In the beginning how to get started. Jules F. Knapp Entrepreneurship Center Illinois Institute of Technology

Transcription

1 In the beginning how to get started. Jules F. Knapp Entrepreneurship Center Illinois Institute of Technology

2 Executive Summary Business Description Product/Service Description Marketing Plan Operational and Management Plan Financial Plan Substantiating Documents

3 Startup Costs Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec (Total) Beginning Cash Balance Cash Inflows (Income): Sales Accts. Rec. Collections Other Total Cash Inflows from Sales 0 Loan Proceeds Total Cash Inflows Available Cash Balance Cash Outflows (Expenses): Inventory Production Supplies Direct Labor Commissions Shipping Other Cash Out for Goods/Services: Advertising/Marketing/PR Bank Service Charges Insurance Internet & Web Charges Postage and Delivery Professional Fees Repairs & Maintenance Rent or Lease Supplies Taxes & Licenses Telephone Transportation Utilities Other: Cash Out for Operations: Capital Purchases Loan Principal Owner's Draw Other Other Cash Out Flows: Total Cash Outflows Net Cash Inflow/(Outflow) Ending Cash Balance

4 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 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.

5 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

6 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 % Less Variable Costs Contribution Margin #DIV/0! #DIV/0! Fixed Costs Loan repay Other Loan repay Fixed costs + profit needed Breakeven Sales #DIV/0!

7 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.

8 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).

9 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

10 CM = (Contribution Margin / Sales) x 100 CM = (40,000 / 100,000) x x 100 = 40% For every widget sold, 40 cents of every sales dollar is available to cover fixed expenses.

11 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)

12 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

13 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?

14 4 Cornerstones of Marketing: Product/Service Price Promotion Placement or Distribution

15 Define in detail each Product/Service offering available from the business. Each offering is a distinct SKU (stockkeeping 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?

16 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?

17 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)

18 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 leavebehinds, 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

19 Build a customer mailing list or better yet, and ing 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

20 Enewsletters Facebook LinkedIn Twitter, Tumblr and Flickr YouTube Instagram Blogs Search Engine Optimization

21 They re free, or very lowcost 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.

22 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.

23 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.

24 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

25 Business Type (Public, Private, Government Agency, or NonProfit) Industry Classification (NAICS code, Manufacturer, Retailer, or Wholesaler) Number of Employees Annual Sales Volume Geographic Location

26 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.

27 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

28 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

29 Jules F. Knapp Entrepreneurship Center at Illinois Institute of Technology Donna R. Rockin 10 W. 35 th Street, 13 th Floor, Suite 13C92 Chicago, Illinois Phone: