strategies is EDLP, market parity and high dollar high value. EDLP was made famous by Wal-Mart with its every day low price strategy where the price will be the lowest of any competitors. Market parity is where pricing is in line competitors and not excessive above or below the market price. The final high dollar high value is where the price is where the business has an image of quality compared to the competition.

For more information on pricing, contact your local small business development counselor by calling 573-243-3581and asking for Richard Proffer.  He can be reached also by email at profferrd@missouri.edu. 

Did You Know the Local Extension SBTDC can do that for You?

I was reading an article on marketing research recently and it stated that many small business owners and budding entrepreneurs make decisions without really putting any thought behind it.  I agreed with the article, but what have I done to let the business community know what my local center can do to help them?  My answer was disappointing and the result is this article. 

Financially

Financially, we are able to assist entrepreneurs with financial projections, business planning, preparing to grow and comparisons to their industry. We use software to help make these activities happen and often the client is able to obtain funding or figure out what needs to be changed to fix the problem.  Software like Profit Cents and BizMiner provide us with a great resource to make these services available to the local business community. With BizMiner, we are able to look at a business’s industry financials the same size and as close to the same service area as we can get plus deliver key dashboard information. So basically, we can look at the business owner’s back yard to help make decisions.

Areas of Interest

We also offer heat mapping (a fancy way of saying birds of a feather flock together), customer profiling, retail studies, demographics and media studies.  This information can be used to flush out a business plan or get a better handle on where the customer’s live or where to open a new business.  By subscribing to ESRI, we have the ability to map many different characteristics plus profile geographical areas and help a business owner make a more informed decision.

Client Satisfaction

We also do a lot of secondary research for clients on a variety of topics where we search the web for information related to the client’s request. But through a partnership with a local marketing research class, we also do primary research for clients on customer satisfaction, pricing, and many other topics.

Marketing

Marketing wise, we can do media efficiency studies where we analyze which media delivers the most target audience at the most efficient price.  We also can help a retailer grow the advertising budget by looking up co-op funds or putting together a vendor market development opportunity. The ability to help a retailer put together an annual marketing opportunity calendar is also a service provided.

Internships

Our internship program includes students in advertising, public relations, sales, marketing, management, human resources, agriculture, accounting and graphic design also help business owners.  In the past, they have created logos for clients, came up with advertising campaign ideas, wrote news stories for distribution, developed HR manuals and job descriptions and many other activities.  Since it is student work, it is closely supervised and each week meetings are held to help the student stay focused and able to deliver client focused work.

Plus we do the work we traditionally have done, helping people get the legal structure figured out, intellectual property guidance, counseling and training for many topics. 

If you feel your business might benefit from one or more of these services give Richard Proffer a call at 573-243-3581 or email him at profferrd@missouri.edu.  

Getting Ready to Start a Business

Everyone at one time or another had the thought – I can do that, so why don’t I start a business? Or that idea is so new that everyone will want to buy it.  Unfortunately, those ideas, a heart, and a prayer is not all it takes to start a business. Many entrepreneurs leave out the pre homework to starting one. 

Initial Thought

The pre homework is the initial thinking that gets an entrepreneur started in the right direction.  First a budding entrepreneur should be able to define his or her product or service. The definition should include the reason for going into business, what problem is being solved, along with unique features and characteristics. The entrepreneur does not want to get too “hip” by using too many words like best or advanced, but rather in the description the product or business should be clearly stated why the product is the best or more advanced amongst others, so the potential users know why to buy it. So the initial thought should answer the following questions:

·         What do you want to be known for?

·         What sets you apart from your competition?

·         How did you determine the need for the product/service?

After developing those answers, spend some time on thinking about how does the product/service solve a problem or fill a current need in the marketplace. This line of thinking is not about the physical make-up of the product but rather the psychological side of the product. Here the questions to be answered are:

·         How do the features of the product solve the need?

·         What is the purpose or the item?

·         Does it really do what it is supposed to do?

 Conversation on Competitions

Next the conversation on competition must happen. An entrepreneur just can’t copy the competition and expect to make a success. The entrepreneur must improve upon the competitor’s product in significant ways to garner sales.  Just changing the color will not cut it in the marketplace. This area is where the entrepreneur can create the niche to get started and not compete with well-established larger competitors. Money can be made in niche markets and allow the startup business to gain financial health.

 Where You Fit

Finally proving the product works must happen. This proof shows the new idea will fit into the current marketplace and be accepted by consumers. If the product has a strong solution, it will probably have low resistance to entry into the marketplace.  If it requires consumers to have to change their buying patterns, there may be increased resistance.

So if an entrepreneur is thinking of starting up a new business review these questions and suggestions and then call Richard Proffer at the University of Missouri Extension SBTDC of Cape Girardeau County at 573-243-3581 or email me at profferrd@missouri.edu.  We are here to help. 

Small Business Trade Secrets

Every business, whether large or small, has a secret considered vital to success.  It could be a top secret family recipe for a dish that has a special spice, or a new way to create a rubber product for a cheaper price, but it lasts just as long. Whatever it is, it is of value to the business and is often considered to be one of the most important assets when the business is up for sale.

Unfortunately, trade secrets cannot be easily and universally defined. The real definition comes from the following three tests on the idea: it’s kept secret, it’s considered important, and it is necessary for the business’s success and has adds value to it.  These three tests must be met for a court to protect the trade secret in a legal issue.

A trade secret can be almost anything used in the business or created by the business as long as it is not generally known in the industry. For example, if a business owner creates a new recipe using pinto beans for a homemade chili, it would not be considered a trade secret because 1) chili is common, 2) pinto beans are common, and 3) most importantly, it is common knowledge you can use pinto beans in chili. A trade secret is a very important key to the competitive advantage given to the business owner and allows the business to operate at higher profit margin usually.

As long as the trade secrets are kept secret, they remain valuable to the business’s success, though over time that value can diminish if a competitor figures out how to duplicate the process. Once discovered independently, the trade secret can be used without any legal action being able to be taken unlike the copyright or patent. If the secret is obtained illegally, then the owner has the right to take legal action and claim damages.

How can a business protect its secrets?

The first step is to determine what in your processes created a trade secret. Unfortunately, the information gathered in creating a product cannot be labeled as one, as it usually represents skill or industry practices. Courts also protect an employee’s rights to carry with him his experience from one employer to another or her own business.

The second step is to write them down in a log and indicate who knows the secret.  The business owner needs to make sure all the people on the log understand the importance of the secret to the business and that they are not to disclose the information.

While no protection plan is entirely safe, the starting of one should indicate to the staff the owners are serious about protecting the secret and its importance to the business.

Your local University of Missouri Extension Small Business Technology Development Center can assist you in identifying and classifying trade secrets through its programs. For such assistance, please call 573-243-3581 and ask for Richard Proffer.