PowerPoint Slides for use with
Building a Dream
Dr. Walter Good
Department of Marketing
Asper School of Business
University of Manitoba
Stage 1 What is
Entrepreneurship?
Principal Reasons Why People
Start Businesses of Their Own
•To achieve a sense of accomplishment
•To be their own boss
•To have an element of variety and adventure
•To make better use of their training and skills
•To be able to adapt their own approach to their work
•To be challenged by new opportunities
* sums to more than 100% due to multiple responses
82%*
73%
66%
63%
62%
61%
An Entrepreneur
Someone who perceives an opportunity
and creates an organization to pursue it.
Bygraves
Entrepreneurs Can Play a Number of Roles
in the Economy
1. Create new product and/or service businesses.
2. Bring creative and innovative methods to developing or
producing new products or services.
3. Provide employment opportunities and create new jobs
as a result of growing their businesses consistently and
rapidly.
4. Help contribute to regional and national economic
growth.
5. Encourage greater industrial efficiency/productivity to
enhance our international competitiveness.
The Components of Successful
Entrepreneurial Ventures
Opportunity
The Entrepreneur
Organization
Business Plan
Strategy
Resources
Outline of the Entrepreneurial Process
Decide to go into business for yourself
Assess your potential
Find an appropriate product or service idea
Buy a business
Start a new business
Acquire a franchise
Conduct a feasibility study
Technical feasibility
Market acceptability
Financial viability
Organize your business structure and legal requirements
Protect your idea
Arrange the necessary financing
Develop a comprehensive business plan
Myths About Entrepreneurship
Myth 1 Entrepreneurs are born, not made.
Myth 2 Anyone can start a business. It’s just a matter
of luck and guts.
Myth 3 Entrepreneurs are gamblers.
Myth 4 Entrepreneurs want to run the whole show
themselves.
Myth 5 Entrepreneurs are their own bosses and
completely independent.
Myth 6 Entrepreneurs work longer and harder than
corporate managers.
Myth 7 Entrepreneurs face greater stress and more
pressures, and thus pay a higher personal
price in their jobs than do other managers.
Continued
Myths About Entrepreneurship
(Continued)
Myth 8 Starting a business is risky and often ends in
failure.
Myth 9 Money is the most important ingredient for
success.
Myth 10 New business start-ups are for the young and
energetic.
Myth 11 Entrepreneurs are motivated solely by their
quest for the almighty dollar.
Myth 12 Entrepreneurs seek power and control over
other people so that they can feel “in charge.”
Rules of the Road
1. Spot the opportunity around you
2. Bring in the experts
3. Keep your options open
4. Be prepared to work
5. Learn when to hand off to suppliers
6. Look for value-added deals
7. Expand strategically
8. Think BIG
9. Lever relationships
10. Have a fallback
Stage 2 Assessing Your Potential
for an Entrepreneurial Career
What is Your Entrepreneruial Potential?
Realistically assess your potential for an
Entrepreneurial Career
Understand the
personal attributes
important for
success in a
business of your
own
Understand the
demands the
entrepreneurial
role will make on
you and your
family
Evaluate
your managerial
skills
Conduct a
personal financial
assessment
Develop a
personal
balance sheet
Assess your strengths and weaknesses
that will affect your ability to achieve
your entrepreneurial goals
Develop a
personal
budget
Attitudes and Behaviours Valuable for
Turning a Business Dream into Reality
• Commitment, Determination, and Perseverance
• A Success Orientation
• Opportunity and Goal Orientation
• Action Orientation and Personal Responsibility
• Persistent Problem Solving and a Need to Achieve
• A Reality Orientation
• The Ability to Seek and Use Feedback
• Self-Reliance
Continued
Attitudes and Behaviours Valuable for
Turning a Business Dream into Reality
(Continued)
• Self-Confidence
• A Tolerance of Ambiguity and Uncertainty
• Moderate Risk Taking and Risk Sharing
• The Ability to Respond Positively to Failure
• A Need for Status and Power
• Integrity and Reliability
• A Team Builder
An Entrepreneur’s Creed
1. Do what gives you energy - have fun.
2. Figure out how to make it work.
3. Anything is possible if you believe you can do it.
4. If you don’t know it can’t be done, then you’ll go
ahead and do it.
5. Be dissatisfied with the way things are - and look
for ways to improve them.
6. Do things differently.
7. Businesses can fail. Successful entrepreneurs
learn from failure - but keep the tuition low.
8. It’s easier to beg for forgiveness than ask for
permission in the first place.
Continued
An Entrepreneur’s Creed
(Continued)
9. Make opportunity and results your obsession
- not money.
10. Making money is even more fun than spending it.
11. Take pride in your accomplishments
- it’s contagious.
12. Sweat the details that are critical to success.
13. Make the pie bigger - don’t waste time trying
to cut smaller pieces.
14. Play for the long haul. It’s rarely possible to
get rich quickly.
15. Remember: only the lead dog gets a change
in scenery.
Business Skills Needed by Successful
Entrepreneurs
1.
2.
3.
4.
Managing Money
Managing People
Directing Business Operations
Directing Sales and Marketing
Operations
5. Setting Up a Business
Kinds of Entrepreneurs
CRAFTSPEOPLE:
• 60% of all small business owners
• Derive their sense of self-worth form their mastery
of a craft or trade
FREEDOM FIGHTERS:
• 30% of all small businesses
• Prime motivation is simply being in business for
themselves
MOUNTAIN CLIMBERS:
• 10% of all small businesses
• Growth-oriented business owners who are motivated
almost solely by achievement.
Stage 3 Exploring New Business
Ideas and Opportunities
Searching for Ideas
Search for a product or service idea
From your
previous
employment
From
hobbies
From
casual
observation
Magazines
and other
publications
From a
deliberate
search
Trade shows
and
conventions
Evaluate the possible alternatives
Determine your preferences
Product
licensing
information
services
Government
agencies and
departments
Use
creative
thinking
Ideas VS. Opportunities
Initial New
Venture Ideas
Potential New
Opportunities
Decision to Start
a New venture
Sources of Ideas for a New Business
• Your Job
• Your Hobbies
• Personal Observation
– Casual Observation
– Deliberate Search
• Publications
• Inventors’ Shows, Trade Shows and Conventions
• Patent Brokers and Product Licensing Information
Services
• Friends, Acquaintances, and Other Social Contacts
• Federal and Provincial Government Agencies and
Departments
• Using Creative Thinking
Faith Popcorn’s Predictions for the
Future
• 99 Lives
•EVEolution
• Anchoring
•Fantasy Adventure
• AtmosFEAR
•Icon Toppling
• Being Alive
• Cashing Out
• Clanning
• Down-Aging
• Egonomics
•Pleasure Revenge
•Small Indulgences
•SOS (Save out
Society)
•Vigilante Consumer
Top 10 Business Opportunities
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Personal coaches
Sex Toys
Teen gadgets
Outsourced business services
Specialist financial advisors
Vanity products for aging boomers
Escape Inc.
E-biz security
High-tech marketers
Youth education
Shirley Robert’s Best Businesses
for Beyond the Year 2000
1.
2.
3.
Self-diagnostic medical tools
Affordable organic foods
Educational books, videos, and CDROMs
4. Technology-training centres
5. Customized information services
6. Anti-aging cosmetics
7. Pet-related products and services
8. Financial services tailored to women
9. Activewear for aging adults
10. Home-safety devices
How to Select the Right Opportunity for You
Step 1: Identify Your Business and Personal
Goals
Step 2: Research Your Favourite Industries
Step 3: Identify Promising Industry Segments
Step 4: Identify Problem Areas and Brainstorm
Solutions
Step 5: Compare Possible Solutions with Your
Objectives and Opportunities in the
Marketplace
Step 6: Focus on the Most Promising
Opportunities
Characteristics of the “IDEAL” Business
• Requires no investment
• Has a recognized, measurable market
• A perceived need for the product or
service
• A dependable source of supply for the
required inputs
• No government regulation
• Requires no labour force
• Provides 100% gross margin
• Buyers purchase frequently
Continued
Characteristics of the “IDEAL” Business
(Continued)
• Receives favourable tax treatment
• Has a receptive, established
distribution system
• Has great publicity value
• Customers pay in advance
• No risk of product liability
• No technical obsolescence
• No physical perishability
• Impervious to weather conditions
• Possesses some proprietary rights
Stage 4 Buying a Business
Buying a Business
Buy an existing business
Where can you find a business to buy?
Current
job
contacts
Local
newspapers
and trade
associations
Business
brokers and
real estate
agents
Lawyers,
accountants
and other
professionals
Evaluate all the aspects of the potential acquisition
Determine an appropriate price
Purchase assets
of business
Purchase shares
of business
Your
personal
network
Where to Find a Business to Buy
1. In your present business activity
2. From direct, independent contact
3. Through business brokers and
other middlemen
4. Through confidential advisors
5. From other sources
Ratio Analysis
1.
2.
3.
4.
5.
6.
7.
8.
Current Ratio
Quick Ratio
Debt to Net Worth Ratio
Gross Profit to Sales Ratio
Net Profit to Sales Ratio
Return on Assets
Sales to Inventory Ratio
Average Collection Period
Example of a Simplified Balance Sheet
THE CAMPBELL CO.
BALANCE SHEET AS OF DEC. 31, 200Y
ASSETS
Current Assets
Cash
Accounts receivable
Inventory
Total current assets
Fixed Assets
Machinery
Less: Accumulated depreciation
Equipment and fixtures
Less: Accumulated depreciation
Total fixed assets
Total Assets (C = A + B)
LIABILITIES AND OWNER’S EQUITY
Current Liabilities*
Accounts payable
Notes payable
Total current liabilities
Long-Term Liabilities
Notes payable**
Total long-term liabilities
Total liabilities
(000s)
$ 25
53
80
$ 158 (A)
$ 40
25
30
18
12
27 (B)
$ 185 (C)
$ 60
35
95
$ 40
OWNER’S EQUITY
Capital investment
Retained earnings
Total owner’s equity
Total Liabilities and Owner’s Equity (F = D + E)
* Debt is due within 12 months. ** Debt is due after 1 year.
15
40
$ 135 (D)
20
30
50 (E)
$ 185 (F)
Example of a Simplified Income Statement
THE CAMPBELL CO.
INCOME STATEMENT FOR YEAR ENDING DEC. 31, 200Y
(000s)
Gross sales
Less: Returns
Net Sales
$ 428
3
$ 425
(A)
292
(B)
Gross Profit (C = A - B)
$ 133
(C)
Selling Expenses
Administrative expenses:
Office salaries
Interest
Depreciation
Other administrative expenses
Total Administrative Expenses
$ 29
(D)
86
(E)
$ 18
(F)
Cost of goods sold:
Beginning inventory
Plus: Net purchases
Cost of goods available
Less: Ending inventory
Cost of Goods Sold
Profit Before Income Tax (F = C - D - E)
Income Tax (G = 25% of F)
Net Profit (G = F - G)
$ 75
297
372
80
$ 60
9
10
7
4.5
(G)
$ 13.5
(H)
Determining an Appropriate
Price to Pay for a Business
Balance Sheet Methods
– Net Book Value
– Modified Book Value
– Liquidation Value
Earnings-Based Methods
– Capitalization of Earnings
– Discounted Future
Earnings
– Discounted Cash Flow
Advantages of Buying
an Established Business
• Reduced risk
• Increased likelihood of successful operation for the new
owner
• A proven location for successful operation
• Has a product or service that is presently being produced,
distributed, and sold
• A clientele has already been developed
• Financial relationships have already been established with
banks, trade, creditors and other sources
• The equipment needed for production is already available
and its limitations and capabilities are known
• An existing firm can often be acquired at a good price
relative to the value of the assets
Disadvantages of Buying
an Established Business
•
•
•
•
•
•
•
•
•
The physical facilities and product line may be old and obsolete
Union/management relationships may be poor
Present personnel may be unproductive and have a poor track record
The inventory may contain a large amount of “dead” stock
A high percentage of the assets may be in poor-quality accounts
receivable
The location of the business may be bad
The financial condition of the business, and its relationships with its
creditors may be poor
As a buyer, you inherit any ill will or unfavourable reputation that
may exist toward the business among customers or suppliers
You have more freedom of choice in defining the nature of the
business if you start one of your own
Key Points to Consider in Buying a
Business
• Take your time and verify the information you are given
before you commit yourself
• Don’t fall in love with the business before you do your
homework
• Be careful not to pay too much for goodwill
• Buy a business within an industry you know well
• Buy based on the return on investment, not the price
• Don’t use all your cash for the purchase
• Investigate before you buy
Stage 5 Considering a Franchise
Interested in a Franchise?
Consider a franchise
Single-unit
franchise
Area
franchise
Master
franchise
Finding a franchised business
Check out the franchise opportunity
Evaluate disclosure and other legal requirements
Is a franchised business for you?
Advantages of Franchising
• Enables you to compete through the use of a well-known
trademark or trade name
• Franchisor may provide you with with assistance in such areas
as site selection, equipment purchasing, national advertising,
bookkeeping, the acquisition of supplies and materials,
business counseling and employee training
• Reduced risk of failure
• May be able to take advantage of large-scale, centralized
buying
• May have access to special financing and credit arrangements
• The opportunity to acquire a proven system that has already
been developed, tested and refined
Disadvantages of Franchising
• The high degree of control which franchisors exercise
over their franchisees
• Contractually required to report regularly to the
franchisor and subject to frequent inspection and constant
supervision
• The cost of the services provided to you by the franchisor
is based on your total sales revenue, not your profitability
• Franchisor may add a mark-up to the supplies and
equipment you are required to buy from them, thereby
increasing your operating costs
• Must pay the franchisor an initial franchise fee as well as
periodic royalty payments and advertising contributions
Continued
Disadvantages of Franchising
(Continued)
• The benefits available through franchising may not
always materialize
• Termination policies of many franchisors give franchisees
little or no security in many cases
Types of Franchises
Product Distribution
Arrangements
Single-unit franchise
Business Format
Franchises
Area franchise
Master franchise
The Top 10 Franchise Organizations
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Subway
Mail Boxes Etc.
McDonald’s
Jiffy Lube Int’l Inc.
Taco Bell Corp.
The Quizno’s Corp.
Sonic Drive-In Restauarants
RadioShack
General Nutrition Centers
Jani-King
Articles in a Typical Franchise Agreement
•
•
•
•
•
•
•
•
•
•
•
The full initial costs and what they cover
Use of the franchisor’s trademarks by the franchisee
Licensing fees
Land purchase or lease requirements
Building construction or renovation requirements
Equipment needs
Initial training provided
Starting inventory requirements
Promotional fees or allowances
Use of operations manual
Royalties payable
Continued
Slide 5.6B Building a Dream
Articles in a Typical Franchise Agreement
(Continued)
•
•
•
•
•
•
Other payments that must be made to the franchisor
Ongoing training requirements
Cooperative advertising fees
Insurance requirements
Interest charges on financing
Requirements regarding purchasing supplies from the
franchisor and prices
• Restrictions that apply to competition with other
franchisees
• Terms covering termination, renewal rights, sale of the
franchise and similar topics
A Sampling of Canadian Franchisors
Number
of Owned
Units
Boston Pizza
Dollar Rent-a-Car
Great Canadian
Dollar Store
Molly Maid
Dairy Queen
Canada
We Care Home
Health Services
McDonald’s
Restaurants
of Canada
Number of
Franchisees
/Dealers
Initial Fee
2
--
138
24
$45,000
$15-59,000
-1
100+
76
$15,000
$14,000
--
527
2
334
Approximate
Investment
Royalty Advertising
Required
7%
7
3%
2
$1-1,200,000
$90-150,000
4
6
-2
$125,000
$18,000
$35,000
4
6
$500-1,200,000
52
$40,000
5
2
$150,000
771
$45,000
17%
--
$600-800,000
(including rent,
service fees
and advertising)
Midas Muffler
Yogen Fruz
Second Cup
Coffee Co.
Tim Hortons
Kwik-Kopy Printing
Shred-It
-3
241
295
13
-4
13
226
1553
74
39
$25,000
$25,000
5
6
5
3
$225,000
$125-150,000
$20,000
$50,000
$29,500
$45,000US
9
3
7
5
2
4
3
1.5
$250-300,000
$360-390,000
$200,000
$300,000
Source: Adapted from The 1999 Franchise Annual, Info Franchise News Inc., 1999.
Future Trends in Franchising
•
•
•
•
•
•
•
•
Conversion franchising
Increase in the number of women involved in franchising
Growth in non-food retail stores
Impact of computer technology
Growth of franchised medical services
Continuing importance of restaurants
Growth of auto repair franchises
Growth in such areas as automobile leasing, packaging and
rapid delivery of parcels, home building, medical centres,
temporary help services, business brokers and financial
planners
• Increased number of convenience stores
• Growth of franchised educational services
Stage 6 Conducting a Feasibility
Study Part 1: Technical and Market
Assessment
Conducting a Feasibility Study: Part 1
Start a new business
Develop the concept for your venture
Develop a preliminary marketing plan
Evaluate technical feasibility
How will product be produced
Determine fixed production costs
Determine variable production costs
Establish a price structure for your
product or service
Research customers
and markets
Assess market size,
segments and trends
Test your product
or service
Evaluate the
competition
Develop a sales forecast
Flesh out your marketing plan
Market through
traditional distribution
channels
Market direct
to the consumer
Market to the
government
Market in
foreign markets
Develop a detailed marketing program for each channel you plan to use
Market through
specialty channels
A Typical Feasibility Study
Feasibility Study Contents
Concept for your
venture
• Explain clearly and concisely the principal concept
underlying your venture and what sets it apart from
other businesses.
Technical feasibility
of your idea
• Indicate the degree of innovativeness of your venture
idea and the risks associated with it.
• Does it need to be subjected to some form of
technical evaluation or assessment?
Market
assessment
• Describe the profile of your principal target customers.
• Indicate current market size, trends and seasonal
patterns.
• How do you plan to test your idea?
• Describe any market research or customer surveys
you plan to conduct.
• Assess the nature of your competition.
• Estimate your expected sales and market share.
Continued
A Typical Feasibility Study
(Continued)
Feasibility Study Contents
Your marketing
plan
• Detail the marketing strategy you plan to use.
• Describe your marketing plan, including your sales
strategy, advertising and promotion plans, pricing
policy, and channels of distribution
Managing the
supply situation
• How do you plan to assure continuing access to
critical supplies of raw materials and component parts
at reasonable prices?
• Will you produce or subcontract your production?
Continued
A Typical Feasibility Study
(Continued)
Feasibility Study Contents
Conduct cost
and profitability
assessment
Plan for
future action
• Determine the funds required to set up your business.
• Develop short-term financial projections including:
• Cash flow forecasts
• Pro forma profit and loss statements
• Pro forma balance sheet
• Breakeven analysis
• Whet were the strong and weak points of your
venture idea?
• Did your assessment indicate the business was likely
to be profitable?
• Is it sufficiently attractive to proceed with the
development of a complete business plan?
Some Guidelines for Market Research
Questionnaires
• Pre-test the survey on a small group of people
• Make certain you are asking the “right” questions
• Decide how you intend to use the information when designing
the questionnaire
• Keep your survey concise and readily understandable
• Ask direct questions that relate specifically to the topic in which
you are interested
• If you are providing a finite range of possible answers, try to
provide a maximum of five possible responses
•Make sure your questions can be easily answered by your
respondents
Continued
Some Guidelines for Market Research
Questionnaires (Continued)
• Don’t offend anyone
• Don’t mislead respondents about the purpose of the survey
• Don’t answer the questions for them by prompting them for
answers
• Give respondents sufficient time to provide an appropriate
response
• Don’t bias their responses by personally reacting to their
answers
• Ask all personal information at the end of the survey
• Always be courteous; remember they are doing you a favour
How to Market Test Your Idea
1. Develop a Prototype
2. Obtain Opinions from Prospective
Distributors
3. Compare with Competitor’s Products
4. Conduct a One-Store Test
5. Exhibit at Trade Shows
6. Conduct a Customer Survey
Stage 7 Conducting a Feasibility
Study Part 2: Cost and profitability
Assessment
Conducting a Feasibility Study: Part 2
Evaluate financial feasibility of concept
Estimate one-time start-up expenditures
Estimate expected monthly operating expenses
Develop short-term financial projections
Pro forma
income statement
Forecast your
cash flow
Determine your breakeven point
Pro forma
balance sheet
Sample Pro Forma Income Statement
TOUGH GUYS SPORTING GOODS
PRO FORMA INCOME STATEMENT
For the year ending [date]
Net sales
$714,000
Less: Cost of goods sold:
Beginning inventory
$195,000
Plus: Net purchases
483,000
Goods available for sale
$678,000
Less: Ending inventory
210,000
Cost of goods sold
468,000
Gross margin
$246,000
Operating expenses
231,000
Net Profit (Loss) Before Income Tax
$ 15,000
(A)
(B)
(C)
(D)
(E)
Completed Pro Forma Income Statement
TOUGH GUYS SPORTING GOODS
PRO FORMA INCOME STATEMENT
For the Year (date)
1. Gross Sales
2. Less: Cash Discounts
A. NET SALES
Cost of Goods Sold:
3. Beginning Inventory
4. Plus: Net Purchases
5. Total Available for Sale
6. Less: Ending Inventory
B. COST OF GOODS SOLD
C. GROSS MARGIN
Less: Variable Expenses
7. Owner’s Salary
8. Employees’ Wages and Salaries
9. Supplies and Postage
10. Advertising and Promotion
11. Delivery Expense
12. Bad Debt Expense
13. Travel
14. Legal and Accounting Fees
15. Vehicle Expense
16. Miscellaneous Expenses
$714,000
0
714,000
$167,000
483,000
$528,000
210,000
$468,000
$246,000
40,000
71,384
0
20,706
5,712
0
0
4,284
0
46,124
Continued
Completed Pro Forma Income Statement
(Continued)
TOUGH GUYS SPORTING GOODS
PRO FORMA INCOME STATEMENT
For the Year (date) - Continued
D. TOTAL VARIABLE EXPENSES
Less: Fixed Expenses
17. Rent
18. Repairs and Maintenance
19. Utilities (Heat, Light, Power)
20. Telephone
21. Taxes and Licences
22. Depreciation
23. Interest
24. Insurance
25. Other Fixed Expenses
E. TOTAL FIXES EXPENSES
F. TOTAL OPERATING EXPENSES
G. NET OPERATING PROFIT (LOSS)
* Numbers may not match operating expense percentages exactly due to rounding.
$189,210
11,424
3,570
7,140
1,000
1,000
7,140
8,568
3,570
0
$ 43,412
$231,000 *
$ 15,000
Sample Cash Flow Forecast
Pro Forma Cash Flow Forecast for Tough Guys Sporting Goods
12-Month Cash Flow Projections
Minimum Cash
Balance Required =
5,000
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Year 1
Total
Cash Flow from Operations
(during month)
1. Cash Sales
2. Payments for Credit Sales
3. Investment Income
4. Other Cash Income
12,000 18,000 22,200 28,800 30,000 36,600 39,000 30,000 24,000 24,000 21,000 30,000 315,600
0 8,000 12,000 14,800 19,200 20,000 24,400 26,000 20,000 16,000 16,000 14,000 190,400
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
A. TOTAL CASH ON HAND
$12,000 $26,000 $34,200 $43,600 $49,200 $56,600 $63,400 $56,000 $44,000 $40,000 $37,000 $44,000 $506,000
Less Expenses Paid
(during month)1
5. Inventory or New Material
6. Owner’s Salary
7. Employees’ Wages
and Salaries
8. Supplies and Postage
9. Advertising and Promotion
10. Delivery Expense
11. Travel
12. Legal and Accounting Fees
13. Vehicle Expense
14. Maintenance Expense
15. Rent
16. Utilities
17. Telephone
18. Taxes and Licences
19. Interest Payments
20. Insurance
21. Other Cash Expenses
B. TOTAL EXPENDITURES
-13,200 -19,800 -24,420 -31,680 -33,000 -40,260 -42,900 -33,000 -26,400 -26,400 -23,100 -33,000 -314,160
-3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -3,000 -36,000
-2,000
0
-2,000
-200
0
-500
0
-1,000
-1,100
-450
0
-1,000
0
-600
-2,000
-3,000
0
-1,000
-250
0
-250
0
0
-1,100
-450
0
0
-90
0
-2,000
-3,000
0
-500
-250
0
-250
0
0
-1,100
-450
0
0
-125
0
-2,000
-3,500
0
-700
-300
0
-250
0
-800
-1,100
-450
0
0
-135
-600
-2,000
-4,300
0
-700
-300
0
-250
0
0
-1,100
-450
0
0
-140
0
-2,000
-4,300
0
-700
-400
0
-250
0
-1,000
-1,100
-450
0
0
-110
0
-2,000
-4,500
0
-800
-400
0
-250
0
0
-1,100
-450
0
0
-90
-600
-2,000
-4,500
0
-1,000
-500
0
-250
0
-500
-1,100
-450
0
0
-30
0
-2,000
-3,000
0
-500
-300
0
-250
0
-1,000
-1,100
-450
0
0
0
0
-2,000
-2,500
0
-800
-300
0
-250
0
0
-1,100
-450
0
0
0
-600
-2,000
-2,500
0
-800
-300
0
-250
0
-700
-1,100
-450
0
0
0
0
-2,000
-3,900
0
-1,500
-500
0
-250
0
0
-1,100
-450
0
0
0
0
-2,000
-41,000
0
-11,000
-4,000
0
-3,250
0
-5,000
-13,200
-5,400
0
1,000
-720
-2,400
-24,000
(27,050) (30,940) (35,095) (44,515) (45,240) (53,570) (56,090) (46,330) (38,000) (37,400) (34,200) (45,700) (494,130)
Continued
1. Expenses and other payments should be entered as negative (-)
numbers.
Slide 7.4B Building a Dream
Sample Cash Flow Forecast (Continued)
Pro Forma Cash Flow Forecast for Tough Guys Sporting Goods
12-Month Cash Flow Projections (Continued)
Jan.
Feb.
Mar.
Apr.
May
June
July
Aug.
Sept.
Oct.
Nov.
Dec.
Year 1
Total
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
$0
0
11,000
0
0
4,000
0
0
1,000
0
0
1,000
0
-4,000
0
0
-3,000
0
0
-7000
0
0
-3000
0
0
0
0
0
0
0
0
0
0
0
0
0
0
-17,000
17,000
0
0
0
0
0
0
0
0
0
0
0
0
0
0
D. CHANGE IN CASH FROM
FINANCING
$11,000 $4,000 $1,000 $1,000 ($4,000) ($3,000) ($7,000) ($3,000)
$0
$0
$0
$0
$0
E. INCREASE (DECREASE)
IN CASH
($4,050)
Minimum Cash
Balance Required =
5,000
Capital
Purchase of Fixed Assets
Sale of Fixed Assets
C. CHANGE IN CASH FROM
PURCHASE OR SALE
OF ASSETS
Financing
Payment of Principal of Loan
Inflow of Cash from Bank Loan
Issuance of Equity Positions
Repurchase of Outstanding
Equity
F. CASH AT BEGINNING OF
PERIOD
($940)
$105
$85
($40)
$30
$310 $6,670 $6,000 $2,600 $2,800 ($1,700) $11,870
$10,000 $5,950 $5,010 $5,115 $5,200 $5,160 $5,190 $5,500 $12,170 $18,170 $20,770 $23,570 $10,000 2
G. CASH AT END OF PERIOD
$5,950 $5,010 $5,115 $5,200 $5,160 $5,190 $5,500 $12,170 $18,170 $20,770 $23,570 $21,870 $21,870
MEET MINIMUM CASH
BALANCE
Accept.
Accept.
Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept. Accept.
Accept.
2. This entry should be the same amount as for the beginning of the year. All other rows will be the total for the entire year.
Copyright © 2000, McGraw-Hill Ryerson Limited
Sample Pro Forma Balance Sheet
TOUGH GUYS SPORTING GOODS BALANCE SHEET
End of Year 1
ASSETS
Current Assets:
1. Cash
2. Accounts Receivable
3. Inventory
4. Other Current Assets
A. Total Current Assets
Fixed Assets:
5. Land and Buildings
less depreciation
6. Furniture and Fixtures
less depreciation
7. Equipment
less depreciation
8. Trucks and Automobiles
less depreciation
9. Other Fixed Assets
less depreciation
B. Total Fixed Assets
C. Total Assets (C = A + B)
10,000
30,000
210,000
30,000 ________
$280,000
0
0
90,000
5,000
0
85,000
0
0
0
34,000
3,000
31,000
_______
$ 116,000
$396,000 Continued
Sample Pro Forma Balance Sheet
(Continued)
TOUGH GUYS SPORTING GOODS BALANCE SHEET
End of Year 1 (Continued)
LIABILITIES
Current Liabilities (due within 12 months)
10. Accounts Payable
11. Bank Loans/Other Loans
12. Taxes Owed
D. Total Current Liabilities
Long-Term Liabilities
13. Notes Payable (due after one year)
14. Other Long-Term Liabilities
E. Total Long-Term Liabilities
F. Total Liabilities (F = D + E)
NET WORTH (CAPITAL)
SHARE CAPITAL
Common Shares
Preferred Shares
RETAINED EARNINGS
G. Total Net Worth (G = C - F)
H. Total Liabilities and Net Worth (H = F + G)
123,000
39,000
_______
$162,000
150,000
68,000
_______
$218,000
$380,000
1,000
0
15,000
$ 16,000
$396,000
Determining Your Break-Even Point
Profit Area
Expenses (thousands of dollars)
Sales
700
Total Costs
600
Breakeven Point
500
400
300
Loss Area
200
Fixed Expenses
100
100
200
300
400
500
600
Sales Revenue (thousands of dollars)
700
Stage 8 Organizing Your
Business
Organize Your Business
Select the organizational structure for your business
Sole
Proprietorship
Partnership
Corporation
Select and
register a
business name
Select and
register a
partnership name
Select a
corporate
name
Draw up a
partnership
agreement
Draw up
articles of
incorporation
File for incorporation
with provincial or
federal government
Comply with
provincial licensing
requirements
Comply with
municipal licensing
requirements
Deal with
mandatory
deductions
Consider
employment
standards
Forms of Business Organization
Sole Proprietorship
•
•
•
•
Advantages
Disadvantages
Simple and inexpensive to • Unlimited liability
start
• More difficult to obtain
Individual control over
financing
operations
• Limited resources and
All profit to the owner
opportunity
Losses deductible from
any other income
Forms of Business Organization
Partnership
•
•
•
•
Advantages
Disadvantages
Pooling of financial
• Unlimited liability
resources and talents
• Divided authority
Simplicity and ease of
organization
Increased ability to obtain
capital
Potential for growth
Forms of Business Organization
Limited Partnership
Advantages
• Limited liability for
limited partners
Disadvantages
• Centralized management
• Difficulty in changing
ownership
Forms of Business Organization
Corporation
•
•
•
•
•
Advantages
Limited liability
Continuity of the business
Easier to raise capital
Potential employee
benefits
Tax advantages
Disadvantages
• Cost
• Legal formalities
• Inability to flow losses
through to the
shareholders
• Need for personal
guarantees
Other Legal Requirements
• Licences and Permits
– Municipal
– Provincial
– Land Use and Zoning
• Mandatory Deductions
– Income Tax
– Employment Insurance
– Canada Pension Plan
• Taxes
– Provincial Sales Tax
– GST/HST
• Employment Standards
• Insurance
Types of Insurance
1. General Liability
Insurance
2. Business Premises
Insurance
3. Business Use Vehicle
Insurance
4. Business Interruption or
Loss-of-Income
Insurance
5. Disability or Accident
and Sickness Insurance
6. Key Person Insurance
7. Credit Insurance
8. Surety and Fidelity
Bonds
9. Partnership Insurance
10. Workers’ Compensation
Stage 9 Protecting Your Idea
Protect Your Idea
Protecting your intellectual property
Apply for any
patents
Register your
trademarks
Copyright
protection
Integrated circuit
topographies
Forms of Intellectual Property
•
•
•
•
•
Patents
Trademarks
Copyright
Industrial Designs
Integrated Circuit Topographies
Patent
• Can be granted to the inventor of any new and
useful product, chemical composition, machine or
manufacturing process
• Awarded on a “first to file” basis
• Protection provided for 20 years from date of
application
• The onus is on you to protect your rights under the
patent
• Holding a patent does not necessarily mean
commercial success
Trademark
• A word, symbol, picture, design, or combination of these
that distinguishes your goods and services from those of
others
• Can be registered to enable you to obtain exclusive use
• Non-mandatory that it be registered but does establish
obvious proof of ownership
• Registration is effective for 15 years and may be renewed
for a series of 15-year terms as long as it is still in use
• Onus is on the owner to police the use of the trademark
• Registration in Canada provides no protection in other
countries
Copyright
• Copyright precludes others from reproducing or copying
your original published work--books, leaflets, lectures,
maps, musical compositions, computer programs, etc.
• Exists for the duration of your life plus 50 years after your
death
• No legal requirement the work be registered; copyright is
automatically acquired upon creation of an original work
• Responsibility for policing copyright rests with the holder
• A copyright in Canada provides simultaneous protection in
most other countries of the world
Stage 10 Arranging Financing
Sources of Financing
How will you finance your business?
Loans and mortgages
from banks, credit
unions and others
Credit from
suppliers
Personal savings
Love
money
Equity capital
from private
sources
Local professionals
and angel
investors
Friends and
neighbours
Employees
Venture
capitalists
Government
assistance programs
Leasing
Prepare loan or grant
request package
Major Sources of Funds
• Personal Funds
• “Love Money”
• Banks and Similar Institutions
– Operating Loans
– Term Loans
• Federal Government
– Canada Small Business Financing Program
– Industrial Research Assistance Program (IRAP)
– Program for Export Market Development (PEMD)
– Community Futures Program (CFP)
– Women’s Enterprise Initiative Loan Program
– Aboriginal Business Canada – Youth Entrepreneurship
– Business Development Bank of Canada (BDC)
Continued
Major Sources of Funds
(Continued)
• Provincial Government Programs
• Venture Capital and “Angel” Investors
• Other Sources of Financing
– Personal Credit Cards
– Canadian Youth Business Foundation
– Suppliers’ Inventory Buying Plans
– Leasing vs. Buying
– Negotiated Leasehold Improvements
– Advance Payment from Customers
Getting the Best From Your Banker
• Know what your banker is looking for
• Don’t “tell” your banker, “show” him
• Interview your banker
• Passion makes perfect
• Ask for more money than you need
• Get your banker involved in your business
• Increase your credit when you don’t need it
• Make professional introductions
• If all else fails, keep looking
Stage 11 Preparing Your Business
Plan
Preparing Your Business Plan
Prepare your business plan
Develop a vision statement
Formulate your mission statement
Develop clear and specific objectives
Develop a realistic business plan
A typical business plan
Letter of transmittal
Title page
Table of contents
Executive summary and fact sheet
Body of the plan
• Description of the company and the industry
• Overview of your product/service offering
• Market analysis
• Your marketing plan
• Your development plan
• Your production/operations plan
• Your management team
• Your implementation schedule
• Your financial plan
• Appendices
•
•
•
•
•
Steps in the Business Planning Process
1. Develop a Vision Statement
2. Formulate a Mission Statement
3. Define the Fundamental Values by Which
You Will Run Your Business
4. Set Clear and Specific Objectives
5. Making It Happen! Develop a Realistic
Business Plan
Types of Business Plans
• The Summary Business Plan
– 10 pages or so
– Can be used by early-stage business to apply for a bank loan or may
be all that is needed for a lifestyle business
• The Full Business Plan
– Will run from 10 to 40 pages plus appendices
– Covers all key areas in enough depth to permit a full exploration of
the principal issues
– Used when trying to raise a substantial amount of external financing
• The Operational Business Plan
– Usually exceeds 40 pages in length
– Used when a business is growing very rapidly or as part of an annual
planning process
Advantages of Preparing a Business
Plan
• Helps you face reality and the facts
• Forces you to think ahead and consider the future
• Assists you in summarizing your skills
• Helps you identify and define your strategic program
• Establishes the amount of financing you require
• Outlines the financial future or your business through projected
statements
• Provides you with an effective sales tool
• Inspires confidence in yourself and projects that confidence to
others
What Should a Business Plan Contain?
1. Letter of Transmittal
2.
3.
4.
5.
Title Page
Table of Contents
Executive Summary and Fact Sheet
Body of the Plan
The Company and Industry
The Product/Service Offering
Market Analysis
The Marketing Plan
The Development Plan
The Production/Operations Plan
The Management Team
Implementation Schedule and Risks Associated with the Venture
The Financial Plan
6. Appendices
A Typical Business Plan
Business Plan Contents
1.
Letter of Transmittal
• Introduce your business plan to the reader
• Outline the major features that may be of interest
2.
Title Page
• Provide identifying information about you and
your proposed business. Name, address and
contact numbers for the business as well as key
company contacts
3.
Table of Contents
4.
Executive Summary
and Fact Sheet
• A list of the major headings and sub-headings
contained in your plan.
• A 1-2 page summary of the most important
points in your plan
• May be the most important part of your
business plan
• Your Fact Sheet summarizes the basic
information that relates to the venture
Continued
A Typical Business Plan (Continued)
5.
Body of the Plan
Company and the Industry
Product-Service Offering
Market Analysis
• History and current situation of your company
• Goals and objectives for the business
• Principal characteristics and trends in the industry
• Detailed description of your product or service
• Outline stage of development and proprietary
position
• Describe the profile of your principal target
customers
• Indicate current market size, trends, and seasonal
patterns
• Assess the nature of your competition
• Estimate your expected sales and market share
Continued
A Typical Business Plan (Continued)
5.
Body of the Plan
(Continued)
Your Marketing Plan
• Detail the marketing strategy you plan to use
• Describe your marketing plan insofar as your sales
strategy, advertising and promotion plans, pricing
policy, and channels of distribution
Your Development Plan
• Outline of the development status of your product
and what is still required to get it to a market-ready
state
• Are there regulatory, testing or other requirements
that still have to be met?
Your
Production/Operations
Plan
• Outline the operating side of your business
• Describe your location, kind of facilities, space
requirements, capital equipment needs, and labour
requirements
Continued
A Typical Business Plan
(Continued)
5.
Body of the Plan
(Continued)
Your Management
Team
• Identify your key management people, their
responsibilities and their qualifications
• Indicate the principal shareholders of the business,
your principal advisors and the members of your
Board of Directors
Your Implementation
Schedule
• Present an overall schedule indicating what needs
to be done to launch your business and the timing
required to bring it about
• Discuss the major problems and risks that you will
have to deal with as well
Continued
A Typical Business Plan
(Continued)
5.
Body of the Plan
(Continued)
Your Financial Plan
• Indicate the type and amount of financing you are
looking for and how the funds will be used
• Outline your proposed terms of investment, the
potential return to the investor, and what benefit is
being provided
• Provide an overview of the current financial
structure of your business
• Prepare realistic financial projections that reflect
the effect of financing. Include:
• Cash flow forecasts
• Pro forma profit and loss statements
• Pro forma balance sheet
• Breakeven analysis
Continued
A Typical Business Plan
(Continued)
6.
Appendices
• Supporting material for your plan including:
• Detailed resumes of the management
team
• Product literature and photographs
• Names of possible customers and
suppliers
• Consulting reports and market surveys
• Copies of legal documents
• Publicity material
• Letters of reference
Tips for Developing Your Business
Plan
• Be prepared to spend weeks – or months - completing your plan
• Work on individual sections at a time
• Be brief but complete
• Focus on the intended reader
• Use layman’s terms
• Treat your business plan as a “living” document
• Be realistic
• Discuss the business risks of your firm
• Don’t make vague or unsubstantiated statements