Further qualifying the business

The start-up business:

A business plan includes both a narrative (story) and accompanying financial data which includes what money or other equipment and physical resources you have to bring to the firm and what you need from others (family or financial institution) to complete the start-up firm's financing, also known as capitalizing the business.

This Business Plan is going to have a “Table of Contents”, a “Summary”, your resume (and resumes of other founders. Your business plan will be best written if it includes chapters discussing its history, purpose, objectives and competition, collateral and other pertinent data you know are important and proposed financial statements (known as proformas: income and cash flow statement and balance sheet).

The balance sheet is the easiest thing in my opinion to develop because it depicts things as they are before you have your first customer, as you think they will be the first day of business. A Business Plan for an acquired (purchased, inherited, repossessed) business will be developed in the next chapter.

For clarity and demonstration purposes, I will begin an imaginary business, one of my own, and will develop its business plan step-by-step for you to follow.

PROPOSED BUSINESS PLAN
for

Entrepreneurial Consulting, a small business advisory firm

It is reasonable and necessary that I start off with a validity test of my proposed business: (This is not included in the plan, it is a prerequisite to writing a plan--if you cannot in your own mind "validate" the purpose for the business, perhaps you shouldn't open/buy it and if you decide not to--you needn't write a business plan at all. (Better to know now.)

Let's see how chapters to this book are applicable to this proposed business: (you will also see how usually several chapters intertwine because business intertwines several topical areas, within your business, often concurrently--one cannot locate anywhere without determining what one's balance sheet owner's equity or borrowing ability is for acquiring a site, or after determining if one can afford the applicable rent).

Just to remind you of your newness and to stroke your back (when you start asking yourself, can or should I do this or that) CHAPTER 51's YOUR NEW REALITY can be a reality check (like TV new's Dan Rather's Reality check reporter does--he suggests reality issues as he examined politician's perspectives and major news makers.

This business will be started because, after reading other surveys, I have learned that there are thousands of people in a 3 mile radius, who wish to open up a business of tier own, or fix one they own now, or wish to expand a successful one they own.

I do a review my resume and further determine that I have the necessary skills currently, [no additional
skills needed] to both sell consulting services and perform the diagnoses myself.

Next, I need to decide what the zoning is in my community and I learn that the needed zoning is “C O or C 2" to sell consulting services.

Next, I need to work out my budget; can I afford to live off the proposed profits
of this business?

Let’s assume I need $1,500 to live. My [chapter b ]ORGANIZATIONAL STRUCTURE choices of corporation, partnership, LLC and proprietorship lead me to want the start simple. As the book will show, anything but a proprietorship takes time to prepare and often must be filed with the county/state. When a sole proprietorship opens, the proprietor [aka owner] withdraws money weekly for his/her own living expenses. This can be either a DRAW or SALARY expense.

Taking the income statement, then, we invert it and realize that we must end up with no less than what a $1,500
draw would take plus other expenses, such as rent, advertising, utilities, phone, transportation, insurance and the list goes on.

I add the expenses together [plus the draw of $1,500]. I must now decide what I could earn per hour advising prospective and current small business operators. By adding the expenses together I determine I need $3,000 to cover the draw and the rest of the expenses. I know I can expect to sell 12 hours a month, and my gross PROFIT equals $3,000, we have our matrix match. If the average
sales of services ......plus discounted service hours we can “test the market” for one month and charge $140 an hour, giving us an additional $15 times 10 or $150 gross profit for consulting services.

If I advise 5 entrepreneurs for 1 hour a week, 2 weeks a month, and charge them $145.00 an hour, that is an additional 10 hours or $150 a month also. That would get the company $300 net profit before taxes. [before we added ... and repair, the sales of ,,,, alone covered the total expenses of the store and my draw [salary].

I now know if my expenses drop, and if I generate the same revenue, my net profit will increase. IF my revenue decreases, I have to cut expenses to cover my draw.

The point is that, during one’s work week, one always knows what one’s status is and how close one is to covering all the business expenses for that week and month. One needs this data for additional purposes:

the owner will want to know if he can increase his draw, or if he needs to bring in more ..... or repair business, or if he must be gone for a while, and has no one to replace himself, he needs to know what additional revenue he needs to bring in the next cycle [week or month] to make up for loses. One can actually KNOW
in advance, when on can expand, cut back or even when one will need to “close the door”.

I have done my initial market research and determine that I can and should work near my home-- one and a half miles from Phoenix College. So, in CHAPTER 1, LOCATION, I believe that a location near a private business or public community college will do well for a site. I will buy an empty or partially rented-out building and the land beneath it. In my city (Phoenix) a site near Phoenix or Glendale Community College near either Glendale Road and 35th Ave., or 15th Ave., and Indian School Rd would seem to be viable--a building and land I will buy (using my real estate license as leverage--allowing me a rebate against the normal down payment and closing costs). The building will have to be a minimum of 20 x 40 square feet to allow room for a counter (if one doesn't already exist) and naturally, a back room for the repair work. The building will also have to have room in front to display and sell my typewriters.

The building's lot must be adequate to park 3-5 customer cars at one time in addition to employees' cars.

About now, before I continue, I need to guess what amount of cash I will need to start and continue with my business prior to the business earning a profit (sales minus costs of goods sold minus expenses--which is not likely to reach a profit for many months or even the first year).

I need of two financial statements; balance sheets and income statements along with a proforma. These will give me data I need to continue with decision making. CHAPTER 30's FINANCIAL STATEMENTS (Accounting) will guide me here. Problem here duplication with CHAPTER FINANCIAL STATEMENTS. If I find myself thin on opening capital, CHAPTER 59's SBA might help me now.

Next might come CHAPTER 5's BUYING INVENTORY (Merchandising). After I have determined who my SUPPLIER's will be (discussed in CHAPTER 9), I will then know who my (CHAPTER 8's) CREDITORS will be. Then, the fun planning comes as I decide how I and my staff are going to handle the lifeblood of the company, CHAPTER 6's SELLING!

For my repair staff, I'll need equipment such as tools, benches and gages to examine and test the machines. I'll also need business insurance, electricity and other utilities and 1 delivery vehicle (to handle outcall repairs).

Once my offer to buy 'my desired' property has been accepted--my firm's balance sheet [Chapter xx Financial Statements] will include the following;

Assets: a building and its land and prepaid utilities' deposits, plus the value of my Pinto (which I will use for delivery), equipment (like tools, benches and gages to examine and test the machines, and prepaid insurance, and all utility deposits.

The mortgage is listed both under monthly expenses where rent would be listed, and with expenses such as insurance and utilities as billed (as used) are my expenses too.

Any cash I place into the bank to cover "operating expenses" becomes my owner's equity. I will closely examine weekly my balance sheet and income statement to make sure neither my assets nor expenses are too excessive. (Too many purchased things--equipment included, comes out of daily operating cash that can be used for daily expenses--a danger to all newly opened businesses!

I need to make sure I make my business as safe as possible. In CHAPTER 2, SECURITY, I haven't yet determined how I will protect my firm and employees and customers from CHAPTER 22 's ROBBERY or CHAPTER 50's BREAK-IN/ROBBERY or CHAPTER 21's EMBEZZLEMENT. CHAPTER 58's FEARS will keep me awake without me having to worry about all the things that firm's have to worry or be concerned about!

I know, via my business plan, and objectives, that I want to have an .... IN CHAPTER 3, HIRING I need to determine how many sales and repair people I'll need (versus contracting out any services).

I might want a partner skilled at selling. Regarding other store tasks, I might do them myself or hire one or more Full-Time Executives or blue collars or I might opt for a management trainees)--less expensive but less immediate performance/skill. I might have to settle for some Full-Time Blue Collar workers (including technicians) and see what growth I can generate. Often, a firm such as mine will start out with no Full- timers but only Part-Times, using Seasonal help when things heat up till I can sustain my growth and hire my Fill-Time Blue or Executive quality people.

Once I think I have the right people hired, my new team and I will need to get together and introduce a set of policies for the firm. These policies, if we are smart, will be developed by all via spoken and written input that we all understand and agree to. These agreements ought to benefit us all! These ideas I will endeavor to cover in CHAPTER 7's STORE POLICIES. One of many policies we will develop will include CHAPTER 57's--BONDING YOUR EMPLOYEES.

I would endeavor to emphasize that polices we mutually develop must demonstrate how they can be values if used as guidelines to present employees in case problems arise when I step away from the building. Policies should not become fixed standards that allow no negotiating or common sense thinking!

Policies are written to deal with common circumstances and should force management--me and a trainee--to think when a non-production-stamped situation arises!

You need to continue your business plan, chapter by chapter, as its applicability arises--some chapters of this book will not be immediately viable to your TODAY needs, and maybe some parts will be forever "Peter Panish" for any single entrepreneurs's needs. While that is so, make sure you have examined every chapter for applicability and be prepared to show a banker or lender or investor why any single chapter in this book is not relevant to your business!

To help myself and the first employees get the company going, CHAPTER 12's OFFICE SYSTEMS (equipment) needs to be created to facilitate company operations! I hope to discuss this topic in sufficient detail to get my firm started profitably and add continuity to operations from which I may peg changes.

Almost before I can blink, a combination of things will inevitably me; the most important for my crew and myself may be my purchase of both health and life (and auto) INSURANCE which is discussed in CHAPTER 13. Next, might come the examination and purchase of SUPPLIES I would be BUYING in CHAPTER 4. Whether or not I will need CHAPTER 10's CAPITAL EQUIPMENT will depend on my business plan. What is needed and Where to procure is also discussed!

When these polices and guidelines have been devised, then I want to let my creative people set up or buy CHAPTER 11's DISPLAYS.

There is no best time for me to learn other important areas of the firm, so now might be a good time for me to begin studying how to cope with CHAPTER 20's TRANSPORTATION of goods and customers to my store, and what I might do to continue smooth operations during CHAPTER 23's discussion of INCLEMENT WEATHER (Freezing weather, high Wind, Flooding, Fire, the Plague: or other forms of inclement weather or negative environments.

It would be wise for me to bone up a little on my CHAPTER 24's BUSINESS LAW (Torts and things).

Now that the business is up and "flying", we want to remember our employees (especially our key operators who will take over management when we are ready to expand) and to assertively compensate these people, CHAPTER 25's ESOP'S will show my people I will provide more than lip service in giving them pay equal to their real contribution to our mutual efforts and results.

I have developed a viable business plan and have been following it. Therefore, now is the time to put everything to the test, for it's Here's Johnny---and now it's my (CHAPTER 56) GRAND OPENING.

If my people's TRAINING (CHAPTER 29) has been effective and has been a mutual effort (and includes skills' contributions among myself and the employees), I will not head directly into a possible EMPLOYEE EMPLOYMENT STRIKES (CHAPTER 19).

Instead of seeking new employees, with the mutually reached compensation package in the company's policy manual, the firm should be examining customer-effective ADVERTISING (CHAPTER 27).

If my firm's advertising and sales have been successful, then my next stop may well include either CHAPTER 14's FINANCING 1ST STAGE, (I'd be in my 2ND), ETC (which will compare various Costs of funds via and its expanded cousin, CHAPTER 15's FURTHER FINANCING.

If I am lucky, and study my options in investments in addition to my own genre of businesses, I might find outstanding short-term investment opportunities (25-3000%) for CHAPTER 16's INVESTING EXCESS CASH FLOW (Revenues).

In case I have more troubled waters (Simon and Garfunkle) than expected, CHAPTER 18's OPERATING WITH INADEQUATE CASH might be a life saver. However, sometimes, I might catch a fall or a bug before the firm is ripe with top management. If so, CHAPTER 17's KEEPING THE COMPANY OPERATING WHILE (me) THE OWNER IS ILL (TEMPORARILY INCAPACITATED) might keep the firm afloat and suggest temporary promotion or another, easy, comfortable way(s) to generate managerially-oriented employees from within my current personnel file of active, working employees.

In the wonderful event that my firm grows and is actually gliding rather successfully, it behooves me to begin considering perhaps some esoteric arenas of business--some areas that few, if any other authors, discuss regarding entrepreneurship. I would consider positive action with the following:

CHAPTER 26's MAIL ORDER to increase sales, CHAPTER 28's DELIVERY, CHAPTER 31's the company's COLORS for its logo and inside and outside the store itself.

CHAPTER 32's PARKING might provide solutions to internal dissent and provide more alternatives for customers who want to shop at our store but feel they cannot conveniently because of inadequate parking.

CHAPTER 33's SIGNS will help me deal both with my city's and county's zoning and hopefully, my company's most artistic employee vs finding a contractor to display my most valuable asset--my firm's name!

Other ways to promote esprit de corps include CHAPTER 34's UNIFORMS and CHAPTER 52's INSIDE STORE MUSIC.

If I have a problem with any employee at any time that is not life- threatening, CHAPTER 35's CORRECTING EMPLOYEES will give me hints that may eliminate mass dissension and the detestable strike discussed earlier.

If my firm is physically located next to a municipal building or freeway to be, I might find (CHAPTER 36) a MUNICIPALLY ASSISTED MOVE staring me in the face. Sometimes, this move may be precipitated because of a new (CHAPTER 37) ENVIRONMENTAL COMPATIBILITY problem.

My brother would suggest a few, casual, easy to digest might-do's with me and ask if I have (CHAPTER 38) a RECYCLING program for my waste paper and water.

So far, we have a "swinging" little business and are rather content. Just so I don't get too content, I might have my attorney do a semi-annual audit of my local county commissioner and city hall and make sure the (CHAPTER 39) POLITICAL ENVIRONMENT OF [my] CITY hasn't negatively changed. (Municipalities often change sign ordinances, zoning ordinances, etc. that might help me but more often than not, will inevitably disrupt my current business operations and growth. I won't sleep when the government boys and girls are playing with my rights!

I have a great problem with the most despicable idea that certain civil leaders feel they know what everyone wants (or the moral majority) and they will often find my business in conflict with community standards--whatever those might me. CHAPTER 40's ETHICS might guide me on how to handle any political upheaval presented.

Just when I had everything licked, CHAPTER 41 comes along and shows me that who I was doing business with previously regarding one supplier or a customer has been changed and the rules and expectation are now different. A customer's or suppliers's LANGUAGE AND CULTURE DIFFERENCES can make what used to be a simple quick deal become complicated (like new commercial mortgages).

When I find my dander growing and some dude up the street or across town is acting like the proverbial Dillenger or bully, I may need to find a way to compete or simply help get the other guy by his private's if the situation deems it. If something like this faces me, CHAPTER 42's HOW TO HELP SOB'S FAIL: (WHY SOB'S SUCCEED AND NICE GUYS FAIL IN SMALL BUSINESS) might help me. (If I ever get into a slugfest with the bully or SOB, CHAPTER 49's RELEASING ANYTHING TO OFFICIALS (WITHOUT SUBPOENAS) can be a mini guide for my employees in case my business is struck while I am out to lunch or at home or on vacation.

Other fun chapters (not all of my entrepreneurial life has to be seen as threatening or challenging--lots of it can be fun!) include CHAPTER 43's FANTASY VS CONFORMITY IN APPEARANCE, CHAPTER 44's [how to deal with] ACCIDENTS, philosophies on (CHAPTER 45) CONTRIBUTIONS, when to have fun or have I missed out on the latest industrial talk--if so, I will need to attend CHAPTER 46's MEETINGS-CONVENTIONS. After I return from one of these, I will need to consider which of CHAPTER 47's SUBSCRIPTIONS might be apropos for my firm.

One of the best way to keep my people and customers happy (from Tom Peters, In Search of Excellence) could be to know the tenets of CHAPTER 48's I WANT TO SEE THE OWNER/MANAGER.
If I did not do a "need check" to see if my firm was needed before I opened it, I am in a "world of hurt." Therefore, presuming my firm was needed, it is time to piggy back CHAPTER 54's MARKET RESEARCH with CHAPTER 55's [a] BOARD OF ADVISORS to help me keep a continuous validity check on the rest of the firm and to get outside expert points of view on my growth plans and policies.

Am I a hot rising business entrepreneur yet? If so, I will now consider CHAPTER 62's EXPLOITING OPPORTUNITIES--an entrepreneur's walk through extra opportunities, one of which includes CHAPTER 63's GOING PUBLIC via an IPO with OTC with the Pink sheets, and when my firm is adequately indoctrinated and capitalized, NASDAQ. (There are "other exchanges" that may also be considered.

If your firm gets big for its "britches" and you want to become an advisor in my field OR if I find myself in need, CHAPTER 53's CURING A TROUBLED RETAIL FIRM cam provide priceless and life giving advise beyond that available from my advisors.

I might want to take a gander at having one of my people open a small booth at a merchant's exhibition, or I might find CHAPTER 60's STREET MERCHANTS offering perspectives on how to solve problems with them.

Finally, in case one of my employees want to try partial self-employment while working for/with me, I can make good use of CHAPTER 64's COTTAGE INDUSTRY.



Marketing

I have loved teaching marketing in community colleges. A well accepted definition of marketing includes all the activities involved in procuring the raw materials, getting them to the manufacture, getting the finished product to its most effective distribution center and finally, into the retail store and its myriad of activities from janitors to banking. (The janitors before banking is apropos to the priority of people importance in business!)

Entire books are well written just on marketing. I have decided this would be duplicitous. This entire book is about marketing as it applies to the entrepreneur in his/her new or expanding store.

According to a new (about time!) philosophy, the marketing concept means satisfying customers' demands, rather than buying things the seller likes and trying to convince buyers to buy. This "what the customer wants does not mean that the customer is always right. IN fact, often the customer is wrong in his/her choice of a good or service. To extrapolate from Stanley Marcus, Who's minding the store, often a customer needs guidance or simply doesn't know what is best for a need. Some philosophers would argue the customer must decide and take the consequences. I genially disagree. Selling is a science as is auto mechanics. One can determine, via scientific methods, what products and services best serve customers' needs, EVEN WHEN THE CUSTOMER PROFESSES DIFFERENTLY! Mr. Marcus even stated that one buyer wanted some jewelry and a fur and he politely declined a $250,000 sale. Now here's where the lay person vehemently disagrees--the lay person says get the money no matter what! The customer is the boss! In Mr. Marcus' "station in life", he knew the customer, he knew the purpose of the gifts and knew that his customers talked a lot about what they bought and from whom. If an item of apparel or jewelry was in apropos for an occasion, Mr. Marcus' business would suffer! Mr. Marcus offered the "appropriate" items for the occasion and the customer declined. Mr. Marcus accepted the loss because he knew in the long run, the customer would respect his position and the community would know that with Mr. Marcus' primary responsibility to fashion image, his Neiman Marcus stores had an obligation to "decide for the customer" even if at odds with the customers' idiosyncracies. This is a courageous position to take in business and works for those who are experts in merchandising and fashion. When done with tact and diplomacy, the "I won't sell this to you because it's wrong for you" philosophy makes and continues an image that was and is expensive to perpetuate. However, the positive consequence is that Neiman Marcus is the world's number one expert in fashion knowledge and they perhaps have the top 10% of the world's wealthiest people for their customers.

If you have no distinct specialty, sell anything to anyone with a smile and a no-questions refund policy. When you begin to develop a specialty (mine is retail firms--I do not advise manufacturers) guard it with your life! Successful marketing to you! reading!

Organizational Structure

Chapter

Please don't open any business based primarily on its legal organizational structure!

[If children want to open a business for more than a very limited time, they should get their parents/guardians to "go through the hoops" and open up a legitimate business for them--which the children would control under the auspices of the parent. The business control and legals should be given to the children the day the eldest turns 18 years.]

A business, even operated by one person, is seen by the business community, customers and suppliers as a living entity--a structure. There are three basic types of structures; proprietorship (just you--or just one person), partnership and corporation.

Proprietorship

A proprietorship is a business founded, started and managed by one person. It can have as many employees as it desires and can afford, but the total responsibility (and benefits) belong to one person only. If a husband or wife individually own a business, the business may be community property by law but it is a proprietorship and controlled by one (again, the founder). Many students have said one only needs a license, a lease and he/she is in business (assuming a business idea has come first). It's actually easier than that--a business' license is external to the business and in no real way signifies a business' existence--albeit the tax collector may disagree. One can (chapter xx-cottage business) run said business from one's home--taking a chance on zoning laws if anyone wishes to complain or have your legal existence challenged!

Partnership

There is not just a partnership--all state laws see partners as either general, silent or limited. (There can be unlimited numbers of partners in a partnership.)

General--all are equally responsible and usually (depending on the agreements made in writing by the parties beforehand, preferably with an attorney) benefit equally. Agreements should indicate how to split up the business in case all agree to close and the agreement should agree on who is in charge of daily operations and who is responsible for which activities. If there is a disagreement that cannot be solved in a meeting, an arbitrator is usually agreed to beforehand.

Silent--As its name suggests. Any number of people can be partners to a business but the silent part indicates that only the lawyers know who owns the business--the business license and all contracts signed are done as if the company is either a proprietorship or is a partnership with two or more general and one or more silent. This partner may not divulge his/her relationship to anyone other than the lawyers and may not discuss the relationship to customers, suppliers, etc. If a silent partner divulges the relationship to customers, suppliers, or other relevant people, then the relationship becomes one of either limited or general, no longer silent.

Limited--according to written agreement--any number of people may be limited partners (whether silent or vocal) and their limited obligation is usually limited to their investment.

Corporation

There are two basic types of corporations, and hybrids of both; private and public (there is, complimenting the infinite wisdom of the Arizona Legislature, an additional corporation structure known as the limited-liability-corporation too). When a proposed business person or group desires to incorporate, the choice usually begins with being private and continues over to being public when the firm must or does reach the multiple millions of dollars of net worth.

Within a corporation, entire books are written on this complex topic, but basically, cutting to the chase, the activities are open to examination by the state, the limitations of obligations are valuable to those investing who also have a "large" net worth and who don't want to jeopardize their non-corporate, private resources.

For the corporation to enjoy the rights of "individualism", it files extensive paperwork with the state and its split profits are again taxable for each founding officer on his/her personal income taxes.

For some convenience, corporations could opt for a Sub-chapter S filing and save double taxation and still gain some benefits not available to non-hybrids.

As of the early 1990's, various states have added even more hybridization, such as limited liability corporations who want the benefits of limited partnerships and corporations combined.

See your business attorney for suggestions on corporate structure if you decide to incorporate. Prior to having the business net $500,000, a proprietorship may well suffice as long as the founder has plenty of insurance!

LLC

An LLC is a LIMITED LIABILITY COMPANY. This “new” organizational structure is about 10 years old and allows one or more people to start a company that is very similar to a partnership. Some people have mistakenly called this a limited liability corporation but it cannot be so, because a corporation by its very nature means unlimited liability. To form an LLC, one simply writes on a piece of paper the purposes of the company, its officers and purpose and when this is filed with the COUNTY RECORDER, the business is in operation and is legal [excepting any city, county or state laws to the contrary]. [IF the type business filed “normally” requires a state license like a law, medical, or real estate office would require, it must be assumed that such a license is already held by the creators of the LLC for that particular company to be legal.