Starting a Small Business? Will it Make Money?

Have you thought about starting a new business this year? Maybe you're one of the hundreds of thousands of people who have lost their job due to a downturn in the economy and want to be your own boss and control your own destiny? If so, you probably have many questions about how to get started and are a little apprehensive of whether your new business idea or venture will make money in today's shaky economy. Watch the video series on starting a business here.

You Are Not Alone

If you've ever thought of starting and running your own small business, you may feel alone in your entrepreneurial desires. Many people casually talk about owning their own small business, but it takes a special person to actually do it. Now, we're not talking about special education or special experience, but rather special dedication and tenacity. However, even though you may feel a little solitary, remember, you are not alone! According to the U.S. Small Business Administration (SBA), there are an estimated 29.6 million small business in the U.S. This means that millions and millions of people took the leap of faith and started their own business. These small businesses employ just over 50 percent of the nation's workforce and account for 99.7 of all employer firms. In 2009, there were just over 550,000 new businesses started and the good news is the odds of a new business surviving are in your favor. Seven out of 10 new businesses survive at least 2 years and half survive 5 years. Small businesses are a major driving force behind our economy.

Is Money Really Available to Small Businesses?

We've all heard about the severe credit crunch over the last several years. A credit crunch is when lenders stop lending and loans become difficult to obtain. The tightening of credit financing has hurt many small businesses recently; however, the small business credit market is improving. The U.S. Federal Reserve estimates that loans under $1,000,000 totaled $695 billion in 2009. In 2010, there were signs that the credit marketing was easing even more and money starting flowing more freely again. In addition to traditional lender financing, venture capitalists also appear to be investing again as of mid-2010. Does this mean money will be easy to find for your small business? No. But it does mean that institutions and investors are slowly opening their pocket books and are willing to take another look at small business investment opportunities.

Will My Small Business Make Money?

Odds are you have a rough idea of what you're new small business is all about. You probably know whether it will offer a product, service, or both and how much you want to sell it for. But will it make the kind of money you need? The answer to this may be easier than you think. We suggest doing a simple, step-by-step, financial projection with Ultimate Business Planner from Atlas Business Solutions.

Unlike other business plan software, Ultimate Business Planner guides you through the financial projection portion of a business plan BEFORE making you write your business plan text. Why? The answer is simple. Why spend hours and hours writing a business plan that can't return the kind of financial investment you seek? Before writing a comprehensive business plan, it makes sense to see if your small business idea can get off the ground financially. Do your financial homework and a financial projection first and then articulate your plan.

Financial Projections using Ultimate Business Planner Business Plan Software

You don't need to be an accounting whiz to use Ultimate Business Planner. Just follow the on-screen instructions and enter the information. Every question and answer section offers detailed, helpful instructions to help you complete the financial projection wizard with ease. With Ultimate Business Planner, not only will you know if your small business will make money, but you will know when. In a matter of minutes, you will be able to build a comprehensive, financial projection. Your financial projection should include the following:

• Beginning Balance Sheet

• Profit & Loss (5 years)

• Balance Sheet (5 years)

• Cash Plan (5 years)

• Ratio Analysis (5 years)

• Income Projection (5 years)

• Expense Projection (5 years)

Sound like a lot of work? Relax! Ultimate Business Planner breaks down the financial projection process into four, easy-to-complete sections: (1) Company; (2) Income; (3) Expenses; and (4) Interview. Each section is designed to walk you through a step-by-step wizard that only asks you questions relevant to your business.

Company Section - The Company section features an interview to gather general information your business. You'll be asked a series of questions, including: (1) company name; (2) contact information; (3) income tax form; (4) customer credit policy; and (5) plan start date.

Your company name and contact information are used to automatically generate the cover page of your business plan as well as a non-disclosure agreement. A non-disclosure agreement is something you may have the reader of your financial projection (and business plan) sign before you present them with any confidential information. Basically, the reader is agreeing not to disclose any information without your consent and will return your information when asked.

The income tax form just identifies how your business is formed or structured. You can choose from several business types, including Sole Proprietorship, Partnership, S Corporation, C Corporation, Exempt or Non Profit. Since most business income is taxed at the personal level, the only business type that affects your business financial projection is the C Corporation. C Corporations are treated like individuals and are taxed at the business level. If you select C Corporation, you will be able to enter an estimated tax rate, which you can change at any time.

Your customer credit policy is entered as a percentage of sales on credit. If you plan on having all of your customers pay with cash, checks or credits cards, you will have no sales on credit (or 0%). Your credit policy is a sales tool as well as a financial tool. If you can afford to extend payment terms to customers, you might make some sale you otherwise wouldn't. On the other hand, liberal credit policies may result in a certain portion of bad debt, so choose your credit policy wisely.

The plan start date is the month and year your financial projection begins. For example, you may not open your business for another 6 or 12 months. You can always adjust your business plan start date as plans and timelines change.

Income Section - The Income section is where it all happens. It's where you group your sales into categories and detail month by month when sales will occur. With Ultimate Business Planner, you can define up to 20 different income categories. You don't need to set up a different category for every product or service your business will offer. It will be easier for you and the reader if you consolidate products and services into like groups.

For each income category, you can enter a description and cost of goods sold. Cost of goods sold is the variable cost associated with a sale. An income category can have its own material, labor and other costs of goods sold percentage. For example, if you manufacture widgets, you may have a material cost of 30%, a labor cost of 25% and an overhead charge of 2%. This means for every $1.00 of widget sales, you have a cost of goods of $0.57. This will give you $0.43 leftover to cover expenses.

Ultimate Business Planner includes many timesaving tools to help you enter the sales projection for your small business. You can choose to enter values manually or you can repeat values, enter growth rates or raise and lower numbers with just a mouse click. Once you've entered your sales projection, you're ready to move on to your expenses projection.

Expenses Section - The Expenses section is where you enter your projected monthly operating expenses. If you have payroll expenses not already covered in your cost of goods, rent, marketing, utilities, telephone, or expenses, you can enter them in the months they will occur. Similar to the Income section, Ultimate Business Planner has many features for helping you enter and manage your monthly expense projection.

Interview Section - The Interview section is where you answer questions about things your business needs or already has. You'll be asked a series of questions, including: (1) assets your business already has, if any; (2) minimum bank balance; (3) whether your business will maintain inventory; (4) assets you will need to buy; (5) liabilities your business already has, if any; and (6) if you have a line of credit. You will also be asked if you need to purchase additional assets or plan to take out any additional loans during your projection. For example, maybe you want to expand your business in year two or three and will need to buy additional equipment. This information is optional, but should be taken into account if you have any plans to expand or grow your business.

Ultimate Business Planner is the only business plan software that takes all of this information and tells you how much money you will need to start your business. This business plan software also tells you whether your financial projection will generate enough cash to sustain your small business throughout the 5-year projection period. If your business does not generate enough cash to keep operating, Ultimate Business Planner tells you which month you will run out of cash.

If you are starting a new business, but already have some assets from an existing business, you can transfer existing assets your business already has into your new business. This allows you to transfer cash, accounts receivable (when customers owe you money), inventory, and other assets of value into your new business. If your business is brand new, you can skip this question.

Ultimate Business Planner needs to know your minimum bank balance so it knows how much cash your business needs to maintain. For example, your bank may require your business to keep $500 on-hand at all times. The business plan software will automatically use as much cash as it can to pay for expenses, loans, inventory, etc. before it has to resort to using a line of credit.

Some businesses need to maintain inventory to sell or service their customers. For example, a retail clothing store needs to have clothes on-hand at all times to sell to its customers. Even if your small business offers a service, such as pool cleaning, you may need to keep a certain inventory amount of chemicals or filters at your shop. If your business needs to maintain inventory, you can choose to maintain either a fixed or variable inventory level. A fixed inventory is when you keep the same amount of inventory on-hand at all times. A good example of a business with a fixed inventory level is a grocery store. Grocery stores always have a similar amount of groceries regardless of the day of the week or the time of the year. A good example of a business with a variable inventory level is a snowmobile sled manufacturer. A manufacturer that offers a seasonal product will build up its inventory before the beginning of the season, but try to end the season with as little inventory as possible.

Ultimate Business Planner automatically handles fixed or variable inventory for your business. If your business needs to have a fixed inventory level, the business plan software automatically orders as much inventory as is necessary to replace what you sell. For example, say your business sells $30,000 of product in March and your costs of goods is 50% or $15,000. The software will automatically order $15,000 in March to replace what you sell. If your supplier extends credit to your business, the software will automatically pay the supplier as well.

If your business can have a variable inventory level, Ultimate Business Planner automatically orders inventory based on how many days' worth of inventory you wish to keep on-hand. If you enter that you want to maintain 60 days' worth of inventory, the software will take a look at the sales figures you entered in the Income section and figure out how much inventory to order for you.

Once you've answered the question about inventory, you can list the assets you will need to buy and how much they will cost. If necessary, you can group assets together, such as office equipment or store fixtures. When you enter them, you should select a category. This tells Ultimate Business Planner what type of asset you are buying so the software automatically depreciates the asset for you and reduces your taxable income. If you plan on financing some of your asset purchases, you can detail any vendor loans you plan on taking out to help pay for your purchases.

If you have an existing business, you can transfer liabilities your business already has into your new business. Ultimate Business Planner allows you to transfer accounts payable (when you owe other businesses money), lines of credit, and other liabilities into your new business. If your business is brand new, you can skip this question.

A great tool for helping a business stay afloat when it's short of cash is a line of credit. If you have a line of credit, you can enter your line of credit limit. If your business is ever short of cash, Ultimate Business Planner will borrow from your line of credit and pay it back monthly as cash flow permits. If your projection ever exceeds your line of credit, Ultimate Business Planner will tell you the first month it occurs on your cash flow projection.

Did Your Small Business Make Money?

Once you've entered all of your financial information, you should review your cash flow projection, or cash plan, to see if your business generated enough cash throughout your projection. If it didn't, you'll have to re-evaluate your numbers and see if any of your assumptions are incorrect. For example, could you lower your cost of goods in the Income section if you selected a different supplier? What if you financed more of your start-up costs and used more cash to help pay for expenses? With Ultimate Business Planner, you can go back to any question in the Company, Income, Expenses or Interview section and make any necessary modifications.

So What Are Your Next Steps?

So, if you have an idea for a new business venture, and it makes money, how do you communicate your new business idea to lenders or investors? Also, how do you make your idea compelling enough to actually get serious consideration and possibly funded? There are no simple answers to these questions. It will take time and effort to get your new business going and it all starts with a solid business plan. Once you know your new business will make money using Ultimate Business Planner's financial projection wizard, it's time to tackle the written portion of your business plan.

What is a Business Plan?

A business plan is a written document that helps explain your business idea, its expected outcome, and how you are going to achieve your goals. Some business plans may have been written on a napkin in a restaurant, but the best business plans are well thought out and have a clear vision for success. Ultimate Business Planner includes a complete outline of everything you may need to include in your business plan.

What's Included in a Business Plan?

A typical business plan includes the sections listed below. Your business plan outline may have more or less content depending upon the industry and scope of your business and whether you will offer products, services, or both.

Top 10 Sections of a Business Plan:

1. Executive Summary

2. Company Background

3. Products

4. Services

5. The Industry, Competition and Marketing

6. Marketing Plan

7. Operating Plan

8. Management, Organization and Ownership

9. Goals and Strategies

10. Financials and Assumptions

So you know what type of information goes into each section, here's a summary of the content you should include in your business plan.

Executive Summary - An executive summary is an encapsulation of your entire business plan and, more importantly, it tells the reader what you are seeking. Most business plans seek funding; however, some seek partnerships or strategic alliances. Let the reader know up front what you are looking for. This way the reader doesn't have to sift through your business plan trying to figure it out. Even though this is the first section your reader will see, it is the last section you should write. The executive summary is one of the most important sections of your business plan. It may be your one and only chance to capture the attention of the reader and make him or her want to continue reading.

Company Background - This section provides the reader with a general overview of your business. It's the story that describes the business you are in, how it came to be, where it is today, and where it is headed in the future. The entire company background section should be no longer than a few pages.

Products - This section explains to the reader your product or product line. It indicates where you will source your supplies and inventory, compares your products to those in the marketplace, and explains your research and development plans. Write your products section so it presents the most intriguing aspects of your products. What is the most exciting characteristic or benefit of your product line? What is that one thing that is going to spark sales immediately? Take the excitement of your product offerings and explain it to the reader.

Services - This section explains to the reader the service or services you will be offering. It compares your services to those in the marketplace, describes how you will deliver your service to customers, and explains your research and development plans. Write your services section so it presents the most intriguing aspects of your services. What is the most exciting characteristic or benefit your services will offer? What is that one thing that is going to spark sales immediately? Take the excitement of your services and explain it to the reader.

The Industry, Competition and Market - Describe the industry in which your business will be competing. Research and present as much factual information as possible. Ideally, you want to present the current condition of the industry, plus any current and projected trends. In addition, discuss any outside forces that could adversely or favorably affect your industry. For example, if your industry is subject to government regulations, address both current regulations and any proposed regulations that could affect your industry. Explain, or characterize, at what stage your industry is in its life cycle. Just as products have life cycles, industries often have life cycles too. This is achieved by examining a combination of factors such as the number of participants in the particular industry (and whether the number is growing or shrinking), the profit potential, the level of risk, and any barriers to entry.

Marketing Plan - The marketing plan is a very crucial component of your business plan. It explains to the reader how you plan on reaching customers, making sales, and reaching your financial goals. Too often good ideas fail due to poor marketing plans. Your marketing plan should address the standard "Four P's" of marketing: product, price, place, and promotion. Your marketing plan will explain to the reader what you are selling (product or service), how much you will sell it for (price), where you will sell it (place), and how you will advertise it (promotion). In addition, it addresses how you will measure the effectiveness of your marketing activities and how you will keep in tune with your customers' needs. Write your marketing plan so it stresses the keys to success. Is it your strategy to knock over your competition with a feature-packed product that makes the competition pale in comparison? Will you be using a low-price strategy or be able to secure a prime retail location? Maybe it's that great promotional and advertising strategy you are going to use. Whatever the most exciting part of your marketing plan is, use this section to generate as much reader excitement as possible.

Operating Plan - Your operating plan explains the "nuts and bolts" of how your business will function. It should address the location and description of your business facility, required operating equipment, supplier and vendor relationships, and needed personnel. Your operating plan is important from a business perspective to show the management's competence to operate the business. There are many stories of companies who have designed and built prototypes of great new products, only to fail because they did not have the expertise to manufacture and distribute their product. Write your operating plan so it communicates how well you know your business. This will convey to the reader that you understand what it takes to run your business and have covered all your bases. Remember, your goal is to not only show the reader you have a great idea, but that you have the knowledge to follow through and can actually make it happen.

Management, Organization and Ownership - This section presents the management team, how the business will be organized, and the ownership structure. It should provide information that will give your readers confidence in your management's ability to grow and guide your business. Show that your business organization is functional with clear lines of responsibility. Also, indicate the respective parties who have ownership positions in your business. Some readers will read this section early in their review process to see if they are comfortable with those involved before investing in it. Organizational structure and ownership of your business are important, but your readers will relate most easily to the people in your management team. Write this section to convince the reader of their capabilities. Explain to the reader what characteristics they possess to help make your business successful. Remember, without the right people in place, no business can get off the ground.

Goals and Strategies - By now, you should have a solid idea of the goals for your business and some idea of the obstacles you might face. The goals and strategies section should show the reader how well you have considered your overall business concept by addressing your business's keys to success and the barriers it must overcome to achieve them. Convey that you have a solid understanding of the environment in which you will compete and that you have realistically considered the specific areas that will be critical to your successful operation. Write this section so it states your long-term goals and explains the strategies you will use to achieve them. Frequently, the most exciting element of business is the ability to make profits. If you are writing your plan to raise money, this will be of key interest to potential investors. Use this section to detail the profit goal of your venture and describe the strategy you plan on implementing to achieve your goals.

Financials and Assumptions - Financials are the ultimate measuring stick for determining the attractiveness of your business opportunity. It enables the investor to perform an "apples to apples" comparison of your business to similar businesses, or other investment proposals. Unlike the rest of your business plan, which explains your business concept, this section explains to the reader where numbers came from. The key to "believable" financial projections is having sound assumptions. An assumption is nothing more than a statement or paragraph explaining the basis of how you arrived at a particular number or series of numbers. Basically, where did the number(s) and rationale come from? Your assumptions are a lot stronger if they are backed by industry data versus conjecture. For example, if you expect to realize an annual sales growth rate of 10 percent, back that statistic up with a citable source for that growth rate. Write your section introduction to highlight the key assumptions of your financials. What major events must take place for your financial plan to blossom?

It's Time to Get Started The goal of a business plan is simple: to help you gather, organize and present a clear, concise and compelling business idea of your new small business venture. There are many tools and business plan software programs available to help you get started in the right direction. If you are serious about starting your own small business, Ultimate Business Planner is the right business plan tool to help you assess the financial viability of your idea, plus it gives you the necessary guidance and examples to help you complete a comprehensive and persuasive business plan. Stop dreaming about what might be and get started today!