A Business Plan is a key to success of any company, new or existing. A Business Plan serves two purposes, an internal management tool and an external marketing tool for potential funders and investors. As an internal management tool, executive staff can use the Business Plan to set objectives, make assignments, and track achievements. As an external marketing tool a Business Plan gives potential funders a detailed view of a project and how it will be carried out. Funders and lenders almost always require a copy of an organization’s Business Plan in making funding decisions.

A Business Plan is a company specific document and should reflect unique aspects such as founder’s relevant experience, ability to transfer certain number of clients from an old location, opportunity to decrease advertising costs by doing a barter transaction with marketing firm and many more. That is why a strong Business Plan cannot be written using pre-drafted templates or software packages. It is also recommended to have an independent party write a Business Plan as it may be hard for a business owner to be completely objective about her/his company. We can draw a parallel with the medical world where doctors cannot treat family members as emotions involved in operating on family members can obscure objective judgments.

Business Plans should be a work-in progress document. Even a successful fast growing company should maintain a Business Plan. Business Plan should be updated with any changes, e.g. acquisition of a new market or customer, introduction of a new product, changes in economic environment, issuance of a new law and the like.
A good business plan should tell a compelling story why the business will succeed. The plan should include not only strategic vision but also tactical steps to execute it. Although the format and content of Business Plans vary across, the goal of each plan is the same – to provide a concise and a comprehensive picture of a proposed venture.

A strong Business Plan should include these sections:

• Business Opportunity section describes market/business opportunity for a service or product that the company offers. This section should include a competition analysis and how the company will sustain it.
• Business Team section describes if the team can successfully execute the business opportunity. It summarizes the strengths of the team members and how they will be used in the opportunity execution. It lists team’s objectives in executing business opportunity. This section also describes sales and marketing strategy
• Pro Forma Analysis section includes detailed calculations of revenues and costs for the next 3-5 years. The calculations should be supported by clearly stated assumptions. If business is already established historical financial data should also be included.
• Exit Strategy section should describe how the founders will get their investment back over time and identify the terms and conditions when the time is right to sell or close the business

For more info contact:

Irene Didinsky
IHD Consulting
info@ihdconsulting.com
847-800-8349 cell

Frequently, companies tend to overlook the linkage between business plans and cash flow. Not understanding how the business plan will generate or consume cash can produce a liquidity problem for a “profitable” company. For this reason it is essential to forecast cash flows as well as project likely profits.

Profit vs Cash Flow
The economic vitality of a business is seen mostly clearly through its ability to generate cash. Business profits – sales less costs – do not necessarily match the timing of their associated cash inflows and outflows. An obvious example of this cash timing difference is a customer paying for goods and services on credit. In this case, the costs of the sale (i.e., staff, order processing, raw materials) are borne in advance of the related payment being made by the customer. Additionally, cash must be invested replenish inventory, new equipment may have to be purchased etc.

Certainly in this example if the sales price exceeds the cost a profit was recorded. However the timing lag between cash expenditure and cash receipt results in net cash consumption – at least in the short term.

Deconstructing Cash Flow
Many business owners tend to just consider “financing” when thinking about sources of cash inflows. Other sources (or uses of cash) are operating activities (working capital, net income, depreciation and amortization; tax deferrals/payment) and investing activities such as capital expenditures and investments. So in short, cash can flow either in or out based on business decisions regarding payments to suppliers and staff, capital and interest repayments for loans, dividends, taxation and capital expenditure.

A business that generates cash has a positive net cash flow. Net cash flow is simply the difference between the inflows and outflows over time. A projected cumulative positive net cash flow over several periods highlights the capacity of a business to generate surplus cash and, conversely, a cumulative negative cash flow indicates the amount of additional cash required to sustain the business.

Cash Flow Planning/Forecasting
Cash flow planning determines whether the business generates or consumes cash over a given time period to determine. First cash identify inflows relating to sales, new loans, interest received etc. and then analyzing in detail the timing of expected payments relating to suppliers, wages, other expenses, capital expenditure, loan repayments, dividends, tax, interest payments etc. When this net cash flow is added to or subtracted from opening bank balances, any likely short-term bank funding requirements can be ascertained.
To create one, use your financial or income statement monthly forecast and a calendar year for financial reporting, and do the following:
• Outline the expected collections from your budgeted monthly invoicing. If your terms are net 30 and your clients typically pay in 45 days, use this fact as your basis for forecasts. For example, under that scenario, March’s invoices become May’s collections.
• For the first months of the year, add in when you expect to collect existing accounts receivable. If you have $20,000 in accounts receivable that were all invoiced in December of the prior year, then, based on the above assumption, the $20,000 should be added as projected cash inflow for the second month of your budget, which is February.
• Identify any other expected cash receipts. In your cash receipts forecast, include proceeds from bank loans or equity transactions, refunds, and customer deposits.
• Start looking at expenses and cash disbursements. Look at your expenses for the prior and current months and identify when they will be paid. Items such as payroll, rent, leases, travel, and entertainment are either recurring or paid out in the current budget month. Also, identify what fixed asset purchases and loan repayments you will make during the year.
• Review your accounts payable balance at the end of December for the prior year, and identify when these items will be paid. Add the amounts to your cash disbursements forecast.
• Do not include noncash expenses. Items such as monthly depreciation and amortization do not involve cash outlay but are included in your company’s financial statements.

Next post ties Business Planning and Cash Flow planning….

Growth is good, profitable growth that is. I believe that in tough economic times, businesses who resist the temptation to withdraw into a shell and play defense may be missing a grand opportunity to seize market share and prosper. One of the often forgotten strategies followed by the Japanese auto makers was one of investment to build production capacity  – in people and technology -  even in lean times. They recognized that even in down markets, there is always an opportunity to steal share and find growing niches.

I was reminded of this story when I came across a post by a former colleague, Andy Hasselwander, from the well regarded Marketing Services firm, MarketBridge. Andy wrote the post below on B2B Marketing Confidential offering sage advice for “Depression Marketing”. Definitely some lessons learned.

Enjoy….
December 2008
Depression Marketing Best Practices
No, we’re not in a depression. But, given all the recent depression buzz (Krugman’s book, non-stop CNBC pundits who won’t shut up about crashes and black Mondays and Fridays,) I pulled Studs Terkel’s fantastic Hard Times down off the shelf the other night. There’s a section in there called “The Big Money” where he interviews people that actually did well during the Depression. Here are some outtakes from William Benton’s interview:

“I left Chicago in June of ‘29, just a few months before the Crash. Chester Bowles and I started in business with seventeen hundred square feet, just the two of us and a couple of girls. July 15, 1929–this was the very day of the all-time peak on the stock market.

As I solicited business, my chart was kind of a cross. The left-hand line started at the top corner and ended in the bottom right corner. That was the stock market index. The other line was Benton & Bowles. It started at the bottom left-hand corner and ended in the top right-hand corner. A cross… When I sold the agency in 1935, it was the single biggest office in the world. And the most profitable office.”

Well, this is an interesting case study, I thought. Maybe I should pay attention. The most amazing thing about Hard Times is how familiar it seems. The passages talking about bubbles, business cycles, people’s incredulity at how all this happened is really eerie. So how did Benton & Bowles kick butt in the depression? Here are some best practices:

• They essentially invented audience research. When they heard a lot of people listening to “Amos and Andy” on the radio, they bought it straight away. They put a Pepsodent spot on and sales went through the roof. They worked with George Gallup. They listened to customers. This was new stuff. Lesson: Marketers who listen to their customers in new and powerful ways will win the battle for fewer dollars.

• Radio was the newest new media at the time. Basically, they were investing like crazy into stuff that the big agencies didn’t understand yet. They were young–late 20s–and didn’t know any better. Lesson: Those who master the next wave of media will rise above the fray. Mobile? Social? Something we haven’t seen yet??

• Once into radio, they perfected “audio illusion”. Example–they cast two people in one role on “Showboat”, a program to promote Maxwell House Coffee. A sexy singer for the audio, and a known actress for the voice. They also started adding in sound clips of the coffee brewing and pouring. Sales doubled and quadrupled, crushing store brands. The other agencies were angry because it was improper to do these things at the time. Lesson: Just because things are done one way, don’t fear doing it a totally different way. Thinking outside the box is critical.

• Once this guy had a lot of money, he was able to buy businesses at bargain basement prices. He bought Muzak for next to nothing and built it into a national behemoth. Lesson: Keep some powder dry. The really good investment opportunities are starting now. Once you buy, own and retool. Pretty good time to be a PE company, even if Carlyle is laying off.

• He also comments on how he was able to add incredible talent at low prices because of the glut of labor supply. His salesmen improved every year as they could screen more and more applicants for these jobs. Lesson: Keep hiring channels open and be pickier than ever.

For anyone who hasn’t read Hard Times or any of the Studs Terkel interview compilations, they are an incredible insight into people’s attitudes and behaviors throughout history. I highly recommend them.

- Author – Andy Hasselwander, VP, MarketBridge Consulting Bethesda, Maryland – posted at http://b2bmarketingconfidential.blogspot.com/

Many businesses owners might react to current conditions and retrench. Some might believe the most prudent course of action is to cut spending, freeze hiring, scale back expansion plans. However short-term, knee-jerk reactions such as these may produce a temporary improvement in  “business fitness” yet do little to position the business for long term success. Clearly, this is not the type of “focus on fundamentals” that is meaningful for mid-market business owners.

Times such as these require a more thoughtful approach – a focus on fundamentals is a focus on profitable, value-creating growth. A 4-step approach embracing a “value management” mindset is paramount to surviving and prospering in these turbulent financial times.

Step 1: What’s Your Business Current Market Value?

A necessary, yet often overlooked aspect of effective management is understanding market value of the business. A first step is to conduct a formal business valuation. A formal business valuation provides an owner with a snapshot of how effectively they have been in creating economic value for themselves and other stakeholders in their businesses.This snapshot provides a starting point to measure business value over time. If value is not measured it can’t be managed.

Step 2: What is Your Plan for Growth?

Next, business owners need to develop a growth plan. Far too few business owners have a systematic plan for growth. Fewer explicitly link their growth strategy and value management. Resources to fuel business growth require investment capital – equity and debt – and a basic understanding of the returns (above the cost of capital) that will be generated on the capital consumed in growing the business. Growth plans formulated with a keen understanding of how well they contribute to business value is fundamental.

3. What are the “Levers” that Contribute to Value Creation?

Cash flow is the life-blood of value creation. The value of a business is the future expected cash flow discounted at a rate that reflects the riskiness of the cash flow. Focus is needed on the discretionary decisions that drive long-term, sustainable cash flows from both the income statement and balance sheet. Business owners need to identify their unique value drivers and determine how changes in each of these drivers impacting their business performance. In general, these key drivers or levers are both strategic and operational including:

• pricing decisions
• product introductions/innovations
• market and customer segments
• investments in capital,equipment, people and processes

4. What’s Your Exit Plan?

Ultimately, all business owners exit their businesses regardless if it’s planned or unplanned. An exit plan sets the objectives, timeline, and milestones that establish the goal line for a business owner. A core component of this exit plan is the desired business valuation upon departure. The exit plan and valuation goal brings the business owner full circle, connecting future and present.Without an exit plan the owner has no overriding framework to help control their business destiny.

Given the current economy, a focus on these four fundamentals should provide the owner a roadmap for long-term success and exiting the business on your own terms.

I decided to create this blog after numerous conversations with owners of small businesses for sale which revealed the paucity of usable and comprehensive information about business transfers. Few indicated that they were comfortable navigating the labyrinthine process of selling a business. A conversation I had with one poor soul who owned an independent gas station and convenience store begged me to “help me sell my business!” Yet this owner had poor records and a very unfavorable lease – and in this market his options were not good. It was this conversation and many others that convinced me I needed to create a place where business owners could get their arms around the process. Thus, the Business Transfer Bulletin Blog was born.

So this blog and the Business Transfer Bulletin newsletter are intended to help sellers of small businesses – defined as transactions ranging from $750K to $3m as well as mid-sized M&A companies above $3m up to $20m – find buyers for their businesses and to sell for best offer possible. On this site, owners who have small businesses for sale will be able to find interesting articles and informative dialog on topics ranging from exit planning to business appraisals and valuations to tax efficient deal structuring. The goal is to ease the pain of buying and selling a business.

Business transfers can be neatly categorized into involuntary and voluntary transfers. The intended focus of this blog is more on the voluntary types of transfers where the entire (or majority) of the owner’s equity and assets change hands.

Both types of business transfers are generally event driven. In the case of involuntary transfers, death, divorce, bankruptcy are major drivers. Failure to have a succession plan is another factor in involuntary transfers.

Voluntary transfers include transfers to family members or other relatives, buy-sell agreements between partners, sales to employees via management buyouts or Employ Stock Option Plans, and third party purchases by strategic acquirers such as a competitor or other private parties.

So I hope you join in the conversation and make this a thriving community. The next time someone bemoans “help me sell my business” point them to this site. Whether you have internet businesses for sale or manufacturing companies for sale there should be plenty here to help you ease the pain of exiting or entering.