You have probably heard the statistics: three out of every four new businesses fail within one year. Why is that?

The expectations and motivations that people go into business may be part of the problem. Have you heard any of these phrases?

1. Be your own boss.
2. Get off the treadmill and work for yourself.
3. Stop working for the man and start your own business.
4. Live your dream by running your own business.

These phrases are often used by someone trying to sell you a business idea, a get rich quick scheme, a franchise, a coaching service, or something else that will make money off you.

These types of phrases bother me because they give false hope to entrepreneurs. Running your own business can have many benefits. But false expectations, and the investments built on them, can be a primary reason for business failure.

People considering launching their own business are better served when they know the truth about being a small business owner:

1. Be your own boss.
Truth: Every single customer or client is a “boss” for a business owner, who will fire you on a whim

2. Get off the treadmill and work for yourself.
Truth: Most business owners work harder than any of their employees, including longer hours, more stress, and more problems to solve.

3. Stop working for the man and start your own business.
Truth: You are either working for a boss or working for a client/customer. Customers and clients are like many little bosses.

4.Live your dream by running your own business.
Truth: Running your own business can be great, or it can be a nightmare, depending on how well it goes.

One main reason that businesses fail in the first year is the business owners’ wrong expectations. Maybe they were expecting more clients, more income, less problems, less expenses, or something else. Either the business plans were based on flawed premises or, after the business started, the business environment changed.

The way to prevent these problems is to consider risks, potential problems, and worst-case scenarios.

For example, consider what you will do if your marketing efforts do not result in the number of new customers that you expected. Consider what you will do if the bank freezes your line of credit. Consider what you will do if your main referral source dries up or refers work to your competitor. Consider what you will do if the cost of materials in your business increases substantially.

By considering these tough scenarios, you can give your business plan and honest assessment and think through possible solutions to these problems (it’s a Plan B).

At this point, if you decide to start all your business, at least you are doing it with your eyes wide open, fully aware of the risks and potential problems. When challenges arise, and small business owners will tell you that they always do, you will have the benefit of having already analyzed potential problems and possible solutions. You will have a Plan B when Plan A doesn’t work.

By solving problems before they happen, you substantially improve your odds at surviving the first year of being in business. Also, an honest assessment of potential problems may cause you to wait for a better business opportunity before you start a business.

Put it into practice: What are the greatest threats to your business? Make a list. What can you do to prevent these problems or respond if these problems occur? Next to each threat, write your ideas that come to mind.

During these difficult economic times, many small businesses are looking for new ways to bring in customers. Many Minnesota small business owners are finding themselves with additional time on their hands because business is slow. Slow times like this can be a great opportunity for small business owners to reassess their marketing plan and integrate some of the new marketing tools provided by the Internet. E-mail was once the business of spammers. But today, legitimate businesses are using e-mail marketing in interesting and effective new ways.

A free seminar for Minnesota’s small-business owners will teach how to use e-mail marketing and the various tools available to small-business owners. These tools no longer require high technology skills. Using wizards and selecting options is all business owners need to set up an automated e-mail campaign. The hard part isn’t the technology, it’s the creativity. Small business owners need to think hard, in new ways, about the best messages to communicate to their target market.

E-mail marketing for the small business requires a paradigm shift. People don’t want to receive a worthless piece of e-mail. The e-mails need to immediately connect to readers’ interests and desires. This seminar will explain the tools and methods available for e-mail marketing, and give some examples of what small-business owners are doing. the seminar covers topics such as how to build an e-mail list of potential customers, what to send to those potential customers, and what e-mail tools or available to make the process easy.

Here are the details:

• What: The Power of Email Marketing, Seminar Hosted by SCORE® and IKEA
• When: 11:30 – 1:00pm, Wednesday, September 15th, 2010
• Where: IKEA, 8000 IKEA Way, Bloomington, MN 55425
• Admission: Free, but registration is required
• Learn more: The Power of E-Mail Marketing – SCORE Minnesota

(Thanks to Mike Clough of SCORE Minnesota for alerting me to this event.)

Want to hang out with others who are interested in starting a small business in Minnesota, exchange ideas, learn how to launch a business, and have a fun time? Consider Startup Weekend in Minnesota.

On September 17-19, 2010, entrepreneurs will come together to pitch business ideas to each other, vote on the best ideas, and gather as teams to build the best ideas while learning from each other.

The event tends to have people interested in tech ideas (software, internet services, etc.), but all ideas are welcome. The admission fee is $50-75, which simply covers the costs of the event, run by a nonprofit organization.

If you have been toying with the idea of starting a business, regardless of whether you have an idea about what product or service you would build, consider checking out the first annual Startup Weekend in Minnesota.

Many small business owners use QuickBooks for their bookkeeping.  However, QuickBooks can be challenging and frustrating. Small business owners may want a QuickBooks expert available to

• answer an occasional QuickBooks question,
• help the business set up Quickbooks properly so the business can do its own bookkeeping, or
• work with the business to help with payroll or other accounting tasks.

QuickBooks may be the best software for many small business owners, but anyone who has tried QuickBooks knows how frustrating it can be. If you are ready to bring in a QuickBooks expert, here are some located in Minnesota:

Liberty Financial Consulting, Inc.
249 Rice St., Suite 240
Roseville, MN 55113
(651) 204-6577
(612) 462-2163 / cell
(651) 204-6683 / fax

Schechter Dokken Kanter
Michelle Jensrud / Jennifer Stavish
100 Washington Ave. So., Suite 1600
Minneapolis, MN 55401
(612) 332-5500

Fiscal Foundations – Accounting & Bookkeeping Services
Jennifer Heifort
11336 Xavier Road South
Bloomington, MN 55437
(651) 324-2273

Xpress Business Solutions
Sonda Polson
314 Oak Street
Farmington, MN 55024
(651) 460-4089

Thomas Lewis & Associates PA
Tom Lewis
241 South Cleveland, #2A
St. Paul, MN 55105
(651) 690-5498 x 101

Ricker & Associates CPA’s
Pam Ricker, CPA
12800 Industrial Park Blvd, Suite 100
Plymouth, MN 55441
(763) 553-9800 x 21

Betts & Hayes
George Betts / Cindy Hayes
801 Meander Court
Medina, MN 55340
(763) 478-3169

Johnson Mattson Peterson Matthias & Co.
Casey Mattson
1008 Commercial Drive, Suite 3
Buffalo, MN 55313
(763) 682-6458

Please note that Minnesota Small Business has no relationship or experience with these QuickBooks experts. Use them at your own risk.

Small business owners in Minnesota often wonder whether a person who works for them should be considered an employee or independent contractor for tax purposes. Here are the factors to consider.

As a business owner, whether you hire someone as an independent contractor or as an employee will impact how much taxes you pay and the amount of taxes you withhold from their paychecks. Additionally, it will affect how much additional cost your business must bear, what documents and information the worker must provide to you, and what tax documents you must give to the worker.

Here are a few tips to help Minnesota small business owners when considering whether to hire people as independent contractors or hire them as employees. If you are not from Minnesota, you may still use these guides, because they are offered by the IRS and applicable throughout the United States.

The IRS uses three characteristics to determine the relationship between a company and its workers: (1) Behavioral Control, (2) Financial Control, and (3) the Type of Relationship.

1. Behavioral Control. Behavioral Control covers facts that show whether the business has a right to direct or control how the work is done through instructions, training or other means.
2. Financial Control. Financial Control covers facts that show whether the business has a right to direct or control the financial and business aspects of the worker’s job.
3. Type of Relationship. The Type of Relationship factor relates to how the workers and the business owner perceive their relationship.

If you have the right to control or direct not only what is to be done, but also how it is to be done, then your workers are probably employees.

If you can direct or control only the result of the work done — and not the means and methods of accomplishing the result — then your workers are probably independent contractors.

What Does Having the Right Classification Matter?

For Employers: Employers who misclassify workers as independent contractors can end up with substantial tax bills. Additionally, they can face penalties for failing to pay employment taxes and for failing to file required tax forms.

For Workers: Workers can avoid higher tax bills and lost benefits if they know their proper status.

An Answer for Your Situation

Employees, independent contractors, and business owners can ask the IRS to make a determination on whether a specific individual is an independent contractor or an employee by filing a Form SS-8 – Determination of Worker Status for Purposes of Federal Employment Taxes and Income Tax Withholding – with the IRS.

More Small Business Tax Information

You can learn more about the critical determination of a worker’s status as an Independent Contractor or Employee at the IRS website for small business tax issues. For example, check out IRS Publication 15-A, Employer’s Supplemental Tax Guide, Publication 1779, Independent Contractor or Employee, and Publication 1976, Do You Qualify for Relief under Section 530? These publications and Form SS-8 are available on the IRS Web site or by calling the IRS at 800-829-3676 (800-TAX-FORM).

In this video, a business owner explains why having a business attorney involved in large transactions is important to the business owner.

Why a Small Business Owner Recommends Using a Business Attorney

[youtube]http://www.youtube.com/watch?v=_fIsRM1kqDI[/youtube]

Disclosure: This entire website is published by a Minnesota business attorney.

Buying a Business

Many find the idea of running a small business appealing, but lose their motivation after dealing with business plans, investors, and legal issues associated with new startups. For those disheartened by such risky undertakings, buying an existing business is often a simpler and safer alternative.

Here is a quick overview of the advantages and disadvantages of buying a business, followed by a short explanation of how a business broker and business attorney can help.

Advantages to Buying a Minnesota Small Business

The main reason to buy an existing business is the drastic reduction in startup costs of time, money, and energy. In addition, cash flow may start immediately thanks to existing inventory and receivables. Other benefits include preexisting customer goodwill and easier financing opportunities, if the business has a positive track record.

Disadvantages to Buying a Minnesota Small Business

The biggest block to buying a small business outright is the initial purchasing cost. As the business concept, customer base, brands, and other fundamental work have already been done, the financial costs of acquiring an existing business is usually greater then starting one from nothing. Other possible disadvantages include hidden problems associated with the business and receivables that are valued at the time of purchase, but later turn out to be noncollectable. Good research is the key to avoiding these problems.

Minnesota Business Brokers

Business brokers offer businesses for sale in the same way that real estate agents offer homes for sale. Business owners who want to sell their business can list their business for sale with the business broker. Those seeking to buy a business should contact a business broker to obtain a list of businesses for sale. Expect to sign a confidentiality agreement before getting the details about a particular business; this protects the business owner so others, such as clients, don’t find out that the business is for sale.

Attorney for Business Buyers and Sellers

A business attorney plays an important role for buyers and sellers alike.

The buyer’s attorney will ensure that the business sale agreements protect the buyer’s rights and expectations. For example, the buyer may expect to get all the inventory in stock, but unless the contract transfers the inventory, the inventory may remain owned by the seller.

The seller’s attorney will ensure that the business sale agreements protect the seller’s rights and expectations. For example, the attorney will ensure that the contract is not ambiguous about how payments are made and the conditions under which the seller can expect to get paid.

To consult with a business attorney experienced in the buying and selling of businesses, contact Aaron Hall: Minneapolis Business Attorney.

Before seeking financial assistance for your Minnesota small business, here are some questions to ask yourself:

• Do you need more capital or can you manage existing cash flow more effectively?
• How do you define your need? Do you need money to expand or as a cushion against risk?
  How urgent is your need? You can obtain the best terms when you anticipate your needs rather than looking for  money under pressure.
• How great are your risks? All businesses carry risks, and the degree of risk will affect cost and available financing alternatives.
• In what state of development is the business? Needs are most critical during transitional stages.
• For what purposes will the capital be used? Any lender will require that capital be requested for very specific needs.
• What is the state of your industry? Depressed, stable, or growth conditions require different approaches to money needs and sources. Businesses that prosper while others are in decline will often receive better funding terms.
• Is your business seasonal or cyclical? Seasonal needs for financing generally are short term. Loans advanced for cyclical industries such as construction are designed to support a business through depressed periods.
• How strong is your management team? Management is the most important element assessed by money sources.
• Perhaps most importantly, how does your need for financing mesh with your business plan? If you don’t have a business plan, make writing one your first priority. All capital sources will want to see your business plan for the start-up and growth of your business.

Not All Money Is the Same
There are two types of financing: equity and debt financing. When looking for money, you must consider your company’s debt-to-equity ratio – the relation between dollars you’ve borrowed and dollars you’ve invested in your business. The more money owners have invested in their business, the easier it is to attract financing.

If your firm has a high ratio of equity to debt, you should probably seek debt financing. However, if your company has a high proportion of debt to equity, experts advise that you should increase your ownership capital (equity investment) for additional funds. That way you won’t be over-leveraged to the point of jeopardizing your company’s survival.

Equity Financing
Most small or growth-stage businesses use limited equity financing. As with debt financing, additional equity often comes from non-professional investors such as friends, relatives, employees, customers, or industry colleagues. However, the most common source of professional equity funding comes from venture capitalists. These are institutional risk takers and may be groups of wealthy individuals, government-assisted sources, or major financial institutions. Most specialize in one or a few closely related industries. The high-tech industry of California’s Silicon Valley is a well-known example of capitalist investing.

Venture capitalists are often seen as deep-pocketed financial gurus looking for start-ups in which to invest their money, but they most often prefer three-to-five-year old companies with the potential to become major regional or national concerns and return higher-than-average profits to their shareholders. Venture capitalists may scrutinize thousands of potential investments annually, but only invest in a handful. The possibility of a public stock offering is critical to venture capitalists. Quality management, a competitive or innovative advantage, and industry growth are also major concerns.

Different venture capitalists have different approaches to management of the business in which they invest. They generally prefer to influence a business passively, but will react when a business does not perform as expected and may insist on changes in management or strategy. Relinquishing some of the decision-making and some of the potential for profits are the main disadvantages of equity financing.

Debt Financing
There are many sources for debt financing: banks, savings and loans, commercial finance companies, and the U.S. Small Business Administration (SBA) are the most common. State and local governments have developed many programs in recent years to encourage the growth of small businesses in recognition of their positive effects on the economy. Family members, friends, and former associates are all potential sources, especially when capital requirements are smaller.

Traditionally, banks have been the major source of small business funding. Their principal role has been as a short-term lender offering demand loans, seasonal lines of credit, and single-purpose loans for machinery and equipment. Banks generally have been reluctant to offer long-term loans to small firms. The SBA guaranteed lending program encourages banks and non-bank lenders to make long-term loans to small firms by reducing their risk and leveraging the funds they have available. The SBA’s programs have been an integral part of the success stories of thousands of firms nationally.

In addition to equity considerations, lenders commonly require the borrower’s personal guarantees in case of default. This ensures that the borrower has a sufficient personal interest at stake to give paramount attention to the business. For most borrowers this is a burden, but also a necessity

A small business plan is a written guide to starting and running your business. Having a business plan is essential.  A business plan will help you obtain loans and provide a map for you to follow.

This article explains what to include in a business plan and how to prepare one.

Where Do I Start?

Start with strategic planning.

Too many people think strategic planning is something meant only for big businesses, but it is equally applicable to small businesses. Strategic planning is matching the strengths of your business to available opportunities. To do this effectively, you need to collect, screen, and analyze information about the business environment. You also need to have a clear understanding of your business – its strengths and weaknesses – and develop a clear mission, goals, and objectives. Acquiring this understanding often involves more work than expected. You must realistically assess the business you are convinced you know well.

In addition, strategic planning has become more important to business managers because technology and competition have made the business environment less stable and less predictable. If you are to survive and prosper, you should take the time to identify the niches in which you are most likely to succeed, and to identify the resource demands that must be met. Learn more about this topic.

What Goes in a Business Plan?

Here are essential elements of a good business plan.

A business plan should be a work-in-progress. Even successful, growing businesses should maintain a current business plan.

As any good salesperson knows, you have to know everything you can about your products or services in order to persuade someone to buy them. In this discussion, you are the salesperson and your products represent your business. Your customers are potential investors and employees. Since you want your customers to believe in you, you must be able to convince them that you know what you are talking about when it comes to your business.

To become an expert (or to fine-tune your knowledge if you already believe you are one), you must be willing to roll up your sleeves and begin digging through information. Since not all information that you gather will be relevant to the development of your business plan, it will help you to know what you are looking for before you get started. In order to help you with this process, we have developed an outline of the essential elements a good business plan.

The body of a business plan can be divided into four distinct parts:

1) Description of the business
2) Marketing
3) Finances
4) Management

More specifically, a business plan would include these sections:

1. Executive Summary
2. Market Analysis
3. Company Description
4. Organization & Management
5. Marketing & Sales Management
6. Service or Product Line
7. Funding Request
8. Financials
9. Appendix

The remainder of this article will explain these sections of a business plan.

Part 1: The Executive Summary

The executive summary is the most important section of your business plan. It provides a concise overview of the entire plan along with a history of your company. This section tells your reader where your company is and where you want to take it. It’s the first thing your readers see; therefore it is the thing that will either grab their interest and make them want to keep reading or make them want to put it down and forget about it. More than anything else, this section is important because it tells the reader why you think your business idea will be successful.

Tip: The executive summary should be the last section you write. After you’ve worked out all the details of your plan, you’ll be in a better position to summarize it – and it should be a summary (1-3 pages).

Contents of the Executive Summary

• The Mission Statement – The mission statement briefly explains the thrust of your business. It could be two words, two sentences, a paragraph, or even a single image. It should be as direct and focused as possible, and it should leave the reader with a clear picture of what your business is all about.
• Date business began
• Names of founders and the functions they perform
• Number of employees
• Location of business and any branches or subsidiaries
• Description of plant or facilities
• Products manufactured/services rendered
• Banking relationships and information regarding current investors
• Summary of company growth including financial or market highlights (e.g. your company doubled its worth in 12-month period; you became the first company in your industry to provide a certain service)
• Summary of management’s future plans – With the exception of the mission statement, all of the information in the Executive Summary should be highlighted in a brief, even bulleted, fashion. Remember, these facts are laid out in-depth further along in the plan.

If you’re just starting a business, you won’t have a lot of information to plug into the areas mentioned above. Instead, focus on your experience and background as well as the decisions that led you to start this particular enterprise. Include information about the problems your target market has and what solutions you provide. Show how the expertise you have will allow you to make significant inroads into the market.Tell your reader what you’re going to do differently or better. Convince the reader that there is a need for your service or product, then go ahead and address your (the company’s) future plans.

To assist the reader in locating specific sections in your business plan, include a table of contents directly following the executive summary. Make sure that the content titles are very broad; in other words, avoid detailed descriptions in your table of contents.

Part 2: Market Analysis

The market analysis section should illustrate your knowledge about the particular industry your business is in. It should also present general highlights and conclusions of any marketing research data you have collected; however, the specific details of your marketing research studies should be moved to the appendix section of your business plan.

This section should include: an industry description and outlook, target market information, market test results, lead times, and an evaluation of your competition.

Industry Description and Outlook

This overview section should include: a description of your primary industry, the current size of the industry as well as its historic growth rate, trends and characteristics related to the industry as a whole (i.e., What life cycle stage is the industry in? What is its projected growth rate?), and the major customer groups within the industry (i.e., businesses, governments, consumers, etc).

Identifying Your Target Market

Your target market is simply the market (or group of customers) that you want to target (or focus on and sell to). When you are defining your target market, it is important to narrow it to a manageable size; many businesses make the mistake of trying to be everything to everybody. Often times, this philosophy leads to failure.

In this section, you should gather information which identifies the:

• Distinguishing characteristics of the major/primary market you are targeting. This section might include information about the critical needs of your potential customers, the degree to which those needs are (or are not) currently being met, and the demographics of the group. It would also include the geographic location of your target market, the identification of the major decision-makers, and any seasonal or cyclical trends which may impact the industry or your business.
• Size of the primary target market. Here, you would need to know the number of potential customers in your primary market, the number of annual purchases they make in products or services similar to your own, the geographic area they reside in, and the forecasted market growth for this group.
• The extent to which you feel you will be able to gain market share and the reasons why. In this research, you would determine the market share percentage and number of customers you expect to obtain in a defined geographic area. You would also outline the logic you used to develop these estimates.
• Your pricing and gross margin targets. Here, you would define the levels of your pricing, your gross margin levels, and any discount structures that you plan to set up for your business, such as volume/bulk discounts or prompt payment discounts.
• Resources for finding information related to your target market. These resources might include directories, trade association publications, and government documents.
• Media you will use to reach your target audience. These might include publications, radio or television broadcasts, or any other type of credible source that may have influence with your target market.
• Purchasing cycle of your potential customers. Here, you will need to identify the needs of your target market, do research to find the solutions to their needs, evaluate the solutions you come up with, and finally, identify who actually has the authority to choose the final solution.
• Trends and potential changes which may impact your primary target market.  Key characteristics of your secondary markets. Just like with your primary target market, here you would again want to identify the needs, demographics, and the significant trends which will influence your secondary markets in the future.

Market Tests

When you are including information about any of the market tests you have completed for your business plan, be sure to focus only on the results of these tests. Any specific details should be included in the appendix. Market test results might include: the potential customers who were contacted, any information or demonstrations that were given to prospective customers, how important it is to satisfy the target market’s needs, and the target market’s desire to purchase your business’ products or services at varying prices.

Lead Times

Lead time is the amount of time between when a customer places an order and when the product or service is actually delivered. When you are researching this information, determine what your lead time will be for the initial order, reorders, and volume purchases.

Competitive Analysis

When you are doing a competitive analysis, you need to identify your competition by product line or service as well as by market segment; assess their strengths and weaknesses, determine how important your target market is to your competitors, and identify any barriers which may hinder you as you are entering the market.
Be sure to identify all of your key competitors for each of your products or services. For each key competitor, determine what their market share is, then try to estimate how long it will take before new competitors will enter into the marketplace. In other words, what is your window of opportunity? Finally, identify any indirect or secondary competitors which may have an impact on your business’ success.

The strengths of your competitors are also competitive advantages which you, too, can provide. The strengths of your competitors may take many forms, but the most common include:

• An ability to satisfy customer needs
• A large share of the market and the consumer awareness that comes with it
• A good track record and reputation
• Solid financial resources and the subsequent staying power which that provides
• Key personnel

Weaknesses are simply the flip side of strengths. In other words, analyze the same areas as you did before to determine what your competitors’ weaknesses are. Are they unable to satisfy their customers’ needs? Do they have poor market penetration? Is their track record or reputation not up to par? Do they have limited financial resources? Can they not retain good people? All of these can be red flags for any business. If you find weak areas in your competition, be sure to find out why they are having problems. This way, you can avoid the same mistakes they have made.

If your target market is not important to your competition, then you will most likely have an open field to run in if your idea is a good one – at least for a while. However, if the competition is keen for your target market, be prepared to overcome some barriers. Barriers to any market might include:

• A high investment cost
• The time it takes to set up your business
• Changing technology
• The lack of quality personnel
• Customer resistance (i.e., long-standing relationships, brand loyalty)
• Existing patents and trademarks that you can not infringe upon

Regulatory Restrictions

The final area that you should look at as you’re researching this section is regulatory restrictions. This includes information related to current customer or governmental regulatory requirements as well as any changes that may be upcoming. Specific details that you need to find out include: the methods for meeting any of the requirements which will effect your business, the timing involved (i.e., How long do you have to comply? When do the requirements go into effect?), and the costs involved.

Part 3: Company Description

Without going into detail, this section should include a high level look at how all of the different elements of your business fit together. The company description section should include information about the nature of your business as well as list the primary factors that you believe will make your business a success.

When defining the nature of your business (or why you’re in business), be sure to list the marketplace needs that you are trying to satisfy; include the ways in which you plan to satisfy these needs using your products or services. Finally, list the specific individuals and/or organizations that you have identified as having these needs.

Primary success factors might include a superior ability to satisfy your customers’ needs, highly efficient methods of delivering your product or service, outstanding personnel, or a key location. Each of these would give your business a competitive advantage.

Part 4: Organization & Management

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.

Tip: Form a business that limits your personal liability like an LLC or corporation. Talk to a business attorney.

Important ownership information that should be incorporated into your business plan includes:

• 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, 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% 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% to a 90% 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

Part 5: Marketing and Sales Strategies

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 self-evaluation process and unique to your company. However, there are steps you can follow which will help you think through the strategy you would like to use.

An Overall Marketing Strategy would include a:

• Market penetration strategy
• Strategy for growing your business. This growth strategy 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 some combination of the following works the best: promotions, advertising, public relations, personal selling, and printed materials such as brochures, catalogs, flyers, etc.
  Once you have defined your marketing strategy, you can then define your sales strategy. How do you plan to actually sell your product?

Your Overall Sales Strategy should include:

• 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 it. 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.

Part 6: Service or Product Line

What are you selling? In this section, describe your service or product, emphasizing the benefits to potential and current customers. For example, don’t tell your readers which 89 foods you carry in your “Gourmet to Go” shop. Tell them why busy, two-career couples will prefer shopping in a service-oriented store that records clients’ food preferences and caters even the smallest parties on short notice.

Focus on the areas where you have a distinct advantage. Identify the problem in your target market for which your service or product provides a solution.

Give the reader hard evidence that people are, or will be, willing to pay for your solution. List your company’s services and products and attach any marketing/promotional materials. Provide details regarding suppliers, availability of products/services, and service or product costs. Also include information addressing new services or products which will soon be added to the company’s line.

Overall, this section should include:

• A detailed description of your product or service (from your customers’ perspective). Here, you would need to include information about the specific benefits of your product or service. You would also want to talk about your product/service’s ability to meet consumer needs, any advantages your product has over that of the competition, and the present development stage your product is in (i.e., idea, prototype, etc.).
• Information related to 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.
• Any copyright, patent, and trade secret information that may be relevant. Here, you need to include information related to existing, pending, or anticipated copyright and patent filings along with any key characteristics of your products/services that you cannot obtain a copyright or patent for. This is where you should also incorporate key aspects of your products/services that may be classified as trade secrets. Last, but not least, be sure to add any information pertaining to existing legal agreements, such as nondisclosure or noncompete agreements.
• Research and development activities you are involved in or are planning to be involved in. R&D activities would include any in-process or future activities related to the development of new products/services. This section would also include information about what you expect the results of future R&D activities to be. Be sure to analyze the R&D efforts of not only your own business, but also that of others in your industry.

Part 7: Funding Request

In this section, you will request the amount of funding you will need to start or expand your business. If necessary, you can include different funding scenarios, such as a best and worst case scenarios, but remember that later, in the financial section, you must be able to back up these requests and scenarios with corresponding financial statements.

You will want to include the following in this section: your current funding requirement, your future funding requirements over the next five years, how you will use the funds you receive, and any long-range financial strategies that you are planning that would have any type of impact on your funding request.

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

How you will use your funds is very important to a creditor. Is the funding request for capital expenditures? Working capital? Debt retirement? Acquisitions? Whatever it is, be sure to list it in this section.

Last of all, make sure that you include any strategic information related to your business that may have an impact on your financial situation in the future, such as: going public with your company, having a leveraged buyout, being acquired by another company, the method with which you will service your debt, or whether or not you plan to sell your business in the future. Each of these are extremely important to a future creditor, since they will directly impact your ability to repay your loan(s).

Part 8: Financials

The financials should be developed 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 you would want to include would be your company’s income statements, balance sheets, and cash flow statements for each year you have been in business (usually for up to 3 to 5 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 2 through 5.

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).

Part 9: The Appendix

The appendix section 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 in order 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.

Examples of Business Plans

One of the best ways to learn how to prepare a busienss plan is to look at some examples. This website has a number of business plans used by real businesses: BPlans.com.

Every small business needs a business attorney who can be a resource as legal issues arise. Small businesses use a business attorney in many ways:

A new Minnesota business may need an attorney to

• Form a business entity—such as a Minnesota LLC, Minnesota S Corp, or Minnesota Corporation—to obtain limited liability and protect your personal assets
• Draft an agreement between co-owners such as a buy-sell agreement, member control agreement, partnership agreement, or shareholder agreement.
• Analyze a contract such as a franchise agreement, bank loan agreement, or other contracts
• Create an employee manual
• Advise on ways to minimize taxes and prevent IRS problems

An ongoing Minnesota business may need an attorney to

• Represent the business in a lawsuit, arbitration, or tax audit
• Write a letter to pressure another party to perform according to a contract
• Draft contracts, legal documents, and letters
• Negotiate deals
• Conduct a merger or acquisition
• Analyze a contract, real estate transaction, or other legal documents

Beyond this short list, there are countless legal issues that may arise in your small business. After forming your business, you probably won’t need an attorney for awhile. When a legal need comes up, it’s nice to have a relationship with a business attorney who can answer a few quick questions by phone for free. Some attorneys will answer quick questions by phone without charging you, while others will charge their hourly rate for the phone conversation.

Qualities of a Good Small Business Attorney
When you look for an attorney for your small business, find one who is experienced in business law. You can test the attorney’s understanding of the area in which you need help by asking the attorney about specifics.  For example, ask the attorney to specifically explain to you what he or she would recommend in your particular situation, what the other options are, and what factors the attorney used to make that recommendation. Also, look for an attorney who will will listen to your concerns.

If you need a business attorney in Minnesota, consider contacting the author of this website, Aaron Hall. He can be reached here: Minnesota Business Attorney.