Keys to $uccess:
A Business Planning Guide
for Microentrepreneurs
©
2010, Mennonite Economic Development Associates
All Rights Reserved
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Keys to Success: A Business Planning Guide
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Table of Contents
Introduction
Welcome ……………………………………………………………….……………….5
The Business Plan ……………………………………………………….……………5
Your Support Network …………………………………………………………….…6
Pre-course Test …………………………………………………………………….…9
Section One: Personal Financial Readiness
Net Worth Statement ……………………………………………………….……….13
Expense Notebook ………………………………………………………….……….16
Income & Expense Statement …………………………………………….……….18
Budget ………………………………………………………………………….………18
Credit Reporting …………………………………………………………….……….22
Your Personal Goals …………………………………………………….…………..23
Your Financial Goals ………………………………………………….…….………24
Section 1. Assignments …………………………………………..……… .….….27
Section Two: Describing Your Business
Review and Progress Report …………………………..………………………....31
Mission ……………………………………………………..……….………….…….33
Business Goals ……………………………………………..…………………….…35
Owner's Qualifications …………………………………………………………….35
Business Structure and Licenses, Insurance…………………..………….……37
Description of Services …………………………………………………………….39
Target Market ………………………………………………………………………..40
Section 2. Assignments ……………………………………………………………43
Section Three: Market Research
Review and Progress Report ………………………………………………………47
Step 1: Make a List …………………………………………………………………49
Step 2: Call Competitors…..………………………………………………………49
Step 3: Talk with Potential Customers …………………………………………52
Step 4: Do Industry Research …………………………………………………….53
Time Management …………………………………………………………………..57
Presentation Preparation …………………………………………………….……..61
Section 3. Assignments …………………………………………………………….63
Section Four: The Costs of Doing Business
Review ………………………………………………………………………………....67
Start up Costs …………………………………………………………………….…..69
Start up Capital ……………………………………………………………………….71
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Overhead Costs ………………………………………………………………….......72
Variable Costs……………………..……………………………………………….....73
Cost Summary………………………………………………………………………….79
Section 4. Assignments …………………………………….……………………….81
Section Five: More Number Crunching - Income Projection and Cash Flow
Review ………………………………………………………………………………….85
Sales Unit Pricing …………………………………………………………………….87
Gross Profit…………………………………………………………………………….88
Income Projection ……………………………………………………………………88
Cash Flow Projection ………………………………………………………………..92
Section 5. Assignments …………………………………………………………….97
Section Six: Finding Customers: Your Marketing Plan
Review ………………………………………………………………………………….101
Target Market Revisited …………………………………………………………...103
Marketing Message …………………………………………………………….......104
Marketing Materials ……………………………………………………………......106
Types of Marketing Materials …………………………………………………….108
Marketing Methods …………………………………………………………………111
Marketing Plan …………………………………………………………………….…113
Section 6. Assignments …………………………………………………………...117
Section Seven: Record Keeping
Review ………………………………………………………………………………....121
Records ………………………………………………………………………………..123
Income and Expense Statement ………………………………………………….126
Benefits Planning …………………………………………………………………….131
Balance Sheet ……………………………………………………………………..….136
Filing System ………………………………………………………………………...138
Tips for Tax Time ………………………………………………………………..…139
Section 7. Assignments ……………………………………………………………141
Section Eight: Completing Your Business Plan
Sample Business Plan ……………………………………………………………….147
Blank Business Plan (Template) …………………………………………………..159
Section Nine: Course Wrap Up
Lessons Learned and Next Steps …………………………………………………171
Post-course Test …………………………………………………………………….173
Evaluation ……………………………………………………………………………..175
Additional Exercise: Break-even Analysis………………………………………179
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Introduction
Welcome!
By participating in the Keys to Success business planning course, you have joined others who
are determined to be successful microbusiness, or microenterprise owners.
By choosing to believe in yourself and your business dream, you will:
► Make a commitment to yourself
► Make a time commitment to your business idea
► Learn what it takes to plan your business systematically
► Learn what it takes to be a successful businessperson
Wanting to own your own business, however, does not automatically lead to success. It takes
a plan to build a business successfully – a business plan.
The Business Plan
A business plan is important because it tells others that you have
really thought about and planned the business. It helps you make
good business decisions. It’s a necessary part of any loan or grant
application.
It helps you gain support by showing that you are serious,
determined, and have a plan for success.
A good business plan follows a step by step process that not only allows you to
plan and research all aspects of your business, but also to explain your goals
and plans to others. In this workbook, the building blocks are presented in
nine sections that progress from a foundation of personal readiness, through a
feasibility study and start-up plans.
The three most important ingredients of a successful business are a high quality product
and/or service, a good marketing plan, and sound financial management skills . The
process of researching and writing your business plan will address each of these key areas.
Your completed business plan will tell the story of your business and guide your daily
activities. It is a living document that should be revised as your business changes or grows.
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Your Support Network
Successful entrepreneurs know that they would not have succeeded without the
help of their support network. You can’t run a business alone – at the very
least you need customers! Family, mentors, friends, colleagues, clients, lenders, and even
competitors play an important role in keeping you, the entrepreneur, inspired. You should
also use the support of your local microenterprise development organization, your local Small
Business Development Center (SBDC) the Small Business Administration (SBA) office, or
business networking groups. To find the appropriate office near you, do an internet search
using the name of your state and “microenterprise”.
Exercise 1: Pros and Cons of Self-employment
1. List the positive aspects of owning your own business, or reasons why
you own or want to own your own business.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
2. List any negative or challenging aspects of being self-employed.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Food for thought: We all have positive and negative ideas about self-employment,
but have you done a reality check? For instance, many women plan to start a
home-based child care business to spend more time with their own children.
Typically this does not happen as the demands of caring for other children and
running a business take more time away from the family.
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Notes:
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Pre-Test
1. Why is it important to write a business plan?
2. What are the two main parts of a Net Worth Statement or Balance
Sheet?
3. What is a mission statement?
4. What/Who is your target market?
5. Why is it important to interview your competitors?
6. What does time management have to do with running a business?
7. What are Overhead Costs? List two examples.
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8. What are Variable Costs? List two examples.
9. What are your Sales Units?
10. What do Income Projections and Cash Flow Projections tell you
about your business, and how many months should you project?
12. In marketing, what is the difference between a feature and a
benefit?
13. What should be listed/presented on all of your marketing
materials?
14. What goes into a marketing plan?
15. As a small business owner, what records do you need to keep?
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In this Section:
1. Personal Financial Readiness
Net Worth Statement
Expense Notebook
Income & Expense Statement
Budget
Credit Reporting
Your Personal Goals
Your Financial Goals
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There is only one success – to be able to spend your life
in your own way.
-- Christopher Morley
Section 1. Personal Financial Readiness
It’s important to look at your current financial situation and analyze your personal financial
habits. You need to know your starting point and how you can make changes to accomplish
your goals. Your business will provide income - how you manage that income can build
your life and your business, or hurt them both.
Money management practices have a big impact on our sense of wellbeing. Studies have shown that satisfaction or happiness is more a
result of being in control of your finances than having a lot of money.
Knowing both the good and the bad news of your current financial situation and
spending habits will set you on the path to success. In this section we’ll discuss
several ways to help you learn about and organize your personal finances.
Net Worth Statement
A Net Worth Statement is like a “digital photo” of your current financial situation – a
list of all of your assets and all of your liabilities. It’s a good idea to figure your net worth on
an annual basis so you will see how your total changes from year to year. When you apply
for a loan, the lender will ask you to provide a current net worth statement.
Assets:
What to you own that has value? How much is it worth if you could sell it
today? Include in your list money, investments, vehicles(s), a home, valuable collections,
etc., and your business assets, such as bank accounts, equipment, and inventory.
Liabilities:
What do you owe? Include in your list credit card balances, student loan
balances, car loans, mortgages, loans, and personal loans, etc. Be sure to list the total amount
you owe for each liability, not just your monthly payment.
Net worth:
How much is left over when you subtract liabilities from assets? It’s possible
For this result to be a negative number.
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Note: Throughout this workbook we will follow several examples, including that of
Charlotte, a single mom with a part time job who is starting up a home-based cake
business and needs flexible hours due to her disability; Sylvia’s Soap Shoppe, a
hand-made soap business that plans to expand by opening a small shop someday;
and a service business called David’s Consulting Services.
▶Case Study: Charlotte’s Net Worth Statement (March 31, 2009)
ASSETS
LIABILITIES
Checking Account
$1,100
Savings Account
$1,000
Visa
$1,500
IRA
$2,000
Mastercard
$ 750
Automobile
$4,000
Automobile loan
$3,600
Loan from Credit Union
$1,000
Total Assets:
$8,100
Credit Cards:
Total Liabilities:
$6,850
NET WORTH
$1,250
Exercise 1: Prepare your own Net Worth Statement
First guess your Net Worth. Then list your assets and your liabilities, and
determine Net Worth by subtracting total liabilities from total assets. Put a date on
the statement. When you list your assets, (car, home, personal property, etc.), use
your best estimate of “fair market value.” In other words, what price would you get
if you were to sell the asset today? When you list your liabilities, put the total
balance you owe, not the monthly payment. If you are married, prepare a joint net
worth statement for you and your spouse together.
Food for thought: Were you surprised at your Net Worth? Was it more or
less than you thought? How can you increase your assets and decrease your
liabilities over the next year?
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Net Worth Statement for:
Date:
Assets
Liabilities
Checking Account
Credit Cards:
Savings Account
Visa
Retirement Accounts
Mastercard
Investments
Automobile
Automobile loan
Residence
Mortgage
Personal Property
Medical Bills
Student Loans
Total Assets
Total Liabilities
Net Worth
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Expense Notebook
Before you can meet your financial goals, you need to know where your money
goes on an annual, monthly, and daily basis. Some people keep very close
records and know where every penny goes. Other people rely on their monthly bank
statements to give them an idea of where their money has gone, and others have no idea.
An Expense Notebook is a little notebook that you carry around to
write down everything you spend, at the time of purchase. It’s the only
way to be sure of what you have done with your money, which is
especially important if you have a tight budget. The idea is to catch every
purchase, no matter how small, so that you will have an accurate account of
your expenses, and will be able to create an accurate budget. The Expense
Notebook makes you aware of your spending patterns - you may even find that
having to write things down changes your spending habits for the better!
▶Case Study: Charlotte’s Expense Notebook
Date
What
Cash
April 2
Coffee at 7/11
April 3
Utility Bill
April 3
Shoes for son-Visa
April 3
Groceries
April 4
Birthday gift-Visa
April 5
Rent
April 6
Coke at school
April 7
Haircut
April 8
Gas for car
Weekly Totals
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Check or Debit Card
Credit Card
Totals
$1.06
$76.80
$25.50
$25.89
$20.34
$800
$1.00
$18.00
$32.00
$20.06
$934.69
Keys to Success: A Business Planning Guide
$45.84
$1000.59
16
Exercise 2: Expense Notebook
Get a small notebook and make three columns that reflect how you spend
your money: cash, check or debit card, and credit card. Carry this notebook
with you all the time, and make it a habit to jot down what you spend your
money on and how you spend it. Do it as it happens – before you forget. Do
a weekly total. Track your expenses for at least three months.
Food for Thought: Tracking your spending is meaningless unless you
analyze your data. What did you discover?
_________________________________________________________________________
_________________________________________________________________________
Do you like what you see? What changes can you make to decrease
expenditures?
________________________________________________________________________
________________________________________________________________________
________________________________________________________________________
How will keeping track of your personal expenses help you with your
business?
_______________________________________________________________________
_______________________________________________________________________
_______________________________________________________________________
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Income & Expense Statement
An Income & Expenses Statement summarizes income received and expenses paid on a
monthly basis for a 12-month period. Once you start keeping track of your expenses and
organize your documents, it’s easy to compile. This statement is particularly valuable
because it shows your spending patterns, helps you determine where expenses can be cut and
money redirected, and is the single most important tool for making a Budget.
Budget
A Budget is a plan for how you will use your money, based upon your
expected income and expenses. Many people cringe at the idea of
preparing a budget, thinking that they will have no flexibility in their
spending. Think of a budget as a tool for helping you accomplish your goals –
and make it as flexible as it needs to be.
Let’s say you lose your job or have an emergency that blows your Budget. That’s the time to
re-evaluate your resources and re-plan your Budget. In general, it is wise to re-plan every
three months. Be sure to budget a Reserve Fund, a savings account for emergencies or
unplanned expenses. As a rule of thumb, you should strive to keep enough in the reserve
fund to pay from three to six months of your living expenses, which is especially important
when you are starting a business, as your business may not be able to completely support you
right away.
Exercise 3: Budget Revisions
Study Charlotte’s Income and Expense statement. Figure out ways for her to save
money and create a budget for her. List your ideas below.
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
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Charlotte’s statement
Last month
Ideas for change
Budget (Projected)
Income
Take home salary
1600
Self-employment
Child Support
150
Unempl/Public Assistance
SSI/SSDI
Savings withdrawals
Other
TOTAL INCOME
1750
Expenses
Rent/Mortgage
Insurance/Maintenance
Phone/Internet/Cable TV
Electricity/Gas/Oil
Car Payments
800
20
100
40
150
Credit Card Payments
75
Savings
25
Groceries/Eating Out
250
Clothing
100
Child Care
200
Medical expenses
Transportation/Gas
Gifts/Hobbies/Pets/Other
40
110
55
TOTAL EXPENSE
1865
Income - Expense
-115
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Exercise 4: Income and Expense Statement and Budget
1) Using the blank form on the next page, prepare an Income and Expense
Statement for last month. Refer to bank statements, pay stubs, checkbooks, and
any other documents that will help you remember your income and expenses. Use
categories that make sense for your household.
2) Based upon your financial goals and your current income and expenses, create a
realistic Budget for next month. Estimate your income and your expenses. In
figuring income from your earnings, include only your take-home or net income,
which is what you have left to spend after deductions. Include all sources of
income, such as child support or self-employment. Be sure to include savings in
the expense section.
3) Balance your Budget. Your income should equal your expenses. Don’t worry if
your expenses exceed your income on your first attempt, but if this is the case, try
to think of ways to cut back on expenses, and/or ways to increase your income.
Make changes to your budget to bring it into balance. Note that your monthly
expense figure tells you what your business needs to pay you in order for your
business to be feasible. Are you willing to cut back expenses if necessary?
4) At the end of the month, prepare another Income and Expense Statement with
your actual numbers. Compare the results to your Budget and note any
differences. Do this exercise every month.
Food for thought: Save money for your future. If you save $100 per month
at 3% interest for 30 years, it will grow to $58,274. With a 10% interest rate,
$100 per month for 30 years will grow to $222,050! Here’s another way to
think about it – the Rule of 72: Money growing at 3% per year will double in
24 years ($10,000 becomes $20,000) (72/3 = 24). At 5% money doubles in
14.4 years (72/5 = 14.4). At 8% annual interest money doubles in 9 years
(72/8 = 9).
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Income/Expense and
Last Month –
Month #1 –
Month #1 -
Difference between
Budget Worksheet
Actual
Budget
Actual
Budget and Actual
Income
Take home salary
Self-employment
Child Support
Unempl/Public Assistance
SSI/SSDI
Savings withdrawals
Other
TOTAL INCOME
Expenses
Rent/Mortgage
Insurance/Maintenance
Phone/Internet/Cable TV
Electricity/Gas/Oil
Car Payments
Credit Card Payments
Savings
Groceries/Eating Out
Clothing
Child Care
Medical expenses
Transportation/Gas
Gifts/Hobbies/Pets/Other
TOTAL EXPENSE
Income - Expenses
Opportunities are usually disguised as hard work, so most
people don’t recognize them.
--Ann Landers, Advice Columnist
Credit Reporting
Your credit report shows your history of paying loans, credit cards, and other bills. It matters
more and more these days whether your history is good, bad, or non-existent. Your credit
report gets reviewed by many parties and may affect many aspects of your life, from
employment to insurance rates to whether or not you qualify for a loan. You should know
what is on your credit report to make sure it is accurate and to help you with your goals. If
your credit is bad, and you know you want to apply for a loan in the future, you can start
taking steps to improve your score.
Exercise 5: Obtain your credit report
1) Visit www.annualcreditreport.com to obtain your free credit report.
2) Ask your local agencies if they have a service to help you obtain your credit
report or help with credit repair.
3) Be aware of the three major credit reporting agencies:
Equifax
Experian
www.equifax.com
www.experian.com
800-685-1111
888-397-3742
TransUnion
www.transunion.com
800-888-4213
In this life we cannot do great things, we can only do
small things with great love.
-- Mother Teresa
Your Personal Goals
Most people start a business in order to help them obtain their personal,
professional, and financial goals. Once you know what your current financial situation looks
like, you can begin to plan how to achieve your goals. A successful business can do this by
providing income as well as a meaningful way to serve your community and express your
talents.
Are you passionate about your business idea? Let’s face it – starting
and running a business is hard work, and some aspects of running a
business are no fun at all! Your business idea should be something that
gets you out of bed in the morning and keeps you going when you run into
obstacles.
Your personal goals help you realize the vision of how you would like your life to be. They
are particular ends toward which your efforts are directed - you can tell when they are in
progress and when they have been completed. They may include what you want for others as
well as for yourself.
Charlotte’s Personal Goals
David’s Personal Goals
Own a profitable business.
Plan for retirement.
Take a vacation every two years.
Start college fund for son.
Contribute to my community.
Help clients find needed services.
Care for my elderly parents.
Remodel my home.
Exercise 6: Your Personal Goals
#1 __________________________________________________________________________
#2 __________________________________________________________________________
#3 __________________________________________________________________________
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Your Financial Goals
You may have noticed that most, if not all, of your personal goals will take money to
accomplish. Next we’ll think about financial goals, which are strategies for funding your
personal goals. They should include dollar amounts and target dates or timeframes.
►Case Study – Charlotte’s Financial Goals:
Goal #1: Own successful business
Financial Goals:
 Reduce expenses to save for business start-up - $50/month for 12 months
 Pay off credit cards to decrease debt and improve credit score so I can apply for a business
loan – pay $50/month extra for 18 months
Goal #2: Plan for retirement
Financial Goals:
 Contribute to IRA - $50/month plus Earned Income Tax Credit (EITC) refund
 Take a class on investing to learn about my options - research low-cost classes next
quarter.
►Case Study – David’s Financial Goals:
Goal #3: Care for my Elderly Parents
Financial Goals:
 Increase earnings to be able to help pay for a caregiver - $500/month within one year
 Pay off credit cards to qualify for a home equity loan to remodel my home, so that my
parents can live with me - $200 extra a month for 12 months.
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Exercise 7: Write down the Financial Goals that will help you
accomplish your top three Personal Goals:
Goal #1:
________________________________________________
Financial Goals (include dollar amounts and dates)
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
Goal #2: _________________________________________________
Financial Goals: (include dollar amounts and dates)
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
Goal #3: _________________________________________________
Financial Goals: (include dollar amount and dates)
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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Notes:
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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Section 1. Assignments
1. Prepare your Net Worth Statement.
2. Get an Expense Notebook and start keeping track of your
expenditures.
3. Prepare your Income and Expense Statement for last month.
4. Prepare your Budget for next month.
5. Order your Credit Report.
6. Write down your Personal and Financial Goals.
7. If you would like more help with your personal finances, research
financial literacy classes in your area, or research online financial
literacy programs. There are many good free ones available.
8. Read Section 2.
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In this Section:
2. Describing Your Business –
Your Operating Plan
Mission
Business Goals
Owner’s Qualifications
Business Structure and Licenses, Insurance
Description of Services
Target Market
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Section 1. Review
1.
Net Worth Statement – any surprises or questions?
2.
Expense Notebook – discuss the exercise. What’s it like to keep
track of expenses? Any surprises? What did you learn? Did your
spending behavior change?
3.
What does your Income & Expense Statement and Budget tell you?
4.
Were you able to order your Credit Report? Any questions?
5.
Any questions about your goals?
6.
Did you find any financial literacy resources?
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Exercise 1: Write down any assignments you did not complete and
when you will finish them.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Notes:
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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Section 2. Describing Your Business
You have put a lot of thought into your business or business idea. Now is the
time to start organizing your thoughts and putting them down on paper. Writing about your
business not only makes it more real and concrete, but also helps you plan and shows others
that you have thought things through and are serious about your plans.
Your Business Description includes your mission and business goals, your qualifications,
your business structure, the services you plan to offer, your location, license and insurance
information, and your target market. This description also serves as the basis for your
Operating Plan. It’s OK to make estimates or generalities when writing your first draft, as
you will do research later to fill in the gaps. Be sure to revise your description as you find
new information and make decisions about your business.
Mission
Your mission statement is a brief (two or three sentences) description of what services your
business provides, how you provide those services, who your business serves, which may
include a geographical area, and a few details about the uniqueness of your business.
► Case Study:
Cake Creations by Charlotte strives to create beautiful and delicious cakes for all occasions.
We will use only the finest ingredients and customize decorations according to our client’s
wishes. We will also offer a variety of ingredients to accommodate our clients desires for
organic or allergy free concoctions. We will deliver our cakes within our service area for
added convenience and to guarantee freshness.
► Case Study:
The mission of David’s Consulting Services is to provide a case by case approach to help our
clients find the services and resources they need in order to accomplish their goals and lead a
more enriched life. We will perform a thorough evaluation upfront in order to customize our
services to our client’s needs.
► Case Study:
Sylvia’s Soap Shoppe creates and sells handmade, high-quality moisturizing soaps, blended
with purity and love for better feeling skin. Our aromatherapy and moisturizing bars contain
natural oils and butters, essential oils, and other natural ingredients that gently cleanse while
providing a sense of warmth and comfort. Our products are available at local events, local
shops, and on the web for all who love fine soaps.
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Exercise 2: Write your Mission Statement
1. Brainstorm words and phrases for each category for each business: What, How,
Who, and Uniqueness. Write your business phrases here:
_______________________
_____________________
_____________________
_______________________
_____________________
_____________________
_______________________
_____________________
_____________________
_______________________
_____________________
_____________________
2. Use the ideas for your business to write your mission statement. Get feedback
from a friend or colleague.
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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Business Goals
Your business goals should state what you want the business to accomplish.
Exercise 3:
►Case Study
Charlotte’s 1-year Business Goals
Write your 1-year Business Goals:
Upgrade my website
Double the number of clients
Pay myself $500/month
____________________________________
____________________________________
____________________________________
____________________________________
Charlotte’s 2-5 year Goals
Write your 2-5 year Business Goals:
Open a small retail shop
Add five new products
Pay myself $1000/month
____________________________________
____________________________________
____________________________________
____________________________________
Think about your goals (are they realistic?) when you make business
decisions. Ask yourself if the decision will accomplish your goals. If
not, it may be the wrong decision, or you may need to revise your
goals. You should have both short term and long term goals.
Owner’s Qualifications
When you think of the word “entrepreneur,” who comes to mind?
qualities make these people successful entrepreneurs?
What
Do you consider yourself to be an entrepreneur? Wanting to be your own boss is only part of
the equation. Entrepreneurs typically have the following traits: they are focused, thorough,
social, willing to take risks, resourceful, profit-minded, independent, persistent, organized,
and decisive.
Before starting your own business, take a close look at why you want to operate your own
business. Are you willing to put up with the negative aspects of running a business?
Consider your strengths and weaknesses, and think of ways to take advantage of your
strengths and ways to compensate for your weaknesses.
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Exercise 4: Write up your Owner’s Qualifications
1. Make a list of the reasons you want to be a business owner.
__________________________________
_________________________________
__________________________________
_________________________________
__________________________________
_________________________________
2. Write down three of your strongest entrepreneurial traits and briefly explain
why you feel you are strong in those areas.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
3. Write down two weaknesses and explain how you will handle them.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
4. Write a summary of your business qualifications, including past work
experience and education or training.
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
___________________________________________________________________________
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Business Structure and Licenses, Insurance
Most microbusinesses should be a sole proprietorship. It is the
simplest and least expensive business structure and makes the most
sense unless or until you expand into a larger business that needs
protection beyond what your insurance covers. As a sole proprietor, you are the
owner and make all the business decisions. Business profits go to you and are
reported on Schedule C of your personal tax return. You are also personally
liable for all aspects of the business.
If you are at the point of considering a different legal structure for your business, be sure to
consult an expert. There are fees, tax consequences and other requirements that you should
know about before making your decision. Do some research first by going to the SBA
website (www.sba.gov) and the IRS website (www.irs.gov), and contact your Secretary of
State for the materials you need to incorporate. Then talk to a business tax accountant or
business attorney for advice.
Other business structures include: Partnership, C Corporation, S Corporation, Limited
Liability Company (LLC), and Not-for-Profit Corporation.
Business License
Many states require you to have a business license. Contact the office of your
Secretary of State to see if you need one, and if so, request an application. The
application is fairly quick and easy, and requires a small one-time fee. Your city or
county may also require a business license and charge an annual renewal fee. Contact your
Town Hall or Municipal office to see if a local business license is required. Many municipal
offices also have the application for the state license.
Notes:
_____________________________________________________________________
_____________________________________________________________________
_____________________________________________________________________
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Industry or Occupational License
Most states require that certain types of businesses be licensed or registered, or need to
obtain additional permits. You may also need (or want) to be bonded, depending upon
what type of business you operate. Depending upon your location, you may also run into
zoning requirements. Contact your state licensing office and obtain a copy of the
licensing/bonding requirements. Contact your local government office if you have questions
about zoning.
Insurance
Operating any business is risky - at a minimum, you should obtain liability insurance. Talk to
several agents and ask other business owners where they obtained their insurance before
deciding which policy is best for you. Many agents will be able to provide general business
insurance. You want to be professional and minimize your risk, but also be careful not to
over insure.
Health insurance is important but may be difficult to find or unaffordable for some
entrepreneurs. The National Association for the Self-Employed has a free guide to help you
figure out what is best for you. Go to www.nase.org for more information and for a copy of
“A Guide to Understanding Health Coverage for Micro-Businesses.” Also, go to
http://fortress.wa.gov/dshs/maa/Eligibility/HWD.htm for information on healthcare for
workers with disabilities in Washington State.
Exercise 5: Research Licenses and Insurance
1. Call or go online to the Secretary of State to order your business license
application.
2. Call about insurance – try agents, business associations, or other businesses for
information. Do some research before you decide upon coverage.
Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Description of Services
Think about the following categories or descriptions and write down what you plan to offer:
1. Description of main products or services – What are you selling?
2. Location – where will you make your sales? Do you have one location or several?
What community events do you plan to attend to sell or market your product/service? Why
did you choose your location(s)?
3. Hours of operation – When will you sell your product or service? When will you do
your Marketing? Manufacturing? Buying? Recordkeeping?
►Case Study: Sylvia’s Soap Shoppe sells quality handmade soaps at community events, on
the web, through mail order, and at select shops in the neighborhood. I will participate as a
vendor in at least two community events per month, process mail orders on Fridays and as
needed, make my products at least 4 hours a day Monday through Fridays, and do my
recordkeeping on Mondays. I will market my product according to my marketing plan, and
as opportunities arise.
Exercise 6: Write your description of services:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Target Market
Your customers are the people who buy your product or service.
Think about how to describe your typical customer, as specifically as
possible. This exercise will help you come up with the right
marketing plan later on.
Exercise 7: Circle the descriptions below that may apply to your target
market, and write in others that you think of:
Work regular hours
Works non-traditional hours
Works in the service industry
Single Parent
Pet Owner
Female
Travels a lot
English as a second language
Above median income
Shops at discount stores
Owns a home
Works for a corporation
Two or more children
Low to moderate income
Male
Attends church
Shops at high-end stores Rents an apartment
Involved in community activities
Married
Concerned about environment
Single
Age range:__________________
Education level: ________________
Hobbies: ___________________
____________________________
__________________________
____________________________
►Case Study: Most of Sylvia’s customers are moderate to higher income women who work
in a variety of environments. They are homeowners, drive fuel efficient or expensive cars,
and take nice vacations. They like to pamper themselves, give soap as gifts, or have skin
conditions that require high-quality natural ingredients. They shop at boutiques, community
events, and online. Their age range is 25 – 75 years old.
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Exercise 8: Describe Your Target Market:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
Food for thought: How will this exercise help you with your marketing
plan?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Section 2. Assignments
1. Complete previous assignments, continue tracking expenses.
2. Refine your Mission Statement.
3. Write or review your Business Goals.
4. Write your Owner’s Qualifications.
5. Call about Licenses and Insurance.
6. Describe your Services.
7. Describe your Target Market.
8. Read Section 3.
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In this Section:
3. Market Research
Make a List
Call Competitors
Talk with Potential Customers
Do Industry Research
Time Out for Time Management
Presentation Preparation
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Section 2. Review
1.
Did you write your mission statement? Ask for feedback.
2.
Any questions about writing your Business Description?
3.
Questions about Licenses, etc.?
4.
Can your further define your target market?
5.
Make sure expenses are still being tracked on a daily basis.
Exercise 1: Write down any assignments you did not complete and
when you will finish them.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Section 3. Market Research
It’s never too early to begin doing market research. Talking with other
business people (colleagues and competitors), clients and potential clients, and others
associated with the industry will give you valuable information and insights. Before
opening your doors for business, it is essential to know what other similar products or
services are offered in your area – that way you will know what is needed and what is not,
how you can position your business within the community, what prices to charge, how to
market your services, and who will give you referrals.
Step 1: Make a list of all similar businesses (your competitors) in your area. Look in
the yellow pages and newspapers, online, drive around the neighborhood, and attend
community events. If you can’t find a similar business in your area, explore nearby
communities and websites for similar businesses located in other areas.
Step 2: Contact several Competitors and make appointments to visit,
call, or e-mail to discuss their services. Don’t be discouraged if someone
declines to speak with you – many small business owners are very willing to
share information, but are very busy. So keep trying – you will find competitors
(especially ones located outside your own community) willing to talk with you! Try saying
that you are doing research for a class and asking them to help you. If a competitor cannot
talk with you, find out as much as you can by observing them - go to their store, or website,
etc.
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As you talk with them, take notes so you won’t forget. Make copies of the interview sheet
on the following page and take them with you (after several interviews you’ll begin to mix
them up if you don’t write things down). You might find it useful to create a chart like this to
summarize, rate and compare after you’ve done several interviews:
Competitor
Name
Uniqueness
Quality
Price
Customer
Service
Distribution
Marketing
Strategies
1.
2.
3.
Knowing what your competitors are doing and what they have or
haven’t tried will help you make decisions about your own business.
You will find unmet needs, or marketing techniques you haven’t
thought of, or ways to distinguish yourself from them, or you will make a new
friends and find possible suppliers, referral sources, or mentors. The more you
network, the better prepared you are!
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Competitor Interview Sheet: Business and location: ________________
____________________________________________________ Date: ________________
1. How long have you been in business? __________________________________________
2. What services/products do you offer? (include sales location(s))
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
3. Who are your typical customers?__ _____________________________________________
__________________________________________________________________________________
4. What prices do you charge? ___________________________________________________
__________________________________________________________________________________
5. How do you market your business? ____________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
6. Who are your main competitors? ______________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
7. What do you think your clients like best about your service?
__________________________________________________________________________________
__________________________________________________________________________________
8. What do you like and dislike about being a business owner?
__________________________________________________________________________________
__________________________________________________________________________________
__________________________________________________________________________________
9. Is your business self-supporting? How long did it take you to break-even?
_________________________________________________________________________________
_________________________________________________________________________________
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Step 3: Talk with potential customers. Again, take notes.
Customer/Potential Customer Interview Sheet Date: _____________
__________________________________________________________________________
1. What do you think of my business name and business idea?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
2. What do you think of the quality and presentation of my product/service?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
3. What price are you willing to pay for my product/service?
_________________________________________________________________________________
_________________________________________________________________________________
4. What would make you choose my product/service over someone else’s?
_________________________________________________________________________________
_________________________________________________________________________________
5. What marketing methods do you think would work best?
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
6. Who do you think are my main competitors?
________________________________________________________________________________
________________________________________________________________________________
7. Do you have any suggestions for me to make my business more successful?
________________________________________________________________________________
________________________________________________________________________________
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Step 4.
Do industry research . Go to the library, Chamber of
Commerce, SBA office, SBDC office, etc., and ask for information on trends in your
industry. All of these places have staff that can help you with market research. Also
ask about census data to find out how many families live in your service area and what the
demographic information tells you about them. Find out as much information as possible
about your potential market.
Exercise 2: Interviews, Observations, and Research
Follow the steps on pp. 49-53 in this Section and do your market research.
Make copies of the interview sheets.
Interview or set up appointments with at least 3 competitors and at least 3 current
or potential customers. Take notes.
Obtain as much information as possible by observation (visit a store or booth, etc.),
and other industry research.
Use the worksheets on the following pages to summarize your findings.
Market research is an ongoing process. If you don’t get it all done in a week or
two, keep working on it!
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Market Research Summary - Competitors
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
How my business is different/better. Be specific:
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
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Market Research Summary – Customers/Potential Customers
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
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Market Research Summary – Industry
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
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Time Out for Time Management
The definition of insanity is doing the same thing over and over
again, expecting a different result.
-- Benjamin Franklin
You are probably a very busy person, and now on top of everything else, you need to find the
time to write your business plan. You may find yourself getting frustrated with family and
friends when they ask you for your help again and again – they just don’t seem to realize how
busy you are now that you are starting/running a business. Why don’t they understand?
Read the above quote again and think about it: as long as you keep saying yes to their
requests, they are going to keep asking!
The best time management technique is simple: it’s the word NO!
Let’s face it, most of us don’t like change, and starting a business
requires many changes. Be sure to let your family and friends know
how important your business is, let them know how they can help and support
you, and be kind but firm when you turn them down. You don’t have to say “no”
all of the time, just more often than you used to!
Even if your business is already a high priority, you may still be having
trouble getting your assignments done. You may have an emotional road
block - barriers we put up that prevent us from moving forward. Have you
run into one of these yet? Do you think you’ll find it difficult to start your
market research because you are reluctant to impose on others? Perhaps you feel stress
because you don’t want to fail, or are not sure how to manage success and the changes it will
bring to you and your family.
The key to getting things done, accomplishing your goals, and breaking
down your barriers is the same - better time management. Good time
management habits help you create a schedule that works for you and
allows you to work towards your goals.
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Exercise 3: How I currently spend a typical day (your time budget):
Activity
Average time per day
Notes/changes
Sleep
__________________
______________________
Meals
__________________
______________________
Housework
__________________
______________________
Family time
__________________
______________________
Work
__________________
______________________
Volunteer work
__________________
______________________
Socializing
__________________
______________________
Hobbies
__________________
______________________
Traveling/Driving
__________________
______________________
Phone calls/e-mails
__________________
______________________
Business activities
__________________
______________________
Production
__________________
______________________
Sales
__________________
______________________
Recordkeeping
__________________
______________________
Marketing
__________________
______________________
Purchasing
__________________
______________________
Cleaning
__________________
______________________
________________
__________________
______________________
________________
__________________
______________________
___________________
__________________
______________________
___________________
__________________
______________________
Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Now that you have identified your current habits, you need to define
some new habits and stick with them. Think about your new habits and
write them down in the next exercise. Successfully changing habits is all
about self-discipline. Here are some tips to help you change your
thinking and stick to your new schedule:
Tip 1: Relate your new habits to your goals. Whenever you are spending
time on an activity, ask yourself if that activity is helping you accomplish your
personal or business goals. If not, rethink how much time you should be spending on
that activity.
Tip 2: Practice your new habits consistently. Create a schedule and stick to
it! Even small changes will help you keep moving forward towards your goals.
Tip 3: Get a calendar that you carry with you to help you manage
your schedule and remember appointments. Set time limits on your
appointments.
Tip 4: Ask others for help. Think about who can help you and how they can
help you. Asking for both support and quiet time for yourself is OK!
Tip 5: Don’t panic if you get off your schedule or are interrupted – that’s just part
of life. Be flexible, but get back on track as soon as you can.
Tip 6: Don’t look back! Remember, choose the behavior, choose the results!
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Exercise 4: Better Time Management through new habits.
Identify several habits you want to change and write them down:
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
Define what you want your new habits to be, and write them down:
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
Write down the steps you will take to help you keep up with the new
habits and avoid the old bad habits:
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
________________________________________________________
Whether you think you can or you can’t, you’re right.
--Henry Ford
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Presentation preparation
A big part of being a business owner is representing your business, and one
of the best ways to do this is to talk about it in a professional and
knowledgeable way. You are your best advertisement! Whether you are
comfortable giving presentations or not, now is the time to start preparing your own
presentation and your own “elevator speech” about your business.
What’s an “elevator speech?” Picture yourself getting into an
elevator in a high-rise building. In the elevator with you is a person
you admire, and to make conversation, he or she asks you what you
do. What are you going to say about your business in the length of time it takes
to ride to the top floor that not only explains what your business does, but also
conveys why you are passionate about it?
Exercise 5: Your Elevator Speech
Write down your own elevator speech so you can practice.
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
It’s also important to be able to prepare and give a longer presentation about yourself and
your business. If you would like more practice giving speeches, consider joining
Toastmasters Club. Go to www.toastmasters.org to learn more about the organization and to
see if there is a club near you.
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Exercise 6: Presentation Do’s and Don’ts
Think about a presentation you’ve heard. What were the good points of the
presentation, and what did the presenter do that was wrong or annoying?
Do’s
Don’ts
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
_________________________
When you prepare your own presentation, keep these three main areas in
mind:
1) The preparation. Think about and makes notes on:
 the goals of your presentation
 who is in your audience
 how to organize your speech (introduction, main points, summary, question and
answer period)
 the preparation of props (things you can show the audience)
 practice (for smooth delivery and time constraints)
2) The presentation. Keep these things in mind:




Your appearance/attire should be appropriate for the audience
Stay within the time limits
Leave time for questions and answers
Be aware of annoying mannerisms – don’t chew gum, try not to “um” and “ah” too
much, don’t tap your foot, try not to read from your script, try to look relaxed, etc.
 Make eye contact
3) The follow-up plan. Provide contact information such as a business card or flyer;
collect contact information, if appropriate.
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Section 3. Assignments
1. Complete any unfinished assignments from previous Sections.
2. Start your market research. Interview or set up appointments with 3
competitors and 3 customers (or potential customers). Take notes, and
write a summary of your results.
3. Complete the Time Management Exercises.
4. Say “No” to people more often to make time for your business. Be
tactful but firm.
5. Prepare a presentation (name and business name, mission
statement, a brief description of your business, why you want to
start/are in this business, and your business goals).
6. Continue tracking expenses.
7. Read Section 4.
8. Make sure you have a calculator.
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In this Section:
4. The Costs of Doing Business
Start up Costs
Start up Capital
Overhead Costs
Variable Costs
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Section 3. Review
1. Write down two things you learned from your market research.
Note any problems with methods or process that you may have
encountered, and how you will overcome them.
2. Review your Time Management exercises. Note any changes made
during the week and any results or consequences. Did you say “NO” in
a situation you ordinarily wouldn’t have?
Exercise 1: Write down any assignments you did not complete and
when you will finish them.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Exercise 2: Presentations
Practice your Elevator Speech.
Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Section 4. The Costs of Doing Business
Knowing your costs is important because having plenty of customers does not necessarily
guarantee profits. ►Example:
Sylvia made beautiful gift baskets, taking great care in the quality of her products
(lotions, bath salts, etc.) going into the basket and its presentation. Her baskets
were
very
popular
and
she
always
sold
all
that
she made to her friends at church. But, she never had any money in her checking account,
and she couldn’t figure out why. Then she took a business planning class and did a cost
analysis. Sylvia soon realized that the total cost of all the products going into each basket
was more than the price she was charging! Seems like common sense, but Sylvia had never
taken the time to sit down and crunch the numbers – what an eye opener!
To figure what it will cost you to open and operate your business, you need to look at three
cost categories: Start up Costs (and potential sources of start up capital), Fixed (or
Overhead) Costs, and Variable Costs.
Start up costs
Start up costs are the amounts you need to spend in order to get ready to make your first sale.
This exercise will help you figure out how much money you need in order to “open your
doors.”
Exercise 3: Review Charlotte’s Start up costs on the next page. Fill in
your own Start up Costs – make notes as appropriate. If you have already
purchased some items, make a note of the value but do not included them in
the total of your start-up costs – you want to show that you have thought of
everything, but this exercise is to figure out how much money you need in
the near future to get your business up and running.
Do not do this exercise if you are already in business.
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Start Up Costs
Charlotte’s
Notes
Your Start Up
Start Up
Notes
Costs
Costs
Licenses (Business,
$100
Still need to research
$100
Office Depot
Insurance
$250
First 6 months
Equipment
$400
Heavy duty mixer
state and city,
Occupational license)
Printing business cards
and flyers
Previously purchased
mixer, value $250.00
Supplies
$200
apron, scale, mixing
bowls, measuring
cups, pans,
containers, cleaners
Office equipment and
Already purchased
supplies
computer and printer
– value $800.00
Miscellaneous
$100
Things I haven’t
thought of yet
TOTAL
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Already spent: $1050
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Start Up Capital
Now think about where you may be able to find the money to cover your start up costs.
Consider taking out a small loan, especially if you are participating in a microenterprise
program.
Taking out a loan for your business can be a very positive experience,
even though it may also be scary. The application process, which
usually requires a business plan, will help you consider different
business scenarios, and the loan not only will provide the money you need to
launch or expand your business, but may also help rebuild your credit. Grants
for business start up are generally very hard to come by, and the few legitimate
grant programs require good business plans and are very competitive.
Exercise 4: Sources of Start up capital
Write down possible sources of start-up capital. They may include loans, money
from your personal account (owner’s investment), gifts from family, government
agencies (VR, SSA), etc.
Source
Amount
__________________________
______________________
__________________________
______________________
__________________________
______________________
__________________________
______________________
__________________________
______________________
Notes:
_____________________________________________________________
_____________________________________________________________
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Overhead costs
Overhead, or fixed costs, are those expenses that you have to pay whether or not you are
making sales. Most overhead costs are figured on a monthly basis. Some costs will occur
once or several times a year, such as insurance payments. ►Case Study and Exercise 5:
Fill in Your Overhead Costs, with notes.
Overhead
Costs
Marketing
Charlotte’s
Non-
Your
Your Non-
monthly OH
monthly
Monthly OH
monthly OH
costs
OH costs
Costs
Costs
100
Insurance
Notes
200
See marketing plan
500
Liability – pay $250
Notes
2/year
Professional
150
services
Legal, tax prep
(March)
Office supplies
10
Web page
35
Repair/
Friend will design
100
Annual estimate
450
Business mileage,
Maintenance
Supplies
40
Travel
50
conference
Subscriptions
Licenses
Business phone
Annual
200
New mixer, etc.
30
Equipment
Loan Payment
60
45
Only interest is
deductible
Kitchen rental
200
Church will rent
Miscellaneous
20
unplanned
TOTAL COSTS
$530
 2016 MEDA
$1660
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Though it’s true that some of these expenses may fluctuate somewhat depending on how
many sales you make, it may be more efficient to estimate and track by category under
overhead than it is to try to figure out what portion of these costs to apply to each sales unit.
It’s OK if your total “fixed” costs fluctuate from month to month, as long as you plan for it.
Don’t include what you plan to pay yourself in your list of costs .
Remember, the profit you make is what you can afford to pay yourself, and you’ll
figure out what that is when you complete your income projections and cash flow
statement in later sections. Also, don’t figure into business expenses what you need
to pay in household expenses. You already figured this number when you did the budgeting
exercise, and these are bills you have to pay whether you are in business or not. Some of
your household expenses may be tax-deductible, but this calculation is a tax issue that we will
deal with later. First you need to figure what it costs to run the business, and how to make a
profit, before you worry about tax issues.
Variable Costs
Variable costs (also called Cost of Goods Sold – COGS) are defined as expenses you incur
only when you sell a “unit” to a customer. Most service businesses have very few variable
costs, because they are selling their time, and use only a few or no products at all to complete
the job. Here’s an exercise to help you figure out how much it costs you to make/prepare a
product:
► Case Study and Exercise 6: Calculate your Variable Costs.
Step 1: Define your Sales Unit. Your sales unit is what you are selling, and
will depend upon the type of business you are in. If you sell a product, your sales
unit will be that individual product, or a group of products that you sell together as
one unit. For example, Charlotte sells cakes, so her sales unit is one cake. If she
decided to sell individual pieces of cake, her sales unit would be one piece of
cake. If you have a service business, your sales unit will generally be a certain amount of
time, such as a one-hour massage, or a two-hour consultation. If you sell several different
products, choose your top three best sellers for the purposes of this exercise. Define your
sales units:
Sales Unit #1: _______________________________________
Sales Unit #2: _______________________________________
Sales Unit #3: _______________________________________
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Step 2: Make a shopping list of all the ingredients/products that go into your
sales unit. (Again, if you have a service business, do not do these steps.)
Example: Charlotte’s Ingredients: Sales Unit = Gingerbread Cake
Flour
Sugar
Cinnamon
Eggs
Baking Soda
Ginger
Butter
Molasses
Cake Box
Step 3: Figure the number of units you can make with the amount of each
item or ingredient purchased. For example, Charlotte buys flour by the 10 lb. bag,
which equals 40 cups of flour. Since the recipe calls for 2 cups of flour, Charlotte can make
20 cakes with a 10 lb. bag. Charlotte repeats this calculation for each ingredient (see example
on next page).
Step 4: Figure the cost per unit for each ingredient by dividing the cost of
the item purchased by the number of units you can make from the item. For
example, a 10 lb. bag of flour costs $6.00. Since Charlotte figured she can make 20 cakes
with one bag, she divided the cost of the bag ($6.00) by 20 cakes, which comes to $0.30. So
it costs Charlotte 30 cents worth of flour for every cake she bakes.
Step 5: Repeat this calculation for each of your ingredients, and add
up all the totals to come up with your total cost per unit. In the
example below, Charlotte came up with a Total Cost per Cake of $4.30.
Review the Case Study. Then using the blank charts on the following pages,
figure your cost per unit for up to three of your sales units. (If you only have
one sales unit that’s all you need to do. If you are a service business, you may not need to do
this exercise at all, because you will be able to account for all of your costs in the Overhead
Cost category.)
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Charlotte's Variable Cost Calculations for
Gingerbread Cake
Ingredients
Purchase size
Price
Recipe Amount
Cakes per
Cost per Cake
Purchase
size
(Step 2)
(Step 3)
(Step 4)
Flour
10 lbs
(=40 cups)
$6.00
2 cups
20
$0.30
Sugar
10 lbs
(=20 cups)
$7.00
1 cup
20
$0.35
23
$0.63
100
$0.08
2 tsp.
Cinnamon
8
oz.
$14.29
(=.34 oz.)
.5 tsp
Ginger
8
oz.
$8.00
(=.08 oz.)
Butter
1
lb.
$2.00
.25 lbs.
4
$0.50
Molasses
16
oz.
$4.49
4 oz.
4
$1.12
Eggs
18
2 eggs
9
$0.28
(=.34 oz)
23
$0.35
1
50
$0.70
$ 2.50
2 tsp.
Baking Soda
Cake Box
8
50
oz.
$ 8.00
$35.00
Total Cost per Cake
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$4.30
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Shopping List and Cost per Unit Calculations: Unit #1 ____________________________
Materials or
Purchase
Ingredients
size
Price
“Recipe”
Units per
Amount
Cost per
purchase size
Unit
Purchase size ÷
Price ÷ Units
Recipe amount
per purchase
size
(Step 2)
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Shopping List and Cost per Unit Calculations: Unit #2 ____________________________
Materials or
Purchase
Ingredients
size
Price
“Recipe”
Amount
Units per
Cost per Unit
purchase size
Purchase size ÷
Price ÷ Units
Recipe amount
per purchase
size
(Step 2)
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Shopping List and Cost per Unit Calculations: Unit #3 ____________________________
Materials or
Purchase
Ingredients
size
Price
“Recipe”
Amount
Units per
Cost per Unit
purchase size
Purchase size ÷
Price ÷ Units
Recipe amount
per purchase
size
(Step 2)
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Exercise 7: Cost Summary
Complete your cost exercises and fill in the chart below. You will need this
information for the exercises in the next section, so be sure to schedule time
to complete the exercises as soon as possible.
Charlotte’s Costs
Your Costs
Start Up
$1150
_________________________
Monthly Overhead
$ 530
_________________________
Other Overhead (annual)
$1660
_________________________
Variable Costs per Unit #1 $ 4.30
_________________________
Unit #2
_________________________
Unit #3
_________________________
_________________________
_________________________
Notes:
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
________________________________________________
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Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Section 4. Assignments
1. Make a list of possible sources of start up capital, including
identifying loan programs.
2. Complete your list of start up costs.
3. Complete your list of overhead costs.
4. Calculate your variable costs (if you are selling a product).
5. Write your cost summary.
6. Continue tracking expenses.
7. Continue market research.
8. Read Section 5.
9. Have a calculator available.
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In this Section:
5. More Number Crunching: Pricing, Income
Projections and Cash Flow Projections
Pricing
Gross Profit
Income Projection
Cash Flow Projection
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Section 4. Review
1.
Review your cost summary (p. 79). Check for completeness. If
you are not sure about your costs ask for help.
Exercise 1: Write down any assignments you did not complete and
when you will finish them.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Section 5: More Number Crunching
Now that you know your approximate costs, your next task is to figure out how much income
you will make for the next twelve months. This exercise requires you to decide what prices
you will charge, and to make your best guess as to how many units you will sell on a monthly
basis. Have you done your market research yet? Knowing what your competition is doing
and what your customers want will help you make more accurate projections.
Pricing
Charging the right price is important and should take into account your
costs, what your competitors are charging, and what your customers
are willing to pay. You should decide what price to charge only after
you have done your cost analysis and your market research, and not rely on
formulas.
Be careful not to under price your product or service. New business owners are tempted to
charge a reduced rate hoping to attract customers, but this strategy backfires more often than
not. In many customers’ minds, lower prices mean lower quality – not a message you want to
send! Also, keep in mind that you need to make enough profit to pay yourself enough to
make the business feasible for you. Microenterprises typically do not have a high profit
margin to begin with – so don’t sell yourself short!
Case Study: Based upon their market research and cost summaries,
Charlotte came up with the unit price of $18.50 for her Gingerbread Cake,
Sylvia charges $5.00 per bar of Shea Butter Soap, and David decided to
charge $75.00 per consulting hour.
Exercise 2: List your Prices. Are you sure they’re the right prices?
Sales Unit
Price
________________________
______________
________________________
______________
________________________
______________
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Gross Profit per Unit
Gross Profit per unit equals your sales price minus your variable cost per unit.
Remember, variable cost is also called Cost of Goods Sold, or COGS.
Example: Charlotte’s price of $18.50 (for one cake) minus her variable cost per
unit of $4.30 equals $14.20. This number is her Gross Profit per Unit.
Example: David’s price for a consulting hour is $75.00 His business is a service
business so he does not have variable costs, just startup and overhead costs. His
Gross Profit per Unit is $75.00.
Income (Gross Profit) Projection
Now that you’ve decided what price to charge and you know your variable costs,
it’s time to do an income projection in order to figure out how much money you will make.
An income projection is your best estimate of how many units you will sell each month, for
12 months, and the resulting income you will receive, minus your variable costs, based upon
that estimate.
If you have not yet started your business, you may find it difficult to estimate sales. It’s OK
to guess! Use your judgment based upon your market research and your goals. Factor in
some time for your marketing plan to start working and to build up your customer base.
David’s Income
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Projection
New
contract
Notes:
1. Number of Hours
New
contract
First
Contract
ends
10
20
20
40
40
30
2. Hourly rate
$75.00
$75.00
$75.00
$75.00
$75.00
$75.00
3. Consulting
$750
$1500
$1500
$3000
$3000
$2250
Billed
Income
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►Case Study and Exercise 3: Study Charlotte’s Income Projection for
her first six months, then complete your own 12 month Income
Projection:
Charlotte’s
Month 1
Month 2
Have
some
customers
Holiday
month
Month 3
Month 4
Month 5
Goal of
adding
stores
Holiday
month
Month 6
Income
Projection
Notes:
1. Cakes
40
50
40
60
80
80
$14.20
$14.20
$14.20
$14.20
$14.20
$14.20
$568
$710
$568
$852
$1136
$1136
$568
$710
$568
$852
$1136
$1136
(# of Units Sold)
2. Gross Profit
per Cake
3. Cake Income
4. Other Income
5. Total Gross
Income
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Income Projection
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Notes:
1. Unit 1 Sales
(# of Units Sold)
2. Unit 1 Gross
Profit (GP)
3. Unit 1 Income
(Units sold x GP)
4. Unit 2 Sales
(# of Units Sold)
5. Unit 2 Gross
Profit
6. Unit 2 Income
(Units sold x GP)
7. Unit 3 Sales
(# of Units Sold)
8. Unit 3 Gross
Profit
9. Unit 3 Income
(Units sold x GP)
10. Other income
11. Other Income
12. Total Income
(3+6+9+10+11)
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Income
Month 7
Month 8
Month 9
Month 10
Month 11
Month 12
Projection
Notes:
1. Unit 1 Sales
(# of Units Sold)
2. Unit 1 Gross
Profit (GP)
3. Unit 1 Income
(Units sold x GP)
4. Unit 2 Sales
(# of Units Sold)
5. Unit 2 Gross
Profit
6. Unit 2 Income
(Units sold x GP)
7. Unit 3 Sales
(# of Units Sold)
8. Unit 3 Gross
Profit
9. Unit 3 Income
(Units sold x GP)
10. Other income
11. Other Income
12. Total Income
(3+6+9+10+11)
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Cash Flow Projection
Once you have done your Cost Analysis and your Income Projection, you can do
your Cash Flow Projection, which is your best planning tool, an essential part of
your business plan, and a key part of any loan application. Your Cash Flow
Projection predicts what your business account will look like on a monthly basis
for 12 months into the future. It allows you to plan when and how much to pay yourself
(your owner’s draw), helps you plan for major purchases/expenses, and shows you if and
when you need a loan.
It’s much easier to understand cash flow if you keep your business and
personal finances separate. The business can still pay your personal
bills, but you will record those transactions as owner’s draws. That
way you will know exactly what is coming into and going out of the business,
without mixing it up with your personal finances, and you will be able to make
business decisions based upon accurate information and do your taxes correctly.
More on this topic later when we get to the record keeping section. Now, we will look at
your cash flow. Your cash flow projection is a chart that shows all of the money coming into
your business, all of the money going out of your business, and the balance at the end of the
month. When doing the calculations from one month to the next, remember that just like with
a checkbook register, your total cash at the end of the month is the same as your total cash at
the beginning of the next month.
Exercise 4: Cash Flow Projection
Study Charlotte’s six-month cash flow on the next page. Then do your own cash
flow for 12 months, using the blank chart on the following pages. (Make copies
before you start.) You will need to refer back to your cost summary (p. 79) and
income projection (pp. 90-91) in order to complete your cash flow projection.
To figure monthly variable costs (product businesses only), you need to multiply
monthly units sold by the variable cost/unit for each of your units, and add them
together for your monthly total. (See the example and worksheet on the next
page.)
Note: If you know how to use excel, ask your instructor to e-mail the spreadsheet
to you.
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►Case Study – Charlotte’s Cash Flow Projection
Charlotte’s Cake
Start up
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Creations Cash Flow
Projection
1. Beginning Cash
$
-
$ 350
$
288
$
368
$
206
$
278
$
378
2. Income received
$
-
$ 568
$
710
$
568
$
852
$ 1,136
$ 1,136
3. Other Cash In (loan,
$ 1,500
$ 1,500
$ 568
$
710
$
568
$
852
$ 1,136
$ 1,136
$ 1,500
$ 918
$
998
$
936
$1,058
$ 1,414
$ 1,514
$ 200
$
200
$
200
$
200
$
200
$
200
$ 100
$
100
$
100
$
100
$
100
$
100
$
250
owner’s investment, etc.)
4. Total Cash In
(2+3)
5. Cash available
(1+4)
Cash Out
6. Kitchen Rental
7. Marketing
$
100
8. Insurance
$
250
9. Professional Services
$
100
10. Office supplies
$
10
$
10
$
10
$
10
$
10
$
10
11. Web page
$
35
$
35
$
35
$
35
$
35
$
35
$
50
12. Repair/Maint.
13. Supplies
$
200
14. Travel
$
40
$
40
$
40
$
40
$
40
$
40
$
50
$
50
$
50
$
50
$
50
$
50
$
30
$
30
$
30
$
30
$
30
$
30
$
200
15. Subscriptions
16. Business phone
17. Licenses
$
100
18. Equipment
$
400
19. Loan Payment
20. Miscellaneous
$
100
21. Taxes
$
45
$
45
$
45
$
45
$
45
$
45
$
20
$
20
$
20
$
20
$
20
$
20
$ 100
$
100
$
100
$
100
$
100
$
100
$
6
$
6
22. Other (Merch. fees)
23. Other
24. Total Cash Out
$ 1,150
$ 630
$
630
$
730
$
680
$
836
$
886
25. Cash Available
$
350
$ 288
$
368
$
206
$
378
$
578
$
628
26. Owner’s Draw
$
-
$
100
$
200
$
200
27. Ending Cash
$
350
$
278
$
378
$
428
(Line 5 – Line 25)
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$ 288
$
368
$
206
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Exercise 5: Consider Charlotte’s Cash Flow Projection.
1) Is Charlotte making enough to reach her goals? (look back at her goals and the
budget you prepared for her in Section 1.)
2) How can she cut back on expenses, both personal and business?
3) How can she increase income?
4) Why is she setting aside $100/month in taxes?
5) Why is she not taking an owner’s draw for the first month, and a reduced draw
for several months after that?
6) How much should she have in savings or other income in order to pay her bills
while her business is getting off the ground?
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Cash Flow Projection
Start up
Month 1
Month 2
Month 3
Month 4
Month 5
1. Beginning Cash
2. Income (Gross)
received
3. Other Cash In (loan,
owner’s investment, etc.)
4. Total Cash In
(2+3)
5. Cash available
(1+4)
Cash Out
6. Rental
7. Marketing
8. Insurance
9. Professional Services
10. Office supplies
11. Web page
12. Repair/Maint.
13. Supplies
14. Travel
15. Subscriptions
16. Business phone
17. Licenses
18. Equipment
19. Loan Payment
20. Miscellaneous
21. Taxes
22. Other
23. Other
24. Total Cash Out
25. Cash Available
(Line 5 – Line 24)
26. Owner’s Draw
27. Ending Cash
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Month 6
Cash Flow Projection
Month 7
Month 8
Month 9
Month
Month
Month
10
11
12
1. Beginning Cash
2. Income (Gross)
received
3. Other Cash In (loan,
owner’s investment, etc.)
4. Total Cash In
(2+3)
5. Cash available
(1+4)
Cash Out
6. Rental
7. Marketing
8. Insurance
9. Professional Services
10. Office supplies
11. Web page
12. Repair/Maint.
13. Supplies
14. Travel
15. Subscriptions
16. Business phone
17. Licenses
18. Equipment
19. Loan Payment
20. Miscellaneous
21. Taxes
22. Other
23. Other
24. Total Cash Out
25. Cash Available
(Line 5 – Line 24)
26. Owner’s Draw
27. Ending Cash
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Totals
Section 5. Assignments
1. Add all the expenses in your expense notebook for a monthly total.
Transfer the totals to your income and expense statement from Section
One (p. 21). Compare the totals to the budget you did in Section One,
and prepare a budget for next month.
2. Finish your 12-month Income Projection.
3. Finish your 12-month Cash Flow Projection.
4. Read Section 6.
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In this Section:
6. Finding Customers: Your Marketing Plan
Target Market Revisited
Marketing Message
Marketing Materials
Types of Marketing Materials
Marketing Methods
Marketing Plan
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Section 5. Review
1. Review your Income Projection and Cash Flow Projection. Take the
time to make sure you understand the assumptions and calculations.
These are difficult exercises, so ask to schedule a one-on-one
appointment if you had trouble completing them. Write the
appointment in your calendar.
2. What did you discover about the feasibility of your business based
upon the numbers and assumptions you used?
3. If your business doesn’t seem feasible based upon the numbers you
used and the assumptions you made, what changes can you make to
make it feasible?
4. What did you discover when you compared last month’s Income and
Expense statement to your Budget?
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Exercise 1: Write down any assignments you did not complete and
when you will finish them.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Section 6. Finding Customers:
Your Marketing Plan
Before you can open your doors for business, you need to find customers. You know the
demand is out there, but how do you find them? How do you convince them they should buy
your product or service instead of going to one of your competitors? In short, what is your
Marketing Plan?
Target Market Revisited
You defined your target market back in Section 2. Take a moment to review what you
wrote. Can you focus and refine your target market even further? Think of the typical
customer you want to reach, and make sure you have answered these questions, plus any
others you can think of to help with your description:
 What is her age?
 What is her income?
 Where does she live and work?
 How long of a commute does she have?
 What schools do her kids attend?
 What does she read, watch on TV, listen to on the radio?
 What church does she attend?
 What kind of car does she drive?
 How many children does she have?
 Where does she shop?
 What is important to her when it comes to your product/service?
Exercise 2: Target Market
Write a description of your target market – be as specific as possible:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Marketing Message
What do you want your target market to know about your business?
What message are you going to send to your potential customer
that will convince them that they should buy your product or
service instead of someone else’s?
Most marketing books agree that there are two ways to think about describing your
business: its features and its benefits. Features focus on what you as the business
provide: in Sylvia’s case a bar of soap made out of certain ingredients, with a certain look
and scent. While these qualities are good things to write in your business plan when you
are describing your business, customers don’t care about them so much as they care about
how these features will affect them – they want to know how your product or service will
benefit them, or how it will make them feel. So, your message needs to answer this
question: What are the benefits to your customers? ►Case Study:
Sylvia’s Soap Shoppe Benefits:

Your skin will feel healthier, softer, and more smooth

You’ll feel relaxed as you enjoy the wonderful scents

You’ll feel cared for and special with our great service and high quality
products
Exercise 3: Brainstorm benefits
Write down words, phrases, and sentences that describe the benefits of your
business.
____________________
____________________________________________
____________________
____________________________________________
____________________
____________________________________________
____________________
____________________________________________
____________________
____________________________________________
____________________
____________________________________________
____________________
____________________________________________
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Exercise 4: Review the interviews you did of your competitors and
clients in Section 3. Remember what was important to them. Using
that information and the list you just brainstormed, write a list of
your own benefits.
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
Food for thought: Which of your benefits are the most unique? How will
you stand out against your nearby competition?
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
__________________________________________________________
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Marketing Materials
The materials that you present to your clients and your community in general
should have a professional and consistent look (they should all look very similar so they
can all be recognized right away as your business). At a minimum, they should include
your business name, a tag line and/or logo, and your contact information. Some of
your materials, such as flyers or newsletters, should also include your benefits and any
other information you want to share.
Business Name -- Your business name should be descriptive and memorable. It’s
OK to use your own name as part of your business name. If you haven’t thought of a
business name already, have your classmates help you come up with some ideas. Here are
a few examples:
Sweet Mama’s Bakery
Delightful Deliveries Catering
Creative Kids Child Care
Crystal’s Beaded Jewelry
Charlotte’s Cake Creations
Main Street Bookkeeping Services
Green Cleaning Services
Perfect Pet Photography
Logo – A logo is a picture that you put on your marketing materials that helps create an
image of your business. It makes your marketing materials unique and recognizable, and
should tie into your business name. You can find many examples to use from your own
pictures or through clip art on your computer or the internet. Here are a few examples:
Exercise 5: Logos we know
Think of logos that are familiar to you from everyday life. Write down the ones
that come to mind right away.
__________________________________________________________
__________________________________________________________
__________________________________________________________
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Tag Line -- A tag line is a phrase that appears on your marketing materials, often
underneath your business name, that is catchy and descriptive. A good tag line will help
customers remember what is special about your business.
Exercise 6: The Matching Game: Draw a line between the tag lines
below and the company they represent:
Just Do It
WalMart
Fly the Friendly Skies
Taco Bell
Always low prices. Always.
Hallmark
Where’s the Beef?
United Airlines
When you care enough to send the very best.
Nike
Think outside the bun.
Wendy’s
Exercise 7: Write down your ideas for a business name, logo and tag
line for your own business.
Business Name
Logo
Tag Line
_______________________
____________________
_______________________
_______________________
____________________
_______________________
_______________________
____________________
_______________________
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Types of Marketing Materials
You should have several different types of marketing materials that
you use regularly and distribute as often as possible.
Business Cards – Business cards are great because they are
inexpensive and you can easily carry them with you to hand out to people.
Printed on your business card should be your business name, your tag line
and/or logo, your address, phone number(s), e-mail address, and website, if you have
one. If you have a home-based business and prefer not to put your full address on the
card, that’s OK, but be sure to at least indicate your town or neighborhood so prospective
clients know in what area you are located. Hand them out at every opportunity! You can
find a local print shop or office supply store to print them, or order them on the web.
Flyers/Brochures – A flyer or brochure is also essential. You can put more
information on a flyer than on a business card, and it can be used in many ways. You can
post flyers on bulletin boards, hand them out, or mail them (either folded or cut to large
postcard size). Have someone help you edit it to make sure it looks professional: no
typos, an inviting format, and bright colors.
Make sure you print all of your contact information, just as you do on your business card,
as well as your tag line, on your flyer. In addition,
 Feature your logo and/or some other design or picture. Make sure it is
something that looks good when copied or printed, and use good quality paper.
Photos are good (get written permission if you use a photo of someone else’s
image), but they sometimes don’t copy well, so test it out before printing a whole
batch.
 List several benefits of your program – the things that you are proud of and will
entice customers to try your product or service. If you list your prices, don’t do a
large printing, as they may change and you will have wasted money.
 Use testimonials from current or past clients. If you don’t have any yet, ask
customers to write a recommendation and ask their permission to use a quote in
your marketing materials – they will probably be happy to help. Try to use quotes
that relate to the benefits you want to emphasize. For example, “Your soaps are
fantastic – my skin has never felt so good!” -- Jane W.
Business Checks – You will be paying lots of bills with checks, so it’s
a good way to promote your business around town. You will need checks for
your business account anyway, so they might as well look professional! If your
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bank can’t print what you want, there are many companies who will print checks to your
specifications at a reasonable cost. Be sure to include your logo.
Newsletters – A newsletter can be a great way to promote your business and keep
clients interested in coming back. It can be done on a computer or written out by hand.
Start by creating one quarterly, and if it’s well received and you have the time, do one
every month. Send it (by mail and e-mail) to past and current clients, people who have
called about your program (you should keep a log with contact information), friends, and
anyone else you can think of. Also have recent copies available wherever you sell your
product or service. As with your other materials, it should look similar and contain your
business name, contact information, tag line and logo. Format it so that is fun and easy to
read. It may also include upcoming activities and events, promotional specials, interesting
articles or news, features, and anything else you’d like to share about your business.
Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Exercise 8: Sample Flyer
Design a flyer for your business:
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Marketing Methods
Now that you know your message and what your materials look like, you
need to come up with a plan to reach potential clients with your message and
materials – what marketing methods will you try? There are many different
ways to market your business.
The trick is to get the most out of your marketing budget and reach
the right people. That’s why it’s so important to narrow down your
target market – you want to make sure your message and materials
are reaching real potential clients, not just anybody. Follow these steps to
come up with the right combination of marketing methods for your business:
►▶Step 1: Do some research! Think about how your competitors market their
business, and think about your target market and how to reach them. What types of
advertisements are your potential clients most likely to see? Go over the list of methods
below, find samples from other businesses, ask friends for suggestions. Read through
local and industry papers and magazines for ideas as well. Keep your marketing budget in
mind and mark the methods you’d like to try but can’t afford yet.
►▶Step 2: Make a list of a combination of methods to try.
►▶Step 3: Plan an entire year of marketing, and don’t be afraid to try new things.
Remember that people often need to hear or see a message a few times before it really
sinks in (think about how we see the same commercial on TV over and over again), so
don’t be afraid to repeat methods and be patient.
►▶Step 4: Reevaluate your plan every six months or so to see what has been
effective. Ask customers how they heard about you and keep track of that information.
Exercise 9: Marketing Methods Brainstorming
Think about how you have heard about the competition in your area. Then go
over the list of methods on the next page and circle ones you might try and/or
want to research in the next six months. If you have any questions about any of
the listed methods, do some research to see if it’s a method you should try.
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Marketing Methods
The appearance of your place of business
Signs
Bulletin board
Yellow Pages
Web Page
Flyers – where will you distribute them? Make a list.
Video tape or DVD
Business Cards
Newspaper press releases
Friendly professional greeting on VM
Birthday and holiday cards
Price List
Photo album
Name Badge
Giveaway items, such as t-shirts, refrigerator magnets, pens,
Radio ads
Brochures
Door hanger
Incentive coupon
Local newspaper ads
Referrals from competitors
Finder’s fees
Follow up calls
Business networking associations
Consignments shops
Table at community events
Welcome mat
Thank you notes
Industry associations
Coupons
Postcards
_________________________________
______________________________
_________________________________
______________________________
_________________________________
______________________________
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Home Exercise 2: Six Month Marketing Plan
1) Review Charlotte’s Marketing Plan.
2) Write your own marketing plan for the next six months. Be even more
specific than the example, including costs, places to distribute flyers, and places
to research or buy supplies, etc. If you don’t know a cost, make a note to
research it as soon as possible. Always have a plan for at least six months into
the future (12 months is even better). Use the space below for notes, then fill in
your Marketing Plan sheet.
Notes: ______________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
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Charlotte’s Cake Creations Six Month Marketing Plan
Month 1
Month 2
Create and distribute a flyer.
($20.00)
Record a friendly professional greeting.
(Business phone and cell phone)
Design and order business cards.
Send press releases to local papers.
(40.00)
Call local business associations.
Month 3
Call competitors. Ask for marketing ideas.
Month 4
Create a web page.
Offer current clients a referral discount.
(friend will design)
Research cost of table sign.
Call clients for quotes/stories.
Research local vending opportunities.
Create a newsletter. ($10.00)
Month 5
Month 6
Distribute more flyers.
Research cost of a newspaper ad.
($10.00)
Join Chamber of Commerce.
($200.00)
Work on table display.
(supplies: $30.00)
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Start a photo album.
($15.00)
Create birthday/holiday schedule for cards
and coupons.
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Marketing Plan for: ________________________________________________________
Logo: _____________________________ Tag Line: _____________________________
Month: _______________ Activities
Costs
Locations
Month: _______________ Activities
Costs
Locations
Month: _______________ Activities
Costs
Locations
Month: _______________ Activities
Costs
Locations
Month: _______________ Activities
Costs
Locations
Month: _______________ Activities
Costs
Locations
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Marketing Plan for: ________________________________________________________
Logo: _____________________________ Tag Line: _____________________________
Month: _______________ Activities
Costs
Locations
Month: _______________ Activities
Costs
Locations
Month: _______________ Activities
Costs
Locations
Month: _______________ Activities
Costs
Locations
Month: _______________ Activities
Costs
Locations
Month: _______________ Activities
Costs
Locations
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Section 6. Assignments
1. If you haven’t finished your financial projections, continue to work
on them. Make an appointment to get some extra assistance, if
necessary.
2. Create a business card for your business.
3. Create a flyer for your business.
4. Write a 6-month Marketing Plan.
5. Continue to track your expenses.
6. Read Section 7.
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In this Section:
7. Record Keeping
Records to Keep
Income & Expense Statement
Benefits Planning
Balance Sheet
Filing System
Tips for Tax Time
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Section 6. Review
1. Reality Check – by now, you should have the following assignments
done or almost done in order to finish your business plan. Check the
ones you have completed. Schedule time to finish the others as soon
as possible.
_____ Mission Statement
_____ Target Market
_____ Business Goals
_____ Market Research
_____ Owner’s Qualifications
_____ Cost Analysis
_____ License/Insurance info
_____ Cash Flow Projection
_____ Description of Services
_____ Marketing Plan
Exercise 1: Write down any assignments you did not complete and
when you will finish them.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Section 7. Record Keeping
One of the best things you can do for yourself to help make your business
successful is to set aside time every day to keep good records. Good record
keeping means keeping accurate, detailed, and chronological records of every business
transaction you make, and it means keeping your business finances and your personal
finances separate.
If all you do is get and keep receipts for everything, write everything
down, and keep it all organized in one place, such as a filing cabinet
or desk drawers, you are well on your way to becoming a good
business record keeper!
Records:
These are the records you need to keep for your business.
They can all
be kept using a paper system you can buy at an office supply store, using notebook or ledger
(columnar) paper and a calendar, or on the computer. Use whichever system with which you
are the most comfortable.
Calendar with hours spent on business related activities: Track all
hours you work on the business.
Include time spent on production, planning, record
keeping, marketing, and so on. The easiest way to track these activities is on a calendar.
Having an accurate time total will help you determine how much time each activity takes and
will help you with planning and time management, so that you will be more organized. You
can also track your mileage for business related trips on your calendar. Example:
February 2008
Sunday
3
10
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Monday
Tuesday
Wednesday
Thursday
Friday
Saturday
4
5
6
7
8
9
Recordkeeping
1 hour
Package and
mail orders
2 hours
Event prep 3 hrs
Marketing
2 hours
Production
3 hours
Shopping for
supplies
2 hours
Production
6 hours
Packaging
and event prep
8 hours
Event prep
6 hours
Holiday event
vending
10 hours
(24 miles)
11
12
13
14
15
16
Recordkeeping
2 hours, Bank
30 min. (3 mi.)
Production
4 hrs
Marketing
2 hours
Production
4 hours
cleaning,
2 hours
Production
4 hours
Production
4 hours
Update
webpage
2 hours
Package
and deliver
orders
4 hours
print flyers, 1
hour
Bank, 30 min
(16 miles)
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Sales Income Received: Record the units sold and amount of payment you
receive from customers, along with the date, method of payment, and any notes you feel are
appropriate, including collecting for sales tax or postage. Make sure you do a monthly total
every month. Note: in the example below the totals do not match the detail since only part of
the month is detailed. Example: Sylvia’s Soap Shoppe
Date
Client
Name
2/5
Stewart
Alexa’s Bath
Units
$ Amt.
Shea
2/9
2/15
$ Amt
Lav.
Units
$ Amt.
Payment
Cit.
$25
5
$32.50
Check
40
$200
40
$260
40
$260
Check
3
$19.50
3
$19.50
Check
$25
5
$32.50
5
$32.50
Visa
28
$140
35
$227.5
20
$130
Cash,
From indiv
Visa
receipts at
Check
New cust.
4
$20
4
$26
Jacobs
2
$10
8
$52
7
$45.50
Visa
Donaldson
1
$5
2
$13
2
$13
Visa
Arnold
2
$10
5
$32.50
event
M.O.
5% vol.
Gray’s Gift
Hillman
50
$237.5
40
$247
40
$247
Check
7
$35
1
$6.50
2
$13
Check
Feb.
Totals
New cust.
5
Sultan
Shop
Notes
Method
5
Henry
Jones
Units
172
$864
160
$990
135
$830
discount
Total
Sales Tax
Feb
collected
$116.22
Sales
Income
= $2684
Postage
collected
$80.00
Expenses: Record everything you spend on your business on an expense report.
Create categories that work for your business, or use a report that was designed for your
industry. Just like you do now with your personal expense notebook, write down all
purchases as soon as possible so you don’t forget an entry. Do monthly totals. Example:
(you will have more categories than the example – refer to your Cost Analysis for all of the
expense categories you will use).
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February Expense Report
Date
Description
Ingredients
2/4
Web Service
2/6
Sam’s Club
$80.00
2/6
Soaps R Us
$84.00
Marketing Web srv. Supplies Travel
Misc.
$35.00
$47.11
2/16 Kinko’s–printed
$10
$20.00
flyers
2/28 Monthly Totals
$275.00
$100.00
$35.00
$57.11
$20.00
$20
Checkbook Register: As we stated earlier when talking about cash flow
projections, it is extremely important to the business to keep your personal and
business finances separate. If you are already in business and do not have a
separate checking account that you use just for business, open one up right away! If you
haven’t started your business yet, open up a separate account before you begin. (Check into a
“dba” account, “doing business as” if a business account is too expensive. That way you can
have your personal name and business name on your account, which will simplify things for
you and your customers.)
Sample Checkbook Register
Number
Date
Transaction
Payment
Deposit
Description
2/6
Sam’s Club -
Balance
$512.85
137.11
375.74
supplies
2/11
Deposit from
1404.00
1779.74
event and orders
Debit card
2/16
Kinko’s - flyers
2/16
Deposit from
20.00
1759.74
1013.00
2772.74
shop, mail order
2/16
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Owner’s Draw
500.00
Keys to Success: A Business Planning Guide
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125
Your checkbook register for your business checking account is a key part of your
record keeping system. Get in the habit of depositing all of (and only) your
business income into your business checking account, and paying for
all (and only) business purchases with funds from your business
checking account.
If you need to use personal money to cover a business expense, first do a transfer
or deposit from your personal funds to your business account, record it as an
Owner’s Investment, and then pay the business expense from your business
account. When you pay yourself from business profits, transfer funds from your
business account to your personal account, and record it as an Owner’s Draw.
Also get in the habit of recording all transactions the day they occur, and keep the total up to
date. Balance your checkbook every month. Make sure what is written in your Income
Records and your Expense Records for the month match your Checkbook Register for the
month.
Income and Expense Statement (also called Profit and Loss):
In a previous Section you prepared an Income Projection and a Cash Flow Projection to see
what you expected your business financial picture to look like in the near future. Once you
are in business and keeping good records of your actual transactions, it will be easy for you to
prepare an Income and Expense Statement – a monthly account of your actual income and
expenses.
This statement is a very important business document, as it shows you and potential lenders
how well your business is doing over time. Don’t fall behind on this task - at the end of the
month, add up all of your sources of business revenue (from your Sales Income Received
records) to come up with your monthly income received. Then do monthly totals for your
business expenses (from your Expense Report), by category. Enter them into your Income
and Expense statement to come up with your net income figure.
You need to know how your business is doing every month to know
how much you can pay yourself, and to plan for your future. Just like
with your Personal Budget, it’s much easier to do projections when
you have several months’ worth of actual numbers to use. Once you have filled
in your Income and Expense Statement for a few months, do another cash flow
projection for your business.
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Charlotte’s Cake
January
February
March
April
May
6-month
June
Total
Creations Income &
Expense Statement
$ 640
$
658
$
748
$
750
$ 978
$1,366
$ 5,140
2. Kitchen Rental
$ 200
$
200
$
200
$
200
$ 200
$ 200
$ 1,200
3. Marketing
$ 150
$
100
$
100
$
80
$
$ 100
$
$ 250
$ 1,780
1. Income received
(Gross Profit)
Expenses
50
4. Insurance
5. Professional Services
$
125
6. Office supplies
$
10
$
10
$
-
$
10
$
12
7. Web page
$
35
$
35
$
35
$
35
$
35
$
77
8. Repair/Maint.
$
$
580
$
125
-
$
42
35
$
167
$
77
9. Supplies
$
40
$
45
$
35
$
40
$
40
$
50
$
250
10. Travel
$
48
$
55
$
37
$
35
$
55
$
60
$
327
$
30
$
30
$
30
$
30
$
30
$
30
$
180
$
180
$
225
11. Subscriptions
12. Business phone
13. Licenses
$ 225
14. Equipment
15. Loan Payment
$
45
$
45
$
45
$
45
$
45
$
45
$
270
16. Miscellaneous
$
20
$
10
$
10
$
22
$
14
$
20
$
495
$
-
17. Other (Merchant
fees)
18. Other
19. Other
20. Total Expenses
$ 578
$
530
$
617
$
497
$ 783
$ 790
$ 3,795
21. Net Income
$
62
$
128
$
131
$
253
$ 195
$ 576
$ 1,345
22. Taxes
$ 100
$
100
$
100
$
100
$ 100
$ 100
$
600
23. Net Income after
$
$
28
$
31
$
153
$
$ 476
$
745
before taxes
(Line 1 – Line 20)
(38)
95
taxes
(Line 21 – Line 22)
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Exercise 2: Actual vs. Projections
Review Charlotte’s Income and Expense Statement and compare it to her Cash Flow
Projection. Are there any differences? What are they?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
What might account for the differences?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
How should Charlotte adjust her plans, including owner’s draw, based upon her
actual numbers?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
How does it help Charlotte to keep track of how much of each product is sold and
individual clients instead of lumping it all together?
_________________________________________________________________________________
_________________________________________________________________________________
_________________________________________________________________________________
Exercise 3: Income and Expense Statement
If you are already in business, complete an Income and Expense Statement for your
last 6 months of operation. If you are not in business yet, plan your record keeping
system and review your hours to allow for time to update your records on a regular
basis.
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Income & Expense
January
February
March
April
May
6-month
June
Total
Statement
1. Income received
Expenses
2. Rental
3. Marketing
4. Insurance
5. Professional Services
6. Office supplies
7. Web page
8. Repair/Maint.
9. Supplies
10. Travel
11. Subscriptions
12. Business phone
13. Licenses
14. Equipment
15. Loan Payment
16. Miscellaneous
17. Other
18. Other
19. Other
20. Total Expenses
21. Net Income
before taxes
(Line 1 – Line 20)
22. Taxes
23. Net Income after
taxes
(Line 21 – Line 22)
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Income & Expense
July
August
Sept.
Oct.
Nov.
12-month
Dec.
Total
Statement
1. Income received
Expenses
2. Rental
3. Marketing
4. Insurance
5. Professional Services
6. Office supplies
7. Web page
8. Repair/Maint.
9. Supplies
10. Travel
11. Subscriptions
12. Business phone
13. Licenses
14. Equipment
15. Loan Payment
16. Miscellaneous
17. Other
18. Other
19. Other
20. Total Expenses
21. Net Income
before taxes
(Line 1 – Line 20)
22. Taxes
23. Net Income after
taxes
(Line 21 – Line 22)
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Benefits Planning
– If you are receiving SSI or SSDI (which are two very
different programs), you will want to fill out another Income and Expense Worksheet (see
page 135) that includes your Work Incentives and figures your Countable Income, so that you
can protect your benefits for as long as possible. With both programs, once you start earning
a certain amount of additional income through your business, you are in danger of losing
some or all of your benefits.
Benefits Planning is a very complicated and individualized process.
Before starting your business, contact your local Work Incentives
Planning and Assistance (WIPA) provider to schedule an analysis of
your situation.
Bring your financial projections with you. If you are a
Vocational Rehabilitation client, talk to your counselor about benefits planning
and which work incentives may apply to you.
You can locate the WIPA provider who serves your area by going to
http://www.socialsecurity.gov/work/ServiceProviders/WIPADirectory.html
SSI, or Supplemental Security Income, is paid to people experiencing disability or blindness
who have limited income and resources. SSI recipients can receive up to $1359 per month,
and also receive Medicaid. If you are earning additional income through self-employment,
your benefit will be reduced by half of your countable income. Countable income is
determined by taking your net business income, multiplying by 0.9235, subtracting $20,
subtracting $65, and subtracting work incentives for that month. Therefore, the lower your
countable income, the higher your benefit. To decrease your countable income, you want to
take all of the deductions and use all of the work incentives to which you are entitled.
Another reason it pays to keep good business expense records!
It also pays to do an accurate business income projection. For SSI recipients, SSA needs to
have an estimate of what you expect to earn from your business so that they can adjust your
check accordingly. When the calendar year is over and you prepare your tax return for the
year, you must submit these forms to SSA. Social Security will take the total profit you made
for the year and average it out over all 12 months. This monthly average is what they will use
to determine how much SSI you should have received and this will be applied retroactively.
In some cases you may have received more that you were due, but in other cases, SSA may
owe you money. They will adjust your check to account for this difference. Even if you
don’t expect to make a profit right away, you still need to notify SSA that you have started a
business.
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Here are some of the work incentives that may help decrease countable income and/or help
you if you are an SSI recipient:
Property Essential to Self-Support (PESS) – As you may be aware, you are not
allowed to have more than $2,000 in countable resources and stay eligible for
benefits. However, assets held by a business are specifically excluded when
SSA looks at countable resources under a special provision called “Property
Essential for Self-Support.” Under PESS, SSI recipients are permitted to have unlimited
business property, assets or resources as long as they are in “current use” in a trade or
business. Owning a business may be a very good way to build wealth while retaining SSI
eligibility. These rules have recently changed for Sole Proprietorships – talk to a benefits
planner to work out the best plan for you.
Plan to Achieve Self-Support (PASS) – To use PASS,
you have to determine a specific
occupational goal, must determine what items or services are needed to achieve that goal and
must complete the PASS form describing how PASS funds will be spent on the items or
services needed to meet your goal. The income or resources set aside in the PASS are
disregarded when SSA determines SSI eligibility and when calculating the amount of the SSI
payment each month. By using a PASS, beneficiaries can actually leverage their own Social
Security benefit to save for the start-up expenses needed to get a business off the ground.
While the PASS work incentive is of tremendous assistance to many SSA disability
beneficiaries who have a self-employment goal, it does have some limitations and won’t work
for everybody. See a benefits planner to see if this is the right program for you.
Impairment Related Work Expenses (IRWE) – SSA deducts the cost of items and
services that you need to work because of your impairment (e.g., attendant care
services, medical devices, etc.) from NESE when they calculate your adjusted
SSI payment. By deducting IRWEs from your NESE, you are able to keep more of
your SSI payment. An important thing to remember about IRWEs is that they often meet the
IRS rules as regular business expenses and can be used to reduce net income. This is positive
because it reduces your tax liability as well as allows you to keep more of your SSI payment!
Even when you have an IRWE which does not meet the IRS rules for an allowable business
expense, you may still be able to deduct these expenses from your personal income under
another set of tax rules. Check with a knowledgeable tax advisor for more information about
tax deductions for expenses related to your disability.
Unincurred Business Expenses – These expenses are supports to your business that are
provided to you at no cost by someone else. For example, a friend or perhaps a Vocational
Rehabilitation agency may give you a computer that is used in the business, or a relative may
work for you in the business for free. Even though you have not paid these expenses
yourself, you are still allowed to deduct them from your NESE (which may help you keep
your benefits).
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SSDI, or Social Security Disability Insurance , are payments that you are entitled to because
you have earned income in the past and have paid into the FICA system. Your benefit amount
depends upon how much you have earned, up to $940 per month. There is no asset limit to
qualify for SSDI.
SSDI applies an entirely different set of policies for self-employment income
than is applied in the SSI program. In the SSDI program, beneficiaries are
either eligible for a full payment or no payment at all . This means that benefit
payments are not reduced incrementally, as with SSI checks. While SSDI still works off of
net earnings for self-employment (NESE), income is not averaged and spread out in equal
increments over an entire year – at least initially. For SSDI recipients, SSA needs to be able
to see exactly how much NESE the business generated on a month-by-month basis. This is
because countable wages or NESE are measured against certain earnings guidelines which
determine whether or not the individual enters the first phase of work incentives known as the
Trial Work Period.
In the SSDI program there are specific phases of work incentives that occur more of less
sequentially. Each phase offers less and less protection to the beneficiary in terms of a safety
net which guards against benefit loss. The first work incentive phase is called the Trial Work
Period or TWP. A Trial Work Period month is counted when you earn NESE of more than a
certain amount within a calendar month ($640 in 2007) or when you work for 80 hours or
more in the business in a month. The Trial Work Period allows you to test your ability to
work for at least 9 months. During your TWP, you will receive your full disability benefit
regardless of how much you earn as long as your work activity has been reported and you
continue to have a disabling impairment. The 9 months does not need to be consecutive and
your TWP will last until you accumulate 9 months within a rolling 60-month period.
When you complete the TWP, SSA looks to see if the level of countable
earnings generated by the business represents “substantial gainful activity” or
SGA. Substantial gainful activity is measured against established earnings
guidelines. In 2007, the SGA (Substantial Gainful Activity) guideline for net
self-employment earnings was $900 per month for non-blind individuals and $1,500 for blind
individuals.
If you are not engaging in SGA, you will continue to receive SSDI payments and Medicare
without interruption. If your business is consistently showing SGA level NESE after the
TWP, you will be afforded three more months of benefits and then payments will stop. If
SSDI payments are stopped due to SGA level work or self-employment income, SSA can
automatically reinstate your benefits without a new application for any months in which your
net earnings from self-employment drop below the SGA level. This reinstatement period lasts
for 36 consecutive months following the end of the trial work period and is called the
Extended Period of Eligibility or EPE.
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Obviously, the decision about whether a small business owner on SSDI is demonstrating the
ability to engage in SGA level work is critically important since this determination may lead
to benefit cessation. In determining whether a self-employed individual is engaging in SGA,
SSA considers many factors in addition to looking at the net earnings such as the individual's
activities and their value to the business. SSA does not consider the business income alone to
be a reliable factor in determining SGA, since it is influenced not only by the individual's
work but also by such things as market conditions, capital investments, the services of other
people, and agreements on distribution of profits. This means that SGA determinations can
be very complex for people who own a small business. (Above information excerpted from a
document on disability benefits by Lucy Miller.)
Under SSDI, you can also use other work incentives to decrease your NESE, including
IRWE and Unincurred Business Expenses. (PASS and PESS are for SSI recipients only.)
These are only some of the work incentives that may apply to your situation. Talk to a
benefits planner to find out which ones are right for you. Also visit some of these websites
for more information:
Benefits Planning
www.wid.org
www.socialsecurity.gov
www.ssa.gov/disability/
Disability Related Websites
www.abilitiesfund.org
www.disabilityinfo.gov
www.start-up-usa.biz
www.disabilitysecrets.com
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Sample Income worksheet for SSI or SSDI recipients
January
Feb
March
April
May
June
$1200
Total Gross Income
Minus Total Business Expenses
$500
$85
If SSI minus $85.00
($20 + $65)
$700
Net Income
$646.45
Multiply by 0.9235
Minus Work Incentives
IRWE
$100
Unincurred Business Exp.
$200
Total Countable Income
$346.45
In the above example, if you were on SSI, you would have your benefit amount
reduced by half of the countable income, or $173.23. If you were on SSDI, you
would not have reached Substantial Gainful Activity (SGA), so your benefit amount
would be the same.
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Balance Sheet – Remember your Net Worth Statement from Section One?
A Net
Worth Statement for your business is called a Balance Sheet. You should have a balance
sheet for your business so you know your business assets and liabilities. Update your balance
sheet at least once a year.
Exercise 4: Balance Sheet
Review the Net Worth section in Section 1 and Charlotte’s Cake Creations Balance
Sheet below, then create your own business balance sheet. Remember to include
only your business assets and liabilities.
Balance Sheet for:
Date:
Charlotte’s Cake Creations
BUSINESS ASSETS
June 30, 2008
BUSINESS LIABILITES
Checking Account
$385.00
Credit Cards:
Savings Account
$ 500.00
Visa
Equipment
$1000.00
Mastercard
Business Loan
Automobile
Miscellaneous Supplies
TOTAL BUSINESS ASSETS
 2016 MEDA
$ 425.00
$1000.00
Automobile loan
$300.00
$2185.00
TOTAL BUSINESS LIABILTIES
$1425.00
BUSINESS EQUITY
$760.00
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Balance Sheet for:
Date:
BUSINESS ASSETS
BUSINESS LIABILITES
Checking Account
Credit Cards:
Savings Account
Visa
Equipment
Mastercard
Business Loan
Automobile
Automobile loan
Miscellaneous Supplies
TOTAL BUSINESS ASSETS
TOTAL BUSINESS LIABILTIES
BUSINESS EQUITY
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Filing System
– As a business owner, you will be collecting many
papers that you need to save, things like receipts, bank statements, insurance
policies, licenses, and any number of other business records, such as income and
expense records, client files, etc. Set up a filing system that works for you, and organize it!
Use file folders that are clearly labeled, keep them in a cabinet or drawer, keep them in
alphabetical and/or chronological order, and keep up to date with your filing.
Do not use the shoebox method! (You know, throwing everything
into one big pile in a box and dealing with it at tax time.) The shoebox
method is a nightmare for you and anyone that helps you do your tax
return. If you keep a good, organized filing system, you will save both
time and money.
Exercise 5: File Folders
Find or buy file folders. Label them with the categories you need to run your
business. File any papers you have collected so far. Start today!
Here is a sample list of some of the labels you might use. Also include dates to
help you find things quickly. Add ones that you need that are not listed below.
Bank Statements
Licenses
Sales Income
Expense receipts/reports
Client files
Travel
Marketing
Tax information
Business Plan
Insurance policies
Credit card statements (if you have a business credit card)
____________________________
_____________________________
____________________________
_____________________________
____________________________
_____________________________
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Tips for Tax Time:
As a sole proprietor, you will file
Schedule C as part of your Federal Income Tax return. You will have to pay
income tax on your net income, as well as a 15.3% self-employment tax (for
Social Security and Medicare – if you are employed, your employer pays half of this tax for
you and deducts your half from your paycheck.)
Your main concern is to keep good records so that you can take all of the deductions that you
are allowed, in order to decrease your taxable income and pay less in taxes. Ask a
professional if you are not sure if a certain expense is deductible or not. For example, do you
know if your home office expenses are deductible? Did you know that only the interest
portions of loan payments are deductible? If you need help with your tax return, find a
professional that has experience in your industry, or with small businesses. Keep these tips in
mind:
1. Set aside money every month (approximately 25% of your net income, which is
business income minus business expenses) so you won’t be caught short at tax time.
After you have been in business for a year and know your approximate taxes, the IRS
may require you to make quarterly payments.
2. Keep your personal finances and your business finances completely separate.
3. Keep accurate and up to date records (both business and personal).
4. Keep all of your receipts and file them in an organized manner.
Exercise 6: Research tax preparation help.
Ask several colleagues who they use for tax preparation. Visit the IRS website:
www.irs.gov Do some research and find a professional who is friendly,
knowledgeable about small business, and charges a reasonable rate. Remember,
your tax preparation fees are deductible too!
Don’t worry if you are not sure now how to fill out your tax return. Your main task
is to keep accurate and complete records. If you do, a professional will be able to
help you quickly and easily.
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Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Section 7. Assignments
1. Set up your Record Keeping system.
2. If you are already in business, complete a 6-month Income &
Expense Statement and a Balance Sheet.
3. Set up your Filing System.
4. Research Tax Preparation help.
5. If you are already in business or about to start, and haven’t already
done so, open a checking account for your business.
6. Continue to track your expenses.
7. If you are on SSI, SSDI, or are a Vocational Rehabilitation client,
make an appointment with a benefits planner.
8. Review the Sample Business Plan in the next Section. Using your
completed assignments, and the Business Plan Template, complete
your own Business Plan.
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In this Section:
8. Completing Your Business Plan
Sample Business Plan
Blank Business Plan (Template)
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Exercise 1: Complete your Business Plan
1) Review the Sample Business Plan for Sylvia’s Soap Shoppe.
2) Go back over your assignments from previous sections. Using
your completed assignments and the business plan template, fill in
your business plan. Be sure to attach your financial projections and
a copy of your flyer, as well as any other attachments you would like
to include.
3) Put a lot of detail into your plan, even more than the sample
(which is shorter due to space constraints). It should be about 10
pages long or more. Use extra paper if necessary.
4) After you have written your plan, wait a day or two. Go back and
re-read it. Make any corrections – be sure to check for misspelled
words.
5) Have a friend proofread it for you.
6) Make your business plan look as neat and professional as
possible. If you have access to a computer, type your plan.
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Notes:
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
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Business Plan
Sylvia’s Soap Shoppe
Quality hand-made all natural soaps
1234 Elm Street
Cityville, WA 55555
555-555-5555
Sylvia@sylviassoapshoppe.com
July 2008
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Table of Contents
Executive Summary …………………………… 1
Operating Plan
Business Description…………..………. 2
Description of Services..……………. 3
Target Market………………………………..3
Market Research Summary ………………… 4
Financial Information …………………………… 5
Cost Analysis ……………………………………………6
Cash Flow Projection ………………………….… 7-8
Marketing Plan …………………………………….… 9
Attachments
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Executive Summary
Sylvia’s Soap Shoppe creates and sells handmade, high-quality moisturizing
soaps, blended with purity and love for better feeling skin. Our
aromatherapy and moisturizing bars contain natural oils and butters,
essential oils, and other natural ingredients that gently cleanse while
providing a sense of warmth and comfort. Our products are available at
local events, local shops, and on the web for all who love fine soaps.
My one-year business goals include upgrading my website, significantly
increasing my number of clients, including doubling the number of retail
stores that sell my products, and paying myself $1500 a month. My twofive year goals are to open a retail shop, add at least five new products,
and be able to pay myself enough to cover my living expenses, plus a
savings plan.
I am an entrepreneur at heart, and am dedicated to making this business
work for me. I have a good support network, am willing to work hard, and
am resourceful. I have been making soap as a hobby for several years, and
know which ones are the most popular.
My industry research shows that there is a demand for handmade soaps,
and that the industry is growing. People today are more and more
concerned about all natural ingredients, and are willing to pay more for
products that are better for their skin.
My cash flow projection shows that I will need to rely on savings for
several months, but after that I will make enough to pay myself enough to
cover my living expenses. I will need to watch my budget, but if I follow
my marketing plan, I believe I will have enough sales to support myself and
expand the business.
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Operating Plan
Business Description
Mission: Sylvia’s Soap Shoppe creates and sells handmade, high-quality
moisturizing soaps, blended with purity and love for better feeling skin.
Our aromatherapy and moisturizing bars contain natural oils and butters,
essential oils, and other natural ingredients that gently cleanse while
providing a sense of warmth and comfort. Our products are available at
local events, local shops, and on the web for all who love fine soaps.
Goals: My one-year business goals include upgrading my website,
significantly increasing my number of clients, including doubling the
number of retail stores that sell my products, and paying myself $1500 $1800 a month. My two-five year goals are to open a retail shop, add at
least five new products, and be able to pay myself enough to cover my
living expenses, plus a savings plan.
Owner’s Qualifications: I am an entrepreneur at heart, and am dedicated
to making this business work for me. I have a good support network, am
willing to work hard, and am resourceful. I have been making soap as a
hobby for several years, and know which ones are the most popular. I
have taken several classes on soap making, and have read several books
about the soap making business. I have streamlined my soap making
process and know where to buy the best quality ingredients at the best
prices. I believe that high quality products can make a difference in
people’s lives. I already have loyal repeat customers. Customer service is
important to me, and I will strive to maintain high quality products and
prompt friendly service.
Location: I will make my products in my home, and sell them at community
events, by mail order, at retail stores, and on the web.
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Business Structure: I will operate as a sole proprietorship.
Licenses: State License # 123XYZ, City License # LA12345
Insurance: Liability coverage through Best Insurance Company, policy #
123456
Description of Services
Sylvia’s Soap Shoppe sells quality handmade soaps at community events, on
the web, through mail order, and at select shops in the neighborhood. I
will participate as a vendor in at least two community events per month,
process mail orders on Fridays and as needed, make my products at least 4
hours a day Monday through Fridays, and do my recordkeeping on
Mondays. I will market my product according to my marketing plan, and as
opportunities arise.
Target Market
Most of my customers are moderate to higher income women who work in a
variety of environments. They are homeowners, drive fuel efficient or
expensive cars, and take nice vacations. They like to pamper themselves,
give soap as gifts, or have skin conditions that require high-quality natural
ingredients. They shop at boutiques, community events, and online. Their
age range is 25 – 75 year old.
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Market Research Summary
My Market Research tells me that I have many competitors, but that the
demand is high. There are two competitors that I see frequently at
community events, who do a very good and steady business. Their prices
are similar to mine. I have several online competitors, the most popular
are AAA and ZZZ. Online prices tend to be lower than mine, and I will
need to focus sales on my more upscale target market, and find other ways
to communicate the higher quality of my products.
My industry research shows that there is a demand for handmade soaps,
and that the industry is growing. People today are more and more
concerned about all natural ingredients, and are willing to pay more for
products that are better for their skin.
See attachments for more detailed competitor and industry information.
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Financial Information
Costs and Start-up Capital:
I have done a cost analysis, including estimating my variable costs. My
start up costs total $1150, my monthly overhead costs are $330, and my
other annual costs are approximately $1660. My variable costs are $.91
per unit for Shea Butter Soap, and $1.23 per unit for scented soap. I am
working to lower these costs by continuing to research suppliers and bulk
discounts.
Pricing: My prices are $5.00 per bar for Shea Butter Soap, and $6.50 per
bar for Scented Soaps. I offer a 5% volume discount.
Sales and Cash Flow Projections: My cash flow projection shows that I
will need to rely on savings for several months, but after that I will make
enough to pay myself $1500-$1800 per month. I will apply for a $1000
loan from my local microenterprise program, and use $500 from savings as
start up capital. I will need to watch my budget, but if I follow my
marketing plan, I believe I will have enough sales to support myself.
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Sylvia's Cost Calculation for Shea Butter Soap
Materials/Ingredients
Purchase size
Price
Recipe
Units per
Cost per
amount
Purchase size
Unit
Price ÷
(purchase size ÷
Units per
Recipe amt) x
bars (units) per
purchase
batch (recipe)
size
Castor Oil
128
oz. (1 gal.)
$29.95
1
oz.
1,920
$0.02
Coconut Oil
128
oz.
$14.75
9
oz.
213
$0.07
Olive Oil
128
oz.
$14.00
6
oz.
320
$0.04
Palm Oil
128
oz.
$15.95
4
oz.
480
$0.03
oz. (5 lbs.)
$40.00
2
oz.
600
$0.07
Shea Butter
80
Sunflower Seed Oil
128
oz.
$40.95
22
oz.
87
$0.47
Sodium Hydroxide
32
oz.
$ 7.87
6.1
oz.
79
$0.10
128
oz.
$
0.99
16
oz.
120
$0.01
$100.00
1
1,000
$0.10
(NaOH - Lye)
Distilled Water
Label and Wrapping
1000
Total Cost per Bar
 2016 MEDA
$0.91
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Sylvia’s Soap Shoppe
Start-up
Month 1
Month 2
Month 3
Month 4
Month 5
Month 6
Cash Flow Projection
1. Beginning Cash
$
-
$
350
$
628
$
990
2. Income received
$
-
$ 1,265
$ 2,605
$ 2,005
3. Other Cash In (loan,
$ 1,500
$ 1,500
$ 1,265
$ 2,605
$ 1,500
$ 1,615
$
$
$
770
$
709
$ 1,019
$ 2,140
$ 3,415
$ 2,600
$ 2,005
$ 2,140
$ 3,415
$ 2,600
$ 3,233
$ 2,995
$ 2,910
$ 4,124
$ 3,619
237
$
487
$
375
$
399
$
639
$
485
100
$
100
$
100
$
100
$
100
$
100
$
250
owner’s investment, etc.)
4. Total Cash In
(2+3)
5. Cash available
(1+4)
Cash Out
6. Variable Costs
7. Marketing
$ 100
8. Insurance
$ 250
9. Professional Services
$
100
10. Office supplies
$
10
$
10
$
10
$
10
$
10
$
10
11. Web page
$
35
$
35
$
35
$
35
$
35
$
35
$
50
12. Repair/Maint.
13. Supplies
$ 200
14. Travel
$
40
$
40
$
40
$
40
$
40
$
40
$
50
$
50
$
50
$
50
$
50
$
50
$
30
$
30
$
30
$
30
$
30
$
30
$
200
15. Subscriptions
16. Business phone
17. Licenses
$ 100
18. Equipment
$ 400
$
45
$
45
$
45
$
45
$
45
$
45
$
20
$
20
$
20
$
20
$
20
$
20
21. Taxes
$
400
$
400
$
400
$
400
$
400
$
400
22. Other (Merch. fees)
$
20
$
26
$
20
$
22
$
36
$
20
19. Loan Payment
20. Miscellaneous
$ 100
23. Other
24. Other
25. Total Cash Out
$1,150
$
987
$ 1,243
$ 1,225
$ 1,201
$1,605
$ 1,485
26. Cash Available
$ 350
$
628
$ 1,990
$ 1,770
$ 1,709
$2,519
$ 2,134
$ 1,000
$ 1,000
$ 1,000
$1,500
$ 1,500
$
$
$
$ 1,019
$
(Line 5 – Line 25)
27. Owner’s Draw
$
28. Ending Cash
$ 350
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$
628
990
770
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155
634
Sylvia’s Soap Shoppe
Month 7
Month 8
Month 9
Month
Month
Month
10
11
12
Cash Flow Projection
1. Beginning Cash
$
634
$
498
$
362
2. Income received
$ 3,000
$ 3,000
$ 3,500
$ 3,000
$ 3,000
$ 3,634
6. Variable Costs
$
7. Marketing
$
$
395
$
Totals
788
$ 1,490
$ 3,750
$ 4,000
$ 4,500
$35,780
$ ,500
$ 3,750
$ 4,000
$ 4,500
$37,280
$ 3,498
$ 3,862
$ 4,145
$ 4,788
$ 5,990
450
$
450
$
525
$
563
$
600
$
675
100
$
100
$
200
$
200
$
100
$
100
$
250
3. Other Cash In (loan,
owner’s investment, etc.)
4. Total Cash In
(2+3)
5. Cash available
(1+4)
Cash Out
8. Insurance
9. Professional Services
10. Office supplies
$
10
$
10
$
10
$
10
$
10
$
10
11. Web page
$
35
$
35
$
35
$
35
$
35
$
35
13. Supplies
$
50
$
50
$
50
$
50
$
50
$
50
14. Travel
$
60
$
60
$
60
$
60
$
60
$
60
$
30
$
30
$
30
$
30
$
30
$
30
$
50
12. Repair/Maint.
15. Subscriptions
16. Business phone
17. Licenses
18. Equipment
$
150
19. Loan Payment
$
45
$
45
$
45
$
45
$
45
$
45
20. Miscellaneous
$
20
$
20
$
20
$
20
$
20
$
20
21. Taxes
$
500
$
500
$ 500
$
500
$
500
$
500
22. Other (Merch. fees)
$
36
$
36
$
$
45
$
48
$
54
42
23. Other
24. Other
25. Total Cash Out
$ 1,336
$ 1,336
$ 1,667
$ 1,558
$ 1,498
$ 1,879
26. Cash Available
$ 2,298
$ 2,162
$ 2,195
$ 2,588
$ 3,290
$ 4,111
27. Owner’s Draw
$ 1,800
$ 1,800
$ 1,800
$ 1,800
$ 1,800
$ 2,000
28. Ending Cash
$
$
$
$
$
$ 1,490
$18,170
(Line 5 – Line 25)
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362
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$17,000
Marketing Plan
I have developed business cards, a brochure, and a flyer with my logo and
tag line. I am working on updating my website. My benefits include: Your
skin will feel healthier, softer, and more smooth; you’ll feel relaxed as you
enjoy the wonderful scents; and you’ll feel cared for and special with our
great service and high quality products. I also will have colorful and
professional looking packaging to attract my target market.
Sylvia’s Soap Shoppe Six Month Marketing Plan
Month 1
Month 2
Create and distribute a flyer.
($20.00)
Record a friendly professional greeting.
(Business phone and cell phone)
Design and order business cards.
Send press releases to local papers.
(40.00)
Call local business associations.
Month 3
Call competitors. Ask for marketing ideas.
Month 4
Update web page.
Offer current clients a referral discount.
(friend will design)
Research cost of table sign.
Call clients for quotes/stories.
Research local vending opportunities.
Create a newsletter. ($10.00)
Month 5
Month 6
Distribute more flyers.
Research cost of a newspaper ad.
($10.00)
Join Chamber of Commerce.
($200.00)
Work on table display.
(supplies: $30.00)
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Start a photo album.
($15.00)
Create birthday/holiday schedule for cards
and coupons.
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Attachments:
Sample marketing materials
In depth market research and competitor analysis
12-month sales projection by product
January – June Income and Expense Statement
Balance Sheet
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Business Plan
for
__________________________________________
__________________________________________
__________________________________________
__________________________________________
__________________________________________
Date:
_____________________
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Table of Contents
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Executive Summary: (write this page last)
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Operating Plan
Business Description
Mission (from page 33):
Business Goals (from page 35):
Owners’ Qualifications (from page 36):
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Business Structure (from page 37):
Licenses (from page 38):
Insurance (from page 38):
Record Keeping System (from Section 7):
Description of Services (from page 39):
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Target Market (from page 40):
Market Research Summary (from pages 54 - 56):
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Financial Information
Cost Analysis (from Section 4, summary on page 79):
Sales Units:
Start Up Costs:
Start Up Capital:
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Overhead Costs:
Variable Costs:
Financial Projections Summary, including pricing (from pages 95-96):
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Marketing Plan (from pages 115-116):
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Attachments:
Cash Flow Projection
Flyer, other marketing materials
Current Income and Expense Statement, if applicable
Balance Sheet
In depth market research
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In this Section:
Section 9. Wrap Up and Next Steps
Lessons Learned and Next Steps
Post-course Test
Evaluation
Additional Exercise – Break-even Analysis
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Lessons Learned and Next Steps
Congratulations! If you have completed all of the assignments, you have put
together your business plan. You have done a lot of work and made great
strides in turning your dream of running a successful business into a reality!
Take a few minutes to think over what you have been through over the last
few months. Every time you challenge yourself, or “go outside your comfort
zone,” you learn things about yourself and grow personally, and in this case,
professionally as well. What have you learned?
Exercise 1: Personal Growth, Professional Growth
Write down what you have learned about yourself and/or your business by
participating in the business planning course.
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
___________________________________________________________________
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Exercise 2: Next Steps
Take a few minutes to review your business plan and the resource sheet. Write
down your next steps, including attending business support group meetings,
and/or making appointments for additional technical assistance. If you are
participating in a lending program, ask about the program guidelines.
What do you plan to accomplish? Be specific and put in dates.
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
______________________________________________________________________________
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Post-course Test
1. Why is it important to write a business plan?
2. What are the two main parts of a Net Worth Statement or Balance
Sheet?
3. What is a mission statement?
4. What/Who is your target market?
5. Why is it important to interview your competitors?
6. What does time management have to do with running a business?
7. What are Overhead Costs? List two examples.
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8. What are Variable Costs? List two examples.
9. What are your Sales Units?
10. What do Income Projections and Cash Flow Projections tell you
about your business, and how many months should you project?
12. In marketing, what is the difference between a feature and a
benefit?
13. What should be listed/presented on all of your marketing
materials?
14. What goes into a marketing plan?
15. As a small business owner, what records do you need to keep?
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Keys to Success
Course Evaluation
Please take a few minutes to fill out the evaluation. We appreciate
your comments, and your feedback will help us make improvements
to the course and the materials.
A. Course content:
1. What topics were most useful to you?
2. What topics did you want to spend more time on?
3. How could we improve the course?
4. Additional comments:
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B. Personal and Professional Growth: On a scale of 1 to 3 (1 = not
at all, 2 = a little, 3 = a lot), please rate your progress compared to
when you started the course.
Rating
1. My self-confidence has increased:
_______
2. My understanding of the importance of
planning my business has grown:
_______
3. My time management skills have increased:
_______
4. My presentation skills have grown:
_______
5. My family and friends understand how
important the business is to me:
_______
6. My support/resource network has grown:
_______
7. My financial management skills have improved:
_______
8. My marketing plan has improved:
_______
9. My financial projections have improved:
_______
10. My record keeping skills have improved:
_______
C. Instructor (if applicable): On a scale of 1 to 3 (1 = poor, 2 =
good, 3 = excellent) please rate the instructor:
Rating
1. Knowledge of course material:
_______
2. Explanations of content:
_______
3. Understanding of business issues:
_______
4. Ability to listen:
_______
5. Ability of create a comfortable environment:
_______
6. Ability to engage the whole class:
_______
7. Ability to maintain good energy and
a positive attitude:
_______
8. Knowledge of additional resources:
_______
9. Treated me with respect:
_______
10. Availability for extra help:
_______
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Celebrate!
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Additional Exercise: Break Even Analysis
Here’s another way to figure out if your business is feasible for you based upon
your prices and number of units you think you will sell.
1. Choose an amount of money you need to make each month meet your goals.
Charlotte:
$1800/month
You: ______________
2. Add 25% to account for taxes (approximately 10% federal tax plus 15.3% selfemployment tax)
Charlotte: 1800 x 1.25 = $2250
You: ________ x 1.25 = $ _________
(Think of this figure as your monthly salary.)
3. Add in your business Overhead Costs.
Charlotte: monthly overhead = $330
You: monthly overhead = $ ________
Other annual costs per month: $138
You: _____________
($1660 ÷ 12 = $138)
( ____________ ÷ 12 )
Total Monthly Overhead Costs: $468.00
You: _____________
($330 + $138)
($________ + ________ )
Total monthly business overhead costs + salary:
$468 + $2250 = $ 2718
You: ________ + ________ = ________
4. Figure your average Gross Profit per Unit (Price – Variable cost):
(If you are a service business with no variable costs, skip this step)
Charlotte: Gross Profit Shea Bttr Soap: $4.09
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($5.00 - $0.91)
Gross Profit Scented Soap:
( _________ - ________ )
$5.27
You: ________________
($6.50 - $1.23)
Unit 2
( _________ - ________ )
You: ________________
Unit 3
( _________ - ________ )
Average Gross Profit = ($4.09 + $5.27) ÷2
= $4.68
You: ( _______ + _______ + _______ )
÷ 3 = ________________
5. Divide your monthly costs + salary figure by your gross profit/unit to figure
how many units you need to sell each month to make enough money to pay
yourself and pay all the business expenses. (If you are a service business with no
variable costs, use price instead of gross profit/unit)
Charlotte: $2718 ÷ $4.68 = 580
You: _______ ÷ _______ = $ _______
This amount is the number of units you need to sell each month, on average, in
order to break even. Anything you sell beyond this number can be used to invest
back into the business, or to take a larger owner’s draw. If you fall short of this
figure, you will need to come up with other funding to cover your expenses.
6. Review your results. What do your numbers tell you? Do you think you can you
charge enough and sell enough for the business to be feasible for you? What
changes could you make to make the business feasible?
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
____________________________________________________________
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