Understanding the Biz Plan

Here’s another article on Biz Plans I got from Entrepreneur.Com
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The Numbers in Your Business Plan
Do words like "cash flow," "balance sheet" and "sales forecast" make you cringe? Our business plan coach walks you through the figures you need to make your business plan count.August 01, 2005
I was a wordsmith first--before I went to business school and discovered that some things can't be explained with words alone. Even with all the great thought you'll put into the text portions of your business plan, a good business plan depends on numbers to make it all real. Without the numbers, it's only a rough draft at best.
An effective business plan has to include at least three important "pro forma" statements (pro forma in this context means projected). They're based on the three main accounting statements:
·  The profit or loss, also called income, statement shows sales, cost of sales, operating expenses, interest and taxes. The statement shows performance over some specific time period, like a month, a year or a quarter.
·  The balance sheet shows assets, liabilities and capital (assets less liabilities). This statement shows a company's financial position at a specific time.
·  The cash flow statement projects how much money is in the bank and will be in the bank.
These three critical statements are so well linked that you could prepare the balance sheet automatically if you had already prepared your income and cash flow statements.
I also recommend that you add at least two additional tables highlighting specific portions of the main tables: a sales forecast and a personnel plan. In addition, I'd suggest you start the balance sheet with either starting costs or past performance, depending on whether you're creating a business plan for a startup or an existing company.
You don't have to know the subject of finance inside and out to create a business plan. You do have to understand that if you don't know how to prepare the main financial projections, you should get help. If you've got the budget, you can hire somebody to do this for you, but then that makes it their plan, not yours. The better way is to get help from books, websites, software, or friends and family so that you can do it yourself. High finance is a career, but projecting your own business finances is something you can do yourself as long as you have the patience to take it step by step. (You may have to learn at each step, but it's good for you.)
If you have the budget to hire consultants, take advantage of that and bring some experts on board, but be sure you have them show you how to prepare the projections rather than just have them do it for you. You want to understand your business numbers when questions come up. Ideally--consultants or not--you should be able to review and revise your numbers at any time, day or night.
Expect to have to make some educated guesses. Don't waste your time complaining that you can't possibly know how much sales or expenses will be because yours is a new business--every business that ever started was a new business, and the good ones had estimates to work with. You can do this--everybody else does, and you're no different. Nobody likes to forecast, but nobody is more qualified than you to forecast your own business.
Regardless of how you do it, don't expect to go through the numbers once, from step one to step whatever, and be finished. It doesn't work like that. Any revisions you make in one table will affect the others. And as you develop your plan, your numbers will change.
Whatever tools you use (obviously we're talking about software and a computer), make sure it all flows together. Here's some of the interdependence you need to deal with:
·  Starting balances affect cash flow and all other balances.
·  The sales forecast affects profits, cash flow and the balance sheet.
·  The personnel expense forecast affects profits and loss, cash flow and the balance sheet.
·  Many of the things you do in cash flow directly change the balance sheet, such as taking out a loan, taking in investment or paying dividends.
·  The balance sheet can affect the cash flow. For example, increasing accounts receivable or inventory decreases the cash balance while increasing accounts payable increases the cash balance.
When it comes to timeframes, do your numbers for the first 12 months of the plan in monthly detail, then by year for the following two to five years. Normally, three years is long enough, but some plans involving longer cycles will require five years total. You can add highlights for 10 years, and you can talk about time periods even longer than that in the text.
Although there's no fixed sequence in a process like this, because the statements are so interdependent, I recommend you order the tables in a way that leads toward the final results and builds on the source tables:

1. Starting balances and startup costs


2. Sales forecast


3. Personnel expenses


4. Profit and loss


5. Cash flow


6. Balance sheet

Understand that you can't get to the last step without a lot of revision of earlier steps. What you discover in the profit and loss will change your personnel expenses, for example, which will further change your profit and loss statement, which affects your cash flow and balance sheet. Just keep adjusting until it seems right.
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Tim Berry is the "Business Plans" coach at Entrepreneur.com and is the president of Palo Alto Software Inc., which produces the industry's leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.

Analysis for the Biz Plan

Here’s what I got from Entrepreneur.Com
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Conducting a Market Analysis for Your Business Plan
One of the most critical sections of your business plan is your market analysis. Find out just what information you need to know about your potential customers.June 13, 2005
Every business plan should include market analysis. This is one of the first and most important reasons to do a business plan. And whether you're just starting a new business or reviewing an existing business, you should renew your market analysis at least every year. Markets change--a business needs to watch for changes in its market.

The market you need to look at is your potential market, not the actual market served, the one that's limited to your existing customers. Your target market is much wider than just the people you already reach. It's the people you might someday reach, or people you could reach, that you need to be concerned about.

For example, the market of a local movie theater or restaurant includes not just the people who regularly go there but everybody who lives within driving distance. The market for a landscaping business includes all the homes and commercial properties within a logical reach. The market for downloadable e-books over the internet includes everyone connected to the web. The market for personal computers includes homes, schools, businesses, and government organizations.

It's your plan--and every plan is different--so you need to know as much as you can about your target market.

Getting the Information
The information sources that will help you conduct a market analysis are different for every business plan. For example, you might need local information you can get from your local chamber of commerce. Or you might be able to find your market information at http://www.business.gov/, which is a good source for information from the U.S. Census Bureau, the Department of Labor, the Department of Commerce and others. You might also need to find other government statistics, or other commercial statistics, so you may be conducting some internet searches to track down the information.

Not all the information you need is going to be publicly available, and you may have to settle for educated estimates. Sometimes you'll have to extrapolate information from different sources to get the information you're seeking. I've seen good market research come from telephone directories, catalogs, industry association statistical compilations, real estate information and density maps.

Segmentation
Always try to divide your target market into useful slices or segments. For years, I consulted with a computer manufacturing company that targeted such market segments as homes, small offices, businesses, educational organizations, and government. Dividing the market into these segments helped the company address the more specific market needs, media, pricing patterns and decision criteria in each of their different market segments.
Segmentation helps you target specific people with specific messages and helps you focus on user needs. Families might need quick, consistent service while students might need late-night service. Families read the newspaper; students read posters on bookstore walls. Knowing your market segments will help you make smart decisions when it comes to providing the products and services that will work best for them and for communicating with them.

Market Size and Growth
You need to be able to measure and quantify your market. For example, if local homeowners are part of your target market, then you should be able to count them. You need to know whether you have 500 people in your market, or 200,000, or 2 billion. Be able to show what the total market is for your business.

When it comes to market growth, you need to think about percentage change as a market forecast. Is the number of homeowners in your target market increasing or decreasing? By how much per year? How many older workers retire every year, and how is this changing? How many people eat in restaurants in your market area, and how is this behavior changing? Market forecasts start with the total numbers of possible purchasers in each market segment, then project percentage change over the next three to five years.

Market Trends
You need to understand what's going on with your market. What trends and fashions do you see having an influence on your market segments? If you're selling cars, for example, is there a trend that shows people responding to higher gasoline prices or more environmental concerns? In computers, is there a trend toward more power and lower prices? How does the increase in TV recorder equipment affect your market? The questions that affect target markets will be different for every business, and these are just examples. What's important is that as you create your business plan, you become aware of the market trends that affect your specific market.
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Tim Berry is the "Business Plans" coach at Entrepreneur.com and is the president of Palo Alto Software Inc., which produces the industry's leading business planning software, Business Plan Pro, as well as other popular planning applications for businesses.

First Page

This is the first page of my new blog (and website). Welcome, WORLD!

There are so many things to write about but I have a big meeting tomorrow morning that my wife just called me to bed. (I'm signing in from the Philippines and it's already midnight out here)

So I guess I'll heed her call and crawl to bed after sending this first post.

Just before I close, I just like you guys to visit my website (similarly named) at www.nievera.net and I hope you get the chance to send me an email.

I hope I can be of service.