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What To Include In The Financial Section Of A Successful Business Plan

Having extraordinary skills and talent in a business area, being hardworking and determined, persistent, having great ideas and full of energy is a fantastic mix for a successful business career. But all those exquisite qualities mean nothing if the end result is not represented in the bottom line.

The financial section of the business plan is where all the operational items included in the rest of the business plan come together. There are three essential elements to a properly thought through and well constructed business plan. Those elements are a forecast profit and loss account stating the income and expenditure, a cash flow statement that determines the liquidity and a sensitivity analysis that indicates the risks and opportunities within the business plan.

The forecast profit and loss account should be prepared on a monthly basis for the first year with an annual projection for the second year. The first year of every new start up business can be difficult due to financing and funding growth from a standing start which is why the first financial year should be detailed.

The forecast profit and loss account is the financial calculation of all the sales, purchases, expenditure and prices contained within the other areas of the business plan. In addition full account should also be taken of the business administration costs. All the figures in the business plan income and expenditure account should be fully supported from the physical projections contained in the other sections and derived from those sections.

From the sales section multiply the sales volume of each product by the considered selling prices. Keep to a minimum sundry additional income that might be expected. The resultant financial calculation produces the expected monthly sales turnover.

Using the information in the production or operations section of the business plan and if included the purchasing section the sales volume should be evaluated at the expected purchase cost of the products and services. This produces a cost of sales figure which when deducted from the sales turnover provides a forecast gross profit figure each month.

The business plan should include notes and comments of all other main cost items including projections of staff requirements. Together with administration and overhead costs a monthly projection of the expected running costs of the business start up can be produced. The business running costs are an important area to forecast in detail as while sales prices and costs may be determined with some accuracy errors in the business running costs could cause a good business to fail.

The monthly forecast profit and loss account is complete by entering the sales turnover, deducting the cost of sales and the business running costs, overheads, to produce a net monthly profit. The bottom line may start in a monthly loss until volumes grow but should indicate a satisfactory profit. If a loss is indicated do not manipulate the numbers to show a profit which would be hiding the truth, instead go back to the sales and costs sections and consider what action is required to justifiably increase gross profit margins or reduce overhead costs.

Cash flow is often critical to a small business plan and a lack of capital or liquidity to carry out the ambitions and projections of the small business owner is a principal cause of small businesses going into liquidation before those business aspirations are achieved. The cash flow statement is based upon the volumes and prices included in the business plan and stated in such a way as to indicate the financial resources required.

Cash flow is different to the profit and loss account as the profit and loss account only states the different between sales sold and costs incurred. The cash flow statement takes account of both the profits made plus volume changes of purchases and stock, one off payments, financing debtor balances offset by creditor balances and shows how liquid and solvent a business is.

Producing cash flow statement tends to come within the province of accountants. A simple cash flow statement can be produced by starting with the net profit or loss each month, deducting the cost of stock which has not been sold yet including both raw materials and finished goods stock and also deducting any one off payments such as bills that have to be prepaid and the cost of paying for fixed asset purchases.

In addition when a new business starts up the amount owed to suppliers, creditors, is zero and the amount owed by customers, debtors, is zero. During the year these balances will change each month in proportion to the financial terms and conditions of the business and the movement of these balances need to be entered on the cash flow statement. An increase in debtors reduces the cash flow liquidity and an increase in creditors increases cash flow liquidity.

The third element of the financial section is an analysis of the whole business plan and the projections in what is called a sensitivity analysis. A technical accounting area for the majority of non accountants but nevertheless an important area as it is the financial sensitivity analysis that should indicate both the increased financial opportunities and the financial risks carried within the business plan.

All major areas within the business start up plan such as sales volume, sales prices, important cost elements and other factors that may have an impact on the business should be evaluated. For each item set an upper limit and lower limit based upon potential market conditions and risks.

Make a financial evaluate of each upper and lower limit for every item and determine the impact each would have on the profit and loss account and the cash flow statement. Also combine the financial effect of several factors to assess the impact of a combination of events on the small business. A lower sales volume may be uncomfortable for a small business but combined with lower sales prices and higher costs the risk could be severe.

The financial section of a business plan should be accurate and reflect the projected financial performance of the start up business. It is also important it is honest and evaluates the risks involved so that should any of those risks become reality urgent management action can be taken to limit the financial effect.

In practice some of those risks will happen and being forewarned can be the difference between survival and failure with liquidity being the most dangerous risk of all.

The Nuts and Bolts of Running Your Business

There are three key processes in operating a small business-management, strategy and operations-all of which are tightly integrated. The management process provides a framework for hiring, training, and managing people to produce results. The strategic process defines your short-term, as well as, your long-term goals—where you want to take your business (earnings, sales, and revenues) and how you will get there. The operational process provides the road map, tools, and resources for getting there.

Effective business processes depend on standardization— setting standards of how things should be done and formalizing processes for getting things done to meet those standards. With basic systems in place, jobs, tasks and decisions are easily performed rather than becoming confusing challenges.

One of the most common causes of business failure is the lack of standardized systems. Fly-by-the-seat-of-your-pants management generates chaos and inconsistency. However, if you create basic systems and processes for performing day-to-day tasks that can be easily replicated, then you are well on your way to building a business that produces consistent results.

One of the greatest entrepreneurial success stories is that of McDonald’s, a complex, well-run business system that is operated by ordinary employees who serve over 45 million people every day. Its founder, Ray Kroc, didn’t invent the McDonald’s concept, but he did revolutionize the food service industry through automation, attention to detail, exceptional efficiency, and the highest standards of safety and cleanliness.

Standardization of processes is a necessary part of the transition from a fledgling company to a professionally managed enterprise. As your business grows, standardization of processes and procedures is essential to future growth and success.

Early stage entrepreneurships are characterized by informal management, ad hoc procedures, and, at times, a total lack of systems, processes, and procedures. At some point in the business lifecycle, standardization becomes critical. Very few businesses can manage by exception or flourish because they do not have a system for getting things done.

Standardization means creating a prototype of how your business should run, charting an organizational path, identifying key functional areas, and establishing positions to support them. It means hiring, training, and acculturating people. It means creating a system of standard processes, procedures, and guidelines that inform employees how to deliver goods or services and formalize the steps in an operations manual.

One of the goals in producing a policy and procedure manual (operations manual) is to document the core business processes that produce an optimal business model. An optimal business model should be easy to understand, should be repeated on a continued basis by other employees, in other offices, over time. Optimal models generally produce consistent results, increase profits, and improve employee morale. Consistency reduces risk and uncertainty while producing a more stable company.

Business growth does not have to equal complexity. Success sometimes hinges on elegant simplicity. Many times, when companies expand as a result of rapid, unplanned growth rather than a carefully orchestrated plan, complex inefficient operations result. Organizations find themselves with staff, resource, and equipment redundancies, lack of formal systems, duplicated efforts, and no clear line of sight to the strategy driving the business.

In order to safeguard your business from becoming too complex and inefficient, streamline your business processes. Here are some tips to help you streamline your company’s workflow processes:

o Analyze each existing business process.

o Identify gaps in efficiency and productivity.

o Develop a solid plan to redesign and formalize processes.

o Nurture cooperation from partners, investors, managers, and employees.

o Prepare your company for inevitable changes.

o Establish performance benchmarks.

o Roll out the plan using a phased approach.

o Monitor and evaluate progress.

o Consider outsourcing processes that you cannot handle in-house.

In today’s competitive market, the processes that you employ to deliver your products and services are often what differentiate your company from your competition. Therefore, make sure your company is as efficient, responsive, and as productive as it can be.

Copyright © 2007 Terry H. Hill You may reprint this article free of charge in your newsletter, magazine, or on your website, provided that the article is unedited, and that the copyright, author’s bio, and contact information below appears with each article. Articles appearing on the web must provide a hyperlink to the author’s web site.

How to Start a Pet Sitting Business – The Vital First 8 Steps

Do you love animals? Are you dreaming of a low-cost start up business you can run from home? Pet Sitting may be just the answer you’re looking for. As with any business, the first step to being successful is laying the proper groundwork. It takes much more than having a good idea or having a passion -it takes preparation to beat the odds. Some of that preparation should include the creation of legal documents and service contracts, obtaining proper insurance coverage, conducting research and learning more about the industry. While there is no single way to guarantee success, the following are the vital first 8 steps to get you started in the right direction.

1. Develop a business plan

Preparing a business plan is the first step of starting a successful business. A business plan acts as a road map for your business. It outlines your goals and identifies specific financial projections. A good business plan should help you define your target market, identify your competitors, project start up expenses, illustrate how to allocate resources and give you a realistic timeline. If utilized during your initial business set up it will keep you on track and make you successful in achieving your goals.

What goes in a business plan? The plan should be divided into 4 sections:

1) Description of the business

2) Marketing Plan

3) Finances

4) Management

The plan should include an executive summary, supporting documents, and financial projections.

Consult your local small business administration office or search online for assistance with writing a business plan. They have many resources available to assist ne business owners.

2. Decide on a legal structure for your business

A. Decide how much personal liability protection you need

B. Decide how you want your business to be taxed

C. Research the various types of ownership structures:

a. Sole proprietorship

b. LLC

c. C Corp

d. S Corp

The choice you make will have a large impact on how legal issues are handled. Sole proprietorship is the simplest legal structure but it does not protect your personal assets. Forming an LLC is more complex and expensive. However, it is designed to provide the limited liability features of a corporation and the tax efficiencies of a partnership. This is a popular choice for sole proprietors who are looking to incorporate simply to protect personal assets.

Use the following resource to investigate the advantages and disadvantages of each and decide which ownership structure is right for you: Legalzoom

3. Choose a name for your business (and a domain name)

Choosing the right name for your business is very important. Choosing the right name can impact the overall success of your new venture. Remember to do your research, take your time and pick wisely.

A worthy name should:

1. Leave no doubt about the industry you support -it should directly relate to your service

2. Be easy to say, spell and read

3. Be memorable

4. Suit your business 5-10 years from now

5. Set you apart from competitors

If you plan on including a website with your new business, you should also consider that when deciding a name for your business. You may visit Yahoo or Networksolutions to see if your domain name of choice is available.

4. Register your business

Every city, county and state has specific requirements about doing business within its jurisdiction. Call or visit your local offices to see what particular requirements and fees exist in your area.

5. Obtain Insurance

Investigate the types of insurance you will need to get your business started. Auto insurance, liability insurance and bonding policies are a must for pet sitters. Often times clients will request to see proof of coverage prior to the first sit.

Auto Insurance – Commercial auto insurance is necessary to protect your business against potentially devastating liability costs resulting from an accident involving your vehicle while conducting company business. Typically, time spent conducting company business is not covered under a personal automotive policy. Check with your agent to see if you need to make additions or changes to your current policy.

Liability insurance – Liability insurance will protect you in the event that unforeseen circumstances arise. Lawsuits occasionally follow events such as dog bites, property damage in a client’s home or a pet passing away in your care. A good liability policy will protect you in such cases. It is a must have!

Use the following resources to decide which organization best fits your general liability needs:

http://www.PetSitllc.com – Pet Sitters Associates LLC

http://www.PetSit.com – Pet Sitters International

http://www.PetSitters.org – National Association of Professional Pet Sitters

Bonding – “honesty insurance” ensures clients you are trustworthy, and if they prove otherwise, the insurer provides them compensation. Bonding policies are necessary for any business where an individual is entrusted with valuables, like the key to someone’s home and all its contents. There are several Bonding companies throughout the country; each providing a different level of coverage. You can locate many of them by performing a Google search or asking your local insurance agent.

6. Establish website/email account and telephone line

Website presence – Establishing a web presence is a must in today’s high-tech world. A website can set you apart from competitors and open your business to a much larger market. Customers will be able to get information about your service 24/7 (even when you are not available). Having an email account linked to your business site is a convenient, low-cost way to communicate with clients.

Telephone Line – It’s a smart idea to invest in a separate phone line for business use only. Purchase a reliable voice mail plan and use it effectively. Your phone is a very important business tool if used properly. Your outgoing message should be professional, include any pertinent details and identify your business to the caller immediately.

7. Prepare Service Contract and Important Forms

Service Contract – A written service contract is a necessary tool. It outlines what services you will provide to the client, what fees you will charge for those services, what is behavior is expected of the client and/or pet, when payment is expected and what happens if payment is not made in a timely manner. A service contract formalizes the client/sitter relationship and ensures you have a shared understanding of the services you will be providing. Do NOT provide any service without a signed contract.

Veterinary Release Form – This form serves as written permission for you to seek medical care for a pet in your custody when a client cannot be reached during a medical emergency. Important document you won’t want to do business without.

8. Advertise

Advertise, advertise, advertise!!!! Advertising is a big key to success! Advertising promotes your business to a wider market. Advertising allows you to build your company’s brand. The more familiar your target market becomes with your brand, the more credibility your business establishes. The more trusted your brand, the more clients you’ll attract. The following examples are a few of the low-cost things you can do to get your advertising program started:

Design a memorable Business Card

Deliver fliers to local vet offices, groomers, pet stores, trainers, shelters, etc. (Maybe doughnuts, too -good to establish a relationship and referral base)

Design a Logo – create a brand for your company

Local Newspaper ads- advertise only in the areas you’re interested in working

Telephone directory listings

Submit a press release to local media – free and very effective

Send direct mail postcards

Host or plan a pet event with other pet vendors (Halloween pet costume contest, open house, pet first aid class, etc.)

Magnetic car signage – advertise to the locations you visit most

Participate in community parades

Send out quarterly newsletters

Canvass your local area with door hanger ads

Following these steps will start you on the road to success – the rest is up to you – Good luck!