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Industry Research for Business Plans

One of the more challenging sections to write for a business plan is the industry research, economic research, competitive analysis, and demographic section. Generally, this section of the business plans referred to as the market and strategic analysis. One of the primary issues that most people have in regard to this matter is sourcing the industry research specific for their business. Also, many people often have difficulty determining what industry there and given that they may offer a number of different products or services through one corporate entity. The best place to start is the US Economic Census as it provides a complete overview of every single industry within the United States. This census overviews all of the revenues, aggregate payrolls, and aggregate expenses that these businesses have within the country. You can look up what industry you’re involved in simply by entering keywords into the website or by looking up the NAICS or SIC number. Typically, this information is compiled every five years. Most banks and financial institutions do compare the anticipated revenues of the business to industry-standard figures that are available on this platform. There are also a number of different private information sources that can be used and can be easily found on the Internet. However, privately sourcing market research information can be extremely expensive. Specific industry research reports can often range anywhere from $50 all the way to $2,000 depending on the depth of the market research.

As it relates to the economic analysis, many people mistake this for an overview of how their business will do in any economic climate. While this is a component of the economic analysis, a specific focus should be paid as to how the economy is doing as a whole. This includes over viewing unemployment rates, interest rates, how the stock market is doing, the housing market, and other major indexes that view the health of the economy. There are a number of publicly available information sources where this information can be found. Additionally, many good entrepreneurs always keep tabs on how the economy is doing as a whole given that it will assist them in planning for any positive or negative changes that may occur. This is especially true among businesses that rely heavily on debt capital as part of their day-to-day operations as rises in interest rates can significantly impact a businesses profit and loss statement. If you are uncertain as to develop this type of information for your business plan you may want to speak to a business plan writing firm or a certified public accountant who can assist you in making these forward-looking financial statements.

The demographic analysis portion of this document is somewhat easy to develop given that you know who your target customer is going to be. In this section the business plan you should outline the anticipated annual household income, median family income, median net worth, age, gender, and any other defining characteristics of the customers that you will be targeting. Almost always, this section of the business plan is developed in conjunction with the marketing plan given that specific demographics use specific channels to get their information. If you are having difficulty with the section of the business plan that you may want to speak with a marketing firm that can assist you in developing this type of documentation. Many marketing firms maintain huge databases of demographic profiles that they can tap in order to provide you with who they feel is going to be your most likely customer.

The final section of this analysis typically deals with competitors at the business will face on a day-to-day basis. For local businesses, this information is usually easy to obtain given that the owner is aware of other companies that provide similar services. For Internet-based businesses and companies that operate on a regional or national level – this information can be a little more difficult to gather given that there may be tens of thousands of competitors within the market. Usually, only the largest competitors are discussed by name within this section of the business plan. One of the other things is often discussed are going to be the competitive advantages that the business will have over other service providers. Competitive advantages often include being able to provide a product or service at a lower cost, being able to operate more time effectively than competitors, and related information to why the business is better than other businesses. Of course, an entrepreneur should spend a significant amount time analyzing the competitors and how they can either emulate similar services or provide better services at a lower rate.

In closing, the section analysis usually takes the most time and if any part of the business plan with the exception of the financials. Usually, most business plan writing firms actually complete the market and industry research first before they write the rest of the business plan. This allows the entrepreneur to get over the most difficult section of the document while thinking about the ways that the business can be highly competitive as compared to other market agents.

Feasibility Studies vs. Business Plans

Often we asked about the differences between a business plan and a feasibility study. As it relates to the business plan, this document is specific for raising capital and showcasing what the business intends to do over a three year to five year timeframe. Additionally, the business plan features information regarding the anticipated financial results within a comprehensive financial model. Almost all business plans feature a profit and loss statement, cash flow analysis, balance sheet, breakeven analysis, and business ratios page. The business plan also features a significant amount of industry and market research specific to the type of business that is being operated. One of the other things that is found within a business plan but not within a feasibility study is a comprehensive marketing plan in regards to how the business intends to acquire customers. The business plan itself should be considered one of the sales document for a potential funding source or a business partner. Additionally, a business plan does not contain any of the legal risks or legal disclosures that would be normally found within a feasibility study or a private placement memorandum.

A feasibility study on the other hand focuses much more on the detailed operations the business on a day-to-day basis. Issues that are covered within the feasibility study consist of legal risks, operational risks, economic risks, and related financial risks. As relates to legal risks, a feasibility study will outline the potential liabilities that the business may have as it progresses through its operations. For instance, a medical practice feasibility study may focus significantly on the risks relating to rendering services as it relates to malpractice claims. Additionally, using the same example of the economic risks associated with this type of business could include changes in regulation and impact Medicare or Medicaid reimbursement. These are all things are much more thoroughly discussed within a feasibility study and a business plan. Often, many entrepreneurs in conducting a substantial amount of due diligence will focus on developing both documents so that the business plan can be used for raising capital while a feasibility study can be used for addressing all the risks and issues at the business may have as it develops its business operations. Most business plan writing firms do not provide feasibility studies as this is something that is usually completed by an economic consulting firm. An economic consulting firm has a much greater understanding of the detailed day-to-day operations of the business rather than just focusing specifically on how the business will be using capital that may be raised and the anticipated financial results.

Much like a business plan, a feasibility study usually has around 4 to 5 chapters that goes in depth for each of the issues that needs to be discussed and examined by the entrepreneur. Foremost, one of the things that these two documents to have in common is at the industry and market research is usually included in both documents. Although some economic consulting firms will omit the industry research section – it is generally considered to very important so that a individual reader understands the direction that the industry is taken for any specific type of company. One of the other things that is much more thoroughly discussed within the feasibility study is the critical risks and problems with the company. This includes a very detailed overview of each potential risk that the business will have and how the entrepreneur will work to remedy that problem. Generally speaking, most feasibility studies run about 30 to 40 pages depending on the complexity of the business. Companies that have very complex operating procedures can even have feasibility studies that run upwards of 100 pages depending on the scope, scale, and size of the organization.

Most entrepreneurs who are starting a small business like a new retail location or a small service company do not really require a full feasibility study. These analysis are typically done for much larger scale organizations where potentially millions of dollars to be put at risk for the development of a new operating segment, development of new business, or expansion of existing operations. Typically, a feasibility study usually takes a month to complete foremost economic consulting firms that engage in this type of business. As relates to cost, a feasibility study can run anywhere from $1,000 following a $50,000 depending on the size of the organization and how in depth the feasibility study needs to be in order to clearly outline risks and strategies.

Factors for Obtaining a Business Loan

We are going to discuss the factors that are involved when a bank is making decision as to whether or not to provide a loan to a entrepreneur or small business owner. Foremost, they’re going to look at the individual entrepreneurs credit score. While it may seem as clear-cut as simply just looking at the credit score and going from there – a number of financial institutions will take a complete look for issuing a approval or denial letter. For instance, many individuals that are engaged in the continuing buying and selling of real estate will often have very high debt to income ratio was given that they have a number of loans secured by a number of different properties. As such, this can have a slightly negative effect on a independent real estate entrepreneurs credit score and thus might bring their score down to a point where they would otherwise not be accepted for a loan. Again, this is not provide the whole picture of an individual’s finances given that the realist the entrepreneur may have very appropriately leverage these properties and is within completely normal range for this type of business activity. As such, many banks will look – again – at a total financial picture of the individual borrower before making a decision. In certain cases, other factors such as a previous bankruptcy may impact the individual’s ability to obtain a conventional business loan or a business loan that is backed by the small business administration. Generally, any individual prior three years is not eligible for however, there are a number of specialty lenders out there that are willing to take the risk on a higher lower quality borrower if they have substantial assets or collateral to back the financial instrument.

The second factor that the financial institution is going to look at is the collateral that is used in conjunction with the business loan. Banks and lenders are not really in the business of taking a risk or generating a profit from capital appreciation or profit. Banks are in the business of lending money for a specific interest rate with the intent to receive these payments on a monthly basis without fail. As such, the financial institution is going to want to see that nearly 100% of the money that their lending is going to be used for the acquisition of tangible assets for banks to provide extensive working capital loans to individual small businesses. However, there are exceptions to this rule especially among professionals such as doctors, lawyers, dentists, certified public accountants, and other individuals uphold a professional license that generate revenues from their professional services. In these instances, a financial institution may be willing to accept a much lower collateral amount given that the individual is going to be able to generate substantial revenues by providing their services to the general public. Again, working capital loans are primarily geared towards high-margin businesses and individuals uphold professional licenses. Prior to submitting an application to a bank for a loan, a full list of the assets are going to repurchase with the loan proceeds should be provided so that the bank understands exactly what their funds are being used for. In some cases, a financial institution may actually purchase the assets directly themselves and then provide the items to the individual entrepreneur so that the appropriate titling and collateral can be held directly by the bank. This is primarily reserved for companies that are engaged in the large-scale acquisition of equipment and specialized assets.

The other factor that is going to come into play as it relates to receiving a business loan is the character of the borrower. Usually, a criminal background check is done against every borrower that is seeking a business loan. As such, previous criminal history maybe impede an individual’s ability to receive a small business administer. If it walks per Newark and they should speak with an attorney as well as an accountant to ensure that they are able to properly qualify for a business loan given any past issues with the law.

Finally but certainly not least – the financial institution is going to want to see your very well-developed business plan. As we have discussed throughout this website, the business plan should have a three-year to five-year overview that will allow the bank to make a decision as to whether or not to provide the borrowed funds. As always, this business plan should have a profit and loss statement, cash analysis, balance sheet, and other financial metrics that a lending institution is going to want to see to render a lending decision planning materials that you have developed in order to make sure that they fall in line with industry standards and that they are appropriate for the amount of money that you are seeking. The certified public accountant will also assist you with putting together a personal financial statement that a bank is almost always going to want to say as a relates to your current assets and current outstanding liabilities. Your personal financial statement is going to need to list everything you own such as a home, car, retirement accounts, and other assets that are considered to have tangible value. All of your debts are also going to be showcased within this financial statement including credit cards, existing business loans, mortgages, and any other type of liability that you are able to get the funding you are seeking.

In closing, if it seems that there is a lot of documentation that is needed in order to get a business loan then you are not wrong. All banks and lenders are going to want to see that their investment is secured by a substantial amount of collateral and that the individual entrepreneur is qualified to operate the business on a day-to-day basis. As such, it is imperative that an individual entrepreneur is extremely prepared as it relates to making sure that everything is organized, neat, and can be easily followed by a loan officer or a lending committee. Throughout this website, were going to continue to discuss some of the issues that are involved with obtaining business financing through financial institutions such as banks, credit unions, and independent lenders.

Elevator Pitches

Elevator pitches are designed to provide a potential funding source or business partner with a one-page overview of exactly what the company does, how much money they’re looking to raise, and other pertinent information in order to gain interest among the reader. It is very difficult to write a elevator pitch given that a lot of information needs the put on to one page very quickly and easily. There are a number of templates on this website that can assist you in developing an elevator pitch so that information pertaining to anticipated financial results, usage of funds, services or products offered, and the size of the market can be neatly placed onto one page. While it is common for most elevator pitches to be no more than one page in length, there are times when it is appropriate to have a 2 to 3 page elevator pitch. This is especially true if the documentation is heavily technology focused and the individual reader has a substantial understanding of this industry. As such, this can be viewed almost as an expanded executive summary rather than an elevator pitch. In many cases, entrepreneurs will develop both types of documentation so that an individual can have a one-page summary while also having a smaller document to read so that they can have a better understanding of what the business is looking to accomplish.

What is generally omitted in a elevator pitch is primarily the ongoing operating procedures of the business as well as things such as the marketing plan. Only a small table showcasing the potential financials of the business should be put onto this one page summary. Generally, a limited amount of information regarding the industry as a whole is included as well. For entrepreneurs that have an extensive amount of experience in this field they will often put in a very small biography that showcases this experience or a highly technical educational background. This can assist when differentiating a business from the numerous elevator pitches that venture capitalists, private equity firms, and angel investors read on a daily basis. One of the more typical aspects of writing elevator pitch is also managing the font so that it can be easily readable by anyone that is going through it very quickly.

One of the other things that is commonly put into an elevator pitch is a discussion that a full-scale business plan exists and is available upon request. An elevator pitch is usually just meant to provide – again – an overview of the business and is not usually required to have a nondisclosure agreement. In almost all cases where the business plan showcases a substantial amount of technical information a nondisclosure agreement is almost always included. As such, it is important to provide a significant amount of information within this one-page document but not enough where you’re giving up trade secrets. Again, this is one of the more difficult aspects of it given that you want to create a substantial amount of interest in the business you don’t want to give everything away via a one-page document.

Almost all the content that is on an elevator pitch is usually included within the business plan as well. However, it is important to note that most information that is an elevator pitch is not duplicated within the business plan itself. This is going to be one of the ongoing things that we discussed in regards to developing interest among potential funding sources. On a side note, most banks and financial institutions do not require that a elevator pitch is made when they are entertaining a loan application. These institutions primarily want to see a full-scale business plan were very large executive summary while they render a lending decision.

Thank you for taking the time to read this article and we look forward to having you browse all the different business plan template that we offer on this website. If you have any questions, please visit our contact us page and we’ll get back to you as soon as possible.

Do You Need a Business Plan?

One of the frequent questions we get is whether or not an individual actually needs a business plan in order to start a new business. The short answer is no if the owner-operator is not seeking any capital from a third-party. Although there may be some handshake deals or a relative may provide a limited amount of startup capital for a new company without a formal business plan, any financial institution, professional investor, or other funding sources going to require a full scale business plan in order to render their lending or investment decision. One of the other things that should be noted is that it is very difficult to manage all the aspects of starting a new business keeping track of these matters in a person’s head. As such, even a very small business plan that is almost like a skeleton document can be very beneficial towards an entrepreneur that is looking to develop this business on a professional basis. One of the key elements to developing a business plan that is not geared towards capital raising is that it can be treated very much as a free-form roadmap as to what the entrepreneur will do in each month that the business is being launched. Most importantly, a well written business plan does feature a timeline of events that the entrepreneur will engage in order to boost the visibility of the business of providing a comprehensive amount of services and products to the general public.

One of the other benefits to having a business plan is that it can be continually modified and expanded as new things within the business occur. When an individual is starting a new business they are often going to run into situations, both good and bad, that need to be addressed that will impact the way that the business will operate moving forward. As such, many entrepreneurs take a look at a business plan is actually a living document that grows alongside the business. Many business plan writing firms will often take this view as well and will provide for the fact that the business is going to change shape as new money comes in, as new customers are acquired, and as economic circumstances change. One of the important things to focus on within a personal business plan as well is the fact that there will be recessions from time to time more the business environment will change and will require a significant amount of work on behalf of the entrepreneur.

As it relates to a small roadmap business plan there can be a section dedicated to what would happen if a regulation changes, if the economy does very well, if the economy does poorly, and other circumstances that are generally outside of the entrepreneur’s control. Good entrepreneurship is substantially about risk management and what to do when a risk becomes a reality. In a business plan that is going to only be developed specific for the entrepreneur, the management team, were key employees – in overview of how each risk can be handled and mitigated can be included and will be an invaluable source of the business over the life of its operation. This is something that is not often included in a formal business plan that is written specifically for funding source, but it can be great so that a very specific and detailed game plan can be enacted for each potential scenario that may occur. Of course, it is difficult to predict every single thing that can occur with the business but it does help to have in overview of what could be done in the event that there is a significant problem. This is especially true if the business is not generating as much revenue that will was anticipated in a formal pro forma financial statement.

One of the key issues that many people have when developing a business plan – whether it’s for a bank or just for the growth of the business – is that they often get distracted and will leave the document unfinished. It is difficult to write these documents and it can be kind of boring at times. One of the key things to know is that it really should just focus significantly on the current situation at hand and how to grow the business over a five-year period. Many people often take the entire vision of the company and put it directly within the document but this can lead to a lot of confusion and a scattered business planning document. As such, it is important that a laser sharp focus is applied when you are developing this type of documentation so that it is very clear not only to you but also to any reader as well as to the vision of the business, how certain matters are handled, and how the company will grow over a specified period of time.

This website has a significant amount of information as well as a number of different templates that can be used in conjunction with business planning activities. We thank you for taking the time to review our website and if you have any questions please feel free to contact us anytime via the contact us page.

Developing a Competitive Analysis

One of the areas where most people have trouble in developing a business plan is formulating a competitive analysis. For more localized businesses, a competitive analysis is extremely important given that you need to understand how many different market agents that are in any specific target market radius so that there are can remain an economically viable business that is going to be produced. For instance, it is unwise to develop a small independent bookstore in an area that already has a number of these businesses in operation. As such, completing the competitive analysis is one of the more difficult aspects of any type of blood business planning activity. Typically, this involves the entrepreneur going to individual businesses within the area to get an understanding of what they offer, their pricing, and other ways that they are going to be able to differentiate themselves in the greater market.

For larger scale businesses were companies that could be operated online, completing a competitive analysis is a little bit more challenging. This is primarily due to the fact that the Internet is a very large place and a main or large-scale competitor can remain unnoticed for a substantial period of time. As such, one of the ways that an entrepreneur can find all competitors is by completing a number of different keyword searches concurrently purchasing a number of competitive research reports from industry research firms. These large-scale industry research firms typically provide a significant amount of information as it relates to the top 10 to top 20 providers of any specific product or service. It should be noted that these reports can be expensive but they can be worth in order to determine whether or not the idea for any given project is going to be economically viable. It can be expected that a research report will run anywhere from $100 to $1,000 depending on the specific industry that is being targeted. On this website, we provide a number of different lists of online providers of industry research reports that can assist with finding specific types of competition.

When developing a competitive analysis, one of the things that many entrepreneurs do is to create a one through ten ranking system so that they can understand exactly who is a direct competitor and who is an ancillary competitor. For example, for specific services there may be a competitor that offers what your business intends to provide any very limited basis. As such, a lower competitive ranking would be applied to this business that they only provide the service ancillary to a number of other services. A competitor that solely focuses on the same service that you’re going to offer would be considered a much greater competitive risk moving forward. This is one of the aspects of business planning that is a little bit more of an art than a science given that a subjective opinion is going to be provided for an object manner. There are a number of different mathematical tools are available so that the cyber data can be properly quantified and examined by any entrepreneur or senior management team. It is typically very easy to apply a 1 to 10 ranking scale to specific types of competitors that are going to be working alongside the business moving forward.

In closing, a competitive analysis is moderately difficult to do and be one of the more time-consuming aspects of writing a business plan. It should be noted that all financial institutions, banks, lenders, and private investors are going to want to see a fully completed competitive analysis before they issue any type of funding to a new started venture. This is primarily due to the fact that the funding sources going to want to ensure that the business is going to be able to remain competitive in any given market and remain economically viable at any given time. One of the key things to developing the section of the business plan is well is to make sure to properly showcase why the business will maintain a number of competitive advantages over other area providers moving forward. This is a topic that we are going to further discuss at this website on an ongoing basis.

Crowdfunding a Business

In lieu of directly raising capital from a bank, investor, or other private investment source – many entrepreneurs have taken to raising funds for the establishment of a new business through crowdfunding platforms like kick starter and related platforms. One of the nice things about these types of platforms is that they typically do not fall under the guise of raising capital through the sale of securities given that it is a product that is going to be provided in exchange for the needed capital. However, the entrepreneur that is looking to raise capital through these platforms still must conform with all laws relating to acting in good faith and wanting to provide a product to the general public.

On a quick side note, crowd funded projects typically do not require a business plan. However, with the greater competition that is constantly going on among entrepreneurs that are looking to raise capital – some entrepreneurs that raise financing through crowdfunding campaigns have begun to provide a small business plan that showcases what they intend to do with the money so that customers do not feel ripped off if things do not go as planned. However, this business plan can be on the smaller side of things and it can omit certain financial sections given that this is not a document that is going to be specific for capital raising activities with the intent to provide a return on investment for investors.

In the coming years, it is expected that a certain greater degree of regulatory oversight will occur within the crowdfunding market. This is primarily due to the fact that there have been a few instances where unscrupulous individuals have raise capital for specific types of projects without ever providing the product in return. As such, certain individuals have complained about this aspect of the crowdfunding  nature of specific projects. In future operations, there may be a substantial verification process that a potential investor needs to go through in order to be able to showcase their product or future service to the general public. However, this is not yet occurred and it will probably be about five years from now for any type of major regulatory oversight occurs for this type of market.

When the key things to remember when raising money through a crowd sourcing platform is that the individuals that are putting up the money are seeking a product or future service in exchange for their current funds rather than a return on investment. As such, and again – this allows entrepreneurs to effectively raise capital for new and innovative products without having to go through the extensive process of registering securities or finding private investors that are able to put up the needed capital for their new invention. At this time, the vast majority of capital that is raised through crowdfunding campaigns is specific for products given at the people who want the services once of intangible and hand. This trend is expected to continue in perpetuity.

In closing, crowdfunding can be a great way to source a significant amount kept capital relatively quickly for a new and innovative product. However, any entrepreneur that is looking for capital raising should be prepared for substantial number of orders and to be able to fulfill these orders relatively quickly.

In the future, we will continue to develop new documentation and articles regarding this type of capital raising as it has become very popular among new entrepreneurs that do not have a direct amount of capital or an established group of individuals will finance their entrepreneurial ventures.

Credit Scores and Business Plans

The things that is often brought up to us is whether or not a discussion regarding individual’s credit score should be put within the business plan. Usually, when we develop a business plan on a customized basis for a client we do not include information regarding the individuals personal credit. This is primarily due to the fact that the individual bank or financial institution is going to pull all three major credit reports when they are examining the loan application. However, especially for service-based businesses there may be times when it is appropriate to discuss the underlying credit of the individual borrower directly within the business plan. This is especially true if the individual is applying for a small business administration loan given that the credit score is going to be a very important factor when making a lending determination. As a whole, most banks consider three primary factors when developing and reviewing a loan application. First, they thoroughly review the business plan to ensure that the business is going to be able to remain economically viable in most economic climates. This includes an overview of the anticipated revenues, expenses, and pretax profits. It is important within the business plan to show that the business can satisfy the debt obligation by more than 20% per month within the first years of operation. Most banks and lenders focus substantially on the ability of the individual entrepreneur to make timely monthly principal and interest payments regardless of how the business is doing.

Second, the loan officers or lending committee will look very thoroughly at the individual bar themselves in regards to their experience, educational background, and their ability to effectively operate the business on a day-to-day basis. Most people that seek small business administration loans or conventional business loans are new entrepreneurs. The small business administration programs were developed specifically so that newer and younger entrepreneurs could have access to affordable credit. This is going to be one of the key factors moving forward as it relates to the federal government support of these programs. One of the nice things about getting a small business administration loan is that the terms are flexible especially for an entrepreneur that does not have a substantial amount of experience operating businesses on a day-to-day basis. Most importantly, a full resume and biography should be included within the business plan so that the bank has an understanding of the individual’s ability to effectively bring a new enterprise to profitability with a positive cash flow within the first 24 months of operation. If this is specific for a professional practice, such as a dental practice, then a substantial amount of information regarding the practitioners history and their ability to render services to the public should be included as well.

Third, there is going to be an examination of the collateral that is going to be used for the loan. Most banks and lenders strive to have his much collateral as possible so that in the event of a default they are able to recoup their investment. Common types of collateral include real estate, furniture, fixtures, related equipment, retirement accounts, checking accounts, 401(k) accounts, and any other asset that has a salable value. For SBA loans, most banks want to see that at least 80% of the loan is collateralized. This is why a 20% capital injection is typically needed by the borrower in order to ensure that the bank is comfortable providing this investment to the entrepreneur. Of course, one of the other frequent questions we get is whether or not the individual entrepreneur is going to need to provide a personal guarantee for the loan. The short answer is yes. Almost all banks and lenders require that the individual entrepreneur personally undersize the loan in conjunction with their company. After the credit crisis of 2008 and spanning through a recession for three years – most banks have implemented much more stringent lending protocols so that in the event of a default the bank is able to recoup a significant portion of the loan. This is one of the things that an entrepreneur should discuss with their certified public accountant given that when a small business administration loan is undertaken – a substantial amount of the individuals personal assets can be put at risk. As such, it is up to the entrepreneur to make an appropriate determination as to what they consider to be a can reasonable risk for their personal assets. Many people have a significant amount of concern specific for their primary residence. This of course could mean that a house could be lost in the event that a business fails. As such, it is important that the entrepreneur determine whether or not they consider this to be acceptable risk.

In closing, lending is a very complicated process especially for small businesses given the high-risk nature of these operations. The small business administration seeks to alleviate some of the risks associated with banks providing small business loans by issuing guarantees. However, it is still very much incumbent upon the entrepreneur to have an airtight business plan that will ensure that even if revenue targets are not met the business is able to satisfy the underlying debt obligation. This is going to be something that we continue to discuss on this website also focusing on how to properly develop a business plan that is specific for a SBA lending bank.

Business Plans for Technology Businesses

Developing a business plan for a technology business is a little bit more complicated then producing one that would be specific for a general service based business or a retailer. This is primarily due to the fact that technology businesses have highly proprietary technology that can be patented. As such, special additional precautions need to be taken when developing this type of business plan given that you do not want to have the reader given too much information regarding anything that is highly proprietary. For these types of business plans, an attorney will often be hired in order to have a nondisclosure agreement developed so that anyone who is reading the document will be bound by a legal agreement that they will not disclose anything that they have seen within the documentation. One of the keys to writing a business plan specific for a technology business is that you want to be able to provide an understanding of exactly what the new technology does without being a huge overview to the operating process were underlying patent. In many cases, a qualified business writer can be hired so that they can gain an understanding of exactly with the technology does and providing insights as to how it can be beneficial to businesses and individuals without disclosing the exact operating nature of the patent worthy to be patented technology.

One of the more difficult aspects of writing a technology focused business plan is also discussing the valuation of the business within this document. This can be optional given that many technology businesses will often undergo a formal valuation of the patent or technology by someone who is qualified to make that determination. Most business plan writing firms do not engage in doing business valuations given that there is a significant amount of liability that is associated with rendering the service. However, there are number of specialty firms – known commonly as business valuation experts – that can render an opinion as to what they feel that the technology would be worth in the open market. Most venture capitalists, private equity groups, and highly seasoned angel investors are going to want to see that a formal valuation is done and either have this as part of the business plan or as a stand-alone document. One of the other things that many of these firms can do is to develop an economic viability analysis that shows whether or not this specific piece of patent technology would be in demand within the marketplace. One of the common issues that occurs when an individual is developing a new technology business is that with the rapid increase in the way that technology is developed these days – a competitor could easily copy what the company is doing and create a similar platform on their own. As such, speed to market is one of the key focuses that needs to be discussed within any type of business planning documentation that is going to be read by potential funding source.

One of the other key components to the business plan specific for a new piece of technology is the development of the financial model. More so than any other type of business, a technology focused business plans financial model can be difficult to draft given that there are a number of different revenue streams from which the business can produce profits. First, the entrepreneur needs to determine whether or not they are actually going to engage in the production of the technology or simply license it to a third-party. As many people have spent years developing these patents, they are often looking for a quick exit as it relates to either the licensing of the patent or the entire sale of the business along with the patent for a substantial price. However, many entrepreneurs are driven to see that they want to bring the product to market and therefore will develop an entire business around their patented technology. In these instances, the entrepreneur needs to make a determination as to what type of revenue model will be used in conjunction with their development. Frequently, technology as a service or software as a service (“SaaS”) business models are used that they produce highly predictable streams of revenue on a monthly basis. This is especially true among companies that offer general-purpose technology where the general public will pay a monthly fee for accessing the service. These companies tend to have a much higher sales premium given the highly predictable nature of the revenues. Of course, certain technologies are based on product sales and in this case the revenues are not nearly as predictable as individual units need to be sold on a month-to-month basis. As such, the entrepreneur needs to have a complete understanding of the gross profit that will be generated from each unit of the technology sold. If this technology is going to use as a component for a standalone device then examination of what manufacturers will be incorporating the product needs to be examined as well.

One of the key focuses to developing this type of business plan is to discuss the speed to market. Most venture capital firms and other private investment groups want to have an understanding of how much capital is going to be needed before revenue generation occurs. This is commonly referred to as the burn rate. A very large table showcasing each month’s expenditures needs to be clearly provided to a venture capital group in order for them to understand exactly how much money is needed before they can gain a return on their investment. One of the other things that is frequently put into the business plan is a discussion as to whether or not the business will be sold in the event that revenue generation does not commence. As such, this is where the valuation of the technology can come into play given that this is a salable asset and can be divested in order to recoup any investment that may be lost if the business fails to produce revenues and profits.

One of the things that we have often seen as a relates the technology focused business plans is that these companies often focused far too heavily on with the technology does and its revolutionary nature rather than the business itself. While it is extremely important to provide moderate technical specifications regarding the company’s product, what is really being sold in the business plan is the business itself and its ability to produce a profit. As such, when we develop a business plan for a client we often focus no more than 50% of the documentation on the product itself. Many newer entrepreneurs or individuals that do not have a significant experience with business planning will often allocate 50% to 90% of the document on the technology itself while neglecting to properly mention how a business will be developed around it. One of the things that can remedy this situation is to have a standalone white paper or documentation regarding schematics and specifications that accompanies the business plan rather than putting all the information into one document. Given the complexities of technology-based businesses this is completely appropriate to do given that you do not want to overwhelm the reader with a substantial amount of technical information will not focusing enough on how the business will ultimately produce a substantial amount of profit for the management team and investors.

On this website we have a number of different resources that are specific for technology and e-commerce base businesses. We encourage you to review everything we have on the site as it will help you determine what direction to take when developing a business plan for a technology focused business.

Business Plans for Service Companies

Developing a business plan for a service-based business is generally quite different than that of developing one specific for a product that is going to be for products sold either on a retail level or a wholesale basis. Service based businesses always generate extremely high gross margins from the revenues given that it is underlying labor that is being sold to the customer or end user. As it relates to raising capital for a service based business, most banks and financial institutions are willing to extend a working capital one credit that will finance the underlying operating expenses until the business develops a customer base is able to remain profitable and cash flow positive. However, it should be noted that individual entrepreneurs that do provide services to the general public will still be required to have a very strong credit score or a significant amount of collateral that can be used in conjunction with the working capital one credit. Most service based businesses have very low start up costs and these can range anywhere from $10,000 all the way to $200,000 depending on whether or not vehicles and other equipment are used in the conjunction of rendering services.

For instance, a plumbing based business – which is a service business – is going to be required to have a truck or van as well as some equipment in order to provide the services to the general public. Another example of a service-based business would be a small law practice in which almost no equipment is necessary outside a desk and a computer. As such, when an entrepreneur is developing this type of business plan a special focus should be paid to how much equipment is going to be needed. Typically, a working capital line of credit should be available to finance approximately six months to nine months of underlying operating expenses. While this can be a significant undertaking, the benefit of using a working capital line of credit is that it can be drawn down as needed rather than receiving a one lump sum loan. This will allow the business to have a greater control of the interest expense associated with the revolving credit line.

Much like any other business plan, one that is specific for a service based company needs to include a profit and loss statement, cash flow analysis, balance sheet, breakeven analysis, and business ratios page. Within the business plan as well – a special focus easy paid to the demographics that we targeted as it relates to specific services. A demographic analysis should include a examination of annual household income, median family income, population density, gender, age, and other relevant psychographics and statistics that are specific to the type of service being rendered. For instance, a performance automotive tuning specialist is going to have a set of demographics that are among people that are a younger age where a home healthcare agency is going to focus specifically on people that are older for the most part. It is very important to develop a laser focused demographic profile as it will come to be used when the marketing plan is being developed.

Given the low barriers to entry for most service based businesses, a very comprehensive marketing plan is going to be needed so that customers can be properly targeted at all times. Many entrepreneurs when developing their marketing plans and marketing materials to have trouble properly disseminating their message within their websites and sales literature. As such, an advertising agency can be hired to assist with the development of these marketing materials. While this does contribute to a much higher upfront expense the benefits can be substantial. Foremost, there are a lot less likely to be a number of mistakes made when a third party is developing an advertisement. Two, these businesses often have established connections with newspapers, public relations firms, online marketing agencies, and related entities that can assist the owner with distributing their advertisements to the general public. As most of these firms like having ongoing relationships with their advertisers, they may be able to provide you with a modest discount at the onset of operations. Many periodicals – especially with the substantial amount of competition these days – are willing to provide some level of discount two new businesses that are looking to establish their operations. In the long run, these relationships can be an invaluable source of revenue for a number of different businesses. One of the nice things out owning a service based businesses that can be readily expanded or contracted at any given time.

Given that they can simply expand by hiring additional service personnel that can render a greater number of services. One of the common issues that needs to be dealt with a service-based business is of course human resources. It is imperative that the owner of this type of business have an expansive employee handbook that clearly spells out the roles and responsibilities of each job. Additionally, this employee handbook should have some documentation regarding dispute resolution especially as it relates to unfair employment practices. Many attorneys maintain this type of documentation as a boilerplate template so that a new small business can quickly get the employee handbook they need without a tremendous amount of undue expense.

Of course, when developing a business plan so specific for a service-based business a certified public accountant should assist the individual owner with ensuring that the financial statements within the document are reasonable and in in-line with GAAP or generally accepted accounting principles. This is especially important if the entrepreneur is going to be seeking a loan or a revolving line of credit from a financial institution. For some service based businesses, they are very strong candidates for an equity investment from a small private investor. Typically, most larger investment firms like venture capital groups in private equity groups typically stay away from smaller service based businesses and as they have a very unique way of operating. This is especially true if the service based businesses is technology focused.

In closing, service based businesses are great for people that have highly specific skills or have received a significant amount of educational training for a specific profession. The barriers to entry can be considered to be extremely high especially among professional services such as physicians, attorneys, dentists, and certified public accountants. Trades people also have very high barriers to entry given the extensive amounts of experience and licensure required to operate independently.