Managing Business Finances & Accounting

Does your business accept cash, credit cards and checks? As a business owner, you need to be smart about how you handle these transactions. Learn about how you can manage these transactions.

Accepting Cash Only

Cash is the most commonly accepted and reliable form of payment for a business. Many small businesses operate as "cash only" merchants. Years ago this wouldn't have been uncommon, but with advances in technology, business owners must ask themselves if they're hurting their bottom line by limiting payment options.
If you're thinking about starting a cash only business or if you're considering expanding your current payment options, be aware of the pros and cons of only accepting cash.
Pros of accepting only cash:

·       Cash payments ensure that businesses receive funds immediately. With each transaction, your business immediately receives the appropriate payment amount without the worry of waiting periods or not getting paid at all.

·       Cash is the simplest form of payment and therefore involves less bookkeeping. For a business, that not only means less stress and hassle, but it also may save money in the time and labor it would take for a bookkeeper to record other payments methods.

·       There is limited risk of fraud when accepting cash only. There are cases of counterfeit cash payments, but compared to other payment methods, fraud is much less common in cash transactions.

·       Cash only businesses don't have to worry about third parties or fees associated with other payment options.

Cons of accepting only cash:

·       Customers who do not have enough cash on them will have to walk away from a purchase they would otherwise make.

·       Your business may lose customers by only accepting cash. As card payments become more and more popular, many consumers expect this to be an option when making purchases. If they find that a particular business only accepts cash, they may feel inconvenienced and shop elsewhere.

·       Keeping large sums of cash on your business's premises increases the amount of time you'll spend managing finances and also creates an added security risk.

·       In the US the IRS requires that you file a Form if your business receives more than $10,000 in cash from one buyer as a result of a single transaction or two or more related transactions. The same rule applies to cash equivalents such as traveler's checks, bank drafts, cashier's checks, and money orders.  The form requires the name, address, and Social Security number of the buyer.

The nature of some small businesses may make it smarter to stay cash only. Flea markets, street vendors, and lawn service providers are just a few examples of common cash only small businesses. At the end of the day, you will have to decide which payment options will create the most success for your business.

Accepting Checks

Although credit and debit card payments are on the rise, the expenses and additional record-keeping involved with card payments are not ideal for all businesses. If you want to expand your customer payment options beyond cash but aren't ready to make the leap to card payments, accepting checks is another option to consider. 
To protect the financial health of your business, understand the laws that regulate check payment policies.
Policies for Accepting Checks
If your business accepts personal checks, establish a detailed check acceptance policy to help identify and avoid bad checks. Don't just make a document and file it away--be sure to train your employees on the new policies and post reminders in visible and prominent locations.
Common check policies include variations of these guidelines:

·       Checks must be from a local or in-state bank

·       Checks should not be written and accepted for more than the purchase amount

·       Checks should not be accepted that are starter checks, unnumbered checks, or non-personalized checks

·       Accepted checks should be deposited as quickly as possible. Banks may refuse to honor checks dated back six months or more

Instruct your employees to carefully examine every personal check for information that is essential for cashing the check:

·       Personalization - The customer's complete name and address must appear on the check

·       Date - The check date must be current.  Do not accept post- or future-dated checks

·       Bank I.D. numbers - The check must have a bank identification number, or routing transit number, that runs across the bottom, along with the customer's account number and check number.  This information is used by a bank to identify the transaction and resolve payment issues

·       Payee - The "Pay to the Order of" section must indicate your business's name

·       Dollar amounts - Both the written and numeric amounts must match

·       Customer Signature - The check should be signed in your presence and verified with photo identification

Verifying
Verifying identification can help your business safeguard against fraud.  However, some state laws regulate which forms of identification businesses can require to see.  Depending on your business location, it may be illegal to require customers to show a credit card as a condition for accepting their check.  Commonly accepted forms of identification often include a state-issued driver's license, I.D. card, or military I.D.
Follow these tips when verifying customer identification:

·       Make sure the signature on the customer's identification matches the signature on the customer's check

·       Use discretion when recording personal information like phone numbers, identification numbers and expiration dates

·       Trust your instincts and be on the lookout for suspicious behavior or fraud "red flags." For questionable transactions, call the customer's bank to verify legitimacy of a check

Bounced Checks
What should you do if a check is returned because a customer's account is closed, or has insufficient funds to pay for the transaction? In addition to instituting a check policy, some new businesses are employing the help of electronic check verification companies to identify flagged individuals. For a monthly fee, businesses can compare a customer's name against a databases of individuals that are known to have written bad, stolen or forged checks.
Even with precautionary measures in place, businesses that accept checks may still have a bad check occasionally slip by. If a check fails to clear on your first attempt, your bank will generally attempt a second deposit. In some cases, the customer can quickly resolve the problem by transferring or depositing funds to cover a bounced check. If the issue is not resolved by the customer, you can consult your local law enforcement agency to understand your rights and options. Some states require businesses to mail a registered letter and allow a designated waiting period to lapse before further action is taken.
If the issue remains unresolved, consider filing a suit with a small claims court or employing a collection agency to resolve the payment. Many businesses choose to employ a collection agency to avoid a lengthy and expensive court settlement.
Dissatisfied Customers
Occasionally, you'll find a customer has stopped payment on a check if they believe the products or services bought did not live up to expectations. If this is true, customers may be entitled to a refund or a reduction of the amount owed.

Accepting Credit Cards

Credit and debit cards are popular, convenient, flexible, and have become increasingly important in business commerce. If your business is considering what forms of payment to accept, or if you'd like to expand the payment options of your cash-only business, be sure to go over the pros and cons of accepting card payments.
Pros of Accepting Card Payments:

·       Card payments are evolving into the most common method of customer payment.

·       Businesses can easily accept card payments.

·       The convenience of using credit cards generally increases the likelihood of consumer "impulse purchases," which ultimately contributes to an increase in a business's average sale. Customers are more likely to make these purchases if they have access to credit or their available bank account funds.

Cons of Accepting Card Payments:

·       Card payments come with an increased risk of fraud. Although there are laws and security measures that help protect and secure customer information, card payments are inherently more susceptible to foul play than cash. Read more about your responsibilities to protect your customers' privacy and secure their personal information.

·       Businesses that accept card payments encounter small processing fees for purchase transactions. These fees seem insignificant but they can certainly add up, especially if your business accepts a lot of small purchases on credit cards. Setting up the necessary equipment to accept cards also carries additional costs.

·       Card transactions add another layer of detail to your business's bookkeeping practices. Your business will have to take into account the additional time and resources it takes to maintain these records.

The Bottom Line
Accepting card payments will, at least initially, cost your business money and add extra processes in your daily operations. Many small business owners look at this as a necessary operating expense. As card payments become more popular, customers will likely begin to expect a plastic option as a rule, rather than a courtesy.

Migration to EMV Chip Card Technology and Your Small Business

U.S. credit card companies are making the transition from magnetic stripe technology to cards with chips. Chip cards are payment cards that have an embedded chip, offering increased security when your customers use the chip to pay in store.  Chip cards are based on a global card payment standard called EMV, which stands for Europay, MasterCard and Visa, currently used in more than 80 countries around the world.  The United States is now in the process of making the migration to EMV technology.
In an effort to reduce fraud, EMV Chips are becoming the standard for integrated circuit cards (IC cards), IC card capable point-of-sale terminals, and automated teller machines.   Chip card transactions offer advanced security for in-store payments by making every transaction unique.  Chip cards are also much harder to counterfeit or copy.  If the card data and one-time card are stolen, the information cannot be used to create counterfeit cards and commit fraud.

Extending Credit to Your Customers

By extending credit to your customers, you give them the option to purchase products or services today and pay for them at a later date. When your business accepts credit card payments and personal checks or invoices customers, it is essentially extending credit on the assumption that customers have the funds to pay for the transaction.
When you extend credit to customers through card payments, the credit card company manages the risk. When you extend credit through invoices or personal checks, you are responsible for verifying and accepting payments and managing the risks that come with them.
Extending credit through invoices is common in some industries such as construction or manufacturing, but may not be practical for every business. To decide if extending credit is right for your business, weigh the associated rewards and risks.

·       The option of credit enables customers to focus less on prices, enhances customer relations, and has the potential to generate more sales.

·       Extending credit costs money. When you sell something on credit, you will not have payment on hand and will need to temporarily recoup the cost from other areas of your operating capital.

·       If customers don’t pay, you could be in for a long settlement process that may not end in your favor.

·       Ask yourself if you have a significant business need to extend credit. Extending credit could be the factor that keeps your business afloat if it makes it easier for your customers to buy from you. Nevertheless, if it isn’t necessary it may not be worth the extra time and paperwork.

Establish Credit Practices
Before you extend credit to customers, be sure to establish detailed policies and understand consumer protection laws.

·       Determine to whom you will extend credit such as individual customers or other businesses. Run credit checks on all customers before you agree to extend credit.

·       Develop clear, consistent payment guidelines. Your bills should indicate when payment is due, when it will be considered delinquent, and who to contact with questions.

·       Determine how you will bill or invoice customers. Will you or your employees mail requests for payment yourselves, or will you hire another company to handle invoicing?

·       Create a plan for collecting late or defaulted payments. Regardless of the type of application or documents you use for credit transactions, be sure to get all of your customers' information in writing. In return, provide them with a copy of your payment policy, which spells out how penalties will be applied to late payments and how you will handle unpaid bills. It's important to have this documentation in case a fraudulent or delinquent credit transaction occurs.

Comply With Consumer Credit Laws
If your business extends credit to customers, you should become aware of consumer credit laws. The Federal Trade Commission (FTC) enforces the nation’s consumer protection laws. These laws regulate how you advertise interest rates, how much time you have to respond to billing-mistake claims, how aggressive you can be when attempting to collect a debt, and other aspects of extending credit and debt collections.
Dealing With Bankrupt Customers and Collecting Debt
What happens when a customer refuses to pay a bill? When you've gone beyond adding late penalties and you still haven't seen any payment, check with your local consumer protection agency to understand your options and state laws. This information will help you decide if you should report these actions to the police, employ a collection agency, or attempt to settle the payment by other means. Depending on your local laws and the severity of the delinquent transactions, it may be cheaper to simply swallow the debt.
You may find yourself in a situation where a customer to whom you've extended credit declares bankruptcy. In this instance, the debtor then has the benefit of an automatic stay immediately upon filing a bankruptcy petition. This stay stops you from taking any further action of trying to collect the debt unless or until the bankruptcy court decides otherwise.
If a money judgment is awarded to you in court, further action may still be needed to receive payment. Such action may include contacting the defendant, or in some cases, providing information about the defendant to a law enforcement officer so that they can assist you in collecting the debt.
The best way to solve these situations is by preventing them from happening through strict credit policies and by conducting appropriate evaluations of credit risks before extending any credit.
Mechanics' Liens
Mechanics' and materialmen's liens have specific regulations that apply to their industries in cases where credited customers fail to make their payments. Liens exist in most states to provide special collection rights to those who provide services or building materials used to improve real property. If the debt is not paid, the lien can be foreclosed and the property sold to pay the obligation. For more information on the specific laws that govern these debts, visit your state's Department of Consumer Affairs or Protection.

Online Payment Services

Online payment services allow business and consumers to exchange money electronically over the Internet. With an online payment service, your business can receive payment from virtually any customer with an email account. Online payment services have recently become very popular with businesses and consumers.
Advantages of Online Payment Services
Online payment services can either replace or supplement your decision to accept credit and debit cards. Opening an online payment account is often faster and easier than setting up a Merchant Account (which is required to accept credit and debit card payments). Online payment accounts typically incur smaller fees than a traditional Merchant Account, which can have a big impact on businesses with many small transactions. From a customer-service perspective, it's beneficial to have multiple payment options available. Online payment services are also user-friendly and can simplify the payment process by storing customer card information or billing customers at a later date.
Disadvantages of Online Payment Services
As with all payment methods, online payment services have their drawbacks. Most of these services redirect customers to a payment service website to complete a transaction. Being forced to leave your business's website can be confusing for customers - especially those new to online shopping - and could make them abandon a purchase they may have otherwise made.
Your business may not get enough value out of offering both an online payment service and accepting card payments. On the other hand, limited payment options may turn some customers away. Finding the right balance of payment options is something that is unique for every business.
Security Concerns
Major providers of online payment services have developed features like two-factor authentication to help businesses enhance e-commerce security. Two-factor authentication requires businesses to enter a six-digit code in addition to their password, making third-party scams rare. As e-commerce becomes more popular, security features will continue to evolve. Be sure to research service provider plans for the most current security technology.
Shopping Cart Services
Online payment services require a virtual shopping cart. Virtual shopping carts allow businesses to accept orders on multiple products from their website. A shopping cart can calculate the total, tax, and shipping costs of an order, in addition to collecting customer account and shipping information.
Some online payment service providers offer free shopping cart services to businesses. If your online payment service does not provide a free, secure shopping cart option, third-party shopping cart services can be used.
Managing Your Business Credit

2.     Establish a business credit history. When they are starting up, many small businesses use their personal credit and finances to get their
business going. But they should establish a credit history by putting expenses (such as a business phone line) in their business name and using a commercial bank account to pay their bills.

3.     Pay bills on time – and understand other factors that influence your credit rating. In order to improve your commercial credit scores
and build a positive payment history, the most important thing to do is pay your bills on time. Be very careful not to overextend your business, and use any line of credit judiciously. While payment behavior is important, credit ratings are based on multiple factors. D&B, for example, maintains 150 factors that go into a credit rating, such as industry, revenues and number of employees.

4.     Monitor your business credit file and keep it up to date. According to D&B, the credit score of about one in three businesses declines over just a three-month period. By monitoring your business credit file, you will be aware of any change in your ratings before it affects your relationships with customers, suppliers and financial institutions. You should keep your credit file current and accurate, reflecting changes such as location, number of employees, outstanding suits/liens and revenue - all of which impact your credit rating

5.     Monitor your customers’ and vendors’ credit. Monitoring credit reports that provide a clear and complete picture of the credit standing of your customers can help you to determine how much credit, and on what terms, you should extend

Why small businesses should manage their business credit

Small business owners are entrepreneurs. They are successful because of their ideas, their passion, their drive. But they generally aren’t accountants, and as a result they are often unaware of just how important actively managing business credit is to their success.
Small business owners agree that cash flow management is one of their top concerns.
Actively managing their business credit can help small businesses ensure positive cash flow by:

·       Securing more financing at better terms. Good credit can ensure that small businesses get financing when they need it. According to the SBA, insufficient or delayed financing is the second most common reason for business failure. And, since most loan decisions below $100k are automated, the business credit file will often dictate the amount and terms of a loan. For businesses with poor credit ratings, top national banks may increase credit card interest rates on average from 9% to 18% and loan interest rates on average from 8% to 12%.

·       Ensuring you get needed supplies at affordable terms. Suppliers evaluate your credit and make decisions about how much credit to extend to you – perhaps a $30K credit line could have been $60K with a stronger business credit file. Good business credit can ensure that you get the supplies you need under the best possible terms, freeing up more money for your business.

·       Making smarter credit decisions on your customers. Knowing the credit of customers enables small businesses to provide better terms to creditworthy customers and avoid doing business with customers who pay slowly – both of which can lead to improved cash flow.

·       Protecting yourself against business identity theft. Actively managing your business credit file helps you ensure that fraudulent or incorrect information is not in the file. 15-30% of all commercial credit losses are due to fraudulent activity. It’s important that your business credit file truly reflects how good your credit is, and that you are aware of any inaccuracies and missing data so you can address them promptly.

10 Steps to Setting Up a Payroll System

 

 10 Steps to Setting Up a Payroll System

Whether you have one employee or 50, setting up a payroll system not only streamlines your ability to stay on top of your legal and regulatory responsibilities as an employer, but it can also save you time and help protect you from incurring costly Internal Revenue Service (IRS) penalties.
Here are 10 steps to help you set up a payroll system for your small business.

1. Obtain an Employer Identification Number (EIN). Before hiring employees, you need to get an employment identification number (EIN) from the IRS. The EIN is often referred to as an Employer Tax ID or as Form SS-4. The EIN is necessary for reporting taxes and other documents to the IRS. In addition, the EIN is necessary when reporting information about your employees to state agencies. You can apply for an EIN online or contact the IRS directly.
   
2. Check Whether You Need State/Local IDs. Some state/local governments require businesses to obtain ID numbers in order to process taxes.
   
3. Independent Contractor or Employee – Know the Difference. Be clear on the distinction between an independent contractor and an employee. In legal terms, the line between the two is not always clear and it affects how you withhold income taxes, withhold and pay Social Security and Medicare taxes, and pay unemployment taxes.
   
4. Take Care of Employee Paperwork. New employees must fill out Federal Income Tax Withholding Form W-4. Your employee must complete the form and return it to you so that you can withhold the correct federal income tax from their pay.
   
5. Decide on a Pay Period. You may already have a manual process for this, but setting up a pay-period (whether monthly or bi-monthly) is sometimes determined by state law with most favoring bi-monthly payments. The IRS also requires that you withhold income tax for that time period even if your employee does not work the full period.
   
6. Carefully Document Your Employee Compensation Terms. As you set up payroll, you’ll also want to consider how you handle paid time off (not a legal requirement, but offered by most businesses), how you track employee hours, if and how you pay overtime, and other business variables. Don’t forget that other employee compensation and business deductibles such as health plan premiums and retirement contributions will also need to be deducted from employee paychecks and paid to the appropriate organizations.
   
7. Choosing a Payroll System. Payroll administration requires an acute attention to detail and accuracy, so it’s worth doing some research to understand your options. Start by asking fellow business owners which method they use and if they have any tips for setting up and administering payroll. Typically, your options for managing payroll include in-house or outsourced options. However, regardless of the option you choose, you -- as the employer -- are responsible for reporting and paying of all payroll taxes.
   
8. Running Payroll. Once you have all your forms and information collated, you can start running payroll. Depending on which payroll system you choose, you’ll either enter it yourself or give the information to your accountant.
   
9. Get Record Keeping Savvy. Federal and some state laws require that employers keep certain records for specified periods of time. For example, W-4 forms (on which employees indicate their tax withholding status) must be kept on file for all active employees and for three years after an employee is terminated.  You also need to keep W-2s, copies of filed tax forms, and dates and amounts of all tax deposits.
   
10. Report Payroll Taxes. There are several payroll tax reports that you are required to submit to the appropriate authorities on either a quarterly or annual basis. If you are in any way confused about your obligations, take a look at the IRS's Employer's Tax Guide, which provides some very clear guidance on all federal tax filing requirements. Visit your state tax agency for specific tax filing requirements for employers.
    

Step by Step Guide on How to Write a Winning Business Plan

Write Your Business Plan

A business plan is an essential roadmap for business success. This living document generally projects 3-5 years ahead and outlines the route a company intends to take to grow revenues.

Executive Summary

The executive summary is often considered the most important section of a business plan. This section briefly tells your reader where your company is, where you want to take it, and why your business idea will be successful. If you are seeking financing, the executive summary is also your first opportunity to grab a potential investor’s interest.
The executive summary should highlight the strengths of your overall plan and therefore be the last section you write. However, it usually appears first in your business plan document.

What to Include in Your Executive Summary

Below are several key points that your executive summary should include based on the stage of your business.
If You Are an Established Business
If you are an established business, be sure to include the following information:

• The Mission Statement – This explains what your business is all about. It should be between several sentences and a paragraph.
• Company Information – Include a short statement that covers when your business was formed, the names of the founders and their roles, your number of employees, and your business location(s).
• Growth Highlights – Include examples of company growth, such as financial or market highlights (for example, “XYZ Firm increased profit margins and market share year-over-year since its foundation). Graphs and charts can be helpful in this section.
• Your Products/Services -- Briefly describe the products or services you provide.
• Financial Information – If you are seeking financing, include any information about your current bank and investors.
• Summarize future plans – Explain where you would like to take your business.

With the exception of the mission statement, all of the information in the executive summary should be covered in a concise fashion and kept to one page. The executive summary is the first part of your business plan many people will see, so each word should count.
If You Are a Startup or New Business
If you are just starting a business, you won't have as much information as an established company. Instead, focus on your experience and background as well as the decisions that led you to start this particular enterprise.
Demonstrate that you have done thorough market analysis. Include information about a need or gap in your target market, and how your particular solutions can fill it. Convince the reader that you can succeed in your target market, then address your future plans.
Remember, your Executive Summary will be the last thing you write. So the first section of the business plan that you will tackle is the Company Description section.

Company Description

This section of your business plan provides a high-level review of the different elements of your business. This is akin to an extended elevator pitch and can help readers and potential investors quickly understand the goal of your business and its unique proposition.

What to Include in Your Company Description

• Describe the nature of your business and list the marketplace needs that you are trying to satisfy.
• Explain how your products and services meet these needs.
• List the specific consumers, organizations or businesses that your company serves or will serve.
• Explain the competitive advantages that you believe will make your business a success such as your location, expert personnel, efficient operations, or ability to bring value to your customers.

Next, you’ll need to move on to the Market Analysis section of your plan.

Market Analysis

The market analysis section of your business plan should illustrate your industry and market knowledge as well as any of your research findings and conclusions. This section is usually presented after the company description.

What to Include in Your Market Analysis

Industry Description and Outlook – Describe your industry, including its current size and historic growth rate as well as other trends and characteristics (e.g., life cycle stage, projected growth rate). Next, list the major customer groups within your industry.

Information About Your Target Market – Narrow your target market to a manageable size. Many businesses make the mistake of trying to appeal to too many target markets. Research and include the following information about your market:

Distinguishing characteristics – What are the critical needs of your potential customers? Are those needs being met?  What are the demographics of the group and where are they located? Are there any seasonal or cyclical purchasing trends that may impact your business?

Size of the primary target market – In addition to the size of your market, what data can you include about the annual purchases your market makes in your industry? What is the forecasted market growth for this group? For more information, see our market research guide for tips and free government resources that can help you build a market profile.

How much market share can you gain? – What is the market share percentage and number of customers you expect to obtain in a defined geographic area? Explain the logic behind your calculation.

Pricing and gross margin targets – Define your pricing structure, gross margin levels, and any discount that you plan to use.

When you include information about any of the market tests or research studies you have completed, be sure to focus only on the results of these tests. Any other details should be included in the appendix.

Competitive Analysis – Your competitive analysis should identify your competition by product line or service and market segment. Assess the following characteristics of the competitive landscape:

• Market share
• Strengths and weaknesses
• How important is your target market to your competitors?
• Are there any barriers that may hinder you as you enter the market?
• What is your window of opportunity to enter the market?
• Are there any indirect or secondary competitors who may impact your success?
• What barriers to market are there (e.g., changing technology, high investment cost, lack of quality personnel)?

Regulatory Restrictions –  Include any customer or governmental regulatory requirements affecting your business, and how you’ll comply. Also, cite any operational or cost impact the compliance process will have on your business.

Once you’ve completed this section, you can move on to the Organization & Management section of your business plan.

Organization & Management

Organization and Management follows the Market Analysis. This section should include: your company's organizational structure, details about the ownership of your company, profiles of your management team, and the qualifications of your board of directors.

Who does what in your business? What is their background and why are you bringing them into the business as board members or employees? What are they responsible for? These may seem like unnecessary questions to answer in a one- or two-person organization, but the people reading your business plan want to know who's in charge, so tell them. Give a detailed description of each division or department and its function.

This section should include who's on the board (if you have an advisory board) and how you intend to keep them there. What kind of salary and benefits package do you have for your people? What incentives are you offering? How about promotions? Reassure your reader that the people you have on staff are more than just names on a letterhead.

Organizational Structure

A simple but effective way to lay out the structure of your company is to create an organizational chart with a narrative description. This will prove that you're leaving nothing to chance, you've thought out exactly who is doing what, and there is someone in charge of every function of your company. Nothing will fall through the cracks, and nothing will be done three or four times over. To a potential investor or employee, that is very important.

Ownership Information

This section should also include the legal structure of your business along with the subsequent ownership information it relates to. Have you incorporated your business? If so, is it a C or S corporation? Or perhaps you have formed a partnership with someone. If so, is it a general or limited partnership? Or maybe you are a sole proprietor.

The following important ownership information should be incorporated into your business plan:

• Names of owners
• Percentage ownership
• Extent of involvement with the company
• Forms of ownership (i.e., common stock, preferred stock, general partner, limited partner)
• Outstanding equity equivalents (i.e., options, warrants, convertible debt)
• Common stock (i.e., authorized or issued)
• Management Profiles
• Experts agree that one of the strongest factors for success in any growth company is the ability and track record of its owner/management team, so let your reader know about the key people in your company and their backgrounds. Provide resumes that include the following information:
• Name
• Position (include brief position description along with primary duties)
• Primary responsibilities and authority
• Education
• Unique experience and skills
• Prior employment
• Special skills
• Past track record
• Industry recognition
• Community involvement
• Number of years with company
• Compensation basis and levels (make sure these are reasonable -- not too high or too low)
• Be sure you quantify achievements (e.g. "Managed a sales force of ten people," "Managed a department of fifteen people," "Increased revenue by 15 percent in the first six months," "Expanded the retail outlets at the rate of two each year," "Improved the customer service as rated by our customers from a 60 percent to a 90 percent rating")

Also highlight how the people surrounding you complement your own skills. If you're just starting out, show how each person's unique experience will contribute to the success of your venture.

Board of Directors' Qualifications

The major benefit of an unpaid advisory board is that it can provide expertise that your company cannot otherwise afford. A list of well-known, successful business owners/managers can go a long way toward enhancing your company's credibility and perception of management expertise.

If you have a board of directors, be sure to gather the following information when developing the outline for your business plan:

• Names
• Positions on the board
• Extent of involvement with company
• Background
• Historical and future contribution to the company's success

Next, move on to the Service or Product Line section of your plan.

Service or Product Line

Once you’ve completed the Organizational and Management section of your plan, the next part of your business plan is where you describe your service or product, emphasizing the benefits to potential and current customers. Focus on why your particular product will fill a need for your target customers.

What to Include in Your Service or Product Line Section

A Description of Your Product / Service
Include information about the specific benefits of your product or service – from your customers' perspective. You should also talk about your product or service's ability to meet consumer needs, any advantages your product has over that of the competition, and the current development stage your product is in (e.g., idea, prototype).
Details About Your Product’s Life Cycle
Be sure to include information about where your product or service is in its life cycle, as well as any factors that may influence its cycle in the future.
Intellectual Property
If you have any existing, pending, or any anticipated copyright or patent filings, list them here. Also disclose whether any key aspects of a product may be classified as trade secrets. Last, include any information pertaining to existing legal agreements, such as nondisclosure or non-compete agreements.
Research and Development (R&D) Activities
Outline any R&D activities that you are involved in or are planning. What results of future R&D activities do you expect? Be sure to analyze the R&D efforts of not only your own business, but also of others in your industry.
Next, move on to the Marketing & Sales Management section of your plan.

Marketing & Sales

Once you’ve completed the Service or Product Line section of your plan, the next part of your business plan should focus on your marketing and sales management strategy for your business.

Marketing is the process of creating customers, and customers are the lifeblood of your business. In this section, the first thing you want to do is define your marketing strategy. There is no single way to approach a marketing strategy; your strategy should be part of an ongoing business-evaluation process and unique to your company. However, there are common steps you can follow which will help you think through the direction and tactics you would like to use to drive sales and sustain customer loyalty.

An overall marketing strategy should include four different strategies:

• A market penetration strategy.

• A growth strategy. This strategy for building your business might include: an internal strategy such as how to increase your human resources, an acquisition strategy such as buying another business, a franchise strategy for branching out, a horizontal strategy where you would provide the same type of products to different users, or a vertical strategy where you would continue providing the same products but would offer them at different levels of the distribution chain.

• Channels of distribution strategy. Choices for distribution channels could include original equipment manufacturers (OEMs), an internal sales force, distributors, or retailers.

• Communication strategy. How are you going to reach your customers? Usually a combination of the following tactics works the best: promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.

After you have developed a comprehensive marketing strategy, you can then define your sales strategy. This covers how you plan to actually sell your product.

Your overall sales strategy should include two primary elements:

• A sales force strategy. If you are going to have a sales force, do you plan to use internal or independent representatives? How many salespeople will you recruit for your sales force? What type of recruitment strategies will you use? How will you train your sales force? What about compensation for your sales force?

• Your sales activities. When you are defining your sales strategy, it is important that you break it down into activities. For instance, you need to identify your prospects. Once you have made a list of your prospects, you need to prioritize the contacts, selecting the leads with the highest potential to buy first. Next, identify the number of sales calls you will make over a certain period of time. From there, you need to determine the average number of sales calls you will need to make per sale, the average dollar size per sale, and the average dollar size per vendor.

Next, if you are seeking financing for your business, you’ll need to complete the next part of your plan – Funding Request.

 Funding Request

If you are seeking funding for your business venture, use this section to outline your requirements.

Your funding request should include the following information:

• Your current funding requirement
• Any future funding requirements over the next five years
• How you intend to use the funds you receive: Is the funding request for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.
• Any strategic financial situational plans for the future, such as: a buyout, being acquired, debt repayment plan, or selling your business.  These areas are extremely important to a future creditor, since they will directly impact your ability to repay your loan(s).

When you are outlining your funding requirements, include the amount you want now and the amount you want in the future. Also include the time period that each request will cover, the type of funding you would like to have (e.g., equity, debt), and the terms that you would like to have applied.

To support your funding request you’ll also need to provide historical and prospective financial information.

Once you have completed your funding request, move on to the next part of your plan – Financial Projections.

Financial Projections

Financial Projections
You should develop the Financial Projections section after you've analyzed the market and set clear objectives. That's when you can allocate resources efficiently. The following is a list of the critical financial statements to include in your business plan packet.
Historical Financial Data
If you own an established business, you will be requested to supply historical data related to your company's performance. Most creditors request data for the last three to five years, depending on the length of time you have been in business.
The historical financial data to include are your company's income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to three to five years). Often, creditors are also interested in any collateral that you may have that could be used to ensure your loan, regardless of the stage of your business.
Prospective Financial Data
All businesses, whether startup or growing, will be required to supply prospective financial data. Most of the time, creditors will want to see what you expect your company to be able to do within the next five years. Each year's documents should include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, you should supply monthly or quarterly projections. After that, you can stretch it to quarterly and/or yearly projections for years two through five.
Make sure that your projections match your funding requests; creditors will be on the lookout for inconsistencies. It's much better if you catch mistakes before they do. If you have made assumptions in your projections, be sure to summarize what you have assumed. This way, the reader will not be left guessing.
Finally, include a short analysis of your financial information. Include a ratio and trend analysis for all of your financial statements (both historical and prospective). Since pictures speak louder than words, you may want to add graphs of your trend analysis (especially if they are positive).
Next, you may want to include an Appendix to your plan. This can include items such as your credit history, resumes, letters of reference, and any additional information that a lender may request.

Appendix

The Appendix should be provided to readers on an as-needed basis. In other words, it should not be included with the main body of your business plan. Your plan is your communication tool; as such, it will be seen by a lot of people. Some of the information in the business section you will not want everyone to see, but specific individuals (such as creditors) may want access to this information to make lending decisions. Therefore, it is important to have the appendix within easy reach.

The appendix would include:

• Credit history (personal & business)
• Resumes of key managers
• Product pictures
• Letters of reference
• Details of market studies
• Relevant magazine articles or book references
• Licenses, permits or patents
• Legal documents
• Copies of leases
• Building permits
• Contracts
• List of business consultants, including attorney and accountant

Any copies of your business plan should be controlled; keep a distribution record. This will allow you to update and maintain your business plan on an as-needed basis. Remember, too, that you should include a private placement disclaimer with your business plan if you plan to use it to raise capital.

How to Make Your Business Plan Stand Out

One of the first steps to business planning is determining your target market and why they would want to buy from you.

For example, is the market you serve the best one for your product or service? Are the benefits of dealing with your business clear and are they aligned with customer needs? If you're unsure about the answers to any of these questions, take a step back and revisit the foundation of your business plan.

The following tips can help you clarify what your business has to offer, identify the right target market for it and build a niche for yourself.

Be Clear About What You Have to Offer

Ask yourself: Beyond basic products or services, what are you really selling? Consider this example: Your town probably has several restaurants all selling one fundamental product—food. But each is targeted at a different need or clientele.

One might be a drive-thru fast food restaurant, perhaps another sells pizza in a rustic Italian kitchen, and maybe there’s a fine dining seafood restaurant that specializes in wood-grilled fare. All these restaurants sell meals, but they sell them to targeted clientele looking for the unique qualities each has to offer. What they are really selling is a combination of product, value, ambience and brand experience.

When starting a business, be sure to understand what makes your business unique. What needs does your product or service fulfill? What benefits and differentiators will help your business stand out from the crowd?

Don’t Become a Jack of All Trades-Learn to Strategize

It’s important to clearly define what you’re selling. You do not want to become a jack-of-all trades and master of none because this can have a negative impact on business growth. As a smaller business, it's often a better strategy to divide your products or services into manageable market niches. Small operations can then offer specialized goods and services that are attractive to a specific group of prospective buyers.

Identify Your Niche

Creating a niche for your business is essential to success. Often, business owners can identify a niche based on their own market knowledge, but it can also be helpful to conduct a market survey with potential customers to uncover untapped needs. During your research process, identify the following: 

• Which areas your competitors are already well-established
• Which areas are being ignored by your competitors
• Potential opportunities for your business