Rose Stabler

Build a Business Plan When You Buy A Business

An essential part of any business is its plan for success. Your business plan lays the foundation and groundwork for your new venture.

Business Plans are a standard requirement when pursuing third-party financing from any lending institution, including SBA lenders. While it's true that business plans are certainly essential when trying to land funding, they should be looked at as a long-term map to guide your business and take it where you want it to go.

The discipline of developing a business plan gives you the opportunity to examine and understand the challenges ahead and generate realistic expectations for your new business. This involves organizing your business ideas and financial needs as well as detailing your marketing and management plans.

How far ahead should business plans look? A three year prospectus is standard since circumstances can change over long periods of time. Business plans should also include contingency plans, especially in the case of a sole owner. Investors or lenders will want to know how the company will continue operations should something happen to the founder.

The first part of your business plan should have a cover sheet, a statement of purpose, and a table of contents. The cover sheet includes the name, address, and telephone number of the business along with the names of all principals. The statement of purpose gives the reason for the business plan. The table of contents lists the headings and subheadings in your plan.

Sample Table of Contents

I. The Business

• Business Description / Executive Summary
• The companies products and services
• Legal entity of the firm (ie, LLC, Corp)
• Marketing Strategy & Implementation
• Target Market & Competition
• Operating procedures
• Management Team & Personnel
• Business insurance

II. Financial Data

• Loan applications
• Capital equipment and supply list
• Balance sheet
• Breakeven analysis
• Pro-forma income projections
• Pro-forma cash flow

III. Supporting Documents

• Tax returns of principals for last three years
• Personal financial statements (all banks have these forms available)
• Copy of contracts
• All supporting documents
• Proposed lease or purchase agreement for building space
• Licenses and other legal documents
• Resumes of all principals
• Copies of letters of intent from suppliers, etc.

A business plan has four areas:

1) Description of the Business / An executive summary

This section summarizes what is contained in the plan, such as the company's mission, objectives and key elements. The summary allows investors or lenders to learn about the company without having to wade through the entire business plan. Also included is the location of your business in terms of desirability and accessibility.

2) Marketing Plan

Marketing usually involves determining who your customers are, identifying their needs, and fulfilling those needs. Questions you need to answer include: Who is likely to buy your goods and services? What is your potential market share? How can you hold and expand your customer base? What is your pricing strategy? Who are your competitors in the market and how can you differentiate yourself from them?

3) Financial Management Plan

Financial management is one of the keys to keeping your business profitable. Plan a realistic budget that covers initial working capital and operating costs. Consider how much cash you have for a down payment. How much money will you need to purchase the business? How much will you need for initial working capital? How much will you need to pay debt service, earn a livable wage, and make a reasonable return on your investment?

Your operating budget should show the expenses you will incur and how they will be paid. You should cover the first three to six months of operation. This section should also address your accounting system and inventory control. You will also need to include any pertinent financial forms previously listed in the sample table of contents.

4) Management Plan

The existing business owner may already have operating procedures, manuals, and materials. You can describe any training and assistance that you will be receiving from the previous owner. Who will be your prospective management team? What are your plans for hiring and training personnel?

Remember to keep the business plan an active participant in your company, use it as a spot check to make sure you stay on track.

For more info on this subject refer to these helpful websites:
www.SBA.org
www.SCORE.org

Houston, Buckle Up As Our Economy Takes Off

Despite a sluggish economy in the U.S., Houston is still displaying its buccaneering spirit. While the oil boom is a large part of the Bayou City's good fortune, it is not the only gusher pouring out prosperity. A diversified business base is the fuel that powers Houston's shining-star status.

Newsweek article, Houston, We Have No Problems, published June 30th is one that every advocate of Houston would want to read. It addresses the varying aspects of what makes our city so hot, and it wasn't talking about our summer heat.

Houston's cash registers are ringing with big ticket items, construction crews are fully employed, and upscale restaurants are cooking. We are experiencing an unsinkable residential real estate market, Class A office space is virtually full, and a variety of construction projects are underway to keep up with demand. The article also purports that pessimists here are as rare as Birkenstock sandals and Obama '08 stickers in ExxonMobil's parking garage.

The article informs its readers that The Texas Medical Center is Houston's biggest employer, not the oil industry, clarifying that Houston isn't just about oil. However, not mentioned in the article were other powerful facts about the Medical Center that predicts its future impact. It is the largest medical center in the world and will be the seventh largest downtown district in the country when current construction projects are completed. There are more buildings going up in the medical center than in the rest of Houston combined. Considering that Houston is leading the rest of the country in construction, one could assume that the pulse of the city's medical industry won't be slowing anytime soon and will largely contribute to the city's future global positioning.

Referring to the 1981 oil bust, the editorial reminds us that back then the oil and gas industry was domestic and blue-collar, but today it is international and white-collar.

Remember John Travolta's "Urban Cowboy" in 1980 during the last oil boom? The movie was a classic portrayal of Houston at that time as being a redneck, oilwell-ravaged town. Well, "We're not that kind of city anymore," Travolta might have said in a quasi "Michael" movie production referring to our modern Houston rather than to his atypical angel stereotype.

Instead of cowboy, think suburban geek, the Newsweek column asserts. Houston has 70,000 engineers and architects, a concentration 60 percent higher than is typical for the United States. Houston's role in energy is not as the roughneck city this time around. It's role is "as the technical, trading and administrative center of the worldwide industry," says Joel Kotkin, an internationally-recognized authority on global, economic, political and social trends, in his book, The City: A Global History.

There's more, oil isn't the only energy game in town. We've drilled down even further within one industry. Houston also leads the future of alternative energy. So, referring to 1981? That was then, this is now. What a difference 27 years makes!

The article also touts Houston's port as one of its strengths, the second busiest port in America with rising exports. Houston's Gulf Coast has long powered the growth in southeast Texas and has seen its trade activity more than double since 2003. Houston's upward movement as a major player in international commerce, continued influx of business relocations, increasing worldwide trade, the benefits and advantages associated with Houston's Foreign Trade Zone, and the city's ongoing investment in the expansion of port terminal facilities paved the path for continued acceleration as a global leader in international commerce. As with manufacturing, Houston's international commerce and transportation sectors are trucking along in the speed zone and won't be braking anytime soon.

"More important than gold and diamonds are people. This critical resource, more than anything, accounts for Houston’s headlong drive toward becoming not only the leading city of Texas and the South, but also a player on the global scene: it is emerging as one of the world’s great cities." says Joel Kotkin, in another publication, Lone Star Rising.

Since it will take people to make this prediction happen, no problem, Houston is ready to forge forward. We have all the right stuff. Kiplinger's July 2008 issue puts Houston as the #1 place to live, work, and play in America. Kevin Stolarick, research director at the Martin Prosperity Institute, a think tank that studies economic prosperity, highlighted cities for Kiplinger that didn't just have strong past performance, but also had all the ingredients for future success. And, one key to a bright future, the Kiplinger article emphasizes, is a healthy shot of people in the creative class. People in creative fields -- scientists, engineers, architects, educators, writers, artists and entertainers -- are catalysts of vitality and livability in a city.

To further bolster the city's launch into its promising, anticipated future that lies ahead, the younger generation is coming to help pilot the passage. Houston is the #1 city in the U.S. for recent college grads, according to Forbes. Not only do we already have the right people, we are filling the roster with more of the right stuff to take over the reigns.

To tie up the message, Newsweek's article bespeaks Houston's characteristics as uniquely situated to capitalize on the longstanding megatrends that are transforming the global economy. Its Medical, Energy, and Trade Sectors are shining stars and herald the city's importance in the global arena.

This makes acquiring a business in Houston a good investment for the future.

What is the First Step Towards Selling Your Business?

"I have a medium sized company which I have owned for about 20 years. We specialize in the manufacture and distribution of chemical products and have built a good business. However, my children aren't involved or interested in the business so I am considering selling it. The problem is that I have no idea how to begin the process."

Since most business owners only sell a company once in their lifetime, it is quite understandable when an owner makes such an inquiry. While the thought of selling their company may seem overwhelming to many business owners, if thought in terms of baby steps, it is really quite simple.

What is the initial question that comes to mind when you think about selling your business? One might guess that you wonder how much someone would pay for it.

Well, your first thought is the very first baby step you should take towards the ultimate goal of selling your business. Get a valuation to get an objective price range that you could expect to receive in the marketplace. It's that simple.

Typically, the documents needed to determine the probable price range of a company in the current market are tax returns for the most recent three to five years, a current year profit loss statement, current balance sheet, and an equipment list. Again, as you can readily see, the required items for a valuation is not complicated. Several years of financials helps paint a historical picture and current trend of the company. Upward trends are the desired scenario.

Since profits on financial statements and tax returns of privately-held businesses are usually minimized in order to reduce income taxes, the financial statements are restated in a valuation to show the true cash flow of the business.

As part of that process, a professional business broker / intermediary will ask easily-answered questions that will help determine which expenses are discretionary in nature or are not strictly necessary. There will be other expenses that may be non-business related benefits going to the owner and family members, or one-time, non-recurring or unusual expenses that would not be borne by a new owner of the business. These expenses will be part of the true discretionary cash flow that would be enjoyed by a new owner.

This valuation, or Broker's Opinion of Value, is normally provided at no cost. It should clearly outline the details that buyer prospects and their advisors would need and can understand. It should be assessed on the same premises lending institutions use for the purpose of determining if the price makes sense. If a formalized business valuation or appraisal is required, a Restricted Appraisal is one alternative, which is less complicated than a Full Appraisal, and much less costly.

Just as an athlete might get a physical to determine their preparedness for a marathon, you should also measure your Company's fitness for the marketplace. A valuation is an unbiased examination of your company's marketability and helps you pinpoint where your company is in its business cycle. It is the foundation, the meat and bones, on which a business owner can base their readiness to sell.

Other considerations in determining the business value will include competition, regional demand factors, proprietary products or processes, what type of buyer the company would attract, favorable lease terms, advantageous supplier relationships, management's desire to exit or stay with the business, concentration of customers, and many other relevant factors.

Your company's history of earnings represents its financial health and can establish the baseline for the monetary worth of the enterprise. The single most important factor for valuation is how much money the business makes. This figure should be maximized and be shown to be maintainable under new ownership in order to get the best price possible when the time is right. Buyers pay for the past, but buy for the future.

Most owners never take the necessary steps to plan their exit and end up selling because of unexpected events or crisis-driven reasons rather than on their own terms. According to members of the International Business Broker Association, 75% of business owners do not know the market value of their company. This is too large a number considering how painless a task it is to achieve.

The sooner you take the first baby step in understanding the value of your business, the more informed and comfortable you will be in planning your next step.....whether it be deciding the time is right to sell now, or making improvements for a future sale.

Ahh, that's the next stride in the baby-step approach.