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NEW ENGLAND PROFESSIONAL DEVELOPMENTCORE COMPETENCY

TABLE OF CONTENTS

COUNSELING TECHNIQUESCounselingCounseling........................................................................................................................................................................................................................................ 55Typical ClientTypical Client................................................................................................................................................................................................................................ 55Importance of Communication Skills..................................................................5What Is Counseling?...........................................................................................8What Is Coaching?...........................................................................................10Effective Coaching............................................................................................10Work Assignment..............................................................................................10Problem-Solving...............................................................................................12Processing Information and Determining Effective Action................................15Dealing with Procrastination.............................................................................16Importance of Providing Reinforcement...........................................................18Desired Outcomes from the First Interview......................................................19Office Management Introduction......................................................................19Overview...........................................................................................................20Services Provided.............................................................................................20Service Restrictions..........................................................................................21Service Standards............................................................................................22Consulting Method............................................................................................23Working With Clients........................................................................................24Working With Organizations and Professionals................................................27Working With Lenders......................................................................................27Working With the SBA......................................................................................27Working With SBDC Colleagues.......................................................................27Consultant Activities.........................................................................................28General Guidelines...........................................................................................28Client Projects...................................................................................................29SBDC MIS System............................................................................................31Client File Documentation.................................................................................31The Effective Consultant...................................................................................33Preparing For A Counseling or Coaching Session...........................................34Checklist for Self-Evaluation after A Counseling/Coaching Session................35Acronyms..........................................................................................................35BUSINESS PLANNINGBusiness Planning Overview............................................................................37Executive Summary – Business Plan Basics....................................................37Executive Summary – Mistakes to Avoid..........................................................42Mission and Vision – Business Plan Basics......................................................42Mission and Vision – Mistakes to Avoid............................................................43Company Description – Business Plan Basics.................................................43Company Description – Mistakes to Avoid.......................................................44Product and Service Description – Business Plan Basics................................45Product and Service Description – Mistakes to Avoid......................................46Industry Analysis – Business Plan Basics........................................................46

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Industry Analysis – Mistakes to Avoid..............................................................47Target Market – Business Plan Basics.............................................................47Target Market – Mistakes to Avoid...................................................................49Target Market – Key to Your Business and Market Plan..................................49Marketing and Sales – Business Plan Basics...................................................54Marketing and Sales – Mistakes to Avoid.........................................................55Competitive Analysis – Business Plan Basics..................................................56Competitive Analysis – Mistakes to Avoid........................................................57Competitive Analysis – Key to Your Business and Market Plan.......................57Management Team – Business Plan Basics....................................................60Management Team – Mistakes to Avoid..........................................................62Management Team – Key to Your Business and Market Plan.........................62Operational Plan – Business Plan Basics.........................................................68Operational Plan – Mistakes to Avoid...............................................................70Financial Projections – Business Plan Basics..................................................71Financial Projections – Mistakes to Avoid........................................................73Financial Projections – Business Plan Financial Ratios...................................74Exit Strategy – Business Plan Basics...............................................................75Exit Strategy – Mistakes to Avoid.....................................................................76Exit Strategy – Key to Your Business and Market Plan....................................77Table of Contents – Business Plan Basics.......................................................79Table of Contents – Mistakes to Avoid.............................................................80Table of Contents – Sample Sections..............................................................80Business Plan Appendices...............................................................................84Sample Financing Proposal – Mary’s Market...................................................85CULTURAL AWARENESSCULTURAL AWARENESSGoals ..........................................................................................................108Resources for Trainer.....................................................................................108Diversity Web..................................................................................................108American Council on Education......................................................................108Action without Borders....................................................................................108American Society on Aging.............................................................................109Cultural Survival..............................................................................................109Race Ethnicity & Identity.................................................................................109Standards: An International Journal of Multicultural Studies..........................109Voice of the Shuttle: Minority Studies Page....................................................109Diversity Central.............................................................................................109MARKETINGBuilding a Guerrilla Marketing Plan................................................................110Determining Customer Needs and Wants Through Market Research...........110How to Conduct Market Research..................................................................111Pinpointing the Target Market........................................................................111Plotting a Marketing Strategy: How to Build a Competitive Edge..................111Marketing the World Wide Web......................................................................113The Marketing Mix..........................................................................................113Developing an Advertising Plan......................................................................114



What is Promotion?........................................................................................115Selecting Advertising Media...........................................................................116Preparing an Advertising Budget....................................................................121How to Advertise on a Small Budget..............................................................122Pricing – A Creative Blend of Art and Science...............................................122Pricing Strategies and Tactics........................................................................122Two Potent Forces – Image and Competition................................................123Pricing Concepts for Retailers........................................................................124Pricing Concepts for Manufacturers...............................................................124Pricing Concepts for Service Firms................................................................125Impact of Credit on Pricing.............................................................................125Location: As Source of Competitive Advantage.............................................125Location Criteria for Retail and Service Businesses.......................................126Location Options for Retail and Service Businesses......................................127Location Decisions for Manufacturers............................................................128Layout and Design Considerations.................................................................129Layout: Maximizing Revenues, Increasing Efficiency or Reducing Cost........131Buy, Build, or Lease........................................................................................132FINANCIAL ANALYSISOverview.........................................................................................................133Accounting – The language of Business........................................................133Balance Sheet................................................................................................133Statement of Cash Flow.................................................................................133The Accounting Process.................................................................................134Financial Status Checklist...............................................................................134Small Business Accounting Basics.................................................................135Cash and Accrual Methods of Accounting......................................................135Financial Statements, Depreciation, and Cash Flow......................................135Cash Flow Application: Calloway Tool and Die Company.............................137Managing Cash Flow......................................................................................139Cash Flow Management Tools.......................................................................140Strategies for Cash Flow Management..........................................................142Financial Statement (ratio) Analysis...............................................................143Ratio Analysis Application: Stereo City..........................................................144Liquidity Ratios...............................................................................................145Activity Ratios.................................................................................................145Debt (leverage) Ratios....................................................................................146Profitability Ratios...........................................................................................147The DuPont Method........................................................................................148Breakeven Analysis........................................................................................149Breakeven Analysis Application: Wholesome Foods......................................150ISSUES IN FINANCEPlanning for Capital Needs.............................................................................152What Lenders Look For When Evaluating a Funding Proposal......................153Capital ..........................................................................................................153Capacity..........................................................................................................153



Collateral.........................................................................................................153Character........................................................................................................153Conditions.......................................................................................................153Equity Capital vs. Debt Capital.......................................................................154Equity Capital..................................................................................................154Debt Capital....................................................................................................154Sources of Equity Capital...............................................................................154The Nature of Debt Financing........................................................................158Sources of Debt Capital..................................................................................158Federally Sponsored Programs......................................................................161State and Local Loan Development Programs...............................................164Internal Methods of Financing – Bootstrapping..............................................164Credit Scoring.................................................................................................165What is Credit Scoring?..................................................................................165Why is Credit Scoring Used?..........................................................................166How is a Credit Scoring Model Developed?...................................................166What Can I Do To Improve My Score?...........................................................166How Reliable is the Credit Scoring System?..................................................167What Happens if You Are Denied Credit?......................................................168Bankruptcy Laws............................................................................................169Bankruptcy Laws Chapter 7............................................................................169Bankruptcy Laws Chapter 11..........................................................................169Bankruptcy Laws Chapter 13..........................................................................169ETHICSEthics Resources............................................................................................171Ethics Definition..............................................................................................171Ethical Decision-Making.................................................................................172Biasing Factors...............................................................................................172Ethics Goes Beyond the Law..........................................................................173Ethics Check Questions..................................................................................174



II Counseling Counseling A)A) Typical clientTypical client

1)1) No entrepreneur or small business is exactly like another. No entrepreneur or small business is exactly like another. 2)2) Entrepreneurs have different levels of ambition, education, motivation, Entrepreneurs have different levels of ambition, education, motivation,

and sophistication. and sophistication. 3)3) Small businesses vary greatly in size, type, industry, and stage of Small businesses vary greatly in size, type, industry, and stage of

development. development. 4)4) The problems and issues that entrepreneurs will bring to you about The problems and issues that entrepreneurs will bring to you about

their businesses will vary even more! their businesses will vary even more! 5)5) The point is that you will rarely have a boilerplate solution that fits all The point is that you will rarely have a boilerplate solution that fits all

clients. clients. 6)6) Clients have the same human weaknesses as non-business owners. Clients have the same human weaknesses as non-business owners. 7)7) You will often find that the client has inaccurately defined the You will often find that the client has inaccurately defined the

problem--problem--she believes she has a cash flow problem when in reality she believes she has a cash flow problem when in reality she needs to increase sales.she needs to increase sales. (a)(a) Some clients are inclined to hide important information--Some clients are inclined to hide important information--he wants he wants

to apply for a loan but won't tell you that he filed for bankruptcy two to apply for a loan but won't tell you that he filed for bankruptcy two years ago.years ago.

8)8) A client may strongly desire to accomplish something but is unwilling A client may strongly desire to accomplish something but is unwilling to do the necessary work--to do the necessary work--writing a business plan for an interested writing a business plan for an interested potential investor.potential investor.

9)9) Clients also have needs that an effective business analyst will Clients also have needs that an effective business analyst will recognize. recognize.

10)10)Clients need to be told how they are doing and to be reassured that Clients need to be told how they are doing and to be reassured that they aren't doing everything wrong. they aren't doing everything wrong.

11)11)They need to know about other sources of information and assistance.They need to know about other sources of information and assistance. 12)12)They look for answers to their problems and for sources of money. They look for answers to their problems and for sources of money. 13)13)Clients need help to accomplish tasks with which they are unfamiliar, Clients need help to accomplish tasks with which they are unfamiliar,

such as preparing a loan proposal. such as preparing a loan proposal. 14)14)Clients often just need someone to listen to them when they become Clients often just need someone to listen to them when they become

frustrated with something about their business. frustrated with something about their business. 15)15)Most clients will have limited resources, assets, and time available to Most clients will have limited resources, assets, and time available to

implement solutions. implement solutions. 16)16)Many will avoid formal planning and then be plagued by the problems Many will avoid formal planning and then be plagued by the problems

that result. that result. 17)17)Procrastination is very common. Procrastination is very common. 18)18)They learn best by "doing" rather than by reading and/or listening. They learn best by "doing" rather than by reading and/or listening. 19)19)The entrepreneur's business is a function of their ego and is their The entrepreneur's business is a function of their ego and is their

“child.” “child.” 20)20)They are often suspicious of the government. They are often suspicious of the government. 21)21)Clients are often lagging far behind the technological times, or, at the Clients are often lagging far behind the technological times, or, at the

other extreme, are very far in the lead.other extreme, are very far in the lead.B)B) Importance of communication skillsImportance of communication skills

1)1) ListeningListening(a)(a) One of the most important communication skills is listening. One of the most important communication skills is listening. (b)(b) Effective listening is more than justEffective listening is more than just hearing. hearing.



(i)(i) It also involves the mental functions of organizing, analyzing, It also involves the mental functions of organizing, analyzing, and confirming. and confirming.

(ii)(ii) WeWe generally speak at a rate of 150 to 200 words per minute. generally speak at a rate of 150 to 200 words per minute. (iii)(iii) However, we can listen at a rate of 450However, we can listen at a rate of 450 to 600 words per to 600 words per

minute. minute. (iv)(iv) How well we effectively listen depends on what we do with all How well we effectively listen depends on what we do with all

thethe unused “hearing” time. unused “hearing” time. (v)(v) Effective listeners use the following four critical listening steps.Effective listeners use the following four critical listening steps.

2)2) Hearing:Hearing:(a)(a) Our physical activities contribute to listening. Our physical activities contribute to listening. (b)(b) Our eye contact, posture, nodding andOur eye contact, posture, nodding and non-verbal reinforcers (un-non-verbal reinforcers (un-

huh) all help us concentrate on the client. huh) all help us concentrate on the client. (c)(c) By concentratingBy concentrating we increase our attention, compensate for we increase our attention, compensate for

distractions, and hear the message moredistractions, and hear the message more clearly. clearly. (d)(d) In addition to the actual verbal message, we also take in visual In addition to the actual verbal message, we also take in visual

clues, such asclues, such as facial expression and posture, and react to other facial expression and posture, and react to other vocal cues, such as voice tone. vocal cues, such as voice tone.

(e)(e) All threeAll three provide valuable information about what the client is provide valuable information about what the client is saying in slightly different wayssaying in slightly different ways..

3)3) Organizing:Organizing:(a)(a) As we take in information, we organize it into a framework that As we take in information, we organize it into a framework that

makes sense to us.makes sense to us. (b)(b) Hopefully, the client has given us help by presenting the message Hopefully, the client has given us help by presenting the message

in an organized way. in an organized way. (i)(i) IfIf not, we need to establish our own organization. not, we need to establish our own organization. (ii)(ii) We quickly determine if time, priorities,We quickly determine if time, priorities, cause & effect, or some cause & effect, or some

other logical sequence applies. other logical sequence applies. (iii)(iii) We frequently use our own pastWe frequently use our own past experience to organize experience to organize

information. This can be a help or a hindrance. information. This can be a help or a hindrance. (iv)(iv) If our experienceIf our experience is different than that of the client, we can is different than that of the client, we can

misinterpret the message. misinterpret the message. (c)(c) As we organize theAs we organize the words, we also organize the visual and vocal words, we also organize the visual and vocal

information we take in.information we take in.4)4) Analysis:Analysis:

(a)(a) Converting the input into a message requires analysis on our part. Converting the input into a message requires analysis on our part. (b)(b) We review the sequence of information for logic and absence of We review the sequence of information for logic and absence of

gaps. gaps. (c)(c) We compare the verbal messageWe compare the verbal message with the visual and the vocal with the visual and the vocal

messages for consistency. messages for consistency. (d)(d) We draw tentative conclusionsWe draw tentative conclusions about what the message is and see about what the message is and see

if there is consistency in the total message. if there is consistency in the total message. (e)(e) Finally, we extrapolate to the meaning of the communication.Finally, we extrapolate to the meaning of the communication.

5)5) Confirming:Confirming:(a)(a) To insure that we have understood the client’s message, we To insure that we have understood the client’s message, we

confirm the message. confirm the message.



(b)(b) WeWe can use restatement, in which we repeat in our own words can use restatement, in which we repeat in our own words what we understood the clientwhat we understood the client to say, or we present our own to say, or we present our own conclusions from the message. conclusions from the message.

(c)(c) When we restate, we verifyWhen we restate, we verify the accuracy of what we heard. the accuracy of what we heard. (d)(d) By presenting conclusions, we move the conversationBy presenting conclusions, we move the conversation along along

quickly, but with less assurance that we have received the quickly, but with less assurance that we have received the message accurately.message accurately.

(e)(e) Rather than spending your listening time preparing a rebuttal, or Rather than spending your listening time preparing a rebuttal, or letting your mindletting your mind wander, practice using these techniques to wander, practice using these techniques to become a better listener.become a better listener.

6)6) InterviewingInterviewing(a)(a) Another important communication skill is that of “eliciting”-- of beingAnother important communication skill is that of “eliciting”-- of being

able to get theable to get the information we need from the client. information we need from the client. (b)(b) This skill is critical to the interviewing process. A goodThis skill is critical to the interviewing process. A good client client

interview should include the following ingredients.interview should include the following ingredients.(i)(i) Setting a safe environment:Setting a safe environment:

(I)(I) Put the client at ease. Put the client at ease. (II)(II) Provide a succinct introduction of yourself and the SBDC toProvide a succinct introduction of yourself and the SBDC to

encourage the client's trust. Ask the client to tell you about encourage the client's trust. Ask the client to tell you about his or her business, and thenhis or her business, and then listen.listen.

(ii)(ii) Keeping good structure:Keeping good structure:(I)(I) Use questions to keep the client on track and doing the bulk Use questions to keep the client on track and doing the bulk

of the talking. of the talking. (II)(II) Control theControl the flow and direction by asking questions, by flow and direction by asking questions, by

summarizing what the client has been tellingsummarizing what the client has been telling you, and by you, and by using subtle, non-verbal signals to demonstrate that you are using subtle, non-verbal signals to demonstrate that you are activelyactively listening.listening.

(iii)(iii) Encouraging the client:Encouraging the client:(I)(I) Use positive body language. Use positive body language. (II)(II) Indicate by eye contact that you are paying close attention.Indicate by eye contact that you are paying close attention. (III)(III)Use head or other movements to communicate enthusiasm Use head or other movements to communicate enthusiasm

and interest. and interest. (IV)(IV)........................................................................................................Adopt attentiveAdopt attentive stancesstances. Avoid or ignore unnecessary . Avoid or ignore unnecessary

distractions.distractions.(iv)(iv) Seeking information:Seeking information:

(I)(I) Ask open-ended questions that cannot be answered with a Ask open-ended questions that cannot be answered with a mere "yes" or "no". mere "yes" or "no".

(II)(II) AskAsk simple questions at a level that the client can simple questions at a level that the client can understand. Listen actively withoutunderstand. Listen actively without interrupting. interrupting.

(III)(III)..............................................................Pick up "leads" from the conversationPick up "leads" from the conversation. Take notes sparingly.. Take notes sparingly.(v)(v) Giving information:Giving information:

(I)(I) Speak clearly without jargon. Speak clearly without jargon. (II)(II) Give information in small quantities to avoid overloadingGive information in small quantities to avoid overloading the the

client. client. (III)(III)..........Use diagrams, outlines, or charts and have the client Use diagrams, outlines, or charts and have the client

participate wheneverparticipate whenever possible.possible.



(vi)(vi) Summarizing and testing understanding:Summarizing and testing understanding:



(I)(I) Help the client to spot gaps in the plan. Help the client to spot gaps in the plan. (II)(II) Test your own understanding of what the clientTest your own understanding of what the client means. means. (III)(III)......................................................Give the client ownership of the solutionGive the client ownership of the solution. . (IV)(IV)....................................................................................Define opportunities for actionDefine opportunities for action.. Assign one “piece” of the Assign one “piece” of the

total task for the client to complete.total task for the client to complete.(vii)(vii)............................................................................................................................................................Proposing:Proposing:

(I)(I) Proposals should be action-oriented and should relate to theProposals should be action-oriented and should relate to the client's capabilities forclient's capabilities for action. action.

(II)(II) They should be stated firmly and clearly with reasonable They should be stated firmly and clearly with reasonable timetables for action.timetables for action. Recognize the client’s resource Recognize the client’s resource constraints.constraints.

(viii)(viii)........................................................................................................Using supporting behavior:Using supporting behavior:(I)(I) Share enthusiasm and interest. Share enthusiasm and interest. (II)(II) Give supportive comments. Build on the client's ideas.Give supportive comments. Build on the client's ideas. (III)(III)........................Explore solutions which give the client ownershipExplore solutions which give the client ownership. . (IV)(IV)Avoid giving the client perceptions ofAvoid giving the client perceptions of threatening messages threatening messages

to his or her ego or plans for success. to his or her ego or plans for success. (V)(V) Avoid defensive statements,Avoid defensive statements, value judgments, and value judgments, and

conscious disagreements. conscious disagreements. (VI)(VI)........................Avoid raising difficulties withoutAvoid raising difficulties without offering solutionsoffering solutions. .

Recognize your client's and your own limitations. Recognize your client's and your own limitations. (VII)(VII)................................................................................BBe prepared toe prepared to admit mistakesadmit mistakes..

IIII What is counseling?What is counseling?A)A) "counseling" is helping a client with an important problem or concern to "counseling" is helping a client with an important problem or concern to

acquire the ability to handle it effectively. acquire the ability to handle it effectively. 1)1) It is helping him or her to feel confident in locating and using relevant It is helping him or her to feel confident in locating and using relevant

information. information.



2)2) It is enabling the client to explore and consider available options, It is enabling the client to explore and consider available options, develop plans,develop plans, and make important decisions to bring about a desired and make important decisions to bring about a desired future. future.

3)3) In order to have an effectiveIn order to have an effective relationship, the business analyst must relationship, the business analyst must have an unconditional positive regard for the client andhave an unconditional positive regard for the client and approach him approach him or her with non-judgmental caring.or her with non-judgmental caring.

B)B) Counseling and consulting are closely related activities. Counseling and consulting are closely related activities. 1)1) Counseling generally utilizes the client'sCounseling generally utilizes the client's ability to learn from the ability to learn from the

business analyst and then to apply this knowledge to solve his or herbusiness analyst and then to apply this knowledge to solve his or her problem. problem.

2)2) Consulting often involves performing some type of work for the client, Consulting often involves performing some type of work for the client, then preparingthen preparing a report or recommendation which the client may or a report or recommendation which the client may or may not implement. may not implement.

3)3) Since we often provideSince we often provide both types of services for clients, we call both types of services for clients, we call ourselves business analysts.ourselves business analysts.

4)4) There are three main aspects to the counseling function: There are three main aspects to the counseling function: (a)(a) attending the client, attending the client, (b)(b) exploring andexploring and responding to the problem, and responding to the problem, and (c)(c) personalizing and understanding the issues.personalizing and understanding the issues.

C)C) “attending” the client“attending” the client attend to the client by observing body language, toneattend to the client by observing body language, tone of voice, and emotional state.of voice, and emotional state. 1)1) Attend to your own body language, voice, and listening mode.Attend to your own body language, voice, and listening mode. 2)2) Body language Body language - read the client’s body language and respond to it. - read the client’s body language and respond to it.

(a)(a) For example, ifFor example, if his or her body language indicates tension, use his or her body language indicates tension, use confirming body language of yourconfirming body language of your own to put the client at ease.own to put the client at ease.

3)3) Tone of voice Tone of voice - use your own voice as a means of establishing a - use your own voice as a means of establishing a pleasantpleasant conversation environment. conversation environment. (a)(a) Whether your client’s voice is calm or shrill will dependWhether your client’s voice is calm or shrill will depend to a great to a great

degree on which tone of voice you choose for yourself.degree on which tone of voice you choose for yourself. 4)4) Emotional state Emotional state - recognize and respond to the client’s state. - recognize and respond to the client’s state.

(a)(a) For example, if theFor example, if the client appears to be bored, use animated facial client appears to be bored, use animated facial and verbal expressions to draw him orand verbal expressions to draw him or her out; if the client appears her out; if the client appears to be stressed, use a calm voice and affirmingto be stressed, use a calm voice and affirming expressions. expressions.

(b)(b) Be sure to monitor your own emotional state and portray neither Be sure to monitor your own emotional state and portray neither stressstress nor boredom.nor boredom.

5)5) Type of listening Type of listening - use active listening techniques rather than just - use active listening techniques rather than just passivelypassively observing. observing.

D)D) Explore and respondExplore and respond 1)1) explore and respond to what the client is communicating to you--reflectexplore and respond to what the client is communicating to you--reflect

their feelings astheir feelings as well as their words.well as their words. 2)2) Words Words - hear the words, but listen for the rest of the message. - hear the words, but listen for the rest of the message.

(a)(a) If you are not sureIf you are not sure of the message, repeat in your own words what of the message, repeat in your own words what you heard, and ask the client toyou heard, and ask the client to confirm that you have understood confirm that you have understood the message.the message.

3)3) Feelings Feelings - remain non-judgmental throughout the process. - remain non-judgmental throughout the process. (a)(a) Avoid condescendingAvoid condescending REMARKS REMARKS, ridicule, or belittling humor. , ridicule, or belittling humor.



(b)(b) Convey acceptance of the client, and anConvey acceptance of the client, and an understanding of the understanding of the complexity of his or her concerns. complexity of his or her concerns.

(c)(c) Acknowledge the validityAcknowledge the validity of the client’s feelings and affirm them of the client’s feelings and affirm them whenever appropriate. whenever appropriate.

(d)(d) Remember,Remember, though, to avoid allowing either your client’s or your though, to avoid allowing either your client’s or your own feelings to interfereown feelings to interfere with the counseling process.with the counseling process.

E)E) Personalize and understandPersonalize and understand 1)1) personalize and understand The client’s words, problems and goals bypersonalize and understand The client’s words, problems and goals by

sharing with thesharing with the client what you have heard and observed, not only client what you have heard and observed, not only during this particular session but induring this particular session but in other sessions as well.other sessions as well.

2)2) Feedback Feedback - encourage the client to review with you what you have - encourage the client to review with you what you have accomplished soaccomplished so far. far. (a)(a) Is there a clear statement of the real problem or opportunity Is there a clear statement of the real problem or opportunity

confronting the client? confronting the client? (b)(b) Is there agreement on the approach toward a solution?Is there agreement on the approach toward a solution?(c)(c) Is the client motivatedIs the client motivated to action? to action? (d)(d) Can he or she define a clear set of action points? Can he or she define a clear set of action points? (e)(e) Remember to offerRemember to offer positive reinforcement as the client goes positive reinforcement as the client goes

through this process. through this process. (f)(f) Refrain from offeringRefrain from offering negative criticism that can undermine the negative criticism that can undermine the

client’s confidence and self-esteemclient’s confidence and self-esteem. . 3)3) Stories Stories - share stories of other clients who may have had this same - share stories of other clients who may have had this same

problem. (don'tproblem. (don't get carried away with war stories, though.) get carried away with war stories, though.) (a)(a) This shows the client that you have aThis shows the client that you have a strong understanding, strong understanding,

respect, and empathy for his or her situation.respect, and empathy for his or her situation. (b)(b) Once you have achieved rapport, move on to the coaching phase.Once you have achieved rapport, move on to the coaching phase.

IIIIII What is coachingWhat is coaching 1)1) coaching is a coaching is a win-win win-win interaction which fosters an atmosphere of interaction which fosters an atmosphere of

teamwork teamwork that allows athat allows a counselor with specific professional counselor with specific professional knowledgeknowledge and and experience experience to help a client acquireto help a client acquire understanding understanding and and skills skills directly related to the client’s business.directly related to the client’s business.

B)B) Effective coaching:Effective coaching: 1)1) helps clients set better goals and guides them in reaching those goals.helps clients set better goals and guides them in reaching those goals. 2)2) Asks clients to do more than they would have done on their own.Asks clients to do more than they would have done on their own. 3)3) Helps clients to focus more accurately on the specific problem or Helps clients to focus more accurately on the specific problem or

opportunity.opportunity. 4)4) Provides the tools, support, and structure to obtain better results--and Provides the tools, support, and structure to obtain better results--and

to obtain themto obtain them more quicklymore quickly 5)5) there are many tools that can be used in coaching that enable the there are many tools that can be used in coaching that enable the

client to become more adept atclient to become more adept at analyzing specific needs and analyzing specific needs and implementing processes to fill those needs. implementing processes to fill those needs.

6)6) Three of those tools areThree of those tools are presented here:presented here:(a)(a) work-assignmentwork-assignment,,(b)(b) problem-solvingproblem-solving, and, and(c)(c) processing information andprocessing information and determining effective actiondetermining effective action. .



7)7) In order for you to coach a client in the use of these tools, the twoIn order for you to coach a client in the use of these tools, the two of of you will need to discuss them in advance and choose one as a means you will need to discuss them in advance and choose one as a means of attacking a particularof attacking a particular need that the client has. need that the client has.

8)8) The example, The example, writing a business plan writing a business plan is used in each of the three toolsis used in each of the three tools to give you a general idea of how to use them. to give you a general idea of how to use them. (a)(a) The example, in each case, is simplified and isThe example, in each case, is simplified and is not meant to offer not meant to offer

definitive answers, only to give brief guidelines.definitive answers, only to give brief guidelines. C)C) Work-assignmentWork-assignment

1)1) this tool for coaching clients teaches them how to take a project or this tool for coaching clients teaches them how to take a project or task and break it down into atask and break it down into a step-by-step process. You and the client step-by-step process. You and the client should:should:

2)2) provide the proper environment:provide the proper environment: (a)(a) choose a reasonable, private, and quiet place in which to work.choose a reasonable, private, and quiet place in which to work. (b)(b) Make sure the assignment fits the client’s needs.Make sure the assignment fits the client’s needs. (c)(c) Tailor the assignment to the resources of the client.Tailor the assignment to the resources of the client. (d)(d) If possible, prepare a “homework” assignment in advance of If possible, prepare a “homework” assignment in advance of

meeting with the client.meeting with the client. (i)(i) Does your office offer an environment conducive to writing a Does your office offer an environment conducive to writing a

business plan? business plan? (ii)(ii) DoesDoes your client need to write a business plan? your client need to write a business plan? (iii)(iii) Did you have the opportunity to discuss a “homeworkDid you have the opportunity to discuss a “homework

assignment” prior to the first counseling session? assignment” prior to the first counseling session? (I)(I) If not, have you thought about what the firstIf not, have you thought about what the first “homework” “homework”

assignment should be?assignment should be?3)3) Determine the objective of the assignmentDetermine the objective of the assignment. .

(a)(a) Establish the what, why, and when of the assignmentEstablish the what, why, and when of the assignment. . (b)(b) Clearly define the desired end result.Clearly define the desired end result. (c)(c) Anticipate possible questions and objections.Anticipate possible questions and objections.

(i)(i) Have you gone over all the reasons for writing a business plan?Have you gone over all the reasons for writing a business plan? (ii)(ii) Have you discussed theHave you discussed the benefits? benefits? (iii)(iii) Were you ready with suggestions to get your client started?Were you ready with suggestions to get your client started?

4)4) Assure understanding.Assure understanding. (a)(a) Review with the client the “what” and “why” of the assignment.Review with the client the “what” and “why” of the assignment. (b)(b) Ask the client if he or she understands and agrees with the Ask the client if he or she understands and agrees with the

assignment.assignment. (c)(c) Watch, listen, and get the client involved in the “how”.Watch, listen, and get the client involved in the “how”. (d)(d) Clarify expectations.Clarify expectations.

(i)(i) Does the client agree that a business plan is necessary? Does the client agree that a business plan is necessary? (ii)(ii) Does he or she understand what it willDoes he or she understand what it will accomplish? accomplish? (iii)(iii) Have you remained silent long enough for the client to voice his Have you remained silent long enough for the client to voice his

or her own ideasor her own ideas as to what items should be included in the as to what items should be included in the plan? plan?

(iv)(iv) Have the two of you agreed on what you expectHave the two of you agreed on what you expect from each from each other and from the finished plan?other and from the finished plan?

5)5) Set a time scheduleSet a time schedule. . (a)(a) Establish the importance of a schedule.Establish the importance of a schedule.



(b)(b) Get mutual agreement on the target date for completion.Get mutual agreement on the target date for completion. (c)(c) Recommend the setting of incremental milestones.Recommend the setting of incremental milestones. (d)(d) Reach mutual agreement on the steps and on possible Reach mutual agreement on the steps and on possible

“homework”.“homework”.(I)(I) HHave you discussed breaking the business plan into smaller ave you discussed breaking the business plan into smaller

sections, with an expectedsections, with an expected completion time for each section? completion time for each section? (ii)(ii) Does the client agree that a schedule will offer motivation forDoes the client agree that a schedule will offer motivation for

each increment, as well as positive reinforcement for each increment, as well as positive reinforcement for completion of the total task? completion of the total task?

(iii)(iii) Have youHave you agreed on a date for the first draft, no matter how agreed on a date for the first draft, no matter how “rough” it may be?“rough” it may be?

6)6) Assure acceptance.Assure acceptance. (a)(a) Review the “how” of accomplishing the assignment.Review the “how” of accomplishing the assignment. (b)(b) Listen for new ideas that may have developed.Listen for new ideas that may have developed. (c)(c) Ask how you can help with the assignment.Ask how you can help with the assignment.

(i)(i) Have you and client reviewed the steps involved in writing the Have you and client reviewed the steps involved in writing the plan? plan?

(ii)(ii) Did the client have newDid the client have new suggestions or ways to accomplish the suggestions or ways to accomplish the task? task?

(iii)(iii) Are there more questions? Are there more questions? (iv)(iv) Have you made sure theHave you made sure the client knows what his or her first step client knows what his or her first step

is and how you can help?is and how you can help?7)7) Leave the door open.Leave the door open.

(a)(a) Suggest that the client come back at any time for any problem.Suggest that the client come back at any time for any problem. (b)(b) Be available.Be available. (c)(c) Make sure the client feels that his or her questions are valid and Make sure the client feels that his or her questions are valid and

are important to you.are important to you. (d)(d) Check on the client’s progress, as appropriate.Check on the client’s progress, as appropriate.

(I)(I) DDoes the client feel free to call you? oes the client feel free to call you? (ii)(ii) Have you assured him or her that there are no “stupidHave you assured him or her that there are no “stupid

questions”? questions”? (iii)(iii) Have you made a note to call the client if you have not heard Have you made a note to call the client if you have not heard

from him or her byfrom him or her by the agreed upon time?the agreed upon time?8)8) Using this coaching approach to help a client with an assignment, no Using this coaching approach to help a client with an assignment, no

matter how routine it maymatter how routine it may seem, will improve both the ability to get the seem, will improve both the ability to get the work done and your relationship with the client. work done and your relationship with the client. (a)(a) ItIt is important to remember not to overload the client with too muchis important to remember not to overload the client with too much

information or too much to do.information or too much to do. (b)(b) It is also important to review with the client the foregoing steps in It is also important to review with the client the foregoing steps in

this this work-assignmentwork-assignment tool tool and how the two of you worked your wayand how the two of you worked your way through them. through them.

(c)(c) Doing so will allow theDoing so will allow the client to understand how to use the tool for client to understand how to use the tool for other needs in the future.other needs in the future.

D)D) Problem-solvingProblem-solving (a)(a) another excellent coaching tool is problem solving. another excellent coaching tool is problem solving. (b)(b) If a client can learn to look at problemIf a client can learn to look at problem solvingsolving. .



(c)(c) As a process and identify the stages within the process, he or she As a process and identify the stages within the process, he or she will be able to use thiswill be able to use this model over and over again as problems model over and over again as problems arise.arise.

2)2) Define the overriding problem or opportunity:Define the overriding problem or opportunity: (a)(a) identify what is standing in the way of achieving the desired goal. identify what is standing in the way of achieving the desired goal. (b)(b) Ask the client whatAsk the client what the “best-case-scenario” would be. the “best-case-scenario” would be.

(i)(i) Setting that “top line” often identifies where theSetting that “top line” often identifies where the problem problem currently lies and identifies the “gap” between the current currently lies and identifies the “gap” between the current situation and the topsituation and the top line.line. (I)(I) Is the task of writing the business plan just too Is the task of writing the business plan just too

overwhelming? overwhelming? (II)(II) Is the best-caseIs the best-case scenario that the plan would already be scenario that the plan would already be

written? written? (III)(III)....................................................Has anything been put down on paper? Has anything been put down on paper? (IV)(IV)If not,If not, in this case, the “gap” is significant, and the problem in this case, the “gap” is significant, and the problem

lies in getting started.lies in getting started.3)3) Identify potential causes or barriers:Identify potential causes or barriers:

(a)(a) getting the client to recognize the cause of the overriding problem getting the client to recognize the cause of the overriding problem or opportunity is notor opportunity is not always easy. always easy.

(b)(b) The coach very often encounters answers that are only symptoms The coach very often encounters answers that are only symptoms of theof the problem. problem.

(c)(c) It is important for the coach to check the logic of the client’s own It is important for the coach to check the logic of the client’s own analysis inanalysis in order to establish the real problem.order to establish the real problem. (i)(i) Does the client insist that he or she just hasn’t had the time to Does the client insist that he or she just hasn’t had the time to

write the plan, when you suspectwrite the plan, when you suspect the real problem is that he or the real problem is that he or she doesn’t know what a business plan is or what it shouldshe doesn’t know what a business plan is or what it should include?include?

4)4) Select most likely causes or barriers:Select most likely causes or barriers: (a)(a) there is generally no single barrier to the achieving of the desired there is generally no single barrier to the achieving of the desired

result. result. (b)(b) ProblemsProblems usually have multiple causes, some of which may be usually have multiple causes, some of which may be

impossible to tackle. impossible to tackle. (c)(c) SometimesSometimes there are extraneous factors beyond the control of the there are extraneous factors beyond the control of the

client. However, it is essential toclient. However, it is essential to guide the client in identifying theseguide the client in identifying these factors and in prioritizing them as to degree of impactfactors and in prioritizing them as to degree of impact before he or before he or she can move to the next step in the process.she can move to the next step in the process. (i)(i) Does the client realize the importance of having a business Does the client realize the importance of having a business

plan? plan? (ii)(ii) Does he or she know all theDoes he or she know all the benefits of having a comprehensivebenefits of having a comprehensive

business plan? business plan? (iii)(iii) What to include? What to include? (iv)(iv) How to structure it? How to structure it? (v)(v) How to getHow to get started? started? (vi)(vi) Does he or she feel inadequate to do the actual writing? Does he or she feel inadequate to do the actual writing? (vii)(vii)..........................................................Are there true time or budgetAre there true time or budget constraints?constraints?

5)5) Identify possible solutions:Identify possible solutions:



(a)(a) at this stage, the client should have identified all the key causes of at this stage, the client should have identified all the key causes of the problem. the problem.

(b)(b) TheThe next step, then, is to list all potential solutions. next step, then, is to list all potential solutions. (c)(c) These solutions should be prioritized inThese solutions should be prioritized in some manner, such as some manner, such as

feasibility of accomplishment, time required to complete, etcfeasibility of accomplishment, time required to complete, etc. . (i)(i) (possible solutions: (possible solutions:

(I)(I) schedule a time to discuss in depth all the advantages and schedule a time to discuss in depth all the advantages and benefits ofbenefits of having a business plan, as well as all the major having a business plan, as well as all the major components and why they are important to thecomponents and why they are important to the eventual eventual success of the company. success of the company.

(II)(II) Offer suggestions and encouragement in regard to the Offer suggestions and encouragement in regard to the actualactual writing of the plan. writing of the plan.

(III)(III)Help the client to get started by choosing one component of Help the client to get started by choosing one component of the businessthe business plan and working on it with them. plan and working on it with them.

(IV)(IV)Be sure that something is actually on paper before the clientBe sure that something is actually on paper before the client leaves. leaves.

(V)(V) If the client still is uncomfortable, offer the names of several If the client still is uncomfortable, offer the names of several consultants--being careful toconsultants--being careful to abide by the conflict of interest abide by the conflict of interest guidelines--who might be able to write it for the client. guidelines--who might be able to write it for the client.

(VI)(VI)..............Help theHelp the client to recognize that, even though some client to recognize that, even though some uncontrollable constraints usually exist, positive stepsuncontrollable constraints usually exist, positive steps CAN CAN be taken in other areas.be taken in other areas.

6)6) Select most appropriate solutions:Select most appropriate solutions: (a)(a) these solutions will depend on several factors. these solutions will depend on several factors. (b)(b) Sometimes the solution that would be theSometimes the solution that would be the most effective is not most effective is not

currently possible due to limited resources. currently possible due to limited resources. (c)(c) Therefore, all solutionsTherefore, all solutions have to be ranked according to their have to be ranked according to their

effectiveness in solving the problem or removing theeffectiveness in solving the problem or removing the barrier, and barrier, and also by how much they can be controlled or influenced by the also by how much they can be controlled or influenced by the client.client. (i)(i) Perhaps the hiring of a consultant would be the most effective, Perhaps the hiring of a consultant would be the most effective,

but due to the fact that the clientbut due to the fact that the client has budget constraints, that has budget constraints, that solution would need to receive a lower ranking than some of thesolution would need to receive a lower ranking than some of the others. others.

(ii)(ii) After ranking all of the solutions, perhaps the highest ranked After ranking all of the solutions, perhaps the highest ranked one would be to simply getone would be to simply get started by scheduling a session withstarted by scheduling a session with the client for the purpose of actually writing a singlethe client for the purpose of actually writing a single component component at that time. at that time.

(iii)(iii) Perhaps, due to time constraints, the client will be unable to Perhaps, due to time constraints, the client will be unable to spend discussion time with you on advantages, benefits, key spend discussion time with you on advantages, benefits, key components, etc., and will need detailedcomponents, etc., and will need detailed information to take information to take home.home.

7)7) Agree on actions and priorities:Agree on actions and priorities: (a)(a) based on the criteria above, the client and coach should agree on based on the criteria above, the client and coach should agree on

the actions to bethe actions to be implemented, as well as which ones to implement implemented, as well as which ones to implement first.first.



(i)(i) The two of you agree to a time for the next session, and that theThe two of you agree to a time for the next session, and that the purpose of the session is topurpose of the session is to write a customer profile. write a customer profile.

(b)(b) You provide the client with information on how to determine who You provide the client with information on how to determine who thethe typical customer is, and ask him or her to think about it typical customer is, and ask him or her to think about it between now and the next session.between now and the next session.

8)8) Monitor and support:Monitor and support: (a)(a) the final stage in the process of problem solving is making sure thatthe final stage in the process of problem solving is making sure that

the implementationthe implementation actually begins and that it remains on schedule.actually begins and that it remains on schedule. (b)(b) Just as in the work assignment process,Just as in the work assignment process, the open door is very the open door is very

important. important. (c)(c) Make sure the client knows that he or she can come toMake sure the client knows that he or she can come to you at any you at any

time with any problem.time with any problem. (i)(i) Call the client the day before the appointment and remind him Call the client the day before the appointment and remind him

or her that the two of you areor her that the two of you are going to write the customer profilegoing to write the customer profile portion of the business questions or if there is anything else youportion of the business questions or if there is anything else you can do to help.can do to help.

(ii)(ii) remember to review with your client all the foregoing steps if remember to review with your client all the foregoing steps if you are using thisyou are using this problem-solving toolproblem-solving tool as a means to coach theas a means to coach the client for handling future needs.client for handling future needs.

E)E) Processing information and determining effective actionProcessing information and determining effective action (a)(a) this coaching tool provides a way of looking at a sequence of this coaching tool provides a way of looking at a sequence of

events and, based on what theevents and, based on what the information is “saying”, determining information is “saying”, determining what action is needed at each particular juncture in thewhat action is needed at each particular juncture in the process.process.

(b)(b) There are five major areas to be considered in determining the There are five major areas to be considered in determining the meaning of the information andmeaning of the information and deciding what kind of action is deciding what kind of action is needed. Each of these areas is characterized by a key question.needed. Each of these areas is characterized by a key question. Guide the client in asking the following:Guide the client in asking the following:

2)2) what went wrong?what went wrong? (a)(a) If the information is telling you that there is a serious deviation fromIf the information is telling you that there is a serious deviation from

expectedexpected performance or results, then the effective action is one of performance or results, then the effective action is one of “problem-solving.”“problem-solving.”

(b)(b) Information - your client expected to be able to get a small-Information - your client expected to be able to get a small-business loan, based on thebusiness loan, based on the information contained in a one-page information contained in a one-page description of his or her business. description of his or her business. (i)(i) The lendingThe lending establishment insisted on a business plan before establishment insisted on a business plan before

they would consider the client’s request.they would consider the client’s request. Action - see the Action - see the previous section on problem-solving, items 1, 2, and 3.previous section on problem-solving, items 1, 2, and 3.

3)3) What should I do?What should I do? (a)(a) If the information is telling you that a decision needs to be made, If the information is telling you that a decision needs to be made,

then the effective actionthen the effective action is one of “choice-making.”is one of “choice-making.” (b)(b) Information - your client must decide whether to pursue other Information - your client must decide whether to pursue other

avenues of financing, continueavenues of financing, continue operations as they are, or choose a operations as they are, or choose a method to comply with the lending establishment’smethod to comply with the lending establishment’s requirement. requirement. (i)(i) Action – review items 4 and 5 from previous section on Action – review items 4 and 5 from previous section on

problem-solving.problem-solving.4)4) How do I do it?How do I do it?



(a)(a) If the information is telling you that the decision needs to be If the information is telling you that the decision needs to be implemented, then theimplemented, then the effective action is one of “planning.”effective action is one of “planning.”

(b)(b) Information - your client has decided to find out how to go about Information - your client has decided to find out how to go about creating a business plan. Hecreating a business plan. He or she wants to know what the next or she wants to know what the next step is. step is. (i)(i) Action – review module ix, business planAction – review module ix, business plan development and development and

discuss the steps involved in creating a business plan.discuss the steps involved in creating a business plan. 5)5) What else could go wrong?What else could go wrong?

(a)(a) If the information is warning you that something could go wrong, If the information is warning you that something could go wrong, then the effectivethen the effective action is one of “anticipating the problem.”action is one of “anticipating the problem.” ( (your your client has decided to create the business plan, has discussed how client has decided to create the business plan, has discussed how to get started, but is stillto get started, but is still not sure that the business plan will help not sure that the business plan will help him or her get the loan. Action – review module ix, businesshim or her get the loan. Action – review module ix, business plan plan development and point out areas that are potential trouble spots.)development and point out areas that are potential trouble spots.)

6)6) How am I doing?How am I doing? (a)(a) When the information is telling you that the plan is made and When the information is telling you that the plan is made and

controls are in place, thencontrols are in place, then the effective action is one of the effective action is one of “implementation.”“implementation.”

(b)(b) Your client has decided to create a business plan, has discussed Your client has decided to create a business plan, has discussed how to get started, has voicedhow to get started, has voiced concerns about the effectiveness of concerns about the effectiveness of the business plan, is convinced it’s the way to go, has actuallythe business plan, is convinced it’s the way to go, has actually formulated a “rough draft”, and wants to know what to do next. formulated a “rough draft”, and wants to know what to do next. (i)(i) Action – review module ix,Action – review module ix, business plan development, provide business plan development, provide

reinforcement and discuss what needs toreinforcement and discuss what needs to be done to finish the be done to finish the task.task.

(ii)(ii) It is important for clients to recognize where they are in the It is important for clients to recognize where they are in the sequence of events. sequence of events.

(iii)(iii) They will needThey will need to gather additional information, and each to gather additional information, and each situation will require different kinds of information.situation will require different kinds of information.

(iv)(iv) Knowing where they are in the sequence will help them know Knowing where they are in the sequence will help them know where to go for the informationwhere to go for the information they need.they need.

(v)(v) Remember to review the foregoing steps with your client if you Remember to review the foregoing steps with your client if you are using this are using this processingprocessing information and determining effective information and determining effective action tool action tool as a means to coach your client foras a means to coach your client for handling future handling future needsneeds

IVIV Dealing with procrastinationDealing with procrastination 1)1) the preceding tools are valuable skills for any client to acquire. the preceding tools are valuable skills for any client to acquire.

However, not one of them canHowever, not one of them can be used effectively if the client has a be used effectively if the client has a tendency to procrastinate on a regular basis. tendency to procrastinate on a regular basis.

2)2) MostMost procrastinators are hard workers. procrastinators are hard workers. 3)3) They also tend to be perfectionists, fear failure or success, andThey also tend to be perfectionists, fear failure or success, and are notare not

clear about their priorities. clear about their priorities. 4)4) They frequently doubt their ability to do the job or doubt theThey frequently doubt their ability to do the job or doubt the

importance of doing the job. importance of doing the job.



5)5) In any case, procrastination is self-defeating. Therefore, it isIn any case, procrastination is self-defeating. Therefore, it is extremelyextremely important to coach clients on the value of avoiding procrastination. important to coach clients on the value of avoiding procrastination. Here are someHere are some good tips:good tips:

B)B) realize that procrastination is futile: realize that procrastination is futile: 1)1) don’t spend time and energy avoiding the task.don’t spend time and energy avoiding the task. 2)2) Starting it and completing it will reduce your anxiety.Starting it and completing it will reduce your anxiety.

C)C) Eat the elephant. Eat the elephant. 1)1) Take a large, overwhelming task, break it up into little pieces and do Take a large, overwhelming task, break it up into little pieces and do

oneone piece at a time. piece at a time. 2)2) You eat an elephant one bite at a time.You eat an elephant one bite at a time.

D)D) Get the unpleasant out of the way: Get the unpleasant out of the way: 1)1) you will never feel like doing an unpleasant task.you will never feel like doing an unpleasant task. 2)2) There is never a good time to do it. There is never a good time to do it. 3)3) Think of how relieved you will be when it is finished.Think of how relieved you will be when it is finished.

E)E) Set short time limits: Set short time limits: 1)1) decide how long you will work at a task. decide how long you will work at a task. 2)2) If you decide on tenIf you decide on ten minutes and feel some accomplishment, you will minutes and feel some accomplishment, you will

probably continue.probably continue. F)F) Do the easy or interesting parts first: Do the easy or interesting parts first:

1)1) this will at least get you started. this will at least get you started. 2)2) You might thenYou might then decide to continue because you are part of the way to decide to continue because you are part of the way to

completion.completion. G)G) Commit to someone elseCommit to someone else: :

1)1) set a concrete time for completion with a friend or colleague. set a concrete time for completion with a friend or colleague. 2)2) Because we don’t like to let others down, this can motivate us to get toBecause we don’t like to let others down, this can motivate us to get to

work.work. H)H) Remember the 80/20 rule: Remember the 80/20 rule:

1)1) 20% of our effort will complete 80% of our work. 20% of our effort will complete 80% of our work. 2)2) Decide onDecide on how “perfect” the task must be before putting in all the extrahow “perfect” the task must be before putting in all the extra

effort. effort. 3)3) Perfection canPerfection can sometimes be too costly. sometimes be too costly. 4)4) Decide when the job is done.Decide when the job is done.

I)I) Be your own cheerleader:Be your own cheerleader:1)1) give yourself a pep talk. give yourself a pep talk. 2)2) This can be the push towards gettingThis can be the push towards getting started.started.

J)J) Listen to your excuses: Listen to your excuses: 1)1) verbalize your excuses. verbalize your excuses. 2)2) Say them out loud to yourself. Say them out loud to yourself. 3)3) If theyIf they sound lame, don’t accept them. sound lame, don’t accept them. 4)4) Treat your excuse as you would treat anyone else’s.Treat your excuse as you would treat anyone else’s.

K)K) Thrive on momentum: Thrive on momentum: 1)1) when you get started and are accomplishing a task, let the momentumwhen you get started and are accomplishing a task, let the momentum

move you forward. move you forward. 2)2) Postpone your other plans and keep working.Postpone your other plans and keep working.

L)L) Get in touch with your feelings: Get in touch with your feelings: 1)1) find out why you are procrastinating. find out why you are procrastinating.



2)2) What are youWhat are you afraid of? afraid of? 3)3) What don’t you like about doing the task? What don’t you like about doing the task? 4)4) Realize that you are allowing theseRealize that you are allowing these feelings to interfere with your feelings to interfere with your

accomplishments and that the results of procrastination can beaccomplishments and that the results of procrastination can be more more distasteful than doing the task.distasteful than doing the task.

M)M) Reward your performance: Reward your performance: 1)1) choose an appropriate reward that you will give yourself forchoose an appropriate reward that you will give yourself for completingcompleting

the task.the task. 2)2) Remember that all the above tips contain two common edicts of Remember that all the above tips contain two common edicts of

effective time management effective time management –– (a)(a) dodo it now and complete what you start. it now and complete what you start. (b)(b) These tips will help deal with procrastinationThese tips will help deal with procrastination only if they are appliedonly if they are applied

consistently. Keep this list and go back to it periodically as a consistently. Keep this list and go back to it periodically as a reminderreminder!!

VV Importance of providing reinforcementImportance of providing reinforcement 1)1) remember that counseling and coaching needs to be combined with remember that counseling and coaching needs to be combined with

positive reinforcement.positive reinforcement. 2)2) Recognizing good performance involves giving praise to clients who Recognizing good performance involves giving praise to clients who

meet or exceed themeet or exceed the expectations that have been mutually agreed expectations that have been mutually agreed upon. upon.

3)3) In order for the praise or recognition to beIn order for the praise or recognition to be effective, it needs to be effective, it needs to be received and internalized by the client. received and internalized by the client.

4)4) This action can be accomplishedThis action can be accomplished by linking the praise directly to a by linking the praise directly to a specific performance, to the behaviors that resulted in thatspecific performance, to the behaviors that resulted in that performance, and to the results of the actions. The following is a three-performance, and to the results of the actions. The following is a three-step approach that willstep approach that will help you clearly recognize and affirm the help you clearly recognize and affirm the performance.performance.

B)B) Describe the situation or task:Describe the situation or task: 1)1) focus on the accomplishment or activity that had a positive result. focus on the accomplishment or activity that had a positive result. 2)2) Make sure the clientMake sure the client knows which accomplishment or activity you are knows which accomplishment or activity you are

praising:praising: (a)(a) “pat, you did a great job on the first draft of your business plan...”“pat, you did a great job on the first draft of your business plan...”

C)C) Describe the behavior:Describe the behavior: 1)1) focus on the behavior (what the client did or said) and the personal focus on the behavior (what the client did or said) and the personal

characteristics orcharacteristics or values that contributed to the achieving of the result. values that contributed to the achieving of the result. 2)2) Give specific examples so that theGive specific examples so that the client knows which behaviors client knows which behaviors

support the overall effort and can draw on them again insupport the overall effort and can draw on them again in the future:the future: (a)(a) “pat, you did a great job on the first draft of your business plan. You“pat, you did a great job on the first draft of your business plan. You

really put a lot of timereally put a lot of time into researching your competition...”into researching your competition...” D)D) Describe the result:Describe the result:

1)1) focus on how the performance and behavior benefit the client’s efforts focus on how the performance and behavior benefit the client’s efforts and lead to theand lead to the desired result:desired result:



(a)(a) “Pat, you did a great job on the first draft of your business plan. “Pat, you did a great job on the first draft of your business plan. You really put a lot of timeYou really put a lot of time into researching your competition. into researching your competition. Making that time commitment now and including theMaking that time commitment now and including the information in information in your business plan will really help you be ready for whatever your your business plan will really help you be ready for whatever your competitioncompetition throws at you in the future!”throws at you in the future!”

VIVI Desired outcomes from the first interviewDesired outcomes from the first interview 1)1) the following conditions will exist as a result of effectively applying the the following conditions will exist as a result of effectively applying the

interpersonal skills andinterpersonal skills and counseling and coaching tools described counseling and coaching tools described above.above.

B)B) a clear statement of the real problem or opportunity confronting the client.a clear statement of the real problem or opportunity confronting the client. C)C) client will have confidence in the business analyst.client will have confidence in the business analyst. D)D) a clear set of action points.a clear set of action points. E)E) concurrence from the business analyst.concurrence from the business analyst. F)F) the client is motivated to action.the client is motivated to action. G)G) the client has learned how to approach athe client has learned how to approach a problem of this kind in the future problem of this kind in the future

and find aand find a solution.solution. H)H) the client feels that he or she has learned something.the client feels that he or she has learned something. I)I) the business analyst has a clear assessment of the client's position the business analyst has a clear assessment of the client's position

(business and personal)(business and personal) and has made a judgment of competency to act.and has made a judgment of competency to act. J)J) decisions have been clearly made as to whether the client will return (afterdecisions have been clearly made as to whether the client will return (after

completing thecompleting the agreed-upon action). Where signposting takes place, a agreed-upon action). Where signposting takes place, a clear contact has been given.clear contact has been given.

K)K) the client understands the role and potential of the business analyst.the client understands the role and potential of the business analyst.L)L) the client is satisfied.the client is satisfied.

VIIVII Office management IntroductionOffice management Introduction1)1) While technical expertise is a critical element of a business analyst's While technical expertise is a critical element of a business analyst's

ability to assist clients, good human relations and communication skillsability to assist clients, good human relations and communication skills are even more important. are even more important.

2)2) A business analyst who lacks these interpersonal skills will be unable A business analyst who lacks these interpersonal skills will be unable to transfer this technical expertise and toto transfer this technical expertise and to motivate the incredibly motivate the incredibly independent entrepreneurs who come to the SBDC for knowledge.independent entrepreneurs who come to the SBDC for knowledge.

B)B) OverviewOverview

1) Individual client consulting (or counseling) is a core service of the SBDC system.(a) Consultants provide one-to-one business consulting to clients on a

wide range of operational issues.2) Accreditation standards of our national network state that counseling

(or consulting) is an ongoing process of two-way communication between client and consultant(s). (a) This process includes identifying and analyzing the client’s needs

and problems. (b) To accomplish this, the consultant may need to gather information

and conduct research in order to implement the appropriate strategy.



(c) The goal of consulting is to increase the management capability of the business owner and is viewed as an educational process.

3) The accreditation standards define a client as a person or business entity (for-profit) who completes a request for counseling and who has received at least one (.5) hour of substantive and significant counseling assistance from an SBDC resource. (a) Clients are entered into an internet-based Management Information

System (MIS). (b) A description of the work performed in delivering client assistance

and all time associated with the provision of those services is recorded within the MIS system.

C)C) Services ProvidedServices Provided

1) Centers should provide consulting assistance to existing businesses as well as new ventures. (a) Consultants are expected to provide consulting services on a

variety of business issues. (b) To effectively use limited resources, consultants should encourage

those wishing to start new ventures to attend training programs and utilize research services before using one-to-one consulting resources.

2) Access to Capital/Financing: (a) SBDC consultants are encouraged to provide assistance to clients

seeking financing. (b) This includes providing information on financing options and

criteria, business planning assistance, and assistance in completing application paperwork.

(c) SBDC consultants should make sure that the client is actively involved in this process and able to represent themselves to a lending institution.

(d) SBDC consultants should not become directly involved in the negotiation process.

3) Marketing: (a) SBDC consultants are expected to provide assistance in marketing.(b) This assistance may involve assessing current marketing methods

and recommending new techniques as well as formulation of the marketing plan.

4) Procurement: (a) SBDC consultants should provide assistance to businesses

interested in contracting with federal, state, and local governments.(b) Consultants should provide basic information needed by

businesses pursuing procurement opportunities. (c) They are also encouraged to work with other assistance programs.

5) Technology: (a) SBDC consultants may assist in technology transfer and research

and development as well as SBIR/STTR and other funding



programs designed to support small business participation in innovation.

6) International Trade: (a) SBDC consultants should provide assistance to businesses

interested in international trade. (b) This assistance includes helping the client determine whether

international trade is appropriate for his or her business, discussing special issues relating to international trade, providing assistance in the market research process, and referring the client to other assistance providers when appropriate.

7) Financial Analysis: (a) SBDC consultants are expected to assist clients in financial

analysis and cash flow budgeting.8) Strategic/Business Planning:

(a) SBDC consultants are expected to provide assistance, support, and feedback to clients as they work through the planning process.

9) The above examples of consulting help that clients may receive from an SBDC reflect common types of assistance. (a) The list is illustrative and not meant to be exhaustive in nature. (b) The SBDC network personnel possess knowledge and expertise in

many areas of small business operations. (c) The individual consultant is encouraged to seek guidance from

other staff members when handling a project that requires special knowledge and experience beyond the consultant’s own expertise.

10)In carrying out the responsibilities of the position, the SBDC consultant works directly with clients, other ASBDC staff members, the private sector, economic development organizations, and other interested parties to assist in the development of small businesses and small business-related activities.

D) Service Restrictions1) SBDC consultants should act as an advisor and educator.

(a) This approach allows the consultant to provide advice and feedback and avoid direct competition with paid consultants in the private sector who provide more “hands on” services.

2) The consultant’s role is advisory; thus, the consultant should never place his or her hands on the “steering wheel” of a client’s business nor act as an employee or agent of the client. (a) The final decision always rests with the client.

3) While an SBDC consultant provides a wide range of services, there are a few things he or she should avoid: (a) The SBDC does not charge for consulting services. Presently,

there is no reason for the consultant to collect any money from a client. (i) The exception to this rule is the collection of seminar fees (see

Training).(b) SBDC consultants must not offer legal advice.



(i) Consultants may suggest that the client talk with an attorney.(c) The SBDC does not offer tax preparation assistance or keep books

for clients.(d) A consultant must not endorse or recommend individual

professionals such as bankers, CPAs, attorneys, or insurance agents. (i) However, consultants should encourage clients to utilize

professionals in the private sector when appropriate. (ii) If the client is unsure about who to contact, the consultant can

offer a list of professionals to the client.(e) Consultants may educate clients on these topics to help clients

increase their understanding of important issues related to these subjects. (i) Eventually, clients are to be advised to seek guidance from

professionals in these fields.(f) Confidentiality

(i) Client information is confidential.

(ii) SBDC personnel must not discuss client information with anyone outside of the project or ASBDC.

(iii) Client files can only be relinquished with written permission from the client or with a court-ordered subpoena.

(g) Appreciation Letters and Gifts from Clients

(i) Consultants may not accept cash as a gratuity for services. (ii) In such a situation you may tactfully inform the client he or she

may make a donation to your institution’s Foundation Fund, earmarked for the SBDC, if the client so desires.

(iii) Other insignificant token gifts may be accepted if there is no compromise to the ASBDC. (I) Examples might include a coffee mug, pen, or calendar.

(iv)Consultants are not allowed to solicit appreciation letters. (I) However, when a client asks what they can do to help or

show appreciation, inform them it helps for others to get letters informing them of the good work the SBDC is doing.

E)E) Service StandardsService Standards

1) The SBDC has an excellent reputation with the public and its resource partners.

2) That reputation reflects the dedication and commitment that the people in this organization have toward providing superior service to our clients and patrons.

3) Providing courteous, quality service is a significant element in the performance of the consultant.

4) Timely follow-up is another critical factor to which you must be sensitive.



(a) It is important for you to respond to all calls and inquiries. We do not expect you to meet all clients’ expectations of rapid service, but we do expect you to keep your clients informed of the status of their projects.

(b) Good communication is the key to maintaining an excellent relationship with clients.

5) Client Surveys(a) The Lead Center will contact clients through the SBA’s client

satisfaction survey, which will be sent out the month following the initial client contact.

(b) Each SBDC will receive survey results for its center.6) In addition to the satisfaction survey, the SBDC also conducts an

impact survey of clients who have received more than 5 hours of consulting assistance in the two years prior to the year of surveying. (a) The results of this survey are important for determining the SBDC’s

economic impact on the state and are important for justification of funding.

(b) Centers will be asked to help insure a high response rate to this survey by making personal contact with clients who have not completed the survey.

F)F) Consulting MethodConsulting Method

1) The SBDC role when working with clients differs from that of a private business consultant. (a) As part of an educational institution, we view our role as one of

“coaching” clients so they improve their skill and ability to deal with the issues that face them in starting, owning, and operating their businesses.

(b) We ask our clients to do as much of their own work as possible. (c) This will be a judgment call on the consultant’s part because some

clients will be capable of completing more of the work than others will.

(d) In all cases, it is expected that the client will be actively involved in the SBDC consulting project.

2) We encourage SBDC consultants to take a holistic view of a client’s business so that the SBDC helps them identify problems and solutions, challenges and opportunities that they may not see or understand without your guidance. (a) It is important to remember that our role is to educate and advise

the client about their business. (b) Sometimes, our role may be to lead the client to identify problems

that underlie the symptoms that brought the client to us in the first place.

3) Clients will make many demands on the consultant’s time and energy. (a) We have limited resources to meet the needs of our customer

base.



(b) We do not have the ability to devote 100% of our time to a single project until it is completed.

(c) Consultants typically work with several clients at any given time. Thus, the consultant must judge where time is best spent when managing a client caseload.

4) One way to control workload is to manage clients’ expectations regarding the assistance that they can expect to receive. (a) It is a good idea early on to identify the outcome that clients want

when they seek ASBDC help. (b) Define for them the role that the SBDC consultant will play in

helping them, so that they have a clear understanding of what to expect.

(c) It may also be appropriate to clarify that we are willing to work as hard as the client is, but not more so.

5) If clients are seeking help that is outside the consultant’s service capabilities or those of the SBDC, advise them of that promptly. Suggest alternative sources of help if it is appropriate.

G) Working with Clients(a) Technical expertise is a critical element of the ASBDC consultant’s

ability to assist clients, but human and communication skills are as important. (i) A consultant who does not have strong interpersonal skills will

be unable to pass on the needed technical expertise and motivate the client to use the knowledge learned.

(b) To effectively work with clients, the consultant should communicate a sincere desire to help them. (i) The amount of time spent with each client is determined by the

consultant based on his or her assessment of the client’s needs, the feasibility of the project, the potential impact of the assistance the client receives, and the client’s willingness to work and participate in the consulting process.

(c) It is important in the initial stages of client activity to set realistic expectations regarding the SBDC consulting services. (i) Written correspondence with the client throughout the

consulting process is encouraged and provides the client with something tangible.

(ii) It tends to lead to greater client satisfaction and better documentation of the consulting process.

(iii) Consultants should also follow up with clients in order to keep the process moving forward or close the case if the client is unresponsive.

(iv)Once the project is completed, long-term contact with the client is encouraged so the client may continue to take advantage of the full array of SBDC services.

(d) Consultants should strive to work with clients having the greatest potential impact as to future sales and employment.



2) Handling Unprepared Clients

(a) SBDC consultants will work with aspiring entrepreneurs who may not be prepared to go into business. (i) One way to assist these clients is to outline some steps for

them to take so they can better prepare themselves to manage a business of their own.

(ii) The SBDC consultant might suggest they work in a similar business, refer them to some of our training programs, or refer them to others that might help them such as SCORE.

(iii) It is better to leave the client with a strategy than to just cut them off.

3) Handling Unrealistic Clients

(a) Some clients will seek help to prepare financing requests that are unrealistic. (i) In those situations, it is recommended that the consultant point

out that we would like to help, but it has been our experience that loan officers will not accept less than 20% equity (or whatever is unrealistic in the project).

(ii) If the client is persistent, offer to mail the preliminary information to the loan officer to receive a preliminary evaluation of the proposal.

(iii) If the consultant’s judgment is correct, the reply should be all that is needed to satisfy the client that the SBDC did what it could.

4) Handling Client Expectations(a) Another suggestion when working with clients is to ask that the

client call at some regular frequency (once a week) to keep the SBDC consultant up to date on his/her progress. (i) Keep the ball in the client’s court by making a to-do list (for the

client) and giving the client a deadline. (ii) Advise the client that when the client returns with the requested

information we can then begin or proceed with work on the project.

(b) Many of the clients that the SBDC assists are in a hurry to get help, sometimes because they have ignored a long-term problem until it has become a real or imagined crisis. (i) Often, we must work first to get the client to slow down and

realistically examine what must be done to address their needs and to identify a reasonable amount of time to accomplish the task(s).

(c) It is best not to offer clients an absolute date of when work will be complete. (i) Instead, inform the client of the "typical" time it takes to do the

work if everything is in order and there are no interruptions.



(ii) Advise the client that the SBDC has other clients, walk-in traffic, and administrative activities with which to deal.

(iii) Assure them that the client’s work will be completed as quickly as you possible.

(iv) It may be appropriate to suggest they do more of the work so that less of the SBDC consultant’s time is required to assist them.

(d) Often, assuring clients that their request will receive as much attention and effort as the one(s) on which the consultant is currently working will satisfy them. (i) If the client is unrealistic about how quickly he or she must have

help, it may be appropriate to suggest they seek assistance in the private sector where they can “purchase” services on a full-time basis.

(e) A client may ask the SBDC consultant to go along with misrepresenting some fact about his business or loan proposal. Never do it! (i) The SBDC consultant’s job does not depend on one client or

one project, no matter how big the project is. (ii) Tactfully explain to the client that the SBDC can have no

association with the project unless a correction or, in some cases, a disclosure is made.

(f) Communicate a sincere desire to help clients, even those that do not receive much time. (i) Management will not challenge the consultant’s judgment, but

does expect the SBDC consultant to document the client file. (ii) If a client complains, management will look to file

documentation for an explanation. (iii) It may be appropriate to spend some extra time with the client

so that a smooth exit occurs.5) Client Selection

(a) The SBDC consultant’s goal is to work with clients having the greatest potential impact as to future sales and employment. (i) The lead office will follow up with clients for at least two years in

order to evaluate impact. (ii) Some clients will report that they never went into business, they

went out of business, or they experienced decline or no growth, but the remainder should report enough growth to justify the SBDC’s presence in the communities served.

(b) Clients and/or their businesses should be located within your state.(i) Before making a significant time commitment to a client,

consider some of these questions:(I) Can a positive, appreciative relationship be developed?(II) Can the business survive five years?



(III) Is it a turnaround situation?

(IV) Will the owner stay with it for five years?

(V) Will the owner respond to future impact surveys?(VI) Will

the business be profitable?(VII) Will

employment grow?H)H) Working with Organizations and ProfessionalsWorking with Organizations and Professionals

(a) As part of the consulting function of the SBDC, consultants should seek out opportunities to develop relationships with organizations and professionals in the small business community.

(b) Developing a network of contacts and referral sources within the region is vital to maximizing the SBDC’s reach across the state.

(c) Examples of contacts and referral sources include lenders, economic developers, Chamber leaders, and other professionals such as CPAs and attorneys.

I) Working with Lenders1) The SBDC often receives and encourages referrals from lenders. 2) It is advisable to make contact with the lender early in the process if a

client has been referred so that the SBDC consultant can confirm the accuracy of the client understands of what the lender has said and/or requested.

3) This contact will allow the consultant to more accurately assess the needs of the client and the lender’s position on the project since clients often misinterpret the lender’s willingness to discuss a project as an endorsement of the deal.

4) While the SBDC consultant often works with clients by providing assistance on loan proposals and loan applications, SBDC personnel are prohibited from influencing the lender’s decision on the loan.

J) Working with the Small Business Administration (SBA)

1) Many consulting cases involve clients pursuing SBA loans. 2) A consultant often provides assistance to clients in this application

process. Therefore, it is critical that a consultant become familiar with SBA’s loan programs and requirements as well as the application process.

3) It is often advisable to discuss any unusual circumstances or questions regarding the deal with SBA prior to the client’s submission of the application.

4) Obtaining SBA’s input in the initial stages of the project often saves time later.

5) As with working with lenders, SBDC personnel are prohibited from attempting to influence SBA’s decision on a loan application.

K) Working With SBDC Colleagues



1) Most consultant work will be an individual effort. (a) If a project justifies more than one consultant working on the case,

then management encourages teamwork among the staff. (b) This is consistent with the emphasis to work more in-depth projects

that will yield bigger, long-term payoffs in employment, sales, and profit increases.

(c) Team efforts will be evident from time reports, loan reports, and special write-ups.

2) Remember that each consultant is responsible for handling the client traffic in his or her area. (a) Arrangements to assist on a case should be made with the

individual staff member(s) and then cleared with the Director. (b) Before advancing to this stage, be sure you can document the

project's viability.VIIIVIIIConsultant ActivitiesConsultant Activities

1) The ASBDC consultant may vary the blend of his/her production output from year to year to reflect individual skills and interests (subject to serving your client base).

2) The consultant’s plan for the upcoming year should be discussed during the annual performance review and have advance approval before implementing any major change or skewing of time allocation.

B)B) General GuidelinesGeneral Guidelines

(a) Budget 50% to 60% of time to work with clients (cases & information requests).

(b) Strive for at least a 50/50 ratio of contact to prep time – more contact time is better.

(c) Diversify the types of client assistance provided. Work in as many of the 14 project areas identified as areas of counseling as possible.

(d) Record information transfers (contacts and inquiries that are not substantive and that are less than one (.5) hour of assistance) in the SBDC’s internet-based MIS. See MIS documentation for complete instructions.

2) Work Loads

(a) Normally, the SBDC consultant will find it difficult to juggle a significant number of open cases at any given time.

(b) Naturally, it depends on how active the cases are and what phase they are in.

(c) It is common to have one case that the consultant is concentrating on, have another one that the consultant is getting ready to devote full attention to, and have others in the initial or closing phases.

3) Cases

(a) The average case is about 10 hours (bear in mind that typically an SBA milestone is to average 6 hours per case annually).



(b) However, this is misleading because generally cases are skewed short or long-term. (i) On the short side, most will have five or fewer hours, and on the

long side, most will have 25 or more hours. (ii) Case goals are established each year in consultation with the

SBA. (iii) Each center will apportion the case count among its consulting

staff. Check with your supervisor to determine the case goal for the year.

4) Loans

(a) Normally, 8 out of 10 loans are approved, and 7 out of 10 are actually funded.

(b) Retail and service businesses represent the majority of loans in terms of numbers of applications and loan dollars.

(c) Most staff average around a million in funded loans per year. Of course, the actual amount each year varies.

C) Client Projects1) Management Consulting Projects

(a) Often management consulting will follow successful financing assistance. (i) If the SBDC consultant has good client rapport, these projects

frequently are more enjoyable. (ii) Although the impact is less tangible than a loan, these projects

are considered just as important. (iii) The client should feel the service is beneficial. It is also good if it

is with a client who has potential for higher impact.(b) The SBDC classifies its counseling work across a variety of project

areas, further categorized within each of these major groups. (i) Over the course of the year, the SBDC consultant should strive

to provide assistance in most of these areas. (ii) Although many clients will seek the SBDC out based on a

perceived need for financing, the SBDC consultant’s role is to help the client identify other relevant issues that affect the client’s business success.

(iii) When the client’s needs are beyond the scope of the SBDC’s services, the consultant can still play a role by identifying other resource partners that the client can contact for specialized help.

(c) Management consulting projects can run the gamut from helping a client convert their manual recordkeeping system to a computer software accounting program (remember we don’t keep clients’ books for them) to assisting a client with the development and implementation of a comprehensive marketing plan. (i) The SBDC consultant may request that the client send monthly

or quarterly financial statements so that we can calculate ratio



trends and advise the client periodically on how the business is performing relative to its history and industry benchmarks.

(ii) Some clients may seek advice about succession planning for their business.

2) Financing Projects

(a) Helping someone obtain a loan can be thought of as a multi-stage project. The following summary presents a typical scenario of this type of case.(i) The SBDC consultant qualifies the client as roughly having a

feasible chance: a sound business idea, repayment ability, reasonable equity, and reasonable management experience.

(ii) The SBDC consultant discusses the information requirements. This is best handled in a meeting in which the consultant explains the preliminary information package.

(iii) The client gathers and returns the prescribed information.(iv)The SBDC consultant analyzes the information and determines

if the original premise is supported once actual documentation is in hand.

(v) If the SBDC consultant determines that a loan is indeed the proper course of action, the consultant begins working with the client to structure the proposal and select a lender. (I) At this stage the consultant may want to involve the

proposed lender. (II) It is not uncommon for the lender to suggest a change that

makes the deal more palatable to the lending institution.(vi)With everyone in agreement, the SBDC consultant directs the

completion of the loan package. (I) Strive to have the client prepare as much of the “final copy”

as possible. (II) Always make sure the client understands and “buys in”

before making any changes. (III) Revie

w the final application together and make sure the client provides all of the appropriate signatures.

(vii) The client presents the proposal alone, or the SBDC consultant may accompany the client if it is warranted. (I) Be cautious about accompanying the client because the

consultant’s presence may offend the lender, especially if the client leans on the SBDC consultant for answers to some of the tough questions.

(viii) The SBDC consultant instructs the client to call once a week to keep the SBDC updated on the progress or lack of progress.



(I) The consultant may need to re-enter the process to expedite loan processing.

(ix)The SBDC consultant reports the loan when it is approved, the client gives up, or when you judge the loan as unobtainable. (I) If follow-on work is contemplated, the consultant continues

to work with the client on other projects. (II) If the consultant has concerns about the business, ask the

client to send monthly financial statements to monitor their situation for a few months.

D)D) SBDC MIS SystemSBDC MIS System

1) The ASBDC maintains records of client activity and information transfers using the Internet based SBDC MIS system, or Center IC.

2) Consultants should refer to A Counselor’s Guide for Using the Center IC for detailed instructions on using the system.

3) Consultants are expected to stay current with recordkeeping and input of information into the system.

E)E) ClientClient File Documentation File Documentation

(a) Client file documentation will consist of sessions recorded in the MIS system, in combination with paper documents and records retained in the client file in the consultant’s possession.

(b) Documentation of client counseling allows the SBDC network to demonstrate:(i) high quality service(ii) preservation of confidentiality(iii) timeliness of counseling(iv) follow-through from initial session through closure/economic

impact(c) Documentation should provide an “ongoing story” of the work done

with a client. (i) When well documented, on a consistent basis, client files serve

as a measure of the quality of our work. (ii) The description of what occurred with a client needs to be

sufficient enough for someone unfamiliar with the case to read the file, be able to understand what consulting occurred in the sessions, and to continue counseling based upon the written documentation in the client management system.

(iii) Confidentiality is demonstrated by a signed 641 form in the physical file.

(iv)Timeliness is demonstrated by documentation of follow-up or actions defined.

2) Initial session with a client must include the following documentation in the notes field of the client MIS system, in the following order:(a) description of the client’s business – short, concise and thorough (b) analysis/statement of the problem to be solved



(c) summary of what occurred in the session (discussion talking points, brainstorming, etc)

(d) actions taken during the session to solve the problem (spreadsheet developed, assessment performed, etc.)

(e) plan to move forward, the next steps for the consultant and client3) Follow-on sessions must include the following documentation in the

client MIS system:(a) summary of what occurred in each session(b) actions taken during the session to solve the problem(c) plan to move forward, the next steps for the consultant and client(d) Copies of any documents developed (Examples: the latest

business plan, or marketing plan with any notes from the business consultant written on it or(i) reference to the location where a paper copy of the business

plan/marketing plan is kept(ii) industry/market research information(iii) student project reports

(e) contact for closure between 90-120 days after the last session (documentation of plans to continue working with client and/or achieved economic impact)

(f) The following information is suggested as an example of the documentation that should be in the SBDC consultant’s client file. The file should remain in the consultant’s office until file destruction is permitted.(i) Signed and dated Request for Counseling, from electronic

system or otherwise,(ii) Correspondence, including e-mail,(iii) To do lists for the client with a time deadline; give the client a

copy and put one in your file,(iv)Client supplied information (i.e., financial statements, business

plan),(v) Any reports or documents generated or computer output,

including research results,(vi)A brief case summary when closing the case.(vii) Additi

onal Comments: An attempt should be made to give each client a written list of recommendations.

(g) Make narrative descriptions of assistance reflect that the SBDC consultant is assisting the client and working with the client – not doing the client’s work for them. (i) The description should not indicate the consultant is performing

work for the client like a paid consultant.(h) 120-day case follow-up rule: SBA has a policy to make sure clients

do not “fall through a crack” due to lack of case management attention.



(i) Included with monthly reports will be a report that lists all of the consultant’s cases that have been open with no activity for 90 days.

(ii) If a case remains open for 120 days it cannot be simply closed. The SBDC consultant must document a follow-up review of the case. The actual SBA policy follows.(I) SBDC client files shall not remain open more than 120 days

without a documented follow-up review or counseling session.

IX The Effective ConsultantA) You are skilled at reaching out to help clients communicate openly and

honestly. 1) This skill includes participating in active and involved listening, which is

hard work. 2) Active listening means concentrating fully on what is being said, in

order to understand not only the content of what is being said, but also to perceive what is not being verbalized.

3) Active listening means trying to understand what the other person is thinking, and why.

B) You are a person who inspires feelings of trust, credibility and confidence in the clients. 1) When clients trust you, they sense that it is all right to risk sharing their

concerns and problems openly. C) You are a person with empathy who is able to see problems and solutions

from the client's point of view. 1) You measure the client's abilities and weaknesses, and then suggest

solutions that are within the client's grasp. 2) You attempt to understand, not to judge, the client. 3) When you find that you cannot communicate and empathize with a

client (and there is always someone like that), you will refer the client to another Business Analyst.

D) You have problem-solving skills which allow you to define the true problem, identify where the client needs to be, and determine the best route to get there. 1) You communicate caring and respect for clients.

E) You communicate that you care about what happens to the client's business, that you would celebrate the client's success. 1) The opposite of caring is indifference. 2) It is essential that you convey acceptance of the client as a person, as

well as acceptance of what the client has to say. F) You are a person who has expertise that will be of special value to the

client. 1) You are a business generalist, first and foremost, with basic

knowledge of all aspects of business ownership. 2) You probably have a specific area of business in which you have

particular expertise.



3) In addition, you have a grasp of world events, including changes in the economy, demographics and political implications for small businesses.

4) If the client needs help in a field in which you have little expertise, you will refer the client to another Business Analyst.

G) You can reason systematically, help your client to determine a step-by-step course of action, and assign "homework" when necessary. 1) You also understand that it is the client's decision to follow this course

of action or to abandon it totally. 2) You know when to let go of a client.

H) You continually increase your knowledge of other sources of information and assistance to entrepreneurs. 1) You know that networking never ends and that clients always need

more help. I) You play the "Devil’s Advocate" with tact, encouraging the client to

recognize potential problems and to view the “real world”. 1) This is a good teaching skill when the client is aware that you are

playing this role, and when you use it with restraint. J) You are careful to use language that the client understands.

1) You avoid acronyms and terms with which the client is unlikely to be familiar.

K) Finally, you believe the best counseling approach is "participative", one in which both parties work together in planning how to analyze and solve the problems.

X Preparing for a counseling or coaching session (to be used as an aid by the business analyst before any counseling session) A) Careful planning is an essential part of every counseling or coaching

session. B) Oftentimes, when A session goes poorly, it is due to the lack up proper

planning. Use the following checklist to Assure that you are fully prepared to offer your client the best possible session. 1) Am I sure that my client knows when and where the counseling

session is to be held? 2) Have I reviewed the past efforts of my client? 3) Have I considered how many sessions may be needed, what degree

of trust must be Attained, and the probable confidence level of my client?

4) Am I clear about the reason for the session and prepared to help define the goals?

5) Have I allotted enough time for the appointment? 6) Have I prepared a proper environment (no outside distractions, phone

interruptions, Etc.)? 7) Have I removed physical obstructions between myself and my client

(computer, desk Clutter, etc. – it is actually best to position yourself and your client in such a way that Your desk is not between the two of you.)



8) Do I have a written “agenda”; 9) Have I rehearsed possible scenarios? (keeping written Notes in front

of you will help you stay on track and maintain control of the session.) Am I set up and prepared to take notes during the session? (it is important to Document everything that takes place in order to develop a record for future verification Or evaluation purposes. However, note-taking should not inhibit the flow of the Counseling process.)

XI Checklist for self-evaluation After a counseling/coaching session (to be used as an aid by the business analyst following a counseling session) A) The session has ended. Was it successful? Or are you thinking that it

certainly could have gone better? B) Now is a good time to go back over the details and assess the results.

Use the following Checklist to evaluate your part in the session. (Review sections on listening, page ii-5, and Interviewing, page ii-6, if necessary). 1) Did I put the client at ease? 2) Was I warm and friendly? 3) Did I use positive body language and active listening? 4) Did I help the client to define the reason for the session? 5) Did I ask open-ended questions and encourage the client with positive

reinforcement? 6) Did I offer effective feedback by paraphrasing and encouraging

review? 7) Did I refrain from using condescending remarks or other negative

criticism? 8) Did I maintain good structure and guide the client in staying on track? 9) Did I help the client to identify the primary problem or opportunity? 10)Did I guide the client in discovering possible causes and determining

effective action? 11)Did I aid the client in finding possible solutions and choosing between

the alternatives? 12)Did I at all times offer empathy for the client’s feelings and express

confidence in the Client’s ability to solve the problem or grasp the opportunity?

13)Did I recognize areas that were beyond my scope and refer the client to other resources?

14)Did I allow the client to take ownership of the problem or opportunity, remaining Objective and offering advice only when appropriate did I encourage the client to view all aspects of the problem, pointing out possible consequences, both good and bad?

15)Did the client and I agree on a course of action? 16)Did the client and I agree on a time schedule and establish the first

measurable step? 17)Did the client understand that the SBDC program is not a “one-shot-

deal” and that we want him or her as a client for years to come? 18)Did I attempt to set up an appointment for the next counseling

session?



19)Did I assure the client that I am available for any questions or concerns?

XII AcronymsACE Active Corp of Executives, a volunteer group of people still

in the work force that have signed up with SBA to do client counseling; it is not very active in Arkansas.

ASBDC Association of Small Business Development Centers, the national association of all state SBDC programs.

CDC Certified Development Corporation, a lending program licensed by the SBA to make SBA 504 loans.

D & B Dun and Bradstreet, a credit agency that offers financial and credit report information.

EDA Economic Development Administration, a division of the U. S. Department of Commerce.

MBDC Minority Business Development Center is a program funded by the Department of Commerce and EDA to assist minority business owners.

NAICS The new North American Standard Industrial Classification System.

RMA Robert Morris Associates, a publication financial data on selected SIC codes.

SBA U. S. Small Business Administration, SBDCs receive a grant from SBA for up to 50% of their budget. SBA is the largest government lending program for all small businesses.

SBDC Small Business Development Center, the generic name for us and all other SBDC programs nationwide. There are 60 “state” programs.

SBI Small Business Institute, a program previously funded by SBA in which a team of university business students assist a small business as a class project. SBA no longer funds this program, but some universities still offer the course.

SBIC Small Business Investment Corporation, a venture capital lender licensed by the SBA.

SCORE Service Corps of Retired Executives, a volunteer business counseling program sponsored by SBA consisting of retired business people.

SIC Standard Industrial Classification Code, a four digit numbering system that is used to identify businesses.



BUSINESS PLANNING

OverviewYour client’s business plan is the tool that converts their “business

dreams” into an ongoing reality. Indeed, it is a unique document that must be understood, ruminated over, and untimely created by your client – not you. The job of the SBDC counselor is to, among other things; facilitate the planning process on the part of the client. The counselor must convince the client that it is far cheaper to abandon an ill-fated business at the start-up phase than to learn by experience what a business plan would have taught them. Yet for all of its undeniable importance, no task seems to cause more dread and trepidation than that of crafting a business plan. Most business owners and owner “wannabes” are not proficient in all phases of their particular industries. Business planning, and moreover the “process” of planning, is the most effective way to overcome these deficiencies.

What follows is one version of many reasonable versions of business planning. It is not intended to supplant other variations. Instead, it is a format that has proven to be quite effective in helping the client define his or her business, in guiding the entrepreneur during the life of the business, in helping secure start-up and ongoing funding, and in attracting investors.

I Executive Summary: Business Plan Basics A The executive summary is potentially the most important section of your

client’s business plan.(1) It is normally the first section of the business plan that investors will

read, and could be the last if it is poorly written. (2) An executive summary should briefly describe the company, the

product or service, and the unique opportunity your company is offering. (a) It should also provide a short description of key management team

members and an outline of the investment your client’s are seeking.

(b) The summary should tell the reader why the money is needed and how and when they can expect to be paid back!

B A good executive summary is essentially a condensed but powerful summary of the entire business plan.(1) It creates a first impression in the reader's mind of both your client and

your client’s business. (2) Use clear and concise language - although this applies to the entire

business plan, it is especially important in the executive summary. (3) Use words that command attention and that get the reader excited

about the opportunity being presented. C The following excerpt is from David Gumprt's book, "How to Really Create

a Successful Business Plan". His insight clarifies the importance of a powerfully written executive summary:



(1) Certainly the most significant part of any business plan is its executive summary.(a) What is an executive summary? Probably the best way to begin

defining it is to explain what it isn't.1 The executive summary is not an abstract of the business plan. 2 The executive summary is not an introduction to the business

plan. 3 The executive summary is not a preface. 4 The executive summary is not a random collection of highlights.

(b) Rather, the executive summary is the business plan in miniature1 The executive summary should stand alone, almost as a kind of

business plan within the business plan2 It should be logical, clear, interesting - and exciting.3 A reader should be able to read through it four or five minutes

and understand what makes the business tick.4 After reading the executive summary, a reader should be

prompted to say, "So that's what those people are up to."D Limit the length of the executive summary to no more than 2 to 3 pages

and stick to the facts. (1) Investors are searching for evidence that justifies the soundness of the

opportunity, and that gets them excited about what your client’s intend to achieve.

(2) If the executive summary is clear and concise, your client is one step closer to impressing the reader, and on their way to a terrific business plan.

E The executive summary should:(1) Provide a clear, concise and compelling summary of the business

(2) Outline unique advantages for achieving success

(3) Demonstrate why the business concept will work

(4) Simply and clearly demonstrate management's objectives

(5) Incorporate powerful key sentences from other parts of the plan

(6) Be written in a positive and confident tone

(7) Be brief - able to be read in less than 5 minutes

(8) Stand alone as a type of "mini" business plan within the business plan

F A successful executive summary presents the highlights of the basic business concept and opportunity. Which highlights should be included? A good executive summary should demonstrate:

(1) A business concept that makes sense



(2) A clear plan for success

(3) A capable management team

(4) A clear, specific, and definable market

(5) Significant competitive advantages

(6) A solid and believable summary of the financial projections

(7) An excellent chance for investors/lenders to receive a healthy return

G The format and organization of your client’s executive summary will vary based upon which issues are most important for their particular business. But regardless of the format, every executive summary should include the following areas or subsections:

(1) The Concept and Opportunity

(a) It should immediately grab the attention of the reader.

(b) This is often best achieved by explaining why the business is different or unique.

(c) Clarify business advantages, how your client can break into their market first, the benefit of their proprietary product, or how research supports a significant customer demand for their product or service.

(d) Essentially, what differences or characteristics will lead to success?

(2) The Product or Service Description

(a) Describe the product or service in terms of its benefit to potential customers.

1 How does it work?

2 What is it used for?

3 Where is it sold?

4 How much does it cost?

5 How does the customer benefit?

(b) Remember to limit the number of highlights in this section. Be brief.

(3) The Market

1 Who is your client’s customer?



2 How large is their market?

3 Who are their competitors?

4 Why is your client better?

5 What are your client’s market share projections?

(b) The reader must be convinced that potential customers will have the want, need, and ability to purchase the product.

(c) Your client should not try to avoid the fact that they have competitors. Instead, they should explain how they can gain market share with their business advantages.

(4) The Management Team

(a) Describe the principals of the business and how they will lead to your client’s success.

1 Is it clear the team is well-rounded with the experience, expertise and capabilities to achieve the goals outlined in the business plan?

2 Does the board of directors or advisors bring credibility and experience to the table?

(b) Management weaknesses will ensure that readers will go no further.

(5) The Finance Requirements

(a) How much money has been invested to date?

(b) What are the earning projections for the next three years?

(c) What amounts are currently required?

(d) What will the funds be used for?

(e) From whom do your client’s expect to receive their investment?

(f) What specific return do they offer an investor?

(g) What is the exit strategy, in terms of both time and return?

H Things your client should avoid.

(1) What areas would lead a reader to the conclusion that your clients have a poorly written executive summary? If they:

(a) Fail to identify their special or unique opportunity



(b) Fail to clearly demonstrate what their venture is all about

(c) Fail to identify what management will accomplish and how

(d) Make general and unsubstantiated claims

(e) Use wordy and unorganized language

I At what point in the writing process is it best to write the executive summary?

(1) There are three schools of thought.

(a) The first says prepare it before your client writes the rest of the business plan.

(b) The second says write it before, then again afterward to combine the best of both.

(c) The third says prepare the executive summary only after the rest of the plan is complete.

(2) Which approach is correct?

(a) It's really a personal decision, but preparing the executive summary when the rest of the business plan is complete is fairly effective.

(b) This allows your client to summarize the plan after all the information has been laid on the table with the hindsight of compiling the entire plan.

(c) Pick key sentences that highlight the product benefits, market opportunities, and strategic advantages. Explain it to your clients as 20/20 hindsight.

J Remember to review the executive summary many times and have your client ask themselves whether it grabs the reader's attention.

(1) Will they be excited about the business?

(2) Will they want to read the rest of the business plan?

(a) If the answers to these questions are no, rewrite it.

(b) Show it to a friend or business associate and ask them to be critical.

(c) Many times after someone reads the executive summary they will say "It's great, but what about…".



(3) If your client must explain important information to someone after they have read the executive summary, then it is likely that that information should be included in the document.

II Executive Summary: Mistakes to Avoid A Lacking a specific focus

B Too long and wordy, and failing to get to the point

C Trying to be all inclusive (it should be a powerful summary)

D Failing to demonstrate a special or unique opportunity

E Failing to outline the terms of the investment sought

F Failing to generate enthusiasm in the reader

G Some suggestions to combat these problems:

(1) Limit the executive summary to a maximum of 3 pages

(2) If possible, attempt to present the executive summary on 1 or 2 pages

(3) Focus on the opportunity being presented to the investor and explain why it is special

(4) Make certain that the opinions and claims in the executive summary are fully supported in the other sections of the business plan

(5) Attempt to use only concrete facts and figures that explain the business concept, market niche and financial projections

(6) Include the details of the investment (the amount needed, what your client will spend it on, and the return your client offers the investor)

(7) Keep the reader in mind - why are they reading the plan and what response/action does your client hope to generate?

III Mission & Vision: Business Plan Basics A The mission and vision statements set the tone for not only the business

plan, but also for your client’s company.(1) They define the path the company will follow and act as a guiding

principle by which the company functions.B The mission and vision statements tell the reader what your client and

your client’s business are all about - what the company stands for, what your client believe in, and what he or she intends to achieve.

C Economy of words is critical.



(1) This doesn't necessarily mean that they should be short at the expense of effectiveness, but that each word should be powerful and meaningful.

(2) Be clear and concise and make it obvious what the company is attempting to do.

D Is there a difference between a mission and vision statement? Yes, the differences are:

(1) VISION defines a long-term dream it should not be easily achievable.

(2) That may sound ridiculous, but the objective is for the vision to always be just slightly out of reach

(a) It's what your client constantly strives to attain, and it becomes his or her reason for being.

(3) The MISSION is what your client intends to become or accomplish.

(a) It should be challenging but achievable.

(b) A well-written mission statement demonstrates that the writer understands their business, has defined a unique focus, and can articulate objectives concisely to your client and to others.

IV Mission & Vision: Mistakes to Avoid A Don't regurgitate a description of your business.

B Don't make it boring.

C Don't make it the length of a Ph.D. thesis.

D Don't fake emotion.

E If your client doesn't believe it, don't include it.

F Don't lie or claim to be something you aren't (i.e. intend to do exactly what you say you are going to do in your mission statement).

G Have your client get the input of everyone on your team. V Company Description: Business Plan Basics

A The company description section of the business plan should outline the company's basic background information and business concept.

B Have your client explain in general terms who they are and what they do. C It should also cover the history of the company, how they reached this

point, and where they intend to go in the future. D Consider covering the following in the company description section:

(1) Legal Description



(a) Include details about where and when the company was formed, where and when it was incorporated, a one line description of what business they are in, and a brief overview of what the company offers.

(b) If the location of the company is important, explain the advantages and benefits to the reader.

(2) History of The Company

(a) Provide a general overview of the history of the business.

(b) Organize details of the company into a timeline or narrative format, and include the achievements and significant milestones.

(c) Explain why your client started the company, the driving force behind its inception, and how the product/service mix has changed over time.

(d) Include historical data on sales, profits, units sold, number of employees, and other important facts to build a case for the business.

(3) Current Status

(a) Provide a snapshot of where the company is today.

1 Are they in one location, what do they sell now, how many employees do they have, and how successful are they?

(b) Point out the current strengths, but also honestly and frankly address the weaknesses.

1 Investors know all businesses have weak points, you’re your clients demonstrate business maturity by acknowledging their weaknesses and outlining steps to combat them.

(4) Future Goals

(a) This section gives the reader an idea of where the company is heading.

(b) What are your clients looking to accomplish over the next 1, 3, 5 and 10 years?

(c) Relate these goals to the investment they seek so an investor understands why your clients need their money and what you intend to do with it.



(d) Have your clients explain the overall approach for reaching growth and profit goals in optimistic language, but make sure it's realistic. It's easy to make rosy projections about the future of the company, but it's harder to make them believable.

VI Company Description: Mistakes to AvoidA The company description should clearly explain the company and the

product or services you offer. B This section could be considered the who, what, why, where, when and

how of the company, with the focus on significant highlights of the business.

C Common mistakes in the company section:(1) Including far too much detailed information about the business

(2) Providing information that an investor would consider "personal opinion"

(3) Appearing as though there is no business history or business purpose

(4) Leaving out important business and legal particulars

(5) Writing the section in an unorganized or confusing mannerVII Product & Service Description: Business Plan Basics

A The product/service section is one of the most important parts of the business plan. It's the chance to clearly explain products/services, identify their features and benefits, and discuss what needs or problems they address in the market.

B Product Overview

(1) If your clients are selling a product, the reader will want to know what it is, what it does, and its features and benefits.

(2) Consider including pictures if they would help the reader get a better understanding of the product.

(3) Discuss its size, shape, color, cost, design, quality, capabilities, technological life-span and patent protection.

(4) Your client may also wish to explain how it is produced, the materials required, and the type of labor needed.

C Service Overview

(1) If your clients offer their customers a service, explain what that service(s) are, how they work, and what need they address in the marketplace.

(a) Where will they operate?



(b) What makes the service different?

(c) What materials or equipment is needed?

(d) What are the days and hours of operation?

(2) Explain the steps in the service process and the benefits offered to clients.

(a) Have your clients write this section with enough information to satisfy an outsider's need to understand the service without boring them with trivial details.

VIII Product & Service Description: Mistakes to Avoid

A Failing to identify the benefits of the product or service (focusing instead on the features)

B Describing the product/service in language that is too technical, with too many industry specific words or phrases

C Omitting the specific problem the product/service addresses and how that problem is solved

D Assuming an improved product/service will "sell itself"

E Describing the product/service in terms that are too broad

F Failing to include a third-party evaluation or analysis of the product

G Underestimating the importance of legally protecting the product/service IX Industry Analysis: Business Plan Basics

A Every business operates within the larger classification of an industry. (1) The business plan must address the forces at work in the industry, the

basic trends and growth over time, and where the company fits in. (2) Demonstrating to outsiders that your clients understand and have

anticipated the important factors of their industry builds a case for their company's success.

B Think of the industry as those companies providing products and services similar to your client’s.

(1) This includes those companies selling similar products and services, as well as complementary or supplementary products or services.

(2) Any business that falls between the supplier of raw materials to the end of the distribution channel for the type of product or service are part of the industry.



C In the industry section of the business plan, provide answers to the following types of questions:

(1) What is the size of the industry by both revenue and number of firms?

(2) Discuss the characteristics of this industry such as growth trends, units sold, or employment.

(3) What factors are influencing growth or decline in the industry?

(4) What have been the trends in previous years?

(5) What trends are expected in the coming years? (include supporting research)

(6) What are the barriers of entry for the industry?

(7) How many companies are expected to enter the industry in the future?

(8) What government regulations affect the industry and the business?

(9) Is the industry highly regulated or does it fall below the government's radar?

(10) Provide a general explanation of the distribution system for products and services in the industry.

(11) Is it difficult to gain distribution access to the industry? Explain.

X Industry Analysis: Mistakes to Avoid A Not demonstrating a solid understanding of how the industry functions. B Appearing unaware about the companies that form the industry.

C Lacking understanding as to where the business fits into the distribution channel of the industry.

D Omitting growth trends, revenue size, and significant statistics for the industry.

XI Target Market: Business Plan Basics A The target market section of the business plan must clearly identify the

current and prospective buyers of the Company’s products and/or services.(1) The goal in preparing the target market section is to demonstrate to

readers that your clients clearly understand who their customers are and how their products/services directly meet the needs of the marketplace.



(2) Properly identifying the potential customer base also helps to drive overall marketing and sales strategies that your clients will include within other sections of their business plan.

B Although the product or service may meet the needs of a large constituency of potential customers, the goal is to define the customer base as specifically as possible both quantitatively and qualitatively.

C Consider the follow types of characteristics for inclusion in the target market section of the business plan:

(1) Size

(a) How large is y the target market?

(b) Are there 1,000 business buyers?

(c) 10 million potential consumers ready to purchase the product?

(d) Or a small handful of very large target customers?

(2) Demographics

(a) The demographic traits of customers often vary based on whether your clients are focused on serving the consumer or business markets:

1 Consumer - Income, Occupation, Gender, Single/Married, Ethnic Group, Education

2 Business - Industry, Product/Service, Years in Business, Revenue, Employee Size, Private/Public

(3) Geographic

(a) Where are the customers located?

(b) While technology has made location less of an issue for many companies, it doesn’t mean your clients should overlook the importance of defining the geographic location of their customers.

(c) Clarifying these issues also helps to ensure that your client’s marketing and sales strategies/budgets properly match their goals to capture market share.

(4) Other Characteristics

(a) What are some of the more subjective traits that define their customers?



(b) This might include things such as current buying motivations, perceived shortcomings of other solutions in the market, and trends/purchasing shifts likely to occur within the target market.

D Naturally, the more your clients understand their customers, the better their chances of success.

(1) Many times the best approach to answer the target market question: Who is the customer?

(a) Is to invest time and resources in primary market research.

(b) Conduct simple surveys or focus groups.

(c) And if feasible, work with a reputable market research firm to guide your client through the process.

E At the very least, have your client use the Internet and industry groups to locate market research studies and statistics for the business plan.

(1) These resources can range from free information available on websites to expensive professional market research studies prepared by experts in the field.

F Performing primary research enables your client to gather and document the quantitative and qualitative information needed to prepare a solid target market section for their business plan.

XII Target Market: Mistakes to Avoid A Don't assume that everyone is a buyer of your client’s product/service. B Don't be unclear about the characteristics that define who the target

customers are.

C Don't assume a "huge" target market is a must have - a well-defined target market that your client’s company can serve is far better.

D Don't jump to conclusions about why your client’s target market needs them - instead explain how they meet customer needs.

E Don't underestimate the value of focus - sell a specific product/service to a specific group.

F Don't try to attack too many markets at once - particularly if you are a startup or early-stage company.

XIII Target Market: Key to a Business and Market PlanA A popular and critical question posed to business owners and

entrepreneurs by lenders and investors is "Who is your customer?" It's



such a simple question, yet the inability to answer it has possibly caused more ‘going out of business' sales than any other.

B Why can failing to answer such a simple question have such a devastating impact on your business?

(1) Unfortunately, because many business owners place too much emphasis on their products and services, and too little on what the customer truly wants and needs.

(2) They may have a great product, with more neat gadgets, features, and benefits than their competition offers, but does the customer care?

(3) And how does your client know they care?

C The first place to start is by defining exactly who would be interested in buying your client’s product or service.

(1) This is the target market, defined as the group of the population sharing a common set of traits, which distinguish them from everyone else.

(a) For example, a children's clothing store located in the mall might have a customer profile like this:

1 Children between the ages of 3 to 8 years old, 65% female and 35% male, located within 10 miles of the mall, and whose parents earn over $40,000 a year.

2 These characteristics define a target market - and a central set of characteristics for potential customers for children's clothing.

(b) If they're in the start-up phase, your client’s target market may be less tangible than the target market for a company with years of operational history and customer files.

(c) But as they gain experience running their business, and they maintain accurate records of who actually purchases their product or service, understanding of their ideal customer will improve.

D So why focus on the target customer?

(1) First, if the client doesn't understand who the target customers are, how can they tailor their product or service to best meet customers’ needs?

(a) One key to business success is the ability to provide products and services that meet the needs and wants of customers.



1 If the customers want to purchase red shoes, and all your client’s sell are blue shoes, how many do they suspect will sell?

2 If the customer believes that the speed of service is more important than its quality, isn't that information your client’s need to know?

(2) Second, when they understand who their customer is, client’s can determine with more accuracy which marketing mediums and channels will be most effective in reaching the customer.

(a) If a potential customer only listens to FM stations, and your client advertises on an AM station, marketing efforts will be unsuccessful.

(b) The more narrowly they can define their customer, the more focused marketing efforts become, and the more their marketing dollars will work for them.

1 For example, if they want to sell print shop owners a product, then advertising in a print industry magazine is a far more effective use of marketing dollars than placing an ad in USA Today or Time.

2 This doesn't mean that their customer won't read USA Today or TIME, just that they won't be advertising to all the millions of people who clearly have no interest in their product.

E Suggestions on how to breakdown a customer profile, on both the business and consumer level.

(1) Demographic characteristics are specific, objective, and observable characteristics that target customers share.

(a) Most marketing mediums, such as newspapers, magazines, radio stations and television stations can provide excellent demographic characteristics on their audience. General demographic characteristics include:

1 Age or age range

2 Gender

3 Income Level

4 Family Life Cycle

5 Occupation

6 Education



7 Race/Ethnic Group

8 Social Class

9 Industry

10 Product/Service Sold

11 SIC Code

12 Years in Business

13 Revenues

14 Number of Employees

(2) Geographic characteristics are based on the location(s) where target customer can be reached.

(a) Are they in the urban areas or do they reside in the rural areas?

(b) Are they in Montana or New York?

(c) Correctly deciding whether to run an advertisement in the New York Times or the Los Angeles Times, will save client’s money, and help them generate more effective marketing results. Have them try to identify their customer based on the following geographic characteristics:

1 Country / Region

2 State

3 City / Town

4 Size of Population

5 Climate

6 Population Density

(3) Psychographic characteristics, though less tangible, are still important to identify and understand.

(a) These traits have more to do with a person's psychological characteristics such as attitudes, beliefs, hopes, fears, prejudices, needs or desires, and are highly dependent on customers' self-image and their perceptions of an industry or product.

(b) Psychographic traits include such things as:

1 Social Class



2 Lifestyle

3 Leader / Follower

4 Extrovert / Introvert

5 Independent / Dependent

6 Conservative / Liberal

7 Traditional / Experimental

8 Socially conscious / Self-centered

(4) Consumer / Behavioral characteristics are those relating to the purchasing and usage traits of customers.

(a) Do they use similar products such as your clients’, and how often do they use them?

(b) What are the benefits people desire in your client’s service, and how does this translate into sales?

(c) Consider these consumer / behavioral traits for a target customer:

1 Usage Ratio

2 Benefits Sought

3 Method of Usage

4 Frequency of Usage

5 Frequency of Purchase

F Market Size

(1) Once your client determines who their customer is, it's important to identify the size of their customer base.

(a) Is it large or is it small?

(b) If it's too large, consider narrowing it down and focusing on a particular niche.

(2) Trying to reach and sell a large target market is difficult and costly, especially if it's populated by well-financed competitors who will force your client’s to incur significant costs to achieve a sizable market share.

(3) If too small, will they be able to capture enough customers to make a sufficient profit?



G Market Trends

(1) Once they define their customer, and determine the total customer numbers in the population, it's a good idea for them to research the trends of their market.

(2) Over the next few years, what growth rate can be expected for their target market?

(3) What changes are taking place in the makeup of their market, and how will it change in the future? How are, and how will, customers change their use of your client’s product or service?

H If clients ask, "How do I find all this information?"

(1) First, have them talk to as many of the people in their target market as possible.

(a) Conduct surveys. Discover what customers like and dislike, and what they want and need.

(b) What is the most important factor in their purchase decision?

(c) Facilitate a focus group, or if they have the money, consider working with a market research firm.

(2) Second, don't forget the local library. It's rich with books, magazines, research journals, reference guides, and computer databases to help them find the information they need.

(a) Ask the librarian for help, we always find them extremely helpful in locating specific sources quickly.

(3) Lastly, they should use their own eyes and ears to discover valuable details about their target market and customer buying habits.

(a) Have them visit their competitors disguised as a consumer.

(b) They can hang out in a store related to the product or service they sell and take it all in.

(c) Request annual reports and marketing information to find out about the financial, operational, and marketing factors that are important in their industry.

(d) Essentially, look around, collect information, get organized, and figure out who their target customer is, and how they will reach them effectively.

XIV Marketing & Sales: Business Plan Basics



A Every good marketing plan should include two major parts - a definition of the client’s target market and a specific outline to market, promote and sell their product or service.

B Target Market

(1) It's critical to clearly define their target market in their business plan - investors expect it.

(2) They should tell the business plan reader about their customers and describe their defining characteristics in detail. Include information such as age, gender, geographic location, income bracket, buying similarities, and more.

C The goal of this section is to build a demographic profile of your client’s typical customer. The more clearly they pinpoint the defining traits of their customer, the easier it is to construct a marketing program to reach them effectively.

(1) The information and research included in a target market section should originate from primary and secondary sources.

(a) Primary sources includes information that is discovered or concluded from personal observation and research, such as personal studies, results of questionnaires, site visits, and conversations with experts in a specific industry.

(b) Secondary sources include such sources as journals, books, published reports, government statistics, or internet findings.

D Marketing Program

(1) After your client defines their target market, they need to determine specifically how they will reach them.

(2) They need to outline the details and steps necessary to reach potential customers and convert them from prospects to paying customers.

(a) It is important they demonstrate to investors that they have identified specific marketing avenues and procedures to effectively sell their product or service.

(3) They need to answer questions such as the following in their marketing program section:

(a) What specific marketing mediums will they use to reach customers?

(b) How often will each be used? What will they cost? Why did they choose these marketing avenues over others?



(c) What marketing materials will they need? (brochures, website, etc)

(d) Who will design their marketing materials? What will they cost?

(e) What is the cost of marketing materials per prospect or client? (Your client’s may choose to include marketing pieces in the appendix of your business plan)

(f) Will their company be able to attract PR? Why will they run their story? What's the "angle"? Which publications and mediums will your client’s target?

XV Marketing & Sales: Mistakes to Avoid A Defining a target market too widely, and assuming success will result from

simply capturing a "small portion" of this enormous market. B Unclear definition of your client’s target market.

C Attempting to attack an entire market instead of a narrow niche.

D Making assumptions about their target market without research or concrete support.

E Not specifically identifying the mediums they will use to advertise and promote their product.

F Omitting details such as when, where, why and how your client’s will reach their target customer - along with costs.

G Making the assumption that offering a lower price will lead to increased sales.

H Underestimating the importance of packaging, brand name, and reputation.

I Attempting to immediately fill several lucrative but unrelated markets.

J Lacking clarity about how future changes might effect their marketXVI Comp

etitive Analysis: Business Plan Basics A The competitive analysis section of your client’s business plan is an

objective overview and comparison between their company and their competitors. (1) Your client’s should begin by identifying their direct and indirect

competitors, what and how much these competitors sell (in units and sales dollars), the number of years they have been in business, and their specific market niche.

(2) Outline the strengths and weaknesses of each of your client’s competitors from an unbiased perspective.



B It is advisable to include a chart or pie-graph showing what share of the market each of your clients’ competitor’s commands, the trends and changes over time.

(1) Explain the percentage of the market your client intends to capture, and from whom or how they will achieve this market penetration.

C More than anything else, it is important to be straightforward and honest about competitors and their strengths and weaknesses.

(1) Many first time business plan writers don't realize that investors want to see that other businesses are profitable and successful in your client’s chosen market.

(2) If your client fails to present their competitors, or claim they have no competition, why should investors assume that a market even exists for their product or service?

(3) Instead, present comprehensive information and point out how your client’s unique strengths and tight market niche will result in their success.

XVII Competitive Analysis: Mistakes to Avoid A Assuming your clients have no competition! (Claiming they have no

competition or anything remotely similar is a sign of inexperience that readers pick up on immediately.)

B Failing to identify both direct and indirect competitors.

C Underestimating the power and strength of competitors.

D Omitting the specific competitive advantages client’s hold over their competition.

E Demonstrating a lack of knowledge or strategy to combat changing competitive conditions.

F Failing to define and clarify their position, strength, and market niche focus.

XVIII Competitive Analysis: Key to a Business and Market PlanA Competition

(1) There might be a planet somewhere in the universe where companies have no competition, but this planet isn't one of them.

(2) Many entrepreneurs make a critical mistake in their business plans - they claim they have no competitors. (a) A plan stating that no competition exists, quickly loses credibility

with bankers, investors, and experienced business people.



(b) Unless you're a government entity, public utility, or communist country - you have competition. And even these monstrous organizations are realizing that competition exists for everyone.

B But competition isn't necessarily bad.

(1) Coke has Pepsi. Nike has Reebok. Wal-Mart has K-Mart. And the list goes on.

(2) The value of competition is that it forces the client to analyze who they're up against and what it takes to achieve success in their industry, market, and business.

(3) Competitors actually help clarify your client’s selling position and determine how to best distinguish themselves from the crowd.

C Nike makes billions and so does Reebok. But, everyday they wake up with the desire to compete against each other and win.

(1) At one point in time, Nike even adopted the mission statement, "Crush Reebok". Signifying how a competitive rivalry can drive companies to greater heights.

D Investors will read your client’s business plan and expect to see their competitors identified - don't disappoint them.

(1) Keep in mind that most investors ARE investors because they successfully dealt with business competition in the past.

(2) With that in mind, never even imply the following ideas in the competition section of your plan: "XYZ Corp has no competition", "XYZ Corp's product is so superior that we have no competitors", or "XYZ Corp's service is so different and unique that we have no competition".

(a) Their reader will disagree, and wonder why your client can't see that they operate in a competitive environment, and assume they're a business dunce.

(b) This is clearly not the goal of your client’s business plan.

E Instead, their business plan should honestly and intelligently outline how their business fits into the big picture of their area, market, and industry.

(1) If they do this concisely but thoroughly, and pinpoint factors that separate them from their competition, it will go a long way in the eyes of the investors reading your plan.

F How do your client’s identify their competitors?



(1) If they intend to open a donut shop, then all the other donut shops within perhaps a 10 mile radius would be considered competition.

(a) But what about supermarkets that serve donuts?

(b) And what about bakeries that sell donuts and other baked goods?

(c) These are pretty obvious, and most people would consider them when starting a company and writing a business plan.

(2) But what about Bagel shops? They don't serve donuts, but they still compete for the same breakfast dollar.

(a) And what about the coffee shops and the Starbucks of the world?

(b) Your client’s potential customers might decide to spend their money on a morning cup of coffee instead of a donut from your shop.

G Client’s should consider including these topics in the competition section of their plan:

(1) Competitor Profile

(a) This section should outline the basic characteristics of their competition.

(b) Discuss the key features of competitors' products or services such as: purchase price, peripheral costs, quality, durability, and maintenance needs.

1 What is the perceived value of their product?

2 Is the image or name brand a factor?

3 Where are they located?

4 What are their credit policies and delivery terms?

5 How does their customer service stack up?

(c) Also consider the financial strength, marketing savvy, and technological advantages of your client’s competitors.

1 How solid is their access to suppliers, wholesalers, distributors and retailers?

2 Do they have any strategic partnerships or patents, which could cause problems for your client’s company?



3 Do they have economies of scale in a place that makes it difficult for your client’s company and others to compete?

(2) Market Share

(a) In this section, provide a breakdown of your client’s competitors by percentage of the market.

(b) If possible, try to analyze and present this information from both a revenue and units sold perspective.

1 This gives client’s insight into their market, who the big players are, and where they can fit in and begin to take market share from.

(c) Consider preparing a five year analysis showing how market share has changed and shifted over time.

(d) Their company's ability to focus on a market niche can help them gain market share.

1 Client’s need to pick a niche and make it their own.

2 It can establish their products and reputation, and will help them gain loyal customers and market share as the company grows.

(3) Comparison of Strengths and Weaknesses

(a) Clearly present and compare your client’s strengths with that of their competitors in this section.

(b) Don't forget to have client’s present their weaknesses. Every company has them.

1 Be honest and logical about the comparisons they make.

2 Consider product superiority, price advantages, market advantages, management strengths and weaknesses, and more.

(4) Barriers to Entry

(a) Think about the factors that make it difficult for your client to enter and compete against established companies - these are called barriers to entry.

(b) The following list of barriers should be addressed in their business plan, considering both the positive and negative issues related to their business and their industry.



1 Patents/Proprietary product differences

2 High-start-up costs/Capital requirements

3 Substantial expertise required

4 Manufacturing or engineering difficulties

5 Market saturation – no room within market for new competitors

6 Economies of Scale

7 Brand Identity

8 Access to distribution

9 Government policy XIX Mana

gement Team: Business Plan Basics A Many investors base their entire investment decision on the management

team behind a venture. (1) Investors expect a well-rounded team of professionals with experience

in every function critical to the business. (2) Your client’s management section should clearly demonstrate who

each person is, why he or she is on their team, and what each person will do.

B Your client’s should limit their management team to 3 to 5 people - and to those individuals involved in the day to day operations that have the greatest impact on the future success of their business.

(1) Everyone else is considered either an employee or, if not involved in day to day operations, should be included as a member of the Board of Advisors, Board of Directors or consultants.

(2) A discussion of their employees should be included in the operations section.

C The basic components of the management section include:

(1) Specific Team Members

(a) Clients should construct a narrative description for each team member, clarifying his or her background and intended contribution. This should include:

1 Title of this position



2 Duties and responsibilities of this position - what will they be doing, which functions will they be overseeing, who do they supervise, who do they report to, etc.

3 Previous industry and related experience - should be those that relate directly to this new position. Who have they worked for, what were they doing, for how long did they do it, etc.

4 Previous Successes - what did they accomplish, what successful teams or projects did they spearhead, did they grow a company or a division, were they responsible for a turnaround or some new breakthrough idea.

5 Education - keep educational descriptions brief

(2) Board of Directors

(a) Clients should briefly describe who is on their Board and what role they play within the company.

(b) As well as briefly list the names, backgrounds, and contributions that will be made by each board member.

(3) Board of Advisors

(a) The board of advisors should consist of individuals with valuable industry expertise and insight, and they help and consult with your client’s on their business.

(b) A solid and experienced board of advisors goes a long way towards building credibility in the eyes of investors.

(c) Briefly list the names, backgrounds, and contributions that will be made by each of the board members.

(4) Consultants

(a) The last part of the management section should include a brief mention of the outside consultants your client will work with as their company grows.

1 A typical list of consultants would include accountants, attorneys, bankers, insurance agents, and experts such as technology advisors, web developers, and payroll specialists, for example.

(b) Clients should explain the background of the founder(s) of the company at some length. However, they should limit background information to less than 1 or 2 a page.



1 Your client’s need to stick to the facts on all their management team bios, making it evident why each person is experienced, why they hold their position and the benefits they provide your client’s company.

D Given the choice between an excellent business concept with second-rate managers and a mediocre business concept with top-notch managers, investors typically prefer the latter.

XX Management Team: Mistakes to Avoid A Depending on unqualified friends or family in key management positions.

B Assuming that previous success in other industries applies to client’s current industry.

C Presenting a "one-man-team" management philosophy. Investors know it's difficult to wear every hat and successfully run and grow a company.

D Attempting to attract top managers without sharing ownership.

E Lacking non-compete agreements for critical management staff.

F Failing to attract and assemble a knowledgeable board of advXXI Mana

gement Team: Key to a Business and Market PlanA Management Team

(1) Imagine this scenario: Your client is a private investor searching for that next exciting investment opportunity. A business plan lands on their desk, right next to the sixteen others they have received recently and are in the process of reviewing.

(2) Half of the plans present solid business concepts. Some of the plans seem to offer exceptional long-term growth possibilities. (a) But in your client’s opinion, only two of the plans present

management teams capable of turning ideas into reality. (b) As they consider their investment options, your client eventually

eliminates all the business plans except for those with the strong management teams.

(3) Why? Products, marketing strategies, and operations are important, but it is the experience, knowledge, and ability of the management team that makes a business thrive.

(a) Many lenders, venture capitalists, and private investors stress that given the choice between a first-rate product with a second rate management team, and a mediocre product with a top-notch management team, they would prefer the latter.



(b) To some investors, the management team is THE critical investment factor. Bottom line - investors invest in people, not business plans, so make sure your client’s management team is up to par

B Naturally, each business is different and requires a management team that matches the particular circumstance.

(1) Industry, niche, and the loftiness of your client’s goals lead investors to assumptions and expectations about the quality of management that the client requires.

(2) The experience and depth of their managers must meet or exceed these investor expectations, or must clearly explain how your client intends to fill these positions in the future.

C Two basic themes that readers of a business plan will look for throughout the entire management section include team and balance

(1) Team

(a) Investors normally expect to see a minimum of three to six experienced executives on a management team (start-ups have some variations, see below.)

(b) When investors and venture capitalists state the importance of a top-notch management team, the word "team" should not be underestimated.

1 They normally view one-person operations as limited in terms of time, experience, and core business skills necessary to launch and grow a serious business.

(2) Balance

(a) Although investors are looking for a group, they are not looking for a group of clones.

(b) They seek balance and a collection of skills that meet the needs for a particular venture.

1 A diverse team increases the chance that each business function (marketing, sales, operations, finance, manufacturing, engineering, etc.) is tended to by an expert with experience.

(c) Clients should avoid the tendency to staff the management team with people just like themselves.



1 It might feel nice to work with friends, family, and others that share their background, but investors see a management team unprepared for the inevitable challenges that lie ahead.

D What if they are a startup company and they don't have a team?

(1) Early-stage management teams are often limited to a lead entrepreneur or a small group of company founders.

(2) If this is the reality for your client’s business, don't try to avoid it or claim that staff employees are actually "management".

(a) Instead, focus on the strengths of their current management team and outline specific (and realistic) plans for adding officers in the future.

E They should assume that they have a balanced team, or plans to build one as they grow.

(1) In a client’s business plan, they should only include those individuals in the management section with the greatest effect on sales, operations, net profit, and business development.

(2) Every employee is important, but this is not a section to outline the skills, hobbies, or backgrounds of an entire staff.

(a) Consider restricting a management section to individuals that fall into the following categories: founders, top decision makers, CEO, CFO, CIO, plant manager, lead engineer, marketing or sales director, and R&D manager.

F How should your client’s management section be organized and presented in their business plan? There are a variety of appropriate methods – one is to divide this section into four parts: Specific Team Members, Board of Directors, Board of Advisors, and Consultants.

(1) Specific Team Members

(a) Don't just drop a resume under each officer's name and assume it is completed.

(b) Instead, construct a narrative description for each team member, clarifying his or her backgrounds and intended contributions.

(c) Include a reference in the management section to the completed resumes located in the appendix. The length of each narrative will differ, but try and keep each to a reasonable length (normally under a half page).



(d) Briefly address the following topics for each manager with a focus on achievements, success, and results.

1 Position

a Outline specific titles, duties, and responsibilities for each individual.

b Clarify what each manager does, what area of business development they focus on, and how they fit into the organization as a whole.

2 Experience

a List past positions and responsibilities that directly relate to the current position.

b They should outline the companies they have worked for, the duties, the successes, the experience gained, and how these skills transfer to their current position.

c Industry experience is looked at favorably by investors as they size up your client’s management team.

i. Some investors consider industry experience an absolute must, but if they lack direct industry experience, they should build on related and successful experiences from other fields.

ii. Client’s need to describe their abilities and experiences in previous management positions.

iii. The number of years they were in management roles?

iv. The number of people they supervised? For how long?

d The goal here is to present a track record that predicts future success.

3 Successes

a Planning, managing, and organizing any business, even outside their current industry, demonstrates the ability to achieve results.

b If lenders and investors are familiar with their prior record of success, they are more likely to believe that your client can repeat that success in the current venture.



i. Clients may even wish to present past business failures, if they can demonstrate what they learned from the experience and how they will conduct themselves differently in the future.

ii. Some investors may actually view past business failures as "battle scars" and an indication of experience, persistence, and an understanding that first time entrepreneurs may lack.

4 Education

a Clients should keep educational descriptions brief unless they directly relate to clients ability to succeed in a particular position (or if managers are recent graduates with little or no business experience).

b The older and more experienced your client is the less value an investor is likely to place on their educational credentials.

5 Key Strengths

a What personal and business qualities does your client possess that makes them well suited for this position?

b What traits, abilities, personal characteristics, or experiences have they developed that can lead to success in this position?

i. This might include industry expertise, the ability to motivate others, marketing competence, or interpersonal skills.

ii. Experience outside the business arena may also be relevant, such as club membership, civic involvement, or group leadership that can be directed towards your client’s current position.

(2) Board of Directors

(a) The board of directors can play an important role in the success of the business.

1 In smaller companies and start-ups, the board of directors may be limited to the individuals running the company. In this case, they perform little more than the legal requirements needed to maintain corporate status.



2 As a company grows and the stakes rise, outside members such as investors, advisors, and strategic partners are normally added to the board to guide the company successfully into the future.

(b) To protect their investment, investors will often request a seat on the board. This provides the investor some control over management, influence on the direction of the company, and an ability to protect their investment.

1 It's not all about control - many times outside board members contribute significant business and industry expertise that should not be underestimated.

2 Experienced board members provide a level of credibility that investor's desire in a start-up or early-stage company.

(c) The board of directors’ portion of the management section is fairly simple to prepare after your client identifies the specific members.

1 Clients should briefly list the names, backgrounds, and contributions that will be made by each board member.

(3) Board of Advisors

(a) While the board of directors is more legal in nature, the board of advisors is more functional.

1 Their board of advisors should consist of individuals with valuable industry expertise and insight.

2 Without the legal constraints required of their board of directors, these advisors are assembled to help and consult with your client on their business.

(b) Many small companies and start-ups assemble their board of advisors as a mere formality - don't make that mistake.

1 A solid and experienced board of advisors goes a long way toward establishing credibility in the eyes of investors.

2 Clients should include advisors with past success in ventures similar to theirs, or advisors with backgrounds they lack on their current management team.

(c) As with the board of directors, the board of advisors is simple to present after they identify the individuals to include.

1 Briefly list the names, backgrounds and contributions to be made by each person.



2 Again, the members they attract to their board of advisors tells an investor a lot about the quality of the business.

(4) Professional Consultants

(a) The last part of the management section should include a brief mention of the outside consultants your client will work with as the company grows.

1 A typical list of consultants would include accountants, attorneys, bankers, insurance agents, and experts such as technology advisors, web developers, and payroll specialists, for example.

(b) Outside consultants provide expertise that a company lacks during its earlier years. If carefully selected, consultants provide the business an additional level of credibility and enhance your client’s image in the eyes of their reader.

(c) Briefly describe the services each consultant provides for the company, and their qualifications as experts. The earlier clients start to build relationships with consultants the more beneficial these people become to their company as it grow.

XXII Operational Plan: Business Plan Basics A The operational plan deals specifically with the internal operations and

equipment necessary to produce your client’s product or service. B The following are selected areas that need to be addressed in this

section.(1) Location

(a) Where will the business be located?

(b) What square footage is needed, in how many locations?

(c) What type of space is it? Office, warehouse, manufacturing, or a combination?

(d) What is the advantage, if any, of the location?

(e) At what point will the goals of the business exceed the above mentioned facilities?

(f) Provide a layout of the facility in the appendices of the business plan.

(2) Equipment



(a) Outline and describe the significant equipment needed, including cost.

(b) What does the equipment do, how do the pieces function together, and how much can be produced?

(c) Will your client purchase or lease the equipment? Why and from whom?

(d) Be sure to include manufacturing equipment, vehicles, computers, and office equipment.

(3) Labor

(a) How many employees will the company need? Full-time? Part-time?

(b) Break them out by function, number of hours worked, and hourly pay.

(c) Describe the skill sets needed.

(d) What are the salaries of those in management, production, distribution, sales and administration?

(e) Will your client run multiple shifts? What are the hours of operation?

(f) What criteria is used to locate and hire quality employees?

(4) Manufacturing & Service Process

(a) Walk the reader through your client’s manufacturing and service process from raw material through finished product.

(b) Where will they obtain and store raw materials?

(c) Outline key suppliers, the purchasing process, and unique purchasing requirements.

(d) Where will finished goods be stored, and what is the associated space and cost?

(e) How will finished goods (or services) be distributed?

(f) What is the lead time for the entire process?

(g) How will quality be measured, controlled, and improved?

(h) Explain the technology requirements for the manufacturing process.



(5) Other Issues to Consider:

(a) How will they keep track of inventory? Provide specific procedures and equipment used.

(b) How will they maintain quality control? What are the procedures to ensure that your client is providing the top quality product or service?

(c) What type of insurance does the business need? Discuss the legal liability issues of the business.

XXIII Operational Plan: Mistakes to Avoid A Failing to clearly outline the process by which your client manufactures,

distributes and sells their product or service.

B Failing to account for all production costs (direct and indirect).

C Failing to assess the manufacturing process in terms of manufacturing costs, taxes, shipping, installation, maintenance, serviceability, etc.

D Failing to develop adequate inventory control and quality assurance guidelines.

E Failing to identify all machinery and equipment needed.

F Failing to properly plan the layout of the plant, the workflow process, and the material handling procedures.

G Failing to properly outline personnel management, scheduling, and hiring practices.

H Failing to properly plan for contingencies to meet production and staffing challenges.

I Failing to plan for long term facility and equipment changes. XXIV Finan

cial Projections: Business Plan Basics A Your client’s financial plan will be highly scrutinized by their business plan

reader. (1) All the ideas, concepts and strategies discussed throughout the entire

business plan form the basis for, and should flow into, their financial statements and projections in some manner.

(2) Fundamentally, the reader wants to know if and when your client will make money and become profitable.



B Financial statements and projections should follow Generally Accepted Accounting Standards (GAAP) and must (at a minimum) include properly prepared balance sheets, income statements and cash flow statements.

(1) Bankers and investors are familiar with the correct content, organization and presentation of financial statements, and expect to see them in the business plan.

(2) Client’s should not cut corners or attempt to devise their own method of financial and pro forma statement presentation.

C In most cases, capital sources expect financial projections for a three to five year period, and historical statements for the past three years (or since inception if operating period is less than three years).

D They should consider organizing their financial statements as follows:

(1) Income Statements

(a) Year 1 - Monthly Projections

(b) Years 2 thru 5 - Quarterly or Yearly Projections

(c) Existing businesses should provide income statements for the last 3 years if available.

(2) Balance Sheets

(a) Year 1 - Quarterly Projections

(b) Years 2 thru 5 - Yearly Projections

(c) Existing businesses should provide current balance sheet and balance sheets from the prior 2 years if available.

(3) Cash Flows

(a) Year 1 - Monthly Projections

(b) Years 2 thru 5 - Quarterly or Yearly Projections

E Other information that they may consider including:

(1) Financial Assumptions

(a) These are critical to properly convey the "reasons behind the numbers" for outsiders reviewing your client’s financial projections.

(b) Your client should be able to explain how they calculated the numbers they used in the financial statements.



1 For example, we will sell 1000 units per month at $5.00 per unit.

2 This is projected to increase by 4% every month, etc.

(2) Break-Even Analysis

(a) These figures demonstrate the volume of sales, in units and dollars that must be generated to cover fixed and variable expenses.

(b) At the break-even point, it starts becoming profitable.

(c) Normally this data is presented in a graph format with sales on the X-axis and units sold on the Y-axis.

(3) Sources and Uses of Funds

(a) This section explains to their reader which sources your client expects to secure capital from, and what they specifically plan to spend it on.

(b) Detailed schedules of capital expenditures (e.g., equipment, inventory, etc.) are usually found in the appendix

(4) Investment Structure and Objectives

(a) This section outlines the amount of capital needed, various investment structures, and the estimated return to client’s investor.

(b) It is critically important to tell your client’s investor how they will recoup their money, when they can cash out, and what they will receive as a return.

(5) Financial Ratios

(a) Providing standard financial ratios helps the business plan reader to analyze how well your client’s company will perform compared to other companies within their industry.

(b) For existing companies, show the trends over the last 3 to 5 years to outline any improvements in performance.

(6) Amortization Schedule

(a) If the firm is borrowing money, calculate the monthly principle and interest payments and link them to the income and cash flow statements

(b) Interest rates are typically 2 to 2.5 points over prime. Length of the loan is tied to the asset or purpose of the loan (e.g., working capital, purchasing equipment, or purchasing land)



(7) Depreciation schedule

(a) Depreciation is a non-cash expense which often is overlooked by many first-time entrepreneurs.

(b) It lowers taxable income, thereby reducing taxes of the business owner.

(c) Straight line and accelerated methods are used. Modified Assets Cost Recovery System (MACRS) is the only acceptable accelerated schedule according to GAAP

XXV Financial Projections: Mistakes to Avoid

A Failing to include the "Big 3" statements and projections (income statement, balance sheet, cash flow).

B Presenting sales and profit projections that are unrealistic and unfounded.

C Omitting financial assumptions to explain where the "numbers" originated.

D Presenting "creative" rather than "accepted" financial statements.

E Underestimating expenses and not budgeting for unexpected costs.

F Lack of financial investment on the part of the founders.

G Including excessive salaries and office expenses at start-up.

H Offering a lower percentage of ownership than the investment requirement demands.

I Offering a return on investment that is out of line for your client’s industry.

J Absence of contingencies and projections for worst case scenarios.

K Financial statements that are not prepared or reviewed by a reputable accountant.

XXVI Financial Projections: Business Plan Financial Ratios

A Financial ratios are among the most important tools to business owners enabling them to evaluate their company’s performance and health.

(1) Financial ratios are calculated by using the information provided in historical and/or forecasted balance sheets and income statements.

(2) Ratios are most commonly used for trend analysis – tracking the firm’s financial figures over a period of time.



(3) Ratios allow a company to compare performance in a given period of time versus financial results in previous periods, and against the financial results of other business in similar industries.

B Ratios put financial information into perspective, and allow businesses to spot financial issues that may threaten cash flow, or even the overall viability of a business.

C Ratios, particularly for privately held companies, fall into four general categories: liquidity, profitability, turnover, and leverage

(1) Liquidity Ratios

(a) Liquidity ratios focus on a company’s ability to pay its bills when they come due.

(b) Bankers and suppliers use liquidity ratios to measure a company’s creditworthiness.

(c) If liquidity ratios remain relatively high for a prolonged period, too much capital may be invested in liquid assets (for example, cash, short-term investments, accounts receivable, inventory) and too little capital may be devoted to increasing shareholder value.

(d) If liquidity ratios remain relatively low, a company may not have sufficient liquidity to meet ongoing financial obligations.

(e) Typically liquidity ratios would include the current and quick ratios

(2) Profitability Ratios

(a) Profitability ratios offer a glimpse into a company’s operational performance and help business owners determine if they are maximizing their bottom line.

(b) They also offer insights into the return a company is generating from its assets and invested capital.

(c) These ratios should be compared on a period over period basis (i.e. year to year).

(d) While these ratios may vary from industry to industry, standard ratios include Return on Assets, Return on Equity and Return on Sales.

(3) Turnover (Efficiency) Ratios

(a) Turnover or efficiency ratios measure the activity or changes in certain assets, including accounts receivable, accounts payable and inventory.



(b) Poor turnover generally indicates resources are invested in non-income producing assets.

(4) Leverage Ratios

(a) Leverage ratios indicate how well a company’s uses borrowed funds (rather than stockholders’ equity or investments) to expand its business.

(b) The goal is to borrow funds at a low interest rate and invest in a business activity that produces a rate of return exceeding the target rate of return for investments.

XXVII Exit Strategy: Business Plan Basics A In order to attract investment dollars for your client’s business, it's critical

to supply an exit plan to investors so they can get their money back (hopefully with a healthy return) and exit their company. (1) The exit strategy section of their business should also outline the long-

term plans for their business.B Clients should begin by asking themselves why they are getting into

business.

(1) Do they see themselves running the company twenty years from now, or are they interested in moving on after a few years?

(2) Are they in it for the big money at the end of the rainbow, or are they more interested in running a solid and steadily growing family business?

C It's important to think through these issues and decide what they intend to do with the business before they can adequately answer the questions, and address the issues, concerning how an investor will exit your company.

(1) The requirements of each investor will vary in terms of return and exit strategy they seek. Two examples follow:

(a) Venture Capital

1 These investors look for a high return and an exit strategy of approximately 3-7 years.

2 They work almost exclusively with companies that may go public or can be sold for a significant profit. However, keep in mind that going public is very rare and is unattainable for most companies.

(b) Angel Investor



1 These investors typically are looking for a high return but are more flexible with the terms of the exit strategy.

2 Angels are typically less sophisticated than venture capitalists or institutional investors, and will become involved in the business because of a personal relationship with them.

D Possible exit strategies to consider:

(1) Initial Public Offering (an extremely rare event for most startups)

(2) Merger/Acquisition

(3) Buyout by partner in business

(4) Franchise the business

(5) Hand down the business to another family member

XXVIII Exit Strategy: Mistakes to Avoid

A Assuming they have a business with the potential to go public.

B Failing to explain how their investor will specifically recoup their investment and a sufficient return.

C Failing to take their personal goals into account when planning an exit strategy.

D Completely ignoring this aspect of the planning process, or having no exit strategy at all.

XXIX Exit Strategy – Key to a Business and Market Plan

A Pen the business plan, search for investors, build the business, and figure out how the investor will cash out later - right? Well, not exactly.

(1) Investors are interested in the growth of your client’s business, but ultimately their commitment of capital hinges upon their ability to recoup their initial investment and a healthy profit.

(2) The lack of a solid and realistic exit strategy demonstrating how investors can accomplish this goal can immediately turn off many sources of capital.

(3) Your client’s chances of cashing in with an investor are seriously reduced without a clear definition of how they will cash out their investment.



B Entrepreneurs rarely place the same level of importance on the exit strategy in a business plan that an investor would.

(1) Business owners are focused on raising the capital needed to launch and expand their venture.

(2) Solid business plans with thorough marketing, sales, operations, management, and concept analysis can, and will, fall short when little consideration is given to the exit plan.

C Entrepreneurs and business owners often list "going public with an IPO in five years" as their intended exit strategy.

(1) Although this is an optimistic and hopeful goal, this outcome normally remains just that - a hope.

(2) Providing realistic exit strategies will result in increased credibility and helps reassure investors concerned with receiving a significant return.

D The book "Finding Your Wings" by Benjamin & Margulis addresses the IPO misconception, noting that, "Acquisition or buyout is the predominant method for achieving liquidity for small company shareholders.

(1) The primary method of achieving liquidity is not IPO - far from it.

(2) But the misconception remains. Too often, entrepreneurs and their business plans say they will take their company public in five years.

(a) The odds are that such and event will not occur.

(b) So entrepreneurs need to consider how that investor is going to achieve liquidity."

E The following is an outline of the most common exit strategies for your client to consider along with brief advantages and disadvantages of each.

(1) Initial Public Offering

(a) Description: Sell the shares of the company to the public to be traded on a stock exchange

(b) Advantages: Conversion to cash for investors, major shareholders usually maintain control, high potential return

(c) Disadvantages: Company must have tremendous growth potential to receive IPO, costly process, uncertain outcome. Major shareholders may be limited as to how much, when, and how they can sell stock

(2) Acquisition



(a) Description: Business bought outright by another existing company

(b) Advantages: Receive cash or stock, often purchased by strategic partner, management contract can be negotiated

(c) Disadvantages: Fit must be appropriate, potential management changes, corporate identity may disappear

(3) Sale of Company

(a) Description: Business bought by other individuals or entities

(b) Advantages: Receive cash immediately

(c) Disadvantages: Must find willing buyer, normally results in new management

(4) Merger

(a) Description: Join with and existing company

(b) Advantages: May receive stock and some cash, resources are combined, current management may stay

(c) Disadvantages: New partners or bosses, less control, may receive little or no cash

(5) Buy-Out

(a) Description: One or more stockholders buy out the others

(b) Advantages: Seller receives cash, other owners remain in control of the company

(c) Disadvantages: Seller must be willing, buyers must have sufficient cash to buy others

(6) Franchise

(a) Description: Sell business concept to others to replicate

(b) Advantages: Receive cash, retain current management, opportunity for large scale growth

(c) Disadvantages: Concept must be appropriate for franchising, legally complex

F Because each business is different, a realistic exit plan should take into account your client’s particular industry, business life-cycle, competitive environment, management needs, and more.



(1) It is also important for your client to consider their personal and financial goals, and how they relate to the future of the business.

G Do your clients value privacy and autonomy?

(1) Then an IPO, with its heavy public disclosure and extensive outsider demands, may be an unsuitable fit for your client and their venture.

H Does building their business from the ground up excite them, but the prospect of managing it over the long haul turns them off?

(1) Exiting with a sale of their business may be the best bet, freeing them to pursue other entrepreneurial projects and allowing new owners to manage the day to day operations in the future.

I Ultimately, the most effective exit plans will take into account business, personal, and investor goals.

(1) Clients should keep in mind that the business plan is the road map for their company and a well thought out exit strategy simply clarifies a future destination when their investor can expect to reach liquidity.

(2) Incorporating a variety of well thought-out exit strategies is typically the best approach to build investor confidence and increase your client’s chances of successfully raising capital.

XXX Table of Contents: Business Plan Basics A A well-designed table of contents ensures that the readers of the business

plan don't waste time searching through the plan for the information they are most interested in.

B Very few investors will read your client’s plan from front to back. Instead, they will normally jump around looking for the details they need to make an informed investment decision.(1) They should keep this in mind when they create their table of contents,

and organize it to make it as easy as possible for readers to find their way around the business plan.

C The table of contents is typically inserted after the executive summary in a business plan.

(1) Most readers will start with the executive summary, and then want to locate specific information that they want to address first.

D A table of contents should list all the major sections within your client’s business plan, and can also be broken down into important or clarifying sub-sections.

(1) Make sure the table of contents page is organized, clear, neat and properly numbered.



(2) Mistakes, sloppiness, or misspellings in the table of contents gives the reader the impression that your client is unorganized and careless right from the start.

XXXI Table of Contents: Mistakes to Avoid A A table of contents should be clean, well organized and free of mistakes.

(1) To avoid a poor initial impression, clients should double check the layout and pagination before sending out their business plan and avoid these common mistakes:

B Important sections and/or subsections are missing

C Page numbers do not match up correctly with the content of the plan

D The table of contents is two pages in length when it could neatly fit onto one page

E The table of contents provides too much detail and is cluttered.

F The text layout is not uniformly aligned and looks sloppy

G It appears that little or no thought went into its design and creation XXXII Table

of Contents: Sample SectionsA The following is a list of the major sections and subsections that your

client may wish to include in their table of contents. B This list can be used two ways:

(1) First, before they begin writing a major section of their business plan, they should consult this list to help them organize their thoughts and ideas into general categories.

(2) Second, the list can be used as a reference to select acceptable headings when they create their final table of contents page.

C Every business plan is different, and therefore every table of contents should be customized for that particular plan. Use only those headings from this list that makes sense for their plan, and that will help your client’s readers get the most from the table of contents.

(1) Company Description

(a) Legal Description

(b) Business History & Description

(c) Current Status

(d) Future Plans

(e) Key Management



(2) Mission & Vision

(a) Mission Statement

(b) Company Vision

(c) Corporate Values & Approach

(3) Product & Service Description

(a) Overview of Products & Services

(b) Product & Service Advantages

(c) Proprietary Features

(d) Product Development Activities

(e) Product Liability

(4) Industry Analysis

(a) Industry Overview

(b) Industry Participants

(c) Industry Trends & Growth

(5) Target Market

(a) Market Demographics

(b) Market Trends & Growth Patterns

(c) Market Size and Potential

(6) Marketing Plan

(a) Marketing Strategies

(b) Marketing Tactics

(c) Positioning

(d) Public Relations

(7) Sales Plan

(a) Sales Strategies

(b) Sales Process

(c) Sales Team



(d) Distribution Channels

(8) Competitive Analysis

(a) Competitive Overview

(b) Market Share Analysis

(c) Direct Competitors

(d) Indirect Competitors

(e) Competitive Advantages

(f) Barriers to Entry

(9) Operations Plan

(a) Location

(b) Property Ownership/Lease Terms

(c) Equipment

(d) Purchasing Policies

(e) Manufacturing Process

(f) Quality Control Measures

(g) Administrative Procedures

(h) Staffing and Training

(i) Labor Considerations

(j) Management Control Systems

(k) Organizational Chart\

(10) Management Team

(a) Key Management

(b) Board of Advisors

(c) Board of Directors

(d) Professional Service Providers

(11) Financial Plan



(a) Financial Summary

(b) Current Ownership Summary

(c) Funding Request / Terms of Investment

(d) Sources and Uses of Funds

(e) Exit Strategy

(f) Projected Financial Statements

(g) Financial Assumptions

(h) Historical Financials

(i) Break-Even Analysis

(j) Financial Ratios

(12) Appendices

(a) Product Samples/Pictures

(b) Management Resumes

(c) Business Location Site Information

(d) Legal Documents

(e) Other Critical DataXXXIII Busin

ess Plan: Appendices A The major sections of your client’s business plan should only contain

summarized findings and highlights for their business. (1) Including every piece of information you have collected in the main

sections of their business plan only results in information overload for the reader, and make it difficult to determine if reading the entire plan is worth the effort.

(2) Instead, clients should include detailed research, sources, and other related information about their business and their business plan in the appendix.

B Clients may want to consider including the following information in the appendix of their business plan:

(1) Management resumes

(2) Pictures of products, locations, etc.



(3) Copies of purchase orders

(4) Floor plans

(5) Marketing materials

(6) Details of the manufacturing process and machinery

(7) Market research surveys and results (highlights only)

(8) Equipment list including model number, description, and estimated price per item (summary contained in sources and uses statement)

(9) Any other supporting documents

C They should be careful not to include every piece of material they have in the appendix section. They need only include those materials that provide significant support or additional clarification for their business plan.



Financing Proposal*

for

MARY’S MARKET, LLC

Submitted toCentral Bank and Trust Company

andU.S. Small Business Administration

by

Mary Alexandria Williams123 Route 1A

Centerville, Maine 03333

Telephone: 607-246-6689Fax: 607-246-6690

E Mail: MAW@ AOL.com

*The table of contents of Mary’s Market funding proposal differs from that of the table of contents in the business planning module above. However, the key contents of the module and the proposal are quite similar



TABLE OF CONTENTS

Page

Statement Of Purpose......................................................................................87Summary..........................................................................................................88Description Of Business..............................................................................88-89Industry.............................................................................................................88Background.......................................................................................................88Products And Services.....................................................................................88Marketing.....................................................................................................89-92Market Research..............................................................................................89The Market.......................................................................................................90Marketing Strategy............................................................................................91Competition.......................................................................................................92Location............................................................................................................92Management.....................................................................................................93Overall Management And Operations..............................................................93Merchandising And Inventory Control...............................................................93Personnel..........................................................................................................93Financial Data............................................................................................94-106Sources And Applications Of Funding..............................................................94Pro Forma.........................................................................................................95Cash Flow (Years 1 – 3)..............................................................................96-98Quarterly Cash Flow.........................................................................................99Balance Sheet................................................................................................100Payroll Projections..........................................................................................101Amortization Schedule....................................................................................102Depreciation Schedule....................................................................................103Capital Equipment List....................................................................................104Break Even Analysis.......................................................................................105Financial Ratios..............................................................................................106Resume, Mary Alexandria Williams................................................................107*Lease*Garber Brothers, Brochure And Information*Suppliers (Brochures)*Tax Return Copies, 3 Years Of Personal Tax Returns*Tax Return Copies, 3 Years Former Owner’s Schedule C

* These documents are not actually included in this sample business plan. However, these and other similar documents are often part of a complete plan or funding proposal.



STATEMENT OF PURPOSEThis business plan was prepared for two purposes: to provide a working document or roadmap for the profitable management and operation of Mary’s Market, LLC, and to secure financing in the amount of $60,112 for inventory, equipment, working capital, and other start-up expenses (see Sources and Application of Funding Statement in Financial Section). Mary’s Market, LLC is located on busy Route 1A in the Park-way Plaza, 123 Route 1A, Centerville, Maine, between the Atlantic Ocean beaches, I95 and the shopping destination of Freeport, Maine.



SUMMARYMary Alexandria and Zachary Williams bring a wealth of experience to the grocery and convenience store industry. They intend to contribute over $20,000 of their own equity (cash and equipment) along with an additional $12,500 of outside equity towards launching Mary’s Market, LLC. All told, this equity represents 36% of total start-up costs. Mary’s Market, LLC has conservatively estimated gross revenue to grow 23% and 19% in years 2 and 3, respectively. Moreover, net after debt is expected to increase 28% and 66% for the same period. Working capital of $30,000 renders a healthy cash flow with a minimum cash coverage of 3.9 in the third month of operation. It is anticipated that cash on hand will approach $57,000 by the end of year one increasing to approximately $90,000 by the end of year two and about $142,000 by the end of year three. In addition, the coverage ratio for the first year is 3.5 increasing to 4.0 and 5.7 for years two and three, respectively. This is particularly strong when compared to the industry norm of 2.4. Finally, Mary’s Market liquidity and leverage ratios exceed industry norms for years one, two, and three. More detail is available in the financial data section of the business plan.

DESCRIPTION OF BUSINESSINDUSTRY:Small, clean, well-stocked convenience stores have sprouted up everywhere, particularly in conjunction with gasoline stations and in small shopping centers, strategically located for easy and quick access. The most successful of these offer brand coffee selections, pastries, and deli take outs. These markets are frequented by customers traveling to and from work, tourists, and customers shopping in close proximity.

BACKGROUND:123 Route 1A in Centerville, Maine has housed a convenience store since inception of the Park-way Plaza strip mall in 1982. The previous owners successfully operated the market for the past 16 years until the owner died and his wife closed the store three months ago. The store has become a landmark for locals, travelers to the surrounding campgrounds, and residents of the senior housing development across the street. Based on the owner’s records, over 65% of the generated income is derived from repeat business.

PRODUCTS AND SERVICESMary’s Market, is a Limited Liability Company with two members: Mary Alexandria and Zachary Williams. It is part of a small strip mall at Park-way Plaza at 123 Route 1A in Centerville Maine. Park-way is a well-known local landmark, as it houses the only package store within a 10 mile radius, a Laundromat, and an inside flea market, frequented by tourists. Mary’s Market is a unique, conveniently located, retail store maximizing the latest C Store’ success of blending related businesses within the store or a store within a store’ concept while utilizing modern marketing and merchandising techniques. Mary’s Market will incorporate three stores within a store: a cigar shop, a branded



coffee shop, and a flower shop in a convenience store setting. The cigar and flower shop will be set up, stocked and managed by outside business entities, while Bean Coffee Shop will be operated by Mary’s Market. Fresh bakery products will be delivered daily from a local bakery to compliment the coffee shop.

Mary’s Market consists of 1692 square feet, of which 96 square feet will be subleased to both the cigar shop and the flower shop. Mary’s will also monitor those areas and provide customer service as needed. A base rent of $500 has been negotiated with both outside business entities which will be payable to Mary’s Market on a monthly basis. The flower and cigar shops will not require additional sales staff because customers will select their purchases from self-service display cases. During the peak summer season there will be a need for a part-time employee. This will be addressed on an as-needed basis. The remaining 1500 square feet will provide and service a modern, convenient, grocery store. The size is adequate to accommodate the diverse customer base as determined by the Chamber of Commerce statistics, the adjoining flea market customer count, and the former owner’s records: travelers, campers, beach goers Freeport shoppers, and local residents.

Inventory will consist of groceries, snacks, candy, cold beverages, frozen food, cigarettes, tobacco products, household cleaning supplies, paper products, fresh bread, deli meats and cheeses, dairy, health & beauty aids, automotive, newspapers, and of course coffee and pastries as well as seasonal items. To set Mary’s apart from other local convenience stores, Western Union, fax, photo copy, lottery, and tourist information services (brochures, a bulletin board to post local activities) will be offered.

Mary’s Market LLC has negotiated a five (5) year lease agreement with a five (5) year renewable option. Part of the lease agreement states that the landlord will provide new flooring materials and the tenant will provide labor. The Landlord has approved the two subleases negotiated by Mary’s Market LLC; however approval to arrange for a propane gas tank to be placed in the rear of the Market near the rear door has not yet been agreed upon. Mary’s would like to be able to sell propane gas to the many travelers who use gas to heat their campers and to cook. Store hours: Monday through Saturday 6:00 a.m. to 10:00 p.m. and Sunday 9:00 a.m. to 6:00 p.m. Hours may be adjusted according to traffic and sales patterns. The market is scheduled to open Monday July 1, 2000.

MARKETINGMARKET RESEARCH:Demographic information from the State of Maine Department of Labor indicates employment in the Southeast corner of Maine is at a near all time high with only 4% unemployment. The average family income has remained stable over the past three years and the population in the Freeport area has increased 14% over the past three years, higher than any other area of Maine. This information



supports the premise that the Freeport area where Mary’s Market is located is economically stable and growth is on the incline.

The local Chambers of Commerce and the Maine Department of Tourism provided the following statistics for the Freeport area:

the number of new business start-ups increased by 20% over the past three years

the number of tourists visiting the area has increased by 25% over the past three years: this statistic is based primarily on the increase of gross sales in the Freeport area and the occupancy rate at nearby motels, summer rentals, and hotels.

the number of visitors to nearby National Parks has increased the National Parks show an increase not only in the number of day trippers,

but also an increase in the number of visitors who spend at least one night within the Park’s grounds

The local campground owners have stated that they have experienced an increase in their occupancy rate during the summer months and also that the camping season has extended into late October and early April. The average stay is five days, indicating the need for ‘convenience’ food supplies, newspapers, and the like.

Discussions with the lessees at Park-way Plaza (the laundromat, package store, and flea market) confirm the increase in the number of customers and return customers visiting the Plaza over the past few years. The new retirement home facility located within walking distance of Mary’s Market is an added benefit to the already growing number of tourists visiting Freeport, the beaches, the National Parks and campgrounds. Being in close proximity to the retirement home offers an opportunity to provide gifts for visitors to take to their loved ones, such as fresh flowers, soft-covered books, snacks, ice cream, etc.

Based on the above market research and information gathered from speaking with other local businesses, it is clear that Mary’s Market will serve the needs of the local community, tourists, campers, beach goers, senior citizens and their families and friends.

THE MARKETCustomers will consist of men, women and children of all ages. There will be something for everyone. Mary’s Market anticipates a steady increase in customers from its opening day because it is ideally located to attract visitors traveling between the beach areas on the Southeast coast, the shopping area at Freeport, and the National Parks at Booth Bay and Bar Harbor and points further north. Additionally, the space has housed a convenience store since inception in 1982 and is frequented by locals, travelers at the surrounding campgrounds, and



residents of the senior housing development across the street. Note: the previous owner of the Market died and his wife closed the store four months ago.

Inventory will address each market, for example:

Tourists: cigars, cigarettes, lottery, Western Union, and tourist information Tourists & Seniors: newspapers, coffee, snacks, gum, cigarettes, lottery, and

dairy products Seniors, their family and friends: Mary’s will deliver fresh flowers, snacks,

and magazines to the Retirement Facility for a small fee Beach goers and Campers: styrofoam coolers, bagged ice, beverages,

chips, maps, deli products, groceries, and health products Local Residents: groceries, dairy, frozen foods, bread, daily staples. Mary’s Specialty: Picnic lunches will be offered to beach goers, campers,

and travelers. They will be made on order, on the premises from our deli counter, bakery, and produce departments. The less expensive lunch will include paper napkins, paper plates, and plastic utensils. For those seeking a unique experience, there will be a picnic basket complete with cloth napkins, matching plastic dishes and glasses, and a small vase with a flower of choice.

Obviously there will be cross-selling and overlapping of market segments and inventory as customers become aware of the diverse products and services offered. As overlapping increases, sales will grow.

MARKETING STRATEGYMARKETING STRATEGYCurrent marketing/merchandising techniques will be provided by the prime wholesale distributor Garber Brothers, Inc. Garber Brothers, Inc. was founded in 1947 and is presently a $250 million+ company rated the #1 wholesale distributor in New England by the Griffin Report. Garber Brothers has provided a computerized plan-o-gram for initial store set up. Two merchandising professionals will be in the store for two days to implement the plan-o-gram. The merchandising will be reviewed by walk-throughs and velocity reports on a monthly basis by Garber Brothers.

Local residents will be drawn to Mary’s by word of mouth, quarterly direct mail such as flyers, a free-standing movable 4’x4’ roadside sign, advertising weekly specials, advertisements in local publications, campground brochures and tourist information centers. The 4x4 dimension sign will allow up to 6 lines of 6” high x 3” side block characters and up to 16 characters per line. To further enhance signage, four neon window signs including the bulleted information below will be displayed facing traffic:

open florist cigars



Marlboro

To promote the market’s grand opening, $1200 will be spent. Free coffee and croissants or donuts will be offered for the entire weekend. A drawing will be held with 1st prize being a $50 gift certificate for Mary’s Market including the cigar and flower shops. The completed ticket entries will become the Market’s initial mailing list. The local newspaper will take a photograph of the winner standing inside the newly renovated Market.

COMPETITIONMary’s major strengths are twofold: location and the variety of goods and services offered in one convenient location attracting both local residents and travelers.

Mary’s shares similar qualities with competitive convenience stores in areas such as groceries, snacks and candy (see bulleted list below). This is where the similarity ends. Added products of premium cigars, fresh flowers, Western Union, fax services, and tourist information sets Mary’s a step above its competitors and puts it in a position to secure a large part of the existing market.

Donovan’s Sunoco Full Service 2.8 miles S&T Country Grocer 4.9 miles USA Citgo 4.8 miles

S&T and USA Citgo are well established and carry large inventories. However, they do very little advertising or promotion other than in-store signage and more travelers are paying at the pump with charge cards. Neither is located in close proximity to Route 1, 1A or I95. Donovan’s is well-known, but in need of renovation, new lighting, and more space.

LOCATIONMary’s Market, LLC is located at Park-way Plaza, 123 Route 1A in Centerville, Maine. This landmark location has been established for more than 15 years. The market was operated successfully for all of that time. The indoor flea market was added five years ago in response to the increased interest in nostalgia and collectibles. The flea market has made Park-way Plaza a destination for thousands of tourists and collectors. The Laundromat is used by campers and seniors. Coffee, pastries, and convenience items are always in demand. The bulletin board will offer customer’s an opportunity to request items not found in the store and to make other comments and suggestions.

As ‘Down East’ continues to grow as a tourist attraction and as shoppers pour into Freeport on a nearly year-round basis, this location will become even more desirable. There are no other convenience stores within a 10 minute drive.

MANAGEMENT



OVERALL MANAGEMENT AND OPERATIONSAs owner and manager of Mary’s Market, I will utilize my extensive (9 years) hands-on background in the food retail business and business knowledge gained from classes taken at Portland Community College. (Associate Degree in Business Administration). Financial records will be provided on a monthly basis to Bill Moore, CPA using QuickBooks Pro in combination with a one-write checking account. Initially checks will be written by hand rather than by computer. Mr. Moore will analyze income statements and make appropriate and timely recommendations. This will ensure proactive management rather than reactive.

MERCHANDISING AND INVENTORY CONTROLMerchandising will be initially set up and monitored by Garber Brothers sales staff on a monthly basis to ensure proper display and to facilitate the movement of inventory. This service is provided free of charge and will continue on a monthly basis for the first year of operation and quarterly thereafter.

PERSONNELMary Williams’ resume is in the Supporting Documents section.

The other member of Mary’s Market, LLC, Zachary Williams, has 7 years experience in restaurant customer service while employed at the Marriott in Augusta, Maine. During that time he spent 5 years in accounts payable and receivable. His experience is enhanced by 21 college credits, primarily business courses. Zachary will work evenings and part-time on week-ends in addition to his full-time position of Personnel Manager at Fenton Manufacturing Inc.

Initially one part-time position will be required. This part-time position will require an individual with managerial potential and a strong customer service orientation. This position will start at $7.50 per hour and will increase to $8.00 per hour after 6 months of satisfactory employment. During the second year of operation, the part-time position will be expanded to full time and a part-time individual will be hired during peak season.



SOURCE & APPLICATION OF FUNDINGSource Mix

Owner Investment (Cash) 13,500$ 14%Owner Investment (Equipment) 7,308$ 8%Outside Equity (Cigar & Flower Shop) 12,500$ 13%Term Loan 60,112$ 64%

Total 93,420$

Application

Advertising 2,200$ 2%Buildout/Renovations 2,019$ 2%Equipment 14,486$ 16%Insurance 750$ 1%Inventory 32,500$ 35%Lease (Route 1A, Pkwy Plaza) 5,600$ 6%Professional Expenses 3,750$ 4%Supplies 2,115$ 2%Working Capital 30,000$ 32%

Total 93,420$

NotesSee Capital Equipment List - ShelvingFirst month and security deposit



PRO FORMA

Proj. Mix4 Proj. Mix4 v Yr1 Proj. Mix4 v Yr21 Gross Revenue 316,322$ 389,076$ 23% 463,001$ 19%2 - Cost of Goods Sold 192,893$ 61.0% 229,477$ 59.0% 19% 266,225$ 57.5% 16%

Gross Profit 123,429$ 39.0% 159,599$ 41.0% 29% 196,775$ 42.5% 23%Operating Expenses

F Advertising 4,050$ 4.3% 5,000$ 4.1% 23% 5,000$ 3.6% 0%5 F Automobile 1,671$ 1.8% -$ 0.0% -100% -$ 0.0%

V Bank Services 2,000$ 2.1% 2,586$ 2.1% 29% 3,188$ 2.3% 23%V Contract Services 1,400$ 1.5% 1,610$ 1.3% 15% 1,771$ 1.3% 10%F Contributions 600$ 0.6% 600$ 0.5% 0% 600$ 0.4% 0%

3 F Debt (Interest) 4,134$ 4.4% 3,621$ 2.9% -12% 3,070$ 2.2% -15%6 F Depreciation & Amortization 4,279$ 4.6% 4,279$ 3.5% 0% 3,269$ 2.3% -24%

F Dues 500$ 0.5% 500$ 0.4% 0% 500$ 0.4% 0%F Insurance 3,410$ 3.6% 3,410$ 2.8% 0% 3,410$ 2.4% 0%F Licenses & Permits 300$ 0.3% 300$ 0.2% 0% 300$ 0.2% 0%V Maintenance 100$ 0.1% 115$ 0.1% 15% 127$ 0.1% 10%

7 F Payroll 17,680$ 18.8% 37,248$ 30.2% 111% 49,810$ 35.4% 34%3 F Payroll Expense 4,950$ 5.3% 10,430$ 8.5% 111% 13,947$ 9.9% 34%

V Postage 128$ 0.1% 192$ 0.2% 50% 221$ 0.2% 15%F Rent 30,800$ 32.8% 33,600$ 27.3% 9% 33,600$ 23.9% 0%V Repairs 1,300$ 1.4% 1,365$ 1.1% 5% 1,433$ 1.0% 5%F Seminars 450$ 0.5% 788$ 0.6% 75% 984$ 0.7% 25%V Supplies 2,400$ 2.6% 3,600$ 2.9% 50% 3,960$ 2.8% 10%V Telephone 900$ 1.0% 931$ 0.8% 3% 978$ 0.7% 5%V Travel 800$ 0.9% 1,000$ 0.8% 25% 1,200$ 0.9% 20%F Utilities 12,060$ 12.8% 12,060$ 9.8% 0% 13,266$ 9.4% 10%

Total 93,912$ 29.7% 123,234$ 31.7% 31% 140,633$ 30.4% 14%Net Profit (Loss) 29,517$ 9.3% 36,365$ 9.3% 23% 56,142$ 12.1% 54% - Debt (principle) 6,842$ 7.3% 7,354$ 6.0% 7% 7,906$ 5.6% 7%Net after Debt 22,675$ 7.2% 29,011$ 7.5% 28% 48,237$ 10.4% 66%

Notes1 Includes $500 per month from flower and cigar shop2 CGS will decline thus margin will increase due to increase sales

in products that produce larger profit margin3 28% of Payroll - Includes Fica, Futa, Suta, & Work. Comp.4 Operating expenses & Debt (Principle) as % of Total Operating Expenses

CGS, Tot. Op. Exp., Net Prof., Net after Debt and Gross Prof. as % of Gross Revenue5 Car is paid off by end of first year6 Amount decreases in year three due to renovation being fully amortized7 See Payroll Projections

F Fixed ExpenseV Variable Expense

Year 2 Year 3Year 1



CASH FLOWYear 1 Begin Cash 30,000$ 33,155$ 34,059$ 33,961$ 34,866$ 36,643$ 39,128$ 42,780$ 45,696$ 46,886$ 52,148$ 57,560$

Avg Cash 31,577$ 33,607$ 34,010$ 34,413$ 35,754$ 37,885$ 40,954$ 44,238$ 46,291$ 49,517$ 54,854$ 57,275$ End Cash 33,155$ 34,059$ 33,961$ 34,866$ 36,643$ 39,128$ 42,780$ 45,696$ 46,886$ 52,148$ 57,560$ 56,991$

Seasonality 6.5% 7.0% 7.0% 7.0% 8.0% 9.5% 9.5% 9.0% 8.0% 11.0% 11.0% 6.5%Coverage* 6.5 4.3 3.9 4.4 4.4 4.1 5.1 5.4 5.3 6.0 6.7 6.7

Total Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun

Cash Receipts 316,322$ 20,561$ 22,143$ 22,143$ 22,143$ 25,306$ 30,051$ 30,051$ 28,469$ 25,306$ 34,795$ 34,795$ 20,561$ - Cost of Goods Sold 192,893$ 12,538$ 13,503$ 13,503$ 13,503$ 15,431$ 18,325$ 18,325$ 17,360$ 15,431$ 21,218$ 21,218$ 12,538$ Total 123,429$ 8,023$ 8,640$ 8,640$ 8,640$ 9,874$ 11,726$ 11,726$ 11,109$ 9,874$ 13,577$ 13,577$ 8,023$ Cash DisbursementAdvertising 4,050$ 338$ 338$ 338$ 338$ 338$ 338$ 338$ 338$ 338$ 338$ 338$ 338$ Automobile 1,671$ 139$ 139$ 139$ 139$ 139$ 139$ 139$ 139$ 139$ 139$ 139$ 139$ Bank Svs 2,000$ 130$ 167$ 167$ 167$ 167$ 167$ 167$ 167$ 167$ 167$ 167$ 167$ Contract Svs 1,400$ 91$ 98$ 98$ 98$ 112$ 133$ 133$ 126$ 112$ 154$ 154$ 91$ Contributions 600$ -$ -$ -$ -$ 300$ -$ -$ -$ -$ 300$ -$ -$ Debt (P&I) 10,975$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ Dues 500$ -$ -$ -$ -$ -$ 500$ -$ -$ -$ -$ -$ -$ Insurance 3,410$ -$ -$ 853$ -$ -$ 853$ -$ -$ 853$ -$ -$ 853$ Lics & Permits 300$ -$ -$ -$ -$ -$ -$ -$ 300$ -$ -$ -$ -$ Maint. 100$ 7$ 7$ 7$ 7$ 8$ 10$ 10$ 9$ 8$ 11$ 11$ 7$ Payroll 17,680$ 1,456$ 1,456$ 1,456$ 1,456$ 1,456$ 1,456$ 1,491$ 1,491$ 1,491$ 1,491$ 1,491$ 1,491$ Payroll Expense 4,950$ 413$ 413$ 413$ 413$ 413$ 413$ 413$ 413$ 413$ 413$ 413$ 413$ Postage 128$ 8$ 9$ 9$ 9$ 10$ 12$ 12$ 12$ 10$ 14$ 14$ 8$ Rent 30,800$ -$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ Repairs 1,300$ 85$ 91$ 91$ 91$ 104$ 124$ 124$ 117$ 104$ 143$ 143$ 85$ Seminars 450$ -$ -$ 150$ -$ -$ -$ 150$ -$ -$ -$ 150$ -$ Supplies 2,400$ 156$ 168$ 168$ 168$ 192$ 228$ 228$ 216$ 192$ 264$ 264$ 156$ Telephone 900$ 75$ 75$ 75$ 75$ 75$ 75$ 75$ 75$ 75$ 75$ 75$ 75$ Travel 800$ 52$ 56$ 56$ 56$ 64$ 76$ 76$ 72$ 64$ 88$ 88$ 52$ Utilities 12,060$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ Total Cash Disbursements 96,475$ 4,868$ 7,736$ 8,738$ 7,736$ 8,097$ 9,241$ 8,073$ 8,193$ 8,684$ 8,315$ 8,165$ 8,592$ Net Cash 26,954$ 3,155$ 904$ (98)$ 904$ 1,778$ 2,485$ 3,652$ 2,916$ 1,190$ 5,262$ 5,412$ (569)$

* Average monthly cash on hand/total monthly cash outlay (e.g., in Aug of the first year, the average amount of cash on in Mary's Market is 4.3x that of total cash disbursement)




Avg Cash 57,051$ 57,545$ 57,853$ 58,573$ 60,857$ 64,328$ 68,912$ 73,624$ 76,923$ 81,302$ 87,802$ 90,671$ End Cash 57,111$ 57,978$ 57,729$ 59,417$ 62,296$ 66,360$ 71,464$ 75,784$ 78,061$ 84,543$ 91,062$ 90,280$

Coverage 5.6 5.6 5.1 6.2 6.2 5.8 6.9 7.3 7.3 7.3 8.0 8.1


Cash Receipts 389,076$ 25,290$ 27,235$ 27,235$ 27,235$ 31,126$ 36,962$ 36,962$ 35,017$ 31,126$ 42,798$ 42,798$ 25,290$ - Cost of Goods Sold 229,477$ 14,916$ 16,063$ 16,063$ 16,063$ 18,358$ 21,800$ 21,800$ 20,653$ 18,358$ 25,242$ 25,242$ 14,916$ Total 159,599$ 10,374$ 11,172$ 11,172$ 11,172$ 12,768$ 15,162$ 15,162$ 14,364$ 12,768$ 17,556$ 17,556$ 10,374$ Cash DisbursementAdvertising 5,000$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ Automobile -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Bank Svs 2,586$ 168$ 181$ 181$ 181$ 207$ 246$ 246$ 233$ 207$ 284$ 284$ 168$ Contract Svs 1,610$ 105$ 113$ 113$ 113$ 129$ 153$ 153$ 145$ 129$ 177$ 177$ 105$ Contributions 600$ -$ -$ -$ -$ 300$ -$ -$ -$ -$ 300$ -$ -$ Debt (P&I) 10,975$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ Dues 500$ -$ -$ -$ -$ -$ 500$ -$ -$ -$ -$ -$ -$ Insurance 3,410$ -$ -$ 853$ -$ -$ 853$ -$ -$ 853$ -$ -$ 853$ Lics & Permits 300$ -$ -$ -$ -$ -$ -$ -$ 300$ -$ -$ -$ -$ Maint. 115$ 7$ 8$ 8$ 8$ 9$ 11$ 11$ 10$ 9$ 13$ 13$ 7$ Payroll 37,248$ 3,405$ 3,405$ 3,405$ 2,764$ 2,764$ 2,764$ 2,803$ 2,803$ 2,803$ 3,444$ 3,444$ 3,444$ Payroll Expense 10,430$ 954$ 954$ 954$ 774$ 774$ 774$ 785$ 785$ 785$ 964$ 964$ 964$ Postage 192$ 12$ 13$ 13$ 13$ 15$ 18$ 18$ 17$ 15$ 21$ 21$ 12$ Rent 33,600$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ Repairs 1,365$ 89$ 96$ 96$ 96$ 109$ 130$ 130$ 123$ 109$ 150$ 150$ 89$ Seminars 788$ -$ -$ 263$ -$ -$ -$ 263$ -$ -$ -$ 263$ -$ Supplies 3,600$ 234$ 252$ 252$ 252$ 288$ 342$ 342$ 324$ 288$ 396$ 396$ 234$ Telephone 931$ 78$ 78$ 78$ 78$ 78$ 78$ 78$ 78$ 78$ 78$ 78$ 78$ Travel 1,000$ 65$ 70$ 70$ 70$ 80$ 95$ 95$ 90$ 80$ 110$ 110$ 65$ Utilities 12,060$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ 1,005$ Total Cash Disbursements 126,310$ 10,253$ 10,306$ 11,421$ 9,484$ 9,889$ 11,098$ 10,058$ 10,043$ 10,491$ 11,074$ 11,037$ 11,156$ Net Cash 33,289$ 121$ 866$ (249)$ 1,688$ 2,879$ 4,064$ 5,104$ 4,321$ 2,277$ 6,482$ 6,519$ (782)$




Avg Cash 90,781$ 92,246$ 93,582$ 95,356$ 98,934$ 104,146$ 110,675$ 117,214$ 122,105$ 128,406$ 137,304$ 141,766$ End Cash 91,282$ 93,209$ 93,955$ 96,758$ 101,109$ 107,182$ 114,169$ 120,260$ 123,950$ 132,862$ 141,746$ 141,786$

Coverage 7.7 7.8 7.2 8.7 8.7 8.3 9.5 10.1 10.1 10.1 10.8 11.1


Cash Receipts 463,001$ 30,095$ 32,410$ 32,410$ 32,410$ 37,040$ 43,985$ 43,985$ 41,670$ 37,040$ 50,930$ 50,930$ 30,095$ - Cost of Goods Sold 266,225$ 17,305$ 18,636$ 18,636$ 18,636$ 21,298$ 25,291$ 25,291$ 23,960$ 21,298$ 29,285$ 29,285$ 17,305$ Total 196,775$ 12,790$ 13,774$ 13,774$ 13,774$ 15,742$ 18,694$ 18,694$ 17,710$ 15,742$ 21,645$ 21,645$ 12,790$ Cash DisbursementAdvertising 5,000$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ 417$ Automobile -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ -$ Bank Svs 3,188$ 207$ 223$ 223$ 223$ 255$ 303$ 303$ 287$ 255$ 351$ 351$ 207$ Contract Svs 1,771$ 115$ 124$ 124$ 124$ 142$ 168$ 168$ 159$ 142$ 195$ 195$ 115$ Contributions 600$ -$ -$ -$ -$ 300$ -$ -$ -$ -$ 300$ -$ -$ Debt (P&I) 10,975$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ 915$ Dues 500$ -$ -$ -$ -$ -$ 500$ -$ -$ -$ -$ -$ -$ Insurance 3,410$ -$ -$ 853$ -$ -$ 853$ -$ -$ 853$ -$ -$ 853$ Lics & Permits 300$ -$ -$ -$ -$ -$ -$ -$ 300$ -$ -$ -$ -$ Maint. 127$ 8$ 9$ 9$ 9$ 10$ 12$ 12$ 11$ 10$ 14$ 14$ 8$ Payroll 49,810$ 4,450$ 4,450$ 4,450$ 3,766$ 3,766$ 3,766$ 3,851$ 3,851$ 3,851$ 4,536$ 4,536$ 4,536$ Payroll Expense 13,947$ 1,246$ 1,246$ 1,246$ 1,054$ 1,054$ 1,054$ 1,078$ 1,078$ 1,078$ 1,270$ 1,270$ 1,270$ Postage 221$ 14$ 15$ 15$ 15$ 18$ 21$ 21$ 20$ 18$ 24$ 24$ 14$ Rent 33,600$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ 2,800$ Repairs 1,433$ 93$ 100$ 100$ 100$ 115$ 136$ 136$ 129$ 115$ 158$ 158$ 93$ Seminars 984$ -$ -$ 328$ -$ -$ -$ 328$ -$ -$ -$ 328$ -$ Supplies 3,960$ 257$ 277$ 277$ 277$ 317$ 376$ 376$ 356$ 317$ 436$ 436$ 257$ Telephone 978$ 81$ 81$ 81$ 81$ 81$ 81$ 81$ 81$ 81$ 81$ 81$ 81$ Travel 1,200$ 78$ 84$ 84$ 84$ 96$ 114$ 114$ 108$ 96$ 132$ 132$ 78$ Utilities 13,266$ 1,106$ 1,106$ 1,106$ 1,106$ 1,106$ 1,106$ 1,106$ 1,106$ 1,106$ 1,106$ 1,106$ 1,106$ Total Cash Disbursements 145,269$ 11,788$ 11,848$ 13,028$ 10,971$ 11,390$ 12,621$ 11,706$ 11,619$ 12,052$ 12,733$ 12,761$ 12,750$ Net Cash 51,506$ 1,002$ 1,927$ 746$ 2,803$ 4,352$ 6,072$ 6,987$ 6,091$ 3,690$ 8,912$ 8,884$ 40$



QUARTERLY CASH FLOW

Beginning Cash 30,000$ 33,961$ 39,128$ 46,886$ 56,991$ 57,729$ 66,360$ 78,061$ 90,280$ 93,955$ 107,182$ 123,950$ Average Cash on Hand 31,981$ 36,544$ 43,007$ 51,938$ 57,360$ 62,044$ 72,210$ 84,171$ 92,117$ 100,568$ 115,566$ 132,868$ Ending Cash 33,961$ 39,128$ 46,886$ 56,991$ 57,729$ 66,360$ 78,061$ 90,280$ 93,955$ 107,182$ 123,950$ 141,786$

1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr 1st Qtr 2nd Qtr 3rd Qtr 4th Qtr

Cash Receipts 64,846$ 77,499$ 83,825$ 90,152$ 79,761$ 95,324$ 103,105$ 110,887$ 94,915$ 113,435$ 122,695$ 131,955$ - Cost of Goods Sold 39,543$ 47,259$ 51,117$ 54,975$ 47,043$ 56,222$ 60,811$ 65,401$ 54,576$ 65,225$ 70,550$ 75,874$ Total 25,303$ 30,240$ 32,709$ 35,177$ 32,718$ 39,102$ 42,294$ 45,486$ 40,339$ 48,210$ 52,145$ 56,081$ Cash DisbursementAdvertising 1,013$ 1,013$ 1,013$ 1,013$ 1,250$ 1,250$ 1,250$ 1,250$ 1,250$ 1,250$ 1,250$ 1,250$ Automobile 418$ 418$ 418$ 418$ -$ -$ -$ -$ -$ -$ -$ -$ Bank Svs 463$ 500$ 500$ 500$ 530$ 634$ 685$ 737$ 654$ 781$ 845$ 909$ Contract Svs 287$ 343$ 371$ 399$ 330$ 394$ 427$ 459$ 363$ 434$ 469$ 505$ Contributions -$ 300$ -$ 300$ -$ 300$ -$ 300$ -$ 300$ -$ 300$ Debt (P&I) 2,744$ 2,744$ 2,744$ 2,744$ 2,744$ 2,744$ 2,744$ 2,744$ 2,744$ 2,744$ 2,744$ 2,744$ Dues -$ 500$ -$ -$ -$ 500$ -$ -$ -$ 500$ -$ -$ Insurance 853$ 853$ 853$ 853$ 853$ 853$ 853$ 853$ 853$ 853$ 853$ 853$ Lics & Permits -$ -$ 300$ -$ -$ -$ 300$ -$ -$ -$ 300$ -$ Maint. 21$ 25$ 27$ 29$ 24$ 28$ 30$ 33$ 26$ 31$ 34$ 36$ Payroll 4,368$ 4,368$ 4,472$ 4,472$ 10,216$ 8,291$ 8,408$ 10,333$ 13,351$ 11,297$ 11,554$ 13,608$ Payroll Expense 1,238$ 1,238$ 1,238$ 1,238$ 2,861$ 2,321$ 2,354$ 2,893$ 3,738$ 3,163$ 3,235$ 3,810$ Postage 26$ 31$ 34$ 36$ 39$ 47$ 51$ 55$ 45$ 54$ 59$ 63$ Rent 5,600$ 8,400$ 8,400$ 8,400$ 8,400$ 8,400$ 8,400$ 8,400$ 8,400$ 8,400$ 8,400$ 8,400$ Repairs 267$ 319$ 345$ 371$ 280$ 334$ 362$ 389$ 294$ 351$ 380$ 408$ Seminars 150$ -$ 150$ 150$ 263$ -$ 263$ 263$ 328$ -$ 328$ 328$ Supplies 492$ 588$ 636$ 684$ 738$ 882$ 954$ 1,026$ 812$ 970$ 1,049$ 1,129$ Telephone 225$ 225$ 225$ 225$ 233$ 233$ 233$ 233$ 244$ 244$ 244$ 244$ Travel 164$ 196$ 212$ 228$ 205$ 245$ 265$ 285$ 246$ 294$ 318$ 342$ Utilities 3,015$ 3,015$ 3,015$ 3,015$ 3,015$ 3,015$ 3,015$ 3,015$ 3,317$ 3,317$ 3,317$ 3,317$ Total Cash Disbursements 21,342$ 25,074$ 24,950$ 25,073$ 31,980$ 30,471$ 30,593$ 33,267$ 36,664$ 34,983$ 35,378$ 38,245$ Net Cash 3,961$ 5,167$ 7,759$ 10,105$ 738$ 8,631$ 11,701$ 12,219$ 3,675$ 13,227$ 16,768$ 17,836$

Year 1 Year 3Year 2



BALANCE SHEET

Begin End % Chg End Vs Yr 1 End Vs Yr2Assets

Cash 30,000$ 56,991$ 90% 90,280$ 58% 141,786$ 57%Supplies 2,115$ 156$ -93% 234$ 50% 257$ 10%Inventory 32,500$ 45,038$ 39% 47,416$ 5% 49,805$ 5%Depreciable Assets* 21,794$ 21,794$ 0% 21,794$ 0% 21,794$ 0% - Accumulated Depreciation - Depreciable Assets -$ (3,269)$ (6,538)$ 100% (9,807)$ 50%

Total Assets 86,409$ 120,710$ 40% 153,186$ 27% 203,834$ 33%

Liabilities & Owners Equity

Bank Loan 60,112$ 53,270$ -11% 45,916$ -14% 38,010$ -17%

Owners Equity 26,297$ 67,439$ 156% 107,270$ 59% 165,824$ 55%

Total Liabilities & Owners Equity 86,409$ 120,710$ 40% 153,186$ 27% 203,834$ 33%

* See Capital Equipment List (excludes Buildout/Renovation)

Year 2 Year 3Year 1



PAYROLL PROJECTIONSYear 1 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun Total

FT - Zachary 12.00$ 12.00$ 12.00$ 12.00$ 12.00$ 12.00$ 12.00$ 12.00$ 12.00$ 12.00$ 12.00$ 12.00$ 936 936$ 936$ 936$ 936$ 936$ 936$ 936$ 936$ 936$ 936$ 936$ 936$ 11,232$

PT 7.50$ 7.50$ 7.50$ 7.50$ 7.50$ 7.50$ 8.00$ 8.00$ 8.00$ 8.00$ 8.00$ 8.00$ 832 520$ 520$ 520$ 520$ 520$ 520$ 555$ 555$ 555$ 555$ 555$ 555$ 6,448$

Total 1,456$ 1,456$ 1,456$ 1,456$ 1,456$ 1,456$ 1,491$ 1,491$ 1,491$ 1,491$ 1,491$ 1,491$ 17,680$

Year 2 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun TotalFT - Zachary 12.50$ 12.50$ 12.50$ 12.50$ 12.50$ 12.50$ 12.50$ 12.50$ 12.50$ 12.50$ 12.50$ 12.50$

2054 2,140$ 2,140$ 2,140$ 2,140$ 2,140$ 2,140$ 2,140$ 2,140$ 2,140$ 2,140$ 2,140$ 2,140$ 25,675$

FT 2 8.00$ 8.00$ 8.00$ 8.00$ 8.00$ 8.00$ 8.50$ 8.50$ 8.50$ 8.50$ 8.50$ 8.50$ 936 624$ 624$ 624$ 624$ 624$ 624$ 663$ 663$ 663$ 663$ 663$ 663$ 7,722$

PT (Seasonal) 7.50$ 7.50$ 7.50$ 7.50$ 7.50$ 7.50$ 1027 642$ 642$ 642$ -$ -$ -$ -$ -$ -$ 642$ 642$ 642$ 3,851$

Total 3,405$ 3,405$ 3,405$ 2,764$ 2,764$ 2,764$ 2,803$ 2,803$ 2,803$ 3,444$ 3,444$ 3,444$ 37,248$

Year 3 Jul Aug Sep Oct Nov Dec Jan Feb Mar Apr May Jun TotalFT - Zachary 13.50$ 13.50$ 13.50$ 13.50$ 13.50$ 13.50$ 13.50$ 13.50$ 13.50$ 13.50$ 13.50$ 13.50$

2054 2,311$ 2,311$ 2,311$ 2,311$ 2,311$ 2,311$ 2,311$ 2,311$ 2,311$ 2,311$ 2,311$ 2,311$ 27,729$

FT 2 8.50$ 8.50$ 8.50$ 8.50$ 8.50$ 8.50$ 9.00$ 9.00$ 9.00$ 9.00$ 9.00$ 9.00$ 2054 1,455$ 1,455$ 1,455$ 1,455$ 1,455$ 1,455$ 1,541$ 1,541$ 1,541$ 1,541$ 1,541$ 1,541$ 17,973$

PT (Seasonal) 8.00$ 8.00$ 8.00$ 8.00$ 8.00$ 8.00$ 1027 685$ 685$ 685$ -$ -$ -$ -$ -$ -$ 685$ 685$ 685$ 4,108$

Total 4,450$ 4,450$ 4,450$ 3,766$ 3,766$ 3,766$ 3,851$ 3,851$ 3,851$ 4,536$ 4,536$ 4,536$ 49,810$

Notes: Annual hours are listed below FT or PT designation (e.g., 936 hours for Zachary in year 1).



AMORTIZATION SCHEDULE

Years 7Months 84Amount $60,112Rate 7.25%

MonthYear 1 2 3 4 5 6 7 8 9 10 11 12 Total

1 Tot Pay ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915)Balance $59,561 $59,006 $58,448 $57,886 $57,321 $56,753 $56,181 $55,606 $55,027 $54,445 $53,860 $53,270

Interest $363 $360 $356 $353 $350 $346 $343 $339 $336 $332 $329 $325 $4,134Principle $551 $555 $558 $561 $565 $568 $572 $575 $579 $582 $586 $589 $6,842

13 14 15 16 17 18 19 20 21 22 23 242 Tot Pay ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915)

Balance $52,678 $52,081 $51,481 $50,878 $50,270 $49,660 $49,045 $48,427 $47,805 $47,179 $46,549 $45,916


25 26 27 28 29 30 31 32 33 34 35 363 Tot Pay ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915) ($915)

Balance $45,279 $44,638 $43,993 $43,344 $42,691 $42,034 $41,374 $40,709 $40,040 $39,368 $38,691 $38,010




DEPRECIATION SCHEDULE

Amount $21,794

Method Straight Line

Useful life (years) 5

Salvage Value (%) 25%

Annual Depreciation $3,269

Amount $2,019

Method Straight Line

Useful life (years) 2

Salvage Value (%) 0

Annual Depreciation $1,010

Total Annual Depreciation $4,279

Assets

Buildout/Renovations



CAPITAL EQUIPMENT LIST

Major Equipment & Accessories Model Cost

Shelving 3 each 5426 - 212

1 each 5436 - 28

6 each 5419 - 1

1 each 7219 - 112 7,308$

Upright Reach-In Freezer SC - F 1,845$

Samsung Electronic Cash Register Ser: 6540 1,527$

Metrologic Laser Scanner w/Stand MS - 6540 318$

Inventory & Back Office Software Redwing 1,693$

Check - out Counter Custom 800$

Service Counter Custom 400$

Cigar Counter Case CF9558 1,305$

Cigar Cart MRC200 1,195$ Floral Display Case FL2 - 30 3,200$

Subtotal 19,591$

Minor Equipment

Floral Counter Custom 400$

Counter Top Bakery Case 500$

4' x 4' Portable Road Sign 400$

Neon Open Sign 250$ Misc. Computer Supplies 653$

Subtotal 2,203$

Grand Total 21,794$



BREAK EVEN ANALYSISYear 1 Year 2 Year 3

Gross Revenue 316,322$ 389,076$ 463,001$

Cost of Goods Sold 192,893$ 229,477$ 266,225$

Gross Profit (Gross Margin) 123,429$ 159,599$ 196,775$

Fixed Expenses (see Pro Forma) 80,605$ 107,556$ 124,486$

Gross Profit as Percent of Sales 39% 41% 43%

Fixed Expenses/Gross Profit as % of Sales (Breakeven) 206,574$ 262,204$ 292,909$

Monthly Breakeven (Average Sales) 17,214$ 21,850$ 24,409$

Projected Profit 22,675$ 29,011$ 48,237$

Monthly Breakeven to Meet Projected Profit 22,057$ 27,744$ 33,867$



FINANCIAL RATIOSYear 1 Year 2 Year 3 Industry*

Average

Liquidity RatiosCurrent Ratio Current Assets 2.27 3.34 5.36 2.00

Current LiabilitiesIndication of firm's ability to service current obligations. The higher the ratio, the greater the cushion between current obligations and a firm's ability to pay them.A higher (stronger) ratio reflects greater current assets than current liabilities.

Quick Ratio Current Assets - Inventory 1.42 2.30 4.05 0.70Current Liabilities

Also known as "acid test." A more conservative measure of liquidity compared to quick.Any value less than 1 to 1 implies a reciprocal dependency on inventory or othercurrent assets to cover short term debt.

Operating Ratio Net Sales 2.62 2.54 2.27 3.30Total Assets

Measure of a firm's ability to generate sales in relation to total assets.

Leverage Ratio Total Debt 2.29 0.43 0.23 3.50Net Worth (Owners Equity)

Expresses relationship between capital contributed by creditors and that contributed byowners. Higher the ratio, greater the risk being assumed by creditors. Firm with a lowratio usually has greater flexibility to borrow in the future.

Coverage Ratio Net Profit+Depreciation+P&I 3.46 4.03 5.69 2.4P&I

Represents ability of the firm to retire debt. The higher the ratio the more likely thefirm can retire debt in spite of over estimating revenue and/or underestimating expenses.

Other RatiosNet Profit to Sales Net Profit 24% 23% 29% N/A

Net Sales

Net Profit to Equity Net Profit 44% 34% 34% N/AOwners Equity

Notes* RMA Financial Ratio BenchmarksSIC Code: 5411; NAICS Code: 44511, 44512, 44711Grocery Stores with Sales 0 - $1 million. Median Scores for Selected Ratios



MARY WILLIAMS282 Mitchell Street, South Freeport, Maine 03331607-345-9982

Business Qualifications Effective leader with demonstrated management and team building abilities Excellent interpersonal, written, and verbal communication skills Dedicated to quality customer service with 13 years of proven sales

experience Knowledgeable in computer accounting systems and automated sales

systems Organized, conscientious administrator, always maintaining an eye on ‘the

dollar’

ExperienceGeneral Manager, Store Manager, Shift ManagerSTOP AND GO, Portland, Maine 1990-1999 Maintained customer base in a declining market by expanding services Increased beverage sales by 50% Developed, conducted, and maintained inventory and cash flow Ordered and maintained merchandise of food and beverages Developed successful advertising and promotional strategies Researched and implemented Triad point-of-sale and back office computer

systems Wrote shift reports; reconciled daily receipts and made bank deposits Hired, trained, supervised, scheduled, and assigned work for 20-25

employees Ensured staff provided efficient and friendly customer service Assisted in the construction, layout, and set up of newly expanded store

Vice PresidentRural Retailers, Inc 1983-1990 Orchestrated the opening and continued operation of a retail hardware store Maintained accounts receivable, payable, and payroll functions Full responsibility for daily operations, long-range planning, staff

development, and all related personnel functions Purchased, maintained, and merchandized inventory Developed and implemented creative advertising, promotions, and marketing

strategies utilizing national co-op advertising programs

Education HWI Retail Training 1990-1994 National Retail Hardware Association 1990 Portland Community College 1981-1983 Small Business Development Certificate Program 1999



CULTURAL AWARENESS

I GoalsA The counselor should take from this module a heightened awareness of

the implications of cultural diversity issues. 1 This awareness should give the counselor the insight to recognize and

address the cultural issues that will impact the client/counselor relationship.

2 Counselors should be able to use this knowledge to enhance the counseling session.

3 Additionally, counselors should be better able to communicate and teach the implications of cultural diversity for the use of their clients in their business ventures.

II Participants would take part in activities and presentations to:A Discover their own cultural beliefs and behaviorsB Understand clients’ culturally based beliefs and behaviorsC Recognize the cultural assumptions and beliefs of the business and

financial community in their area.D Understand culture, ethnicity, discrimination and their impact on client

behaviors.E Learn to develop the ability to identify and to resolve communication

stumbling blocks with clients from other cultures, to elicit culturally relevant information, and to negotiate culturally effective and appropriate planning activities.

III Resources for TrainerA Diversity Web (http://www.diversityweb.org/)

1 This "Interactive Resource Hub for Higher Education" is a project of the Association of American Colleges and Universities (AAC&U). It includes Diversity Digest, a newsletter reporting on diversity initiatives across the country, Research and Trends, Diversity Innovations, and Diversity Postings (including a list of subject-classified resources)

A American Council on Education (ACE). Office of Minorities in Higher Education (OMHE) (http://www.acenet.edu/programs/omhe/)

1 OMHE provides information on the educational status of minorities, model campus programs and the other efforts to increase minority participation and degree attainment. This page has links to publications such as the annual Status Report on Minorities in Higher Education and its biennial conference, Educating All of One Nation: Affirming Diversity in the 21st Century: Developing a Proactive Agenda (PDF file), being held in Cincinnati, OH, October 18-20, 2001.

B Action Without Borders (http://www.idealist.org)

1 A massive directory searchable by type and region; search by "race and ethnicity" category and limit region as "United States" to receive a


http://www.idealist.org/

http://www.acenet.edu/programs/omhe/

http://www.diversityweb.org/diversity_postings/resources/publications.cfm

http://www.diversityweb.org/Digest/

http://www.diversityweb.org/


list of organizations, resources, programs, campaigns, news items, events, jobs, internships, and volunteer opportunities.

C American Society on Aging: Diversity Initiatives (http://www.asaging.org)

1 Click on "diversity initiatives" at the left side of the screen to see a list of diversity initiatives including Lesbian & G ay Aging , and the Network on Multicultural Aging.

D Cultural Survival (http://www.culturalsurvival.org/)

1 Focuses on indigenous peoples worldwide; includes electronic version of the journal Cultural Survival Quarterly, a "world report on the rights of indigenous peoples and ethnic minorities"

E Race, Ethnicity & Identity(http://cfdev.georgetown.edu/cndls/asw/aswsub.cfm?head1=Race%2C%20Ethnicity%2C%20and%20Identity)

1 Extensive links to African American, Asian American, Native American, Hispanic American, and other ethnic studies. In addition, links related to gender issues and the digital divide are listed. Part of the New American Studies Web at Georgetown.

F Standards: An International Journal of Multicultural Studies (http://www.colorado.edu/journals/standards/)

1 Based at the University of Colorado at Boulder, this multimedia journal considers issues of race and ethnicity, gender, class studies, religious affiliation, and more.

G Voice of the Shuttle: Minority Studies Page (http://vos.ucsb.edu/browse-netscape.asp?id=2721)

1 This extremely well-organized and maintained site from UC Santa Barbara links to a wide variety of resources, including course syllabi, primary source materials and other vetted resources. The whole database is a goldmine of materials for Humanities faculty.

H Diversity Central (http://www.diversitycentral.com/index.php


http://www.diversitycentral.com/index.php

http://vos.ucsb.edu/browse-netscape.asp?id=2721

http://vos.ucsb.edu/browse-netscape.asp?id=2721

http://www.colorado.edu/journals/standards/

http://cfdev.georgetown.edu/cndls/asw/aswsub.cfm?head1=Race%2C%20Ethnicity%2C%20and%20Identity

http://cfdev.georgetown.edu/cndls/asw/aswsub.cfm?head1=Race%2C%20Ethnicity%2C%20and%20Identity

http://www.culturalsurvival.org/quarterly/index.cfm

http://www.culturalsurvival.org/home/index.cfm

http://www.asaging.org/networks/noma/

http://www.asaging.org/networks/noma/

http://www.asaging.org/lgain/

http://www.asaging.org/lgain/

http://www.asaging.org/


MARKETING

I Building a Guerrilla Marketing Plana) Marketing is the process of creating and delivering desired goods and

services to customers and involves all of the activities associated with winning loyal retail customers.

b) Guerrilla Marketing strategies are unconventional, low cost, creative techniques that small companies can get more “bang” from their marketing bucks.

c) Guerrilla marketing principlesi) Find a niche and fill itii) Don’t just sell - entertainiii) Strive to be uniqueiv) Create an identity – a persona – for your businessv) Connect with customers on an emotional level

d) The Guerrilla marketing plan focuses the company’s attention on the customer and recognizes that satisfying the customer is the foundation of every business.

e) A Guerrilla marketing plan should accomplish the following four objectives.i) It should accomplish need sand wants through marketing researchii) It should pinpoint the specific target markets the small company will

serve.iii) It should analyze the firm’s competitive advantages and build a

marketing strategy around them.iv) It should help create a marketing mix that meets customer needs and

wants.II Determining customer needs and wants through marketing research

a) Demographics represent characteristics and trends of a population including age income, gender (composition), education, household size, race, ethnicity, etc.

b) The value of market researchi) Market research serves as a foundation for the marketing planii) Its objective is to learn how to improve the level of satisfaction for

existing customers and to find ways to attract new customers.iii) By performing some basic market research, small business owners

can detect key demographic and market trends.(1) Small businesses that can spot trends and act on them can gain a

distinct edge in th4e market.iv) Market research does not have to be time consuming, complex, or

expensive to be useful.v) Tips to identify useful and significant trends:

(1) Read as many current publications as possible(2) Watch the top ten TV shows(3) See th4e top ten movies



(4) Talk to at least 150 customers per year about what they are buying and why

(5) Talk to the ten smartest people you know(6) Listen to your children

III How to conduct market researcha) Define the problemb) Collect the data

i) Geographicii) Demographiciii) Psychographiciv) Primary researchv) Secondary researchvi) Data mining with computer software

c) Analyze an interpret datad) Draw conclusions and act

IV Pinpointing the target marketa) A target market is the specific group of customers to who the company

aims it goods or services.b) Small firms are ideally suited to researching market segments that heir

large rivals overlook or consider too small to be profitable.c) Unfortunately many small businesses follow a “shotgun approach” to

marketing, developing new products that do not sell because they were not targeted at a specific audience.

V Plotting a Marketing Strategy: How to Build a Competitive Edgea) Relationship marketing

i) Provides a small business with an edge over a larger business by developing and maintaining long-term relationships with customers.

ii) Customers will thus keep coming back to make repeat purchasesb) Revenue at Risk

i) Sales revenue a company would lose by measuring the percentage of customers that would leave because of poor service.

ii) Companies that score in the top 25 percent of customer loyalty, revenue at risk averages at 3 percent versus poor customer service at 12 percent of company revenue.

iii) Four levels of customer involvement are required:(1) Level 1 – customer awareness(2) Level 2 – customer sensitivity(3) Level 3 – customer alignment(4) Level 4 – customer partnership

iv) Focus on the customer(1) Any business depends on customer satisfaction(2) If you can’t take care of your customers, someone else will.(3) See table 6.2 and 6.3

v) Devotion to quality(1) Quality goods and services are a prerequisite for survival(2) Quality is more than just a slogan



(3) Businesses buy into strategies such as Total Quality Management (TQM) where quality is not just in the product or service itself, but in every aspect of the business and its relationship with the customer and continuous improvement in the quality delivered to customers

vi) Attention to convenience(1) Customers want convenience – particularly in a fast paced

environment such as the world we currently live in(2) Studies show that customers rank convenience at or near the top

of their purchase criteria(3) Successful companies must ensure that it is easy for customers to

do business with them.vii) Concentration to innovation

(1) In order to keep up with changing markets and remain competitive, small businesses must be innovative.

(2) Small businesses are frequently leaders in innovation although they do not have the resources that larger businesses do.

c) Dedication to service and customer satisfactioni) Listen to customers

(1) Define superior service(2) Statement should include:

(a) Strong statement of intent(b) Differentiate the company(c) Have value to customers

(3) Set standards and measure performance(4) Satisfied customers exhibit one or more of the following:

(a) Loyalty(b) Increase purchases(c) Resistance to competitive attempts

ii) Examine your company’s service cycleiii) Hire the right employeesiv) Train employees to deliver superior servicev) Empower employees to offer superior servicevi) Use technology to provide improved servicevii) Reward superior serviceviii) View

customer service as in investment not an expensed) Emphasis on speed on speed

i) To be competitive, companies must reduce the time it takes to develop, design, manufacture, and distribute a product.

ii) This results in reduced costs, increase quality, and increase market share.

iii) time compression management is a philosophy of speed involving three aspects:(1) speeding new products to market(2) shortening customer response time and delivery



(3) And, reducing the administrative time required to fill an order.VI Marketing the world wide web

a) The internet is a vast network that links computers around the globe via the World Wide Web.

b) By establishing the web site, a small business can sell electronically “around the world.”

c) It is a phenomenal commercial opportunity that offers businesses a worldwide marketing and distribution system.

d) It is the great equalizer in a world of larger competitorse) Typical first-year operating expenses for a small web-based company*

(source: PC World, cited in Carla Young Harrington, “Storming the Electronic Marketplace: E-Business, “ Inc., June 1999, advertising supplement)

Setup and maintenance fees $90Domain name registration 70Design charges for creating logo 250Scanner 150Photo imaging software 70Credit card authorization and professing fees 600Total $2,040Plus $30 $70 per month for website marketing services as well as any start-up fees and per transaction charges for credit card services

* Simple web-based store selling approximately 50 products

VII The marketing mixa) Product

i) Product life cycle(1) Introduction(2) Growth and acceptance(3) Maturity and competition(4) Market saturation(5) Product decline

ii) Refer to the product or service in terms of the benefits that accrue to the user

iii) It is the offering that counts, not the productb) Place

i) Channels of distribution for consumer goods include:(1) Manufacturer to consumer(2) Manufacturer to retailer to consumer(3) Manufacturer to distributor to retailer to consumer(4) Manufacturer to wholesaler to distributor to retailer to consumer

ii) Channels of distribution for common industrial goods include:(1) Manufacturer to industrial user



(2) Manufacturer to wholesaler to industrial user.c) Price

i) The right price for a product or service depends on three factors:(1) A small company’s cost structure(2) An assessment of what the market will bear(3) The desired image the company wants to create in its customers’

mindsd) Promotion

i) Involves both advertising and personal sellingii) Its goal is to inform and persuade customersiii) Merchandising and promotion or other elements of promotioniv) Publicity while free, is \the final element of promotion

VIIIVIII DevelDeveloping an Advertising Planoping an Advertising PlanA) define purpose of the company’s advertising program by creating specific,

measurable objectivesB) analyze the firm and its target audienceC) small business owner should address the following questions:

1) What business am I in?2) What image do I want to project?3) What are my target customers and what are their characteristics?4) Through which medium can they be reached?5) What do my customers really purchase form me?6) What benefits can the customers derive from goods or services?7) How can I prove those benefits to my target audience?8) What sets my company, products, or services apart from the

competition?9) How do I want to position my company in the market?10)What advertising approach do my competitors take?



D)D) Develop an advertising message and choose the media for transmitting itDevelop an advertising message and choose the media for transmitting it1)1) Unique selling positionUnique selling position

(a)(a) A key customer benefit or a product or service that sets it apart A key customer benefit or a product or service that sets it apart from its competition. Sometimes the most powerful USPs are from its competition. Sometimes the most powerful USPs are intangible or psychological benefits a product or service offers intangible or psychological benefits a product or service offers customers.customers.

E)E) Evaluate the ad campaigns effectivenessEvaluate the ad campaigns effectiveness1)1) A six sentence advertising strategy (source: adapted from Jay A six sentence advertising strategy (source: adapted from Jay

Concord Levison, “The Six Sentence Strategy,” Communications Concord Levison, “The Six Sentence Strategy,” Communications Briefings, December, 1994, p. 4.)Briefings, December, 1994, p. 4.)(a)(a) Primary Purpose: What is the primary purpose of this ad?Primary Purpose: What is the primary purpose of this ad?

(i)(i) The purpose of Rainbow Tours’ ad is to get people to call or The purpose of Rainbow Tours’ ad is to get people to call or write for a free video brochurewrite for a free video brochure

(b)(b) Primary benefit: What USP can you offer customers?Primary benefit: What USP can you offer customers?(i)(i) We will stress the unique and exciting places our customers canWe will stress the unique and exciting places our customers can

visitvisit(c)(c) Secondary benefit: What other key benefits support your USP?Secondary benefit: What other key benefits support your USP?

(i)(i) We will also stress the convenience and value of our tours and We will also stress the convenience and value of our tours and the skill and experience of our tour guides.the skill and experience of our tour guides.

(d)(d) Target audience: At whom are we aiming the ad?Target audience: At whom are we aiming the ad?(i)(i) We will aid our ads at adventurous male and female singles andWe will aid our ads at adventurous male and female singles and

couples, age 21 to 34, who can afford our tours.couples, age 21 to 34, who can afford our tours.(e)(e) Audience reaction: What responses do you want from your target Audience reaction: What responses do you want from your target

audience?audience?(i)(i) We expect our audience to call or write to request our video We expect our audience to call or write to request our video

brochurebrochure(f)(f) Company personality: What image do we want to convey in our Company personality: What image do we want to convey in our

ads?ads?(I)(I) Our ads will reflect our innovation, excitement, Our ads will reflect our innovation, excitement,

conscientiousness, and our warm caring attitude towards conscientiousness, and our warm caring attitude towards our customers.our customers.

2)2) Five fundamentals of a successful advertisement (source: adapted Five fundamentals of a successful advertisement (source: adapted from Jerry Fisher, Fine Print,” Entrepreneur, November, 1994, pp. from Jerry Fisher, Fine Print,” Entrepreneur, November, 1994, pp. 145-147)145-147)(a) It should attract attention(b) It should emphasize a key benefit of the product or service to the

customer(c) It should communicate the company’s unique selling proposition

(USP)(d) It should prove the USP and benefits to the customer with facts,

statistics, or testimonials(e) It should motivate customers to take action immediately

IX What is promotion?A) Promotion is any form of persuasive communication designed to inform

customers about a product or service and to influence them to purchase these goods or services. Includes the following:



1) Publicity – Any free commercial news(a) Write an article that will interest customers or potential customers(b) Sponsor an event(c) Involve celebrities(d) Contact the local T and Radio stations and ask for an interview(e) Publish a newsletter(f) Contact local civic and business organizations and offer to speak(g) Offer or sponsor a seminar(h) Write news releases and fax or e-mail them to the media(i) Volunteer to serve on boards in the community(j) Sponsor a community project or support a non-profit organization

or charity(k) Promote a cause

2) Personal selling – the personal contact between sales people and potential customers resulting from sales efforts. (a) Six steps:

(i) Approach – establish rapport(ii) Interview – identify needs and preferences(iii) Demonstrate, explain and show – make clear the features and

benefits(iv)Validate – prove the claims(v) Negotiate – work out objections(vi)Close – average 3.9 calls to close sale

(b) Set three objectives before making a sales call(i) Primary- the most reasonable outcome(ii) Minimum – very least you will leave with(iii) Visionary – most optimistic

3) Advertising – any sales presentation that is non-personal in nature and is paid for by an identified sponsor

XX Selecting advertising mediaSelecting advertising mediaA) Consider the following questions:

1) How large is my firm’s trading area?2) Who are my target customers and what are their characteristics?3) Which media are my customers most likely to watch, read, listen to,

etc.4) What budget limitations do I face?5) What media to my competitors use?6) How important is repetition? Continuity?7) How does each medium compare with others in its audience, reach,

and frequency?(a) Audience – measures the number of paid subscribers a particular

medium attracts and is called circulation in most print media.(b) Reach – total number of people exposed to an ad at least once in a

period of time.(c) Frequency – avenge number of times a person is exposed to an ad

in the same time period



8) What does the advertising medium cost?(a) Absolute cost – actual dollar outlay to place an ad in a particular

medium for a specific period of time(b) Relative cost – cost per potential customer reached. Often

expressed as cost per thousand (CPM), the cost per 1000 customers reached

B) Media options1) Word-of-mouth –most effective2) Newspapers – attracts more than 25% of all advertising dollars3) Radio – reaches virtually any market

(a) Guidelines(i) Mention the business often

(I) Single most important and inflexible rule in radio advertising(II) Make sure listeners know how to find your business(III) If the

address is complicated use landmarks(ii) Stress the benefit to the listener

(I) Don’t say Acme has new fall fashions.(II) Instead say Acme’s new fall fashions make you look great!

(iii) Use attention-getters(I) Radio has a whole battery – music, sound effects, unusual

voices(II) Crack the barrier with sound

(iv)Keep the copy simple and to the point(v) Sell early and often(vi)Write for the ear(vii) Prepa

re your copy(viii) Triple

space(ix)Use positive action words

(I) Use words such as now and today, particularly when you are writing copy for a sale

(II) Radio has qualities of immediacy and urgency(III) Take

advantage of them by including a time limit or the date the sale ends

(x) Put the listener in the picture(xi)Focus the spot on getting a response(xii) Don’t

stay with a loser(I) Don’t stick with a radio spot that is not generating sales.

Change it.4) Television – ranks second

(a) Guidelines(i) Keep it simple



(ii) Have one basic idea(iii) Make your point clear(iv)Make it unique(v) Get viewer attention(vi) Involve the viewer(vii) Use

emotion(viii) Consi

der production values(ix)Prove the benefit(x) Identify your company well and often

5) Magazines – average magazine attracts more than 6 hours of reading time(a) Advantages

(i) Long life spans(ii) Multiple readership(iii) Target marketing(iv)Ad quality

(b) Disadvantages(i) Cost(ii) Long closing times(iii) Lack of prominence

6) Direct mail – excellent targeting potential(a) Guidelines

(i) Promise readers your most important benefit in the headline or the first paragraph

(ii) Use short “action” words and paragraphs(iii) Make the copy easy to read – use “white” space(iv)Use eye-catching words such as free, you save…, guarantee,

new, profit, benefit, improve, etc.(v) Consider using computerized handwriting somewhere on the

page or envelope(vi)Forget grammatical rules – pretend as if you were talking to the

reader(vii) Repea

t the offer three or more times(viii) Back

up claims with proof and endorsements whenever possible(ix)Ask for the order or a response(x) Ask questions such as, “Would you like to lower the costs or

heating your home?”(xi)Use high quality paper and envelopes or brown envelopes that

resemble government correspondence(xii) Envel

opes that resemble bills almost never get opened



(xiii) Address the envelope to an individual – not to occupant

(xiv) Use stamps if possible – usually more effective than metered mail

(xv) Always include a postscript (PS) – they are the most often read part of the printed page. Make sure the PS contains a “hook” that will encourage the recipient to read on.

(xvi) Make sure the order form is clear and easy to complete

7) High tech mail – computer CDs8) World wide web – ideal medium for companies to demonstrate their

products and services with full motion, color, and sound to get customers involved in the demonstration(a) banner ads – small rectangular ads that reside on websites much

like roadside billboards(b) Click through rates – manner of judging the effectiveness of a

banner. Calculated by dividing the number of times customers actually click on the banner ad by the number of impressions for that ad.

(c) Cookies – small programs that attach to users computers when they visit certain websites. They track the locations users visits while in the site and use this electronic footprint to send pop-up ads that would be of interest to the user

(d) Spamming – unsolicited commercial email(e) Push technology ads – appear on users screens when they

download information such as news, sports, or entertainment from another site.

(f) E-mail advertising – companies broadcast their advertising message via email. Grew from 3% of total web advertising expenditures to 15% in 2003.(i) Two forms

(I) Permission – involves sending email ads to customers with their permission

(II) spam(g) Full page ads – those that download to users screens before they

can access certain web sites. Common on popular game sites that attract a high volume of web traffic

9) Outdoor advertising – fastest growth rate(a) Advantages

(i) High exposure(ii) Broad reach(iii) Flexibility(iv)Cost efficiency

(b) Disadvantages(i) Brief exposure



(ii) Limited ad recall(iii) Legal restrictions(iv)Lack of prominence

(c) Guidelines(i) Identify the company quickly and clearly(ii) Use a simple background. Background should not compete

with the message(iii) Rely on large illustrations that jump out to the consumer(iv) Include clear, legible type. Very bold or very thin typefaces

become unreadable at a distance.(v) Use black and white designs. Research shows that they are

more effective than color ads. If color is used, make sure color combinations contrast both hue and brightness

(vi)Emphasize simplicity. Typically ads with eight or fewer words are most effective

(vii) Ads on the right side of roads draw a higher recall score than those located on the left.

10)Transit advertising(a) Advantages

(i) Wide coverage(ii) Repeat exposure(iii) Low cost(iv)Flexibility

(b) Disadvantages(i) Generality(ii) Limited appeal(iii) Brief message

11)Directories – important for reaching those customers who have already made purchase decisions(a) Include telephone books, industrial or trade guides, buyer guides,

annuals, catalog files, yearbooks, etc.(b) Advantages

(i) Prime prospects(ii) Long life

(c) Disadvantages(i) Lack of flexibility(ii) Ad clutter(iii) Obsolescence

(d) Guidelines(i) Completeness – does the directory include enough listings that

customers will use it?(ii) Convenience – are the listing well organized and convenient?

Are they cross-referenced?(iii) Evidence of use – to what extent do customers actually use the

directory? What evidence of use does the publisher offer?



(iv)Age – is the directory well established and does it have a good reputation?

(v) Circulation – do users pay for the directory or do they receive complimentary copies? Is there and audited circulation statement?

12)Trade shows – provide manufacturers and distributors with opportunity to advertise to a pre-selected audience who are inclined to buy(a) Advantages

(i) Natural market(ii) Pre-selected audience(iii) New customer market

(b) Disadvantages(i) Increasing costs(ii) Wasted effort

(c) Guidelines(i) Establish objectives for the show(ii) Communicate with key potential customers before the show(iii) Make your display memorable(iv)Have knowledgeable salespeople staffing the booth(v) Demonstrate your [product or service(vi)Learn to distinguish between serious customers and “tire-

kickers.”(vii) Distrib

ute literature that clearly communicates the product or service sold

(viii) Project a professional image

(ix)Follow-up promptly on sales leads13)Specialty advertising – includes all customer gift items imprinted with

the company’s name, logo, address, telephone number, slogan, etc. and is good for maintaining goodwill.

14)Sponsorship and special events15)Point of purchase ads

XIXI Preparing an advertising budgetPreparing an advertising budgetA) Four methods

1) What is affordable – management spends whatever it can afford on advertising

2) Matching competitors – the approach is to match the advertising expenditures of the firm’s competitors either in a flat dollar amount or as a percentage of sales

3) Percentage of sales(a) Most commonly used method(b) Relates advertising expenditures to actual sales results

4) Objective and task(a) Most difficult and least used method(b) Advertising expenditures are linked to specific objectives



XIIXII How to advertise on a small budgetHow to advertise on a small budgetA) Cooperative advertising – a manufacturing company shares the cost of

advertising with a small retailer if the retailer features the company’s products in the ads

B) Share advertising – a group of similar businesses forms a syndicate to produce generic ads that allow the individual businesses to dub in local information

C) Other methods1) Repeating ads that have proven successful2) Using identical ads in different media3) Hiring the services of independent copywriters, graphic designers,

photographers, and other media specialists4) Advertising when customers are most likely to buy

D) Public relations1) Many businesses rely on the media for attention2) Public relations, however, doesn’t just happen3) An owner must work at getting his or her company noticed by the

media4) Cause marketing – a small business sponsors or promotes fundraising

activities of non-profit groups and charitiesXIII Pricin

g a creative blend of art and scienceA) Price is the monetary value of a product or service in the marketplace. It

is a measure of what the customers must exchange in order to obtain various goods and services.

B) Factors that small business owners must consider when determining the final price for goods and services include:1) Product/service costs2) Market factors – supply and demand3) Sales volume4) Competitors’ prices5) The company’s competitive advantage6) Economic conditions7) Business location8) Seasonal fluctuations9) Psychological factors10)Credit terms and purchase discounts11)Customer’s price sensitivity12)Desired image

XIVXIV PricinPricing strategies and tacticsg strategies and tacticsA) When introducing a new product, the owner should establish the following

objectives:1) Getting the product accepted by the firm’s potential customers2) Maintaining market share as competition grows3) Earning a profit



B) When establishing a new product's price, choose from three basic strategies:1) Penetration – set price just above total unit cost to develop a wedge in

the market and quickly achieve a high sales volume2) Skimming – set a higher than normal price in an effort to quickly

recover the initial developmental and promotional costs of the product/service.

3) Sliding-down-the-demand-curve – set the price high and with technological advancement, the firm can lower costs quickly and reduce the product’s price sooner than the competition can.

C) Pricing established goods and services includes the following techniques:1) Odd pricing – establishes prices that end in odd numbers assuming

that merchandise selling with an odd number are cheaper than an item with an even price.

2) Price lining(a) manager stocks merchandise in several different price ranges or

price lines(b) Each category of merchandise contains items that are similar in

appearance, quality, performance, or other features.3) Leader pricing – small retailer marks down the customary price of a

popular item in an attempt to attract new customers4) Geographical pricing

(a) Zone pricing – small company sells merchandise at different prices to customers located in different territories

(b) Delivered pricing – the firm charges all of its customers the same price regardless of their location, even though the cost of selling or transporting merchandise varies

(c) FOB factory – company sells its merchandise to customers on the condition that they pay all shipping costs.

5) Opportunistic pricing – when products or services are in short supply, the business engages in price gouging.

6) Discounts – reduction in the price of stale, outdated, damaged, or slow-moving merchandise

7) Multiple pricing – customers are offered a discount if they purchase in quantity

8) Suggested retail prices – small business follows prices established by a distant manufacturer

XVXV Two potent forces: image and competitionTwo potent forces: image and competitionA) Price conveys image

1) A company’s price policy offers important information about its overall image

2) When developing a marketing approach to pricing, a small business manager must establish prices that are compatible with what the customers expect and are willing to pay

3) Understanding the firm’s target market allows the small business to set prices properly



B) Competition and prices1) When setting prices, business owners should take the competitors’

prices into consideration but not necessarily match or beat them.2) If you have a 25% gross profit margin, and you cut prices by 10% to

match your competitor you have to approximately triple your sales volume to break even

XVIXVI PricinPricing concepts for retailersg concepts for retailersA) Markup

1) The difference between the cost of a product or service and its selling price

2) Markup can be expressed in dollars or as a percentage of either cost or selling price(a) Dollar markup: retail price – cost of merchandise(b) Percentage (of retail price) markup: dollar markup/price of unit(c) Percentage (of cost) markup: dollar markup/cost of unit(d) Initial markup – average markup required on all merchandise to

cover the cost of the items, all incidental expenses, and a reasonable profit:

Operating expenses + reductions + profitsNet sales + reductions

(i) once an owner has determined the desired markup percentage, they can computer the appropriate retail price:(I) cost = retail price – markup(II) cost + markup = retail price

B) follow the leader pricing – following prices established by the competitionC) Below market pricing – set prices below competitors in hopes to attract a

sufficient level of volume to offset the lower profit margins.XVIIXVII PricinPricin

g concepts for manufacturersg concepts for manufacturersA) Cost plus pricing – most common used pricing technique for

manufacturersB) Direct cost and price formation

1) Absorption pricing – all manufacturing and overhead costs are absorbed in to the finished product’s cost

2) Variable (direct) costing – the costs of the product include only those costs that vary directly with the quantity produced

3) Break even selling price

Profit + (variable cost per unit x quantity produced) + total fixed costQuantity produced



XVIIIXVIII PricinPricing concepts for service firmsg concepts for service firmsA) Businesses must have a reliable, accurate ac counting system to keep

track of the total cost of providing the good/service.B) Most service firms base their charges on an hourly rate; usually the actual

number of hours required to perform the service.C) Some alternatively base their fees on a standard number of hours,

determined by the average number of hours needed to perform the taskXIXXIX ImpacImpac

t of credit on pricingt of credit on pricingA) Credit cards

1) Popular payment method among customers2) Businesses that accept them increase the probability, speed, and

magnitude of customer spending3) There is a cost to business owners. Usually 1 to 6% of the total credit

card charges.B) Installment credit

1) If large items are purchased, small businesses may allow financing over an extended time

2) The customer is required to make an initial down payment, and repays the balance of the loan

3) Credit unions or banks usually assist with financing4) If businesses can carry their own “paper” they have the opportunity of

earning interest income that may equal the purchase profitC) Trade credit – businesses often create customer charge accounts. To

speed collections, businesses often offer cash discounts.XXXX Location: as source of competitive advantageLocation: as source of competitive advantage

1) The decision about where to locate a small business is very important to entrepreneurs.

2) Site selection should be based on a series of decisions based on the analysis of critical factors, unique to each business

3) Tax rates, availability of qualified labor, quality of the infrastructure, traffic patterns, and other factors vary from site to site and will influenced the growth rate and ultimate success of the business

B) Entrepreneurs should evaluate the general demographic characteristics of the population – U. S. census data1) U. S. Statistical Abstract – population characteristics, poverty rate, and

energy consumption2) County and city data book – statistics for 3,141 counties and cities

exceeding 2,500 3) www.census.gov/ - commute times, ancestry, education level4) The economic census – overview of business in area produced in

years end in “2”.5) Other sources:

(a) Sales and marketing management’s survey of buying power(b) Editor and publisher market guide


http://www.census.gov/


(c) The American marketplace(d) Demographic and spending patterns(e) Rand McNally commercial atlas and marketing guide(f) Zip code atlas and market planner(g) Summary populations(h) Housing characteristics(i) SBA/SBDC

C) Once the particular region is decided upon, entrepreneurs should select the state and community within that region by examining the following:1) Proximity to markets and raw materials2) Wage rates3) Labor supply needs4) Business climate5) Tax rates6) Internet access

D) Choosing the location should include analyzing1) Population trends2) Competition3) Clustering4) Community compatibility5) Local laws, regulations, and variances6) Transpiration networks7) Police and fire protection8) Cost of utilities and public services9) Quality of life

E) Census bureau has divided the U. S., into 255 metropolitan statistical areas (MSAs). These are further divided into census tracks that contain an average of 4-5 thousand people. These tracts are subdivided into block statistics are useful for entrepreneurs considering sites in urban areas.

F) Final step – site selection1) Differs depending upon the type of the businesses2) Manufacturer’s prime concern may be access to raw materials,

supplies, labor, transportation and customers.3) Service firms need access to customers but can survive on low-rent

property4) Retailer’s prime consideration is sufficient customer traffic5) Common need is to locate where customers want to do business

XXIXXI LocatiLocation criteria for retailers and service businesseson criteria for retailers and service businessesB) Trade area size

1) Larger the store and selection and services, the broader is its trading area

2) If a retail store specializes in a specific product line, knowledgeable sales people, and a wide selection, it may be able to draw customers from a wider trading area.



3) In contrast, people will not travel too far for products and services that are closer to them unless there is a compelling reason.

C) Retail compatibility - Shoppers tend to be drawn to clusters of related businesses.1) The concentration draws customers from a larger trading area than a

freestanding business.2) Retail compatibility describes the benefits a company receives by

locating near other businesses swelling complementary products and services

D) Degree of competition – market saturation is a problem for businesses in many industries.

E) Index of retail saturation – evaluates both the number of customers and the intensity of competition in a trading area1) It is a measure of the potential sales per square foot of store space for

a given product within a specific trading area

IRS = C X REIRS = C X RE RFRF

(a) Where:(i) C = number of customer in a trading area(ii) RE = retail expenditures (average person dollar spent on this

product in the trading area)(iii) RF = retail facilities (total square foot of retail space allocated to

product in the trading area)F) Transportation network – do signs, road dividers, traffic lights, etc., allow

for smooth flow? Is walking distance a crucial factor?G) Physical, emotional, or racial barriers – does the area have a high crime

rate? In urban area, immigrants tend to cluster.H) Political barriers – laws can cause customers to cross state line to avoid

particular sales tax and the likeI) Customer traffic – key success factor for a convenience store is high

volume location.J) Reputation – reputation of previous business may lower the value of the

location. Sites that continually house failing businesses create negative impressions for a new business

K) Room for expansion – retailing, manufacturing, and service firms should consider room for expansion if success warrants it.

L) Visibility – highly visible locations are more likely to draw customers.XXIIXXII LocatiLocati

on options for retail and service businesseson options for retail and service businessesB) Central business district (CBD)

1) Consists of downtown concentration of businesses established early in the development of most towns and cities.



2) Advantages of locating in a CBD include attracting customers from the entire trading area (through its central location) and increased customer traffic generated by the other stores in the district.

3) Disadvantages center around certain characteristics of CBDs:(a) Intense competition(b) High rental rates(c) Traffic congestion(d) Inadequate parking(e) Decay of downtown

C) Neighborhood locations1) Businesses rely heavily on the local trading areas for businesses2) Relatively low operating costs, low rents, and close contact with

customers make locating in neighborhoods attractive to small businesses

D) Shopping centers and malls – have become increasingly popular. Four types of shopping centers1) Neighborhood shopping centers – serve populations of up to 40,000

who live within a ten-minute drive. Anchor store is usually a supermarket or drug store

2) Community shopping centers – swerve population 40,000 to 150,000 and contain 12 to 15 stores.

3) Regional shopping malls – serves population exceeding 150,000 living within a 20 to 40 minute drive. Serves much larger trading area – from 10 to 15 miles or more in all directions. Anchor store is usually one or more department stores

4) Power centers – anchored by large specialty retailers who usually account for 80% of power center space. Small businesses may benefit from the foot traffic; however, they may be overshadowed

5) Near competitors – location is advantageous to small businesses selling products that customers shop for and compare on the basis of price, quality, color, and other factors.

6) Outlying areas – generally small businesses should not locate in remote areas since accessibility and traffic flow and key success factors in retail and service businesses.

7) Home based business – 52% of all small businesses are home-based. Advantages include low start-up and operating costs. Disadvantages include zoning law restrictions, home distractions, and the appearance of being “small-time.”

XXIIIXXIII LocatiLocation decision for manufacturerson decision for manufacturersB) Number of locations that are suitable are limited by zoning regulations,

needed utilities, transportation needs, and other special requirementsC) Two critical factors are the reliability and cost of transportation of raw

materialsD) Local zoning ordinances and the availability of industrial parks also play

an important role in site selection



E) Foreign trade zones1) Specially designated areas in or near a U. S. customs port of entry

that allows resident companies to import materials and components from foreign countries; assemble, process, manufacture, or package them; and then ship the finished product while either reducing or eliminating tariffs or duties.

2) Companies would pay no duties on goods they ship to other markets; however, goods sold in the U. S. would require a duty payment.

F) Empowerment zones1) Originally created to encourage companies to locate in economically

blighted areas.2) Offer business tax credits, government grants and loans for hiring

workers, and for investing in plant and equipment within the zone.3) As long as qualified skilled labor requirements are met and a

company’s image is not affected, they can positively contribute to formulating a good economic base

G) Incubators1) Organizations that combine low-cost, flexible rental space with a

multitude of support services (e.g., secretary, fax, etc.)2) Goal is to nurture young business during the volatile start-up period

and to help them survive until they are strong enough to go out on their own.

3) Businesses that use incubators have 87% success rateXXIVXXIV LayouLayou

t and design considerationst and design considerationsB) Size - Include expected growth in terms of employees; manufacturing,

selling, or storage requirements; and the number of location branches to be opened in 1-2 years.

C) Construction and external appearance – internal and external attractiveness should be consistent with the business’s image

D) Entrance – should invite customers – draw them into the business and be free of obstructions and barriers and wide enough to accommodate wheelchairs

E) Compliance with Americans with Disability Act1) Require that all businesses make their facilities available to physically

challenged customers and employees2) Businesses with more than 15 employees must accommodate

physically challenged candidates in their hiring practices3) Buildings that were occupied after January 25, 1993 must be designed

to comply with all aspects of the law4) The law does allow flexibility in retrofitting existing structures

(a) Building with 3 or more floors must have elevators(b) Aisles should be at least 36 inches wide(c) Restaurants should have at least 5% of their tables available for

special accommodations



(d) Anywhere a floor level changes by more than a ½ inch, an access ramp must be built

F) Building interiors1) Technology, ergonomics, and effective layout must be considered2) Functionality and appearance of the principal interior elements, floors,

walls, and ceilings affect the small business3) Utility, durability, maintenance requirements, and overall image should

be designed to limit the occurrence of musculoskeletal disorders (MSDs).

G) Signs1) Effective business signs reach the group of customers most likely to

make actual purchases2) Most common problem with ineffective signs are that they are illegible,

poorly designed, improperly located, in poor condition, and have color schemes that are either unattractive or difficult to read.

3) Many communities have ordinances regulating the size, appearance, composition, etc. of signs.



H)H) Lights and fixtures – measured by what is ideal for the job being done. Lights and fixtures – measured by what is ideal for the job being done. Combining natural and artificial light can allow businesses to maintain Combining natural and artificial light can allow businesses to maintain functionality and still project the image they desire.functionality and still project the image they desire.

XXVXXV LayouLayout: maximizing revenues, increasing efficiency or reducing costt: maximizing revenues, increasing efficiency or reducing costB)B) Retailers – three layout principlesRetailers – three layout principles

1)1) GridGrid(a)(a) Arrange display is a rectangular fashionArrange display is a rectangular fashion(b)(b) Most often used in supermarkets, uses the space most efficiently, Most often used in supermarkets, uses the space most efficiently,

creates a neat and organized environment and facilitates shopping creates a neat and organized environment and facilitates shopping by standardizing the location of itemsby standardizing the location of items

2)2) Free-formFree-form(a)(a) Informal and contains displays shapes and sizesInformal and contains displays shapes and sizes(b)(b) Creates friendly shopping atmosphere but it is not efficient in Creates friendly shopping atmosphere but it is not efficient in

maximizing selling space as the grid layoutmaximizing selling space as the grid layout3)3) BoutiqueBoutique

(a)(a) Divides store into individual shopping areas with their own themes Divides store into individual shopping areas with their own themes (i.e., creates multiple specialty shops into a single store).(i.e., creates multiple specialty shops into a single store).

(b)(b) Creates a relaxed shopping environment but less efficient than gridCreates a relaxed shopping environment but less efficient than grid4)4) Standard guidelinesStandard guidelines

(a)(a) Main-level selling areas contribute more than other levelsMain-level selling areas contribute more than other levels(b)(b) Locations at the intersection of main shopping corridors provide Locations at the intersection of main shopping corridors provide

greater customer exposure and are more valuablegreater customer exposure and are more valuable(c)(c) The farther a selling area is away from the entrance, the less The farther a selling area is away from the entrance, the less

valuable it isvaluable it is(d)(d) Display complimentary goods togetherDisplay complimentary goods together(e)(e) Display impulse and convenience items at front of store; specialty Display impulse and convenience items at front of store; specialty

or shopping goods at rear or upstairsor shopping goods at rear or upstairs(f)(f) Non-selling activities should be kept separate from selling activitiesNon-selling activities should be kept separate from selling activities(g)(g) Decline value front to back expressed in 40-30-20-10 ruleDecline value front to back expressed in 40-30-20-10 rule



C)C) ManufacturersManufacturers1)1) Creating and maintaining efficient workflow is criticalCreating and maintaining efficient workflow is critical2)2) Key factors in are:Key factors in are:

(a)(a) Type of productType of product(b)(b) Type of manufacturing processType of manufacturing process(c)(c) Ergonomic considerationsErgonomic considerations(d)(d) Space availability within the facility itselfSpace availability within the facility itself

3)3) Four layout typesFour layout types(a)(a) ProductProduct

(i)(i) Consist of unbroken flow from raw material input or customer Consist of unbroken flow from raw material input or customer arrival to finished goods to customer departurearrival to finished goods to customer departure

(ii)(ii) Best suited for rigid-flow, high-volume, continuous or mass Best suited for rigid-flow, high-volume, continuous or mass production operations or when service or product is highly production operations or when service or product is highly standardizedstandardized

(iii)(iii) Route products along same fixed path and are usually Route products along same fixed path and are usually scheduled by a production rate.scheduled by a production rate.

(iv)(iv) Lowers material handling costs, simplifies tasks, and reduces Lowers material handling costs, simplifies tasks, and reduces the amounts in work-in-process inventory but is characterized the amounts in work-in-process inventory but is characterized by its inflexibility, monotony of job tasks, high investment in by its inflexibility, monotony of job tasks, high investment in specialized equipment, and heavy interdependence of all specialized equipment, and heavy interdependence of all operationsoperations

(b)(b) ProcessProcess(i)(i) Group workers or equipment according to the general function Group workers or equipment according to the general function

that they performthat they perform(ii)(ii) Most applicable when production runs are short, when demand Most applicable when production runs are short, when demand

varies, when the costs of holding finished good inventory is varies, when the costs of holding finished good inventory is high, or when the service or product is customizedhigh, or when the service or product is customized

(c)(c) Fixed position – similar to product layouts, but due to bulk or Fixed position – similar to product layouts, but due to bulk or weight, the final product is assembled in one spotweight, the final product is assembled in one spot

(d)(d) Functional – designed with more than one objective or function in Functional – designed with more than one objective or function in mind and therefore combinations of the various layouts are mind and therefore combinations of the various layouts are common.common.

XXVIXXVI Buy, Buy, build or lease (related to the availability of capital)build or lease (related to the availability of capital)B)B) BuildBuild

1)1) AdvantagesAdvantages(a)(a) Lets entrepreneurs design and build facility that matches their Lets entrepreneurs design and build facility that matches their

needs as well as contain modern featuresneeds as well as contain modern features(b)(b) New building create images of modern, efficient, and top quality New building create images of modern, efficient, and top quality

businessesbusinesses2)2) DisadvantagesDisadvantages

(a)(a) High initial outlay of capitalHigh initial outlay of capital(b)(b) High initial fixed expenses must be weighed against the facility’s High initial fixed expenses must be weighed against the facility’s

capability to attract additional sale revenue and reduce operating capability to attract additional sale revenue and reduce operating costscosts

(c)(c) Lack of mobility – not easy to move as compared to leased spaceLack of mobility – not easy to move as compared to leased space



C)C) BuyBuy1)1) AdvantagesAdvantages

(a)(a) Lesser cost than construction and fixed monthly costsLesser cost than construction and fixed monthly costs(b)(b) Opportunity for custom buildoutOpportunity for custom buildout

2)2) Disadvantages – initial cost be as draining as buildingDisadvantages – initial cost be as draining as buildingD)D) LeaseLease

1)1) AdvantagesAdvantages(a)(a) No large initial outlay of capitalNo large initial outlay of capital(b)(b) MobilityMobility

2)2) DisadvantageDisadvantage(a)(a) Property owner may choose not to renew the leaseProperty owner may choose not to renew the lease(b)(b) If business is successful, relocation can be costly and decrease theIf business is successful, relocation can be costly and decrease the

number of regular customersnumber of regular customers(c)(c) Businesses may be limited in terms of buildout options and all Businesses may be limited in terms of buildout options and all

permanent modifications become the property of the owner.permanent modifications become the property of the owner.



FINANCIAL ANALYSIS

OverviewHow many types of accountants are there? Three – those who can count and those who can’t. Why the humor? When your clients discover that in order for you to effectively and efficiently evaluate the health and well being of their business, that you need a variety of financial statements and reports from THEM, they will probably retort, “You’re joking!” Nevertheless, accounting and bookkeeping, contrary to popular opinion, are not particularly daunting. Indeed, it is all about organizing data so that timely and accurate reports can be generated. The key for your clients is to keep it simple and for you to remind them that there is no one right way to collect and organize the data. However, for you, as the counselor, to perform some or all of the analysis contained herein, data has to be captured and ordered systematically. We’ll start there.

I Accounting – The language of businessA The system within a business for converting raw data from source

documents (e.g., invoices, receipts, bills, etc) into information which will help a manager make business decisions(1) Funnels data into usable information by recording every transaction

into journals, then transferring (i.e., posting) them into ledgers(a) Journal – chronological record of all financial transactions of a

business(b) Ledger – record of all financial transactions divided into accounts

and usually compiled at the end of each monthly(2) From the ledger financial statements (i.e., income statement, balance

sheet, etc.) are produced which indicate the performance of your client’s business(a) Income statement

1 statement which shows the revenue and expenses of a firm in order to calculate the profit or loss produced in a specific period of time

2 Common-size financial statementa income statement that includes a percentage breakdown of

each itemb This statement is a valuable tool for checking the efficiently

trends of your client’s business by measuring and controlling individual expense items

(b) Balance sheet1 financial statement that illustrates a firm’s assets, liabilities, and

owners equity at a point in time2 based on the fundamental accounting equation:

Assets = Liabilities + Owner’s Equity

(c) Statement of cash flow



1 a financial statement that shows the cash inflows and outflows of a business

2 summarized by the accounting equation:

Cash Flow = Receipts – Disbursements

3 many business show profit but experience trouble in paying bills often referred to as negative cash flow

4 negative cash flow us typical in young businesses but could be an indication of undercapitalization

(d) proforma financial statements – financial statements that project what a firm’s financial condition will be in the future

(3) The accounting process:

Business transactions (Source documents that represent data from the

business – receipts, checks, etc.)

Journals (Transactions recorded in chronological order in

general journal)

Ledgers (Transactions classified by type)

Financial statements (Data converted into information for future transaction

decisions by preparing financial statements)

B Financial Status Checklist – your client should know the following on a daily, weekly, and monthly basis:(1) Daily

(a) Cash balance on hand(b) Bank balance(c) Daily summaries of cash and receipts(d) Any problems in credit collections(e) Record of any money paid out

(2) Weekly(a) Cash flow – update a spreadsheet of regular receipts and

disbursement entries(b) Accounts receivable – especially slow paying accounts(c) Accounts payable – note discounts offered(d) Payroll – accumulation of hours worked and total payroll owed(e) Taxes – when tax items are due and which reports are required

(3) Monthly



(a) If your client uses an outside accounting service, have them provide records of their receipts, disbursements, bank accounts, and journals to the outside service

(b) Review 1 income statement2 balance sheet3 federal tax requirements and make deposits

(c) Review and age accounts receivable(d) reconcile business checking account(e) balance petty cash account

C Small Business Accounting Basics(1) Double-entry accounting

(a) System in which every transaction is recorded in an asset account and a liability or owner’s equity account so that the system will balance

(b) Increase the accuracy of the accounting system and provides a self-checking audit

(2) Single-entry accounting(a) System in which the flow of income and expenses is recorded in a

running log (e.g., checkbook)(b) Allows the client to produce a monthly statement but not to make a

balance sheet, an income statement, or other financial records(c) A simple system without a self-balancing mechanism such as the

double-entry system(3) Asset – any resource that a business owns and expects to use to its

benefit(4) Liability – a debt owed by the business to another organization or

individual(5) Owner’s equity – the amount of money the owner of a business would

receive if all of the assets were sold and all of the liabilities were paidD Cash and Accrual Methods of Accounting

(1) Accrual basis(a) Method in which income and expenses are recorded at the time

they are incurred, rather than when they are paid(b) Allows your client to record payment of expenses over a period of

time, even if the actual payment is made in a single installment(2) Cash basis

(a) Method in which income and expenses are recorded at the time they are paid, rather than when they are incurred

(b) This method can distort financial results over time and should be used if your client’s business extends credit

II Financials Statements, Depreciation, and Cash FlowA Financial managers must know how to read, understand, and evaluate a

variety of financial statements.



B The income statement presents operating results over a specified period of time, while the balance sheet summarizes the level of assets, liabilities, and net worth at a point in time.(1) Income earned over a period of time and cash dividends paid during

that period (i.e., dividends paid to investors such as a private investor group [PIG]) are reconciled in the statement of retained earnings and the statement of cash flows

C Depreciation is the allocation of historical (fixed) cost over time(1) It is the most common type of non-cash expense (other types include,

but are not limited to, pre-paid insurance, pre-paid rent, pre-paid advertising, etc.)

(2) When estimating cash flow, depreciation, and other non-cash charges are added back to operating profits.

(3) Firms often use a different depreciation method for reporting than for tax purposes.

(4) Depreciation for tax purposes is determined using the Modified Accelerated Cost Recovery System (MACRS).

(5) MACRS classifies assets other than real estate into property classes based on recovery period (or lives) of 3, 5, 7, 10, 15, and 20 years.

(6) Each recovery period has a schedule of depreciation percentages for each year of the recovery period.

D Sources of funds increase the cash flow of a firm, while uses of funds decreases cash flow(1) Managers must identify all sources of a firm’s sources and uses of

funds and then classify these items as operating, investment, or financing cash flows.

(2) The statement of cash flow allows managers and business owners to analyze the firm’s past and future cash flows by identifying the major sources and uses of corporate cash within a given period of time.

(3) Sources and uses of cash flow can be summarized as follows:

Source UseDecrease in any asset increase in any assetIncrease in any liability decrease in any liabilityNet profits after taxes net lossDepreciation & other non-cash charges dividends paidSale of stock repurchase of stock

(4) Statement of cash flows can be developed in three steps(a) Prepare a sources and uses of cash financial statement(b) Obtain needed income statement data(c) Properly classify and present relevant data form steps (a) and (b)

1 Developing a statement of sources and uses of cash requires three-step procedure:a Calculate balance sheet changes in assets, liabilities, and

owner’s equityb Classify each as a source or a sue



c List and sum all sources and all uses2 Three important inputs to the statement of cash flows must be

obtaine3d from the income statementa Net profits after taxb Depreciation and any other non-cash chargesc Cash dividends paid

3 The relevant data from the statement of sources and uses of cash, along with the inputs obtained from the income statement, are classified in one of three categories to prepare the statement of cash flows:a Cash flow from operating activityb Cash flow from investment activityc Cash flow from financing activity

ApplicationAn income statement and balance sheet for the Calloway Tool and Die Company is below. Using this information prepare:

Statement of sources and uses of cash for the period 12/31/02-12/31/03Statement of cash flows for the year ending 12/31/03 including:

Cash flow from operating activityCash flow from investment activityCash flow from financing activity

Calloway Tool and Die CompanyBalance Sheet

Year ending 2002 and 2003

Assets ‘03 ‘02Cash $800 $700Accounts Receivable 300 400Inventory 200 500

Total Current Assets 1,300 1,600Property, plant and equipment 3,200 2,700

Accumulated Depreciation 1,500 1,300Net Fixed Assets 1,700 1,400Total Assets $3,000 $3,000

Liabilities & Owner’s EquityAccounts payable $300 $200Notes payable 500 700Accruals 200 300

Total current liabilities 1,000 1,200Long-term debt 1,100 1,000

Total liabilities $2,100 $2,200

Owner’s equity $200 $200Additional paid in capital 400 400Retained earnings 300 200



Total owner’s equity 900 800Total liabilities & owner’s equity $3,000 $3,000

AnswerA statement of sources and uses is below. The statement lists the changes in the balance sheet accounts between 2002 and 2003. Sources and uses are determined as follows:

Source Decrease in an asset accountIncrease in a liability account

Use Increase in an asset accountDecrease in a liability account

Calloway Tool and Die CompanyStatement of Sources and Uses of Cash

December 31, 2003

Account ‘03 ‘02 chg source useAssetsCash $800 $700 +$100 $100Accounts receivable 300 400 -100 $100Inventory 200 500 -300 300Property, plant & equipment 3,200 2,700 +500 500Accumulated depreciation 1,500 1,300 +200 200LiabilitiesAccounts payable 300 200 +100 100Notes payable 500 700 -200 200Accruals 200 300 -100 100Long-term debt 1,100 1,000 +100 100EquityOwner’s equity 200 200Additional paid-in capital 400 400Retained earnings 300 200 +100 100Total $900 $900

Before completing a statement of cash flows, several items must be taken from the firm’s income statement as follows:

Profit after taxDepreciation and other non-cash charges (e.g., amortization)Cash dividends pay to owners

In this case:

Profit after tax $150Depreciation $200*Cash dividends pay to owners $50

*profit after tax – change in retained earnings



$150 – $100 = $50

Calloway Tool and Die CompanyStatement of Cash Flows for 2003

Cash flow from operating activitiesProfit after taxes $150Depreciation 200Decrease in accounts receivable 100Decrease in inventory 300Increase in accounts payable 100Decrease in accruals (100)

Cash provided by operating activities $750

Cash flow from investment activitiesIncrease in property, plant & equipment ($500)Changes in business interests 0Cash used for investment ($500)

Cash flow from financing activitiesDecrease in notes payable ($200)Increase in long-term debt 100Changes in owner’s equity 0Dividends paid (50)Cash used for financing activities (150)

Net increase in cash $100

III Managing Cash FlowA Cash Flow Defined

(1) Accounting definition: sum of net income plus any non-cash expenses (e.g., depreciation, amortization, etc.)

(2) Bottom-line approach: difference between the actual amount of cash a company brings in and the actual amount of cash a company disburses in a given time period(a) Key points are actual cash and time period(b) Goal for the client is to have enough cash on hand when needed(c) Thus, the basic strategy underling cash flow management is to

have your client maximize the use of their cashB Cash Flow Fundamentals

(1) Motives for having cash(a) To make transactions(b) To protect against unanticipated problems(c) To invest in opportunities if they arise

(2) Cash-to-cash cycle



CashPurchase of raw materials and inventory

Manufacturing and holding

Sales (credit/cash)

Accounts Receivable

Collections

(a) Known as the operating cycle, tracks the way cash flow through the business

(b) Identifies how long it takes from the time a firm makes a cash outlay for raw materials or inventory until the cash is collected from the sale of the finished good

(c) The process is continuous, with all activities occurring simultaneously

(d) When running smoothly, cash flow is easy to monitor and control(3) Timing of cash flows

(a) Major complication to cash flow management is timing(b) Some cash inflows and outflows occur on a regular schedule (e.g.,

monthly interest income or payroll costs), other cash flow occur haphazardly

C Cash Flow Management Tools(1) Cash budgets

(a) Also known cash forecasts, allow your clients to plan their short-term cash needs, with particular attention to periods of surplus and shortage

(b) Typically covers a one year period that is divided into smaller intervals dictated by the nature of the business1 More uncertain the firm’s cash flow, the more intervals that are

required2 Using monthly intervals is common but some businesses need

daily cash budgets(c) Cash budget requires the business owner to determine all the

known cash inflows and outflows that will occur during the year(d) Most small business owners find that adding a reconciliation

component to the bottom of the cash budget is helpful(e) By forecasting the inflows and outflows of cash the small business

owner will have a picture when the firm will have cash surpluses and cash shortages



Cash Budget (flow) formatJan Feb Mar...

Beginning CashPlus receipts:

Cash salesReceivable collectionsInterestOwner contributionsOther receipts

Total receiptsMinus disbursements

Cash purchasesPayment of accounts payableWages and salariesPayroll taxesAdvertisingOffice suppliesRent/mortgagesUtilitiesTelephoneInsuranceLegal/accountingTaxes and licensesInterest paymentsLoan principal paymentsDues and subscriptionsTravelMiscellaneous disbursements*Other

Total disbursementsEnding cash (beginning cash + receipts – disbursements)

*May include any other items appropriate to the business

(2) Aging schedules(a) Listing a firm’s accounts receivable according to the length of time

they are outstanding1 Macro aging schedule simply lists categories of outstanding

accounts with percentage of accounts that fall within each category

ApplicationA firm made the following credit sales:$10,000 three months ago$12,000 two months ago$5,000 last month$7,500 this month



Based on the Macro Aging schedule below, $7,275 is the expected accounts receivable for this month and will be placed in the receivable collections slot of the cash budget for that month

Macro Aging ScheduleAge of Receivables Percentage0 – 30 days 2531 – 60 days 5061 – 90 days 20Over 90 days 5($7,500x25%) + ($5,000x50%) + ($12,000x20%) + ($10,000x5%) = $7,275

2 Micro aging schedule lists the status of each credit customer’s account allowing the business owner to concentrate collection efforts on the specific companies that are delinquent in their payments

(3) Float(a) The difference between the company’s checking account balance

and the account balance shown at the bank(b) It is the period of time between sending a check and when the

check clears the bank(c) By investing cash in interest-bearing accounts until the checks that

have been written are expected to clear, the business exploits the cash flow leverage of float

D Strategies for Cash Flow Management(1) Accounts receivable

(a) Key to an effective cash flow management system is the ability to collect receivables quickly

(b) Receivables have inherent procedural problems in most small businesses

(c) Information often gets lost or delayed between salespeople, shipping departments, and the accounting people who create the billing statements

(2) Inventory(a) Inventory costs are often overlooked or understated by many small

business owners1 Typical manufacturing firm pays 25 to 30% of the value of the

inventory for the cost of borrowed money., warehouse space, materials handling, staff, lift-truck expenses, and fixed costs

(b) Cash flow determines how much inventory can safely be carried by your client while still allowing sufficient cash for other operations1 If a firm’s inventory turnover ratio is 12, it has to keep only a

month’s worth of projected sales in stock before enough cash returns to pay for the next month’s worth of inventory

2 If the firm has a ratio of 4, it must keep three months’ worth of projected sales on the shelves



a This ties up cash for 90 daysb Here, the firm should look for suppliers that have terms

extending 90 days otherwise they may have to borrow to meet current cash needs

3 The cash flow management goal is to commit just enough cash to inventory to meet demand

(3) Banks(a) The small business owner should request the firm’s bank to

provide an account analysis(b) The analysis indicates the banking services the business used

during the month, the banks charges for each service, the balances maintained in all accounts during the month, and the minimum balances required by the bank to pay for the services1 A review of the account analysis will indicate whether any

excess account balances are on deposit2 Your client will probably be better off by investing the excess

cash and/or removing all account balances that are earning little or no interest

(4) Other areas of cash flow concern(a) Compensation

1 Look for duplication of effort and lack of productivity2 Reduce personnel hours in those areas to save on wage and

payroll tax costs(b) Supplies

1 Review all petty cash accounts2 Show employees the cost of supplies by marking the cost of

each item(c) Deliveries

1 Keep track of local delivery costs to the business2 It may be cheaper to hire a part-time worker to pick up supplies

and make deliveries than to pay other companies for the service

(d) Insurance1 Have your client ask insurance carriers ways to reduce

premiums2 In certain instances insurance companies will reduce premiums

if the business owner implements certain on-the-job requirements (e.g., requiring personnel to wear back supports while working).

(e) Borrowing1 Take the cost of borrowing into account when determining

operational expenses2 Even Short-term loans can have a large impact on profits and

cash flowIV Financial statement (ratio) analysis



A Managers use financial statement analysis or ratio analysis to compare a firm’s performance and status to that of other firms or to itself over time

B Ratio analysis involves the methods of calculating and interpreting financial returns

C Parties interested in ratio analysis include all of your client’s stakeholders (i.e., owners of the business, employees, investors, suppliers, etc.)

D Two types of ratio analysis can be made: cross-sectional and time-series(1) Cross sectional compares different firms’ financial ratios at the same

point in time(a) Such industry ratios may be found in most college and large public

libraries (e.g., RMA Annual Statement Studies, Dun & Bradstreet’s Industry Norms and Key Business Ratios, or Financial Studies of the Small Business by Financial Research Associates)

ApplicationStereo City Industry

LiquidityCurrent Ratio 1.48 1.60Quick Ratio 0.29 0.50

ActivityAverage Collection 9.7 8.0Total Asset Turnover 1.4 4.2

Debt (Leverage)Debt Ratio 73.0 61.5Times Interest Earned 1.5 6.1

ProfitabilityReturn of Assets 2.5 6.2

Discussion Quick ratio is half the industry average which may indicate

excessive amounts of inventory. Stereo City may face illiquidity if the inventory does not sell fast enough

Excessive amount of debt relative to sales. Times interest earned ratio is less than 25% of the industry average. Stereo City may not be able to service it’s debt in the future

Total asset turnover and return on asset ratios are considerably below industry averages. Due, most likely, to insufficient sales to support the size of the business. Firm must either downsize or increase sales – the later requiring some investment in marketing

(2) Time series compares the firm’s own past performance with their own present performance, revealing any trends(a) If there is potential trouble in any of the four main areas of analysis

(i.e., liquidity, activity, debt (leverage) or profitability), managers will have time to correct these problems before the problems become overbearing



(b) The key to solutions is found in the ratios (e.g., if the time series analysis shows that the firm’s liquidity is diminishing, managers will want to take action. By looking at the liquidity ratios, a number of possible solutions will become evident).

(3) Combined analysis uses both a cross-sectional and a time series approach, comparing the trend for the industry against the trend for the firm

E Exercise caution when using ratio analysis(1) A single ratio does not provide sufficient information from which to

judge the overall performance of your client’s company(2) Financial statements being compared should be dated at the same

point in time during the year(3) Ratio analysis should obtain source data from audited financial

statements (if available)(4) Comparative accounting data should have been developed in the

same manner(5) The analyst should take into account any distortion caused by inflation

or the like when comparing different firms financial statementsF Four basis groups of ratio analysis are liquidity, activity, debt (leverage),

and profitability(1) Liquidity

(a) The liquidity of a business is measured by its ability to satisfy its short-term obligations when they come due

(b) Net working capital is the difference between current assets and current liabilities

(c) The current ratio 1 measures the number of times a firm can cover its current

liabilities with current assets2 assumes both accounts receivable and inventory can easily be

converted to cash3 ratios of 1.0 or less are considered low and indicative of

financial difficulty

Current assetsCurrent liabilities

(d) The quick (acid test) ratio measures the firm’s ability to meet current obligations with the most liquid of its current assets

Current assets – inventoryCurrent liabilities

(2) Activity(a) Activity ratios are used to measure the speed with which various

accounts are converted into sales or cash(b) Inventory turnover ratio

1 measure the liquidity of the firm’s inventory



2 the higher the ratio the more times the firm is selling or “turning over” its inventory

3 a high ratio generally implies efficient inventory management

Cost of goods soldInventory

(c) Average collection period 1 measures the firm’s ability to collect on credit accounts2 all firms that extend must compute this ratio to determine the

effectiveness of their credit-granting and collection policies3 high values generally implies many uncollectible receivables

Accounts receivableAverage purchases per day

(d) The average payment period measures how quickly a firm is paying its short-term obligations

Accounts payableAverage purchase per day

(e) The fixed asset turnover ratio 1 measures the efficiency with which the firm has been using its

earning assets to generate sales2 higher the ratio the more efficient the firm’s asset utilization3 low ratio often indicates ineffective marketing efforts or that the

firm’s core business areas are not currently feasible

SalesNet fixed assets

(f) The total asset turnover ratio 1 measures the efficiency with which the firm is able to use all of

its assets to generate sales2 high ratio usually is indicative of good overall management3 low ratio may indicate flaws in the firm’s overall strategy, poor

marketing efforts, or improper capital expenditures

SalesTotal assets

(3) Debt (leverage)(a) Debt ratios indicate the amount of other people’s money used to

generate profits(b) The debt ratio



1 measures the proportion of total assets provided by the firm’s creditors

2 high ratio generally indicates a more aggressive approach to financing and is evidence of a high-risk, high expected return strategy

3 low ratio indicates a more conservative approach to financing

Total liabilitiesTotal assets

(c) The times interest earned ratio 1 measure the firm’s ability to pay contractual interest payments2 show how far operating income for the firm may decline before

it will experience difficulty servicing debt obligations3 high ratio indicates a low-risk situation but may also reflect an

inefficient use of leverage4 low ratio indicates that immediate action should be taken to

ensure that no debt payments will go into default status

*EBIT (Operating Income)Interest

*Earnings before Interest and Taxes

(d) The fixed payment coverage ratio measure the firm’s ability to meet all fixed payment obligations (sometimes referred to as the coverage ratio)

Fixed coverage charge =

Earnings before interest and taxes + lease paymentsInterest payments + lease payments + Principal payments + stock dividends

(1 – t)

(4) Profitability(a) Profitability ratios measure the return of the firm against sales,

assets, equity, or share value(b) Common-size income statements evaluate profitability in relation to

sales by expressing each item on the income statement as a percentage of sales

(c) The gross profit margin measure the percentage of each sales dollar remaining after the firm as paid for its goods



Sales – cost of goods soldSales

(d) The net profit margin 1 measures the percentage of each sales dollar remaining after

all expenses, including taxes, have been deducted2 this ratio is widely used as a gauge of management efficiency3 although they vary by industry, a low ratio indicates that

expenses are too high relative to sales4 they are included on a common-size income statement

Net profits after taxesSales

(e) Return on investment (assets) 1 measures the overall effectiveness of management in

generating profits with its available assets2 the higher the ratio, the better – indicative of effective

management and good chances for future growth

Net profits after taxesTotal assets

(f) Return on equity 1 measures the return earned on the owner’s investment2 the higher the ratio, the better off your client is3 this ratio is affected by the amount of financial leverage

(borrowed money) used by the firm and may not be an accurate measure of management effectiveness

Net profit after taxesOwner’s (stockholder) equity

G A complete ratio analysis may be approached using the DuPont system or a summary analysis(1) The DuPont system may be used as a structure for searching to find

the key areas responsible for the firm’s financial performance(a) First to stress the relationship of profitability and asset turnover to

determining the return on investment (ROI). 1 Profitability is determined by the firms ability to utilize its assets

efficiently by generating profitable sales

Net incomeTotal assets =

(Net Income/Sales) x (Sales/Total Assets)



Profit margin = profit per dollar of salesAsset Turnover = $ sales generated per $ of assets employedROE is a function of a firm’s return on assets and its financing plan:

ROE = ROA

(1 - Debt / assets)

(2) The advantage of the DuPont system is that it allows the firm to break its ROI and ROE into constituent components to examine how various financial relationships combine to determine overall corporate profitability

ApplicationCompany A and Company B have ROE of 29.7 and 29.6, respectively. The industry average is 12.3, significantly lower then that of the firms mentioned. If you had to select one company in which to invest, which one would it be? The answer lies in employing the DuPont method.

Profit Asset (1-Debt to ROE Margin Turnover / Assets A .2970 .3015 x .3015 / (1-.137)B .2956 .07 x 1.9 / (1-.55)

DiscussionNote the drastic difference in the operation of the two companies, even though their ROEs are nearly the same. Company A makes relatively few sales (low asset turnover), but makes a lot of money on each one (30%). Company B is just the opposite: it makes a lot of sales and only a little profit (7%) on each one. B’s ROE is also being propped up by greater use of debt than A (B has relatively less equity; so the same amount of income will represent a greater return to B's equity holders than A’s). All other considerations being equal, a potential investor would probably prefer A’s position, but it's by no means certain (for example, it's much more serious for A to lose a sale).

(3) In addition to the DuPont system, financial analysts may summarize all four ratio categories to produce a composite view of the firm’s financial condition

V Breakeven analysisA Breakeven analysis is used to determine the level of operations

necessary to cover all operating costs and to evaluate the profitability associated with various levels of sales

B The operating breakeven point is the level of sales necessary to cover all operating costs

C First step in finding he operating breakeven point is to divide the cost of goods sold and operating expenses into fixed and variable costs



(1) Fixed costs are a function of time, not sales volume(2) Variable costs change in direct response to changes in sales volume

D A firm’s breakeven point can be determine either algebraically or graphically(1) Algebraically, the basic breakeven formula is

S = FC + VC

Where:S = breakeven level of sales in dollarsFC = fixed costs in dollarsVC = variable costs in dollars

(a) When your client wants to project breakeven and they do not know what their total variable costs will be, they must use a variation of the basic formula

(b) If they know what gross margin (i.e., profit on sales) to expect as a percent of sales use the following formula

S = FC/GM

Where:GM = Gross margin expressed as a percent of sales

(c) If your client wants to determine how many units they need to sale as opposed to a dollar breakeven, divide the breakeven derived above in dollars by the unit price to get the number of units to be sold

(2) Graphically, breakeven analysis may be plotted on a set of axes representing dollar volume or unit sales (x-axis) and dollar costs and revenue (y-axis)

ApplicationProjected figures from Wholesome Foods

Fixed Costs (FC) = $62,200Gross Margin (GM) = (57,680/216,000) = 26.7%Breakeven Sales (S) = FC/GM

= $62,220/.267= $233,033 per year= $19,419 per month

Your client can also use breakeven analysis incorporating annual profit goals. Suppose Wholesome Foods had a goal of $12,000 profit the first year. What sales would be needed?

Sales (S) = (FC + Profit)/GMWhere: Profit is $12,000



= ($62,200 + 12,000)/.267= $74,220/.267= $277,977 per year= $23,164 per month

E Changes in cost and revenue will affect the firm’s breakeven point(1) An increase in fixed operating costs will increase the breakeven point,

while a decrease in fixed operating costs will decrease the breakeven point

(2) An increase in unit sales price will decrease the firm’s breakeven point, while a decrease in unit sales price will increase the firm’s breakeven point

(3) An increase in variable operating costs per unit will increase the firm’s breakeven point, while a decrease in these costs will decrease the firm’s breakeven point

F Two additional approaches to breakeven analysis are measuring the dollar breakeven point and the cash breakeven point(1) The operating breakeven point in dollars may be calculated as:

Dollars =FC

(1 – [TVC/TR])

Where: FC = total fixed operating costsTVC = total variable costsTR = total sales revenue

(2) The cash operating breakeven point may be calculated as:

Cash operating breakeven point =

FC - NCP - VC

Where: NC = non-cash charges included in total fixed operating costs (FC)

G The limitations of breakeven analysis are:(1) The assumption of linearity of the total revenue and total operating

cost functions(2) Difficulty in classifying semi variable costs(3) Difficulty in multiproduct firms(4) Use of the short-term time horizon



ISSUES IN FINANCE

I Planning for Capital Needs A Rather than rely on a single source of funds as they have in the past,

entrepreneurs must place together multiple sources, a method known -as layered financing.

B Capital is in any form of wealth employed to produce more wealth. C It exists in many forms in a business including cash, inventory, plant, and

equipment. Small businesses require three types of capital: 1 Fixed capital - Capital needed to purchase the business's permanent

or fixed assets such as buildings, land, computers, or equipment. a Lenders of fixed capita expect the assets purchased to improve the

efficiency and profitability of the business, and to create improved cash flows to ensure repayment over the years.

2 Working capital – capital used to support the business’s normal short-term operations.a It represents the business’s temporary fundsb Lenders of working capital expect it to produce higher cash flows to

ensure repayment at the end of the production/sales cycle3 Growth capital – unlike working capital, it is not related to seasonal

fluctuations of a business.a Growth capital requirements surface when an existing business is

expanding or changing its primary direction.



IIII WHAT LENDERS LOOK FOR WHEN EVALUATING A FUNDING WHAT LENDERS LOOK FOR WHEN EVALUATING A FUNDING PROPOSALPROPOSAL

11 Banks will rarely be a new venture’s sole source of capital Banks will rarely be a new venture’s sole source of capital because a bank’s return is limited by the interest rate it because a bank’s return is limited by the interest rate it negotiates, but its risk could be the entire amount of the loan if negotiates, but its risk could be the entire amount of the loan if the new business fails.the new business fails.

22 Once a business is operational and has established a financial Once a business is operational and has established a financial track record, however, banks become a regular source of track record, however, banks become a regular source of financing.financing.

33 Thus, small business owners need to be aware of the criteria Thus, small business owners need to be aware of the criteria lenders and investors use in evaluating the credit worthiness of lenders and investors use in evaluating the credit worthiness of entrepreneurs – commonly referred to as the Five C’s of Credit: entrepreneurs – commonly referred to as the Five C’s of Credit: capital, capacity, collateral, character, and conditionscapital, capacity, collateral, character, and conditions

BB CapitalCapital11 A small business owner must have a stable capital base before a A small business owner must have a stable capital base before a

lender will grant a loanlender will grant a loan22 The most common reasons banks give for rejecting a small The most common reasons banks give for rejecting a small

business loan application are undercapitalization and too much business loan application are undercapitalization and too much debt.debt.

33 Lenders expect a small business to have an equity base of Lenders expect a small business to have an equity base of investment by the owner(s) that will help support the venture investment by the owner(s) that will help support the venture during times of financial strainduring times of financial strain

44 Lenders and investors see capital as a risk-sharing strategy with Lenders and investors see capital as a risk-sharing strategy with entrepreneursentrepreneurs

CC CapacityCapacity11 Lenders and investors must be convinced of the firm’s ability to Lenders and investors must be convinced of the firm’s ability to

meet its regular financial obligations and to repay loans – this meet its regular financial obligations and to repay loans – this takes cash.takes cash.

22 Lenders expect the firm to pass the test of liquidity, especially forLenders expect the firm to pass the test of liquidity, especially for short-term loans.short-term loans.

33 Potential lenders and investors examine closely a small Potential lenders and investors examine closely a small company’s cash flow position to decide whether it has the company’s cash flow position to decide whether it has the capacity necessary to survive until it can sustain itselfcapacity necessary to survive until it can sustain itself

DD CollateralCollateral11 This includes any assets an entrepreneur pledges to a lender as This includes any assets an entrepreneur pledges to a lender as

security for repayment of a loansecurity for repayment of a loan22 Typically, banks make very few unsecured loans (i.e., those not Typically, banks make very few unsecured loans (i.e., those not

back by collateral) to business start-upsback by collateral) to business start-ups33 Bankers view the entrepreneurs willingness to pledge collateral Bankers view the entrepreneurs willingness to pledge collateral

(e.g., personal or business assets) as an indication of their (e.g., personal or business assets) as an indication of their dedication to making a venture a successdedication to making a venture a success

EE CharacterCharacter



11 The evaluation of character is frequently based on intangible The evaluation of character is frequently based on intangible factors such as honesty, integrity, competence, polish, factors such as honesty, integrity, competence, polish, determination, intelligence, and abilitydetermination, intelligence, and ability

22 Lenders and investors know that most small businesses fail Lenders and investors know that most small businesses fail because of incompetent management, and they try to avoid because of incompetent management, and they try to avoid extending loans to high-risk entrepreneursextending loans to high-risk entrepreneurs

FF ConditionsConditions11 Lenders and investors consider factors relating to a business’s Lenders and investors consider factors relating to a business’s

operations such as potential growth in the market, competition, operations such as potential growth in the market, competition, location, strengths, weaknesses, opportunities, and threats.location, strengths, weaknesses, opportunities, and threats.

22 Another important condition influencing the banker’s decision is Another important condition influencing the banker’s decision is the shape of the overall economy, including interest rate levels, the shape of the overall economy, including interest rate levels, inflation rate, and the demand for money.inflation rate, and the demand for money.

33 Other important “key environments” include political, social, Other important “key environments” include political, social, legal, and technological environments.legal, and technological environments.

IIIIIIEQUITY CAPITAL VS DEBT CAPITALEQUITY CAPITAL VS DEBT CAPITALA Equity capital

1 Represents the personal investment by the owner(s)2 Referred to as risk capital3 Primary advantage of equity capital is that it does not have to be

repaid as in a loan4 Equity investors are entitled to share in the firm’s earnings and usually

have a voice in its future direction5 Disadvantage is the entrepreneur must give up control I the business

to outsiders.BB Debt capitalDebt capital

1 Represents the financing that a small business has borrowed and must repay with interest

2 Although borrowed capital allows entrepreneurs to maintain complete control of the firm, it must be carried as a liability on the balance sheet as well as repaid with interest in the future

3 Advantage is that it does not require the owner to dilute their ownership interest in the company and that the cost of debt financing is often lower than that of equity financing

4 Disadvantage is the amount carried on the liability section of the balance sheet.

IV Sources of equity capital



AA Personal savings - The most common form of equity funds is the Personal savings - The most common form of equity funds is the entrepreneur's personal savingsentrepreneur's personal savings11 Generally, entrepreneurs should expect to provide at least half of Generally, entrepreneurs should expect to provide at least half of

the start-up funds in the form of equity capital. the start-up funds in the form of equity capital. BB Friends and Relatives - Because of their relationship with the Friends and Relatives - Because of their relationship with the

entrepreneur, friends and relatives might be more willing to invest inentrepreneur, friends and relatives might be more willing to invest in the business venture. the business venture. 11 Nearly 10 percent of small business owners say they rely on Nearly 10 percent of small business owners say they rely on

relatives and friends for capital. relatives and friends for capital. CC Angels - are wealthy individuals, often entrepreneurs themselves, Angels - are wealthy individuals, often entrepreneurs themselves,

who invest in business start-ups in exchange for equity stakes in who invest in business start-ups in exchange for equity stakes in the companies. the companies. 11 Angels are the largest single source of external equity capital for Angels are the largest single source of external equity capital for

small businesses. small businesses. 22 They typically provide capital for companies in the embryonic They typically provide capital for companies in the embryonic

stage through the growth stage.stage through the growth stage.33 If an entrepreneur needs $10,000 to $2,000,000, to launch a If an entrepreneur needs $10,000 to $2,000,000, to launch a

company, angels are a primary source. company, angels are a primary source. 44 Angels tend to invest in clusters and prefer local deals. Angels Angels tend to invest in clusters and prefer local deals. Angels

make an average of two investments every three years and make an average of two investments every three years and usually settle for 20 to 50 percent annual returns. usually settle for 20 to 50 percent annual returns.

DD Partners - Entrepreneurs can choose to take on a partner(s) to Partners - Entrepreneurs can choose to take on a partner(s) to expand the capital foundation of the business. expand the capital foundation of the business. 11 Owners must contemplate the risk of giving up some personal Owners must contemplate the risk of giving up some personal

control over operations and of sharing profits with one or more control over operations and of sharing profits with one or more partners. partners.

EE Corporations - Large corporations, both U.S. and foreign, have Corporations - Large corporations, both U.S. and foreign, have recently started financing small companies. recently started financing small companies. 11 Often the corporations have vested interest in the businesses Often the corporations have vested interest in the businesses

they choose to help finance. they choose to help finance. FF Venture Capital companies - Venture capital companies are private, Venture Capital companies - Venture capital companies are private,

for-profit organizations that purchase equity positions in young for-profit organizations that purchase equity positions in young businesses with high growth and high-profit potential. businesses with high growth and high-profit potential. 11 These firms usually establish stringent policies to implement These firms usually establish stringent policies to implement

their overall investment strategies in terms of investment size their overall investment strategies in terms of investment size and screening, ownership, control, and investment preferences. and screening, ownership, control, and investment preferences.

22 They require a 60 to 75 percent annual return and will take a They require a 60 to 75 percent annual return and will take a significant portion of ownership. When evaluating potential significant portion of ownership. When evaluating potential investments, venture capitalist look for the following features: investments, venture capitalist look for the following features: aa Competent ManagementCompetent Managementbb Competitive Edge Competitive Edge cc Growth Industry Growth Industry dd Viable Exit Strategy Viable Exit Strategy



ee Intangible Factors Intangible Factors GG Public Stock Sale - One effective method of raising large capital is toPublic Stock Sale - One effective method of raising large capital is to

sell shares of stock or commonly known as "going public." sell shares of stock or commonly known as "going public." 11 Although it is effective, it can be expensive, time-consuming, andAlthough it is effective, it can be expensive, time-consuming, and

much regulated. much regulated. 22 After going public, managers must consider the impact of their After going public, managers must consider the impact of their

decisions not only on the company and its employees, but also decisions not only on the company and its employees, but also its shareholders and the value of their stock. its shareholders and the value of their stock.

33 Most small companies do not meet the criteria for making a Most small companies do not meet the criteria for making a successful public stock offering. Few companies with less than successful public stock offering. Few companies with less than $5 million in annual sales manage to go public successfully. $5 million in annual sales manage to go public successfully.

44 Investment bankers typically look for established companies Investment bankers typically look for established companies exhibiting the following characteristics: exhibiting the following characteristics: aa Consistently high growth ratesConsistently high growth ratesbb Strong record of earnings Strong record of earnings cc Three- to five years of audited financial statementsThree- to five years of audited financial statementsdd Solid position in rapidly growing markets Solid position in rapidly growing markets ee Sound management team and a strong board of directors Sound management team and a strong board of directors

55 Entrepreneurs who are considering taking their companies publicEntrepreneurs who are considering taking their companies public should first consider the advantages and disadvantages of an should first consider the advantages and disadvantages of an initial public offering (IPO). initial public offering (IPO). aa Advantages: Advantages:

(1)(1)Ability to raise large amounts of capitalAbility to raise large amounts of capital(2)(2) Improved access for future financingImproved access for future financing(3)(3) Improved corporate image Improved corporate image (4)(4)Attracting and retaining key employeesAttracting and retaining key employees(5)(5)Using stock for acquisitionsUsing stock for acquisitions(6)(6)Listing of a stock exchange Listing of a stock exchange

bb Disadvantages: Disadvantages: (1)(1)Dilution of founder's ownershipDilution of founder's ownership(2)(2)Loss of controlLoss of control(3)(3)Loss of privacy Loss of privacy (4)(4)Reporting to the SEC Reporting to the SEC (5)(5)Filing expenses Filing expenses (6)(6)Accountability to shareholders Accountability to shareholders (7)(7)Pressure for Short-term PerformancePressure for Short-term Performance(8)(8)Timing Timing



66 The Registration Process - The typical entrepreneur cannot take The Registration Process - The typical entrepreneur cannot take his company public alone. It requires a coordinated effort from a his company public alone. It requires a coordinated effort from a team of professionals, including company executives, an team of professionals, including company executives, an accountant, a securities attorney, a financial printer, and at least accountant, a securities attorney, a financial printer, and at least one underwriter. one underwriter. aa The key steps in taking a company public include: The key steps in taking a company public include:

(1)(1)Choose the underwriter (or investment banker)Choose the underwriter (or investment banker)(2)(2)Negotiate a letter of intent Negotiate a letter of intent (3)(3)Prepare the registration statementPrepare the registration statement(4)(4)File with the SEC File with the SEC (5)(5)Wait to go effective (securities laws do permit a road show,Wait to go effective (securities laws do permit a road show,

a gathering of potential syndicate members sponsored by a gathering of potential syndicate members sponsored by the managing underwriter) the managing underwriter)

(6)(6)Meet state requirements Meet state requirements 77 Simplified Registrations and Exemptions - The SEC allows Simplified Registrations and Exemptions - The SEC allows

several exemptions from the full-disclosure IPO process for smallseveral exemptions from the full-disclosure IPO process for small businesses. businesses. aa The SEC has established the simplified registration The SEC has established the simplified registration

statements and exemptions from the registration process. Thestatements and exemptions from the registration process. The following is a list of some of the most common exemptions: following is a list of some of the most common exemptions: (1)(1)Regulation S-B: Its primary goals are to make going public Regulation S-B: Its primary goals are to make going public

easier on smaller companies by cutting the paperwork and easier on smaller companies by cutting the paperwork and the costs of raising capital. It also reduces ongoing the costs of raising capital. It also reduces ongoing disclosure. To be eligible a company must: disclosure. To be eligible a company must: (a)(a)Be based in the US or Canada Be based in the US or Canada (b)(b)Have revenues of less than $25 million Have revenues of less than $25 million (c)(c)Have outstanding publicly held stock worth no more Have outstanding publicly held stock worth no more

than $25 millionthan $25 million(d)(d)Not be an investment company Not be an investment company (e)(e)Provide audited financial statements for two fiscal yearsProvide audited financial statements for two fiscal years

bb Regulation D (Rule 504): Small Company Offering RegistrationRegulation D (Rule 504): Small Company Offering Registration (SCORE): (SCORE): (1)(1)The SEC's objective in creating SCORE was to give small The SEC's objective in creating SCORE was to give small

companies the same access to equity financing that large companies the same access to equity financing that large companies have via the stock market while bypassing companies have via the stock market while bypassing many of the same costs and filing requirements. many of the same costs and filing requirements.

(2)(2)There are both advantages and disadvantages to using There are both advantages and disadvantages to using SCORE to raise capital. The capital ceiling on a SCORE SCORE to raise capital. The capital ceiling on a SCORE issue is $1 million, and the price of each share must be at issue is $1 million, and the price of each share must be at least $5. This means that a company can sell no mote than least $5. This means that a company can sell no mote than 200,000 shares. 200,000 shares.



cc Rule 505 Private Placement: This regulation has a higher Rule 505 Private Placement: This regulation has a higher capital ceiling than a SCORE offering - $5 million over a 12-capital ceiling than a SCORE offering - $5 million over a 12-month period. month period. (1)(1) It is more costly than the other types of exempted It is more costly than the other types of exempted

offerings, but imposes more restrictions (no more than 35 offerings, but imposes more restrictions (no more than 35 non-accredited investors, no advertising of the offer, and non-accredited investors, no advertising of the offer, and more stringent disclosure requirements). more stringent disclosure requirements).

dd Rule 506 Private Placements: Imposes no ceiling on the Rule 506 Private Placements: Imposes no ceiling on the amount that can be raised, but, like Rule 505 offerings, it limitsamount that can be raised, but, like Rule 505 offerings, it limits the issue to 35 "non-accredited" investors and prohibits the issue to 35 "non-accredited" investors and prohibits advertising the offer to the public. advertising the offer to the public. (1)(1)These exemptions give emerging companies the These exemptions give emerging companies the

opportunity to sell stock themselves through "private opportunity to sell stock themselves through "private placements" without actually "going public." placements" without actually "going public."

(2)(2) In a private placement, the company sells its shares In a private placement, the company sells its shares directly to private investors without having to register themdirectly to private investors without having to register them with the SEC. with the SEC.

ee Section 4(6): a private placement similar to Regulation D and Section 4(6): a private placement similar to Regulation D and Rules 505 and 506. Rules 505 and 506. (1)(1) It does not require registration on offers up to $5 million if It does not require registration on offers up to $5 million if

they are made only to accredited investors. they are made only to accredited investors. ff Intrastate Offerings (Rule 147): It governs intrastate offerings, Intrastate Offerings (Rule 147): It governs intrastate offerings,

those sold only to investors in a single state by a company those sold only to investors in a single state by a company doing business in that state. doing business in that state. (1)(1)To qualify, a company must be incorporated in the state, To qualify, a company must be incorporated in the state,

maintain its executive offices there, have 80 percent of its maintain its executive offices there, have 80 percent of its assets there, derive 80 percent of its revenues from the assets there, derive 80 percent of its revenues from the state, and use 80 percent of the offering proceeds for state, and use 80 percent of the offering proceeds for business in the state. business in the state.

gg Regulation A: This regulation is seldom used, is more costly Regulation A: This regulation is seldom used, is more costly and requires the company to file an offering statement with and requires the company to file an offering statement with the SEC. the SEC.

hh Direct Stock Offerings of the WWW: The World Wide Web is Direct Stock Offerings of the WWW: The World Wide Web is one of the fastest-growing sources of capital for small one of the fastest-growing sources of capital for small businesses. businesses. (1)(1)Much of WWW's appeal as a fund-raising tool stems from Much of WWW's appeal as a fund-raising tool stems from

its ability to reach large numbers of prospective investors its ability to reach large numbers of prospective investors very quickly and at a low cost. very quickly and at a low cost.

(2)(2)All fund seekers using the WWW must be certain that their All fund seekers using the WWW must be certain that their electronic prospectuses meet SEC and state requirements. electronic prospectuses meet SEC and state requirements.

ii Foreign Stock Markets - Foreign stock markets can sometimesForeign Stock Markets - Foreign stock markets can sometimes offer entrepreneurs access to equity funds more readily than offer entrepreneurs access to equity funds more readily than U.S. markets. U.S. markets.



(1)(1)With lower costs of offerings than in the U.S., the United With lower costs of offerings than in the U.S., the United Kingdom's Unlisted Securities Market and the Vancouver Kingdom's Unlisted Securities Market and the Vancouver Stock Exchange are especially attractive to smaller Stock Exchange are especially attractive to smaller companies. companies.

V The Nature of Debt Financing AA Debt financing is concerned with the funds that small business Debt financing is concerned with the funds that small business

owner's borrow and must repay with interest. owner's borrow and must repay with interest. BB Although borrowed capital allows entrepreneurs to -maintain Although borrowed capital allows entrepreneurs to -maintain

complete ownership, it must be carried as a liability on the balance complete ownership, it must be carried as a liability on the balance sheet plus be repaid with interest. sheet plus be repaid with interest.

CC Many small businesses are considered to be greater risks than Many small businesses are considered to be greater risks than bigger corporate customers. Therefore, small businesses must pay bigger corporate customers. Therefore, small businesses must pay higher interest rates because of the risk-return tradeoff. higher interest rates because of the risk-return tradeoff.

DD Most small firms pay the prime rate (the interest banks charge their Most small firms pay the prime rate (the interest banks charge their most credit-worthy customers) plus a few percentage points. Still most credit-worthy customers) plus a few percentage points. Still the cost of debt financing may still be less than that of equity the cost of debt financing may still be less than that of equity financing. financing.

VI Sources of Debt Capital



AA Commercial BanksCommercial Banks11 Commercial banks finance debt through short-term loans, Commercial banks finance debt through short-term loans,

commercial loans, lines of credit, floor planning, intermediate commercial loans, lines of credit, floor planning, intermediate loans, and long- term loans. loans, and long- term loans.

BB Non-Bank Sources of Debt Capital Non-Bank Sources of Debt Capital 11 Asset-Based Lenders - Asset-based lenders finance debt throughAsset-Based Lenders - Asset-based lenders finance debt through

discounting accounts receivable and inventory financing discounting accounts receivable and inventory financing (advanced rate). (advanced rate).

22 Trade Credit - This method involves getting vendors to extend Trade Credit - This method involves getting vendors to extend credit in the form of delayed payments (e.g., "net 30" credit credit in the form of delayed payments (e.g., "net 30" credit terms) when the small business finds difficulty in obtaining bank terms) when the small business finds difficulty in obtaining bank financing. financing.

33 Equipment Suppliers - This method of financing is similar to Equipment Suppliers - This method of financing is similar to trade credit, but has slightly different terms. trade credit, but has slightly different terms. aa Typically, equipment vendors offer reasonable credit terms Typically, equipment vendors offer reasonable credit terms

with only a modest down payment with the balance financed with only a modest down payment with the balance financed over the life of the equipment. over the life of the equipment.

bb Entrepreneurs should scrutinize vendors' credit terms, Entrepreneurs should scrutinize vendors' credit terms, because some may be less attractive than those of other because some may be less attractive than those of other lenders. lenders.

44 Commercial Finance Companies - Commercial finance companiesCommercial Finance Companies - Commercial finance companies usually tolerate more risk in their loan portfolios than commercialusually tolerate more risk in their loan portfolios than commercial banks. banks. aa Because of this, they tend to rely heavily on obtaining Because of this, they tend to rely heavily on obtaining

security interest in some type of collateral to recover any security interest in some type of collateral to recover any losses. losses.

bb Commercial finance companies provide credit in similar ways Commercial finance companies provide credit in similar ways as commercial banks, but because of the higher risk involved,as commercial banks, but because of the higher risk involved, charge higher interest rates than banks. charge higher interest rates than banks.

55 Savings and Loan Associations - Savings and loan associations Savings and Loan Associations - Savings and loan associations specialize in loans for real property. In the typical commercial or specialize in loans for real property. In the typical commercial or industrial loan.industrial loan.



aa S&Ls will lend up to 80 percent of the property's value with a S&Ls will lend up to 80 percent of the property's value with a repayment schedule of up to 30 years. S&Ls expect the repayment schedule of up to 30 years. S&Ls expect the mortgage to be repaid from the firm's future profits. mortgage to be repaid from the firm's future profits.

66 Stock Brokerage Houses - Brokerage Houses offer loans to their Stock Brokerage Houses - Brokerage Houses offer loans to their customers at a lower interest rate than banks. customers at a lower interest rate than banks. aa These margin loans carry lower interest rates because the These margin loans carry lower interest rates because the

stocks and bonds in the customer's portfolio are used as stocks and bonds in the customer's portfolio are used as collateral for the loan. collateral for the loan.

bb Borrowing from brokerage houses is relatively easy; it simply Borrowing from brokerage houses is relatively easy; it simply involves the customer setting up a line of credit when they involves the customer setting up a line of credit when they open a brokerage account. open a brokerage account.

cc For the most part, there is no fixed repayment schedule for a For the most part, there is no fixed repayment schedule for a margin loan; the debt can remain outstanding indefinitely, as margin loan; the debt can remain outstanding indefinitely, as long as the market value of the borrower's portfolio of long as the market value of the borrower's portfolio of collateral meets minimum requirements. collateral meets minimum requirements.

dd There is a risk associated with using stocks and bonds as There is a risk associated with using stocks and bonds as collateral on a margin loan. collateral on a margin loan. (1)(1) If the value of the borrower's portfolio drops below the If the value of the borrower's portfolio drops below the

broker's cushion, the broker can make a margin call - that broker's cushion, the broker can make a margin call - that is, the broker can call the loan in and require the borrower is, the broker can call the loan in and require the borrower to provide more cash and securities as collateral. to provide more cash and securities as collateral.

(2)(2) If the account lacks adequate collateral, the broker can sellIf the account lacks adequate collateral, the broker can sell off the customer's portfolio to pay off the loan. off the customer's portfolio to pay off the loan.

77 Insurance Companies - Insurance companies offer two basic Insurance Companies - Insurance companies offer two basic types of loans: policy loans and mortgage loans. types of loans: policy loans and mortgage loans. aa Policy loans are made on the basis of the amount of money a Policy loans are made on the basis of the amount of money a

customer has paid into a policy in the form of premiums. customer has paid into a policy in the form of premiums. bb A mortgage loan is made on a long-term basis for real A mortgage loan is made on a long-term basis for real

property worth at least $500,000. The insurance company will property worth at least $500,000. The insurance company will extend a loan of up to 75 or 80 percent of the real estate's extend a loan of up to 75 or 80 percent of the real estate's value, and will allow a repayment schedule of 25 to 30 years. value, and will allow a repayment schedule of 25 to 30 years.

88 Credit Unions - Credit unions are non-profit financial Credit Unions - Credit unions are non-profit financial cooperatives that promote savings and provide credit to its cooperatives that promote savings and provide credit to its members. Lending practices at credit unions are very similar to members. Lending practices at credit unions are very similar to those at banks, but they usually are willing to extend loans for those at banks, but they usually are willing to extend loans for smaller amounts. smaller amounts.

99 Bonds - Typically because of the costs involved, bonds have Bonds - Typically because of the costs involved, bonds have been popular with large corporations, but not small businesses. been popular with large corporations, but not small businesses. However, some small businesses have been able to raise capital However, some small businesses have been able to raise capital through industrial revenue bonds (IRBs). through industrial revenue bonds (IRBs).



aa Normally, small companies issuing IRBs seek to raise at least Normally, small companies issuing IRBs seek to raise at least $1 million. Even though, the paperwork and legal costs $1 million. Even though, the paperwork and legal costs associated with an IRB can run up to 2 to 3 percent of the associated with an IRB can run up to 2 to 3 percent of the financing amount, that is a relatively inexpensive for financing amount, that is a relatively inexpensive for borrowing long-term money at a fixed interest rate. borrowing long-term money at a fixed interest rate.

bb Some states have begun to pool industrial bonds of several Some states have begun to pool industrial bonds of several companies in order for the smallest companies to issue IRBs. companies in order for the smallest companies to issue IRBs.

1010 Private Placements - Private placements involve selling debt to Private Placements - Private placements involve selling debt to one or a small number of investors. one or a small number of investors. aa This debt is a hybrid between a conventional loan and a bond.This debt is a hybrid between a conventional loan and a bond.

In essence, it is a bond, but has terms tailored to the In essence, it is a bond, but has terms tailored to the borrower's individual needs (like a loan). borrower's individual needs (like a loan).

bb They usually carry fixed interest rates, have longer maturity They usually carry fixed interest rates, have longer maturity than most bank loans, and do not require complex filings with than most bank loans, and do not require complex filings with the SEC or hiring investment bankers. the SEC or hiring investment bankers.

cc Private investors can afford to take greater risks than banks; Private investors can afford to take greater risks than banks; thus, they are willing to finance deals for small companies. thus, they are willing to finance deals for small companies.

1111 Small Business Investment companies (SBICS) - SBICs are Small Business Investment companies (SBICS) - SBICs are privately owned financial institutions that are licensed and privately owned financial institutions that are licensed and regulated by the SBA. They use a combination of private and regulated by the SBA. They use a combination of private and public funds to provide long-term capital to small businesses. public funds to provide long-term capital to small businesses.

1212 Small Business Lending companies (SBLCS) - SBLCs specialize Small Business Lending companies (SBLCS) - SBLCs specialize in loans that banks would not consider and operate on a in loans that banks would not consider and operate on a nationwide basis. nationwide basis. aa They make only intermediate and long-term SBA-guaranteed They make only intermediate and long-term SBA-guaranteed

loans. The maximum interest rates for loans of seven years or loans. The maximum interest rates for loans of seven years or longer is 2.75 percent above prime; for shorter-term loans, longer is 2.75 percent above prime; for shorter-term loans, 2.25 percent above prime. 2.25 percent above prime.

VII Federally Sponsored Programs



AA Economic Development Administration (EDA)Economic Development Administration (EDA)11 EDA loans are designed to help replenish economically EDA loans are designed to help replenish economically

distressed areas by creating or expanding small businesses that distressed areas by creating or expanding small businesses that provide employment opportunities in local communities. provide employment opportunities in local communities.

22 Entrepreneurs should seek assistance from EDA personnel Entrepreneurs should seek assistance from EDA personnel before filing an application. before filing an application.

BB The Department of Agriculture's Rural Business-Cooperative ServiceThe Department of Agriculture's Rural Business-Cooperative Service 11 Loan program is open to all businesses and is designed to createLoan program is open to all businesses and is designed to create

non-farm employment opportunities in rural areas--those with non-farm employment opportunities in rural areas--those with population below 50,000 and not adjacent to a city where population below 50,000 and not adjacent to a city where densities exceed I 00 persons per square mile. densities exceed I 00 persons per square mile.

22 The RBS does not make direct loans to small businesses, but it The RBS does not make direct loans to small businesses, but it will guarantee as much as 90 percent of a bank's loan up to $25 will guarantee as much as 90 percent of a bank's loan up to $25 million. million.

33 They require the small business owner to include an They require the small business owner to include an environmentally impact statement describing the jobs created environmentally impact statement describing the jobs created and the effect the business has on the area. and the effect the business has on the area.

CC Department of Housing and Urban Development (HUD) – Department of Housing and Urban Development (HUD) – 11 The Urban Development Action Grants (UDAG) are extended to The Urban Development Action Grants (UDAG) are extended to

cities and towns that, in turn, lend or grant money to cities and towns that, in turn, lend or grant money to entrepreneurs to start small businesses that will strengthen the entrepreneurs to start small businesses that will strengthen the local economy. local economy.

22 Grants are aimed at cities and towns that are economically Grants are aimed at cities and towns that are economically distressed. distressed.

DD Local Development Companies (LDCS) - LDCs are profit-seeking or Local Development Companies (LDCS) - LDCs are profit-seeking or non-profit organizations that combine private funds and public non-profit organizations that combine private funds and public funds to lend money to small businesses. funds to lend money to small businesses. 11 The LDC, SBA, and a participating bank are typically involved in The LDC, SBA, and a participating bank are typically involved in

providing a LDC loan. providing a LDC loan. 22 The Federal government encourages local residents to organize The Federal government encourages local residents to organize

and fund LDCs, on either a profit or not-for-profit basis. and fund LDCs, on either a profit or not-for-profit basis. 33 After raising initials capital by selling stock to at least 25 After raising initials capital by selling stock to at least 25

residents, the company seeks loans from banks and from the residents, the company seeks loans from banks and from the SBA. SBA.

44 Each LDC can qualify for up to $1 million per year in loans and Each LDC can qualify for up to $1 million per year in loans and guarantees from the SBA to assist in starting small businesses inguarantees from the SBA to assist in starting small businesses in the community. Most LDCs are certified to operate locally or the community. Most LDCs are certified to operate locally or regionally, but each state may have one that can operate regionally, but each state may have one that can operate anywhere within its boundaries. anywhere within its boundaries.

55 LDCs enable towns to maintain a solid foundation of small LDCs enable towns to maintain a solid foundation of small businesses even when other attractive benefits such as trade businesses even when other attractive benefits such as trade zones and tax breaks are not available. zones and tax breaks are not available. aa Three parties are involved: Three parties are involved:



(1)(1)The LDC The LDC (2)(2)The SBA The SBA (3)(3)And a participating bank. And a participating bank.

bb Small Business owners typically contribute 10% of the Small Business owners typically contribute 10% of the projects cost and LDCs finance only the fixed assets of a projects cost and LDCs finance only the fixed assets of a small business. small business.

cc Lease payments extend for 20-25 years and when the lease Lease payments extend for 20-25 years and when the lease expires normally give owners an option to buy at less than expires normally give owners an option to buy at less than market value. market value.

EE Small Business Innovation Research (SBIR) ProgramSmall Business Innovation Research (SBIR) Program11 A part of two federal agencies ranging from NASA to the A part of two federal agencies ranging from NASA to the

Department of Defense. Department of Defense. 22 These agencies award cash grants or long term contracts to These agencies award cash grants or long term contracts to

small companies wanting to initiate or expand their research and small companies wanting to initiate or expand their research and development (R&D) efforts. development (R&D) efforts.

33 SBIR grants give innovative small businesses the opportunity to SBIR grants give innovative small businesses the opportunity to attract early stage capital investments without having to give up attract early stage capital investments without having to give up significant equity stakes or taking on burdensome levels of debt. significant equity stakes or taking on burdensome levels of debt.

44 The SBIR includes three stages:The SBIR includes three stages:aa Phase I grants determine the feasibility and commercial Phase I grants determine the feasibility and commercial

potential of a technology or product, last for up to 6 months potential of a technology or product, last for up to 6 months and have a ceiling of $100,000. and have a ceiling of $100,000.

bb Phase II grants, designed to develop the concept into a Phase II grants, designed to develop the concept into a specific technology or product, run for up to 24 months with aspecific technology or product, run for up to 24 months with a ceiling of $750,000. Approximately 40% of all Phase II ceiling of $750,000. Approximately 40% of all Phase II applicants are funded. applicants are funded.

cc Phase III is the commercialization phase, in which the Phase III is the commercialization phase, in which the company pursues commercial application of the research and company pursues commercial application of the research and development conducted in phases I and II and must use development conducted in phases I and II and must use private or non-SBIR federal funding to bring the product to private or non-SBIR federal funding to bring the product to market. market. (1)(1)About one in four SBIR awarded companies have achieved About one in four SBIR awarded companies have achieved

commercial success. commercial success. FF The Small Business Technology Transfer Program (STTR)The Small Business Technology Transfer Program (STTR)

11 Whereas the SBIR focuses on commercially promising ideas, the Whereas the SBIR focuses on commercially promising ideas, the STTR uses companies to exploit the promising ideas that STTR uses companies to exploit the promising ideas that originate in universities. originate in universities.

GG Small Business Administration. (SBA). Small Business Administration. (SBA). 11 The SBA has several programs designed to help finance both The SBA has several programs designed to help finance both

start-up and existing small companies that cannot qualify for start-up and existing small companies that cannot qualify for traditional loans because of their high risk of failure or thin asset traditional loans because of their high risk of failure or thin asset base. base.



22 To qualify for a loan, the owner must go through a lengthy To qualify for a loan, the owner must go through a lengthy application process. To speed up processing, SBA has application process. To speed up processing, SBA has established a Certified Lender Program (CLP) and a Preferred established a Certified Lender Program (CLP) and a Preferred Lender Program (PLP), which are designed to encourage banks Lender Program (PLP), which are designed to encourage banks to become frequent SBA lenders. to become frequent SBA lenders.

33 To further reduce paperwork requirements, SBA instituted the To further reduce paperwork requirements, SBA instituted the Low Doe Program in an attempt to simplify the loan application Low Doe Program in an attempt to simplify the loan application process. process.

44 Also, SBA developed the FASTRAK Program that allows Also, SBA developed the FASTRAK Program that allows participating banks to use their own loan procedures to make participating banks to use their own loan procedures to make SBA- guaranteed loansSBA- guaranteed loans

55 SBA offers three types of loans:SBA offers three types of loans:aa Direct: SBA loans that are made directly to the small business Direct: SBA loans that are made directly to the small business

with public funds and no bank participation. with public funds and no bank participation. (1)(1)Activity in direct loans is very limited; they account for lessActivity in direct loans is very limited; they account for less

than one-half of one percent of the SBA's total loan than one-half of one percent of the SBA's total loan activity. activity.

bb Immediate Participation: Loans are made from a pool of publicImmediate Participation: Loans are made from a pool of public funds and private loans. funds and private loans.

cc Guaranteed Loans that are made by commercial banks to: Guaranteed Loans that are made by commercial banks to: small companies and guaranteed by SBA. small companies and guaranteed by SBA. (1)(1)This is the most popular type of SBA loan Program This is the most popular type of SBA loan Program

HH SBA also offers loans through the following programs SBA also offers loans through the following programs 11 SBA Express loan Program SBA Express loan Program 22 7(A) Loan Guaranty Contract Loan Program 7(A) Loan Guaranty Contract Loan Program 33 The CAPLine Program The CAPLine Program 44 Export working capital (EWC) Program Export working capital (EWC) Program 55 The International Trade program The International Trade program 66 Section 504: Certified Development Company Program (CDC) Section 504: Certified Development Company Program (CDC) 77 Microloan -Program Microloan -Program 88 Pre-qualification Loan program Pre-qualification Loan program 99 Disaster Loans Disaster Loans 1010 SBA's 8(a) ProgramSBA's 8(a) Program1111 Innovation Research (SBIR) Program Innovation Research (SBIR) Program 1212 Small Business Technology Transfer (STTR) Program:Small Business Technology Transfer (STTR) Program:

VIIIVIIISTATE AND LOCAL LOAN DEVELOPMENT PROGRAMS STATE AND LOCAL LOAN DEVELOPMENT PROGRAMS AA These programs come in a variety of forms but they all center on These programs come in a variety of forms but they all center on

developing small businesses that create the greatest number of jobsdeveloping small businesses that create the greatest number of jobs and economic benefits.and economic benefits.11 State sponsored loan and development programs are becoming State sponsored loan and development programs are becoming

more active in providing funds for business start-ups and more active in providing funds for business start-ups and expansions (capital access programs) and revolving loan funds.expansions (capital access programs) and revolving loan funds.



IXIXINTERNAL METHODS OF FINANCING - BOOTSTRAPPINGINTERNAL METHODS OF FINANCING - BOOTSTRAPPING11 It encompasses factoring, leasing rather than purchasing It encompasses factoring, leasing rather than purchasing

equipment, using credit cards, and managing the business equipment, using credit cards, and managing the business frugally.frugally.

BB Factoring Accounts ReceivableFactoring Accounts Receivable11 A small business can sell outright its accounts receivable to a A small business can sell outright its accounts receivable to a

factorfactor22 A factor buys a company’s receivables and pays for them in two A factor buys a company’s receivables and pays for them in two

partspartsaa The first (immediate) payment is for 50 to 80% of the The first (immediate) payment is for 50 to 80% of the

accounts’ agreed upon value (typically disco8nted deeply).accounts’ agreed upon value (typically disco8nted deeply).bb The factor makes the second payment, which makes up the The factor makes the second payment, which makes up the

balance, less the factor’s service fees, when the original balance, less the factor’s service fees, when the original customer pays the invoicecustomer pays the invoice

33 Factoring is a more expensive method of financing than either Factoring is a more expensive method of financing than either loans from banks or commercial financing companies, but for loans from banks or commercial financing companies, but for businesses that can not qualify for these loans, factoring may be businesses that can not qualify for these loans, factoring may be the only choice.the only choice.

44 Factors will discount anywhere from 5 to 40% of the face value ofFactors will discount anywhere from 5 to 40% of the face value of a company’s account receivable depending upon a small a company’s account receivable depending upon a small company’s:company’s:aa Customers’ financial strength and credit ratingCustomers’ financial strength and credit ratingbb Industry and customer’s industries because some industries Industry and customer’s industries because some industries

have a reputation for slow paymentshave a reputation for slow paymentscc History and financial strength, especially in deals arranged History and financial strength, especially in deals arranged

with recoursewith recoursedd Credit policiesCredit policies

55 Factoring is ideally suited for fast-growing companiesFactoring is ideally suited for fast-growing companiesCC LeasingLeasing

11 Small business can lease virtually anything it requires for start-Small business can lease virtually anything it requires for start-up or for growthup or for growth

22 By leasing expensive assets, the small business owner is able to By leasing expensive assets, the small business owner is able to use them without locking in valuable capital for an extended use them without locking in valuable capital for an extended period of timeperiod of time

DD Credit cardsCredit cards11 A survey by Arthur Andersen and National Small Business UnitedA survey by Arthur Andersen and National Small Business United

found that 50% of the owners of mall and medium-sized found that 50% of the owners of mall and medium-sized businesses used credit cards as a source of fundsbusinesses used credit cards as a source of funds

XX CREDIT SCORINGCREDIT SCORINGAA For years, creditors have been using credit scoring systems to For years, creditors have been using credit scoring systems to

determine if you'd be a good risk for credit cards and auto loans. determine if you'd be a good risk for credit cards and auto loans.



BB More recently, credit scoring has been used to help creditors More recently, credit scoring has been used to help creditors evaluate your ability to repay home mortgage loans. evaluate your ability to repay home mortgage loans.

XIXIWHAT IS CREDIT SCORING? WHAT IS CREDIT SCORING? AA Credit scoring is a system creditors use to help determine whether Credit scoring is a system creditors use to help determine whether

to give you credit. to give you credit. BB Information about you and your credit experiences, such as your Information about you and your credit experiences, such as your

bill-paying history, the number and type of accounts you have, late bill-paying history, the number and type of accounts you have, late payments, collection actions, outstanding debt, and the age of your payments, collection actions, outstanding debt, and the age of your accounts, is collected from your credit application and your credit accounts, is collected from your credit application and your credit report. report.

CC Using a statistical program, creditors compare this information to Using a statistical program, creditors compare this information to the credit performance of consumers with similar profiles. the credit performance of consumers with similar profiles. 1 A credit scoring system awards points for each factor that helps

predict who is most likely to repay a debt. 2 A total number of points -- a credit score -- helps predict how

creditworthy you are, that is, how likely it is that you will repay a loan and make the payments when due.

DD Because your credit report is an important part of many credit Because your credit report is an important part of many credit scoring systems, it is very important to make sure it's accurate scoring systems, it is very important to make sure it's accurate before you submit a credit application. before you submit a credit application. 1 To get copies of your report, contact the three major credit reporting

agencies: a Equifax: (800) 685-1111 b Experian (formerly TRW): (888) EXPERIAN (397-3742) c Trans Union: (800) 916-8800

(1) These agencies may charge you up to $9.00 for your credit report.



XIIXIIWHY I\IS CREDIT SCORING USED? WHY I\IS CREDIT SCORING USED? AA Credit scoring is based on real data and statistics, so it usually is Credit scoring is based on real data and statistics, so it usually is

more reliable than subjective or judgmental methods. more reliable than subjective or judgmental methods. BB It treats all applicants objectively. It treats all applicants objectively. CC Judgmental methods typically rely on criteria that are not Judgmental methods typically rely on criteria that are not

systematically tested and can vary when applied by different systematically tested and can vary when applied by different individuals. individuals.

XIIIXIIIHOW IS A CREDIT SCORING MODEL DEVELOPED? HOW IS A CREDIT SCORING MODEL DEVELOPED? AA To develop a model, a creditor selects a random sample of its To develop a model, a creditor selects a random sample of its

customers or a sample of similar customers if their sample is not customers or a sample of similar customers if their sample is not large enough, and analyzes it statistically to identify characteristics large enough, and analyzes it statistically to identify characteristics that relate to creditworthiness. that relate to creditworthiness.

BB Then, each of these factors is assigned a weight based on how Then, each of these factors is assigned a weight based on how strong a predictor it is of who would be a good credit risk. strong a predictor it is of who would be a good credit risk. 1 A creditor may use its own credit scoring model, different scoring

models for different types of credit, or a generic model developed by a credit scoring company.

CC Under the Equal Credit Opportunity Act, a credit scoring system mayUnder the Equal Credit Opportunity Act, a credit scoring system may not use certain characteristics like -- race, sex, marital status, not use certain characteristics like -- race, sex, marital status, national origin, or religion -- as factors. national origin, or religion -- as factors. 1 However, creditors are allowed to use age in properly designed

scoring systems. 2 But any scoring system that includes age must give equal treatment to

elderly applicants. XIVXIVWHAT CAN I DO TO IMPROVE MY SCORE? WHAT CAN I DO TO IMPROVE MY SCORE?

AA Credit scoring models are complex and often vary among creditors Credit scoring models are complex and often vary among creditors and for different types of credit. and for different types of credit.

BB If one factor changes, your score may change -- but improvement If one factor changes, your score may change -- but improvement generally depends on how that factor relates to other factors generally depends on how that factor relates to other factors considered by the model. considered by the model.

CC Only the creditor can explain what might improve your score under Only the creditor can explain what might improve your score under the particular model used to evaluate your credit application. the particular model used to evaluate your credit application.

DD Nevertheless, scoring models generally evaluate the following types Nevertheless, scoring models generally evaluate the following types of information in your credit report: of information in your credit report: 1 Have you paid your bills on time?

a Payment history typically is a significant factor. b It is likely that your score will be affected negatively if you have

paid bills late, had an account referred to collections, or declared bankruptcy, if that history is reflected on your credit report.

2 What is your outstanding debt? a Many scoring models evaluate the amount of debt you have

compared to your credit limits. If the amount you owe is close to



your credit limit, that is likely to have a negative effect on your score.

3 How long is your credit history? a Generally, models consider the length of your credit track record.b An insufficient credit history may have an effect on your score, but

that can be offset by other factors, such as timely payments and low balances.

4 Have you applied for new credit recently? a Many scoring models consider whether you have applied for credit

recently by looking at "inquiries" on your credit report when you apply for credit.

b If you have applied for too many new accounts recently, that may negatively affect your score.

c However, not all inquiries are counted. (1) Inquiries by creditors who are monitoring your account or

looking at credit reports to make "prescreened" credit offers are not counted.

5 How many and what types of credit accounts do you have? a Although it is generally good to have established credit accounts,

too many credit card accounts may have a negative effect on your score. (1) In addition, many models consider the type of credit accounts

you have. (2) For example, under some scoring models, loans from finance

companies may negatively affect your credit score. EE Scoring models may be based on more than just information in your Scoring models may be based on more than just information in your

credit report. credit report. 1 For example, the model may consider information from your credit

application as well: your job or occupation, length of employment, or whether you own a home.

FF To improve your credit score under most models, concentrate on To improve your credit score under most models, concentrate on paying your bills on time, paying down outstanding balances, and paying your bills on time, paying down outstanding balances, and not taking on new debt. not taking on new debt. 1 It's likely to take some time to improve your score significantly.

XVXVHOW RELIABLE IS THE CREDIT SCORING SYSTEM? HOW RELIABLE IS THE CREDIT SCORING SYSTEM? AA Credit scoring systems enable creditors to evaluate millions of Credit scoring systems enable creditors to evaluate millions of

applicants consistently and impartially on many different applicants consistently and impartially on many different characteristics. characteristics. 1 But to be statistically valid, credit scoring systems must be based on a

big enough sample. 2 Remember that these systems generally vary from creditor to creditor.



BB Although you may think such a system is arbitrary or impersonal, it Although you may think such a system is arbitrary or impersonal, it can help make decisions faster, more accurately, and more can help make decisions faster, more accurately, and more impartially than individuals when it is properly designed. impartially than individuals when it is properly designed. 1 And many creditors design their systems so that in marginal cases,

applicants whose scores are not high enough to pass easily or are low enough to fail absolutely are referred to a credit manager who decides whether the company or lender will extend credit.

2 This may allow for discussion and negotiation between the credit manager and the consumer.

XVIXVIWHAT HAPPENS IF YOU ARE DENIED CREDIT OR DON'T GET THE WHAT HAPPENS IF YOU ARE DENIED CREDIT OR DON'T GET THE TERMS YOU WANT? TERMS YOU WANT? AA If you are denied credit, the Equal Credit Opportunity Act requires If you are denied credit, the Equal Credit Opportunity Act requires

that the creditor give you a notice that tells you the specific reasons that the creditor give you a notice that tells you the specific reasons your application was rejected or the fact that you have the right to your application was rejected or the fact that you have the right to learn the reasons if you ask within 60 days. learn the reasons if you ask within 60 days.

BB Indefinite and vague reasons for denial are illegal, so ask the Indefinite and vague reasons for denial are illegal, so ask the creditor to be specific. creditor to be specific. 1 Acceptable reasons include:

a "Your income was low" b "You haven't been employed long enough."

2 Unacceptable reasons include: a "You didn't meet our minimum standards" b "You didn't receive enough points on our credit scoring system."

CC If a creditor says you were denied credit because you are too near If a creditor says you were denied credit because you are too near your credit limits on your charge cards or you have too many credit your credit limits on your charge cards or you have too many credit card accounts, you may want to reapply after paying down your card accounts, you may want to reapply after paying down your balances or closing some accounts. balances or closing some accounts. 1 Credit scoring systems consider updated information and change over

time. DD Sometimes you can be denied credit because of information from a Sometimes you can be denied credit because of information from a

credit report. credit report. 1 If so, the Fair Credit Reporting Act requires the creditor to give you the

name, address and phone number of the credit reporting agency that supplied the information.

2 You should contact that agency to find out what your report said. a This information is free if you request it within 60 days of being

turned down for credit. b The credit reporting agency can tell you what's in your report, but

only the creditor can tell you why your application was denied. EE If you've been denied credit, or didn't get the rate or credit terms youIf you've been denied credit, or didn't get the rate or credit terms you

want, ask the creditor if a credit scoring system was used. want, ask the creditor if a credit scoring system was used. 1 If so, ask what characteristics or factors were used in that system, and

the best ways to improve your application. 2 If you get credit, ask the creditor whether you are getting the best rate

and terms available and, if not, why.



3 If you are not offered the best rate available because of inaccuracies in your credit report, be sure to dispute the inaccurate information in your credit report



XVIIXVII BANKBANKRUPTCY LAWSRUPTCY LAWS

11 Remedy for becoming insolventRemedy for becoming insolvent22 The Bankruptcy Reform Act of 1978 established eight chapters The Bankruptcy Reform Act of 1978 established eight chapters

for business people – Chapters 7, 11 and 13 – apply to most for business people – Chapters 7, 11 and 13 – apply to most small business situationssmall business situations

BB Chapter 7Chapter 711 Means that the business is liquidatedMeans that the business is liquidated

aa All of the assets of the business are sold by a trustee All of the assets of the business are sold by a trustee appoint4ed by the courts.appoint4ed by the courts.

bb After the sales, the trustee distributors the proceeds to the After the sales, the trustee distributors the proceeds to the creditors, who usually receive a percentage of the original creditors, who usually receive a percentage of the original debt.debt.

cc If any money is left over, it is divided among the shareholdersIf any money is left over, it is divided among the shareholders(1)(1)About three out of every four bankruptcy filings are About three out of every four bankruptcy filings are

chapter 7chapter 722 Declaring bankruptcy does not necessarily leave you homeless Declaring bankruptcy does not necessarily leave you homeless

and penniless.and penniless.aa Most states have provisions that allow individuals to the Most states have provisions that allow individuals to the

equity in their homes, autos, and some personal propertyequity in their homes, autos, and some personal property33 Other business that declare bankruptcy may actually provide Other business that declare bankruptcy may actually provide

opportunities for youopportunities for youaa If one of your suppliers goes out of business, you could use If one of your suppliers goes out of business, you could use

your knowledge of the bankruptcy courts and the industry your knowledge of the bankruptcy courts and the industry purchase the supplier at a significantly discounted pricepurchase the supplier at a significantly discounted price

bb Another strategic option is to purchase a financially strapped Another strategic option is to purchase a financially strapped competitor to increase your market share or by purchasing a competitor to increase your market share or by purchasing a customer’s business to provide an outlet for your products.customer’s business to provide an outlet for your products.

CC Chapter 11Chapter 1111 Provides a second chance for a business that is in financial Provides a second chance for a business that is in financial

trouble but still has the potential for successtrouble but still has the potential for successaa Can be either voluntary or involuntaryCan be either voluntary or involuntarybb Once you file for chapter 11 you file a reorganization plan withOnce you file for chapter 11 you file a reorganization plan with

the bankruptcy courtthe bankruptcy court(1)(1)The plan includes a repayment schedule for current The plan includes a repayment schedule for current

creditors (which may be less than the 100% owed), and creditors (which may be less than the 100% owed), and how the business will operate more profitably in the future.how the business will operate more profitably in the future.

cc Only about three percent of filings are chapter 11Only about three percent of filings are chapter 1122 Reorganization protection keeps creditors from foreclosing on Reorganization protection keeps creditors from foreclosing on

debts during the reorganization perioddebts during the reorganization periodaa The business continues to operate under court directionThe business continues to operate under court directionbb The court and the creditors must approve the planThe court and the creditors must approve the plan



cc The reorganization plan also spells out a specific time period The reorganization plan also spells out a specific time period for the reorganizationfor the reorganization(1)(1) If the business can not turn around operations and profits, If the business can not turn around operations and profits,

it is likely that the firm would switch to chapter 7 it is likely that the firm would switch to chapter 7 liquidation.liquidation.

DD Chapter 13Chapter 1311 Allows individuals, including small business owners, who owe Allows individuals, including small business owners, who owe

less than $250,000 in unsecured debts and secured debts of less less than $250,000 in unsecured debts and secured debts of less than $750,000 to pay back creditors over a three- to five-year than $750,000 to pay back creditors over a three- to five-year period.period.aa As with chapter 11, a repayment plan is submitted to a As with chapter 11, a repayment plan is submitted to a

bankruptcy judge, who must approve the conditions of the bankruptcy judge, who must approve the conditions of the planplan

bb The plan must show how most types of your debts will be paidThe plan must show how most types of your debts will be paid in fullin full

cc Other types can be reduced over even eliminated by the courtOther types can be reduced over even eliminated by the court22 About 25% of bankruptcies filed are under chapter 13About 25% of bankruptcies filed are under chapter 13

EE Bankruptcy is still not an easy way outBankruptcy is still not an easy way out11 Bankruptcy stays on your credit report for at least seven years.Bankruptcy stays on your credit report for at least seven years.22 It is expensive and time consumingIt is expensive and time consuming33 Chapter 11 and 13 may be better than liquidation but they are not Chapter 11 and 13 may be better than liquidation but they are not

likely to be a solution to all of your problems.likely to be a solution to all of your problems.



ETHICS

I ResourcesA http://Ecampus.bentley.edu/dept/cbe/ B Bentley College Center for Business EthicsC Located here is an exhaustive list of centers and institutions working in

business ethics.D Business Ethics Magazine at http://www.business-ethics.comE Inc Magazine at http://www.inc.com/guides/leadershipF International Business Ethics Institute (IBEI) at http://www.business-

ethics.orgG The Ethics Resource Center, Washington, D.C. has an excellent list of

organizational ethics links including codes of ethics online http://www.ethics.org

H U.S. Small Business Administration http://sba.gov/managing/leadership/ethics.html

I Institute for Business and Professional Ethics at DePaul University, Chicago, IL http://commerce/depaul.edu/ethics/

J Minnesota Center for Corporate Responsibility and the Managed Assistance Program for Nonprofits in St. Paul, Minnesota http://www.mapnp.org/library/ethics/ethxgde.htm#anchor96255

K Extensive list of institutions and of topics: http://duke.edu~wgrobin/ethics/surfing.html

L Ethics updates is a list mostly for ethics instructors and students http://ethics.acusd.edu/index.html)

M General site for ethics on the web http://commfaculty.fullerton.edu/lester/ethics/ethics_list.html

II EthicsA Ethics is a code of values which guide our choices and actions and

determine the purpose and course of our lives. — Ayn Rand, Russian/American novelist and philosopher (1905-1982)

B Ethics is not definable because it is not conscious; it involves not only our thinking but also our feeling.” V.W. Setzer , college professor and educational writer, born 1940)

III DefinitionsA From the Cornell Law Legal Information Institute’s web page:

http://ww4/law.cornel.edu

1 The word "ethics" is derived from the Greek wordethos (character), and from the Latin word mores (customs).

2 Together, they combine to define how individuals choose to interact with one another.


http://ww4/law.cornel.edu

http://commfaculty.fullerton.edu/lester/ethics/ethics_list.html

http://ethics.acusd.edu/index.html

http://www.mapnp.org/library/ethics/ethxgde.htm#anchor96255

http://commerce/depaul.edu/ethics/

http://sba.gov/managing/leadership/ethics.html

http://www.ethics.org/

http://www.business-ethics.org/

http://www.business-ethics.org/

http://www.inc.com/guides/leadership

http://www.business-ethics.com/

http://Ecampus.bentley.edu/dept/cbe/


3 In philosophy, ethics defines what is good for the individual and for society and establishes the nature of duties that people owe themselves and one another.

B Ethics is an adherence of a set of moral codes in the work place. 1 These tend to be a set of laws or codes that are followed in a

professional setting. 2 Some workplace settings do not have a formal code of ethics. Often

times it is an informal code.C Morals are values and beliefs are a personal “compass” used by an

individual both in and outside the workplace. 1 Morals concern the judgment of goodness or badness of human action

and character, arising from a conscience or sense of right and wrong. D Ethics and Morals are both distinctions between right and wrong.

1 The two phrases are often used interchangeably. 2 For our purposes, it is important to make a distinction between the two

words. It is also important to define the word “values” and to be aware of the difference between what is ethical and what is legal.

E Socrates answering “How should I act?”1 “We should not act out of habit or just on the basic principals we have

absorbed from our environment, or just in a manner dictated by some authority – nor should we simply follow our desires or be given direction by mass opinion.

2 It is our responsibility to examine our beliefs, to become aware of them, to become aware of conflicting and competing normative beliefs that others may hold and to evaluate as best we can the grounds or reasons that can be offered in support of these principles…and then decide.”

IV Practice ethical decision-makingA One of the strongest forms of ethics training is practice in resolving

complex ethical dilemmas. B Biasing factors.

1 Other factors enter the ethics picture called biasing factors. These are a result of a variety of our individual attributes (socialized gender roles, philosophies of punishment). These may interfere with our assessment of and reaction to unethical behavior.

2 Evaluators may take other things into account (attributes of the offender, including group membership [racial, ethnic, gender], the rarity of the offender's skills, the importance of person to organization, the political connections, the offender's ethical work history, and the offender's likability).

3 The attributes of the offense may also be taken into account (magnitude of the offense, the characteristics of the offense, who was



hurt by the action and were the victims likable and the specificity of codes related to the action).

V Ethics in ActionA Use the attached paper called “Small Business Development Center –

Ethics in Action” to explore more closely various ethical challenges that counselors encounter on the job.

VI Ethics Goes Beyond the LawA If something is legal, is it always ethical? If something is unethical, is it

always illegal?B Use the Ethics/Legal grid attached.

1 The Cornell Law School’s Legal Information Institute’s web page notes: Though law often embodies ethical principals, law and ethics are far from co-extensive.

a Many acts that would be widely condemned as unethical are not prohibited by law -- lying or betraying the confidence of a friend, for example.

b And the contrary is true as well. In much that the law does it is not simply codifying ethical norms.

2 Most professions have highly detailed and enforceable codes for their respective memberships. In some cases these are spoken of as "professional ethics" or in the case of law "legal ethics." a For example, the American Medical Association has the Principles

of Medical Ethics and the American Bar Association has the Model Rules of Professional Conduct.

b Other professions with codes include dentistry, social work, education, government service, engineering, journalism, real estate, advertising, architecture, banking, insurance, and human resources management.

c Some of these codes have been incorporated into the public law. All are likely to have some effect on judgments about professional conduct in litigation.

d Generally, failure to comply with a code of professional ethics may result in expulsion from the profession or some lesser sanction.

VII Ethics Orientation QuestionnaireA People have different perspectives on what is right and wrong. Ethics of

Justice: Less personal approach, strictly follows principals, fairness, authority. Tends to involve logical, objective decision making according to some standard. Loses sight of individual.1 Ethics of Care: Individual focused.

a Aim is often to reduce the harm being done, to address the elements of the particular situation at issue, and to show concern for the individual involved.

2 Biasing factors.


http://www.abanet.org/

http://www.ama-assn.org/


a Belk College of Business at the University of North Carolina (http://www.belkcollege.ucc.edu ) writes about other factors that “enter the ethics picture called biasing factors.

b These are a result of a variety of our individual attributes (socialized gender roles, philosophies of punishment).

c These may interfere with our assessment of and reaction to unethical behavior. “

B We may take other things into account in the workplace (attributes of the offender, including group membership -racial, ethnic, gender; the rarity of the offender's skills, the importance of person to organization, the political connections, the offender's ethical work history, and the offender's likeability).

C The attributes of the offense may also be taken into account (magnitude of the offense, the characteristics of the offense, who was hurt by the action and were the victims likable and the specificity of codes related to the action).

D Ethics go beyond the law.Classifying Business Decisions

Ethical

Unethical

Illegal Legal

Ethics Check QuestionsE Is it legal?F Is it balances?G How will it make me feel about myself?

1 "Ethics is not definable is not implementable because it is not conscious; it involves not only our thinking but also our feeling." V.W. Setzer


Ethicalbut

illegal

Ethicaland

Legal

Unethicaland

illegal

Unethicalbut

Legal

http://www.belkcollege.ucc.edu/