How To Write a Business Plan

1. Module 1 - Introduction: welcome to my online video course and hard to create a business plan. Let's get kicked off with Module one, where I'll introduce the course and also describe to you the importance of creating a business plan. Many people have great business ideas, business ideas that could become a sustainable income for them and their families, ideas that could create jobs, ideas that could make the world a better place. Unfortunately, many of these ideas never see the light of day, and fail is actual businesses. The reasons for this are numerous people with good ideas or very specific skills and abilities are often not good or experience business people, or they simply lack the confidence to start and run a business. Many people try and fail. While some may achieve mediocre success, the issues that intrepid leaders face could be as easily solved is perhaps sticking to business startup checklist or there could be a little more challenging, such as understanding the difference between profitability and cash flow. They could also be complex problems, which is designing a profitable business model based on their ideas or wondering how to fund planned business growth and expansion. This is not to say that larger businesses and corporate organizations do not experience similar problems. The difference area is that these larger organizations have greater resource. Is that their disposal, They can hire the expertise they require. They can engage the services of a consultant. All that can spend valuable resource is working around challenges and problems. Many start ups and smaller businesses do not have affordable access to these types of resource is, And this video training course aims to provide an easy to refer to God and quick start crafting and defining a detailed business plan. So why is having a business plan so important? Especially when we hear from the likes of the Silicon Valley startups, that business plans are dated and that businesses need to be more agile and pivot in new directions? Well, to be honest, there's a lot that does make sense in this train of thought. Things like testing your business idea, creating the minimum viable products or getting your customers to use it, and also being able to change direction easily and quickly. When things aren't working. The last point points is important, but how do you know when things aren't working when things are not going according to plan . What objectives and targets have you said for your business? How had you plan to achieve those objectives and targets? Having a business plan will help you understand all of this. Your business plan doesn't need to be hundreds of pages, but instead needs to be a succinct document that clearly states your business's objectives and how you plan on achieving these objectives. Nor will you blindly follow your plan when things are not working. Importantly, your business plan will help you understand when and where things are not going well, helping you make the necessary decisions to correct the issues at hand. The business plan also has additional uses. Such is attracting investors, business partners or potential first hires and securing finance. This video training course contains the knowledge and experience from over 20 years of starting and growing businesses, helping others grow their businesses and consulting to corporate organizations. Whether you're looking to start your own business or grow your career, Bobby and entrepreneur in the organization you work for this video course is for you. Hopefully, you will have already watched the free video seven step strategy that would have helped you shape up some high level thinking and strategy for your business. This video course will now take you through a more detailed and in depth business planning process to help you put together a detailed plan for your new or existing business. The video training course is split into 12 modules, including this one, and also includes a number of templates to help you get started on your plan. Let's take a quick look at what the modules cover. Module one is the one you're looking at now. Module two will talk you through getting started and also described to you the tools and any preparation you need to do before constructing your business plan. Module three will describe how you understand the industry in your company itself. Module four will talk you through market research and analysis. Module five will help you construct the economics of the business module. Six will help you particular. A marketing strategy Module seven will help you understand products and service development . Modulate will look at the management team and how the organizational structure of your new or existing business will look. Module non will cover the risks, any problems and any assumptions you've made in constructing your business plan. Very importantly, Module 10 will teach you how to construct a financial plan for your business Module 11 will help you put together a prepares company offering, ideally to attract investors or investment, And we'll in conclude with module 12. You enjoy the course. I'm sure you'll find it very useful and see you in module to 2. Module 2 - Getting Started: module two. Getting started with your business plan. Essentially, all you need to get started in this video training course is a pen and paper, and, most importantly, your inspiration. You will most likely have found a large number of tools and applications that also promised to help you put together a business plan. And while many of these are good products, they're often expensive. And in most instances of destruction, your focus becomes learning and you tool rather than thinking about your new business. So let's start with the basics. Instead, I find that a pen and paper usually works the best and gets me off to a good start. First, you need to create 10 sections that correspond to modules three through 11 off this training course, and then start writing down your high level thoughts into each of the sections. You should be able to do this in a single pass, after which the process becomes a little more attractive, especially when you're putting together the financial plan. In the assumptions that drives this financial plan, this is now a good point to transfer all your workings across to a more structured documents, using something like Microsoft word, Google documents or open office. You can also start to use something like Microsoft Excel again, Google documents or open office to begin constructing the financial plan in the underlying assumptions. The training course includes a number of templates for all the documents that you'll be completing, and I also put up some links for you to download the applications to use these templates. If you don't have things like office or Google documents available to you at the end of the exercise, you should have a single document containing your business plan and the supporting workbook with a financial plan all your financial workings throughout the process, you'll also be need to be doing the reasonable amount of research. And, as with anything nowadays, the Internets a great place to start, however, be way you need to make sure that you're using credible sources on the Internet, especially when referencing figures. Because any incorrect information will affect the quality and believability of your business plan. Government websites are usually a great place to start, especially when trying to understand the larger economy and the industry in which your company will operate. Some additional Internet based sources are listed in the slot industry and trade associations, which often specific to the industry in which your business will operate chambers of commerce and these could be local chambers of commerce. So in your town or perhaps largest city research agencies, much of this will be paid for on may be unaffordable. But this is so loaded free information available from some of these research agencies, software sponsored reports or company sponsored reports. Often all you need to do is register on the website, and you'll have access to these reports, which are officers, often industry focused investment companies, financial publications and industry podcasts. If you have access to any academic institutions, you may have access to an online journal portal such as Emerald Insight, which is messes of research information. Any university library will also provide access to other publications, such as dissertations, in which students will have either included secondary research or performed primaries research off their own. Don't underestimate your local library, and they may also provide something similar in terms of access to research journals, as well as having a number of other research materials available for you speaking to other business owners or industry experts will also provide insightful information, then be afraid to ask for help. Her advanced. Most people are willing to share information. Here are a number of resource is to get you started with your research. Firstly, in the United Kingdom, the company's house is a government website which deals with the registration of companies but also provides lots of information around startups and small businesses. Britches, chambers doddle That UK is a list of all the Chamber of Communists organizations that exists within the country. Ah, and then a number of other government websites which include information about starting a business, firstly, just the general government website and then Her Majesty's Revenue and Customs, which includes a lot of information that you'll need to run a small company. The Financial Reporting Council contains a lot of information that will help you understand how finances should be reported or work within the company. The statistics authority will provide you a load of statistics around different industries in the economy, which you need to reference in your business plan. Nation Master is a not specifically UK website, but it's an international website and it provides a number of KP eyes and statistics across industry and different countries, which which could give you a lot of reference herbal material for your business plan. And then finally, Emerald Insight, which is one of the research portals that are referenced a little bit earlier. Let's take a look at the research resources for the USA Firstly, Delaware Inc. Which provides a the service for registering small companies. The U. S chamber dot com provides a list of the Chamber of Commerce is again likely due in the UK This just being the US based one ah, number of government websites that provide information to business owners or aspiring intra premieres. The Securities and Exchange Commission, the specific girl talks about a financial reporting and how this should be done in a small company again, statistics related specifically to the USA and then finally nation Marston Emerald Insight again as he's air applicable to both the USA and the UK At the end of the day, it's very important that you do focus on the basics and don't get distracted by the tools that you need, whether it's your business plan that you are documenting or the research that you need him to do. Don't get carried away with these tools and technologies. Keep your focus on the content and the eventual outcome and you will be successful. 3. Module 3a - The Industry and the Company Part 1: here we go with module three. This is the first module where the rubber is really going to hit the road. And why did I say that? Because this is gonna be the first module where you really start building the content of your your your business plan. So the section is going to be used as an introduction to both the industry and to your organization. It's going to provide the necessary context to any reader of your business plan. And you got to think especially about readers who might not be familiar with your organization or with your industry or with either. So this is why you need to avoid using any kind of overly complex technical language. Any jargon to really think about presenting the section in layman's in layman's terms so that any reader of the business plan is going to kind of understand what your business is about and what the industry is about. So let's get started by describing the industry in which your company is going to operate. So how would you describe the industry? Let's think, for example, if you were a property leasing company or property leasing agent, how would you describe the overall property market. So you want to think about things like the key themes within the market, and you might break these down and describe these is things like commercial property, retail property and private property. What you also need to do is think about and describe your reasoning for entering this market. So you want to do this by giving ah, high level description off the opportunity for your organization? I e how are you going to make money? Ah, but at the same time, you don't want to go into too much detail because you're gonna cover all of this detail off in subsequent sections off the off the business plan. So this leads on to a very important point, which is the business model. So, really, what is the business model? It's essentially about how you make money from your business. Um, and this is a good place to introduce it and describe how your business model will operate . So providing some insight into the business model is very important because the reader of your business plan, we'll know exactly how you're going to be making your money. So let's think about the following example think about a company such as Google. We all use Google or other top search engines on a daily basis, but let's stick with Google for this example. Google might describe its businesses providing search results to users of the Internet. But this doesn't really tell us how Google is going to be making money from this. And let's be honest, there's no point in being in business if we're not gonna make money. So we need to describe the business model. And describing the business model for Google might include details such as earning revenue from paid advertising or affiliate income or paid search and all those sorts of things. So really, that it seeks to differentiate and describe the difference between what a business does and how our business makes its money. It's also important to consider the why, as in, Why are you in business? And this is going to be the detail around what the benefit is to your customers. So the above examples quite interesting, as in the Google example, because it begs the question as to who the customers actually are. So are the customers three users of the search technology looking for information or other . Actually, the advertisers were paying to place their content or adverts on the Web start Oh, on the Google home page. So I would say simplistically, the customers of the ones who are paying for the products and services. So in this case, the advertisers. So the next question is, what's in it for them watching it for the advertisers? What's in it for the customers? Well, in this case, the search engine gets eyes on the screen, and the advertisers can reach large audience or a large audience at affordable prices. It's extremely important that you and the readers of your business pen understand exactly who your customers are and why they would want to buy from you. So let's talk about products and services. Knowing what your business model is now allows you to give some more Thought is to the products and the services that you're going to be providing. So you want to use the section to, firstly Quetta, grass your products and services and then go into some more detail around the specific products themselves se. What you need to do now is describe each of your products or services that you didn't provide to customers, and this is going to entail you providing a certain amount of detail. And this detail should firstly include a full description off that product or service its price point. So how are you enterprise? The service. So is it a per unit cost? Is it an hourly basis? Is it a fixed fee going to be charging clients? Exactly. How will you be pricing this product or service? And what is that exact price off the product or service? One of the key product features. So you know what is the product of black? What is this? What is the service look like? Describe all of these product features art, But more importantly than the product features, it's very, very important to distinguish between a feature and a benefit. So what are the benefits to the customer, you know, So if you're thinking about buying a car, one of the features of the car is, you know it goes 0 to 60 miles an hour in six seconds, but the benefit is it could get you to where you want to go quicker. So that's a very simplistic example. But again hopes to describe the difference between the future and a benefit. So featuring some being your product has a certain attributes, and the benefit is exactly what is going to do for the client. How is going to make the client's life beta? So in talking about this, don't obsess about the product set of features. It's really important that you be able to articulate them, but more importantly, focus on the benefits to the client. What sort of problems is this going to solve? So think about this example. Think about a company such as Regis that rents aren't temporary office space and temporal meeting space. You've probably seen Regis across the country with with sort of officers and men and and and meeting rentals bases. So one of their products might be office space that could be rented on a temporary basis, and it might contain the following Fisher features. It'll heaven paid by the hour ah kind of rental agreement. It'll have WiFi with Internet access, and as a customer you'd be able to use the printers and copiers. So those are the features one of the benefits to the customer. Why would a customer choose this product over other products so either competitors working in a coffee shop, working from home. So let's put it this way. Let's think about some of the benefits well, personally. The office base provides a prestigious business address without the customer having to pay a fixed monthly rental expense and sign a fixed term lease. The safe's custom money and and reduces the risk. So again, you know, working from Ah, Starbucks coffee shop is not going to give the same. Prestige is ah, as as as a business address. Smart. Secondly, the customer won't have to pay a fixed monthly amount for Internet connectivity when they're only using it for a limited Tom. Again, The saves a customer money. This is the benefit. It saves the customer money. Thirdly, customers don't need to find any upfront cost off assets, lack princes and other office equipment. This reduces the investment that is required from from the customer, and it improved customer cash flow. So again, the feature is printing and office equipment. The benefit to the customer is it reduces thedc customers need to invest in assets and improves the customers cash flow so hopefully etc. Clearly illustrated in the slide to the difference between the benefits in the future because, honestly, sometimes it's very easy to obsess every product features and to forget about the benefits . So at the end of the day, remember, it's all about the benefits that seller product and make customers value that product that you're gonna be selling them. Um, once you articulate this this kind of value, it's easier to talk about process because price now becomes value. So depending on the type of business, you may not be able to always less the individual prices. For example, if you were starting a management consultancy business, it wouldn't be easy to list your process. Ah, sorry. It would be easier to list them is day rates, But it wouldn't really be possible to list that all the Leinart and prices if you're launching a clothing store, for instance. So what would be important is, though, to discuss the pricing point where you would pitch your price level. So are you selling low priced non brand clothing items, for example, or are you selling branded items or you sending these designs? How would you press Howard thes prospectors compay either to each other or to competitors? Um, I intend that they don't get too hung up on pricing just yet because we're gonna talk about prosecute probability in in a later section. 4. Module 3b - The Industry and the Company Part 2: So next let's talk about market entry and growth strategy. So how are you going to be starting off in this market and how are you going to grow your business? Well, it's often said, and it's a cliche that the journey of 1000 miles begins with a single step. But this is the all important step. So in the same way that your organization's injury into the market is that important just to tie that back to the analogy. So how will you into the market? Are you gonna launch with a national campaign and open a number of stores across the country? Or would you start the business from home? Or would you start the business with small online prisons only? So there's a number of questions that you need to start thinking about, and you need to answer and articulate in this business plan and in your business plan documents. And these are going to be driven by a number of factors, such as your revenue model, what's your target customers and your target market is what you're available. Funding is and, of course, what your longer term strategy is for the business. So from a pragmatic point of view. There's a number of options that your organization or your business has to choose from. Firstly, um Ah, and this is really going to describe a number off my guest models that you or your company you started can follow before entering the market. So, firstly, we have a green field strategy and a Greenfield strategy Israeli a route that many entrepreneurs take, and this involves the business or building the business from the ground up from a base of essentially nothing. It means developing your own products, developing urine services, developing your customer base, developing your sales and developing your your your distribution system. It's etcetera, so obviously there's a lot of effort involved in this, but it does have the benefit off having few constraints. So, finding aside, it really is up to your imagination in terms of how you want to structure this. Ah, and like I just said, the ready. The big constraint is funding. So how much can you afford to do? Um, that that's what you gotta think about. Secondly, you might want to consider licensing, so that is essentially way the owner or licenser of a certain piece of proprietary technology, UM, or service or product or intellectual property. Grant your business the loss and see a license to use or sell that specific proprietary item or service or brand or whatever it is. And this is often diners the root for a licensor, Teoh, intra new or untapped market. It's got the advantage that you are able to sell. We'll use the tried and tested products of service as the basis for your business. However, this could be a complex to fade because you need to consider a number of things, such as licensing costs, the length of the last syncing agreement, the exclusivity of the Larson. So will this license or so and technology also be made available to your competitors or directly to customers? And what about the territories or areas that you can sell it in? So, um, you know, do you have exclusivity across the single geography? A country, a continent, the world? These are important things to think about. So one of my recommendations is you start negotiating and signing the last disagreements. You should have the assistance of a legal adviser with experience in this field. It's it's really complex. But beyond the scope of this, this lecture I'm a bit something Teoh to consider. Next Franchising is a model which is extremely popular, UM, birth for intrepid years and more established businesses to start new businesses. So what is French housing? Well, it involves a franchisor or a supplier that allows the French rZ or operated to buy the franchise and use the franchises. Trademark. This has got the advantage off having an instantly recognizable and respected brands such as McDonald's and many franchises also include things like start up equipment branding and San Age, as well as management expertise that will help you run and start your business. However, this does come at a cost on the process. This is usually purchasing a franchise, especially the larger brands, and this cost could be significant. You know, we're talking kind of millions. In addition to this, the French are Z. You'll also be required to pay a portion of the profits to to the supply. So, for example, in some fast food organizations, part of the agreement is that you pay 6% of your revenues, Teoh to the supplier next forming an alliance. And essentially this means working with another organization. So this happens when two or more organisations work together to pursue it. Common set of objectives the two organizations might share. Resource is capabilities, funding expertise or even intellectual property, but they still essentially remained independent organizations. Um, uh, This allows both organizations to grow mawr than there might individually and at the same time doesn't exactly mean forcing them into a kind of merger or acquisition. Next to think about is a joint venture, and this is essentially where you form a new organization. So it's where you enter into an agreement with another party. It's a viable route to market. And this is an approach that's often taken by large international corporations who wish to enter a local market but often lack that local experience and and that the network to do business so they'll often partner with a local business and work together. Ah, as this new, this new joint venture. And this is not to say that this route to market is exclusively for large corporations. It could work very well for small businesses who skills and abilities are complementary. I e. You gotta synergy by working together and forming this new joint venture for example, and manufacturing concern and a product marketing agency. Joint ventures are formed in response to requests for proposals sometimes issued by large corporations and government agencies. So in this example, you know, typically a small organization might not be able to satisfy the necessary requirements, and partnering with another organization makes this possible. The new business typically is formed, and each party owns a shareholding in the new business. The next thing to think about or the next kind of market entry. Your model is a turnkey solution, and this is an approach way. A method is used, and it involves having the third party establish a business operation and gets everything to the point where the key literally needs to be turned to start the business, at which point it's handed over to to yourself or the operator, for example. So this type of approach is not that common in small businesses, Um, or the entrepreneurial space, because it's often employed in the mining and utility sectors, were operations in the form off man or power or power generating plants are built and then handed over to the business. Four for operation. So again, something to think about something to know about, but potentially not the best way or the most cost effective way for you to into the market next on acquisition. And you obviously heard, Ah, a lot about acquisitions in the press. That happens every day because these are popular ways in the corporate world. Ah, for starting a business or extending a business, and they happen happen for a number of reasons. Um, the to be parent company, for example, will usually want to acquire a skill or ah, specific technology or their want to interest specific market. Or they want to address or target a group of customers. And instead of building any of these things themselves and sometimes cheaper and quicker for them to go out and bar these so either bothers those skills by their technology acquired that market or by the group of customers this can become quite complex is integrating companies is a slow and risky process. Um, acquisitions generally, therefore therefore the domain of a larger top of business, you know, acquiring smaller ones. But sometimes it's not unheard of small organizations acquiring larger ones. So many of these options might not be viable or attractive to you is an intra paneer, but it's important to understand the top of options that are available and how these might prompt creative approach or the creation of a new business model in order to intra market or get your business started. 5. Module 3c - The Industry and the Company Part 3: So let's not talk about a growth strategy. Once you've established your business, um, give into the market. How are you going to grow your business So you might have ambitions for your business to grow nationally or internationally? Or you might prefer to keep it serving only the local community. Perhaps you want to start off locally, and once you've tweaked and proving the business model, your friend Charles, that will become a franchise of yourself. The growth strategy doesn't only refer to the geographic aspect of your business. There were just too making money things to think about our How will you grow and develop the products and services that you make available to your customers? Um, are you going to stay in each business or will you diversify so growing the business could be done in a number of ways, and these illustrated and described Ah, in the next few ah points that that I'm going to talk about So there's two main divas that are available to you and these already your products and your customers and and then market . So using a combination of these is going to give you four broad options about how you can grow your business, and I'm going to talk about these now and describe their in a high level and finish off with a bit of a summary. So, firstly, you can do this by utilizing your existing products and services within your existing market. So this essentially means that you're going to be selling mawr of the same thing to the same customers or to the same top of customers, and this is typically referred to as market penetration. A good example of this is mobile telecommunications companies, and you know this is applicable in markets where most people really own a mobile phone. So how are mobile companies going to going to grow their business? Well, they're going to run campaigns that draft the purchase of additional SIM cards or contracts or or handsets. So, for example, if you look at the United States, there's 103 connections per 100 citizens, and in Panama, each citizen has, on average, two connections, so don't think of your market is limited by just the amount of people you know as in one person mark by one. If these examples we can see that one person buys more than 11 product. Next product development occurs when you told that your existing customers and markets by offering new products or new services. And this is an option when you're stuck in a competitive or saturated market so way again. Some of the previous example everybody or every customer has one off something allow you have a lot of competitors operating in the same market is as you do so. This strategy growth strategy provides you the opportunity to offer your customers additional products and services that will address their needs and at the same time, little different shade you from your competitors if your competitors are not already doing the same thing. So in this case, Apple or a really good example of the company, a company that's very successfully done this, um, your cell that this is well with the inclusion of the battery test of feature on the batteries themselves. So I think you only really need to think about Apple in terms off how they really grow their product line and Holly of being able to take a number of products and sell all of these products to the same customers. Next, taking your existing products and services on marketing, lease and selling them to new markets. This is called market development, and this strategy works well when you've got a strong products or services that are really differentiated from your customers, products or services. And this would generally mean that these new markets have not already had access to this type of products or services. So you're the 1st 1 into these markets that are selling the sorts of products and services . Alternatively, the mountain out of being products or services that competitors provide. But you can provide them at a lower cost. And a good example of this is Coca Cola taking their products to the Russian market. Previously, there was no one operating there in that sphere, and Coca Cola was able to successfully position their products into this. New into this new market finally is diversification, and this refers to tackling new markets with new products and services. So this is typically an approach that carries the most risk but could also have the most potential. A really good example here is Honda, and this is a company that doesn't really well, so 100 really started as a motorcycle company and now they manufacture Things are cause and trucks and even boat and lawnmower engines. So these are the the four key strategies in which which you can use to grow your market. And, um, the lost slightly really summarizes how these all relate to each other. Um, again, by talking about the two levers that you can move the one being customers or markets and the other mean products and services and using a combination off. These will allow you to cover off ah, number of different growth strategies, as we've said, market penetration, product development, market development and diversification in summary. Then you should now be able to understand and be able to describe the industry that your business operates in. You should be able to define what your business model is. That is how you're going to be making money from your business. You should be able to describe the products and services that you'll be offering to your customers. You should understand how your business will enter the market in which you operate, and you should be in a position to plan how your business will grow and be able to articulate all of these in your business plan. 6. Module 4a - Market Research and Analysis Part 1: in Model three. We spoke about the company, and we spoke about the market that the company is going to operate in. When describing the market, we presented certain assumptions in terms off who are customers were and the sort of things they might black to be buying. And it's really important that when we validate a business idea or a concept, especially when putting together a strategy or putting on business plans, that just the stuff we're talking about now is that a number of assumptions will will be made. And each of these assumptions carries risk, and that needs to be really understood. So the more assumptions you make, the more the risks become compounded. And Teoh use a cliche or or or an analogy. What you don't want to be doing is building your business plan on a foundation that's not solid, so you don't building things on a foundation of sand that's easily going to shift. You want to be building your your business plan on some really, really solid assumptions. So how do we do this? Um, what we want to do is that each other risks that that are associated with the assumptions we make need to be minimized, and the best way of doing this is by improving the accuracy of the assumptions that we make . So ultimately, these assumptions are going to drop the the budgets for the financials that stand behind your business plan. And if you're seeking investment, these assumptions are definitely going to be questioned. Ah, that they will be. There's no doubt about that. As any regular viewer off Dragon's den on the BBC will attest to, intra panniers are chewed up and spit out when the assumptions or questioned and there can't substantiate them. So once this is done, your whole business plan is going to fall apart. Once the financials are the financial aspects are dismissed, the business plan in itself becomes useless. So how do we improve the accuracy of these assumptions? Well, we do this by conducting market research and analysis and their two key approaches to conduct market research or any top of research. Firstly, primary research. This is a research that you do yourself and you started from scratch. Like I say, either be by doing it yourself or by contracting 1/3 party during which you collect data and you analyze it. The other one is second really research. And this is where you really use research that's been done by somebody else. Whether it's Student university, another company, it's stuff that's been done before and you really just reuse the results of this. Let's take a look at the two options in a little more detail and draw out some comparisons . So primary research, as I've said, this is new research that you consider you conduct specifically either by yourself or by someone you appoint. Um, this could be an expensive exercise. And ah, the reasons why it's expensive are because you need to cover off a number of things, including, firstly defining your research objectives. So what do you want? Thio? Get out of this piece of research. One of the questions you looking toe answer one of the assumptions you looking to validate These need to be really clearly found in order to make sure that the research that you're going to do is going to be able to hit these objectives. Secondly, you need to define your approach. So how will you be going about this research? Are you gonna be doing surveys? Will you be doing interviews. Will you be running focus groups? Uh, you know, you're gonna be asking, Ah, one on one questions. Will they be meetings, etcetera, etcetera. Thirdly, How do you define your population size So again, if you launching a business is the population you're thinking about is that your county is your countries in the world. How big is this This potential market that you're going to be addressing this potential market that you're gonna be selling your product to? Once you've identified that, you need to define a sample size. So as an example, if you're going to be selling your product to everyone in the UK arguably, you can't go and interview everyone in the UK you need to decide on the sample size, so you need to narrow down that population and say OK, well, if we have 70 million people in the UK realistically, I can probably interview or in through the 1000 in my sample size. Next, how are you going to divine your questionnaire? All the data points you you wish to collect so one of the specific questions that you're going to be asking in order to achieve your research objectives that you specified in the first point. And then finally, how do you collect and interpret the data? So again, dependent on the number of questions and data points, you're going to be asking auditable into collecting multiplied by the sample size, this could be a fairly extensive exercise, although it's expensive. There are a number of raw vintages to doing primary research, and these are when your objectives could be very specific so they could meet your requirements in terms of answering some very key or specific questions that you have that either underpin your business plan or your financial model. Um, the research could be tweaked to Teoh the specific question that she wants to answer. Ah, the results had come out of the research. Are yours exclusively? They're yours and nobody else's. I either. Not gonna be shade. You're gonna have a next elusive access to to this information. Now let's look at secondary research. Um, this is an attractive option, as it essentially relies on your reusing research that's a really being performed by someone else. The big advantage to this is that the research data is less expensive, particularly compared to primary research and in many cases, the information's free. With many research resources being online, it's convenient. But there's a number of things that you need to think about that are disadvantages when you use secondary research first, the the research results so usually not an exact fit to your requirements. So when we talked about primary research, we could really direct the research to you. Answer the specific questions we had. When we look at secondary research, we probably don't look for something that's going to be an 80% fit. Um, and Martin not be as accurate as we hope it to be. Sometimes the results are outdated, so we may find a study or some type of research. That kind of answers the questions that we we've been asking all the information we're looking for, but it's a few years old, and then this is going to date our results and, ah, also, the results might be skewed. Ah, this is particularly the case where an organization and again pharmaceutical organisation spring to mind where a study might be directed towards a specific outcome and the results of skewed towards ah, achieving achieving this outcome. So these are the things that that that you need to bear in mind. Ultimately there you might be able to use a combination off the boat off the to these these approaches, so primary and secondary resource. So, for example, if you were launching a business that sold Internet connectivity connectivity to home based office workers, you could, for instance, conduct the larger amount of research using secondary methods, such as information on the number of home based office workers. Ah, available, for instance, from the Office of National Statistics. Um, and you could be using competitive prostate or from other Internet service providers. This would then be supplemented by primary data, perhaps gathered by asking acquaintances and previous colleagues to complete the customers . Come question name. 7. Module 4b - Market Research and Analysis Part 2: first, he customers and stakeholders. It's extremely important to understand who will be buying your goods and services. In the previous section, we used the example of an Internet search engines, just Google, who provided search results to Internet users and provided advertising services to business . And while it's clear that the advertisers in this example were, in fact the customers, it's equally important that any aspiring business understands who are the other customer lark stakeholders and or who these might be. So although the customers or the business in this example obtains its revenue from paying advertisers, no advertisers would pay if there were a number of search engine users accessing the website equally so without any revenue, the company would be unable to sustain its operations and provide free search results to Internet users. While this is probably a more complex business model than most, it illustrates the importance of understanding exactly who your customs are and what they look like. This is gonna help you understand exactly where to position your products and services. Now this could be dining two ways. The first is a way in which years an intra paneer conceptualizer productive service, which you they need to validate as to who marked by this product or service. And secondly, by identifying a customer or a customer market, a customer, Sigmund's understanding their needs and then designing a product to satisfy these. It's also important to note that you might want to consider having mawr than went up of customer. So, for example, you might want to consider some form of customer segmentation and imagine a customer persona for each of these segments. This is gonna help you more accurately design and position products and services for specific segments or specifics. Customer personas think about the example of a small business to provide specialized cakes for events. The requirements for a cake for Children's party, for example, are going to be substantially different to those for a wedding or a wedding cake. And apart from the products being different, thes customers need to be markets to in different ways. Now that you understand who your customer might be, it's important to know how many of them there might be. So this is where we start thinking about the market size and the market trends that underpin that market, understanding the size your potential market will help you premier really understand how really opportunity is that you're considering. It's the same porton that you're aware of any specific trends in the market. It, you know, for instance, is the market growing. This means that there might be many opportunities, but also many in your entrance and therefore competitors. Is the market heavily? Is the market heavy, heavily regulated? And do you need to ensure any kind of confirmation to certain regulatory requirements? For instance, banking or lending money or providing legal of us? Is the market declining? And if it's declining, doesn't even make sense to into a declining market. It might do you know, for example, if you had a business refurbishing cassette players or a new technology that assisted mining companies in rehabilitating defunct mines, The size of the markets and the associated trends will ultimately dictate the number of customers you can hope to win, and therefore also the amount of revenue march through the amount of revenue you might realize. So how many customers and harmony sales can you realistically achieve? Ah, are you going to be aiming for a small percentage of a large market or a large percentage of a small market, hopefully not a small percentage of a small market, because there's gonna be really difficult to make money in. Always gonna be somewhere in between. Looking at similarly SARS competitors will help you understand exactly where where your market size isn't and, um, and way, way you can pitch your products and services, a mistake that many businesses make when planning is using floored assumptions. So, for example, the market for outdoor events in the UK is with approximately £1 billion and the business you. Let's take the example of your business requiring a £1,000,000 in annual revenue, a spot of your your business plan. This simply means that in order to achieve that, you're gonna capture 0.1% of the market. Could you see the mistake here? This market shares driven off the revenue requirement rather than the other way around. Your assumption on the market share needs to be valid and accurate and drive your revenue estimates so you can just kind of reverse engineer ah, your revenue target and say Well, in order to capture uh, £1 million in revenue, we need to address 1% or 10.1% of the market, and we just issue, we're gonna get that 0.1%. That's that's the wrong assumption to make. So another thing to think about. Are there any significant events that are occurring or have occurred in the marketer industry? How Marty's influential business and your customers think about the example of LTD's light emitting dyers and you'll see these are kind of new lots that are, ah, available in industry and and for home use. So these were traditionally used as power indicators on Elektronik devices essentially the red or green lots indicating whether your amplifier, your television or your mobile phone was on off, and that was about all. They were useful full then, ah guy called Suzy Nakamura invented the blue led, and this was something that was always thought of as being impossible. Suddenly combining the light emitted from a red green and the blue led really opened up and enable the whole spectrum of colors to be emulated. Now we've got led televisions, laptops, telephones and tablets. Previously, something there was unthought off. So what's up? One of the sorts of market events that could seriously disrupt will benefit your business. Your opportunity, martyr later an event that occurs only once in a while, such as the Olympics or the football World Cup. Do you have a project or a service designer on these events? Ah, is speed to market important? It would be, in this case, Onda. Have you factored this into your planning? It's really important that you know your market and you understand your market. Next, think about your competition and your competitive edge and urban myth has it that Charles Holland do l invented or sorry, resigned his his position at the United States Patent and Trademark Office in 1901 Ah, citing or saying that there was no point in working this job because everything had already been invented. Clearly, Tom would prove him wrong, that as we can now see, new ideas are coming to the market almost every day. Some of these ideas are truly initiative and, you know, some others are retake on something that already exists. One of the problems that intra premieres face is that they, sometimes 40 love with their ideas. There are no years that is, and they often become blinkered to the viability or practicality of this idea. One of the approaches to take years to understand how competitive your market is and if there are any other businesses with same or similar products and services, if they are, are many available, for example, this generally indicates that the market is large and healthy, and they're they're more competitors. This does bring a challenge, but the point to be to be made here, I think, is that you shouldn't be afraid of competition. If anything, having a large number of competitors validates your idea. When McDonald's Burger King opens a new restaurant, waited there, open it on the opposite side of town to the competitors or rock next it. I think we all know the answer. This I ever doesn't mean that you should disregard or underestimate your competitors. Um, it's important to know who you compare. This is all what products and services that offer and what their strengths and weaknesses are. You should also include in your business plan, and we we were you confined the sound of where it's available, the key competitive data such as revenue profit, number of employees and also very importantly, who their customers or their likely customers arm. If your product or service has more competition. You probably need to ask yourself what the reason for this is. Is it because you truly have a killer idea? And no one has ever thought of this before? What could it be? That there's actually no market for your idea? Nobody likes to think of the baby's is ugly, but in this case it really is important to be impartial or at least gone. Ah, but of an impartial view. When you think about your your business idea or the product of services that you want to be selling, you need to describe your business plan Exactly how your business in your business plan you need to find exactly how your business will fit into the landscape and how you'll compete with other businesses you need to describe here. Why you think a potential customer would choose your product or service over those of competitors? How exactly would you differentiate yourself? Are you going to do it on process that he's? Are you going to be cheaper than the others? Or you're gonna be more expensive if you're more expensive? Does that indicate that your product is a premium product is a better than the wrist. So how will press help to differentiate is going to be on customer service again. You know, Apple is a very good example off this. Ah, you know, they might be more expensive than competitors, but the service is second to none. Always gonna be brand appeal. And again, you know, Apple is a is an example here. BMW is an example. Mercedes Benz. Is it? That is it the appeal of the brand that that is going to win customers over? What is your secret source? Ultimately remember that it might not be as obvious as customer choosing one product or service over yours, and this is discussed. Ah, a little bit later, and we're gonna talk about you know this in more detail. Um, later on in this training Siris of training with years in summary, though one of the benefits to the customer of using your product or service. Ultimately, you need toe under the question. What's in it for me? Next? We need to estimate the market. She and the amount off sales that we think we can get from that market because revenues a critical component of your business plan. I eat without revenue. There is no business plan. It's really important that you estimate this is accurately as possible. So don't fall into the trap off the previous example that we spoke about, where you reverse engineer the revenue that you need to make a business plan work. Your revenue assumption needs to be based on some solid facts. Um, so we're going to go into a little more detail around estimating your market share and also the subsequent amount of revenue that you can generate from this market chain. So there's a few ways you can do this on dumb first D. One of the ways of doing it is by understanding how many customers that you're having your total market. So, for example, if your business sells rugs in the Southeast, how many customers a year by rugs in the Southeast and you know this should be available through three researchers. What he said. Secondly, what's the volume of unit sales that the markets made up off? You know, so how many of rugs, how many of these drugs are sold in a year? And finally, what's the value of the market that is, You know, the cells generated by the sale of these rugs. While these sorts of figures generally available by planks and research it was, it becomes a little more subjective in trying to estimate the percentage of either these measures let your business might capture So you know what your price point might be. Or, in fact, more importantly, what percentage of the market that you may be able to get once you know the size of the total market, You can research businesses that are similar to yours in size or the size you aspire to be during the first year. And this is where you sometimes need to be a little more conservative and and not kind of overestimate the percentage of the marker that you might get. You need to underestimate your customers share of the market, Um ah, and then kind of work out. What they share is, you know, as a portion of the total market, then you need to factor into this. Any major customers who may already have made a commitment to you all would make a commitment to you to purchase your products or services. So what do the deals have you concluded what customers have bought from you What is your current grave and you based on these customers? And how does this compare to your customers, your competitors, revenue and to the market as a whole? Finally, then ongoing market evaluations really important? Because once your business begins growing and gaining customers, it remains important to constantly evaluate the market because it's not going to stay the same. Not only does your business change, but the environment changes in which you operate, as do the customers, as do the competitors. So staying on top of these changes will really help you ensure that your products and services remain relevant to your customers onto your customers needs. And they're also gonna help you plan other aspect of your business, such as your purchasing and and manufacturing capability. So then, in summary, what have we learned from from this thats video section? Well, once you've completed the section, you should be able Teoh easily conduct your market research and analysis. You should be able to understand who your customers are and describe these customers in your business plan. You need to understand who you other stakeholders are. So are they supplies or their competitors or other influences? You can potentially influence your customers. You need to be able to estimate your market size. You need to identify any market trends within your market, and you need to understand very important. Dean, you need to understand who your competitors, his arm. 8. Module 5a - The Economics of the Business Part 1: and welcome to module father of this video trading Siris on creating your own business plan in this module, we're going to be learning about the economics of the business. Why is this important? Well, the economics of the business are going to help you to model the financial plan that forms a key component of your business plan. So at the end of this module, you'll be able to calculate things like gross and operating profits. You'll be able to understand net profits and profit percentages and again, how these are calculated. You'll be in a position to consider profit potential and profit your ability. You'll be able to understand the difference between fixed and variable costs. You'll be able to demonstrate the months to reach a break even position in your business, and you'll be able to calculate the man's to reach a positive cash flow in your business. Twice is all important. Well, simply stated, a business that's not profitable will not stay in business, and this is the simple truth. So whether or not you're trying to use your business plan to attract investors or to attract loans to start and run or grow your business having a handle on what the economics of the finances of the business look like is an extremely important thing for you that the owner to know. Understanding how the business finances will look allow not any for effective planning. But more importantly, they provide a mechanism for you to measure and manage the business having these numbers in a more detailed level. For example, product sales per week, rather than just an overall sales number will allow you to more quickly identify problems within the business and address these problems. The section describes a key number off areas that are going through quiet, careful planning for the inclusion in your business plan. But don't worry. You're not going to start with a blank slate. There are a number off documents or templates that are provided this part of this training course, and you can use these template in conjunction with the content of this module to build out a robust financial plan that will support your overall business plan. Let's start by looking at gross and operating profits. While revenue remains an important measure of how well the businesses performing the measure off probability or margins, is there sometimes referred to is more important. You'll recall from an earlier section that it is possible to have higher revenues, but he's done necessarily guarantee success. You can have real revenue without profit, and this is a disastrous position to be in gross profit in the simplistic form is calculated by subtracting the cost price to your business, often autumn or artoms from the sitting process that you sell to your customer form. And this can also be referred to as the mock up it could be calculated is neither an absolute number so pound value or dollar value, but it sometimes expressed as a percentage of either the cost price or of the selling price . It's important that you understand on which basis this is calculated, and also when you use these formulas all these percentages which basis you're using. So, for example, imagine Artem that we buy for £40. We sell onto a custom over £60. Subtracting the cost from the ceiling pass gives us a profit of £20. Now let's look at this another way again, taking our profit off £20. We've divided this by the cost price of £40 this gives us a profit percentage off 50% now . This is a profit percentage off 50% as we've said, based on the cost price. In the next example, we've taken the £20 again, but we've divided it by the selling price off £60 expresses the percentage Excuse us the gross profit percentage of 33.3%. Now you can see in both examples we've made a £20 profit, but we've expressed them differently in percentages. So which one do you use? Well, either way is acceptable as long as it's consistently used, and it's apparent which method which method you using. And this is important not only when you create your business plan, but also when you talk with business business stakeholders such as supplies, for instance, and bank managers be clear about what type of profit percentage calculation you're using Now. In this example, we've only talked about fixed costs, apologies, variable costs, meaning the more you sell, the higher costs are so the more atoms you sell, obviously, the more revenue you make, but also the higher the costs are. So having established that you're making a gross profit were not quite out of the woods. Yet there are a number of other factors that need to be considered, and these are often referred to his fixed costs. And these generally costs that your business incurs regardless of the amount of things that are sold, where their production services and examples of these types of costs of things like rain, salaries and office expenses. These costs so then added up and subtracted from the gross profit and the balance it's left his own is operating on a profit. Let's take a look at this in an example. Imagine that your business has sold 1000 of the items that we used in the previous example , and you also had things like salary and and office expenses so expressed in a very simple example. Here we've sold 1000 atoms at £60 each, and this is given us revenue of £60,000. Each of those items has cost us £40,000 so 1000 off. Those has cost us £40,000 this has left us with a gross profit of £20,000. Now affected into that some salaries £3000 rental, £5000 and that gives us a net profit of £12,000. So what we've done here, he's added these up, which is 1000 subtracted that from the 20,000 and that's left us with the £12,000 and you'll see in some of the examples of use parentheses. And the simply means that this number is to be subtracted from from the overall total. You could also use Ah negative signing in front of these, So this example illustrates a gross profit percentage based on sales off 33% and an operating profit percentage of 20%. So the 12,000 divided by 60,000 gives you 20% net profit. Now let's look at the following example where business has perhaps not being a successful, and it's not managed to sell, as many Artoms is, it has in the previous example. Let's imagine, for instance, that it's only been able to sell 500 of the items, so taking the selling price of £60 multiple that bar 500 items, this gives us revenue of £30,000. You remember that each autumn cost us £40. Now multiply this by 500 and that gives us a cost of sales off 20,000 which will seize is a lot less than the above example, and this Jesus was a gross profit of £10,000. Now you'll see things like salaries and rent to stay the same and begins attracting these from £10,000 of gross profit Jesus with a net profit of £2000 so you can see ah, while things like profit percentages remain the same, the absolute numbers differ or reduced, resulting in lower in a lower gross profit. Unfortunately, the celery and rain costs remain the same, and this means that the business is now effectively £10,000 worse off. So you can see that it's very important to understand the difference between fixed and variable costs. Imagine in another example, you sold zero items. You'd have zero sales, but you don't serve zero cost of sales profit of zero. But you still have to pay salaries of 5000 s allusion. Rent off 3000 and £5000 which is gonna leave you in a bad position. So for this reason, it's important that you use both percentages and the absolute values when providing ah, financial model, you might ask, Why not just use absolute values? Well, gross profit percentages are very useful when comparing the probability of different products all the same product over time. Net profit percentages are very useful for understanding your return on investment, for example. So in the first example, the business made a 20% return on its investment. So that is the 12,000 gross profit. I sorry the 12,000 net profit divided by the 60,000 driven you and he. For instance. The costs were very high in the business and you, for instance, salaries and and and rent were very high. You might have any made, ah profit off, say, £600. This would mean your net profit percentage would be reduced to 1%. That is £600 divided by the £60,000. The business would probably have been better off just taking the £60,000 putting it in the bank savings account where it might attract, say, a one or 2% interest rates. Profit is discussed a little more in the in the next section 9. Module 5b - The Economics of the Business Part 2: about profit, durability and and and profit potential. So, as we mentioned in the previous section that an annex of the market and your business do change over time, when should consider how these changes will impact the business's ability to generate profit and how sustainable this profit mark be? Take the example of L. E. D's or the sort of lighting that we're starting to use in everyday situations in both the homes and offices. If your business is one that important, sells a new type of L E D lighting. For example, Um, this is a failing new technology, and as of yet, it doesn't have that many adopters. This, in the way, is down to it being a new technology, and many consumers don't want to be the first to try it out. Another reason is that prices are high, and as a business you might make a good gross profit percentage and plan your business and your finances. Based on this, higher profit percentages are high profit percentage. Sorry, however, as this technology matures and the costs come down, more and more customers are going to be demanding the product and more suppliers or competitors and well into the market. This will have a combined effect of reducing your profit margins because you're gonna have to reduce your costs accordingly in in order to compete with these other organizations. And obviously, if you don't factor this into your planning, your business model, your financial model, um, it's no longer going to make sense. You're not going to be able to make the profits that you planned on making. And while it's not possible to predict the future, it is important to understand that they will be. A change in this change will impact your business If you're relying on a new technology to generate your profit, you'll need to plan to sell more units as the profit percentages decline. Or you'll need to plan to supplement your offerings or your products with newer and more profitable products. If your business is built on a product in a declining market, for example, incandescent light bulbs that the old kind of light bulbs and then some of the ones that are still in use, you need to plan to replace these products you sell with something else, something new. Another scenario is that your business may be able to increase its probability as it improves either its manufacturing or business processes. And this can come about in the form of reducing things like waste or improving sales cycles , improving things like office and administration processes. Building and invading this kind of knowledge or intellectual property can become a valued valuable differentiator between you and your competitors. As you can see, there are a number of levels or levers that could be manipulated. And while the future is never certain, you concerned any plan for a number of eventualities and understand again, like I said, which I believe is that you can pull Ah and help maintain that probability. Let's take another look at fixed and variable costs and and how these impact the bigger picture. We touched briefly on these in the previous example or an earlier example when describing her profits should be planned for, and it's important that you consider these and described have been more detail when preparing your business plan. So to recap variable costs of those that go up or down, depending on how much of an atom you sell, fixed costs remain as they there are there, regardless of the amount you sell as a startup or a small or a more established business, The's variable costs are usually less of a concern. Let's face it, selling more of something is a positive thing. It's the fixed costs that can easily sink a business or stop it getting off the ground. Things like expensive and sometimes unnecessary office space, full time employees and loan repayments of good examples of this. And while these costs often necessary when the business grows and has the river in your gross profit to cover them, it's best to try and have weight. Thes expenses will try and keep them as low as possible in in a new business. It's worth noting that your business will require certain inputs, such as administration, meeting spaces and infrastructure. And one should be aware that there are a number of alternatives that you can employ your use to keep these costs as low as possible, either by encouraging them only when your business requires the service or by using them less than you might have originally planned. Examples of this are things like using the virtual office or outsourcing administration and accounting to an individual or organization on a part time or in as required basis when organizations are small, many entrepreneurs for full a number of roles within the business themselves. This could work while if intra paneer has the necessary skills and the Tom. But it's often not scalable. And this will distract the entrepreneurial you, the owner of the business from the more important tasks. So either things like product development or sales or marketing activities, let's take a look at fixed and variable costs in the diagram below. As you can see from this example, the business has got a fixed cost of £1000 per month, and that's illustrated by this line here, and you can see it remains fixed regardless of the amount of items that are sold. So 502,500 cost remains the same. So whether you sell 1000 units or you sell none, this cost remains the same. The triangle above this highlights the variable costs in addition to the fixed costs. For example, if no units is sold, the cost of slow £1000 plus zero, which is the variable bits. But if 3000 units are sold, as you can see, every here, the total cost is £4000 or $4000 and this is made up off the 3000 which is the variable cost and 1000 which is the fixed cost. And these combined make up the mix cost the total cost they've always sometimes referred to as the semi variable costs. The worthwhile exercise to do is to research the car structure off similar businesses in your own industry and understand how fixed and variable costs work within these businesses . Next, let's look to understand the months to break even. So now that your business plan contains a suitable amount of detail describing your plan, revenue, your profit, your costs, you should use these figures to understand how long it will take the business from starting up to reach a break even point. And the break even point is the specific point in time when you or the business is no longer making a loss. That is when the revenue and the costs are equal to each other, specifying the amount off months it'll take the business to reach. This point informs any reader of the business plan, especially banks or money lenders, how long it will take the business to become a viable one. It also assists in determining the level of investment that will need to be made to ensure that the business gets to this point. This is discussed in more detail. In the following section. It's taken a look at an example of a break even analysis. As you can see here, the costs are indicated by the Green Line. So those running over then this might be higher in the beginning because you've got some some high start up costs that they intend to normalize and and, ah, kind of follow more of a flatline after as time goes on and the ribbon use indicated by the red line. As you can see in month, when the costs are higher than the revenue resulting in a loss so you can see here your costs are higher revenues, Laura, and the difference between those two points would be your loss. And again, as as this progresses, you can still see you making a loss until eventually it around about 17 Revenue is the same as as, um as costs, and this is known as your break even point. It's important to note that the break even a point that illustrated above or in this example does not take into account any losses made prior to that point. In the early days of a new business, it's expenses will often eclipses income, meaning that a loss is being made thes month to month losses accumulate over time. As you can see here so month, one man's 234 etcetera, etcetera. These all accumulate, and you should know how long it's gonna take to recover these losses. The loss is a recovered from a point forward in time after the business begins making a profit. So as you can see from man seven or eight, you're gonna start making a profit and those profits are going to accumulate and eventually , ideally, cancel out your losses made over here. So this is gonna happen as you go forward from a point in time making a profit. That is when the income is higher than expenses. As we said, this will accumulate and get off the accumulated lost to the point where the date of 80 0 and after this point, the business will hopefully remain profitable, as well as being in a position to continue accumulating this profit. Obviously, the more profit that can be accumulated to the better as a PSA last the business to birth, absorb any future losses and ultimately pay the prophet or a portion of the prophet to the shareholders on a quarterly or annual basis. Let's take a look at positive at the months to reach positive cash. Right now, it's often said that cash is king or happiness is a positive cash flow. And this is very true, one of the primary reasons for businesses failing his put cash flow. So why is cash flow so important? Well, it's important to differentiate between profitability and cash flow. So up until now, all the examples we've been speaking about have Bean about probability. The probability is being explained previously. So let's start with a simple example to explain cash flow. Imagine you buy an item for £100 you pay your supplier for it, and then you sell it on for £140 meaning you've made £40 profit. Your customer, however, hasn't paid you yet, because you've provided them with a credit facility or credit terms. So while you're in profit by £40. You've got a negative cash flow of £100 until, of course, your customer pays. You repeat this a few times, and suddenly you've got no money in the bank. It'll but it'll be a K when your customers pay you right. Well, maybe not. In the meantime, your business needs cash to continue operating. There's Maurin Venturi to bar and sell for a profit and their expenses and overheads such a celery and rent that need pain, as we've shown in the previous examples. And this is why it's important to always have sufficient Cashel Cashel hand to support your business activities. In addition to customers paying slowly, there are a number of other factors that can type your cash. Some of these are things like holding too much inventory over buying an item and holding it in stock things like deposits and securities. So money you need to fork out when you when you rent a new office, for instance, and have to pay a few months up front, things like pre payments things like discounts you received from your suppliers. But at a later stage, and you have to cover these costs yourself and things like V A t refunds. He's only to be understood and plan for as your business plan needs to explain exactly how much cash well into the business and how it will be. Ah, and how the cash will leave the business. This is done by using a cash flow statement. Um, you know, the cash flow statement should list all the items resulting in cash flowing in, not specifically revenue. Remember to differentiate between money coming into the business, as in actual money and not specifically revenue and all the artoms resulting in cash leaving the business and again, not specifically examples, but things like deposits. It's hatred, Citra and there a number of items to consider. Will all of your sales, for instance, to customers be for cash or will you offer them credit terms? And what will those created terms be? So how long will it take a customer to pay? How long you gonna have to find this fall? How long do you think that will realistically take to collect this money? You know, if you've given your customers 30 days of credit, will they pay within 30 days? And what do you have credit terms with your suppliers. Tease your cash flow. Um, this is a problem with many new businesses that don't have a trading history. Your supplies aren't going to give you any credit facilities, and you're gonna have to pay cash for items. So if the amount of care she is greater than the amount of sorry that amount of cash out is greater than the amount of cash in, then you're gonna end up with a negative cash flow. And this is a good indicator off problems in your business off big problems, actually. Conversely, having more cash flow in than out is a good thing, and this is described as the positive cash flow. Using a monthly cash flow statement, your business plan can illustrated which point the business is projected to reach a positive cash flow. That is when you've got more money coming in than flowing out. And this will be the first month in which you're going to start building up a bit of cash reserve and be in a stronger position. They are. There is an example of a cash flow statement provided in the template that you'll be able to use to construct put this part of your financial plan, and it's important to note that a business that has a constant negative care cash flow will require continual funding from either the shareholders or lending source in order to continue operations. So even if the business is profitable, if it runs out of cash, you're going to need to get some money from elsewhere. So then let's let's restate what we've learned in this module. We've been able to calculate gross profit and operating profits. We're in a position now to understand that profit and profit percentages and how we calculate these. We are now able to start thinking about things like profit potential and your ability. So how we're going to keep making a profit As our business grows and matures, we understand and are able Teoh describe fixed and variable costs. We've been able to demonstrate the months to break even, and we've been able to calculate the months to reach positive cash flow. So I hope this doesn't mean too overwhelming. Take a look at the templates that come with this course, and it will make a lot more sense and see you in the next module 10. Module 6 - Marketing Strategy: in Model six, we're going to be focusing on the marketing strategy, which is very much an outward focus. But off the business or the business plan. Using the well crafted combination off a number of points, we will ensure that you can carefully consider your marketing strategy and how you can put this together in a way that can be easily implemented. This is gonna be made up of what we call the seven p's, and these are product price promotion, place packaging, positioning and people. Don't worry if we just rushed through them now we're going to cover each of these in a little more detail as we go through the content of Module six, as has been highlighted a number of times in the training course. A business plan needs to contain will be built on a number of assumptions, And one of the key assumptions is the revenue that you predict your business will generate by selling products and or services to your customers. It's important to articulate our potential. Customers will become aware of your business and your products and your services and benefits that these products and services will bring to your customers. This is typically described as marketing, and the section will help you describe your marketing plan in more detail earlier on in the course, we describe the high level generic business strategies one off which or a combination of which your business will follow. Your marketing strategy will be largely influenced by this overall business strategy. For example, if you decided to follow any strategy in which you target, for instance, a very particular group of customers or a very specific subject matter, you probably wouldn't decide on a marketing strategy that relied heavily or it'll on TV advertising, but rather one that marketed your products and services to a niche group of potential customers, something like a hobby or a craft magazine. Marketing strategy is made up of a number of components, and these are sometimes referred to is the piece of marketing. Sometimes there are five, and sometimes there were seven, and sometimes they are a different number, depending on which school of thought one follows. For the purposes of this training, we're going to focus on seven because I think this provides a very clear picture off what your marketing strategy and your marketing plan should be. Let's get kicked off with products. This, to a large degree, has already being described in an earlier section off the training. However, it's important to a reiterate product. Features aside, what are the actual benefits that your product or service will provide to your customers? No. Why would your customers choose your product or service over that of your competitors? Is your product or service real Evans? And is it appropriate to the market that you're trying to sell it to secondly price? How will your product or service be priced again? This will be largely dependent on your overall strategy. If you're intending to be a low cost provider, your products and services should be priced accordingly. This is where your market research becomes important in understanding how your competitors of prostate products and the services If, for example, your prices are substantially different from your competitors prices How would you justify this? If your prices are higher, that's the customer received better off to sail service or if the process are lower, is the customer sacrificing anything such as product or service quality? Will you be offering volume discounts? Will you be pricing your products and services differently? for different types of customers. For example, a low cost version that you can sell to home users off your product or a premium cost version, or a higher cost version that you can sell to business users. Also, what will the payback period be for your customers? For example, if your marketing and selling a bread making machine, for instance, after how many loaves of bread will the machine of paid for itself Now, looking at your passing options all your margins large enough to cover distribution and sales costs? Can you cover warranty claims and returns? Can you cover training and servicing costs? And are you still lift with an attractive profit at the end of the day? Promotion promotion is probably the first aspect of marketing that most businesses consider . Sometimes it's the only one that consider, which leaves a huge number of gaps in their marketing strategy. In this section, you'll need to describe how you will promote your product or service, and much of it boils down to who your target market is. Is your product specialist insurance aimed at medical practitioners, for instance, in this case, you want to think about professional journals, conferences and industry events aimed at medical professionals. Will you use things like traditional media such as print, radio and television, or direct mailing? Or will you focus on more of a social media strategy such as Facebook and Twitter? What would you use? A combination of these? Each has its advantages and drawbacks. But for many new and small businesses, cost will be the deciding factor. The power of advocacy and customer referrals. Referrals should not be underestimated either. And this might mean giving away free trials and subscriptions to people like journalists, business leaders, a well respected figures who are representative of your target audience. Because cost is likely to be a factor, it's important to consider free promotions such as such as reviews and public relations write ups in newspapers, magazines and on websites. There are many public relations agencies that will do this for you at a cost, but it's something you can probably do yourself. 0.4 place. Where will you sell your products and services? If you bruise small batches of craft beer, you're probably only salad, local farmers markets or perhaps local pubs. National supermarkets will largely be out of the question will ignore you because of your lack of volume and distribution network. So how would you get this product into Sainsbury's across the county or across the country ? How would you get it into Wal Marts across the county or the country? If you're selling digital products such as E books, there is no limit to where you can sell. So how do you see this changing over time? Do you envisage, for instance, beginning locally and then growing? Having obviously identified your target market earlier, you want to be sure that you're in a position to supply your products and services to your target market. For example, it wouldn't be any good selling a water purification kids targets of developing countries in Africa. If your business was based in Inverness in Scotland and you didn't have the means to get your products to your customers, will you employ your own direct team? Well, you did all. You distribute your product resellers only. How will you select the retailers and distributors that will carry your product packaging? Consider Apple products in the packaging they arrive in. It's an absolute joy to unbox these products, and the customer experience begins a long time before you even use the product. Compare this to a gadget that arrives in a brown, unmarked box. Which do you find most appealing? I think that's an easy answer. This is not to say that plain packaging is bad. If you were producing an own name Ah, supermarket brand or product, you'd want to ensure that the packaging was playing in order to reinforce the no Fels this expensive, then established brands look and feel. If you're selling hot air balloon trips, a new issue, a voucher to customers, how much you do this after having paid £100? Would you just give them a piece of paper? Would you rather provide them with an embossed credit card sized plastic gift card? Describe exactly how your packaging and how your products and services will look when you deliver these to your customers. Next, let's think about positioning. Positioning refers to how your customers perceive their business. Sorry, your business and its products. Are you seen as a well respected organization that supplies high quality goods or you're regarded as a run of the mill supply off commodity goods that that nothing with nothing to choose between you and your competition. How do your position your business in the hearts and minds of your existing and prospective customers? This is crucial, and continual improvement of this positioning is really, really important. Consider, for example, the fierce loyalty of Apple customers who are going to both come back for repeat purchases and be strong advocates of your products. They are going to spread the message, and they're going to be your best salespeople. Talking of people always remember who your marketing and selling to. Even if you're in the business off business to business, it's still the person who makes the purchasing decision, and it's important that your marketing message and brand resonates with people. Remember, it's also the people or agencies that you work for work for you to execute your marketing plan. And as with any area of your business, it's important that you have the right people doing the job. People bond from people using a well crafted combination. Off the above points will ensure that you have a carefully considered marketing strategy that can be effectively implemented. Let's take a look at what we've covered in this chapter or this module, as we've said, you'll be able to effectively design and implement a marketing strategy. If you carefully consider the seven p's thes air products, price promotion, place packaging, positioning and people see you in the next module. 11. Module 7 - Product and Service Development: Model seven is going to focus on the key strategies that you can follow to product development. It's going to give you some important considerations for production service development. And finally, it's gonna end off with a summary of the production service developing life cycle. As we discussed in the profit potential and Durability section, it's important to be away off the fact that both the environment and your customers will change over time. And you need to determine how your business will produce and sell goods and services to these new and evolving customers ongoing basis. For instance, what approach would you take to improving existing products and services, and what approach would you use to develop new products? Will you, for example, employ a product development team, or would you outsource us? Or will it be up to us the founder of the business, to continually develop these products and services? There are a number of approaches that could be taken here. Many organizations are happy to play a copycat role and essentially follow the leaders of a certain market. This, however, can change over time. Consider the example of who I, a Chinese electronics manufacturer operating in the mobile telecommunication space. Many of their products, such as the routers and switches, were designed and bolts to deliver the same features and benefits is one of the market leaders in the space Erickson. Of course, the Huai equipment was priced much lower, and this was attractive to mobile telephone operators who I was happy to take. This follow the leader approach for a number of years. But then, at one point they started introducing a number of features and innovations that were not available in the competitive offerings. These products then became even more attractive for the network operators. There were cheaper and featured bit of benefits. There may be a number of things that drove this innovation, and among them it could be the market leaders dropping their prices to remain competitive. Or in fact, who I improving their ability to innovate as they matured in the market. Needless to say that because the market changes, so does your approach and your strategy need to as well. Other organizations such as Apple are very good innovators and often develop products for which there's no apparent need. They launched these far ahead of the competition, and they create demand for these new innovations. Take a look at the are paired with the often when these launch they had few applications that ran on them. Now there's over half a 1,000,000 applications that are available in the Apple APP store, and the iPad has become indispensable to most users. They're not many businesses and organizations that are able to innovate in this way. Traditional thinking also states that businesses first need to identify a need or their bond, and then they need to satisfy this with some form of offering not Apple in this case, nor Henry Ford. He was another example of this, he once famously stated. If I had us custom is what they wanted, they would have told me a faster horse. Obviously, he proved us wrong, and his ability to innovate led to both the Model T Ford and the beginnings of the modern production line. By and large, the most you strategy to product and service development is the more traditional approach of identifying a market, understanding this market and understanding their needs and desires, seeing where gap exists and then plugging this gap with the relevant product or service. There is, of course, no one size fits all strategy, and you need to understand your businesses strengths your businesses weakness as well as your abilities to craft a strategy that is best suited to the market. You wish to serve in order to help you determine what this this approach should be and how you should approach products and service development. Let's think about the following points. Firstly, you need to review the current status of each year products and services which of these are immediately for sale and which require completing. If there are ones that still need completing one of the steps that you require to complete this development, get these products really do sell to your customers. Does your organization currently have the skills to do this, and can you bring them to market? Are there any gaps that exist? Are there any existing or prospective customers that are helping you in developing your products or services? And if not, is there an opportunity to get some friendly customers involved? Do you anticipate any major problems in this process, and do you have any plans to overcome them? So, do you anticipate a shortage of skills engineers? Is there a shortage of raw materials. And how are you gonna plan to overcome these factors? What would the effect be on your revenue and profitability, or indeed, your overall business plan? If you couldn't complete your new part but your new products and get these to market on time, you need to include any information relating to trademarks or copyrights or any other intellectual property protection that you already have or planning to apply for. This is very important for investors who want to make sure that your business concept, your business idea, your products or services can't easily be copied by competitors and finally, heavy last since any specific technology or any kind of production or design methodology in in in developing your products. Once you've gotten understanding of thes, you can then follow a structured approach to the development of your products and services , and these structured and ordered steps you're going to follow are as follows. Firstly, you need to generate a number of ideas that you think will satisfy the opportunity you've identified. Nothing. You silly at this point s so don't be afraid to come up with crazy ideas. It's the next step where you'll never down these ideas, trying to eliminate any ideas that you don't think a reasonable or achievable. Then take the ones that are left over fully defined. Each of these ideas described how difficult it would be to develop this product or service . Do you or your plan business have the necessary skills to develop this product or service? Ah, you know there's no use in thinking about what it will be great to put a satellite into space. But you know, you only got a couple of software engineers just because you conceptual asses product service for your customers. Try and understand how well it will really suit your market and your customers. Is it something they're really going to buy? Is it really gonna hit a gap or a need that that your customers have Then think about how this product or service will allow and with your broader business objectives, it's for example, take a the situation. If you were a photographer, you might have an opportunity to produce porters off Children in junior school. Uh, the strategic approach to your business, however, might be fashion photography. And how did these two line? How does this new offering fit into your longer term plans. Will bold business will have contribute to it? Will it valued the business? Next, Try and develop your concept as either a prototype for a pile atop service. Try and understand what you minimal viable product is. That is one of the minimum of the core features that your product needs to contain all your service needs to contain before you can deploy it or sell it to a customer. This is very prevalent in the software industry, where, when kind of version one of the product launches, it'll be very basic. But you can get into the customer's hands. You can start generating revenue, and you can start getting some valuable feedback from your customers. Next, you need to test your product or service. Identify a select set of customers who contest this product and give you honest feedback. And this honest feedback is going to enable you to tweak and improve your productive service or worst case scenario. It's gonna prove that there's no requirement fuel for your product, which at least will stop you spending any more money on developing it. Then you need to plan your product launch, go back to your overall plan that is your marketing plan and understand how you'll be promoting this product. How are you going to sell it and how you're gonna be supporting your new product or service ? Think about what your competitors are doing. And is there a possibility that their launch a competitive product or competitive service and beat you to market? What is the worst case scenario here? Finally, you also they need to manage your products and services throughout their life cycle, and you'll need to keep on evaluating how relevant these products and services are for your customers and your prospects in summary. Then we've understood the importance off meeting customer needs as they change. Over time, we learned how we gonna be adapting to changing markets. We've learned what some of the key strategies aren't developing products. We know what the important considerations are for developing these products and services, and finally, we've understood the products and services development life cycle and why it's important 12. Module 8 - The Management Team: in an earlier part of the training. We spoke about people buying from people, and it wasn't always about the products and services, but really about the people and in modulate. We're talking about people, specifically the management team and the importance off understanding who your management team will be or who the key people on stakeholders will be in your in your new business or your organization. This is especially important if you're seeking funding or some sort of investments, because although you might have a good business idea or a good business model or an ongoing concern, your investors or the people that will be learning you money will ultimately be investing in people. And this is what important to cover over the section in the business plan. So at the end of module eight, you should be able to complete the section in your business plan, where you'll be able to define the organizational structure with the key roles and responsibilities within your business. You need to include and be able to describe, the experience of the key management team members and other stakeholders. It's the shareholders or investors in your business, and you should also be able to identify and let's start any advisor, your professional services or support requirements and options that your business may need . A characteristic of start ups and small businesses generally is the flexibility and agility of the business on, like many large Corporates. But this is not to say that there shouldn't be any structure in place. This is important in the business plan because it helps the reader understand how Unwin the decisions and where the decisions will be made. We're responsibility for various functions will reside and, at the most basic level how the business will operate. The section will cover the important details that you will need to define and describe in your business plan. Let's take a look at the organization first. If your business consists of any one person, there's little point in defining an organizational structure right now. But it's important to begin to think about how this will help God you. As the business grows in size and regardless of how many people are employed or you will employ in the early stages of your business, they are stalled a number of key roles that need to be fooled or key tasks and activities that need steak place. And these are things like finance, accounting, operations, marketing, sales, human resources and information technology. Obviously, depending on the size and scale of your business, thes functions will require more or less work. Ah, and these are things that you found out as your business grows it as your business scales. Obviously, a single person take on a number of these roles or a single person and take on more than one role. And in many instances, if you're an intra paneer and it's only you in the business, you're probably full him or you may outsource somewhere. You may seek help for some of them, but generally a lot of small startups rely on on the intra paneer or the key person in the business to fulfill all these roles. It's important to describe who will be responsible for each of these rolls, and there are also a number of alternatives that you could think about instead of doing everything yourself. And these are things like outsourcing, making use of professional services like accounting firms, lawyers and that sort of thing, and also part time employees, especially Yukon, warrants a full time person to fill to fill a role. It's recommended that these functions be structured in a simple way as possible and keep the structures as flat as possible. Hierarchies and convoluted structures hinder both execution of your business plan and strategy, and they also make decision making difficult. The structure could be described using simple Organa Graham. It doesn't need to be complex, and I'm gonna show you an example in the next life over here, you can see ah, very simple example where it's, ah, cooler, the medium size business where you have a CR CR chief executive officer hitting things up. They're assisted by an administration function. And there are a number of people who report into the CEO, the vast president of engineering, the vice president of sales and the vast president of operations. If the organization was a figure in scale to warrant a number of engineers, software developers thes March 15 under the VP of engineering, and similarly you might have a number of people reporting into the sales vice president, and you might have a number of people reporting into the VP of operations. Now, this is just an example to show you what an organizational structure. Mark. Look, you need to understand what's gonna work best for your business, and you need to describe the structure art the best structure for your business in your business plan. Next, you need to talk about who The key business personnel, the key management personnel again to be your business plan should include a short resume or biography of the key management personnel in your business. This includes both the shareholders and the non shareholders. This is not important for you. Is the business plan I don't know, but rather for potential investors or lending agencies who, without any proven financial history, can't make decisions based on ah, the history of the business. Just because you're not being trading, you don't have any credit history, don't have any trading history, and they need to make these decisions based on the credibility of your management team or the people that will be running your business. This is also quite important if you're trying to attract new staff again. Ah, many good good people or talents will be attracted to organizations with a good track record or a good history. If your organization's new and you don't have a track history that you could refer to. You need to bring the level of comfort to people who are thinking about working for you or your organization, and this really comes in the form off the people running your business. Ah, and these are the people that new employees will be reporting into they'll be learning from and working with on a daily basis. So what should the resumes contain? Well, they should contain any previous business experience, especially where its relevance to the management off the company or your new business that you're talking about. And this section should also described which roles that we've identified previously will be fooled by which of the key personnel. So if there's two rules that would only be covered by you, he needs to talk about which those are. If you have a business partner, talk about which rolls your business partner will cover. It's also realistic to think that you might not be able to do everything yourself, and at the same time, you don't want to be employing an army of people that are gonna result in massive overhead costs. The fixed costs that we talked about in the finance module a little earlier, so the experience of the management personnel will determine to a large degree the amount of professional services that your organization might require. Typical services are things like legal finance and accounting services, and some intra panniers will definitely be lacking in business and management experience That will require the assistance off a business or a management consultant over and above legal and finance and accounting services. Legals experience can help you in the formation of your company, although this is generally ease. Do yourself a lot of information you can find online. Some of the online resources that have provided a little earlier will help you do this, but it's also important that you consult your resource is when committing to any contracts , such as master services agreements with customers. It's a good idea to have your legal representative furnish you with a bit of advice to help you in preparing some templates of important documents, like we said, master services agreement or statements of work, letters of intent and those sorts of things and these documents that you can use with your customers, new supplies and an ongoing basis. It's important to note that should any party you doing business with request changes to any of these documents, for instance, of supply. Um Oh, ah, Bank, even that these changes be reviewed by your legal representative equally. Should any party you're doing business with provide you with one of their default templates design. You should probably also vet this or have this checked with your legal representative. Um, even if there's a good level of trust, you just want to make sure that you've got all the stuff sorted out on de anything that you committing to in writing. You do understand. Ah, in totality. The counting services are going to help you accurately record your organization's accounts from an operational perspective. And if you don't have experience in this area, then this is potentially something that you need to get in a constant to help you complete if you do have experience and this is something you might do for yourself. But you need to be very careful that these activities don't attract you from the main purpose for you being in the business, um, or that you're not focusing on the core business, and these sorts of activities and administrative top things fall behind financial grasses will say important to seek unless any of the management team are qualified or experienced enough to to handle the financial matters of the business. This advice smart cover things like company texts paying dividends to shareholders, completing V, A T returns and other top of tax returns. And this is especially important if you're not familiar with the laws off the jurisdiction that you operating ah within or the region within which you're operating. Obviously, these services don't need to be engaged in a full time basis. But it's important to identify and work with third parties that you can trust and that if you and your organization's interests at heart so having identified, who will be providing these services, list them art in your business plan and describe each of them in terms of the high level activities and functions, and then also describe who will be fulfilling those roles just to make sure that you've got every eventuality covered and that you're not leaving any gaps, Ah, or any type of activity or important business process is going well, he's being left on managed, so let's summarize what we've covered in this module. We've looked at defining an organizational structure with key roles and responsibilities. We've noted the importance of describing the experience off key management team members, and we thought about how we martyred into far and appoint advisory or professional support services to help us with. The things were there were not able to do ourselves, either, because we don't have the capacity well, because we don't have the capability See you in the next module. 13. Module 9 - Critical Risks, Assumptions, and Problems: in module non. We're gonna be talking about critical risks, assumptions and problems that you're gonna be listing as part of your business plan. Now, this is not gonna be a sexy of some of the earlier stuff. We've been talking about things like marketing and product development, but these are core things that you need to consider in your business plan. So at the end of this module, you will be in a position to be able to document all the assumptions that are used in the preparation of your business plan and obviously list. These are to add them to your business plan. You're going to be able to identify as many risks as possible related to your new business . And you're going to be in a position to develop the mitigation approach for each of these risks that you attend a farm. So why is this important? Well, as we previously mentioned, there gonna be a number of assumptions that you will have made in the preparation of both the financial aspect and the overall content of your business plan. Many of these will most likely have been documented throughout the business plan, and it's it's really a good idea to take these arts and summarizes in the section off the business plan just as a reminder to both yourself and to readers of your business plan. The assumptions will support the financial plan, which will be documented in the next section. You will also recall from the section titled The Economics of the Business. We talked about examples where we sold 1000 units of AH product based on a sitting cross off £60 a cost price of £40. These are all assumptions, and these are the sorts of things that you would need to start in this in the section. So, hopefully, in the preparation of your business plan, you will have identified these risks and potentially any problems. Um, any good planning will identify any problems with a view to putting some kind of mitigation in place. Teoh either prevent these problems or to have some corrective action if these problems were to occur. If you haven't, then you need to review a plan until you do. Because as we all know, there's no such thing as a perfect plan, and it's important to note that no endeavor is risk cream and it would be really foolish to think that there are no risks involved in establishing and running your own business. Well, no. Even working for an employer on day to day basis brings risks and issues and problems, and this is going to be more amplified when running your own business. So identifying as many risks as possible really allows you to perform a number of actions relevant to this specific risk in order to either prevent this risk from occurring or, if worst case scenario, the risk does occur one of the mitigating actions that you can take to minimize the impact of this risk. So, for example, you might be importing a large number of goods, and you've identified the risk that the exchange rate may change and not in your favor to your mitigation is to Bassem Kind of Ford cover or to pay the supplier upfront. You could also attempt to stop the risk from occurring, and this is probably your first line of defense. I am secondly, for each risk identified, you need to specify a mitigating action that you can take should this risk occur. So in the previous example, you might have chosen to accept the risk and not have taken any Ford cover on the foreign exchange of paid this supplier up front. What are you going to do now to recover from the risk if it comes to fruition? So if you do end up kind of making a loss on on paying in a foreign country currency, what are you going to do? Are you going to cover this with sales from another time of autumn? All you on a borrow money to make up the shortfall? What are you going to do if this risk does happen? If there's risk in fact turns into an issue, Um or, in fact, why would you don't choose to prevent this risk from occurring? Let's consider another example. If, for example, there was instance where you wanted to have a supply of person goods to you, there might be a chance that these goods are going to go missing in the post, um, well become damaged in the post or in the ship. And so what do you options for dealing with us there, In fact, a number of ways that you can choose to manage risks and deal with ease and these are as follows. You can avoid the risk altogether, and this means that you would typically need to change something in your approach. You could choose not to purchase the goods, or you could choose to collect them. Yourself will get them from another supplier or any other member of actions. The first would probably not meet your objectives and the second mark not be feasible. So let's look at another few options that you can do to handle this top of risk. You could reduce the risk. This could be in proactively reducing the possibility of the risk occurring or reducing the impact if it were to a term. So to reduce the risk of damage, you might request additional packaging. Or you might reduce the risk of the products game missing by requesting the supply to split the shipment into, for instance, the next you could look at some kind of fallback action. This is where you effectively take no proactive action, but you plan on wonderful sorry one arm or fullback actions should the products go missing will become damaged. For example, um, you might have chosen allow and alternate supply and have them ready Ah, well, you might have chosen some kind of substitute products that you could sell to your product to your customers. Should your your products become damaged or go missing in the post, the fourth option is to transfer the risk. Well, what does this mean? Well, simply, this is an option that you take on many day to day risks, such as damage to your home and calm. You pay 1/3 party in this case, an insurance company to take on that risk on your behalf. So if your car is involved in an accident or damaged in some other way, the insurance company pays for your car to be repaired or replaced, and in this example, you would simply ensure the posted goods, of course, is a cost to this. And that comes in the form of a monthly or annual insurance premium that you pay next. You could share the risk. This might be an agreement with the Supply M to split the cost of any damaged or missing goods, or to use the insurance example again. It's like a policy on insurance policy with an excess. Should your ship products go damaged, go missing will become damaged, you are liable for the purse first portion of the costs, and the insurance company then picks up the larger portion. The benefit is that your insurance premiums to be lower, but you can incur a cost should. Should the eventual eventuality occur where this risk comes to fruition and your good score missing or they damaged and finally, you can accept the risk. And this is a conscious decision that you make on this conscious decision is to do nothing at all. So you either doing nothing to prevent the risk or you doing nothing to prevent or minimize the impact off. The off the risk you'll deal with the consequences later. Um, if the risk does a coupe, for example, the cost off, ensuring the post of goods is probably higher, we might be higher than the value of the goods. You're not going to go ahead and ensure the good she rather going to take the risk that they go missing or get damaged. It should be noted there that this option is not always an option. For example, when his illegal requirements to hold some kind of insurance, so from the above, it should be clear that there are a number of ways that risks can be managed and led. There's no definitive right or wrong approach. You rather need to make sure that the approach you choose is the one that's right for your level off or your appetite for risk, the level off, off kind of impact you can exhort, absorb financially and even the top of risk itself. So as we sit, for instance, in the previous example, if there's a legal requirement to for full, there are certain things that you need to do and certain of the mitigating options that there won't be an option. Um, there's a risk management template included in in as part of this training course, and this is going to help you in completing the section off the business plan. And it's something that you can use beyond things business plan in the day to day running of your business in suffering. Then what have we learned during this module? Well, we've learned that we are now in a position to document all of the assumptions that we used in the preparation off the business plan. We've been able to identify as many risks it's possible that are associated with these assumptions, and at a minimum, each of shunk assumption should have one risk. And we've been able to develop the mitigation approach for each of these risks that we've identified. Good luck with the section and look forward to see new in the next module. 14. Module 10a - The Financial Plan Part 1: hello and welcome to Module 10 off this training course. This is where we're going to be discussing the financial plan, and the financial plan is a key component of your overall business plan. This is a very important module, but it's fairly long, so we're gonna be split into three key components. This is where we're going to be discussing the profit and loss statement, or the income statements is sometimes called the balance sheet and the cash flow statement . We're going to be covering off a lot of detail here, and some of this may be out of your comfort zone. So if there's any part of this module that that you get confused about, I don't understand. Please feel free to watch the Marshall again or get in contact to ask any specific questions you have about the subject matter. We've touched on the financial aspects of the business plan throughout the preceding modules and sections, but here is really way the rubber meets the road. This is where we bring it all together in the form of a profit and loss statement or income statement. As we've said before, the balance sheet and a cash flow statement, and these statements will be driven by the research that you've done as part of your your business plan and experience based assumptions that have been made. And these will, at a snapshot, give the reader of the business plan understanding off the anticipated financial view off the business. This module is not meant to be a lesson in finance or accounting, but should contain enough detail to enable you to put together a basic set of financial statements or assumptions for the purpose off supporting the business plan. Accounting for the actual numbers in the business does get a little more complicated. And for more gardens on this, please see the section on professional advisers that we talked about previously. Each statement will provide a monthly view for at least the first year. We should provide a monthly view for at least the first year and then an annual year Warren annual view for years 23 and four of your business. Let's take a look at the statements in a little more detail. Obviously, the profit and loss statement so part of this have already been covered primarily in the section that discusses probability and in the section, We're going to bring together the total view of revenue costs and profitability. The profit and loss statement basically explains how much money you've made, what your expenses have bean and how much money is left afterwards. The profit and loss statement is split into a number of key sections. Firstly, we're gonna look at revenue. And while it's acceptable to lump all of your anticipated revenue into a single figure, it's often good practice to break this down into a number of lines. It's not expected that this beard product or skew level, but you can usually do the sort of slightly higher grouping. For instance, the revenue section might contain a lot of revenue from product sales, and another line of revenue from services or from consulting income such as interest earned should not be included in the section. And, ah, this should be detailed on its own. Ah, a little bit later. Don't worry about the some of the detail, because I will be showing examples off a profit and loss statement. Ah, later on in this module, next comes cost of sales. This is where you calculate the in constant Sorry, the the anticipated costs directly attributable to the products that you plan on selling again. This is what we've covered off in the previous section the economics of the business. And, um, this is important, as unsold inventories accounted for elsewhere and including unsold inventory here would distort the anticipated probability figures. So be really careful. Make sure that you only account for the stuff in the section that you actually sell. Stuff that you don't sell will get dealt with a little bit later, and we will cover that. The cost of sales figure is generally the amount that you will pay your supplier for the goods or the cost of the raw materials and direct labour to produce these goods. The cost incurred to get the goods to the place of sale should also be included. So you know any kind of shipping costs to your warehouse should also be included. At this point, the cost of shipping goods to the customer is not part of the cost of sales. Sometimes this is accounted for separately or it's covered by the customer themselves. Next gross margin of profit and this is simply the difference between the revenue and the cost of sales and for the purposes of a profit and loss statement, this should be expressed as an absolute amount. Percentage calculation, as we explained earlier in this training, um, can also be included below the absolute amount. And again, you'll see this in the example of a little bit later. Operating expenses. The operating expenses section should not detail all the plan costs to be incurred in the operation of your business, So examples of these costs are things like advertising bad debt rated written off. AH, plan to be written off because this will happen. Bank charges depreciation costs of atoms such as computer equipment and furniture. Um, and things like insurance, meals and entertainment. Office expenses offer supplies, salaries and wages, professional fees, rent, telephone expenses, training and development expenses, travel costs, utilities, vehicles and computer and Internet costs. All these costs should be added up to specify your total anticipated operating expense. Please note that Thea parading expenses do directly influence the amount of profit and hence the corporation tax paid on the profits. So due to different tax authorities, expenses are dealt with in different ways, so things like entertainments and and interest expenses are accounted for differently in different text jurisdictions or countries. So it's best to check with your local tax authority or an accountant to best understand how you actually account for these sorts of things. Ah, let's take a look at their profit next, and this is net profit before tax. Calculating your net profit is now quite straightforward, and this is done by simply subtracting your operating expenses from the previous point from your gross profit or gross margin. Next comes text would be silly not to talk about this. And as with anything, success comes with a price. In this case, income tax company tax is payable on company profits, and it's important that you plan for this. The flips out of this is also true. If there no profits anticipated, then company taxes obviously not payable. And in some instances, a loss amount can be carried forward to the next year and netted off against any profit declared for that year before taxes payable again. As we've said, company tax laws do vary widely by country and in some instances by state, and I recommend that you perform the necessary research or employ the services of a tax specialist When you get to this topic. Next is net profit, and this comes off the tax or the portion of their profit off stacks anyway. So once your company tax amounts being calculated, this amount can then be subtracted from unit profit to provide your net texts. Sorry, unit profit after tax, and this is generally the amount that can be distributed to shareholders of the company. Your models of Wonder plan on retaining some of this money. Or in fact, you might want to retain all of it to help you fund and grow the company in the coming year . Uh, or the coming years, depending on your local tax authority, second re text might be payable, and this is payable on dividends that you make to shareholders. Ah, sometimes the company is responsible for paying this to the tax authorities, and sometimes the shareholder is responsible for paying this again. Please check with your local tax authority or chick with a taxation specialist, right? Let's take a look at a profit and loss statement example. So here we can see. This is for the year ending the 31st of March 2016 and you can see we've broken revenue down into a number of lines in the example that we used earlier on in the training. Ah, where we started looking at the economics of the business. We simply loved this into 11 turtle. And here you can see we're looking at the example off a virtual offices or an office rental company. Would they have a number, ah, number of lines of revenue? So, for instance, they make revenue from short term leases. They make money from pre paid services, and they make money from ad hoc services. This gives them, in this example, air total revenue of £425,000 or dollars, whichever you prefer. Next, there's a cost that is directly associated with the generation of this revenue. This example. It's £160,000 in 800 subtracting this from the 425,000. Give us the gross margin off 264,200. Looking at a gross margin calculation again, we can express this is the percentage. Next we need to start looking at the operating expenses, and this is what we used in the example. Things like advertising bad debt. Ben charges, depreciation of computer equipment, depreciation, office furniture, insurance, meals and in statement, office expenses, office supplies and the list goes on. You can see all of these operating expenses come up to £131,000 and in order to then calculate your net profit before texts, you take the 264,000 subject 131,000 and this gives you a net profit of 133,000. Now I've done it sample calculation on texts. In this example, the text payable is £46,000 and this leaves us with the net income after tax of £86,000.504 Expressing this is a percentage we could look at the net profit before tax, which is 31.31% more than that profit after tax, which is 20.35 Typically, this amount is the month that you would distribute to your shareholders, or you would retain going into the ah in advance to help grow your business. So it the profit and loss statement is fairly simple again, it builds on the basics that we've talked about in the economics of the business trading section, and here we've expressed it in a little more detail. 15. Module 10b - The Financial Plan Part 2: Let's move on and take a look at the balance sheet. The balance sheet is a little trickier to complete because when compared to the PML, the profit and loss statement, um A. There's some kind of balancing involved, and it was so good. It's really a good checkpoint to ensure that everything has been accounted for, because if you missed something, the two sides of the balance sheets are not going to balance. So the balance sheet, in essence, details all of the company's assets, which are the things that it owns. All the companies liabilities, which are all the things that owes to others, and the equity, which is essentially what's left. After all, the assets have been sold, outstanding monies collected and all debts paid off. Obviously, this kind of worst case scenario, it's important to break the balance. She done apologies. It's and it's not important to break the balance sheet down on a monthly basis, but it should be projected forward for at least four years. Let's take a look at the components of the balance sheet. Firstly, there are current assets. These are any type of assets over either cash or things that are easily converted to cash. So for the purposes, off business planning, current essence will generally be any money that's held as cash on hand. So, like petty cash money you have in the bank or accounts receivable. Which is the money, your customers, your debtors? Oh, you. It's important to consider whether or not you'll be providing credit to customers and carrying this credit for a newly established company, because this can be challenging. But again, we've spoken about. This isn't in an earlier example. This is particularly the case when dealing with larger organizations, especially retailers, who expects up to 60 days of credit when purchasing your products and services. Ideally, you want to minimize the the demands credit sales in favor of cash sales. But of course, this is not always possible. Just remember the key difference between probability and and cash flow. And again, this is where we contrast the differences between the income statement or profit and loss statement and the balance sheet. Next is fixed assets, um, so these are also assets. But the differences here that there are less easy to convert into cash, and these are things like property and land motor vehicles manufacturing equipment and computers. Each s a top has got a limited lifetime, and this means that the asset value should reduce overtime. This is indicated by depreciation, and the accumulated depreciation should be subtracted from the asset purchase process to indicate the current value of the assets as presented on the balance sheet. So when starting up a business, it's advisable to keep the fixed asset component to a minimum, because this ultimately means that you're gonna have a big cash outflow to pay for these assets. And the more essence you have, the bigger expense you're gonna have on your your profit and loss statement in the terms off in terms of depreciation expenses, so do avoid unnecessary offered office equipment and gadgets. Total assets. This is simply the total of your current assets is we've spoken about and the fixed assets together, and these this is presented in a single on on the balance sheet. This now completes one side of the balance sheet and in the next section will deal with how we get to the other side of the balance sheet. In effect, the previous section describes the asks that you plan to have for use in the business, and the next section will describe how those essence are going to be used in the business. So looking at the other side of the balance sheet, the start off with current liabilities. These are typically liabilities things that you or others that the organization will be obliged to pay off in the short term and the things like bank overdrafts, accounts payable more money. You owe suppliers dividends payable, which is money you owe shareholders and payroll liabilities. So things like your upcoming month and payroll or money that you're putting aside to pay for paid leave some of these current liabilities mark will be applicable, but it's important to consider them for planning purposes. Next, let's look at long term liabilities, and these are liabilities that the organization will be obliged to pay off either over the longer term order, more distant time in the future. These are things like mortgages or bonds on property, long term bank loans and longer term product warranties. So, for instance, if you're selling a house, if you built a house and this is a 10 year warranty on it, you're gonna need to put some money aside to cover any kind of claims against, you know, put building quality and those sorts of things. Next is the total liabilities line, and this is simply the some of the current and long term liabilities. Next on the balance sheet comes retained earnings, and you'll remember that when we talked about net profit in the previous section, we spoke about either distributing the profits to shareholders in the form of dividends or the second re option was retaining. This is an amount to fund the business, so any net profit that you're planning on retaining from a current year should be carried forward from the profit and loss statement and added to any retained earnings from previous years and stated in this line of the balance sheet. Next comes common stock owners equity and when starting a business that shareholders will no doubt contributed an amount of money to the business to get it up and running. And this is the same as alone. But it indicates the owners investment in the business, and this amount should be listed here it Martin and any b the founder of the business. But it might be also shareholders. The contribute money and this is where you can list this. Find the equity or total shareholders equity, and this is what is left when you subtract the total liabilities from the turtle assets. Anything above Sierra means the organization will be solvent, which is good. And anything below zero is bad, because this means the organization will be technically insolvent and unable to pay all of its bulls. So calculating the equities done simply by adding the retained earnings to the equity. Finally, then total liabilities and equity is just as it is. This is a total liabilities added to the equity. So once these two sides have been completed, the total assets should equal the total liabilities and equity. Always. If this is not the case, then there's a miscalculation somewhere on Milan and the best best start reconciling this is by ensuring that the retained earnings figure that you've carried forward from the profit and loss statement is indeed correct. So you need to make sure, ultimately, that you revenue and your expenses are correct and what's left at the end of the P and L statement the But that's carried forward. This is probably the, but that's incorrect. So I think this is gonna become a little bit more clear when we look at the example. So here we go again. We've got a balance sheet for the year ending 31 March 2016 and, ah, at the high level, we've got our assets listed. So we talked about current assets are cash in hand and our accounts receivable. This is the money that customers are s. This gives us total current assets off 374,000. Next we add on our computers. So in this example, we've paid £49,000 or dollars for our computers. And over the last few years, as we've appreciated thes assets, they're reduced in value by 16,000. The same holds truthful office furniture. Um, we've got a figure off 249,000 and accumulated depreciation off £49,000 or dollars. Ah, and this typically looks like a figure of around 20% which means we will, over a period of five years, appreciate this values zero, and this will ultimately increase. So a total fixed assets, which is the computers minus the accumulated appreciation plus the office furniture minus this accumulated depreciation gives us a figure of 232,000. We then add this to the total current assets, and this gives us total assets of 607,000 and this forms with one side of the balance sheet . Now let's look at the other side on the other side. We started with the liabilities, and first we consider our current liabilities. Well, let's start accounts payable, which is the money we air to our suppliers with a stud. Any other liabilities? And this might be money we owe to the bank for an interest payment. Um, or it could be money we owe to the local municipality for utilities, adding, these two together give us a current liability figure off $16,000 or pounds. Next, we consider a long term liabilities. So in this instance, this might be a mortgage or longer term loan that's payable over five or 10 years. This is 20,000 in this example. We add this to the 16,000 and this gives us a total are liabilities of £36,000 of $36,000 . Finally, we look at the equity section and here we have retained earnings and this retained earnings will be the number that's carried over from the profitable. A statement of income statement in the previous section. And then we have a number which details the owner's equity, and this will either be the initial investment that the owners arrayed in the company. Or that might be any profit that's retained from previous years, or it might be a combination of the two. Adding, These two together gives us a total equity figure of £570,000 of dollars to this. Then we add a total liabilities, and this gives us £607,000 of dollars. Now, this number over here, the total liabilities and equity must always equal to this total assets figure here If it doesn't. As you said, there's a problem somewhere long. Lon Ah, it's typically in these numbers where these air carried forward from the profit and loss statement, and that's the first place to start looking. This is usually less of an issue when you're planning because the numbers are all off your creation, it becomes more complex when you running your business on a day to day basis and you having to account for the actual occurrences in your business. And this is way some way, like in the constant or someone like an accountant. A council can help. You saw these sorts of issues art. This is just from a planning perspective, and it's typically fairly easy to plan out. 16. Module 10c - The Financial Plan Part 3: Finally, let's look at the cash flow statement so we have a number of times reinforced the importance off. The difference between probability and cash flow on the way that cash flows in and out of the business is illustrated in the section. It's extremely important and I cant iterated how important? Because we've spoken about a number of times to understand how much cash the business might have on a month to month basis. So why is this important? Because this is the cash that's needed to operate the business at the risk off seeming were boasts. Many profitable business businesses have ceased to exist because of poor cash flow, and the cash flow statement should be projected for a least a year in advance. And this needs to be broken down by months. This is very valuable because of the last, both potentially investors and you to understand what your cast position is like and how it changes during the year of operation. So let's start looking at the components of a cash flow statement. Firstly, we've got the cash received from ah, our customers, and this is typically the amount of money that the business will physically collect from customers during that period. You need to note that this is not the sales figure or not the revenue figure. And unless all of your sales were for cash, this won't be the same. The amount would typically be made up of cash sales from the current period and outstanding accounts receivables collected from previous periods. So to calculate this amount, you'll need to estimate what percentage of your sales to customers will be in cash. And you'll also need to make an assumption of how long it will take you to collect the money from your customers that have bought things from you on credit terms. Starting businesses or fledgling businesses or small businesses and businesses with a week cash flow need to be very careful here. Selling a large amounts on credit and taking a long time to collect this money will be disastrous for your business. It really will put you out of business. Certain industries, such as the retail industry, are notorious for squeezing their supplies for long payment. Terms often be on 60 days after the sale is made, and in these instances it's up to you to fund the business and carry these expenses, and this is incredibly difficult for a new or a small business. We don't need to look at other cash inflow, and this would include things like interest received or any kind of other cash physically coming into the business. So now that we understand the amount of cash injuring the business, it's time to look at the amount of cash that leaves the business with in that same period. This is things like cash pages applies, and the section in your cash flow statement should contain any expenses that will be paid in cash, either for that specific month, all expenses that you settled from a previous mouth. So where you incurred the actual expense last month. But you've bought something on created and you're paying for this month, you need to include that amount of cash that flows out of the business. So what's important is that you don't count any planned depreciation costs in the section because the appreciation expenses are really just in accounting, book entry and not actual cash. That leaves your business The cash lower implication occurs when the asset is first purchased, purchased and paid for next Is cash paid to employees, and this would be any cash paid in the form of salaries, wages and bonuses. Then cash paid for other operating expenses. And in the section you would cover any cash leaving the business. That's not part of cash pay to suppliers. So this might be things like kind of petty cash used on a day today basis for buying teas and coffees or office supplies, etcetera, etcetera. Next, his interest paid, and this relates specifically to cash amounts paid in the form of interest, and these should be listed here. This could be things like interest paid on overdrafts. Well, mortgages Ah, and long term and short term loans. Then finally, income Texas paid. And this is the section where you specify any cash that flows out of the business that's used to pay income taxes in any form. So now that we have a summary off the total cash leaving the business, we can calculate our cash balance at the end of the month. This is a simple is taking the months opening balance, adding to that the cash that flows in and then subtracting the cash that flows art, and this is going to give us our closing position at the end of the month or effectively the amount of cash that we have on hand. This amount is then carried forward to the next month, and it becomes the opening balance for the next month, and so it goes on a month to month basis. So analyzing the cash flow statement this is going to allow you is the business owner to effectively understand where your business mart face negative cash flow, negative cash flow is where you got more going out than you got coming in. And when the business is likely to need funding, it's much better to know this a few months in advance rather than trying to sort your cash lot when it stops. Let's take a look at the cash flow statement now. And while we've covered love detail, it's a little simpler when when you see it up on the on the screen here, and it shouldn't be difficult to understand it all again. We're looking at the cash flow statement, and this is for the year ending the 31st of March 2016. We're looking at cash flows that are coming into the business now in the first line, we've got our operating income. So this is the money that we have coming into the business. We've added back our depreciation expense because remember, this is not real money flowing out the business that the money for your assets left the business when you bought them one year, two year, three years ago. So we taking the depreciation expense, Artem from the profit and loss statements and adding it back here. If we had lost any money on the sale of equipment or gained any money on the sale of land, for instance, we march ah include them either add there will subtract them here. Then we need to look at the increase in accounts payable. So this means that we effectively, um oh, are cast out supplies more than we did in the previous period. So this has a cash flow implication, either in the sense that there's a negative or positive impact. So, for example, at the beginning of the year, if we order suppliers £10,000 and at the end of the year, we only other £8000 were effectively I had £2000 flowing out the business. So this is the difference between those two. The same is true for the decreasing accounts payable. So, for instance, if it the beginning of the year we had £20,000.0 to us by customers and at the end of the year, we only have £10,000 owing to ask. That means we received £10,000 coming into the business. And this is what we need to start in the section adding these all up gives us in this case , subjecting these figures gives us the net cash flow from operating activities off £79,000 or $79,000. Next, we need to look at the cash flowing in from investing activities. And this is typically things like our money that we make from the sale of equipment, the sale of land and money we pay out for the purchase of equipment, and in this case, you can see we've had a net cash flow out. So that means we've we've paid 9700 dollars or pounds out. Next, we need to look at cash flows from financing activities. So if we pay the defendant's dividends art, what was the cash flying out um uh, have we made in the interest payments in this case, we have. So another £458 or dollars have flowed out the business here on that changing cash simply then, the difference between, um this figure, we subtract this figure, subtracted this figure, and this means we have had a positive change in £69,000 or dollars, which means our cash flow has grown, uh, or our cash balances grown. Ah, and this is reflected by the opening cash balance at the beginning of the year, which was only £7000 of dollars. Add this to the 69,000 negative eight that came in, and we have a closing cash balance off £76,000 of dollars. Um, when we look at this cash flow statement in the next period are opening cash balance will be the £76,000 dollars, and we would need to apply this whole logic again to understand what our cash flow would look like for that period. So, in summary, a number of examples have been provided in this section. Ah, To illustrate the concept off off the profit and loss statement the balance sheet in the cash flow statement. Don't worry again. There are detailed templates as part of this training course that they're going to help you put this all together. Um, it's important to note that the combination off the profit and loss statement or income statement, the balance sheet and the cash list happened really provided an effective tool to help the entrepreneur manage their business. And while these are merely informed forecasts, having a dear of what the immediate future may bring is much better than having no idea at all. 17. Module 11a - Proposed Company Offering Part 1: hello and welcome to Module 11 the last in this video training series on creating your business plan in this module, we're gonna be talking about putting together a company offering or proposed offering, and this is really what you'll be offering up to potentially investors of your business. And while ah, primary audience off this module, Arthur's entrepreneurs who are looking to gain investment in their business there's a lot of value for other entrepreneurs or owners of businesses in going through the content of this module, which is going to validate a lot of the thinking and a lot of the key bits of the business plan. So, um, no matter what your intent is in terms of the business plan, stick with us through this module, there's going to be a lot of value in it. And while the business plan fulfils a number off purposes such as helping business owners plan and manage progress against that plan, it also sometimes serves as a vehicle to communicate what this business is about to potential partners and employees. And in this section, we gonna as we said, target the sit in tripping is who will be seeking finance and or investment for their business. The section brings together a number of critical aspect discussed throughout the plan of the planning process, and it lays out to the potential investor what you're looking for in an investment and what the investor will be getting in return. This is gonna be described in more detail in the following three sections, and you see these as we go along. So first, the what is the desired financing and use of the funds. So through the business and financial planning that you've undertaken, you should be in a position to explain exactly one how much money the business requires or you how much money you're seeking as an investment two. Over which period this funding or investment is required. So, for instance, do you need the road once, or do you need that certain points in the future? Will you be drawing down or drawing off against a certain commitment from an investor? And finally, what the funding investment will be used for? So will you be using this investment upfront to fund the purchase of equipment and stock or inventory? What would you be using the investment to found marketing activities or you're gonna be using it to ease Kashmir problems in future periods where you've anticipated. Ah, problem. Any investor Wallenda will evaluate the above against the business plan as well as the included financial projections, and then really consider this against their risk and possible return on investment or, in fact, the potential of them getting repaid the loan. Obviously, each lender where investor is gonna have different levels of acceptable risk as well as a number of criteria that they would judge against the aim of the section is not to provide deep insight into all of these. However, there are a few atoms that you should keep in mind when you are seeking an investment in your business. First, the investors and lenders will want to know how much of your own money you put into the business or will be investing in the business. They will typically avoid any funding situation where you've made no capital contribution or where your contribution is disproportionate. Today's obviously it means if you're not investing in your own business, watch today. Uh, it appears as though you're not believing in your own business. In a similar vein, investors will be more comfortable investing where other investors have also invested in terms of safety in numbers and that sort of thing, and any such investments that you were really gotten should be clearly highlighted in the section of the business plan. Investors will generally steer clear of scenarios where the investment will be used to fund short term or non sustainable activities, such as paying first month salaries or other other expenses that are that are not sustainable. They'll avoid situations where investment or funding will be used to service debt, so to pay off existing loans. This is something they don't like. Investors will definitely avoid businesses that are not solvent or have very poor balance sheet. They'll really be France and off by poorly constructed, inaccurate or incomplete business plans. Ah, and this includes the financial plan that is part of your business plan. They'll definitely steer clear of any lenders. Ah, sorry. Lenders will steer clear off any instances where funding will be used to reward or to pay the shareholders. Investors will want to understand the sustainability or the growth momentum off the business, and it should be made very clear how the investment will use to achieve this. And finally, many investors will want to understand what the exit strategy is so essentially, how they'll recoup their investment and then move on to other investments. Investors don't want to be a shareholder or invest in your company for on indefinite amount of time. They really wanted how they're going to get their money back with a bit of a reward, as in some kind of interest, etcetera, etcetera, and how they're going to be moving on from there to further investor money and other businesses. Let's start this off by looking at the offering, and they were primarily to funding mechanisms. And in either case is an investor or lender is going to be providing funding to you. They're gonna be looking for something in return. So one of the two G ones. Firstly, you confined your business from a lander such as a bank and secondly, from an investor. And there is a key difference between these two. Are we going to be covering the these off? Uh, in this in this bit of the of the module. So first, let's look at funding from a Linda. So this is where you'd seek funding from Landis, such as a bank or a development corporation, And the return here for the lender is obviously a repairman for repayment of the loan, plus some interest. As we said in the previous example, and it's important to note in this instance that you'll be not giving. You will not be giving away any equity or any ownership of your company. In return for that money, however, the lender would want to make sure that there's a very hard chance of them getting their money back. And this is typically done by securing the loan against an asset or assets of the business , for instance, a building or plants and equipment. And if you fell back, if you fail to pay back the loan, yes, it under consideration becomes this. And this is much the same as the mortgage works. If you've got a mortgage in your house, it's the same kind of principle. If I ever the business does not have any assets that meet the necessary criteria. Ah, typically, then the shareholders of the business will be asked to provide personal surety. This means securing the loan against your personal assets, such as your home and this sort of scenario needs to be very, very carefully considered because it's one of the key reasons for establishing a company as a separate legal entity to separate your business and personal matters and affairs. If your company fells, you don't want your personal financial matters ruin to. It's really a Catch 22 situation, though, because without providing personal security, you probably weren't secure the loan the next or the second mechanism. Ah ah is way. In return for funding, an investor receives a portion of your company, and this has advantages and disadvantages. It means that you don't necessarily need to risk any of the company or your personal assets , and you generally also don't need to pay this funding back. However, it does mean that you give a portion of your company and the investor is entitled to receive dividends. Ah, based on the amount of shares they hold. The investor might have a say in how your company's run, depending on the amount of their investment, and the investable will definitely want an exit plan where they can sell their percentage ownership to realize a good return on their investments. And if the business is successful, the investor made profit handsomely and make a lot more money than the bank might have made if they'd say, loaned, you loaned you the money for it for an interest rate. So the amount that investor would find the share of the business they might want in return are closely related. And you need to start considering this when you put together the probe proposed offering. So if, for instance, your requesting £100,000 investment and you offering the investor 10% shareholding in return, this means that you value valuing your your business at a £1,000,000. And that's really, um, 10% costs 100,000. Multiply that by 10 to get 100% and you end up with, AH, £1,000,000 valuation. And investor will compare this to your organization's financial health to determine if this is indeed a realistic value and a rule of thumb here. Ah, that you can apply is taking your revenue and multiplying this by some fixed kind of multiply. Um, to be able to check the kind evaluation that you're asking for is realistic, and the small supply will vary by industry and admired also apply to elements other than revenue. So, for example, net profit as a very rough rule of thumb. You can apply a multiplier of between one and 1.5 to the annual revenue of your company, so using the above example, the company would need to have an annual revenue of between one million and £667,000 to really substantiate evaluation of ah a £1,000,000. They're also more accurate ways of determine determining evaluation. And these do also differ between types of businesses, such a services business or a retail business. Valuing a business is a massive topic on its own. So in addition to the rule of thumb approach, there also a number of ways that that your business can be valued and some of these examples are as follows. Firstly, you can value your business by the value of its assets, taking into consideration the top of assets and any liabilities that might exist in the business and knitting the liabilities off against the assets to end up with a net value. Secondly, you can do this by looking at the price to earnings ratio or essentially the value of the business divided by other profits after tax. This is very often used in ah, valuing companies on the stock exchange. Next, you can look at the cost to start your business or a similar one from scratch and and see how the stacks up against evaluation. And you could also look at what the value of profits paid out as dividends over the period of the last 15 years. Again, if you're a new company or a start up, this might be a bit of a challenge. And then, finally, you can use a combination of these methods to try and gain a kind of valuation of your company. Of course, this leads to a bit of a conundrum when you're pitching to a new business of that, any financial performance history. So some investors might walk away from this. But if the company is attractive enough and shows true promise or financial performance, and a very strong business plan that supports us and the business plan stacks up, then an investor may consider this as a good investment In this case, though, because the level of risk is pretty high and investor would typically require a larger equity stake than unusual, and you're gonna end up giving away a little more of your company than you might want to. There's also a combination or funding mechanisms available, as we've said so for an example. Ah, we're an investor might reduce the equity stake once the investment has been paid back. Eso this is something you can agree. And, ah, once you've paid back the amount of money they have lent you, they give you back a portion of your business and still retain a small portion. The amount of equity offered should also be carefully considered as this will play a part in the future funding that you might want to acquire or future funding that you might wanna raise. So if, for example, you have an anticipated valuation of the business Ah, and you do you think this is gonna increase before you seek additional funding? You wouldn't necessarily want to give away too high a percentage of the company at this point in Tom. However, if the valuation might decrease and you find yourself giving away more equity to raise the same amount of investments, um, you might end up annoying investors. We now feel that they have paid too much for for the for the equity. So it's a fine balancing act, and you need to be careful about how you plan this out. And also try and understand how many types of funding runs you're going to do. Homage. The money you need to raise over the longer term. Ah, and you know these need to be weighed up against your aspirations for both yourself personally and for your business before you make a choice of the funding mint mechanism in the scenario. Also, it's very advisable to seek irrelevant legal advice when going through this sort of kind of raising funding for your business. 18. Module 11b - Proposed Company Offering Part 2: at the investors return next, and finally then the section should be used to describe the financial return that an investor or lender would get or realize if they were to either lend you money or were to invest in your business. It's fiercely if you're chosen funding sources. An organization like a bank on your founding is received in the form of a loan. The return on investment for the lenders fairly straightforward and this is indicated by an amount of interest payable on the loan expressed its annual percentage the same as you do for a personal loan, a collar and or a mortgage. And this interest rate is generally set by the banks and not that negotiable. So you may also be considering private lenders say, rather than investors as a funding source. And in this instance, you could mutually agree a rate of interest. It would have helped me to be attractive enough for two lender because of the high levels of risk for that. This this investor so, for instance, versus them investing in unit trusts or placing the money on deposit some way, the proposition for an investor can be attractive, especially where you are full cost forecasting profitability early on in the business. The return on investment in this case is easily calculated by considering the forecast that profit the investors investments amount and the percentage of ownership that you're offering a potential investor. So, for example, should your net profit be £50,000 for the year and you plan to distribute This is dividends to the shareholders. With the £25,000 investment and the 10,000 sorry, a 10% ownership, the investor would earn £5000 of that net profit. This is not taking into account any taxes. This is very basic example. This then means that the return on investment would be 20% for that year, which is £5000 divided by the £25,000 multiplied by 100. At this rate, it would take the investor five years to earn the investment back. Potential investors will have their own views on what he's a good return on investment and what is a good payback period. And ideally, you offering should be attractive while remaining realistic any no way jeopardizing your overall interest in the business as discussed earlier in the offering section. They can be a combination of approaches taken Teoh Attract funding on the way in which return on investment is reflected will largely be driven by these type of funding mechanisms. Investors Exit strategy. Why is this important? Why do you need to propose an exit strategy? Well, they're two key reasons here. Firstly, potentially, investors will need to have an idea on how they march exit your business in the future should they invest now. And this is generally less of a concern for investors who are lending the money on terms. Ah, as the loan will attract interest, and this should be payable over a certain tomb. However, investors who are making an investment in return for an equity share or an equity stake of the business will need to understand how that equity share can be translated back into money in the future. Ideally, with a good return on investment, this is typically when the business gets sold, will they managed to settle fishes and they gain ah, that value back. Secondly, entrepreneurs love the art of start and will often look to repeat, but they've just achieved in their current business. There are a number of options when it comes to exit strategies and in many ways, thes future options are dependent on the entrepreneur in the individual, in this case, yourself and his or her plans to grow the business easy to land with. Provide options to the likely investor in order for them to realize the return on investment. Many investors playing the exit strategy around the company eventually going public, and this will allow them to sell the equity stake all their shares on the open market. Should the company remain a private one. This becomes a little more difficult as any investors down need to sell the equity stake privately, while the other shareholders and or founders are candidates to buy the stake back. It might not always be possible or affordable, and the investable needs look elsewhere. For potential buyers. The smart don't be attractive for them or to the existing shareholders, and this could lead to a difficult situation. Often, investors will agree to reduce their shareholding over time once their initial investment has been paid back, leaving them with a smaller equity share to help to sell, which becomes a little bit easier. So there's also some other options are available. And what are these well, firstly, they can reduce this year, holding over time. As we've said, that can slowly selloff portions of the shareholding, either to other shareholders or to other private parties. They can consider a merger or acquisition, and this means merging with similar sized company or being bought by another, larger company. It's important to note here that this is not a short term option. And, ah, key personnel will often each stone for a number of years to ensure that they receive the full value of the agreed acquisition process. Provided off course targets. Targets are met in terms of company performance. The business could be sold to an individual group of individuals that have an interest in their business operations and have aspirations to run the business on a day to day basis. And in this way the investors could be paid out, and you could be rewarded with your share of the payoff. Next, the business could be closed down by selling off all the assets and pain off all the debts and hopefully walking away with a nice profit. And while this may sometimes be an option, it won't suit all business models. So, for instance, a consulting business where the assets are really in the people in the customers, rather than any kind of fixed asset, like a factory or or feet of vehicles. Next, you can turn the business into a cash generating source, and as the founder, you remain the owner of the business. But you put a management team in place that can run the business without your involvement. If this is done correctly, you can benefit from the annuity income. An exit plan could be triggered in both good and bad situations, and including the strategy in your business plan shows investors that you're not just starting a hobby business, and you are indeed thinking off the bigger picture on the longer game. So we've covered off quite a bit in this section, and it's quite important that you carefully consider what you're going to lay out in the proposed company offering. If indeed, you are looking to attract investment for your business or interact, attract shareholders, and in doing so, this is what you need to do. As we described in this module, you need to describe exactly what you need from a lender or investment. So what is it that you're asking them for? Are you asking them for a certain amount of money? Are you asking them for both that and some kind of advisory? Top of service. You need to describe what the lender or investor will get in return. So are they going to get a share of the company? What is that portion going to be? Are there going to be able to sell that Shaffer more value in future? You need to explain very carefully how you will be using this funding. You need to understand how to value your company and be able to do this properly and realistically. And then finally, you need to be able to provide and explain an exit strategy for potential investors or in fact, for ah, for yourself as you see the business maturing and you finally moving on, Teoh. Bigger and better things 19. Module 12 - Conclusion: well, that concludes our training on how to conceptualize and construct your business plan. We covered a lot of information in these 11 modules, so thank you for coming on this wonderful journey with me. Let's end off by reminding ourselves what we covered in this course. We have learned seriously the basic tools and approach you'll need to conceptualize and construct a business plan. Secondly, hard to describe your company and the market in which it operates. How to perform your market research and analysis. How to describe the economics of your business. That is, how will the business make money? Next, we learned how to define your marketing strategy. Then we learned how we'd be approaching product and service development. Next, we were in a position to lay out to the management team, and key personnel would be in the business and how the business would be structured. Next, we learned why it was important to identify any risks or problems. And also let's start any dependencies on which we we we relied in the construction off the business plan. Then we learned how to construct a solid financial plan which was made up of a profit and loss statement or income statement, a balance sheet and the cash flow statement. And finally, we learned 200 propose the company offering to potential investors on blenders. Having now worked through all of the modules in sequence, you should not have a good understanding off what you will need to do to complete a high quality and impactful business plan. You may have already started, so please feel free to dip into any of these modules as and when required. Either is a reminder will to garner a deeper level of detail or deeper level of understanding. Please also feel free to contact me with any questions, comments or suggestions, especially when you put in together your business plan. Um, and you need some help. Or, as I've said, if you have any suggestions or ways to improve this course, or for any new courses or material that you would like to see there a number of ways shouldn't get hold of me. Firstly ah, by the forums on this training site. Second Levi on my Web site at www dot contrary to dot com or by dropping me an email on infer at interest to dot com or finally on Twitter at the interrogator. All that remains for me is to wish you good luck with your new business adventure and exciting business adventure, and I really look forward to hearing from you in the future.