Community Futures Grande Prairie & Region
BP Course outline
Business Plan
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TABLE OF CONTENTS
Introduction to Business Planning: ............................................................................................................................................2
A good business plan is: .........................................................................................................................................................2
Executive Summary ...............................................................................................................................................................3
The Business ..............................................................................................................................................................................4
Business Profile ......................................................................................................................................................................4
Business Vision ......................................................................................................................................................................5
Business Mission Statement ..................................................................................................................................................5
Business Ethics Statement .....................................................................................................................................................5
Goals ......................................................................................................................................................................................6
Action Plan .............................................................................................................................................................................6
Organization ..............................................................................................................................................................................6
Legal Structure: ......................................................................................................................................................................7
Sole Proprietorship ............................................................................................................................................................7
Partnership ........................................................................................................................................................................7
Joint Venture .....................................................................................................................................................................7
Limited Partnership ...........................................................................................................................................................7
Corporation........................................................................................................................................................................8
Legal Structure .......................................................................................................................................................................9
Skills .....................................................................................................................................................................................10
Operational ..............................................................................................................................................................................11
Checklist:..............................................................................................................................................................................11
Operational Requirements: .................................................................................................................................................12
Risks .....................................................................................................................................................................................13
Market Research ......................................................................................................................................................................14
Research; Will Your Idea Work? ..........................................................................................................................................14
STAGES: ................................................................................................................................................................................14
THE “W’S” AND “H” OF RESEARCH ......................................................................................................................................15
Industry Overview ...............................................................................................................................................................20
Target Customer ..................................................................................................................................................................21
Marketing Plan ........................................................................................................................................................................27
Product ................................................................................................................................................................................27
Place ....................................................................................................................................................................................27
Price .....................................................................................................................................................................................27
Promotion ............................................................................................................................................................................27
Pricing Calculations ..........................................................................................................................................................31
BREAK-EVEN POINT .........................................................................................................................................................33
Advertising and Promotion ..................................................................................................................................................34
Financial ...................................................................................................................................................................................37
Asset List – Schedule #1 .......................................................................................................................................................37
Start Up Costs Worksheet....................................................................................................................................................39
Personal Budget:..................................................................................................................................................................41
EXPENSES .........................................................................................................................................................................41
Opening Day Balance Sheet .................................................................................................................................................43
Cash Flow .............................................................................................................................................................................45
Definitions of Cash Flow Terms ...............................................................................................................................................47
PROJECTED INCOME STATEMENT .......................................................................................................................................48
Break-Even ...........................................................................................................................................................................50
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Introduction to Business Planning: | Community Futures Grande Prairie & Region
INTRODUCTION TO BUSINESS PLANNING:
A GOOD BUSINESS PLAN IS:
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like a map that will show how to get to where you want to go
a useable guideline for day-to-day operations.
a valuable document for business owners to look at various options and plan ahead.
for Financial institutions to use when they are considering lending to a business.
a document outlining the business background and the proposed resources and strategies to be used, as well as
the expected results of a business for a stated period of time.
organized, complete and factual.
Try brainstorming with friends and associates to get started. Promote yourself. Let people know your interests. Join
business groups and associations. Look for opportunities.
Consider the major components of a complete business plan as outlined in the table of contents in your workbook. Most
components apply to most businesses so ensure you complete all relevant sections. Every business differs; remember; your
business may require more information in some of the sections than other businesses.
Do:
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be thorough and specific
not restrict yourself to the allotted lines in this workbook.
be aware, not all readers will understand your industry
make your plan noteworthy by providing only relevant, interesting information.
think about presentation and neatness; you are selling yourself
use point form occasionally
use bold headings
provide space between your lines;
be prepared to spend the time to do the necessary research to complete a business plan
include copies of estimates and quotes in an appendices
not be afraid to ask for help
“Failing to plan is like planning to fail”
Community Futures Grande Prairie & Region | Introduction to Business Planning:
2
EXECUTIVE SUMMARY
The summary is a brief description of the Business; the Management Team; the Product/Services; Market Strategies; and
the Financial Plan. It should also include main points of the Business Description, key highlights from the body of the
Business Plan, major goals of the company, sales goals, start up costs, Owners’ Contributions, financing requirements, and
should be one to two pages in length and should grab the reader’s attention. (Remember: This may be the only part of
your Business Plan that gets read. Keep it concise, factual, and interesting enough to invite the reader to read on!) Although
your summary is placed first in the plan you do it first and last. Flesh it out in rough, and then finish it once you have finished
your plan.
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Introduction to Business Planning: | Community Futures Grande Prairie & Region
THE BUSINESS
BUSINESS PROFILE
This section will give a detailed description of the service or product you will provide. It should give an overall summary of
the “what, where, why, who and how” of your idea.
What business sector will you be working in? ie: Retail, Food, Construction, Tourism, Mfg. Service….
Is this a:
_______ New business OR ________Existing business?
Outline the company’s image:
What is unique about what you do?
What needs do you meet for the customer?
How did the business come into being?
What is your projected start-up date and registration date?
Describe any tickets or licensing that is required and when you will apply for them and receive them.
Provide some industry information i.e.: trends, technology
Community Futures Grande Prairie & Region | The Business
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BUSINESS VISION
Outline the company’s image. Describe the owner’s vision for this business, in terms of its reason for existence, its
contribution to the community, owners, staff, and economy; list growth potential and other important issues to the owner.
BUSINESS MISSION STATEMENT
In twenty-five words or less, describe how your business will maintain its image state why you are in business, where you
are conducting your business and your ethics.
BUSINESS ETHICS STATEMENT
Determine the ethics values of your business. Include issues such as pricing, loyalty to customers, and suppliers; procedures
in the event of business errors, etc.
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The Business | Community Futures Grande Prairie & Region
GOALS
What are your short-term goals in terms of sales, customer relations, community involvement, etc.?
What are your long term goals?
ACTION PLAN
When do you plan on doing what???
Point form:
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May 1 register company
May 20. interview for management
June 1 order inventory
Oct 31 interview for Christmas extra help
OR Grid Form:
Jan
Register Company
Feb
Apr
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
X
Interview Staff
Place inventory
order
Place inventory
order
Mar
X
X
X
Open for business
ORGANIZATION
Community Futures Grande Prairie & Region | Organization
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LEGAL STRUCTURE:
There are a number of different ways of organizing to carry on a business. The most common organizations are sole
proprietorships, limited partnerships, joint ventures, and corporations. These forms of organizations are described below
along with some of the advantages and disadvantages of each.
SOLE PROPRIETORSHIP
In a sole proprietorship, an individual carries on business for him or herself without involving others, except as employees.
The sole proprietorship owns the assets of the business and is personally responsible for all the obligations associated with
the business. In other words, the sole proprietor’s personal assets can be seized to meet the obligations and liabilities of
the business.
A sole proprietorship is the simplest form of business organization, and there are a few legal formalities required to form a
sole proprietorship. However, when the business involves “trading, manufacturing, or mining”, and the sole proprietor uses
a number of members of the business (i.e. Smith & Sons), then registration of the name will be required under the
Partnership Act.
The advantage of a sole proprietorship is that it is simple and inexpensive. However, it will not be appropriate where other
people are expected to participate in the ownership of the business or where the businessperson wishes to limit his or her
personal liability for the business.
PARTNERSHIP
Where two or more people carry on a business together with a view to profit, their relationship will probably be considered
a partnership. If the partners do not enter into a formal partnership agreement, their relationship will be governed by the
Partnership Act. Thus, generally, it is wise for people entering into a partnership to prepare a Partnership Agreement setting
out the terms they wish to work under. Also, a Partnership agreement may be important because without an Agreement,
if one of the partners dies, the partnership automatically dissolves, which may lead to adverse tax consequences.
Where a partnership exists, each partner will, with respect to third parties, be bound by the acts of the other partners in
the course of business. In addition, each partner will be personally liable for all debts and obligations of the partnership.
There are certain advantages to a partnership. The organization of a partnership can be relatively simple and inexpensive.
Registration of the partnership name is required by the Partnership Act. There are very few legal requirements for forming
a partnership; consequently, people often enter into a partnership agreement initially until they determine how successful
the business will be. If the partnership is successful, they often decide to incorporate.
In some instances, the partnership can provide tax advantages. For example, if the parties expect to have losses in the first
few years of operating the business, they may want to form a partnership in order to claim losses against their personal
income for other sources. The main disadvantage of partnerships is that each partner is personally liable for all debts and
obligations of the partnership, and is bound by the acts of the other partners in connection with the business of the
partnership. For this reason, partnerships usually involve only a few persons who have a considerable degree of trust in
one another.
JOINT VENTURE
A joint venture is similar to a partnership, but is generally limited to a single project. A joint venture has as its basis a
contractual relationship an agreement between two parties who intend to associate themselves as joint ventures. Each
contributes to a common undertaking for a share of profits or losses and each has some degree of management control of
the venture. Much of the law of partnership is applicable to joint ventures, however, a joint venture is founded entirely on
agreement between the parties.
LIMITED PARTNERSHIP
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Organization | Community Futures Grande Prairie & Region
A limited partnership has one or more “general partners”, and one or more “limited partners”. The general partners have
similar rights and obligations to partners in a non-limited partnership. The limited partner is only liable for an amount
equivalent to his or her contribution to capital of the business, provided he or she does not participate in the management
of the business.
Both general and limited partnerships come under provincial jurisdiction. For both forms of partnership, registration
consists of filing declaration signed by all partners with the province of operation within a prescribed time period.
The main advantage of a limited partnership is having an additional source of investment capital, leaving less financial
pressure on the management.
CORPORATION
A Corporation is a legal entity that is separate from its owners – the shareholders of the company. Each shareholder has
limited liability. A creditor with a claim against the assets of the company would normally have not rights against its
shareholders; however, in certain circumstances shareholders maybe held liable. This type of business can be incorporated
at either the federal or provincial level.
The main advantages of a corporation are limited liability, possible tax advantages, transferable ownership, being a separate
legal entity, and it makes it easier to raise capital. The main disadvantages are that they are the most expensive form to
organize, extensive record keeping is necessary, greater taxation can occur, shareholders may be legally responsible, and
personal guarantees undermine limited liability advantage.
Here is a brief overview of each business organization type:
Advantages
SOLE PROPRIETORSHIP
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owned by one person
low start-up costs
quick and easy to start
simple record keeping and
tax returns
owner directly controls
business
considerable freedom
from regulation
Disadvantages
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Advantages
owner and business are not legally
separate
fully liable for all debts and
obligations
cannot use Incorporated, Inc.
Limited,
Corporation
(or
abbreviations) as part of the name
may not be considered by lenders or
suppliers to be as stable as a
partnership or corporation
may lack credibility to compared
corporations
difficult to raise capital
Disadvantages
Community Futures Grande Prairie & Region | Organization
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PARTNERSHIPS
CORPORATIONS
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low start-up costs
two or more people can have
ownership in the business
broader management base
relatively easy to start and
limited outside regulation
relatively easy administration
additional partners can put more
money into the business
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distinct legal entity
gives owners limited liability
business can have unlimited number
of owners
easier to raise capital through sale or
shares
“perpetual” existence
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fully liable for all debts and
obligations
A partners often conflicts
a partnership agreement (an extra
expense) is essential
more complex record- keeping and
tax returns
capital can be raised only if new
partners admitted
expensive to start
must have legal and accounting help
requires a lot of administration
more complex recordkeeping and tax
returns
closely regulated by government
taxation
LEGAL STRUCTURE
Give a brief description of the legal structure of the business. If your business is organized as something other than a sole
proprietorship, provide details on the legal structure of the business, and if appropriate, include an organizational chart
outlining the duties of key personnel.
What legal structure have you chosen for the business, and why?
Sole Proprietorship
Partnership
Corporation
Why?
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Organization | Community Futures Grande Prairie & Region
SKILLS
This section provides the reader with information regarding the competency and reliability of you as an owner of a small
business. Include any experience in management, supervision, organizational tasks, bookkeeping, public relations, etc. As
well, relate your past technical experience in the field you are attempting to enter as a self employed person.
Describe the skills and/or experience you will bring to the business?
What management, supervisory and accounting experience do you have?
What research or studying have you done into the field you are about to enter?
Community Futures Grande Prairie & Region | Organization
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OPERATIONAL
CHECKLIST:
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Have you checked into licenses and permits for your new business?
Suppliers of your materials and supplies – What are their terms, delivery time, warranties, etc.?
Do you require liability or general insurance? Is there a risk of injury at the place of your business, with
the use of your product, or a chance of damage if you are offering a service at your customer’s residence
or place of business?
Do you need to find a business location outside of your home? Have you researched sites in the
marketplace? Do you know current rental rates? Do you have an offer to lease on a site you have chosen?
Did you check the zoning and by-laws of the area you are considering conducting business?
What kind of equipment will you require? i.e. office, manufacturing, service, etc.
Do you need to understand the Employment Standards Act?
Have you looked into payroll deductions and getting a Revenue Canada number if you are
planning on hiring staff?
Do you need a GST or PST number?
Did you check on WCB requirements?
Have you considered your bookkeeping requirements? Will you require an accountant?
What are the legal considerations?
Have you thought of a business name? If so, have you done a name search and registration?
Other:____________________________________________________________________
Other:____________________________________________________________________
These are just some of the questions you should be asking yourself when doing research into your business idea. You should
have adequate information of many of the above subjects to convince the reader you are aware of the necessary steps of
setting up a formal business. Be specific about the information you have obtained – do not generalize!
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Operational | Community Futures Grande Prairie & Region
OPERATIONAL REQUIREMENTS:
Will franchise, patents, trademarks, or licensing agreements be necessary?
Briefly describe your manufacturing process
What equipment, building improvements, furniture and fixtures does your business need to succeed?
What are the physical needs of your business (lighting, ventilation, square feet, etc.)?
How much will the above cost?
What is the minimum amount of investment in inventory needed to start your business?
How are you going to track inventory levels?
Community Futures Grande Prairie & Region | Operational
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RISKS
Take a good look at the risks involved in being self-employed and outline them in the proposal. Consider financial, quality
of life, legal risks and any other risks you could be facing. Then determine how you can minimize the most serious of these
risks. Once risks are determined, some contingency plans should be developed. (i.e. What if I only sell half the number
expected? What if I sell twice the number expected? Etc.)
Discuss your concerns about starting a business; everyone has concerns as venture into a new business. Be completely
honest with yourself listing anything pertaining to finances, childcare, time management etc. Common risks that apply to
most businesses:
Fire, theft and business interruption due to natural disaster?
Cash shortfall?
Competition?
Market share not met?
Staff problems?
Other risks?
Other risks?
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Operational | Community Futures Grande Prairie & Region
MARKET RESEARCH
RESEARCH; WILL YOUR IDEA WORK?
“A single conversation with a wise man is worth a month’s study of books.”
Chinese Proverb
A business concept gets put together; a business’s idea is born
Many people believe they have “million dollar” ideas, and they may! The idea is the easy part- the hard part is finding ideas
that will make money based on your skill, experiences and interests. More important than a sensational idea is what to do
and how to do it. An idea does not have any value until it is put into a workable form and proves that it will sell at a price
the consumer or end-user is willing to pay. An idea or opportunity alone does not necessarily mean you can develop a
business. Often, people simply take their idea and begin establishing a business. They have missed a critical step — market
research.
Market research determines whether or not there is a demand for your product or service and if it can be offered
competitively. Market research provides you with critical information to make decisions as you set up the business. In
short, the results of your research will help you answer all key business start-up questions, including the appropriate product
or service for the market, the right business image, price, credit policies, location, and methods of advertising.
Market research often makes people think of sophisticated statistical and psychological analyses of the industry and
customers. For some businesses, professional market research firms are a must. For most people, however, effective
market research can be conducted with little money but a significant investment of time.
STAGES:
Most people easily achieve stage 1&2 of gathering research.
1.
Simple Gut Feeling
2.
Talk to friends & relatives & others
3.
Search out & examine products or concepts
4.
General observations
5.
Gather secondary data
6.
Seek out primary data
7.
Hire a professional firm
Community Futures Grande Prairie & Region | Market Research
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THE “W’S” AND “H” OF RESEARCH
WHY YOU WILL DO RESEARCH?
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capitalize on information & unknowns
never assume
if your research is not favourable you can save yourself a lot of time, money and headaches
knowledge to determine whether the project is worth pursuing
The less research the greater the risk
Starts a customer base
A confidence builder
WHAT YOU WILL DO?
Thorough and careful research into each of the following areas is well worthwhile. Find out the information you must know
before you start, not after.
Market research looks at 4 traditional areas:
• Demographics • Customer Characteristics • Competitor Analysis • Environment
1.
Demographics: Refers to the statistics of a community, city, or region.
Factors to consider include:
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population
gender
age
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occupation
education
income
This information is easily obtained from the business reference section of your library. Census and Statistics Canada data
are very useful. The Financial Post’s CANADIAN MARKETS handbook summarizes this information for each Canadian city.
2.
Customer Characteristics: This information is critical in determining whether people need and/or want your
product or service. Unlike demographic information, this information will have to be gathered on your own through
telephone surveys, interviews, mail surveys, or observation.
Some information you will want to find out is:
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•
Where do customers live?
Where do they buy? How often?
Is your product or service seen as a luxury or necessity?
What price are they willing to pay?
Do customers use cash or credit?
Do customers need guarantees or warranties to buy the product?
Is convenience important?
What motivates them to buy? For example, is it status, convenience, price, etc.?
Many of these questions need answering before you can objectively decide whether your business is viable. They also apply
to all businesses — whether you sell a product or service to consumers or businesses.
3.
Competitor Analysis: You must determine the strengths and weaknesses of your competitors and what threats or
opportunities they present to you.
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Market Research | Community Futures Grande Prairie & Region
Competition is a fact of business. Even if no competition exists — an unlikely situation — you will soon have lots if your idea
is a good one.
Assess your competitors’ strengths and weaknesses according to the following factors:
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How many are there?
Where are they located?
How long have they been in business?
What prices do they charge?
Are they profitable?
How will they react if you start your business?
Are their customers satisfied?
What is their credit policy?
Next, analyze how your competitors’ strengths and weaknesses may create opportunities or threats for you. Think about
what you can do to be different from the competition. This will help you to focus your business idea and to position yourself
to compete against other businesses.
4.
Environment: Factors affecting the operation of your business create an environment. There are internal factors,
such as your skills at displaying goods, and external factors, such as government regulations. As a business owner/manager,
you generally have control over internal or “inside” factors. External factors are usually “outside” your control or affect
your business operation from the “outside”. Examples of external factors include:
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government regulations
the economy
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government incentives
social change
Environmental influences may hamper your business. Carefully assess these factors as they can affect your business in a
variety of ways. Consider some of these changes and the effects on your business:
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Free Trade Agreement
Increasing use of computers
Labour legislation
Environmental concerns/regulations
Goods & Services Tax (GST)
Two-income families
Recycling
12.
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Higher energy costs
Trend towards deregulation and privatization
Interest rates
Inflation
Trend towards home-based business
Tax legislation
An aging population
OTHER NEEDS YOU WILL DETERMINE:
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Where do you need to be or do you really need a location, can you work from home?
Do you need retail space and storage space and office space?
Sales projections based on market share you feel you can capture after you have conducted your survey
Maybe you need to add to your product line in order to meet all their needs, lost leaders- offer cheap milk in order to
get them in the door to buy the real stuff
Pricing strategy- everyday low prices, start high- discount often, match competitors, free chairs with your tables (build
the price of the chairs into the table price)
Where you advertise
Should you be offering credit- do you have to in order to be competitive?
How much capital you require
How much inventory you order
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Market Research | Community Futures Grande Prairie & Region
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How much equipment and supplies you require
Do you need employees, if so how many
What image do you want to portray- sophisticated, professional, Barney Fife, Joe the Janitor the person that takes time
to be neighbourly and chit chat or the Speedy Lube philosophy?
Notes:
WHEN YOU WILL DO IT:
Research is conducted on an ongoing basis, not only before start-up but also for the following reasons:
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To validate and add credibility to the analysis you include in your business plan
Introducing a new concept
Review Price Structures
To develop an effective advertising campaign
To evaluate an ad campaign
Define a distribution method
HOW YOU WILL DO IT?
Try some of the following methods:
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Questionnaires
Comprehensive Drawings
Models or Prototypes
Short or Sample Production Run
Sales Test
Trade Shows
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Telephone Surveys
Advertising Tests
Mail-Order Catalogue Houses
Mail Order
Observe competition,
Talk to suppliers, customers and / or focus groups.
Questionnaires need to:
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Be simple and straightforward
Be unbiased and unambiguous
Be short (not more than a minute or two)
Use yes / no questions or multiple choice
Use a drawing or photograph if researching a product
Emphasize anonymity and confidentiality
Ask only what you need to know, if it doesn’t matter if your customers are male or female don’t ask the question
Possibly be conducted more than once. May need to determine whom your real customers are then where they shop.
Community Futures Grande Prairie & Region | Market Research
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WHO WILL YOU TALK TO?
Chart Your Course Using Information that is pertinent to your industry:
(These headings are not necessarily the same in all types of business)
CUSTOMER PROFILE
Male
Female
/
Average age
Income level
Education
Occupation
# of children
Favorite
Radio Stn.
Other
Quality
Advantages
over you
Disadvantages
Advantages
over you
Disadvantages
COMPETITORS MAJOR
Product?
Place
Promotion
Price
Hours
Busy
Periods
COMPETITORS MINOR
Product?
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Place
Promotion
Price
Hours
Busy
Periods
Market Research | Community Futures Grande Prairie & Region
Quality
SUPPLIERS
Name:
Pricing
technique:
Fastest
moving
lines:
Why they
are selling:
Volume:
When
does
product
move?
Advertise
the
product?
How?
Name:
Pricing
technique:
INDUSTRY OVERVIEW
Give a description of the industry you are entering, including the changes that are taking place, growth potential and future
opportunities. Describe the trading area, the population base and how the industry is affected by changes in population.
What is the present sales volume for the type of product/service you will be offering?
Community Futures Grande Prairie & Region | Market Research
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TARGET CUSTOMER
Describe your target customer – is it one group within the market (i.e. seniors, double-income families, or young families…)?
Outline their needs and buying habits – what stage of life are they in (i.e. buying a new home, new children…)? How does
this affect their level of interest in your product or service?
Discuss the target customer’s expectations regarding price, quality and service (i.e. what do they need, what are they able
to pay for, what are they willing to pay)?
Competition
Who are your major competitors, how long have they been in business and where are they located?
Are the customers happy with the existing services?
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Market Research | Community Futures Grande Prairie & Region
What are their strengths (what do they do well)?
What are their weaknesses (what don’t they do well)?
What strengths can you offer to overcome their weaknesses?
What advantages will you have over existing businesses (price, location, etc.)? Will these advantages last?
Advantages:
Disadvantages:
What competitive barriers will you face and what are your plans to deal with them?
What will be your share of the market? Is there a big enough market for you?
Community Futures Grande Prairie & Region | Market Research
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MISCELANEOUS NOTES:
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Market Research | Community Futures Grande Prairie & Region
Finding Suppliers
“Small opportunities often are the beginning of great enterprises.”
Demosthenes
Finding suppliers of particular products can be frustrating during the start-up of a business. This is one area where previous
experience in the type of business you are starting will come in handy.
Information on traditional sources of supply can be found in a wide variety of trade directories, almanacs, speciality
magazines, trade shows, local business fairs, exhibitions, home shows, and publications. The majority of these publications
are available through the local library’s business reference section. For government directories, check the library, local
government offices, or the Federal and Provincial Government bookstores, which sell them at a very reasonable cost.
Fraser’s, Scott’s, Vernon’s, Chamber of Commerce memberships, and city industrial directories are also useful sources. The
Federal Government publishes the Business Opportunities Sourcing System (BOSS) which lists all manufacturers across
Canada. As well, specific industrial directories and yellow pages directories list both local and out-of-town suppliers.
Trade associations are one of the best sources of information on a particular industry and related trade shows. The Directory
of Associations has approximately 18,000 listings in Canada in an easy-to-use reference directory format.
There are more than 4,000 trade shows each year in North America. Refer to the Annual Directory of Shows and Exhibitions
or to the International Trade Fairs and Conferences directory to find shows dealing with the type of product you are looking
for. External Affairs Canada is also a source of trade show information. For information on United States shows, contact 1800-267-8376, the United States Trade and Tourism Development Division. Many established businesses are reluctant to
provide information to new entrepreneurs because competition is a potential threat to their business. Try making contacts
with people outside the area in which you plan to locate. Set up an appointment, treat them to lunch, and ask them about
their business and how they got suppliers. Ask questions, make contacts, and network. The worst they can say is “no”.
There may also be opportunities to make joint purchases and reduce costs. A simple way to determine how ethical your
approach is to follow the golden rule - ‘Do unto others as you would have them do unto you’. By putting yourself in the
other person’s shoes, you can experience their concerns first hand. Remember, once your business is up and running,
people may be approaching you for the exactly the same type of information.
Keep the following in mind when you deal with suppliers:
1.
2.
3.
4.
5.
6.
In certain businesses, stock has to be ordered months ahead, e.g. clothing. This takes planning and knowing your
market.
Supplies or inventory on the shelf costs you money, but often minimum orders are necessary.
Be aware of trends in your chosen field. Try small sample orders to see how they move. Consider dealing with
established lines or brand names that people identify as quality goods.
As a new venture, your business will make most purchases as cash or COD. Is there an opportunity to negotiate credit
terms or agreements to buy back unsold stock?
Cultivate a relationship with your suppliers (be loyal).
Have back-up sources.
A supplier is in business to sell; as a business owner, you will have to make educated guesses based on your knowledge and
experience about what will sell. Be wary of great deals on stock that’s not moving. Network with others in your field to find
out what’s hot and what’s not. Investigate the reputation of your suppliers. Familiarize yourself with their policies on
returns or damaged goods.
Who are your suppliers?
Community Futures Grande Prairie & Region | Market Research
24
Where are they located?
What are their credit terms?
What are their delivery times?
What are their warranties and return policies?
Can you easily change your suppliers if needed?
25
Market Research | Community Futures Grande Prairie & Region
Do you have exclusive rights to their products? If so, in what region?
Community Futures Grande Prairie & Region | Market Research
26
MARKETING PLAN
This part of the marketing section outlines the strategy you will use to get and keep your share of the market. Based on the
preceding research you will have just completed, where you have now determined a need or demand for your
product/service, you should now be able to complete a marketing plan to tell the customer about you, your company and
what you plan to offer.
When completing this section be sure you are convinced that:



there is an unsatisfied need in the marketplace for your product/service
you have a marketing strategy that will enable you to meet the identified need
you can sell your product/service at a profit
CAUTION: Do not set yourself up for a failure. Failure in business can lead to long term personal implications including
personal bankruptcy. Be sure this venture is going to be viable before continuing on with the business plan!
Your marketing plan should briefly cover the four “P’s” of a good marketing plan:




Product
Place
Price
Promotion
PRODUCT
Describe your product/service and why you think customers will buy it. Will you offer more than one product/service? Are
other businesses offering the same or similar products/services? If so, what makes your product/service different or
unique? What gives you a competitive advantage? Do you have any confirmed customers? What are the features of
product/service? What benefits will the customers receive from your product or service?
PLACE
Where will your product or service be offered and how will you distribute it to your customers? Is your location in the right
area to reach your target market? Are traffic flows high enough to guarantee visibility and sales? Is it difficult to access
your location? Are you reaching outlying markets, which require a special distribution channel? What are the costs of
distribution? Will you be operating out of your home if offering a service? Are there any considerations to working out of
your home (zoning, permits, improvements…)?
PRICE
What price(s) will you charge for your product/service? Indicate what you based the price on and how this compares with
similar products or services. What do you estimate your monthly sales to be? Is your pricing strategy aimed at penetrating
the market with a low price or maintaining a market share and making a profit?
PROMOTION
Describe the advertising, promotion, and merchandising techniques to be used and the expenditures required to attract the
target market. How will you tell your customers about your product/service? Can you get free publicity for your business?
If your advertising budget is low, how will you get the most publicity for your dollar? What advertising medium will allow
the majority of your customers to find out about you?
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Marketing Plan | Community Futures Grande Prairie & Region
Don’t hesitate to be creative in this area to ensure the advertising you choose works for you. Word of Mouth may be the
best form of advertising for you if you offer a quality service or product; however, this method takes time to build
momentum.
Product
Describe your product/service and why you think customers will buy it. What makes your product/service different or
unique? What gives you the competitive advantage?
What do your customers think is important when making a buying decision? How do your key selling features compare with
what your customers think?
Place
Where are you locating your business?
Community Futures Grande Prairie & Region | Marketing Plan
28
Why are you locating your business at this specific site?
Have you done a traffic study to determine visibility, access, parking?
If you are working from your home, have you determined zoning restrictions?
Have you thought about how self-employment will impact your home life?
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Marketing Plan | Community Futures Grande Prairie & Region
Price
What price will you charge for your product/service?
What is your mark up (retailers)?
How will your price(s) compare to those of your competitors? Why are they different?
What level of sales must you generate to break even?
What do you estimate your monthly sales to be?
Is your pricing strategy aimed at penetrating the market with a low price or maintaining a market share and making a profit?
Community Futures Grande Prairie & Region | Marketing Plan
30
PRICING CALCULATIONS
A selling price for products and services can be set in different ways: pricing to the market, pricing to your costs, and breakeven pricing. All involve three categories of numerical calculations:



Total costs of productions (including supplies and materials – do not forget wastage), overhead expenses, and
time/labour
Profit or return
A final selling price.
Costs of Goods Sold Calculation
What is your average cost of producing a single product or supplying a typical service contract? COST OF GOODS SOLD –
Use the following to assist you:
Average cost of materials and/or supplies (including wastage), freight/postage to receive supplies:
TYPE
COST
$
Total production Costs (A)
What wages are you paying your employees? Don’t forget benefits (EI, WCB, CPP, and 4% Vacation Pay)
How much is your time worth per hour?
Average labour cost broken down by activity
Activity
31
Number of Hours
Charge per Hour
Cost
hrs. X
$
/hour=
$
hrs. X
$
/hour=
$
hrs. X
$
/hour=
$
hrs. X
$
/hour=
$
Total labour costs (B)
$
Total average cost per product or contract (A+B)
$
Marketing Plan | Community Futures Grande Prairie & Region
PRICING CALCULATION
Once you have determined your actual production cost, you will have to calculate the amount of Profit or Return you want
to obtain. Remember profit is not a dirty word; you must make a profit in order to continue operating. Without profits you
will not be able to replace worn out equipment, expand your business, hire new employees or at best pay yourself. The
margin of profit that you determine to be added to your product will depend on a couple of important factors: what is
acceptable to your target market customers, and what are your competitors charging for a similar product or service?
Profit is normally calculated by utilizing a desirable percentage rate of your total costs of production.
NOTE: A good source for average profitability is Small Business Industry Average Statistics. (These can be found at our office)
PRICING CALCULATION FORMULA
Total Costs of Production:
$_______
Percentage rate of profit desired: _______%=._______ X total costs = PROFIT
$_______
TOTAL
$_______
FINAL SELLING POINT = TOTAL COSTS OF PRODUCTION + PROFIT
PRICING CALCULATION EXAMPLE
Total Costs of Production:
Percentage rate of profit desired:
$30.00
20% = .20 X $30.00 =
PROFIT
TOTAL
$ 6.00
$36.00
FINAL SELLING PRICE = $36.00
PERCENTAGE CALCULATION EXAMPLE
(COGS/SALES):
DIVIDED BY
EQUALS
(GROSS PROFIT/SALES):
DIVIDED BY
EQUALS
COGS
SALES
=
GROSS PROFIT
SALES
=
$ 2.00
$10.00
20%
$ 8.00
$10.00
80%
Community Futures Grande Prairie & Region | Marketing Plan
32
BREAK-EVEN POINT
The purpose of determining your business’s break-even point is to assist you in finding out what the minimum number of
sales and relative amount of revenue(s) you will need in order to cover all relative expenses. For example, how many Tshirts do you need to sell to avoid losing money? in a year? in a week? in a day?
One of the best and most simple methods is to take your total expenses for the year and work backwards – from the bottom
to the top.
CALCULATION OF BREAK-EVEN POINT FORMULA
AVERAGE SALE PRICE $ ___________ X # OF SALES FORECASTED ________________
= ___________
(Minus)COST OF GOODS SOLD ___________ X # OF SALES FORECASTED ___________
= ___________
(Total Costs of Production)
SUBTOTAL (GROSS PROFIT) SHOULD EQUAL TOTAL CASH OUT= ___________
CALCULATION FOR # OF SALES TO BEAK-EVEN FORMULA
TOTAL EXPENSES $ ___________DIVIDED BY GROSS PROFIT (
%) = $ ___________BREAK EVEN POINT
BREAK-EVEN POINT FOR SALE REVENUES -$ ___________ (AVERAGE SALE PRICE)
= ___________# TOTAL NUMBER OF SALES TO BREAK EVEN
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Marketing Plan | Community Futures Grande Prairie & Region
ADVERTISING AND PROMOTION
“Promise only what you can deliver; then deliver more than you promise.”
Anonymous
Advertising and promoting your new business are keys to your success. The challenge for most new businesses is to inform
potential customers that they exist and to motivate them to buy. Because advertising is a year-round activity, you require a
strategy that will continue to attract customers. Advertising costs money, and unless it is done right, your money will be
wasted.
This chapter covers only the basics of advertising and promotion. Consultants, copywriters, graphic artists, or advertising
agencies can all help you with the formulation of an effective strategy in order to spend your advertising dollars wisely.
Refer to the section on Selecting Advisors for more information and learn as much about advertising and promotion as you
can from other’s experience, books, magazines, and your own intuition.
Four Factors in Advertising:
1.
2.
3.
4.
What is my target market? Your market research will help you to identify who is most likely to buy your product or use
your service. These are the people you want to reach with your advertising.
What is my message? The “message” refers to the written or spoken content of your ad. Because the message must
be clear, you need to choose the appropriate way to say it.
What are my promotional objectives? Not all advertising is aimed at making a sale. Often, it is used to inform or
educate potential customers.
What is my budget? As the most important factor for most new businesses, your budget should include start-up
advertising costs as well as expenses for the whole year.
Methods of Advertising:
You can promote a business in many different ways. Most media or organizations that sell advertising space provide
compelling statistics about the effectiveness of their form of advertising. You should carefully analyze this information
before you select the methods of advertising you will use.
P RINT M EDIA
Print media communicates with specific markets at relatively low costs. Often, newspapers will publish stories or news
releases — particularly in smaller communities. Weekly papers often are looking for news of local interest. Unless your
new business is unique or unusual, it may be difficult to interest a daily paper in your new business.





Newspapers (daily, weekly, neighbourhood, ethnic)
Magazines (national, regional, local, specialized, business, professional, trade, special interest)
Programs (sports, cultural, school)
Telephone Directories (white pages, peach pages, yellow pages)
Business Directories (specialized industry directories inform specific markets about your business)
B ROADCAST M EDIA


Radio (local, regional, national, talk-show)
Although local, regional, ethnic, and public interest television is often not a feasible option for most new small
businesses, community cable television programmes and talk shows are useful for unique businesses with broad public
appeal.
Community Futures Grande Prairie & Region | Marketing Plan
34
B USINESS C ARDS
Your “calling card” can be left with associates and potential customers as a reminder of your business and as an easy way
for them to contact you. Business cards should include your name and title, business name, slogan, logo, address, and
phone number(s). If you can be reached at home make sure that number is on your card.
O UTDOOR P OSTERS AND B ILLBOARDS
Full and directory-size billboards, bus and taxi cards, shirt inserts, handbills, and lawn signs usually generate interest at a
reasonable cost.
S PECIALIZED M EDIA
Any form of unique promotion, such as sandwich boards or skywriting, is effective because of the surprise impact.
D IRECT M AIL
Direct mail, which takes several forms, is a highly selective method for reaching a particular audience. Flyers can target the
specific geographic area where your customers live, but generally yield a 1% response rate. Letters can communicate a
detailed message announcing a new product or service with great success. Unfortunately, people often apply the term
“junk mail” to all forms of direct-mail programs, discarding of it without even reading it. Canada Post and the Canadian
Direct Marketing Association are recommended for further information and seminars.
P OINT OF S ALE P ROMOTIONS
Point of sale promotions, which may take the form of a sign in the window or of a specialized display located at the sales
desk, focus on impulse purchases.
P REMIUMS
Specialty advertising with a small value, such as matchbooks, pens, keyrings, and so on, provides the potential customer
with both an advertising reminder and a token gift.
P ROMOTIONS
Promotions also include any activity which convinces the consumer to purchase your product or service over your
competitors’. They usually offer a benefit to the customer, such as discount coupons, contests, prizes, bonus products, or
lower prices for extra quantity.
What business image do you want to portray?
What 3 key attributes will convince your customers to buy your product or service?
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Marketing Plan | Community Futures Grande Prairie & Region
How do your customers search for products and services? (yellow pages, radio ads, catalogues)
What form(s) of advertising would be most effective? (business cards, radio, newspapers, pamphlets)
What are the most effective ways of selling and distributing your product and why? (Direct mail, retail, trade shows)
How much do you plan to spend on advertising? Create an advertising budget broken down by month and by type, (i.e.
radio).
What kind of free publicity can you obtain? (radio talk show, articles in newspaper)
Community Futures Grande Prairie & Region | Marketing Plan
36
FINANCIAL
ASSET LIST – SCHEDULE #1









Use only if a number of similar items in each category of the start up costs worksheet.
Totals flow into Start up Costs worksheet
Time to take inventory of what you have. This sheet is like an inventory sheet.
List of tools may be quite long, won’t want to put the whole list in the start up costs worksheet, (don’t want every
screwdriver in your start up costs column)
Need FMV - which means you may have to get appraisals and quotes on big ticket items
Can determine costs of large pieces of equipment from catalogues, flyers, insurance companies. (Only need proof
of cost on large pieces of equipment.
Getting proof of cost helps you to organize your shopping; it is a method to track quotes on large pieces of
equipment for you.
Note the difference between the two sections: what you have on hand to put into your business and what you will
require to purchase.
Use as many sheets as you require, your assets may be different than those listed in your blank chart, change the
descriptions as needed.
37
| Community Futures Grande Prairie & Region
COMPANY NAME:
Date:
_______________________
Cost /Value
EQUIPMENT DESCRIPTION:
On Hand:
EQUIPMENT
$
$
Equipment Sub Total
$
TOOLS
$
$
Tools Sub Total
$
COMPUTERS / FAXES
$
$
Computers Sub Total
$
Loan Required (Absolutely Needed Items):
Equipment
$
$
Equipment Sub Total
$
Furniture
$
$
Furniture Sub Total
$
TOTAL
$
Community Futures Grande Prairie & Region | Financial
38
START UP COSTS WORKSHEET








If you have a lot of like equipment, furniture, tools, etc. your totals will come from your Schedule #1 Asset List
This worksheet includes everything you need to get your business going i.e. equipment on hand and equipment that
you need to purchase (Hard Costs), as well as start up costs, (Soft Costs).
Hard Costs are those items you can see, touch and feel. These items remain with the company to generate income.
Soft Costs are those intangible items that you cannot see, touch or feel – i.e. business license, insurance, advertising
costs, utility hook ups etc.
You should try and obtain written quote, whenever possible, that verify all of your numbers.
Owner Investment will include total of cost of equipment you already own, and are contributing to your business and
any cash or expenses you may have paid from your pocket before you started your worksheet.
If you DO NOT need to borrow any money to start up, then your total funding requested will be zero.
Funding Needed =
Soft Costs + Hard Costs – Equipment you own – Cash you are investing
Notes section will pertain to the number of the schedule you may use to add credibility to your numbers i.e. copies of
written quotes or tables you may have prepared that show how you calculated the cost and arrived at the number. Each
note, if it is on a separate piece of paper should be numbered and cross-referenced to your start up page.
39
Financial | Community Futures Grande Prairie & Region
Start-Up Costs Worksheet
Date: ______________________________
HARD COSTS:
On Hand:
Needed:
Totals:
Equipment
+
=
Furniture
+
=
Inventory
=
Furniture/Equipment/Fixtures
+
=
Supplies
+
=
Office Equipment
+
=
Tools
+
=
Vehicle
+
=
Renovations / Leasehold Improvements
+
=
+
=
+
=
Total Hard Costs:
SOFT COSTS:
$0
+
On Hand:
$0
=
Needed:
Totals:
Advertising & Promo
+
=
Insurance
+
=
Travel, Meals, Entertainment
+
=
Rental Agreement & Common Area
+
=
Legal & Accounting
+
=
Licenses
+
=
Bank Charges, Loan Interest
+
=
Loan Proceeds
+
=
+
=
+
=
Total Soft Costs:
$
-
+
Total Start Up Costs:
$
-
+
$
$
-
-
$0
=
$
-
=
$
-
$
Less:
Owner Investment
=
Total Funding Needed:
$
$
-
Community Futures Grande Prairie & Region | Financial
40
-
PERSONAL BUDGET:
Components of Personal/Household Cash Flow
Because your personal household financial situation will always be of the highest priority, you should start with a forecast
of anticipated cash flow relative to your household.
This will provide you with the personal budget by which to determine what will be required from your business in order to
provide you with the minimum amount necessary to sustain you personally. (NECESSARY OWNER’S DRAWINGS)
EXPENSES
Monthly – these will be those amounts either known or estimated on a regular basis
Examples:







Basic phone rentals & estimated long distance charges
Utility equal monthly payments
Review your vehicle expenses for the past few months (Credit card receipts) When do you have
your car services, amounts? – new tires, battery, etc.
Do you need new clothing – if you have children, new school clothes
Cable service, video rentals, golfing, skiing, bowling fees
When are your loans scheduled to be paid off, new loans anticipated
R.R.S.P. contributions, children’s education, etc.
Annually – these will be those amounts that occur throughout the year
Examples:




Do you have to pay house and vehicle insurance monthly, quarterly, or once a year?
If you have a house, do not forget property taxes. Do you have investment properties?
How often & when do you pay water and sewer?
Are you going to have to pay income tax next year? Self-Employed persons also have to pay C.P.P.
on net business earnings. If you owe more than $2,000 in a given tax year, you are required to
submit on a quarterly basis relative portion. $2,000/4 = $500 – June, September, December, and
March.
NOTE: It is very common that an individual will underestimate their expenses and overestimate revenues. It is therefore
very important that you attempt to be as realistic and unbiased in your forecasts as possible. The amount of research that
you can possibly do in each relative area will without question pay off in the long term.
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Financial | Community Futures Grande Prairie & Region
M ONTHLY H OUSEHOLD E XPENSES
Use the following table to determine how much cash you must draw from the business each month for household expenses.
Use these figures in your cash flow projections.
Monthly Expenses
Rent or Mortgage Payments
Food
Telephone
Heat & Light
Car Expenses (gas, oil, repairs)
Clothing
Entertainment
Loan/Credit Payments
Registered Retirement Savings Plan
TOTAL HOUSEHOLD EXPENSES:
$
LESS: Other sources of household income
TOTAL MONTHLY EXPENSES:
$
These amounts will help you later on in your personal/household cash flow.
ANNUAL EXPENSES
House Insurance
(due in
)
Car Insurance
(due in
)
Life Insurance
(due in
)
House Insurance
(due in
)
Car Insurance
(due in
)
Property Taxes
(due in
)
Income Taxes
(due in
)
Other
Add each annual expense to your regular Owner’s Drawing in the month you expect to pay them.
Community Futures Grande Prairie & Region | Financial
42
OPENING DAY BALANCE SHEET
Schedule #3
(Totals from Schedule #2 Start-up worksheet will appear in here.)
Definition:

Balance Sheet - Statement that shows the financial position of a business entity by summarizing the assets
(resources owned), liabilities (debts or obligations) and owner’s equity (owners net investment + profits from
successful operations) at a specific date.
Current Assets:



Cash - Whatever you have on hand, on your first day of business.
o This figure must match your ending bank balance in your start up period column of your cash flow
sheet.
Inventory – Goods you have purchased or will purchase prior to start-up for the intent to resell. If you already
have inventory for start up the fair market value is what you would use here.
Prepaid Expenses – The only prepaid expenses (advance payments) you should have here are insurance and rent.
Fixed Assets:

Long lived assets (resources, property) acquired for use in the operation of the business and not intended for
resale to customers.
o These are figures taken from your equipment list and include items already owned AND to be owned.
o Divide your equipment into categories and sub total each one
Current Liabilities:

Debts to be repaid within one year i.e. the first year of your loan payments, accounts payable, outstanding
visa/master card. (if used for business)
Long Term Liabilities:

Any loans that are for more than one year, the figure will be the balance of your loan after deducting your first year
payments (have your lender prepare you an amortization schedule.) Include only the principal in this figure.
Owners Equity:

The dollar amount that you have invested in your business as well as the value of any equipment that you already
own. This is calculated by the formula:
ASSETS = LIABILITIES + OWNERS EQUITY
Since you know the total assets and total liabilities you can also find your:
OWNERS EQUITY = ASSETS – LIABILITES
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Financial | Community Futures Grande Prairie & Region
`
Schedule #_3__
Business Name:_____________________
Opening Day Balance Sheet
Date:________________________
ASSETS:
Current Assets
Cash
Inventory
Prepaid Expenses
Total Current Assets
$
$
Fixed Assets
Buildings
Equipment
Furniture & Fixtures
Leasehold Improvements
Office & Computer Equipment
Vehicle
Total Fixed Assets
$
Total Assets
$
LIABILITIES:
Current Liabilites
Current Portion of Loan
Accounts Payable
Total Current Liabilites
$
Long Term Liabilities
Bank Loan
Total Long Term Liabilities
$
Total Liabilities
$
Owners Equity
Total Owners Equtiy and Liabilities:
$
Community Futures Grande Prairie & Region | Financial
44
CASH FLOW
W HAT IS A C ASH F LOW ?
Every new business owner wants to know whether or not his or her business will be able to pay its bills and a Cash Flow will
help you do this. You must project what amount of cash (and when it) is to be received and paid out: A Cash Flow IS NOT
an income statement.
An initial cash flow is a forecast or projection (Estimate Budget) showing how much, and more importantly, when money
will come in and go out each month over a period of time, typically a year. You are trying to predict the timing of cash going
in and out of your bank account. This will allow you to predict when and for how long you may have cash shortages. Even
profitable businesses have fluctuating cash cycles, planning for surpluses and shortfalls increases the possibility of business
success.
Cash Receipts are cash coming in from: Sales, Accounts Receivable, Loans, Personal Investment, Sale of Assets – items
anticipated to provide cash money.
Cash Disbursements are cash going out to: Purchases, Wages, Rent, Equipment, Loan Payments, Owners drawings
(necessary to maintain household expenses), and a whole variety of other possible business operating expenses – items
anticipated to cost cash money.
The difference each month between Cash In and Cash Out indicates your closing cash balance and whether or not its positive
(+) or negative (-) will determine if your business can and will continue to operate in that give month or if you are going to
have to make some major decisions and/or changes in order to do so. Remember, you need to keep your accounts payable
current to keep your business running. Typically, the last person to get paid is you. Negative cash flows indicate that this
may not be possible.
W HY & W HEN IS A C ASH F LOW I MPORTANT ?
The cash flow forecast is the most useful financial tool that a small business person can use to see if their business will be
financially viable.
Because the revenues and expenses of a business are rarely constant (i.e. seasonal in nature, credit to customers, etc.), (i.e.
purchases, repairs, etc.), you have to know and plan the most effective use of your cash in order to finance your day to day
operations. By monitoring your actual business finances in comparison to your forecast, you will be able to better control
the financial requirements of your business.
WHY? – Both you and your banker/investor want to know that the business will make sufficient money to cover all expenses
including potential loan payments. What are your start-up costs? How are you going to pay for them if no sales at startup? You will likely be required to invest some of your own cash to pay for these and also keep in mind that if your cash flow
shows a negative closing balance at the end of a particular month, you will have to inject some more of your own cash in
order to keep operating.
If you do not have sufficient cash of your own where are you going to get it, maybe a loan?
45
Financial | Community Futures Grande Prairie & Region
WHEN? – You have to continually monitor, update, and refine your cash flow in order to know the ever changing financial
requirements of your business operations.
Who prepares a Cash Flow?
You do! Without a Cash Flow, how do you know what financial support you may need? Many new businesses overestimate
revenues and underestimate expenses and this can result in early failure.
Where do you get help preparing a Cash Flow?
Accountants, Financial Advisors/Consultants, Bankers, Government Agencies and other organizations can and do provide
substantial support material and information.
How you manage your cash flow tips?
You should start with a forecast of relative business expenses rather than Sales and other revenue(s), etc. as this area will
be needed to establish your business’s break-even point. In addition, it is the relative expenses that will determine what
financial resources you will initially need to even start up your business enterprise.
Expenses should be as realistic as possible utilizing your business plan strategies and research statistics – wherever possible
to create a supplemental budget to support each relative area. Use your research to try and identify each and every cost
that you can possibly imagine will occur.
If you choose to include GST in your sales figures (use Gross Sales) then ensure you include a line in disbursements for “Tax
payments” to reflect when GST remittances will be paid. In most cases you will need to pay GST. However, in the beginning
particularly, you may expect to receive GST, in which case your GST refund expected would show as cash in.
Try and include a numbered notes page. Each item in your cash flow list will receive a note # that is cross-referenced on a
separate sheet. This is your opportunity to justify and add credibility to the numbers you have used in your cash flow. Try
and explain as many numbers as possible, especially large or unusual numbers.
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DEFINITIONS OF CASH FLOW TERMS
CASH IN
Cash Sales
Cash, cheques or credit card vouchers received from your sales
A/R Collections
Only if you offer credit to your customers. What you collect cash on due or overdue accounts
– make sure you enter them in the month expected to be received.
Sale of Assets
Cash you expect to receive from trade in or sale of existing assets
Personal Cash
Your own cash you plan to inject in order to cover start up &/or other
Investment
expenses that your business revenues will not cover
Term Financing
The total money received from business loans.
CASH OUT
Advertising
Money you pay for advertising (business cards, brochures, newspaper & radio ads, etc.)
Auto & Truck
Money you pay for gasoline, oil and repairs/maintenance for your vehicle. (Only if you are
using it for business purposes). If personal vehicle is to be partially used for business, estimate
the percentage of costs relative to business use.
Bank charges & Interest
Bank service charges on your business account, credit card discounts/rental fees and interest
paid for using a line of credit or any other business loan. Loan Interest is a tax-deductible
expense – the principal portion of the loan is not.
Employee
Benefits
Money you pay for employee wages and any benefits required to be paid on their behalf – EI,
CPP, WCB (average benefit rate – 13% of wages) and any holiday pay costs.
Wages
&
Insurance
Money you pay for insuring business vehicles (business use of personal vehicle), Inventory,
Equipment, Liability, WCB, Disability, Bonding, etc.)
Legal & Accounting
Fees you pay to your lawyer and or accountant in assisting your business. (setting up your
business, books, tax returns, etc.)
Loan Payments
The principal portion of any business loans.
Materials/
Money you pay out for materials used in products and merchandise inventory (include
transaction fees & freight). What credit terms so suppliers offer?
Inventory
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Definitions of Cash Flow Terms | Community Futures Grande Prairie & Region
Miscellaneous
Any other money that you can imagine will be paid out not specifically identified in other
categories, i.e. groups or organizations – Chamber of Commerce, etc.
Office Expenses
Money you pay for stationary, postage, ledgers, receipt books, etc.
Owners Drawings
This is the amount transferred from your personal cash flow NOT what you have to draw –
only that amount necessary
Purchase of Fixed Assets
Money you pay for purchasing production equipment (including larger tools), office furniture,
computer equipment, fixtures, building improvements, vehicles.
Rent & Utilities
Money you pay for rent, heat, light, water and water. (Only if operating outside your home)
Repairs & Maintenance
Money you pay for repairs and maintenance of equipment, furniture, building. (Do not
include vehicles)
Supplies & Tools
Money you pay for routine purchases of small tools and supplies. (lubricating oil, cleaning
supplies, etc.)
Taxes & Licenses
Money you pay for required licenses – business, name search/registration, etc. If corporation,
estimate your corporate income taxes here. Personal should be included in your personal
cash flow.
Telephone
Hook up charges, monthly base rate, long distance charges, and equipment rental, i.e.
answering machine, fax and other business communication equipment
Travel & Entertainment
Money you pay for business travelling (airfare, meals, motel rooms) and entertaining clients
(meals, shows, etc.)
PROJECTED INCOME STATEMENT
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Schedule #4
Shows the reader what you predict your income and expenses are going to be in the first 12 months.
Income and expense totals from your cash flow will be transferred to your projected Income Statement. (Your cash
flow is not an income statement)
Is separated into fixed expenses and variable expenses. Theses sub totals are required to calculate your breakeven.
Revenue from sales does not include loan proceeds or any other sources. ONLY REVENUE GENERATED FROM
BUSINESS SALES.
Cost of goods section refers only to those who are going to be carrying inventory, and is the calculation of your
material cost for the year.
Material cost is the total cost of the inventory that was used to generate revenue from sales.
Contribution Margin (Gross Profit) is the difference between the revenue and the material cost.
Home office refers to the percentage of your home that will be used strictly for office or shop. If you use 10%, then
you will be able to use 10% of your home expenses as a business deduction. This includes: Hydro, water, heat,
interest on mortgage, property tax, and insurance.
Bank Charges and interest refers to service charges and cheque costs, as well as the interest cost of your loan if
you have one. Remember…. You cannot expense the full loan payment, only the interest portion.
Income Tax is calculated after all the depreciation and home office is taken off. You may want to seek the advice
of an accountant to assist you with calculating tax and depreciation.
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Definitions of Cash Flow Terms | Community Futures Grande Prairie & Region
BREAK-EVEN
The Break-Even point of your business is when you have sufficient sales revenues by which o meet all your expense
requirements. The purpose of determining your business’ break-even point is to assist you in finding out what the minimum
number of sales and relative amount of revenue(s) you will need to generate in order to cover all relative expenses. One of
the best and simplest methods of determining your break-even point is to take your total expenses for the year and work
backwards – from the bottom up. It is much easier to determine your fixed expenses, then determine how much revenue
you must generate to cover these costs.
PLEASE BE REALISTIC IN YOUR ESTIMATIONS!!!!! You will only be hurting yourself if you do not identify all of the costs
involved with getting into business. Be sure to realistically calculate these costs to ensure you can estimate the necessary
start-up capital you will need. Shoestring budgets can often lead to a hampered attempt at your business. NOTE: Whatever
you estimate your start-up costs to be, you must be able to cover these costs with your available cash or some form of
financing.
Do the cash flow for each of the 12 months in Year 1 and Year 2 of your operation. It is also a good idea to do a personal
cash flow for Year 1 and 2 so an owner’s drawing can be accurate and realistic. If you need help completing these forms,
the staff at SMEDA Business Development Corporation would be happy to provide assistance.
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