Wednesday, May 6, 2009

Building A Business Plan, Worksheet 5

Here it is, folks, the last worksheet in this initial series of posts designed to get you thinking about your idea as it translates into a business. Of course, after viewing posts on the product or service, the customer, the market, and the business, what else could be left. Oh, right: money.

Money serves many purposes for a business. It's how we "keep score", if you will, regarding how the business is achieving its financial goals (money in excess of costs being profits). It's one piece of how we reward our workers (and ourselves) for hard work and achievement. It provides the raw material for products, services, infrastructure, and human capital. At times, it's manna from heaven. At other times, it's a necessary evil.


At the end of the day, folks, money is merely a representation; a shorthand or proxy for value. We can swap goods, services, even body parts for things we want or need (see barter for an elaboration on this). Money, or currency, merely provides us with a benchmark or a common unit upon which to determine the relative value of land, labor and materials (or the syntheses thereof) within The Market.

Here's the point I want to make: many of you may have ideas that have tremendous value to you. That value may be tangible (trading collectibles, especially if you're also a collector) or intangible (providing some type of service or subsidy for a population whose ability to provide for themselves or protect themselves is limited by comparison to others). Those ideas have merit that extends beyond the concept of financial profit (a term often used within social entrepreneurship circles is double bottom-line investing; the UN actually uses the term triple bottom line investing to refer to the benefits of a project to people, the planet and in terms of financial profit). Understand, though, that not all investors view more than one type of return (financial) as beneficial, or even equal in weight or priority. I have my own personal views on this (which I'll share some other time). The point is to recognize that, within entrepreneurship circles, you must be aware of how outside investors (angel investors, venture capitalists, bankers, financial partners, suppliers extending credit terms, etc.) view returns. To most, the most important return/measure of success or viability is financial. Period. That's the rules under which this game is being played.


So, understanding that money runs through entrepreneurship in a fundamental way, examine your idea's position by asking yourself:
  • When will the company reach break even (in other words, have as much money coming in the door in sales/revenues as is going out the door in costs/expenses)?
  • What is the planned “use of funds” from any proposed investment?
  • What are the exit scenarios for the founders and investors?
Once you've finished this worksheet (found here) and the other four (see links at the beginning of this post), you've provided yourself with the skeletal outline for a business plan and a pitch. Next time, we'll set up the pitch. After that, the real work begins.