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In the beginning…how to get started.
Jules F. Knapp Entrepreneurship CenterIllinois Institute of Technology
Executive Summary
Business Description
Product/Service Description
Marketing Plan
Operational and Management Plan
Financial Plan
Substantiating Documents
Start-up Costs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (Total)
Beginning Cash Balance $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0 $0
Cash Inflows (Income):
Sales
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Total Cash Inflows from Sales $0 $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Loan Proceeds
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Total Cash Inflows $
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Available Cash Balance $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Cash Outflows (Expenses):
Inventory
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Production Supplies
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Direct Labor
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Commissions
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Shipping
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Other
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Cash Out for Goods/Services: $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Advertising/Marketing/PR
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Bank Service Charges
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Insurance
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Internet & Web Charges
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Postage and Delivery
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Professional Fees
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Repairs & Maintenance
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Rent or Lease
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Supplies
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Taxes & Licenses
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Telephone
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Transportation
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Utilities
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Other:
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Cash Out for Operations: $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Capital Purchases
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Loan Principal
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Owner's Draw
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Other
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Other Cash Out Flows: $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Total Cash Outflows $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Net Cash Inflow/(Outflow) $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Ending Cash Balance $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ - $ -
Critical to manage your financing needs.
Can be daily, weekly or monthly.
Should have information projected for at least 12 months going forward.
Banks will want to see 24 – 36 months of cash flow projections typically when seeking funding.
A powerful tool to keep you in charge and plan for the future of your business.
Easy to develop.
Flatlining
Seasonality (Sales versus Inventory)
Insurance
Merchant Service Fees/Bank Fees
Shipping/Handling/Delivery Expenses
Sales Tax
Accounts Receivable vs. Cash
Taking Deposits/Progressive Fees
Equipment (Buying versus Leasing)
Employee Salaries, Employee Taxes, Owner’s Draw
August
Budget % to Income
Sales - #DIV/0!
Cost of Goods Sold
Beg Inv -
Purchases -
Total Available for Sale -
Less: End Inv -
Total Cost of Goods Sold - #DIV/0!
Gross Profit - #DIV/0!
General Exp
Advertising - #DIV/0!
Bank/CC Service Chges - #DIV/0!
Credit Cards - #DIV/0!
Delivery - #DIV/0!
Health Insurance - #DIV/0!
Insurance - #DIV/0!
Travel - #DIV/0!
Reproduction - #DIV/0!
Miscellaneous - #DIV/0!
Car/Transp/Taxi - #DIV/0!
Payroll - #DIV/0!
Payroll Taxes - #DIV/0!
Professional Fees - #DIV/0!
Rent or Lease - #DIV/0!
Food and Ent - #DIV/0!
Supplies - #DIV/0!
Taxes & Licenses - #DIV/0!
Utilities & Telephone - #DIV/0!
Other: - #DIV/0!
Total General Expenses - #DIV/0!
Net Income (loss) - #DIV/0!
Breakeven Analysis
Gross sales % 100.00
Less Variable Costs #DIV/0!
Contribution Margin #DIV/0!
Fixed Costs -
Loan repay -
Other Loan repay
Fixed costs + profit needed -
Breakeven Sales #DIV/0!
Breakeven is the point where total sales equals total costs. No profit is included.
Understanding the company’s breakeven point allows to:
Plan for profit
Avoid poor pricing decisions
A terrific and easy tool to make business decisions when anticipating changes in sales or costs.
Fixed Costs: Expenses that do NOT vary based on sales, i.e., expenses that exist even when there are NO sales at all (rent, insurance). Also known as: Sunk Costs.
Variable Costs: Expenses that vary directly with sales, i.e., expenses that go up or down when sales do. Part of every sales dollar goes to cover these variable costs (materials, direct production labor).
Contribution Margin: The amount left over from sales after paying variable costs that go towards paying fixed costs.
Contribution Margin= Sales – variable costs
Total
Sales (100,000 units) $ 100,000
Less Variable Expenses $60,000
Contribution Margin $40,000
Less Fixed Expenses $35,000
Net Operating Income $ 5,000
CM = (Contribution Margin / Sales) x 100
CM = ($40,000 / $100,000) x 100.40 x 100 = 40%
For every widget sold, 40 cents of every sales dollar is available to cover fixed expenses.
1. On your income statement categorize each cost as fixed or variable.
2. Total all Variable Costs and express as a percentage of sales, i.e., variable costs = 60% of sales
3. Compute Contribution Margin:Sales (100%-Variable Costs (60%)=CM 40%
4. Add up all Fixed Costs
5. Breakeven = Fixed Costs (in dollars) divided by Contribution Margin (as a percent)
I produce pens and sell them for $1.00 ea.
My variable expenses are 60 cents per pen or 60% of sales (or .60).
Fixed Expenses are $35,000
Contribution Margin is $1-.60 = .40
How many pens do I have to sell to reach breakeven?
$35,000 / .40 =87,500 Rockin’ DayGlo® Pens
Sales = $1 each pen
Variable Costs = 75 cents each (15 cent increase)
Determine new breakeven point?
CM is $1-.75 = .25 CM towards covering fixed expenses
New Breakeven Point: $35,000 / .25 = $140,000
Is this realistic? Do I have to increase my pricing?
4 Cornerstones of Marketing:Product/Service
Price
Promotion
Placement or Distribution
Define in detail each Product/Service offering available from the business.
Each offering is a distinct SKU (stock-keeping unit) Define colors, sizes and all product/service
attributes
Does the business offer slightly different product variations for different users?
Does the business offer an assortment of product/services to meet different customer needs?
Define in detail, the price or pricing structure for each product/service the business offers. Does one price fit all?
Are various prices offered based on the different product attributes?
Are volume discounts available?
How is the product/service positioned?
How will you promote the business’ products/services?Advertising initiatives use mass media and are
often geared towards creating or building brand awareness:
Radio/Satellite Radio
Television/Cable
Print (magazines, newspapers, trade press)
Sales promotional efforts are more targeted and geared towards achieving immediate sales or keeping the product/service at “top of mind.” ◦ Continuity or Loyalty Programs
◦ Trinkets and Trash, also known as chatchkas, used as leave-behinds, or takeaways
◦ Indoor and Outdoor Signage
◦ Coupons and Direct Mail Basics
Create Urgency
Include an Expiration Date
Don’t start coupon offer with a question
Build a customer mailing list or better yet, and e-mailing list
Create a birthday discount or special offer
Offer volume discounts
Create a referral program. Offer a bonus to a customer making the introduction
Have a wacky sales event.
Don’t overlook Yelp® and Angie’s List®
E-newsletters
Facebook®
LinkedIn®
Twitter®, Tumblr® and Flickr®
YouTube ®
Instagram®
Blogs
Search Engine Optimization
They’re free, or very low-cost
They’re popular with millions and billions of users. Not just for younger target audiences anymore.
They help build your brand awareness and extend your relationship with your customers.
Look out for the competition…learn from them.
Where will the products/services be sold?Will the business use wholesalers?
Will the business use retailers?
Will the business sell directly to customers over the Internet?
Will the business sell using catalogs?
Consider different channels to reach different target audiences.
To make product decisions.
To determine how to position the product/service.
To make pricing decisions.
To make advertising/promotional decisions.
It’s more cost effective to reach the heaviest users and make the biggest impact on sales.
Age
Sex
Body Type
Income Level
Homeownership
Zip Code
Ethnic and/or Religious Background
Occupation
Geographic Location
Lifestyle Issues
Marital Status
Children in Household
Seniors in Household
Hobbies
Interests
Business Type (Public, Private, Government Agency, or Non-Profit)
Industry Classification (NAICS code, Manufacturer, Retailer, or Wholesaler)
Number of Employees
Annual Sales Volume
Geographic Location
Define the primary target market/audience, or customer group that is likely to have members that are the heaviest users or buyers of the business’ products/services.
Define the secondary target market/audience.
Define the tertiary target market/audience.
Name of Business Factor 1 Factor 2 Factor 3 Factor 4 Factor 5 Factor 6 Other Special Features
Your Biz Name
Competitor 1
Competitor 2
Competitor 3
Competitor 4
Competitor 5
Product Assortment
Quality
Availability
Hours of Operation
Warranties
Service after the Sales
Parking
Customer Service
Price
Reliability
Payment Terms
Credit Policy
Location/Convenience
Management
Greatest Strength
Greatest Weakness
Jules F. Knapp Entrepreneurship Center
at
Illinois Institute of Technology
Donna R. Rockin
10 W. 35th Street, 13th Floor, Suite 13C9-2
Chicago, Illinois 60616
Phone: 312-567-3893
E-mail: [email protected]
