Category: Business Development

Business Plans for Professional Practices

Business plans that are specific for a professional practice are pretty easy to develop given that most financial institutions and investors are very keen to provide capital to these businesses. This is primarily due to the fact that the services remain in demand regardless of whether or not the economy is doing great or there is a recession. The types of business plans are specific for a professional practice include dentists, physicians, surgeons, certified public accountants, attorneys, and allied health professionals. Generally speaking, a professional practice business plan is specific for someone that has received a licensure from the state to operate in a very specific capacity. Generally, these individuals have undergone rigorous academic training that has allowed them to take state-based exams so that they can obtain a license to practice. This is especially true among physicians, dentists, surgeons, attorneys, and certified public accountants. One of the nice things about developing this type of business plan is that it is very straightforward in nature given that almost everyone understands exactly what services being provided. As with any other type of business planning document, any financial institution or investor putting up the necessary capital for this type of business is going to want to see a profit and loss statement, cash analysis, balance sheet, breakeven analysis, and business ratios page. The industry research portion of the business plan should focus significantly on trends regarding billing, number of new practitioners entering the market, the local market as relates to demographics, and a competitive analysis.

For many financial institutions – especially for doctors and lawyers – the lending process is straightforward given that these institutions like putting capital with these businesses. The very high incomes generated among professional practice service providers allows for the easy repayment of any financial obligation undertaken. Additionally, most financial institutions understand that if the private practice does not work out as planned an individual can easily obtain a very high paying job to allow them to continue to satisfy their debt obligations even if their professional practice has failed. This is one of the reasons why many banks often have specialized programs specific for professionals. The lending requirements for a physician, lawyer, dentist, or any other service provider typically are little bit lower than that if an individual was looking to establish a retail location or service-based business. However, it can be expected that a professional service provider is still going to need to have a 10% down payment and a FICO score in excess of 650 in order to obtain the financing of the need.

Of course, a certified public accountant should be hired to assist the professional service provider with developing the business plan so that the bank will related lender can make an appropriate decision as it relates to providing these services to the general public. One of the other things that should be mentioned thoroughly within the business plan is the educational background of the owner as well as the relevant experience. This is especially true among doctors and lawyers who trade specifically on their ability to render these services to their clients and patients.

As relates to billing practices, a special section of the business plan should be developed that discusses issues relating to receiving payment on invoices. This is especially true among lawyers that maintain a client trust account for holding funds that have not yet been earned by the attorney but are going to be used in conjunction with legal services provided. Most banks allow for an attorney to maintain a special client trust account to hold these funds. If the owner operator is a physician then and in depth discussion regarding invoices as relates to reimbursement from private insurance, Medicare, and Medicaid should be thoroughly discussed as well in order to ensure that the practice is able to remain cash flow positive while the physician is waiting for payments from these entities. These are all topics that are typically discussed in this type of business plan.

A professional service providers marketing plan should also be in depth in regards to how the individual owner is going to obtain patients or clients for their professional practice. This website has a number of different templates that are specific for a wide variety of professional practices including specialized medical practices and law firms that operate within a specific niche focus.

In closing, anyone that has obtained the ability to operate as a professional service provider is generally a very smart person that is going to be able to effectively develop their business operations to profitability within the first year. Of course, many people who are in these fields often do not have a business background so it may be in the best interest of the practice to hire an office manager or practice manager that has an understanding of the day-to-day strata functions of the business. If this is the case, then the background of the office manager or practice manager should be included within the documentation that is going to be submitted to a financial institution.

Business Plans for Private Investors

Sourcing capital from private investors is one of the ways that many businesses launch their operations. This is especially true for service-based businesses or very young entrepreneurs had to not have the same access to credit as an established company or an older person. As such, many individuals will turn to professional private investors, friends, and family in order to source the capital they need in order to develop the business operations.

First, we are going to discuss working with friends and family. In many cases, a new entrepreneur will work with friends and family by sourcing a business loan from their relatives. There are a number of benefits as well as a number of drawbacks relating to this type of capital raising activity. Foremost, when you’re working with family it is imperative that you have a promissory note or investment contract in hand in order to bury clearly spell out the terms of the investment. As most people do seek a loan rather than an equity investment from their relatives – it is important that a promissory note is issued so that it is clear that the individual family member is not receiving an equity percentage in the business but rather a interest payment that will be made on a monthly or quarterly basis. There have been a number of instances where a family member has lent money to an entrepreneur thinking that they were receiving a percentage of the business. In turn, some of these businesses have become very successful where an equity stake would be worth several hundreds of thousands or millions of dollars. Many times these issues have been brought before courts given that they are our more of a handshake deal rather than a formal contract. As such, it is imperative that an attorney draft a promissory note related investment contract depending on the terms of the investment and whether or not the individual will receive an equity participation.

One of the other issues that can arise working with friends and family is that there can be bad blood if the business does not perform well. If a family member or friend lends a substantial amount of money to an individual entrepreneur and the business fails and the person is unable to repay the loan and this can cause a substantial amount of friction for the personal relationship. As such, it may be in the entrepreneurs best interest to source small loans for a number of different sources. In this case, even if things do not go well at all and the individual who lent the money will provide the initial investment is not out a tremendous sum of capital. In our experience having worked with several thousands of clients for the development of their business plans, most entrepreneurs to try to stay away from borrowing or receiving capital from friends and family given that they do not want to create any level of strife or friction within the personal relationships. Of course, this is not always the case in many other words have developed extremely successful businesses by sourcing money from their close friends and family. It is solely up to the individual to determine whether or not this is the best way to go about things as relates to starting a new business.

A private investor typically wants less capital invested a less intensive rate of return. Most importantly, most individual private investors – or angel investors – typically do seek an equity percentage is significantly below that of a venture capital firm or private equity group. This is primarily due to the fact that most angel investors make investments ranging anywhere from $25,000 to $200,000 on an individual deal by deal basis. Most venture capital firms, private equity groups, and other private investment vehicles seek to invest millions of dollars into each project that they source. A private investor is going to want to see a return of 15% to 25% on their money on a year on year basis. This is also significantly lower than what a venture capital firm seeking that they typically want to have any lice returns of 30% to 50%.

As with any type of investment, an attorney should be hired to develop the contractual agreement between the private investor and the entrepreneur. While it may add to a slight expense as relates to the capital raising process, a very well-written contract that clearly states what everyone is entitled to is imperative in order to avoid potential litigation in the future. There have been numerous instances where angel investors claim that they own a much larger share of the business based on their initial investment. A well-written contract ameliorates all these risks given adequately spells out each percentage owned by every individual or third-party entity. In many cases, an angel investor will also provide advice and counsel as relates to the ongoing growth and development of the business. This is one of the benefits to working with a private investor, especially one that is a seasoned entrepreneur, given that they can help guide the business to profitability during those early and difficult years. In many cases, this advice is provided on the incidental basis although some angel investors do take a seat on the board of directors or maintain a consulting contract the company as a means of generating secondary revenues. This is one of the keys that can be discussed during the negotiation process when working with one of these individuals.

When working with a private investor, an extremely well written business plan should be provided to them so that they understand your vision for growth and how they and how you intend to grow the business over a three-year to five year timeframe. This business plan should contain all of the standard elements that would be normally provided to a financial institution including a profit and loss statement, cash analysis, common size income statement, balance sheet, breakeven analysis, and business ratios page. The business plan should also contain in-depth industry research as it relates to trends within a specific market they will be operating within. Many entrepreneurs also develop an expansive marketing plan that accompanies the business plan so that the private investor can understand how the business will position itself within the market, obtain customers, identify the customers that they are seeking, and over viewing any competitors within the market at the business will face on a day-to-day basis. Although this difficult document to write, there are a number of consultants and writing firms that can assist individual with developing their business plan and marketing plan.

In closing, private investors are a great way to raise money for a new business. Generally, they do not consider the individual entrepreneurs underlying credit score when making an investment decision. Private investment funds typically focus significantly on the economic viability of the business rather than the businesses ability to make monthly interest and principal payments. Working with private investors also allows the business a much greater timeframe for becoming profitable given that most financial institutions want to see that profitability is reached within the first six months to twelve months of operation. Again, the key focus of when working with a private investment firm one individual angel investor is to make sure that there are significant legal safeguards in place so that the investment contract clearly states who owns what, the expectations of the business, and the patience of the individual entrepreneur.

Business Plans for Retailers

Developing a business plan specific for a retail location is somewhat of a difficult undertaking. This is primarily due to the fact that one of the more complicated aspects of developing this type of business plan is determining the number of people that will come into the store every day and make a purchase. One of the other complicated calculations that needs to be made is how much each customer will spend every time they come into the store. As such, developing this type of business plan can be difficult for most new entrepreneurs. On a quick side note, this website has a number of specialized Excel models that can be used to help a entrepreneur determine their anticipated revenues, expenses, and profits.

One of the key things when developing a business plan specific for a retail store is also discussed how the business will focus on online sales as well. These days, almost all people have some level of access to the Internet and can make purchases online. As such, many people now almost exclusively shop online and it is imperative that a retail location have functionality on their websites so that the entire inventory is available to any potential customer. Additionally, many people now go to stores to simply take a look at products and then will return home to make the purchase online. By maintaining an online presence you may actually have customers that come into the location and decide to make the purchase online if they are uncertain at the time of buying something while they are at their store.

As it relates to retail marketing, most entrepreneurs develop a substantial marketing plan that allows for the retail store tree very well known within its local and regional market. This includes the use of online marketing, traditional print marketing, as well as radio and television marketing. As people are bombarded with advertisements these days – it is imperative that the entrepreneur developed a highly focused marketing plan that will effectively target people within the demographics outlined within the business plan. Many entrepreneurs that do not have a complete understanding of marketing will often hire a marketing firm or advertising agency to develop campaigns on their behalf. This can be an expensive undertaking, but the return on investment can be substantial if it is carried out properly. Usually, most advertising agencies and marketing firms charge a fee equal to 10% of the total advertising and marketing budget.

Within the business plan specific for retail business, a substantial amount of local and regional market research needs to be completed. This includes taking an overview of the demographics within the area including population size, population density, annual household income, median family income, median household net worth, age demographics, gender demographics, and related metrics of potential customers within the target market. This section of the business plan should also include a highly in-depth overview of any competitors to the retail location. This discussion should also include big-box stores and online retailers that may carry the exact same products but at a substantially reduced cost. This is one of the key things that any bank or investor is going to want to see when they are reviewing your business plan for potential funding.

As it relates to the financial model that is used within this type of business plan, any potential funding sources going to want to see a full profit and loss statement, cash flow analysis, balance sheet, breakeven analysis, business ratios page, and return on investment metrics that are common to most business plans. One of the key focus is for a retail location should be on the amount of inventory that the business is going to have it any given time. Most financial institutions are only willing to put up a certain amount of capital as it relates to inventory acquisitions. One of the other metrics that is commonly included for a business plan specific for a retail business is inventory turnover rate. This is an important metric to note for a retelling entrepreneur given that they are going to need to estimate how much inventory for each product they are going to need to carry at any given time. This is especially true among slower moving products with smaller amounts of inventory are going to be held. A certified public accountant can assist with the development of this metric given that they usually have a significant amount of experience when working with potential customers that are dealing with retail businesses. Prior to submission to any funding source, a certified public accountant should also review the business plan to make sure that it falls in line with generally accepted accounting principles.

One of the hardest things for most people that are developing a business plan specific for a retail location is determining how much inventory and what products they will carry at the onset of operations. It is imperative that the entrepreneur source products it will be very in demand at the onset of operations given that most retailers do not have the luxury of sitting on large inventories are not moving as quickly. Again, one of the best ways to be able to move inventory that is sitting for a significant period of time is to maintain a broad-based online platform that allows for e-commerce sales.

The retailing industry is facing a number of challenges as online retailers become more prominent. As such, the businesses that do best are those in which the individual wants to actually see the product, test the product, and go home with it that day. Smaller purchases are usually relegated to online businesses these days. However, specialty retailers often do very well given that many big-box stores and large online retailers do not carry highly specialized products. As such, entrepreneur that is looking to establish a unique retail location can still thrive in most economic climates.

Finally, it is important that within the business plan the entrepreneur focus on what they will do in the event of an economic recession or sales slow down. This is going to be one of the key things that most funding sources are going to ask about when they are reviewing the business plan.

Business Plans for Franchises

Franchises are great because they provide the entrepreneur with the opportunity to participate in an already successful business while being able to establish a new location that they can own and operate. One of the downsides to franchising is that these businesses have very strict protocols and procedures as to what an individual owner-operator can do with their specific location or territory. In some respects, a franchisee is much more like a general manager of one store or several stores rather than a completely independent business owner. For some entrepreneurs, this can create somewhat of an issue given that they want to have a substantial amount of flexibility and creativity with how they develop and market their operations. While most franchise agreements to allow for some autonomy relating to business expansion, any type of individual undertaking as it relates to marketing or other operations usually need to be done in conjunction with the franchisor. It should be noted that most franchised businesses are great candidates for small business loans given that there is already an established operating history by the franchisor. Additionally, if this is a highly established franchise system and the brand name of the business is very well known within the market. As such, the start up risks that are normally associated with a new business are significantly ameliorated by working with a franchising business.

A business plan for a new franchise is very similar to that of a startup company. The primary exception is that there is usually a thorough discussion regarding the operating history of the franchise or, its market base, and how these off businesses operate on a day-to-day basis. Financial institutions love to provide loans to franchisees given the very low risk nature of these businesses. This is especially true for an individual is buying into a highly established franchise that has been around for several decades. As such, the strong demand among vendors to provide franchise business loans is going to remain steady over the next 10 years to 20 years.

Much like any other business plan, one that is specific for the development or acquisition of a franchise should have a three-year profit and loss statement, cash flow analysis, balance sheet, breakeven analysis, and business ratios page. Within this document, there should also be significant amount of industry research as it pertains to the specific service at the franchise he is going to be providing to the general public. An economic analysis should also be included so that it properly discuss is what happens to the revenues during times of economic recession or during times of economic prosperity. Most private investors and financial institutions want to see a diligent overview of what the entrepreneur will do when economic times are more difficult. This is one of the key factors when a bank is determining whether or not to provide a loan for the development or acquisition of existing franchise.

If the entrepreneur is looking to acquire an existing franchise than they should be able to showcase at least two years of operating history within the business planning documents as well. These documents should be provided by both the existing owners certified public accountant as well as their attorney to ensure their accuracy. One of the key things that needs to be discussed as well as whether or not the existing franchise can properly sustain a large debt capital undertaking for the acquisition. Usually, a small table showcasing the two years of operating history are included within the business planning document. The full tax returns are usually submitted in conjunction with the business plan as standalone documents.

One of the key things to discuss in the business plan as well as the amount of fees that are commonly associated with any specific type of franchise. Usually, there is an upfront fee that allows the individual to acquire the initial franchise license. There are also usually ongoing royalty fees that are a function of the gross revenues. For most service and products based franchise systems the monthly royalty fee is usually 5% to 8% of sales. However this can vary depending on what type of services the franchisor provides to the franchisee. In some cases, these fees may be lower or higher depending on the specific gross margins generated from each product or service sold.

When obtaining the necessary financing for a franchise, within the business plan – franchisors will often provide some level of financial support for entrepreneurs. This is especially true if the individual is going to be developing a number of different locations or territories within the franchise system. A discussion of this within the business plan is important because many third parties are going to want to see that the franchisor is very committed to ensuring the success of each individual location or territory.

Within the franchise focused business plan a thorough examination of the marketing that is used promote the business should be included as well. This includes discussing the national level print advertisements, television advertisements, radio advertisements, and expansive online marketing campaigns. Most large-scale franchisors have very large and dedicated marketing departments to ensure that they are able to reach the general public very quickly. One of the best aspects of owning operating franchises that the marketing is usually handled by the parent company. While there is some level of local marketing that is done by the franchisee, almost all national level and regional level marketing and advertising activities carried out exclusively by the franchisor. This is one of the benefits to paying the monthly royalty fees that are associated with the type of business. In some cases, beyond the royalty expense and entrepreneur that owns a franchise may be required to put up some additional money on a monthly basis to contribute to a national pool of advertising funds.

In closing, a franchise business plan is very similar to that for any other type of company. The specific differences that there are a number of mentions of how this is an existing operation as it relates to being a franchise system. These are all very secure businesses given that they are able to effectively ensure that visibility and revenues are generated from the onset of operations. Most entrepreneurs that are looking to develop franchises or little bit less risky than their traditional new business startup counterparts. Franchises are expected to remain popular given their strong economic stability.

Business Plans and Private Securities

A business plan is not a legal document. It does not have the necessary subscription agreement, securities disclosures, and other risk disclosures that are needed in order to act as an investment contract. One of the key differentiating factors between a business plan and an investment contract is that the investment contract must be produced by an attorney. Although there are some businesses out there that are able to develop what is called a private placement memorandum – this is a very specific type of legal contract that should only be drafted by an attorney that has substantial experience with securities laws. Almost every state as well as the federal government – through the securities and exchange commission – has extensive rules and regulations as to what constitutes a security and what disclosures must be made to a private investment source such as an investor. Additionally, there are instances where only certain types of investors – commonly called accredited investors – are able to make a man investment into a small business were related startup.

These protections are put in place so that only the most qualified and most sophisticated investors can understand the risks associated with this type of investing. Most importantly, it is imperative that the accredited investor declare themselves to be so in order to avoid any type of issue where an entrepreneur is raising capital through individuals who do not meet this qualification. A qualified securities attorney can walk an entrepreneur for all the ins and outs of developing documentation that is specific for raising capital from private investors.

At the time of this writing, and accredited investor is an individual that has a net worth of $1 million or more or predict makes an income greater than $200,000 per year and anticipates that they will do so in the coming future. Among married couples, this minimum income increases to $300,000 per year. Corporations, trusts, and other nonhuman entities are generally required to have $5 million in assets before they are able to invest in specific types of private securities funded businesses.

However, there are constantly changing regulations and laws that relate to how an entrepreneur can raise capital and from which type of investors. As such, it is imperative that the entrepreneur work with an attorney before engaging in any capital raising activities. Additionally, only a highly qualified attorney can make an appropriate determination as to whether or not a private placement memorandum is going to be required for any type of capital raising activity.

Not all start businesses that are looking to raise capital from private investors are required to have a private placement memorandum. As such, these types of deals are typically involved when the capital raising occurs from one investor, a venture capital firm, a private equity group, or through a bank. These entities and very wealthy individuals are exempt from the laws that pertain to. Again, it is definitely going to be in your best interest to still have legal counsel on hand especially given that there’s going to be a significant negotiation. Where there is a determination of what percentage of the equity of the business is going to management versus private investors. There are also going to be bylaws and other legal instruments are going to be implemented in order to develop this type of business. As such, business plans are not considered to be an offering for private securities because they do not have the appropriate disclosures were other accoutrements that are normally associated with a private placement memorandum. This is going to be one of the ongoing things that we discussed throughout this website given that many entrepreneurs are often looking to raise capital from private sources rather than approaching a bank for a loan.

Business Plans and NDAs

One of the questions we get is what is the best way to distribute the business plan that you’ve created once it’s done. Frequently, most business plans are transmitted electronically via email. In our experience, it is best to send the business plan in a PDF format so that individuals can view the plan but not make any changes to it. This is very similar to directly printing the business plan on paper. In some cases, and as we have mentioned a few times on this website – it is important that a potential funding source sign a nondisclosure agreement before reviewing the business plan. This is especially important if this is a technology focused business and there is a significant amount of technical information within the documentation you’ve created. As such, it may be necessary for them to sign an NDA – either on paper or electronically – before sending over a business plan document.

Confidentiality is a concern for you then you may want to have a specialized online account that allows for the electronic distribution of a nondisclosure agreement. This allows for individuals to sign the nondisclosure and you can see immediately from the person that is receiving the documentation. In some cases, especially when the materials are highly sensitive, a numbered approach may be taken whereas a background is imprinted on the PDF so that it is known exactly who received which numbered copy of the business plan. Of course, this may be overkill in certain situations given that most businesses do not deal in highly sensitive or highly proprietary systems. It is up to you to determine what level of confidentiality is needed once the business plan is done and you are going to begin distributing it to the general public.

As it relates to the paper version of the business plan – many people will seek to have a printed and bound copy sent to potential funding sources. Although most of the time these documents are so electronically, having a printed and bound business plan does create a very nice presentation. In these cases, most of the time when a business plan is printed, bound, and distributed – is going is part of a loan application where only one copy of the business plan needs to be shown to a funding source. Typically, you can expect the cost for printing and binding a business plan to be around $10 per copy. If you intend to send out many copies of the business plan this can become an expense. However, it does make for a very nice presentation and most funding sources will be impressed with it.

Business Planning for Company Acquisitions

Developing a business plan specific for a business acquisition is somewhat different than for a new company that is looking to establish its operations. This is primarily due to the fact that the development of the business plan for acquisition needs to clearly showcase the prior operations of the company so that a bank or investor can make a decision as to whether or not to provide financing for this type of business. One of the commonalities among business plan specific for acquisitions is that there is a significant portion of the plan dedicated to the six months to twelve  month transition period in which the new owner needs to properly transition the ownership of the business.

Usually, there is a thorough discussion regarding how the previous owner will work with the new owner in regards to meeting important clients, familiarizing themselves with the day-to-day operations of the business, getting to know all the employees that will stay on, and understanding the operations and procedures that are used in conjunction with the existing operations of the business. The existing owner may also assist the new owner in regards to expanding the company. It is not uncommon for an existing owner to stay on as a consultant was a part-time employee during the transition process. This is especially true for very complicated businesses or professional service companies. For instance, a entrepreneur that acquires an existing accounting firm may have the existing owner stay on staff for a  year while all clients are properly transitioned to the new owner. For anyone that is thinking of selling a business, it is important to note that there may need to be a clause that includes time as a consultant for the business. Nearly all business acquisitions also have a non-compete contract which ensures that the existing owner will not establish a similar business within a certain timeframe so that the new owner can properly develop and expand the operations of the business. This is especially true among professional service practices where the owner has established very strong relationships with individual clients and will not try to take them to any new business that they start.

One of the other commonalities it is for businesses that are undergoing acquisition is at the financial model showcases both the existing operations of the business and have the new entrepreneur intends to expand operations over a three year to five year timeframe. In this business plan, usually two years of prior financials are showcased so that the financial institution can understand what the current operations can support in terms of a debt obligation. Of course, any financial institution or private investor is also going to understand exactly how the entrepreneur intends to expand the business once the transition period is over. Common ways that are discussed in the business plan in regards to business expansion include increasing the marketing budget, potentially acquiring additional companies that can be used to expand through acquisition on an ongoing basis, as well as providing new and innovative services and products that will boost the business organically.

Most entrepreneurs, beyond making a capital contribution necessary to acquire the business will also provide a significant amount of capital in regards to expansion purposes. Often, when a business is acquired two types of credit are usually used for the process. First, a business loan is used to acquire the company outright or its assets from its existing owner. A working capital line of credit is usually also required in order to have funds available for the expansion of the business. It can be expected that it entrepreneur will be required to put down a 10% to 20% down payment for the acquisition of an existing company. This may be subject to a little bit of fluctuation based on whether or not real estate is involved in a transaction where there is a significant amount of furniture, fixtures, property, and equipment. One of the nice things about acquiring a business that is already in operation and profitable is that it can be used as a springboard for rapid expansion. It is very difficult to establish a new company, and as such – many entrepreneurs take to acquiring businesses so that they can have a running head start as relates to their business operations. This is especially true for individuals that have professional licensure and can acquire an existing practice or similar business so they can immediately begin practicing at 100% capacity.

One of the key things when acquiring a existing business is to ensure that the entrepreneur has a certified public accountant and attorney on retainer. As there are a number of tax considerations to deal with when acquiring a new business, it is imperative that the owner work with the certified public accountant in order to have cost basis determined. Additionally, the entrepreneur’s attorney can assist with dressing thing all the necessary paperwork as it relates to acquiring the business and ensuring that there is a non-compete clause between the entrepreneur and the existing owner. While these professionals are expensive, they can provide a substantial amount of advice and counsel as it relates to properly undertaking a large-scale business acquisition.

Beyond the business plan, any entrepreneur that is looking to acquire an existing business will usually be asked to provide two years of tax returns from the existing company. This ensures that the business is generating the income that is stated by the current owner and that the business will be able to sustain any debt undertaken during the acquisition. The existing owner may be required to certify any of these financial statements so that a bank can properly rely on them when rendering an investment or lending decision. There are also a host of other documents that are going to be required by any financial situation that is entertaining a loan offer. Again, a certified public accountant can be an invaluable resource during this time they will be able to effectively guide both the entrepreneur and the existing owner as to what needs to be done when going through this process. It should also be noted that at times a formal valuation by a certified business valuation expert may be required by the bank as well. Typically, for a small business the cost associated with having this type of evaluation done runs anywhere from $1,000 to $5,000. This professional will examine each asset owned by the company and provide its approximate fair market valuation so that the entrepreneur understands that they’re not paying more than they should for any type of existing business entity. In almost all cases where there is real estate involved a qualified appraiser is going to be required as well.

In closing, a business plan that is specific for a business acquisition is a much more complex document than that of a startup company. However, banks and lenders are far more keen to provide a loan to an entrepreneur that is looking to acquire an existing business in the highly economic stability of these companies. The longer the operating history of the business, the more likely it will have sustainability during times of economic recession. The lower risk of acquiring company makes any entrepreneur much stronger candidate for either a business loan or a working capital one credit.

Business Plan for a Venture Capitalist

riting a business plan specific for a venture capitalist or private equity firm is very difficult. Unlike a business plan that is specific for a bank or lending institution, a venture capital firm is going to want to see that the business is able to generate a substantial return on their investment on a year on year basis. Generally speaking, most venture capital firms and related private investment companies want to see a return of 30% to 40% per year compounded for at least five years to seven years. This is due to the fact that these firms must answer to their investors who have provided them with the funds that they use to invest in third-party businesses.

When you are developing a business plan specific for a venture capital firm – you’re going to need to have a number of tables that would not commonly be found in any other type of business plan. A very aggressive focus needs to be placed on the profit and loss statements, cash flow analysis, balance sheet, breakeven analysis, business ratios page, and information regarding the burn rate of the business. Most private investment companies are going to want to see a substantial diagram of how the company will be using their capital over a one year to two year period (burn rate). This is due to the fact that there are a number of clauses within investment contracts between entrepreneurs and venture capitalists that allow the venture capital company to retake control of the business in the event that the entrepreneur does not hit specific milestones. These clauses can include an overview of how the cash is to be used over a 12 month to 24 month timeframe. As such, proper business planning is needed so that when these investment contracts are developed – the newer has a very clear understanding of what goals need to be had in order to remain in control of the company.

On a side note, it is very important that the entrepreneur work with an attorney during the entire negotiation process. There have been numerous instances when an entrepreneur has actually lost their company given the fact that they have not hit the milestone set forth in the investment contract. A qualified attorney can put – in layman’s terms – an explanation of each thing that the entrepreneur must achieve in order to maintain control of their business will also remaining within the letter of their investment contract. One of the downsides to working with venture capital firms, private equity groups, and similar entities is that they are able to routinely submit a substantial amount of control over their investment throughout the life of the business. This is especially true with new work just to establish companies that deal specifically in technology.

As these businesses typically do not generate any revenue at the onset of their operations, these investment groups can easily extract patents and other intellectual property from a corporate entity in the event that the business does not become profitable. As such, an entrepreneur should have a substantial understanding of what they’re getting themselves into when they accept investment from a venture capital group. As we have discussed a few times in this website, most entrepreneurs are so hungry for capital that they are willing to take the first deal that comes to them given that they feel that no other company will be able to offer them the money that they need. However, even though only 1 in 250 companies are financed through venture capital – once an initial offer is made it can be assumed that other companies would express a similar interest. Additionally, entrepreneurs will often use the initial offer for a venture capital group so that they can approach other companies to match or exceed their offer. Again, this is why an attorney is an invaluable resource of assistance when going through this process as they will be able to negotiate on behalf of the business and on behalf of the entrepreneur. We will continue these discussions in further articles that we post to this website.

One of the more challenging things to deal with when developing a business plan for a venture capital group is the valuation tables that are frequently found within this document. There should be analysis regarding internal rate of return, net present value, the profitability index, and other common these metrics are used to determine the valuation of the company. This can be both an art and a science. One of the difficult aspects of doing a valuation on a business that does not yet have any assets or is producing any income is at an appropriate discount rate must be applied to the overall cash flows of the business over a specific period of time.

Generally, for technology-based businesses that have not yet begun revenue generation – discounted rate ranges anywhere from 30% to 60% depending on how risky the investment is. The higher discount rate always represents a much more risky investment for a angel investor or private investment group. This is also one of the key negotiating points when working with a private investment group is what discounted cash flow rate will be applied to the valuation. One of the other things that many people do within a venture capital focused business plan is to take a look at the known valuations of established public companies that operate in a similar capacity.

These valuations are almost always based on a price to earnings multiple. For major technology companies, the P/E ratio can easily exceed 50 to 100 times the previous year’s earnings. Of course, there is some level of irrational buying and selling of the stocks given that people are putting a huge premium on the future earnings of the business. During the dot-com bubble of the early 2000’s, the valuations of Internet-based businesses were outrageously high which precipitated in a stock market crash. However, industry has become much more in tune with what appropriate valuations are for specific types of technology businesses. One of the other industries has seen a significant amount of increase as it relates to valuation is the biotech industry. This is going to continue to be the case given that there are now numerous advances being made on a yearly basis as it relates to the use of biological focused technology.

If an entrepreneur is having trouble developing the valuation tables that are again common within a venture capital focused business plan and they need to speak with a certified public accountant that can assist with these matters. An accountant can put in a number of different tables that show all the type and types of valuations and provide the underlying reasoning for evaluation. Given the rapid growth of technology on a worldwide basis, a number of people have become experts in the field of valuing general technology businesses, biotechnology businesses, and other companies that are frequently financed by venture capital firms in private equity groups. It should be noted that these valuations can be extremely expensive with experts charging $10,000 to $30,000 to complete the study on behalf of an entrepreneur or new company. In the long run, especially if the business has received a significant amount of interest from private investors – the investment of having a business value and valuation expert complete the study may be worth it given that it may provide the door with substantially more equity than they initially thought.

As with all business plans, an expansive marketing plan is going to be needed. This is especially true for technology-based business given how competitive it is to have a brand name become highly visible within this market. Most venture capital firms want to see that a qualified marketing and advertising firm will be hired in order to promote the company’s service or product line. One of the ways that many technology businesses become popular is to the use of social media marketing especially when they are offering a highly unique piece of technology that is going to change the way that things are done in the world. As such, a marketing firm should have a public relations division that can assist in entrepreneur with expanding their visibility for their brand name as well as any product or service that they are providing to the general public. This, of course, can occur even before the business starts to generate revenue so that there is a significant amount of press available for when the company commences revenue generation.

In closing, writing a business plan for a venture capital firm is a very different undertaking then receiving a business loan. A much more illuminating presentation needs be made given that many venture capital firms review hundreds if not thousands of business plans on a weekly basis. One of the things that many entrepreneurs will do in order to stand apart is to actually produce two documents. One is known as the traditional business plan and the other is a one page summary showcasing exactly what the business does very succinctly and how much capital they’re looking to raise. This elevator pitch can be invaluable especially if you do not feel like distributing the full-scale business plan to the general public.

Business Plan for a Bank

Writing a business plan specific for a bank loan is a pretty straightforward process. This is due to the fact that the primary concern of the bank is that your business is going to be able to make the monthly principal and interest payments on any debt instrument that you obtain. Usually, a significant portion of the business plan specific for a lending institution is focused significantly on the tangible assets that we purchased with the capital required. Although service-based businesses typically do not need very many tangible assets, a banking institution and its respective loan officers are going to want to see that they have a significant amount of collateral backing the debt obligation.

In many cases, the bank will also require a personal guarantee from the borrower. This puts homes, retirement accounts, bank accounts, vehicles, and other assets that are owned by the individual as part of the overall collateral that is used for the business loan. As such, a significant amount of attention should be paid as to whether or not the entrepreneur wants to undertake such a substantial financial obligation given that all of their personal assets are generally put at risk as well.

The key to showcasing a business plan to a lending institution is also the focus on the fact that the business is economically viable. Most importantly, the business plan needs to very clearly show that the business is able to produce a highly predictable revenue so that monthly payments can be made without question. In some cases, especially for businesses a take a little bit of time to ramp up, a financial institution may allow for interest-only payments or reduced payments during the first six months of the life of the loan. However, this is something that is usually subject to negotiation as banks want to see that they are going to receiving their interest payments quickly once the loan funds are disbursed.

On a side note, it should be mentioned that many banks and financial institutions will directly disburse the funds to companies that are selling the business its tangible assets. Usually, for any purchase that is over $10,000 – the bank is going to want to make this payment on their own given that they want to make sure that the funds are actually going to where they have been allocate,  and they want the proper documentation for the underlying asset. There are exceptions to this rule, but vendors should be sourced prior to applying for a loan so that the bank can very quickly make a disbursement to vendors if they decide to make a disbursement directly to the asset selling company. In many cases, this works similar to a real estate transaction would occur with the bank itself disburses funds to the property seller.

One of the other things at the bank is going to want to see as well as a substantial amount of market and industry research as relates to the business. This includes having an economic overview in regards to how the economy is doing, the interest rate environment, and other important factors that are occurring as relates to the economy as a whole. Industry research should include information regarding how the industry is growing, the growth rate, aggregate revenues, aggregate payrolls, and any potential regulatory trends that may impact the way that the industry does business. This is especially true in areas where there is a significant amount of regulation guiding the way that these businesses conduct business on a day-to-day basis. One of the nice things about the Internet these days is that industry resource can be sourced very quickly from a number of different reputable sources. Our website uses a number of publicly available information sources when sourcing its industry research. Typically, the section of the business plan can range about two pages should provide clear overview of anything major regarding the specific industry in which the company will operate. The section of the business plan also outlines the demographics of the customers at the business will have all concurrently showcasing major competitors of the business will face once it begins revenue-generating operations.

The bank is also going to want to see a significant marketing plan so that they can understand exactly how the business is going to reach customers at the very onset of operations. In this section, many entrepreneurs will also put in information regarding how they will promote the business prior to revenue generation. This is important so that a major grand opening can occur and that revenues can be produced very quickly. This is especially important for retail businesses as they need to have revenues commence immediately so that he can pay for all the underlying operating costs in addition to any debt obligation.

As it relates to the financial projections, a business plan specific for a lending institution should always include a three year to five year profit and loss statement, cash analysis, balance sheet, breakeven analysis, and business ratios page. Special attention should be paid to the common size income statement and the profit and loss statement so that these figures are developed in line with industry standard figures. Almost all financial institutions will verify the financial model provided by comparing it to similar companies within the industry.

Of course, any businesses every business is different and certain things need to be adjusted in order to reflect this fact. If an individual entrepreneur is having a significant amount of trouble developing the financial model than they can work directly with the business plan writing firm or a certified public accountant that can assist them in developing this financial model. One of the things that many entrepreneurs make a mistake about is not having a complete understanding of how a profit and loss statement, cash analysis, and balance sheet operates. There are a number of great resources on the Internet and through this website that can help an entrepreneur understand exactly how these three financial statements work together. One of the things that an entrepreneur can often miss if they don’t understand the statements is how their liabilities can change depending on how sales occur. A certified public accountant can be an invaluable source of information not only is it relates to tax matters but also general accounting matters as well.

One of the things that should also be included within the business plan that is going to be presented to a bank is any critical risks and problems of the business may face as it progresses through its operations. As we discussed before, it is unpleasant have to think about all the negative scenarios that can occur to a business – however, it is important to the bank understand that the entrepreneur knows that not everything will always go as planned and at specific matters will occur and the business we need to deal with them appropriately. In fact, most business plans that go to the bank have a requirement they have a critical risks and problems page.

Finally, most business plans also include a SWOT analysis. This analysis focuses on the strengths, weaknesses, opportunities, and threats. A bank is going to want to see a detailed description of each of these four matters for any specific business. Usually this is done in bullet point format, but can also be written in paragraph format.

Business Grants

One of the frequent questions we get is regarding business grants. In short, it is extremely difficult to get a business grant given that most government institutions and not-for-profit institutions are not looking to provide free capital to an individual that is going to be using this money with the intent to generate a for-profit business. Most grants that are available to the general public or business public are geared towards individuals that are going to be engaged in a public-private partnership, or similar initiative. If an entrepreneur is looking to raise capital through a grant then they are going to need to be very aware of the terms of the granting institution. Primarily, these grants are geared towards minority owned businesses, woman-owned businesses, and for companies that are engaging in a project that will have a benefit to the community. If an individual is simply looking for free money to start a for-profit business that it may be in their best interest to examine working with private investors, obtaining a small business administration loan, or seeking conventional business funding in order to launch their business operations.

Some granting institutions to require that a business plan is submitted before they render a decision as to whether or not to disperse funds. The business plans are available on this website are appropriate to be used in conjunction with a grant focused funding application. Within the purchased package, there are a number of instructions that will show you how to effectively retool the business plan so that it is appropriate specific for granting institution. It should be noted that many grant applications do have very specific terms and a syllabus that must be followed exactly before the application will be considered. It is very important that a third-party grant writing firm is hired in order to ensure that the documentation provided is in line with that as requested by the granting institution. Again, if this is going to be specific for a for-profit business that has no other intention than to generate income for its owners it may be more applicable to try to have a business plan that is appropriate for both investors as well as granting institutions. This is something that you continue to discuss throughout the life of this business on the website.

There are a number of government programs available to certain entrepreneurs are looking to develop for-profit businesses. It should be noted that there are some companies out there that provide grant search assistance to these entrepreneurs, but this should be done very carefully as many of these firms will take substantial upfront fees without ever providing any meaningful results as it relates to finding an institution that is willing to provide certain amount of capital for entrepreneurial activities. Before engaging any grant search firm or grant writing firm, an examination of their background, history, and obtaining reviews from previous clients should be used so that you can be assured that you’re working with a reputable firm. As the Internet has a number of different service providers available for any given type of service, it is imperative that any potential company is thoroughly examined with due diligence before you engage him to complete any type of grant writing service.