Growing Your Enterprise

Growing Your Enterprise Dr. Maria Marshall Planning Your Business Venture Define your goals Assess your assets Get informed Research Network Develop a Business Plan Develop a Financial Plan Start Small, Learn from Experience, and EXPAND Define Your Goals What are your reasons for developing this enterprise? What are the benefits to you and your family? Where do you see yourself, family, and business in 5 years? How will you measure success? Why Start a Business? To satisfy personal objectives To achieve business objectives Personal Objectives Independence Additional income Help their families Provide products not provided elsewhere “Necessity is the mother of invention.” The first air conditioner, airplane, jet engine, sliced and wrapped bread, zipper, helicopter, and office copier. Business Objectives Important business objectives Service objective Profit objective Social objective Growth objective Service Objective In general, the objective of a business is to serve customers by producing and selling goods or services at a cost that will ensure a fair price to the consumer and adequate profits for the owners. A small business must set service as the primary objective - but seek to make a profit as a natural consequence. Profit Objective Profit is the revenue received by a business in excess of the expenses paid. The profit motive - entering a business to make a profit, which is the reward for taking risks. Social Objective Social objectives are goals related to assisting groups in the community and protecting the environment. Profit and social objectives are not necessarily incompatible. Growth Objective Small business owners should be concerned with growth and should select a growth objective. Do I want my business to remain small? Do I want it to grow and challenge larger firms? Do I seek a profit that is only satisfactory, considering my effort and investment, or do I seek to maximize profits? Integrate Objectives There is often a close connection between profitability, customer satisfaction, manager satisfaction, and non-financial rewards. Assess Your Assets Match Your Assets To Your Venture Required Assets Any venture takes a combination of labor (human skills) and capital (money, land, equipment). Examples: Delivery service (labor intensive) Restaurant (capital and labor intensive) Owning real estate (capital intensive) Professional (high skill) What combination of skill and capital does your venture require? Human resources What are your strong points? Knowledge of the industry Management experience Communication and persuasion Who will do the work? Yourself Family members Employees Who has the necessary skills to…? Market the enterprise Keep financial records Human Resources Do you have supportive professional assistance? Accountant/business advisor Legal counsel Banker Insurance agent What other sources of technical assistance will you need? Financial Resources Do you have enough capital to maintain a personal life? Do you have enough capital to get the business off the ground? What will happen if you don’t make a profit for 18 months? 3 years? Evaluating New Ideas New Ideas Radical new ideas are often dismissed out of hand. More conservative ideas are normally followed. Radical doesn’t necessarily mean bad and conservative doesn’t mean good. Many times it’s the opposite. New Ideas Best way of analyzing new ideas is to perform an evaluation based on key criteria. Then determine whether or not an idea will work. Example: New Food Product 5 key criteria Uses existing resources Provides enough profit margin Increased demand for product Low cost product development Will lead to future product line Idea Matrix Use a criteria evaluation matrix (Baumgartner 2004). Rate each idea using a rating of 0 to 5. 0 is the lowest 5 is the highest multiply by 4 to get a rating close to 100 points. Example: New Food Product Criteria Use existing resources High profit margin Increasing demand Low development costs Lead product Total Multiply by 4 Product 1 2 3 3 4 2 14 56% Product 2 Product 3 3 5 5 5 2 5 20 80% 4 4 3 5 21 84% Product 4 5 1 2 5 3 16 64% Idea Matrix A worthwhile idea has a rating between 80-100%. You can improve accuracy by weighing the criteria. More important criteria have a higher weight and vice versa. You can also let others evaluate your idea using the matrix to get a more accurate and realistic evaluation. Web links Web based idea evaluation tool: http://www.jpb.com/creative/evaluator.php Idea Matrix Criteria 1 2 3 4 Total Multiply by 4 Planning Your Growth Write a business plan INVenture www.agecon.purdue.edu/planner Why Take the Time to Build a Business Plan? Although building a plan does not guarantee success, it does increase your chances of succeeding in business. Research has shown that attempting to write a business plan increases your chances of starting a business by 24%. A plan is like a road map. A Plan Must Pass Three Tests The Reality Test - proving that: a market really does exist for your product or service. you can actually build it for the cost estimates in the plan. The Competitive Test - evaluates: a company’s position relative to its key competitors. management’s ability to create a company that will gain an edge over its rivals. The Value Test - proving that: it offers investors or lenders an attractive rate of return or a high probability of repayment. Source: Scarborough and Zimmerer, 2002 “ONE-STOP SHOPPING” for Business Planning 5 Stages plus Executive Summary Work through at Your Own Pace Points to consider guide responses Resources and references are available Useful External Links Assessment Tools Help You Evaluate Your Project Stage Gate Quality of Execution Was the information gathering, evaluation and analysis superficial or extensive? and How confident is the user with the business idea? Must Meet Criteria These help the user identify flags or areas of caution – if not met the chances of a successful business are very small Provides Feedback You are prompted for information User Friendly Financial Analysis - Output Projections for: 5 Year Balance Sheet 5 Year Income Statement 5 Year Statement of Cash Flows 5 Year Breakeven Analysis Valuation Planner will Generate Report Stage 1 Fundamentals of your Business Why do you want to begin this venture? What product/service will you market? Who are your customers? What minimum sales volume must you achieve? Stage 2 Analyzing Your Market What is the market characteristics/trends? Who will you compete against? How competitive is your industry? Stage 3 Producing your Product or Service How and where will you produce your product? Who is on your venture’s team? What is the ownership structure? What name/brand protection do you require? Stage 4 Marketing your Product or Service What customers will you target? What product/services will you offer? What price will you charge for your product? How will your product be distributed? How will you promote your product? Stage 5 Financial Analysis of your Business Product Information Revenue Cost/Expense Capital Investment and Financing Financing and Cost of Capital Stage 6 Executive Summary Provides an overview of your business project Growing Your Enterprise Do the potential benefits outweigh the risks?