How to Create a Business Plan
If you’re hoping to borrow money to buy or start a business, you’ll probably need a business plan.
A business plan, which projects 3-5 years ahead, is your road map for your business. It outlines how a company plans to reach yearly milestones, including revenue projections. A well-thought-out plan also helps a business focus on its key elements and helps the owner make good decisions, according to the Small Business Administration.
Serial entrepreneur Alejandro Cremades, author of The Art of Startup Fundraising, says you “should have a plan in order to get yourself organized, to ensure you have some type of viable commercial potential, you have focus and hopefully aren’t going to run out of money or starve before you get going.”
The SBA’s Business Plan Tool is a free resource that guides you step-by-step to create the plan. Not only can you save your plan as a PDF file, you can also update it at any time, making this a living plan to which you can often refer. You can also use your completed business plan to discuss next steps with a mentor or counselor from an SBA resource partner such as SCORE, a Small Business Development Center (SBDC) or a Women’s Business Center (WBC).
All of your information entered into this tool can only be viewed by accessing your account using the password you have specified.
You can complete each section of SBA’s Business Plan Tool at your own pace, save your work at any time and pick up where you left off the next time you log into the tool. Your information will be saved for up to six months after your last login date.
Writing for Forbes, Cremades says that traditional business plans can be massive, expensive, time-consuming projects. If “you don’t plan to raise money, apply for loans and don’t intend on bringing in partners, then you certainly don’t need a 25lb manuscript. Keep it simple.” Brian Chesky, founder of Airbnb, is famous for his one-page business plan for global domination.
Harvard Business Review (HBR) says some business plans “end up nothing more than a fable.” That because HBR says “the real key to succeeding in business is being flexible and responsive to opportunities. Entrepreneurs often have to pivot their business once it becomes clear that their original customer is not the right customer, or when it turns out that their product or service fits better in an alternate market.”
HBR also wrote that:
- The “most successful entrepreneurs were those that wrote their business plan between 6-12 months after deciding to start a business. Stating that this “increased the probability of venture viability success by 8%.”
- Chances of success rose by 12% for those that spent no longer than three months on their plan. Spending more time than that was futile.
- Startups chances of venture viability rose by 27% if the plan was created at the same time that founders were talking to customers and preparing marketing.
According to Entrepreneur.com and Rule’s Book of Business Plans for Startups, founders should be considering these factors when creating their plan.
- How the business will be vested
- Main objectives
- Mission statement
- Keys to success
- Industry analysis
- Market analysis
- Competitor analysis
- Core strategies
- Marketing plans
- Management
- Organizational structure
- Key operations
- Projections and pro formas
- Break-even analysis
- Financial needs
SCORE, an SBA partner that provides free business mentoring and education, offers templates with instructions for each section of the business plan, followed by worksheets.
- Executive Summary
- Company Description
- Products and Services
- Marketing Plan
- Operational Plan
- Management & Organization
- Startup Expenses & Capitalization
- Financial Plan
- Appendices
For more help with getting business financing, consult one of the GABB’s professional SBA lenders who can advise you on what you need to get funding for your business.
Read MoreWhat Kind of Business Seller Are You?
By Peter Siegel, MBA, Founder and President of BizBen.com.
Almost everyone who owns a company wants to put it up for sale sooner or later. And if the owner doesn’t have employees or family members ready to put up the money and take over the business, the owner must find a buyer in the business-for-sale market. Sadly, only one-third of the hopeful sellers in this market will be successful.
That means two-thirds of owners unable to connect with a buyer will ultimately have to close the business or give it away. The problem may be that the business simply is not desirable. But just as frequently, the reason an owner can’t make a sale is because he or she is one of the many seller types who inevitably will fail.
If the seller can identify what type of seller they are, they can gauge their chances of successfully selling their business.
1. Make a Killing Mike: Also known as “Make a Million, Mike,” this individual believes his business is worth more than any sensible buyer will pay for it. There are a number of ways Mike justifies the asking price. A popular idea is that a similar business recently sold for the price Mike wants. But no two businesses are alike, and Mike doesn’t understand that the “similar” business is much more profitable and in a better location. The market may not reward Mike if he should eventually lower the price to a figure close to its value. Buyers often are not interested in investigating a business that has been on the market for a long time – whatever the reason.
2. Clarence Can’t Carry: An important selling feature of most any business offering is the willingness of the seller to “carry back” part of the purchase price. Along with a cash down payment, the seller receives a promissory note usually secured by the business assets, to be paid off by the buyer over a period of time. It’s reassuring for a buyer when the seller is willing to help finance, because it demonstrates that the seller believes in the business and in the buyer’s ability to operate it successfully. An offering that can only be purchased with all cash is almost always unappealing compared to other opportunities that come with seller financing.
3. Rita Rosy Picture: According to Rita, her business is about to become as much in demand as this week’s most popular show business celebrity. She has the best inventory in town, the most helpful and loyal employees, and greater prospects for the future than any buyer can imagine. Even a business that does excel in some respects has its problems and disadvantages. Buyers know that and often don’t feel secure about an opportunity that is described only in the most optimistic way. When meeting with a seller who doesn’t come across as honest and credible, many buyers get a negative feeling about the opportunity – the opposite of what the seller intended.
4. Nick Not Ready: Any prospective buyers meeting Nick will wonder how he could be trying to sell his business but not be able to produce current financial information, a list of assets to be included, or a definitive description about the premises lease that the landlord will provide to a new owner. Does the seller have something to hide? Is he really that disorganized? If so, what does that say about the condition of the business? Did he neglect to “get his stuff together” because he doesn’t really believe the business is salable? These are questions that occur to buyers as they decide they aren’t interested in what Nick has to offer.
5. Don’t Worry Dorothy: When Dorothy tells a prospective buyer that he or she shouldn’t worry, the buyer usually worries. Buyers want to know what happens if the customer who accounts for half the company’s income decides to do business elsewhere. They want to understand the consequences if a large competitor moves into the neighborhood. If the seller can’t answer these questions, the buyers really won’t worry about those issues. That’s because they’ll look for another business to buy.
6. Secret Sam: One of the things Sam likes to tell prospective buyers is how much of the company’s income goes directly into his pocket without being recorded on the books. He may be proud of his skimming habit. He may think he’s quite clever at fooling the taxing authorities. He might think the buyer will add the total of unreported cash to the reported income and decide the business is making enough money to justify the asking price. But he’s mistaken. The buyers who investigate Sam’s business soon realize he can’t be trusted and move on to find out about other opportunities.
7. Realistic Ralph: Since he is motivated to sell, Ralph wants to present his business in a way that will generate positive responses from buyers. He understands he needs to be proactive in preparing the business for sale. The asking price accurately reflects market conditions. His books are in order and ready to be investigated by qualified buyers. Ralph met with financial institutions with the help of a niche financial advisor who specializes in business purchase financing. The business has been prequalified for financing. And Ralph is willing to carry back 20% of the price with a note. And he’s hired a professional business broker from the Georgia Association of Business Brokers who can develop a confidential plan to market his business to qualified buyers. His approach is a clear recipe for selling success.
If you identify with any of the first six seller types, you’re limiting your chances of selling your business. But if you assume the characteristics of Realistic Ralph, your business is likely to be among the one-third of business offerings that result in a sale.
About The Author: Peter Siegel, MBA is the Founder and President of BizBen.com. He is a SBA SCORE Counselor, author, consultant/coach (ProBuy, ProSell Programs), and advocate on the topic of buying and selling small to mid-sized businesses in the California marketplace. Having writen three books and hundreds of publication articles he has assisted small business owners/sellers, business brokers, agents, and business buyers for over 25 years. This article was adapted from one that originally appeared on his blog.
Read MoreEthics and Managing Your Brokerage: GABB Fall Conference, Oct. 29, 2019
Learn the skills you need to be a better business broker at the Oct. 29, 2019 Fall Conference of the Georgia Association of Business Brokers.
The morning program, which is intended exclusively for Georgia Business Brokers who are real estate licensees, is focused on various ethics topics specific to the business brokerage profession, such as maintaining confidentiality, working with tax returns, loan applications, handling financial statements, client loyalty, using forms created by the Georgia Association of Business Brokers, and other topics.
During the afternoon program, attendees will learn about common issues in the management of a business brokering practice, including handling escrow accounts, setting commissions, co-brokering, keeping records, branding and marketing, maintaining a database for marketing and tracking clients, and other issues.
Brokers will earn a total of six continuing education credits courses certified by the Georgia Real Estate Commission. The class will be held at the Georgia Association of Realtors Conference center at 6065 Barfield Rd, Sandy Springs from 9 a.m. until 4 p.m. Lunch will be provided by Leigh Milton and Claudia Wilson of Center State Bank, and breakfast will be provided by Eva Farag of Oconee State Bank.
Registration for the conference will be $150, but GABB members can register for $99 if they register by Oct. 10. If you want to just take half a day of classes, that’s $85. Scroll to the bottom of the page to register.
GABB Code of Ethics and Ethical Concerns
Morning Session 9:00-12:00, 3 Continuing Education hours
Learning Objective: Attendees, all of whom are licensed real estate agents, will become familiar with the GABB code of ethics and how to handle various ethical concerns related to financial statements and other representations by clients.
Instructors:
Susan Kite, Senior Vice President, Government Guaranteed Lending at Georgia Primary Bank
Susan J. Kite has more than 30 years of experience in commercial and SBA lending. She began her career in Jacksonville, Florida, as Director of an SBA 504 lender, moving to Atlanta with Bank South in 1990. Susan has worked with several Atlanta banks including Crescent Bank, Brand Bank, and Renasant Bank before moving to Georgia Primary. She is skilled at SBA 7a Term loans, SBA 504 loans and SBA Express credit lines. She specializes in business acquisition lending. Susan has served as Chairman of the Board of Directors of the Georgia Lender’s Quality Circle, a professional organization of SBA lenders in the Southeast. She also sits on the loan committee of Capital Partners Certified Development Company. Kite earned a bachelor’s in Business Administration from Terry College of Business at the University of Georgia.
Lawrence Domenico, Managing Partner Mozley, Finlayson & Loggins LLP
Mr. Domenico joined Mozley, Finlayson & Loggins in 1990 and practices in the areas of estate planning and probate, commercial and business litigation, and general litigation. Mr. Domenico also has extensive experience as a business lawyer in assisting start-up and existing businesses. In addition, Mr. Domenico has broad experience in alternate forms of dispute resolution including arbitration and mediation. Mr. Domenico was born in St. Paul, Minnesota, on April 29, 1963. Mr. Domenico received a B.A., cum laude, from the University of the South in 1985. He attended the University of Georgia School of Law where he received a J.D., cum laude, in 1988. Mr. Domenico is a member of Phi Beta Kappa and Omicron Delta Kappa honorary fraternities. He belongs to the Atlanta and American Bar Associations, the State Bar of Georgia, and the Defense Research Institute. Mr. Domenico is active in a number of civic organizations and is a member of the 1995 class of Leadership DeKalb and the Rotary Club of Dunwoody.
David Chambless, Business Broker, former President of the GABB Board, member of GABB’s Million Dollar Club., president of Abraxas Business Services. He has extensive experience in business development; finance; operations; sales; marketing; and international channel development and management. He has a Master of Business Administration in Finance degree from the Wharton School of the University of Pennsylvania and a Bachelor of Industrial and Systems Engineering degree from Georgia Tech. In 1982, he became a Certified Public Accountant.
Brokerage Management
1:00-4:00 p.m., 3 continuing education hours
Instructors:
Dean Burnette, Business Broker, President of the GABB Board, past member of GABB’s Multi-Million Dollar Club, Managing Broker of Best Business Brokers of Savannah. Mr. Burnette is a member of the Savannah Area Realtors – Real Estate Commercial Alliance (RCA), The Georgia Association of Realtors, and the National Association of Realtors. He is a member of the Savannah Area Chamber of Commerce, the Savannah CFO Council, Savannah Traffic Club, is a member and was the 2013-2014 President of the Savannah Small Business Chamber.
Jeff Merry, Business Broker, former President of the GABB Board, current GABB board member, platinum member of GABB’s Multi- Million Dollar Club, and founder and president of the BUSINESS HOUSE, inc.SM. As a Business Intermediary, Jeffery has been involved in more than 200 mergers and acquisitions that have ranged in acquisition price from $60,000.00 to more than $15,000,000.00. Jeffery specializes in serving the manufacturing, distribution, veterinary, service, and medical industries. Jeffery holds a Bachelor’s Degree from Mercer University, a Masters of Business Administration from the University of Illinois, and a Juris Doctorate from Atlanta Law School. Jeffery is also a licensed real estate broker in Georgia and Florida. Further, he is an Adjunct Professor of strategic management, accounting, and finance in MBA programs.
Mike Ramatowski, Business Broker, current member and Past President of the GABB Board, member of GABB’s Million Dollar Club. CBI, owner of RamBizGroup LLC, works with business owners, sellers and candidates for merger by acquisition from manufacturing, distribution, and service businesses. He has owned and managed businesses that included a real estate master franchise, a property management networking company, and a service business. As COO of a banking conglomerate he managed brokerage operations, title companies, home and service warranty programs, and a relocation company. Mr. Ramatowski has served on the board of directors of 12 different organizations with diverse specialties including real estate brokerage, mortgage companies, title insurance, banking, health care, fitness center operations, and office supply operations, providing marketing and organizational growth expertise. He served as an Electronic Specialist in the U.S. Navy Submarine Service. He attended Cleveland State University and Baldwin Wallace College. He has earned the Certified Business Intermediary professional designation by the International Business Brokers Association.
Jon Roman, Business Broker, Treasurer of the GABB Board, member of GABB’s Multi-Million Dollar Club, and owner of Transworld Business Advisors of Atlanta Perimeter, an award-winning group of ten agents, a Franchise Director, an office manager and a marketing sales specialist. For nearly 18 years, prior to Transworld, Jon had helped entrepreneurs to obtain funding when acquiring, selling or franchising businesses. He established, acquired, operated and sold his own businesses for over 20 years. Mr. Roman is a former commercial banker with experience in a multitude of deals. Throughout his career, Jon financed mergers and acquisitions, business expansions, construction and development projects. He evaluated businesses, built and consolidated financial records and shared opinions regarding business plans, and/or exit strategies. Jon is a multi-million-dollar member of the Georgia Association of Business Brokers (GABB) and is currently serving as a treasurer for GABB. Among other qualifications, Jon is a CCIM (Certified Commercial Investment Member) since 2005.
This class has been organized by the Georgia Association of Business Brokers and the GREC certification is through the Capitus Real Estate Learning Center.
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Buying and Selling Businesses Better By Keeping the Pipeline Full
Entrepreneur Scott Ward has been on both sides of the negotiating table, both as a business buyer and a business seller. He discussed better ways to work with prospective business sellers, to prepare a business to sell and other insights at the Sept. 24 meeting of the Georgia Association of Business Brokers.
Ward said business brokers “enable people to succeed and bring in hard earned assets and turn it into cash.”
He said in the middle of negotiating a deal, sometimes he feels as though his client needs a marketing officer, a human resources officer, a financial analyst or even a psychiatrist, trying to work through some complex business and personal relationships.
“You’re so much more than just a business broker,” Ward told the members of GABB, the state’s largest professional organization dedicated to buying and selling Georgia businesses and franchises.
The key is for business brokers to build long-term relationships with business owners, what he called keeping your pipeline full.
“The number one thing with filling your pipeline and getting more people to think about you —because you guys have a long pipeline– you’re building relationships that sometimes take years before someone actually says, ‘You know I think I’m ready to sell this business,’ or ‘I’m ready to quit my corporate job.’ ” Ward said.
Watch the full presentation on the GABB’s YouTube Channel.
Scott is a long time multistore franchisee of Winmark Corporation, the franchisor for brands Play It Again Sports, Plato’s Closet Once Upon A Child, Music Go Round and Style Encore. After 28 years as a franchisee, Scott recently sold his last Play It Again Sports location and will speak about his strategic five year plan he executed to enhance value, create potential buyers and market to sell for a premium. Scott worked with and without brokers during this process.
Ward earned a grass roots MBA as a successful business owner for more than 20 years with proven ability to rapidly grow and profit despite enduring three recessions. He was a dedicated leader who mentored five employees to successfully own their own franchise businesses. He is especially skilled at gaining insight into stakeholders weaknesses and strengths through communication.
As the owner-operator of Play It Again Sports franchises, now publicly traded under Winmark Corporation, Ward maintained business growth through three recessions and contributed to the eventual stability of what is now one of the oldest and largest sporting goods entities in North America. He successfully sold his business for full valuation and continued to menter the new owner. Elected to the Winmark Corporation Franchise Advisory Council, he also was chosen chairman for seven years. He teaches speech writing, evaluation and idea generation for Toastmasters.
The GABB is the state’s largest and oldest association of professionals who specialize in brokering the purchase and sale of businesses and franchises. Broker members help owners determine the asking price of their business, create marketing plans and strategies for selling their business, identify and qualify buyers, and have the knowledge, experience and skills needed to help maintain the confidential nature of the process. The professionals of GABB relentlessly pursue professional development so they can provide superior, ethical services for all customers and clients. Affiliate members include bankers, lawyers, appraisers, insurers and other professionals who work closely with brokers to help owners and buyers get to the closing table.
For more information about GABB, please contact GABB President Dean Burnette at 912-247-3209 or dean@b3brokers.com, or GABB Executive Director Diane Loupe at georgiabusinessbrokers@gmail.com or 404-374-3990.
Business Valuation Theory and Practice – Part One: Valuation Approaches
By Dan Browning, founder and President of DB Consulting, Inc.
This article is for educational purposes only. Nothing contained herein can be used against me in a litigation or other adversarial setting. Examples have been changed to protect the innocent (and not so innocent).
How do appraisers determine the value of a business? There are three value approaches that can be used, and each approach has various methods within it. The three approaches are:
- The Cost or Asset Approach
- The Market Approach
- The Income Approach
For most small, privately owned businesses, business appraisers typically do not use the Cost Approach. This approach is more applicable when a business is a very asset-intensive operation, such as a manufacturing company. Occasionally an Asset Approach could be called for, but the other two approaches are usually more indicative of value.
The Market Approach develops a value based on the amount at which other similar companies have been sold. The theoretical underpinning for the Market Approach is the principle of substitution, in that a hypothetical, disinterested, financially motivated willing buyer can evaluate many possible targets for acquisition and will not pay more for one particular business than for another comparable, similarly situated business.
For larger companies, appraisers sometimes use a Guideline Public Company Method, wherein the subject business is compared to publicly traded companies in the same or similar industries. Given the vast size differentials, most appraisers typically do not use this Method for smaller, privately owned businesses.
More suitable for smaller private companies is the Direct Market Data Method, wherein the appraiser will research private databases containing reported transactions of other smaller, privately owned companies. These transactions are often reported by business brokers. Some of the most common transaction databases include DealStats (formerly Pratt’s Stats), BizComps, and ValuSource Market Comps (formerly Institute of Business Appraisers database).
After researching and finding comparable transactions, the appraiser analyzes the data by looking at various ratios derived from the transactions (among other things). Some of the most common are the Price to Gross Revenues and Price to Earnings ratios. However, one must BE CAREFUL when using these transaction databases, because different databases have different measures and definitions of “earnings.” Sometimes the earnings include add-backs such as owners’ compensation, interest, and income tax expenses (as is the case with the ValuSource database), while others may add back depreciation, amortization, and interest expenses. The short answer is that you can’t simply use the “Price to Earnings” ratios from all databases combined into one calculation.
One approach to selecting which ratio(s) to utilize is to analyze the data sets to find which set of value indications is the most internally consistent (statistically speaking). This could be done by calculating the data set’s Coefficient of Variation (which is the standard deviation divided by the mean), or by using a regression analysis.
The Income Approach develops a value that includes all tangible and intangible assets of the company. In theory, whatever operating assets are required to generate the earnings are included in the value developed from applying the appropriate capitalization or discount rate. One of the keys to developing a reliable, reasonable value for the business lies in choosing the correct earnings base.
There are two essential steps to address when selecting a reasonable estimate of earnings – selecting the level of earnings, and forecasting the most reasonable estimate of stable earnings into the future. The earnings base is capitalized to develop a value for the ongoing business.
Two common methods under the Income Approach are the Single Period Capitalization method and the Discounted Cash Flow/Discounted Future Earnings method. If the earnings of the business are relatively stable, one can utilize the Single Period Capitalization method by building up a capitalization (“cap”) rate and applying it to a representative level of earnings. If, however, the earnings are not stable, the Discounted Future Earnings method is more appropriate, because this method allows one to forecast several years of revenues and discount the various revenue streams (including a reversionary value) back to present value.
That’s a basic overview of valuation approaches in business appraisal. Our next article will focus on common adjustments to reported revenues and earnings figures.
Dan Browning, a GABB Affiliate, has 20 years of experience as a business appraisal professional and holds the Master Analyst in Financial Forensics (MAFF) and Accredited in Business Appraisal Review (ABAR) designations from the National Association of Certified Valuators and Analysts (NACVA).
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