DISTILLING YOUR DREAM - Startup Distillery · Introduction Chapter 1: Welcome to Distilling Your Dream DISTILLING YOUR DREAM: The Step-By-Step Kit for Business Plans 2 Distilling

Step-by-Step Kit

THE

for BusinessPlans

DISTILLING YOUR DREAM

DIANE TARSHIS

Copyright Notice:

Distilling Your Dream: The Step-By-Step Kit for Business Plans by Diane Tarshis

Copyright © 2019 by Startup Distillery, LLC

All rights reserved.�No part of this publication may be used, reproduced, or

transmitted in any manner whatsoever without written permission of the author.

Legal Notice:

By using Distilling Your Dream: The Step-By-Step Kit for Business Plans you agree to

Startup Distillery’s terms of use as published at startupdistillery.com/terms. Please

review them carefully. If you do not agree to be bound by these terms and conditions,

you must stop using this business plan kit immediately.

TABLE OF CONTENTS

INTRODUCTION1. Welcome to Distilling Your Dream ................................................................................................ 12. Who This Kit is For ........................................................................................................................ 33. Three Legs ..................................................................................................................................... 54. The Promise ................................................................................................................................... 75. Improving Your Odds ................................................................................................................. 10STEP 1: THE PREPARATION ..................................................................................................... 136. What’s Inside ............................................................................................................................... 137. How to Use This Kit ..................................................................................................................... 158. Before You Begin... ..................................................................................................................... 17STEP 2: THE DISTILLING PROCESS - THE WORDS9. An Introduction to The Words .................................................................................................... 1910. How to Describe Your Business ................................................................................................ 2211. How to Write About Your Products & Services ....................................................................... 2812. How to Write About Your Market ............................................................................................. 3513. How to Write About Your Business Location .......................................................................... 3914. How to Write a Competitive Analysis ....................................................................................... 4315. How to Write About Your Management Team ........................................................................ 4816. How to Write About Staffing ...................................................................................................... 5317. How to Write About Your Purpose & Use of Funds ................................................................ 5818. Understanding Executive Summaries ...................................................................................... 61STEP 3: THE DISTILLING PROCESS - THE NUMBERS19. An Introduction to The Numbers ............................................................................................... 6520. An Introduction to Financial Spreadsheets ............................................................................. 6721. How to Prepare an Equipment List .......................................................................................... 7122. Understanding the Balance Sheet ............................................................................................ 7323. The Difference Between Profit & Loss and Cash Flow Statements ...................................... 7624. How to Prepare P&L Statements and Cash Flow Projections ............................................... 8125. How to Prepare a Sources & Uses of Funds ............................................................................ 88STEP 4: THE FINISH26. Extras to Consider ...................................................................................................................... 9227. The Gift that Keeps on Giving .................................................................................................... 9528. Some Closing Words .................................................................................................................. 98THE WORKSHEETS .......................................................................................................................... 101

INTRODUCTION

Introduction Chapter 1: Welcome to Distilling Your Dream

DISTILLING YOUR DREAM: The Step-By-Step Kit for Business Plans 1

CHAPTER 1

Welcome to Distilling Your Dream

As an admirer of fine whisky, I’ve noticed that writing business plans and distilling whisky work in much the same way:

A distiller cooks the ingredients until the best parts rise to the top.

The better the ingredients, the better the finished product. Distilling is the essence of what I do with my clients, and it’s what I help you do here.

dis·till v. Extract the essential meaning or most important aspects.

Distilling Your Dream is the result of my work with countless startups over the last 20-

plus years. Since I launched my firm Startup Distillery in early 2000, I have worked with

entrepreneurs in industries ranging from biofuels to retailing to medical devices.

I’ve worked with startups of all sizes, too. Some were designed to remain small, while

others laid the groundwork for growth. Some chose to bootstrap (self-finance), while

others secured outside investors (family and friends; angel investors; venture capital).

Still others opted for bank loans or more creative financing options.

Through the years I’ve learned a lot about what it takes to launch a successful business,

as well as what investors look for in a startup. Yet in all my years of working with

inspiring, passionate founders, one frustration remained: how to help those with

unlimited dedication, commitment and passion, but limited budgets.

Until now.

Modern technology has changed everything, and now I can finally share my knowledge

and experience at an affordable price. The digital boom makes it easy for me to share

what I’ve learned in a way that won’t blow your budget.

Introduction Chapter 1: Welcome to Distilling Your Dream


Distilling Your Dream takes my decades of accumulated experience and puts it right in

your hands. I’m giving you the keys to the kingdom and not holding back a single

thing. This is the very same guidance I give my other clients.

If you run into a part that’s hard for you, you can even hire me for a few hours to help

you through it. I offer three budget-friendly options in packages of 1, 3 or 5 hours at

startupdistillery.com/products.

By the time you finish reading this book, you will:

1. Understand all the wide range of ingredients needed to build a profitable business.

2. Have the tools to develop a roadmap that helps you launch a growing business.

Diane Tarshis Founder and Principal Startup Distillery startupdistillery.com

Introduction Chapter 2: Who This Kit is For


CHAPTER 2

Who This Kit is For

This kit (or book, I use the words interchangeably) is for those who want to turn their

passion into a successful business. Whether this is brand new to you or you have some

experience—even if you’ve launched a business before—this kit will help you:

• Understand the key elements of your business.

• Think through each of those elements ahead of time, so you can launch a successful business.

• Develop a roadmap for what you plan to do and how you’ll do it.

• Clearly communicate your vision so you can attract investors, customers,

partners—even employees.

Bonus!

A business plan provides valuable information you can use immediately in other parts

of your startup. With very little effort, you’ll be able to repurpose parts of your business

plan for other important tasks, such as:

• Pitches

• Budgets

• Website content

• Job postings

Existing businesses, too.

This kit is designed to help both new and existing companies. Whether you’re hoping

to launch soon or you already have an existing company that needs help getting to the

next level, you’ve come to the right place.

Introduction Chapter 2: Who This Kit is For


Once you begin reading, you may notice that I often refer to my audience as “startups.”

The truth is, it was simply easier for me to address a single audience when writing. If

yours is an existing business, don’t be concerned.

Over the years, I’ve worked with a number of business owners who have been running

their companies without a business plan for more than a decade. I’ve assisted them

using the exact same principles I describe here. The same goes for existing businesses

preparing to launch a new division.

So whether yours is a startup or a business that’s been around for years, this kit will

help you develop a strategy for growth.

Introduction Chapter 3: Three Legs


CHAPTER 3

Three Legs

Imagine the foundation of your startup as a three-legged stool:

The business plan is one leg.

As you know, a one-legged stool isn’t very stable (neither is a two-legged stool, for that

matter). It takes all three legs to make it rock-solid.

So what are the other two legs of our metaphorical stool?

1. A qualified lawyer. A lawyer helps make sure your startup is operating legally in every way, and that

both you and your company are legally protected as needed.

2. A qualified accountant. An accountant can help make sure your startup’s financial projections are

accurate, and can help you set up bookkeeping and tax routines that will keep you

in good shape when it comes to Uncle Sam.

Although these professional services aren’t free, they’ll save you money in the long run

and help you sleep better at night. All three legs—business plan, lawyer and

accountant—are indispensable if you want to launch your business from a solid

foundation.

More about accountants.

Speaking of accountants, I can’t emphasize enough how important it is to have a

qualified one go over your financial projections with you.

An accountant is trained to properly advise you, catch any miscalculations and explain

anything you don’t understand. Regardless of how wonderful your accountant is (or

your bookkeeper, for that matter), it’s your responsibility to make sure that you

understand everything that affects your business financially.

Introduction Chapter 3: Three Legs


Don’t feel shy or embarrassed about asking questions. Anyone who tries to make you

feel stupid for wanting to learn is not someone you want to trust with your company’s

financial health.

Introduction Chapter 4: The Promise


CHAPTER 4

The Promise

So you have an idea to start your own business. You’re ready to get going, but

something is holding you back. There’s so much to do, you’re probably wondering,

“Where do I start?”

You dream of…

• Customers banging down the door and a month-long waiting list

• $1 million in sales

• Being the envy of your competitors, generating buzz without lifting a finger

At a minimum, you hope for...

• A respectable income (you’re not greedy)

• A stable, growing business (you’re reasonable)

It’s exciting, and scary, all at the same time. There’s so much to think about:

• What products and services should you offer?

• What should you charge?

• How do you get customers to buy from you?

• How do you get them to keep buying from you?

The smart money is on writing a business plan. Some call it a strategic plan, some may

call it a summary. Whatever you call it, you’ll need a roadmap for what you plan to do

and how you plan to do it.

Gathering the right ingredients.

The first step in building a successful business is to gather the right ingredients—and

writing a strong business plan is at the top of the list. The time you spend now will save

you countless hours down the road. That’s because you’re taking the time to think

proactively and work through challenges ahead of time.



What’s more, you’ll be better prepared to explain your idea to others, such as

prospective investors, partners, employees.... and customers.

Pushing past the fear and doubt.

Let’s face it, most people would rather not spend their time writing a business plan.

They’d rather be working.

Maybe you bought this kit because you know that writing a business plan for your

startup is a good idea. Or people have been telling you that you need one. Or someone

has asked to see yours. It doesn’t matter. Whatever prompted you is a good reason,

because writing a business plan is one of the most important steps you’ll take towards

building a successful business.

Even so, perhaps you’re still worried that writing it will be hard. It’s not. Really, it’s not.

It takes some time and effort, but you can handle that. It takes a bit of know-how, too—

but that’s what I’m here for. I’ll walk you through this process one step at a time. So

we’ll do it together... virtually. And it won’t hurt a bit, I promise.

A business plan for your business.

Many a startup has tried the quick ‘n easy route by using a readymade template or

software, or by hiring a firm that asks you 20 questions and serves up your business

plan 10 days later. That’s fine for people who are starting a one-size-fits-all kind of

business, because those are one-size-fits-all business plans. Don’t you want a business

plan that fits your business?

That said, it’s important to understand that this kit won’t write your business plan for

you. Even when I work with clients one-on-one, I don’t do it for them; I do it with

them. But if you put in the work, by the time you finish you’ll know your business

inside and out because you’ve addressed the thorniest, most challenging issues, as well

as the mundane.

Frankly, I think the process of writing your business plan is more valuable than the

business plan itself. That’s because my process is carefully designed to help you

understand and think about the essential elements of your startup ahead of time. That

way, you end up with a plan that works for your specific business.



The promise.

So here’s my promise to you:

• I’m going to walk you through the essential steps of writing a powerful, effective

business plan.

• I’ll explain each section of the business plan one step at a time. That way, you can

write a plan that helps you launch your business and take you closer to your dream.

It should go without saying, but I’m going to say it anyway... this kit will not be 100%

perfect for 100% of the startups out there. Nothing can be, really. But most of it will be

valuable in helping you develop a strong foundation for your business.

Introduction Chapter 5: Improving Your Odds


CHAPTER 5

Improving Your Odds

In this chapter we’ll talk about why writing a business plan is so important for any startup—and why it will improve your odds of success.

Minimize risk.

Some say business planning is a waste of time, while others say you should be able to

figure it out on your own. I say that’s just plain ridiculous.

No matter what your industry or your experience, writing a business plan helps you

think through the key elements of your business ahead of time, before money and

customer satisfaction are on the line. Yes, industries and markets are changing fast, but

not so fast that you get a free pass when it comes to knowing your customers’ wants

and needs or understanding your market.

Issues that may, at first glance, seem mundane and simple—such as describing your

business—can be more complicated than you might expect. For example, is your

consignment shop simply selling used children’s clothes, or are you solving a problem

for parents who want to save money and raise socially responsible kids?

Putting words to paper forces you to focus on exactly what you plan to do and how you

will do it. Many business plans fail—and that means businesses fail—because they’re

built on vague concepts like “vision” and “mission” and “goals.” Broad concepts like

these are simply smoke and mirrors. They sound good, but where are the details?

Where’s the substance?

Build a solid foundation.

In order to build a successful business a startup needs a solid foundation. Think about

building a house; without a solid foundation, the house will collapse. The same goes

for your startup, but in this case the business plan is your foundation.



It also functions as a dynamic blueprint for launching and running your business. I say

‘dynamic’ because a business plan is not a rigid, static document. A business plan is

meant to be a flexible tool—it’s your foundation, not a prison.

Once you launch, your business will continue to evolve. So should your plan, giving

you a foundation from which you can identify new opportunities and adapt to

changing market conditions.

Think proactively.

Most founders do either an okay job or a lousy, half-assed job on their business plans.

They launch their businesses, hit the ground running, and before they know it they’re

fighting fires without a working extinguisher, reacting to the nonstop, day-to-day

challenges of running their business. They have little or no time to step back, look at

the big picture, and think strategically.

That means little or no time to stop and ask themselves:

• “Is this business model working?

• Am I building a strong customer base?

• Are we turning new customers into repeat customers?

• Can I bring in enough revenue and, more importantly, earn enough profit to grow

my business?”

They don’t have time for those questions because they didn’t do their homework. In

other words, they didn’t take the time to think things through ahead of time. Instead,

they’re spinning their wheels trying to figure out why customers aren’t buying their

widgets. “But our widgets are awesome! Why isn’t anyone buying them?” If they had

done their homework, they would have known that customers don’t want more of the

same.

Writing a business plan is your golden opportunity to think proactively. The advantage

of going through this process now, before you launch, is:

You’re thinking about the big picture and the details.

So take advantage. The time you spend up front is an investment in your startup, one

you can’t put a price on.



Some good news for you.

The fact is, 99% of your competition is lazy, trapped in short-term thinking or following

the latest fad that says business plans are passé (a rationalization for laziness if ever I

heard one).

This is good news for you.

If you do your Distilling Your Dream worksheets, and if you think about how to apply

those answers to your startup, you will have a powerful, effective business plan for your

business, and they won’t.

Once you open your doors you’ll inevitably shift into “firefighter mode,” but you’ll be

ahead of the game because you’re prepared.

Now, let’s move on to Step 1!

STEP 1: THE PREPARATION

Before we dive in and begin distilling your business plan, let’s talk about what’s inside this kit and how to use it.

Step 1: The Preparation Chapter 6: What’s Inside


CHAPTER 6

What’s Inside

There are two distinct parts to any business plan: the narrative (I call it ‘The Words’)

and the financial projections (I call them ‘The Numbers’).

Likewise, there are two parts to Distilling Your Dream – The Words and The Numbers.

The Words includes:

1. The Distilling Process. The thinking and purpose behind each section of a business plan’s narrative.

2. Instructions. How to use the worksheets most effectively, how the worksheets and templates

work together, and some helpful hints.

3. Worksheets. These help you tackle each section of the business plan’s narrative, one at a time.

Worksheet 1 – Describe Your Business

Worksheet 2 – Products & Services Offered

Worksheet 3 – Market Analysis

Worksheet 4 – Business Location

Worksheet 5 – Competition

Worksheet 6 – Management Team

Worksheet 7 – Personnel Worksheet 8 – Purpose & Use of Funds

Worksheet 9 – Introductions

4. Narrative Template. Transfer your worksheet answers into this template. It’s a fully editable document

designed for the narrative portion of your business plan.

Step 1: The Preparation Chapter 6: What’s Inside


5. Bonus! Pitch/Summary Template. This template helps you regardless of format—slide deck, business model canvas,

or Google/Word doc.

The Numbers includes:

1. The Distilling Process. The thinking and purpose behind each spreadsheet used in a business plan’s

financial projections.

2. Instructions. How to use the worksheets most effectively, how the worksheets and template work

together, and some important reminders.

3. Worksheets. How to tackle each spreadsheet.

Worksheet 10 – Equipment List

Worksheet 11 – Balance Sheet

Worksheet 12 – Projected Profit & Loss Statement

Worksheet 13 – Cash Flow Projections

Worksheet 14 – Sources & Uses of Funds

4. Financials Template. Most of your work will be done directly in the template itself. Each spreadsheet is

part of a fully editable document. I’ve even built in some basic formulas for you, as

well as including examples of line items that may be relevant to your business.

CAUTION

Don’t start your summary until you’ve finished all your worksheets. After all, you can’t summarize what you haven’t written, right?

Step 1: The Preparation Chapter 7: How to Use This Kit


CHAPTER 7

How to Use This Kit

Setting expectations.

Before you dive into the lessons in this book, I want to set some expectations to help

keep this process as stress-free and exciting as possible. Yes, I said ‘exciting.’ That’s

because I think starting a business is an exciting adventure!

If you do the things I tell you to do, you’ll be on your way to thinking like a successful

business owner in no time.

But... you have to do your homework (better known as the worksheets). A startup

doesn’t grow by itself; you have to do the work. I’ve designed this kit to teach you not

only WHAT you need to think about, but HOW to think about it.

How this kit will work for you.

This business plan kit isn’t just a formula. It walks you through all those startup issues

you wish you could ignore, but know you can’t (or shouldn’t).

The worksheets are a series of important questions you need to ask yourself, think

about, and apply to your startup in order to launch a successful business. Maybe some

of the issues I’m going to cover are ones you’ve already thought about. At first glance,

you may THINK you’ve answered these questions, but most people tend to give quick,

off-the-cuff, superficial answers.

That’s not good enough.

A successful business plan goes deep. The founder commits—fully commits—to doing

both the homework and research necessary to get at the details. I’m here to help you

drill down to the detailed information that’s relevant to your startup.

Step 1: The Preparation Chapter 7: How to Use This Kit


EXAMPLE: Describe your business.

Superficial answer: XYZ is an online resale shop for kids’ clothing.

Meaningful answer: Buying new baby clothes is expensive, and even wasteful when you think about it since babies outgrow their clothing after only a few wearings. We sell like-new baby clothes for families who want to save money and be socially responsible. Families get to choose whether to receive cash, store credit, or instead donate the clothes to a local children’s charity.

This kit will help you focus on doing things the right way. I’m going to get you thinking

about:

• Your products, services and pricing

• Who your customers are and why they’re going to buy from YOU

• How you compare to the competition and how you can set yourself apart

• How much money you’ll need to be sure you can pay your bills, as well as yourself.

Right now this may sound a bit daunting. But I know you can do this. I believe in you.

And best of all, I’m here to help you!

Wait! There’s one more thing you need to know.

And this one thing is incredibly important:

I know, I know, for most people, doing worksheets seems like a form of mental torture.

But here’s the bottom line: If you don’t do the work, you won’t get the results you want.

So every time you see a new worksheet I want you to ask yourself this:

“Will doing this worksheet make it easier for me to launch a successful business?”

If the answer is YES, then do the worksheet. (Keep in mind that I designed all the

worksheets so that you’ll always answer YES. Shocking, I know.)

CAUTION

You CANNOT phone this in.

Step 1: The Preparation Chapter 8: Before You Begin...


CHAPTER 8

Before You Begin...

1. Be kind to yourself during this process. If you’re like most people, you’ve never written a business plan before. So give

yourself a break and don’t be too hard on yourself. You were smart enough to get

help and buy this kit, right?

Remember that writing a business plan is not something most people—even

business people—naturally know how to do. In fact, knowing how has no bearing

on how good you are at running a business. It’s the quality of your plan’s answers

that count. So don’t beat yourself up if this seems hard or overwhelming right now.

I’ve been doing this for decades, and I’m here to help you.

Keep in mind that even though I’m going to be very direct in telling you to “do this”

and “don’t do that,” I’m not judging you, and I don’t want you to judge yourself,

either. Just pay attention to what needs to be done and then do it.

2. BEFORE YOU DO A SINGLE WORKSHEET, read this book all the way through! You need to read this book without the distraction of thinking you need to get

started on the worksheets right away, because you don’t, and in fact, you shouldn’t.

It will all make more sense if you pay attention to the hows and whys first.

Once you finish reading, you’ll find the worksheets at the end. You can print them

out or type directly in them by using PDF software such as Adobe Reader.

I recommend doing the worksheets in order, but if you don’t do it that way, don’t

worry; the worksheet police won’t come after you. The main thing is for you to keep

moving forward and making progress in whatever way is most productive for you.

3. Pace yourself. This book wasn’t designed to be a quick read, so I don’t expect you to read it all in

one sitting. In fact, I’d advise against it because your brain won’t absorb everything.

Step 1: The Preparation Chapter 8: Before You Begin...


The same goes for the worksheets. There’s a lot of information to take in, a lot to

think about, and plenty of legwork to do. So pace yourself.

4. Be sure to take advantage of my FREE Virtual High Five Program. Okay, I know it sounds corny. But everyone can use a high five, pat on the back, or

gold star when they’re working hard—why should you be an exception? So here’s

the deal:

• When you finish reading this book you can email [email protected]

and tell me that you’re done. You’ll get a ‘high five’ email—from me—

congratulating you on getting through it.

• Each time you finish a worksheet, send an email to my ‘hi five’ email and I’ll

send you a virtual high five for that, too. Feel free to do this as often as you like.

After all, who can resist having their very own cheering section?

• Keep me posted on your success stories—they really do make my day—and I’ll

keep giving you virtual high fives for those, too!

Okay, are you ready? Now turn the page and let’s get started!

STEP 2: THE DISTILLING PROCESS

– The Words –

In this section I provide step-by-step instructions to help you distill your business concept to its most essential elements so you can develop your business plan’s all-important narrative.

Step 2: The Distilling Process – The Words Chapter 9: Introduction to The Words


CHAPTER 9

An Introduction to The Words

Whether you’re writing a business plan to serve as an operating blueprint or to raise funds, spelling out what you’re going to do and how you’re going to do it is a crucial step before launching your business.

Ultimately, a strong narrative:

• Explains your concept in a compelling way

• Maps out your execution

• Drives your financial projections

Putting your concept into words forces you to clarify all the elements you may think

you’ve pinned down, but probably haven’t. You know that saying, “The devil is in the

details?” Well, it’s those overlooked details that can cause serious headaches later on,

when you’re running your business.

The narrative also plays a critical role in your financial projections. That’s because your

words drive the numbers. Surprised? Let me explain.

Let’s say you’re forming your marketing plan and you have an epiphany—you’ve come

up with a BRILLIANT strategy you’re sure will make all the difference. But it will cost a

lot. Well, that added expense will have a big impact on your financial projections.

It’s like a fairytale.

Your business plan’s narrative explains, in words, the whats, hows and whys. It’s a

means for developing and shaping your vision so you can share it with prospective

investors, partners, employees and customers. So your narrative needs to tell a story, a

compelling one that excites the people you’d like to support your (ad)venture. Think of

your story as a fairytale of sorts.



• First, you’ve got Cinderella (or Cinderfella, as the case may be), the woefully

ignored or underserved customer.

• Then you’ve got the ugly stepsisters... the current providers who are making

Cinderella miserable, either by design or through ignorance (or both). Then again,

maybe there aren’t any ugly stepsisters at all. Perhaps Cinderella’s needs are being

completely ignored.

• Last, but not least, there’s Prince (or Princess) Charming (that’s you). You’re the

one who comes to the rescue and solves Cinderella’s problem.

Your story needs to show not only why customers will buy from you, but why they’d

choose you over the competition. Your story needs to give reasons, compelling

reasons, why customers will go through the hassle of changing their routine, even if

your solution is better. In fact, your biggest enemies are fear and inertia. We’ll talk

about both in the next chapter. Suffice it to say they’re the evil dragons in this tale.

Bottom line: To achieve your ‘happily ever after’ you (Prince/Princess Charming) need

to not only solve Cinderella’s problem, but slay the dragons while you’re at it. That’s

how you (and Cinderella) get your happily ever after.

And it’s like a roadmap.

Your narrative is also a roadmap. While the fairytale tells the story of what you’re going

to do and why, the roadmap explains how you’re going to do it. That means getting

specific about how your startup will operate—for instance, you’ll pinpoint:

• The products and services you’ll offer, and at what price

• How you plan to reach your target customers (and keep them coming back for

more)

• The employees you’ll need to hire, including the knowledge, skills and abilities

they’ll need to have

A ‘no bullshit’ zone.

The fairytale analogy may have led you to believe that exaggerating and overselling are

okay, but nothing could be further from the truth. It’s vital that you avoid unsupported,

exaggerated statements and promises. You need to stick to the facts.



Seasoned investors have a nose for bullshit. It’s the worst kind of red flag there is—one

whiff and you’ve lost them. Family and friends have well-developed B.S. detectors, too.

So do yourself a favor and be sure you have the facts to support what you’re saying.

That said, there will certainly be times when you’ll need to make educated guesses. In

those instances, be sure they are educated. Do your homework so you can explain the

reasoning behind any assumptions you make.

The head –and– the heart

So between the roadmap and the fairytale, I think we’ve covered both the head and the

heart. It’s important to connect with both.

Of course, it should go without saying that your business concept needs to be

appealing on an analytical level. That means laying out all relevant facts and figures, as

well as supporting your assumptions. But it’s just as important to connect on an

emotional level. It’s through emotion that readers begin to feel like they have a stake in

your success.

When someone is connected to your story on an emotional level, when you tell a

compelling story with the facts to back it up, who can resist? That’s how you lay the

groundwork to hook the reader and take them on the startup journey with you. Only

when they’re with you can you expect them to want to learn more or, even better,

invest in your business.

So keep in mind that you want your business plan to connect on two levels: the head

(facts) and the heart (emotion).

Step 2: The Distilling Process – The Words Chapter 10: Describe Your Business


CHAPTER 10

How to Describe Your Business (What problem are you solving for paying customers?)

In this chapter I’ll help you think about:

• The problem • Your solution • Why customers will pay for your solution

By the time you finish reading this chapter you will be able to describe your business in

terms of the problem people are experiencing, and why those people will pay for your

solution.

Talking about your business this way is far more effective than simply stating what

your business is or does (saying, “I sell widgets” isn’t especially illuminating).

Let me show you what I mean.

Establish a frame of reference.

Describing your business is the first step in writing your business plan. It seems so

simple—deceptively simple, in fact.

If an investor asks you to describe your business, and you own a restaurant, most

people simply say “I own a restaurant” and leave it at that. You could answer that way,

but you’re not describing it in a way that’s especially compelling. When it comes to

describing your business it’s not really about stating what it is, it’s about the problem

you’re solving for customers—paying customers.

Better that you describe it in terms of:

1. The problem are you solving or the need isn’t being met

2. Your solution



3. And why people will pay for your solution

Define the problem.

A business exists to solve problems, so rather than thinking in terms of changing the

world or selling the next big thing, it’s important to focus on the problem you’re

solving or the need that exists in the marketplace.

Describe your solution.

Telling people that your solution is better than what’s currently available isn’t good

enough. You’ve got to describe your solution in terms of how it makes their lives easier

or better.

In other words, you need to explain:

• How your solution solves their problem

• Why it makes sense both practically and financially

Why will people pay for your solution?

Let’s assume you’ve identified a problem and your solution is the best thing since

sliced bread. You’ve struck gold, right? Well... not so fast.

• Does your idea make sense?

• Do people even agree that it is a problem?

If so, are there enough people willing to pay for your solution? If the answers are yes,

you need to be able to prove it with supporting facts. That’s when you know you have a

real business opportunity.

Two examples:

What follows are two scenarios that illustrate what I’m talking about. Note:

these examples are brief—what you write in your business plan should include

a few more details to help investors relate to both the problem and your

solution.



SCENARIO #1 You’ve invented a robot that takes out the kitchen garbage. You could simply describe your business by saying, “I sell robotic kitchen garbage removal systems” or “I sell robots that take out the garbage for you.” But your business is actually more than that. Here’s what I mean: The Problem: Your current kitchen garbage removal system is human and, therefore, totally unreliable. Perhaps you or someone else in your family needs constant reminding. Tempers flare, arguments ensue.

Your Solution: You’ve invented Trash-bot, a robot that automatically takes out the garbage at the touch of a button. Set the timer and Trash-bot automatically and reliably removes your overflowing garbage bag, transports it to your outdoor trash can and neatly places it inside (closing the lid afterwards, of course). Upon returning, Trash-bot neatly places a replacement garbage bag in your kitchen garbage receptacle.

Why Customers Will Pay: Who wouldn’t?! Most people I know (including me) hate taking out the garbage, or having to nag other family members to do it. It stinks (no pun intended) having to go outside in all kinds of weather, usually at night. And the job is relentless. I hate having to take out the garbage. Every. Single. Day.

SCENARIO #2 You want to open a diner in your neighborhood. The Problem: There aren’t any affordable, family-friendly restaurants in your neighborhood. Everything is too expensive or too fancy. Families and singles want good food at a fair price, in a place that’s welcoming and looks nice. More specifically, families want a place to take the kids, and singles want a convenient place to meet friends, whether for dinner or after a night on the town.

NOTE

This is also where you can talk about the customers who have already paid to use the Trash-bot prototype, or the focus groups validating that customers are willing to pay for such a robot, and at what price. You get the idea.



Your Solution: A diner with clean, modern aesthetics; good food at a fair price; value for your dollar; comfortable and reliable. A place to get breakfast all day, great omelets, sandwiches, hot dinners.

Why Customers Will Pay: The location is on a bustling street with lots of foot traffic and a major subway stop, as well as high-end, pricey restaurants and stores; several bars are nearby in the area. Lots of families with young children live within walking distance and they’re craving a casual place with good food. The same goes for singles. You know this because you’ve done your homework—according to the local neighborhood association, chamber of commerce and focus groups, there’s a clear need.

Helpful Hints:

The importance of structure.

When describing your business it’s surprisingly easy to veer off-track without realizing

it. Yes, you’ve got a lot to say; so it’s tempting to put it all down on paper right at the

beginning. I get it. But talking about your entire concept in one long paragraph is too

confusing for the reader—so don’t do it!

The structure of your business plan is important for two reasons:

• It makes it easier for others to follow your vision and understand your perspective.

• It makes it easier for you —the founder—to be sure you don’t inadvertently skip

over important details that need to be addressed.

Imagine the difference between reading a book that’s one long paragraph (making it

easy to zone-out and miss important details) and one that has well-defined chapters

with separate paragraphs and headings.

If you think of your business plan as a roadmap, a plan without structure is like a map

that shows the start, the finish, and only a blue line in-between. A business plan needs

more than that to be effective.

Including the highlights along the way is important, not only because they draw the

reader into your story, but because you’re forced to address details and tackle issues

you may not even be aware of at first glance. Ultimately, you’ll be less likely to run out



of gas, so you’ll arrive at your destination ready for whatever awaits you, even if it’s not

entirely what you expected when you first began.

One step at a time.

As I explained earlier, it’s really easy to find yourself talking about your great idea (your

solution) before you describe the problem customers are experiencing. Similarly, it’s

easy to talk about your amazing products and services before describing your solution.

It’s hard, I know. Even I get off-track when I’m working on a first draft. That’s okay. The

key is to go back and edit what you’ve written.

Be sure to define the problem before you explain your solution, and be sure to explain

the solution without describing the details of your products and services (I promise

we’ll talk about them to your heart’s content in the very next chapter).

Fear and inertia.

When it comes to attracting customers, it’s important to understand that their fear and

inertia are your worst enemies. It’s harder than you think to persuade people to change

the way they do things.

Even if your solution makes more sense, is more efficient and will save people lots of

money, it’s just plain hard to change people’s habits. Believe it or not, emotion and

routine play a big role in people’s buying decisions. As much as we’d like customers to

be logical, that’s often simply not the case.

Fear of the unknown has kept many a customer tethered to their lousy cable company

or unreliable Internet service provider. They worry: Will the new company be worse?

Will I have to learn a whole new system? What if I decide to switch back, will there be a

financial penalty?

Then there’s inertia. Sometimes, it just takes too much effort to make a change—

physically, mentally or emotionally.

in·er·tia [in-UR-shuh] n. When someone or something maintains its current state of momentum or rest unless or until it’s changed by an external force.

So it’s important to ask yourself: Is your solution irresistible enough to overcome fear

and inertia?



Even though your solution may be better than what’s currently available, it has to

overcome people’s natural resistance to—and fear of—change.

Proprietary products and features are special.

When a product is patented, has a patent pending, or is legally protected in some other

way, it’s important to talk about it right up front.

Even though features are typically addressed in Section B (where you’ll describe your

products and services), proprietary features are so special that they deserve a special

shout-out right up front in Section A (where you first describe your business). I like to

mention anything proprietary right after the solution, under its own subheading.

Especially when you’re trying to attract outside investors, it’s important to hook your

audience right from the get-go. Proprietary products and/or features are unusual

enough (and attractive enough) that they qualify for special treatment and need to be

emphasized. They separate you from the pack, so be sure to take advantage of them.

Step 2: The Distilling Process – The Words Chapter 11: Products & Services


CHAPTER 11

How to Write About Your Products & Services (What, exactly, are you selling?)


• The products and services you’re selling • Features and benefits • Atmosphere or mood (if relevant) • Unusual products and services, especially technical ones • Pricing

Describing your products and services involves more than just listing them, but that

doesn’t mean it has to be super-complicated either.

By the end of this chapter you’ll know the difference between a feature and a benefit,

how to identify what you’re really selling, and how to develop your pricing structure

(and it won’t hurt a bit).

How to begin.

I like to begin by listing the products and services offered. I usually number them, and

then follow each one with a short, objective description.

It doesn’t stop there, though. Remember, writing a business plan that works for your

business means you need to spell out the details, not just scratch the surface.

Here’s what I mean. Crossroads Café (not their real name) is located in a remote yet

touristy town. The following is actual text I used several years ago for their self-funded

venture. (They’re doing so well that they recently expanded by adding a restaurant and

bar.)



EXAMPLE:

1. Beverages and Prepared Foods. Beverages include coffee, tea, chai, lemonade, smoothies and soft drinks. Prepared foods include baked goods, sandwiches, wraps and packaged items. All items use high quality ingredients, are skillfully prepared and served fresh. Although our products are similar to those offered at national franchises like Starbucks, we hope our quality adds something noteworthy. A real distinction is the ambience and character of our location, and the simple fact that our offerings are available at all in such a remote area.

2. High Demand Retail Items. Maps, film, lip balm, sunblock, insect repellant, and other accessories are always in high demand. Visitors typically need convenient access to these items.

3. Branded Retail Items. High quality Crossroads-branded coffee mugs, coffee beans, and hats not only make unique gifts and souvenirs, but are practical and useful. They also demonstrate brand loyalty and local support.

4. Specialty Retail Items. High quality, locally produced honey, artwork, crafts, pottery, outdoor accessories and other items that demonstrate the unique design, artistry and local character of the area. These are products that are unique to the area, useful and/or artistic in a way that reflects the local character, making memorable souvenirs or gifts.

5. Internet Access. Connectivity for all. Free wireless access is yet another reason to come in and stay awhile.

Features and benefits (and knowing the difference).

Next, it’s time to think about the features and benefits of your offerings. If your

offerings set you apart from the competition, this is the time to highlight them.

I recommend using two separate subheadings—one for features and the other for

benefits. That way, you can maintain structure and keep the story flowing. To get

super-detailed about it, here’s what I like to do:

• Number the features and the benefits so they catch the reader’s eye.

• Summarize each feature and benefit in four words or less.

• Type the summary in bold.



• Follow the summary with a short one-sentence description (not in bold). Limiting

your description forces you to distill it down to its most important element(s).

The following example is actual text I used for one of my clients who received funding.

They’re a wine bar with retail shop using what was then a new wine dispensing

technology.

EXAMPLE:

Features:

1. Volume Control. Software ensures that pours are exact (down to the drop), allowing the owner to set serving sizes and guarantee that the same amount is served every time.

2. Automatic Self-Cleaning Spouts. Pouring spouts are automatically cleaned after every serve, ensuring the highest health standards and consistent wine quality.

3. Easy to Use. Different height wine bottles can be accommodated at each individual bottle position. Each machine is operated using electronic push-buttons with back-lit displays.

4. Computer-Controlled Systems. Software monitors each bottle, tracking when new bottles are opened, the number of servings and when the bottle is almost empty.

Benefits:

1. Try Before You Buy. We let our customers try before they buy, offering a wide range of wines from which to choose.

2. Fun and Welcoming. Guests can enjoy and learn about wines in a fun and welcoming environment. Our approachable staff and warm, inviting environment encourage patrons to kick back, relax and enjoy the wine.

3. Eliminates Waste. Color, taste and aroma make each wine unique; however, a few minutes after opening the bottle, wine begins to oxidize and degrade.

4. Volume Control. Eliminates over-pouring (saving us money) and under-pouring (ensuring consistent value for customers).



5. Always Fresh. Our machines protect the wine and keep it fresh for more than 3 weeks.

6. Real-Time Inventory Control. Software provides real-time inventory control and tracks which wines staff and/or customers are serving.

* Notice how ‘Volume Control’ is handled one way in Features and another way in Benefits.

Since it’s easy to get features and benefits mixed up, here’s a quick explanation of each:

A feature relates to the product itself. It is objective—a fact or function. For example, if

your product is a coffee maker, the auto-off function would be a feature.

A benefit is why it matters to the buyer. It is subjective—something considered to be

helpful or valuable. Examples include saving time, saving money, or making a task

easier or safer (e.g., an auto-off function makes a product safer).

The more technical the product or service, the more you can talk about features; the less technical, the more you want to focus on benefits.

What are you really selling?

Remember Trash-bot, the automated garbage removal robot from the previous

chapter? Let’s assume Trash-bot is your invention. When someone asks what you’re

selling, it’s natural to think (in this case), “I’m selling a garbage removal robot.”

But you’re really selling more than that. What you’re really selling is:

PET PEEVE ALERT

NEVER say that one of your benefits is superior customer service. Puh-leez.

Everyone starts out thinking their company will provide better customer service than the other guy. But there’s no way to prove it. So please don’t put it in your business plan since there’s no earthly way to support that claim.



• Convenience

• Family harmony

• Status (if Trash-bot is pricey and is positioned to attract early adopters)

So think about what you’re selling on a deeper level. Are you selling safety? Security? A

little piece of home? Adventure? A vacation from your hectic life?

What you’re really selling are solutions. By identifying your customers’ needs, you’ll be

able to define your solutions and, thus, what you’re really selling. This will help you

effectively market your offerings to reach your ideal customers.

Atmosphere (or mood).

Depending on your industry, the atmosphere at your physical location may be

something important to convey. Perhaps your restaurant has a sophisticated vibe, or a

homey one, or it may have a laid-back sawdust-on-the-floor kind of feel. Your retail

shop may have sleek, modern furniture and fixtures that project a cool, minimalist

quality, or it may have a more classic feel, with dark wood floors and leather

upholstery. Regardless, you should share this part of your vision whenever relevant.

If you’re selling to consumers from a brick-and-mortar storefront, and if atmosphere is

an important part of your company’s brand identity or how you engage with your

customers, then it’s important for you to convey that feeling/mood. The same goes for

your website, especially if you’re selling direct-to-consumer. It’s a way to draw in

customers, immerse them in your story, and connect with them on an emotional level.

As I mentioned earlier, you want to connect with your audience both intellectually (the

head) and emotionally (the heart). When people connect to your story on an emotional

level they begin to feel like they have a stake in your success. So if atmosphere or the

visuals of your startup are a big part of your company’s brand identity and the

customer experience, be sure to write about it here.

Unusual products and services.

If you’re selling a product that’s unusual—something that hasn’t been seen before, or

something that’s especially technical and would be unfamiliar to most people, such as,

say, an automatic wine dispenser, you need to be sure to explain it in a way that even

your mother would understand. (No offense, Mom.)



If yours is a business that’s very process-oriented—perhaps something like mortgage

lending, or selling items on eBay for people who don’t want to do it themselves, or

software as a service (SaaS)—this is the section where you need to describe how your

process works, step-by-step.

This section is also where you’ll need to explain how you plan to manufacture, source,

and/or deliver your products and services. And if R&D (research & development) is

important to your business, this is where I discuss the role it plays in developing new

offerings.

Pricing.

Figuring out pricing makes a lot of startups nervous. It’s the ol’ Goldilocks problem of

deciding on prices that aren’t too high and aren’t too low... but just right.

The easiest place to begin is by finding out what your competitors are charging. Then

ask yourself, “How does their product or service differs from mine?”

• Do they include more bells and whistles or fewer?

• Is their service more basic or more elaborate?

The answers to these kinds of questions will inevitably affect your decisions. Keep in

mind that if your prices are noticeably different from the competition’s, you’ll need to

explain why.

Some business owners are surprised to discover that low prices sometimes turn off

prospective customers because they equate low prices with low quality. On the flip

side, deliberately pricing your offerings higher than the competition can work well

under the right circumstances—especially when there’s a greater perceived value.

If there’s something genuinely unique about your offering, be sure to factor it into your

price. Perhaps your offering is so unusual that you need to offer incentive pricing to

encourage customers to try it—or it’s so unique and desirable that you can charge a

premium. Regardless, you may need to experiment and test different price points.

Of course, there are other factors you may also want to include in your calculations.

Here are just a few:

1. Cost-Based vs. Value-Based Pricing



Cost-based pricing relies strictly on your costs, plus a markup, to calculate the prices of

your offerings. In other words, your cost of goods sold plus a specific dollar or

percentage margin.

Value-based pricing includes qualitative factors, too. Perhaps your service includes

intangibles, such as in-depth or unusual expertise. Maybe your product has unique

features or benefits. Value-based pricing may take a bit more research (and trial-and-

error) to develop, but it also helps you avoid leaving money on the table.

2. Business Model

Is your business model subscription-based, where the customer pays a monthly fee

regardless of how frequently your product/service is used? Or is it fee-for-service,

where the customer pays only when purchasing a specific product or service?

3. Bundling

Bundling refers to combining individual products and services so that the ‘bundled’

price is less than the price of purchasing each item individually. In other words, it’s a

way to offer your customers a discount. I do it with my packages of consulting hours.

Car dealers do this all the time. Go ahead... compare their options packages to the

equivalent à la carte pricing.

4. Customer Acquisition Cost

Customer acquisition cost (CAC) refers to the expenses involved in convincing people

to buy your products or services, such as advertising, marketing, sales and related

overhead. It’s typically calculated as your total cost of sales and marketing (and other

related expenses) over a given period, divided by the number of customers you acquire

in that period. SaaS (Software as a Service) companies, in particular, find this

measurement useful.

Remember: One step at a time.

Tempting as it might be, don’t write about your target markets or your customers here!

And no talking about how large your industry is. Those are things we’ll talk about in the

next chapter.

Step 2: The Distilling Process – The Words Chapter 12: Market Analysis


CHAPTER 12

How to Write About Your Market (Giving color commentary on your industry)


• Your industry • Where your company fits • Your ideal customers • How you’ll turn target customers into actual paying customers • How you’ll keep those customers coming back

Writing about your market is a pretty straightforward process. I like to think of it as a

funnel, where you begin with a broad overview and gradually distill it down to the

specifics relating to your business.

By the time you finish reading this chapter, you’ll know how to talk about your market

so that someone who’s not familiar with it can not only understand your industry, but

your place within it. You’ll also learn to think about your ideal customers and how you

plan to reach them, turn them into actual paying customers, and keep them coming

back for more.

Bird’s eye view.

Before talking about the specifics of your business it’s important to give investors an

overview of your industry, some perspective, if you will. Remember, they’re probably

not experts to the extent that you are. So introduce them to your world gradually.

Color commentary.

Start by thinking about the kinds of information that will give them a frame of

reference. Think back to the last time you were watching sports on television... There’s

always someone giving color commentary, right? He (or she) shares background



information and statistics, as well as information about the players. That’s how you

need to begin this section: with color commentary on your industry.

Think about your industry as a whole. What’s the history? How has it evolved? Is it still

changing? If so, in what ways, and if not, why not?

Drilling down.

Next, let’s narrow the focus a bit. What drives or motivates customers in your industry?

What drives or motivates suppliers, service providers, and manufacturers?

Other questions to answer include:

• Is the market competitive? If not, why not?*

• How big is your market? (e.g., annual customer spending or industry sales)

• Is there growth potential? If so, explain why.

* You should keep the answer to this question brief—no more than a sentence or two since you’ll be giving more detail in the Competition section, which we’ll talk about later.

Keep in mind that most people’s eyes glaze over when a whole slew of statistics are

thrown at them; so use them sparingly. Think of using statistics the same way you use

spices when cooking... a little goes a long way.

Now let’s take things a step further. Are there things specific to your industry or your

market that can affect your business? For example, will Christmas be your busy season

and summer your slow season? Vice versa?

Many retailers earn the major portion of their revenues during the last three months of

the year thanks to the holiday shopping season. Those same stores often have very

slow sales during August, when many of their customers are on vacation. If you’re an

ice cream shop located in the northeast, you’re probably selling ice cream like

gangbusters in the summer and not so much in the winter.

So don’t forget to think about how your sales may be affected by outside forces, such as

holidays, weather, tourist patterns and trade shows hosted in your city.



Who are your customers?

Now we’re getting to the nitty-gritty. Who are your customers? Who is going to buy

from you and why?

Let’s start by having you describe your ideal customer; picture him or her in your head.

You’re likely to have more than one type. Try getting inside their heads and become

them.

Are you selling to other businesses (B2B), directly to consumers (B2C), or both? If

you’re selling to consumers, enlist a friend or partner to role-play so you can think

about your ideal customer’s wants and needs. Who is s/he? Why does s/he buy from

you?

Imagine as many details as possible, anything that impacts their buying decisions:

• Demographics (age, gender, income, etc.)

• Lifestyle (how they spend their free time; what’s important to them, etc.)

• Location

• Profession

• Personality

If you’re selling to other businesses, who are the decision-makers? Will your offering

make his/her job easier? If so, how? (If not, you’re not targeting the right person.)

How will you turn prospects into customers?

Once you’ve identified your ideal customers, it’s time to think about how you’ll turn

them into actual paying customers.

• How will you reach them?

• How will you attract them?

• How will you close the sale?

These are the questions at the heart of your marketing and sales strategies. Some

startups hire experts to develop their marketing, advertising, public relations, and sales

strategies. Others are able to build their customer bases using little to no capital by

relying on social media, blogging, networking, and grassroots marketing strategies.



Additional methods include lining up speaking engagements, running workshops, and

becoming noted experts in their fields.

Your industry and target markets will likely play a role in how you choose to develop

your marketing/sales plan, but keep this in mind: there’s no one right way to do this.

For example, some businesses need to hire a sales force while others don’t. Regardless,

you need to do your homework to figure out the best way to reach your target

customers.

Research is critical, but I’m not talking about the kind you do in a library. Get out of the

house or out of your office and:

• Talk to competitors

• Talk to prospective customers

• Talk to suppliers

Their insights will help deepen your understanding of the marketplace, as well as the

wants, needs, and challenges your customers and partners are facing. Reading as much

as you can about your industry via blogs and other media outlets will help a lot, too.

How will you keep your customers coming back for more?

Just because you’ve made the sale doesn’t mean your work is done. How will you turn

customers into repeat customers? It’s important to think about how to continually

build and strengthen your relationships with your customers, suppliers, and partners.

Develop a plan to keep your customers engaged, whether it’s through social media,

email, monthly sales calls, events, developing new offerings and/or promotions.

What is your overall sales strategy? Are there opportunities to cross-sell (e.g., some

cheese to go with that wine)? or up-sell (e.g., premium app = no ads)? Should you

provide sales training for your staff? For example, do you need to train your waitstaff to

take drink orders and then ask customers if they’d like to order appetizers? Have you

found that showing a dessert tray after dinner increases dessert sales?

Last but not least, have a plan in place to ensure that customers are satisfied. When the

inevitable happens and you’ve got an unhappy customer, follow your plan to make

things right (or as right as you can).

Step 2: The Distilling Process – The Words Chapter 13: Business Location


CHAPTER 13

How to Write About Your Business Location (Where are you located and why?)

In this chapter I’ll help you think about where your company is located and why. We’ll also talk about:

• Size and type of space • Features you need for your location • Features you want for your location • Budget

Writing about your business location sounds simple enough. Just jot down the address

or neighborhood where you’re planning to locate, list the rent, and you’re done, right?

Wrong. After reading this chapter you’ll be able to explain how you chose your

location, why it’s the right choice for your business, and how those choices affect your

bottom line.

Where to begin.

Odds are, while you’re writing your business plan you haven’t chosen a specific

location for your business. Perhaps you have a few neighborhoods in mind, or even a

particular street you like. The reality is, signing a lease usually happens after your plans

have firmed up. That’s fine, but that doesn’t mean you’re not off the hook.

Working from home.

Some startups don’t need official offices. For example, many business consultants (like

me) only need a home office. That said, there are still several issues to think about.

Even if you don’t need formal office space, you probably need a place to meet with

prospects and clients. So at the very least, be sure to think about meeting locations that

can work well for you.



Some things to consider:

• Is it quiet enough to hear each other easily?

• Is it private enough to discuss confidential or sensitive issues?

• Is it private enough to avoid running into competitors?

Location can impact your bottom line.

In the previous chapter we talked about your ideal customers: who they are as well as

how you will attract them, keep them, and find more like them. This kind of

information playa an important role in your location choice.

Additional factors to consider:

• Foot traffic: Plentiful foot traffic can be a huge plus for retailers and other

consumer businesses.

• Proximity to transportation: Being near a busy subway or bus stop can make a big

difference to a coffee shop (and morning commuters will love you for it).

Manufacturers can reduce costs by locating near rail, river, or highway

transportation.

• Proximity to competitors or complementary businesses: One coffee shop located

next to another may not be such a great idea. However, opening a late-night diner

steps away from popular nightclubs and bars could be a great choice.

• Parking: It’s always a plus to have free parking for customers.

• Zoning: It’s critical that you choose a properly zoned location for your type of

business. For example, not every commercial space is zoned for a restaurant.

Regardless of the choices you make, the reasoning behind them is just as important.

Your decision-making shows how well you know and understand your industry, your

target customers, your competition, and your business community.

The difference between wants and needs.

Some location features are must-haves—absolute requirements to make your business

work, such as commercial zoning or a minimum of 15,000 square feet. Others may be

things you want, but don’t really need.



Inevitably, some items on your wish list will be more important than others. For

example, it might be a high priority to be within 10 blocks of the Interstate so you can

keep transportation costs down, while it might be a low priority to have free parking for

customers (an added bonus, but not required for your business to be successful).

Regardless, it’s important to distinguish between your wants and needs so you can

prioritize effectively. You’ll need to weigh the impact—positive or negative—each item

can have on your bottom line, and if you find a location that meets all your wants and

needs, count yourself lucky—such a thing is rare indeed!

Calculating your budget.

Speaking of good choices, this is the time to think about how much and what kind of

space you’ll need, as well as how each will affect your budget. What are the rents in

your area? Are there some neighborhoods that are more cost-effective than others?

Doing your homework means speaking with a leasing agent and looking at available

space. Once you get a feel for the market, you can better prioritize your wants and

needs. Through this process you’ll learn the price per square foot in the neighborhoods

you’re considering. You’ll also be ready to use ‘real’ numbers when preparing your


While using accurate rent figures is a must for your financials, you don’t necessarily

need to commit yourself to exact numbers—relying on narrow ranges for your space

needs and price per square foot is perfectly acceptable. Just be sure to include your

assumptions in your financial projections.

Understanding build-out.

When it comes to renting commercial space, there’s one more item you need to

include in your calculations: it’s referred to as “build-out” or “leasehold

improvements.”

Most office and retail buildings basically consist of four walls and a door, with the idea

that the space will be finished to meet the specific needs of each tenant.�Finishing the

raw space is known as build-out, and it’s typically part of the lease negotiations

between the building owner (the landlord) and the tenant (you).



Both sides have to agree on:

• What improvements will be made

• Who will pay for them

• Who’s in charge of getting the work done

• What you may or must remove or change back at the end of the lease

Multiple locations.

Some startups plan for multiple locations right from the get-go. If you plan to open

additional locations within a year or two, it’s important to explain not only where you

plan to open more locations, but why. Again, it’s a matter of discussing the reasoning

behind your choices in order to demonstrate how well you know and understand your

industry, your target customers, and your competition.

Last, but not least, be sure to discuss any factors that could speed up or slow down

your expansion plan.

Step 2: The Distilling Process – The Words Chapter 14: Competition


CHAPTER 14

How to Write a Competitive Analysis (Who is your competition?)


• Your industry’s competitive environment • How your products/services differ from what’s currently available • Why people will buy from YOU • Where your target customers are currently spending their money • Your top 3–5 competitors

Writing a competitive analysis is not as hard as you may think. By the time you’re done

reading this chapter, you’ll be able to evaluate, compare, and learn from your

competitors by using the template I’ve included later in this chapter.

Thus far I’ve been asking you to do a lot of self-reflection about your startup. Now it’s

time to look outward—specifically, at the competitive landscape of your industry and

your market segment. Before we get into the nitty-gritty of who your competitors are,

though, it’s helpful to start with an overview.

Bird’s eye view–redux.

In Chapter 12’s How to Write About Your Market, I talked about the value of writing an

industry overview to give investors some perspective before diving into the details. The

same goes for your competitive analysis. Most people won’t be as familiar as you are

with your market. Remember, while you’ve been immersed in the world of your startup

your investors mostly likely haven’t.

Similar to the market analysis, in this section investors need to be introduced to your

industry’s competitive landscape. That includes describing the competitive history,

leading players, and changing fortunes of competitors over the years, as well as any



other relevant information. Providing background and context is a great way for

investors to develop a frame of reference.

Answering the big question first.

So let’s start with a big, broad question: Is your market competitive? If not, why not?

Lack of competition could mean there’s a reason why others are staying away.

Maybe...

• there aren’t enough customers to sustain a business;

• the barriers to entry are too high; (e.g., the initial investment required is too large or

it’s too costly to lure customers away from the existing competition).

If your market is competitive, you need to explain why, and in what ways it’s

competitive. If relevant, a little history as to whether your market has been getting

more or less competitive over time is helpful.

You can continue by answering questions such as:

• How many companies are competing in your market? (ten? hundreds? thousands?)

• Are there obvious differences from one competitor to the next?

- If so, explain.

- If not, does the industry compete based on price? Something else?

• How long have your competitors been in the industry? Is it cutthroat or collegial?

• Are new competitors popping up every day? Or are they closing their doors and

dropping like flies?

The difference between direct and indirect competitors.

No matter what business you’re in, you’ve got competition—it’s just a question of

which kind: direct or indirect (or both).

Direct competitors are other businesses doing exactly (or almost exactly) what you do,

selling what you sell. So if you’re opening a bowling alley, your direct competitors are

other bowling alleys.



Indirect competitors differ because they’re not in the same business—however, they’re

competing for the same customer dollars. Staying with the bowling alley example, let’s

say you and your boyfriend/girlfriend/spouse have decided to go out on Saturday

night.

After dinner you have several choices: you can go bowling, see a movie, get tickets to a

play, or even make a night of it by having a dinner ‘experience’ at the local fondue

restaurant. In other words, you have plenty to choose from when it comes to how you

spend your money that night. The theaters (movie and play), as well as the fondue

restaurant, are your indirect competitors.

When considering where you fit in the competitive landscape, it’s important to

consider both types of competition since you may have more competitors than you

think.

How to identify your competitive advantage(s).

Now it’s time to narrow your focus. Think about your startup’s competitive

advantages—in other words, the features and benefits you offer that your competitors

don’t.

In other words, what advantages strengthen your market position relative to your

rivals?

Consider these factors:

• Price: Perhaps you’re able to offer lower prices because you can lock in better

pricing from your suppliers.

• Intellectual property: This refers to legally protected ideas, such as patents or trade

secrets relating to your products, technologies, and/or processes.

PET PEEVE ALERT

Simply stating that your product or service is better than the other guy’s is not good enough. The same goes for providing ‘excellent’ customer service. Both claims are too vague; you’ve got to be specific, using facts/evidence/proof.



• Exclusive relationships: Exclusive agreements or access to suppliers, customers, or

distribution channels are another competitive advantage.

• First to market: Being the first to offer a new product or service gives you an

opportunity to establish strong relationships with customers, suppliers, partners

and employees before any other direct competitors. Beware, though; being first is

no guarantee of success. Competitors can watch and learn from your mistakes,

then enter the market with a better version, better execution, or both. Remember

MySpace? Enough said.

Time to name names.

The next step is to narrow your focus even further and get specific about your

competitors. In other words, it’s time to start naming names.

I recommend choosing 3-5 direct competitors (indirect if you don’t have enough direct

ones) and examining each one’s products and services, strengths and weaknesses, and,

if possible, their financial information. In other words, try to learn all you can about

them.

Taking a detailed look at your closest competitors not only lets you know what you’re

up against, but helps you identify what your competitors are doing right and what they

may be doing wrong—both of which can help improve your startup.

A template for your competitive analysis.

For each competitor I like to focus on these six topics:

1. Who: List the company name, address (if relevant) and URL (website address). I

also like to include the company’s logo because it adds some visual interest without

being a distraction. It’s easy:

a. First, do a Google image search (for well-known brands, you can find free, high

resolution logos at brandsoftheworld.com).

b. Next, click-and-drag a copy of the logo onto your desktop.

c. Then drag-and-drop it into your business plan, adjusting the size so that it’s

small, but readable.



2. About: Write a brief description of the company. It’s a great way to set the stage

before diving into the details. I usually find the information I need right on the

company’s website. If relevant, I also include:

a. The size of the company (in terms of revenues, employees or both)

b. Where the company was founded (and by whom, if relevant) and where they’re

based

c. Whether the company is publicly or privately owned

3. Products/Services: This is where you write 2-3 sentences describing exactly what

the company sells, as well as any other descriptive information that distinguishes

the company from its competitors. Again, I often get this information directly from

the company’s website.

4. Strengths: Using bullet points, make a list of the company’s strengths—what

they’re especially good at doing. I typically type a short one- or two-word

description in bold and then explain further in normal text (as I’m doing here).

5. Weaknesses: Again using bullet points, make a list of the company’s weaknesses.

This can include what you think they’re doing wrong, the complaints you’re

hearing from customers, suppliers, etc. Again, I typically type a short one- or two-

word description in bold and then explain further in normal text.

6. (optional) Lessons Learned From Observing: Take a good look at your

competitors. Is their business growing? shrinking? Can you pinpoint why? Your

observations may help you avoid mistakes with your own business.

As you develop your competitive analysis, keep in mind that once you launch you

won’t have this kind of time again. Studying your competition now will really pay off

down the road, so take advantage of it!

Step 2: The Distilling Process – The Words Chapter 15: Management Team


CHAPTER 15

How to Write About Your Management Team (or... Who’s leading your company?)


• Your management team’s backgrounds and professional experience • Duties and responsibilities of each team member • Who reports to whom • Advisory boards

The Management Team section may sound pretty straightforward—just a matter of

writing some bios—but there’s more to it than that. In the worksheets I’ve included

samples to help you to write yours.

As with the other sections of your business plan, you’ll want to present the full picture

of your startup’s capabilities. That means preemptively answering the questions that

naturally occur to investors as they size up a company.

This chapter walks you through the typical doubts and reservations that go through the

minds of investors as they evaluate startups (and their founders) so that you can address

them ahead of time. By the time you’ve finished, we will have covered the most

important ones so that you can address them ahead of time.

Can your team execute?

The management team is arguably the most important element of your startup. Even

with the best ideas, without a talented team to execute, the idea becomes worthless.

Not to put too fine a point on it, but your management team is all that stands between

you and failure.

Let’s say you’ve got a stellar business plan. You’ve followed all my advice and then

some. Even better, you’ve got a product or service that customers are dying to buy—



they’re lined up around the block. But... your product breaks after ten days, or your

supplier hasn’t delivered the parts you need, or tech support keeps your customers

waiting on hold too long, or the dog ate your homework, or... well, you get the picture.

Meeting customer needs means delivering on your promises: on-time and on-budget.

You need to be able to turn your plans into action—action that is well executed. Having

the right team in place is critical.

Even if you’re a one-person show, you may need to hire outside specialists when

you’re short on time, experience, or funds. Plenty of companies, whether startups or

not, outsource functions such as human resources, social media, even CFO duties, to

name a few. In your business plan be sure to include any outsourced solutions that fill

important company needs.

Investors fund people, not ideas.

As I’ve said, your company’s success rests in the hands of the people (or person)

leading your company.

If you’re counting on outside funding, know this: They invest in people, not ideas.

Even if yours is a solo venture, be sure to highlight your experience, accomplishments,

industry knowledge, contacts, and passion. Why did you choose to start this business?

Why this idea over all others? Why this industry?

If you’re writing this business plan for yourself, the Management Team section gives

you tangible information you can use when:

• Persuading customers to buy your product or rely on your expertise

• Convincing suppliers to extend you credit

NOTE

Extra brownie points and customer loyalty if you deliver early and under budget.



• Winning over the media when establishing yourself as an expert in your field

How to write professional biographies (“bios”).

A professional bio is the CliffsNotes™ version of a resumé. They’re too lengthy for the

body of the plan, but in the appendix I like to include full resumés of the founders as

well as the rest of the management team.

Writing a strong bio can make all the difference in establishing professional credibility.

Having said that, I want to caution you: Be honest. DO NOT exaggerate or embellish.

When it comes to format, I like to start with the name and title. Underneath I cover the

following six topics because they showcase professional experience, skills, and

accomplishments, as well as background information on the reasons for launching or

joining the startup.

1. Professional business background and management experience

2. Direct operational experience in this kind of business (or a similar one)

3. Other operational and/or managerial experience (clubs, teams, etc.)

4. Education

5. Special abilities/interests that relate to your business either directly or indirectly

(optional) Reasons for going into this business

Most of the time I write the bio strictly in paragraph form; however, whenever I can I

like to use bullet points to highlight accomplishments or specific types of experience.

If you’re bootstrapping you may be wondering if you should bother writing bios. In a

word: absolutely!

BONUS!

Bios are useful for your website, speaking engagements, proposals, and marketing activities—wherever your audience wants to see your professional credentials.



Duties and responsibilities.

Sometimes titles make the duties and responsibilities of the management team self-

explanatory. Most people automatically know the typical duties of a Chief Financial

Officer or a VP of Business Development. But... relying on assumptions can get you

into trouble; it can lead to miscommunication and misunderstandings. Why risk it?

I prefer to outline each person’s areas of responsibility and specific duties. This not

only clarifies things in your mind, but puts you, your team, and investors on the same

page, leaving nothing unspoken in terms of the job requirements and performance

expectations.

The relationship history and dynamic between co-founders.

Remember when I stated earlier that investors fund people, not ideas? And remember

back in An Introduction to The Words when I said that your narrative is like a fairytale?

Well, an important part of that fairytale is explaining the relationship between you and

your co-founder(s).

It’s important (and incredibly helpful) to paint a picture for anyone outside your

startup who is considering getting involved in one form or another. Investors, loan

officers, suppliers, partners—even prospective employees—want to understand the

dynamic between and among co-founders. Plenty of startups have failed as a result of

incompatible personalities, differing values, or conflicting skills, to name a few. This is

your chance to explain why these issues won’t affect your startup.

Here are a few questions to get you started:

• How long have you known each other?

• How did you get to know each other?

• Why did you decide to go into business together?

• Do you work well together?

• How do your values, your skills, and your personalities complement each other?

Who reports to whom? Who makes final decisions?

It’s also important to discuss your company’s reporting structure. Who reports to

whom? Does your VP of Sales report to the President or the Chief Operating Officer?



Decide what makes sense for your organization, then write it down so the entire team

is on the same page.

In terms of format, you can either write a paragraph or create an organization chart.

You can even do both. Regardless, and especially in startups whose co-founders have

equal voting rights, it’s critical that from the start you decide who makes final

decisions. The last thing anyone wants is to get involved with a company that can’t

make decisions. Even though partners may all want an equal say, someone has to have

the final word so your company can move forward.

What is an advisory board?

Some startups establish advisory boards made up of seasoned professionals who help

them navigate the unfamiliar aspects of launching and growing a business. Whether

your company is in the pre-launch phase, the growth phase, or beyond, guidance from

experienced professionals willing to share their expertise and perspective can be

invaluable when it comes to avoiding pitfalls and missteps.

Keep in mind that your startup can benefit greatly from the advice of people with

varied professional backgrounds. Advisors not only share their experience and know-

how, but their contacts as well.

Ideally, advisory boards:

• Act as sounding boards

• Share what they’ve learned from their years in the trenches

• Introduce you to prospective clients, suppliers, partners, industry experts,

accountants, lawyers, funding sources, referral sources, and others

The members of your advisory board can also lend credibility to your startup. Be sure

to write a one-paragraph bio for each, describing the advisor’s business background,

management experience, education, etc. I also like to include a brief explanation of

how the advisor’s experience and involvement will benefit the company.

Step 2: The Distilling Process – The Words Chapter 16: Staffing


CHAPTER 16

How to Write About Staffing (Who do you need to hire?)


• How to develop a hiring plan • Whether training is relevant to your startup • How job descriptions can help you

Writing about staffing involves more than just listing job titles. At a minimum it

involves timing, training, and the skills your company needs.

Developing a hiring plan is the first step. You don’t need to figure out everything all at

once. Start by thinking about the functions and tasks that will help keep your business

humming when you launch. Then consider how your needs will evolve over time.

Run lean.

To start, let’s think about hiring within the context of your budget. Your staffing needs

are important not only from an operational standpoint, but a financial one. Payroll is

one of the largest expenses for companies with employees; so this will be important

information for your financial projections. That means you need to have a hiring plan.

While it’s important for you to be able to serve your customers well, it’s also important

that you only fill positions you absolutely need. In other words, your goal should be to

run lean. That way if there’s an economic downturn or you get fewer orders than

expected, you’re more likely to avoid having to lay off your employees.

Hire creatively: interns, part-timers and remote workers.

Keep in mind that there are a variety of ways to meet your hiring needs, especially in

today’s flexible economy: interns, part-timers or remote workers are just a few



examples. Some companies I work with rely on employees that aren’t even in the same

country, much less the same city!

Interns are a terrific resource that more and more companies have come to rely on. If

you live in an area with local colleges or universities, this may be a great option for you.

Some schools have internship programs for their students to earn class credit (instead

of, or in addition to, being paid—your call, but be sure to follow the law).

A template for your hiring plan.

Thinking about your hiring needs in detail will help you develop a rock-solid hiring

plan and corresponding budget. When it comes to your startup’s hiring needs, there

are three big questions:

1. What are your staffing needs now?

2. What are your needs over the next three years?

3. Will you be training your employees?

Let’s start with the biggest questions first.

1 & 2. What are your staffing needs now and in the next three years?

The following table is a basic version I use with my clients so that we can identify:

a. The positions that need to be filled

b. The number of employees needed for each position

c. The pay rate for each position (hourly or annually, whichever applies)

d. When each position needs to be filled

Feel free to add or delete columns for variables such as:

• Full-time vs. part-time

Title YEAR 1 YEAR 2 YEAR 3

Qty Pay Rate Qty Pay Rate Qty Pay Rate



• Whether the position can be filled using an intern or a remote worker

• How many hours you’re budgeting for each hourly position

• Whether the position is eligible for overtime (and if so, how much?)

If you’re going to be paying overtime, it’s important that you explain why because:

• Justifying the expense in writing forces you to give tangible reasons rather than

vague rationalizations that you just “need” to.

• Sharing your reasoning is an opportunity to demonstrate that you understand your

startup’s operational needs as well as the most cost-effective way to manage your

company’s staffing needs.

3. Is training part of your plan? Should it be?

Too often, startups forget to think about employee training. Admittedly, this is more

important for some businesses than others. Just be sure to think carefully about this.

Perhaps employee training (including management training) can help your business

become more successful more quickly.

It can be a significant up-front expense, but if it’s done right training can pay huge

dividends down the road. Think about it: more effective employees and a more

cohesive team can lead to more satisfied, loyal customers, which can in turn lead to

higher revenues. Sounds good, right?

Think about your goals. Instruction can consist of basics, such as how to do the job, or

it can go beyond to include turbocharged education, such as:

• Effective ways to cross-sell

• Effective ways to up-sell

• How to exceed customer expectations

• How to empower employees for customer-centric decision-making

REMINDER

Overtime pay needs to be included in your financial projections. You don’t want to end up with an unexpected expense once you’re up and running.



If you do decide to invest in training, don’t forget to include the costs in your

financials. Also, be sure to document the training process so you can be consistent in

future training sessions or use it as a baseline for measuring effectiveness as well as

making future improvements.

Quality job descriptions save time.

The decision to hire means it’s time to write a job description. A good one includes:

1. A clear description of the position’s duties and responsibilities.

2. The knowledge, skills, and abilities required.

BONUS!

A well-written job description has many uses, including:

• Job searches and postings • Setting performance benchmarks for current and new

employees • Performance evaluations

A real-life example.

Writing an effective job description can be harder than it looks. To save you the agony

I’ll share a great real-life example from Twitter. What makes it so great?

1. It’s easy to read.

2. It’s direct.

3. It’s easy to see the job location, responsibilities, and qualifications.

4. It differentiates between required and preferred qualifications.

5. More than just facts, it lays out performance expectations while giving you a sense

of their work ethic (via the “Success looks like” heading).

Read on to see what I mean.



Twitter

Account Coordinator - New York Full-Time – New York City, NY

Success looks like: § Passion and personality matter by bringing positive energy and attitude with a drive

to learn. § Be rigorous, get it right by executing tasks in a timely manner with impeccable

attention to detail. § Grow our business in a way that makes us proud by providing world class service to

our advertisers.

Responsibilities: § Partners with other members of the Sales team to provide tactical support for our

clients. § Responsible for resolving advertisers’ contracts and billing issues in a timely

manner. § Manages day-to-day processes to optimize advertising campaigns by providing:

- Reports on advertiser performance and pacing - Proactive optimization suggestions and outlines for clients - Wrap-ups for smaller budget campaigns - Keyword build-out lists

§ Partners with our Sales Ad Operations team to resolve client issues. § Prepare materials for new client launch calls and active client renewal calls. § Provides research and case studies for sales presentations when needed. § Supports the team in day-to-day tasks and special ad hoc projects.

Minimum Qualifications: § BA/BSc degree (In lieu of degree, 4 years relevant experience).

Preferred Qualifications: § 1-2 years of professional experience. § Superior analytical skills and problem-solving abilities. § Ability to thrive in a fast-paced, dynamic work environment. § Excellent communication and organizational skills. § Strong passion for the digital marketplace and understanding of the competitive

landscape in which we operate. § Positive attitude with a drive to learn. § Infectious passion around Twitter.

Step 2: The Distilling Process – The Words Chapter 17: Purpose & Use of Funds


CHAPTER 17

How to Write About Your Purpose & Use of Funds (How much money will you need to get up and running?)

In this chapter I’ll help you understand the three important components of the Purpose & Use of Funds section:

1. How much money is needed to launch your business

2. How that money will be spent

3. How long it will take for your startup to earn enough to consistently cover its expenses

This section is different from all the others because it requires information from other

parts of your plan before it can be written—in this case, the financial projections. It

may seem complicated, but it’s not.

Financial projections first.

It may surprise you to learn that this part of your business plan is simply a narrative

version of the Sources & Uses of Funds spreadsheet found in the financial projections.

If you’ve never heard of a Sources & Uses of Funds, don’t panic; I’ll explain it in

Chapter 25. Meanwhile, please note:

You CANNOT prepare this section until you complete your financial projections.

This is the only part of your business plan’s narrative that requires you to complete

another section first. Why? Well, let’s walk through this together.

Your cash needs and how spending plan.

There are three important elements to consider:



1. How much money you need to launch your startup.

To figure it out you need to know all you can about your projected revenues and

expenses, as well as your projected cash flow. However, you won’t have any of that

information until you prepare your financial projections. So for now, the amount of

money you need to launch your business is a mystery.

2. How you plan to spend that money.

To figure it out you need to know all sorts of things. For instance, do you need to

buy or lease equipment? Furniture? If so, at what cost? Other typical startup

expenses include legal and accounting fees, grand opening expenses, and build-out

costs, to name a few. Again, you won’t have any of this information until you

prepare your financial projections.

3. How long it will take for your business to pay its bills without outside funds.

The most critical piece of this section is calculating how long you think it will take

your business to become self-sustaining. In other words, when your business will

have enough cash to consistently cover expenses. I explain how to figure this out in

The Numbers when I talk about working capital and cash flow projections. Do. Not.

Panic. I promise I will explain all of this in a way you will understand.

Being undercapitalized can seal your doom.

Have you ever heard people talking about a business being undercapitalized? Simply

put, that means there’s not enough cash to pay the bills. Even profitable businesses

can be undercapitalized, which means they often go out of business—even though

they’re successful and profitable! Unless, that is, they get lucky and can gain access to

more cash (via investors, line of credit, etc.).

Another thing to consider is ensuring you have enough cash to fuel growth. For

example, if you open a bakery you’ll probably limit the number of cookies you bake on

the first day so that you don’t end up with a lot of waste (i.e., unsold cookies) at the end

of the day. However, as sales pick up you’ll want to bake more cookies—that means

you’ll need to buy more ingredients.

So you need to be sure you have enough cash on hand, or that you have access to cash

(a line of credit is a good example), to cover your growing ingredients expense. This

becomes a more complicated calculation if your customers don’t need to pay you

upon delivery. If customers are paying you 30, 45, or even 60 days later (or worse still, if



they don’t pay you at all), you need to be sure that you have access to enough capital

(i.e., cash) to cover your expenses without being paid first.

Bottom line.

As with your Sources & Uses of Funds spreadsheet, your Purpose & Use of Funds helps

you see how much cash you’ll need to cover the costs of launching your business and

operating it until you can consistently pay the bills without needing outside funds.

Step 2: The Distilling Process – The Words Chapter 18: Executive Summaries


CHAPTER 18

Understanding Executive Summaries (TYPES: slide deck • business model canvas • Google/Word document)

In this chapter I’ll talk to you about:

• The purpose of an executive summary • How to write an effective one • Types and styles of summary formats

Writing an executive summary sounds simple enough. It’s just a few slides or

paragraphs short sentences to explain your business concept, right? Until you sit down

to write it, that is.

By the end of this chapter you’ll have three different styles and two templates to

choose from.

It’s a distilled business plan.

Literally speaking, the purpose of an executive summary is to (drum roll please...)

summarize your business plan. But here’s the thing: some entrepreneurs try to write a

summary without writing a business plan. They don’t want to “waste” time. But how

can you summarize what hasn’t been written?

As I mentioned earlier, the business plan is your roadmap for launching and running

your business—that is, what you want to do and how you plan to do it. An executive

summary is simply a distilled version of your business plan.

Regardless of whether your chosen format is a canvas, slide deck or Google/Word

document, it pushes you to distill your concept down to its most essential elements.

That’s a huge help, whether your purpose is proof of concept, developing a pitch deck

or talking about your business in short sound bites when networking.



It’s your calling card... leave them wanting more.

The truth is, summaries are typically used by startups looking for outside funding.

That’s because it functions as a calling card. It’s the tool used to persuade investors to

invite you to meet with them, to get them to say, “I want to learn more.”

How to persuade investors.

If you’re going to persuade investors, you’ve got to do two things:

1. Pique their interest.

The goal is to tell a compelling story and leave your audience wanting more. The

best way to do that is to begin by distilling your concept down to one sentence,

possibly two. A clear, concise description will grab your their attention.

Next you’ll need to hold their interest – the key ingredient is following up with

irresistible reasons why customers will pay for your offering.

2. Prove what you are saying.

Another goal is to answer investor questions before they ask them.

Most investors, with the possible exception of friends and family, have an internal

monologue running in their heads, listing all the reasons why your idea won’t work,

why it doesn’t make sense, why people won’t buy it, etc. The purpose of the

executive summary is to silence those negative internal monologues. Let me

explain by building on a previous example:

SCENARIO Let’s say you’re planning to open a wine bar with retail shop. The investor may be thinking that your location is terrible or there are already plenty of places to buy a bottle of wine. That’s your cue to talk about your pioneering use of Italy’s brand new wine automat (i.e., high tech serving machines) that allows customers to try before they buy.

Next, you explain how a significant number of your target customers live and work within a five-block radius; that the area is chock-full of tourists and other visitors 10 months of the year; and that corporate event planners and nearby hotel concierges are already calling to find out when they can book their events.



See? It’s all about having the facts to support what you’re saying, especially by demonstrating deep knowledge of your market.

What to include in your summary.

Whether I’m creating a business model canvas, pitch deck or Word document, I always

use the following headings in one form or another:

1. The Problem 2. The Solution 3. Products & Services 4. Target Market(s) 5. Competition 6. Sales & Marketing Plan 7. Management Team 8. Financial Summary

Which format? How long should it be?

Executive summaries come in a variety of formats. Many investors want a slide deck

while others may prefer a business model canvas or a 1-page Google/Word document.

In this kit I’ve included a few templates I use with my clients. However, there are times

when that format is simply the starting point for a different style of summary.

Choosing a format that’s right for you and your startup depends on a variety of factors.

Start by researching your target audience. Are there regional style conventions?

Industry preferences? Friends and family who are less familiar with investing may

prefer a Word document whereas professional investors will likely prefer a slide deck.

What is a slide deck?

If you’ve never heard of a slide deck, don’t worry. It’s simply a slideshow, typically

prepared using either Microsoft PowerPoint or Apple Keynote software.

I like to use each of the eight items previously listed as its own slide, usually with more

distilling and editing. I tend to use simple, clean design elements and infographics to

keep the slides looking professional and easy to read.



For many years slide decks have been used for pitches and executive summaries.

Investors prefer receiving summaries this way because it’s easier to read/skim on their

computers and mobile devices.

What is a business model canvas?

The business model canvas was first introduced in 2008 and became more widespread

thanks to The Lean Startup, a book written by entrepreneur Eric Ries. It takes its

premise from the lean manufacturing process perfected by the Japanese (specifically,

Toyota) in the 1980s, and applies it to very specific types of startups.

I find the canvases to be less thorough than I typically like for summaries because each

question is typically answered in one sentence so the canvas can fit on a single page..*

Most investors I work with feel the same way, preferring more detail than this format

allows. Below is a version I frequently use when fleshing out new ideas with clients.

* My opinion: The book makes a number of excellent suggestions, repackaging tried and true advice in an easy-to-understand style. However, I’ve seen too many startups use it as a rigid formula for success. They blindly iterate and pivot, wasting valuable time, energy, and resources, and they react to feedback instantly rather than taking time to step back and think through their concept. But, hey, that’s just me.

1 PROBLEM What is the problem/pain? How is it currently addressed, if at all?

2 SOLUTION What is your solution? Why will customers pay for your solution?

3 PRODUCTS/SERVICES List your products & services. Is there anything proprietary (e.g., intellectual property)?

4 TARGET MARKET Who are your target customers? List the characteristics of your ideal customers.

5 SALES & MKTG How will you attract new customers? How will you keep existing customers?

6 COMPETITION Who are your competitors? What is your competitive advantage?

7 MGMT TEAM Who is leading your company?

8 REVENUES List projected annual revenues for Years 1-3. List revenue streams.

9 EXPENSES List projected annual expenses for Years 1-3. List fixed and variable costs.

STEP 3: THE DISTILLING PROCESS

– The Numbers –

In this section, I explain the nuts-and-bolts of financial projections in simple, easy-to-understand language. I also detail how to prepare real, practical, defensible financials for your business.

Step 2: The Distilling Process – The Numbers Chapter 19: Introduction to The Numbers

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CHAPTER 19

An Introduction to The Numbers

When it comes to the two parts of a business plan, I like to refer to the financial projections as “the numbers.” If the words are your story—your vision—then the numbers are there to support that story and show that your startup can grow into a profitable business.

Vocabulary 101.

For those who are new to the world of financial statements, this chapter is for you.

Financial vocabulary can seem kind of intimidating if you’re not familiar with it. My

intention is to make all the jargon a lot less scary, a lot less complicated, and a lot more

understandable.

People in the startup world tend to throw around financial terms assuming that

everyone understands them. But not everyone does.

Since I want you to understand what they’re talking about—and what I’m talking about

when I use them, I’m going to explain them here. My goal is to make all the jargon a lot

less intimidating and a lot more understandable. I’ll try to keep my explanations as

simple as possible—and I promise to use plain English whenever I can.

By the time you’re done reading this chapter, I guarantee you won’t hyperventilate

when you see the words “cost of goods sold.” Sound good?

Terms to know.

Cost of Goods Sold is the cost of buying or making the goods you sell, and includes

expenses such as ingredients and packaging costs.

Fixed Costs are expenses that stay the same no matter how much you sell. Two good

examples are rent and insurance premiums.

DISTILLING YOUR DREAM: The Step-By-Step Kit for Business Plans

Step 2: The Distilling Process – The Numbers Chapter 19: Introduction to The Numbers

66

Gross Profit (or gross margin) is the amount left after selling a product and subtracting

the costs associated with buying/making it and then selling it. Costs such as operating

expenses and loan payments are not included—that would be net profit.

Gross Profit = Revenues – Cost of Goods Sold

Net Profit (or net income) is a company’s total earnings after subtracting all of its

expenses from its total revenues during a specific time period.

Net Profit = Revenues – Expenses

Operating Expenses are those related to running your business day to day. Examples

include accounting fees, sales and marketing, travel, office supplies, payroll, rent,

utilities.

Variable Costs change depending on how much you sell (sales volume). Examples

include cost of goods sold, credit card fees, and commissions.

More terms (in case you’re interested).

Breakeven occurs when you sell enough to exactly cover your expenses without

making a profit or taking a loss.

Equity refers to ownership interest in a business. For example, if you own 20% of a

business, you have a 20% equity stake in that business.

Net Worth (or net assets) is a way to measure the value of a company.

Net Worth = Total Assets – Total Liabilities

Other Expenses (or non-operating expenses) aren’t related to the operation of your

business, such as the interest expense on any loans, mortgages, or lines of credit.

Working Capital refers to the operating liquidity of your business—in other words,

how much cash you have available to pay your bills at a specific point in time.

Working Capital = Current Liabilities – Current Assets


Step 2: The Distilling Process – The Numbers Chapter 20: Financial Spreadsheets

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CHAPTER 20

An Introduction to Financial Spreadsheets

In this chapter you’ll learn about:

• The spreadsheets needed for financial projections• Why they’re useful• Which ones may not be needed for your startup

Preparing the numbers to support your vision requires presenting them in a standard

format. The standard tool for creating them is spreadsheet software (e.g., Microsoft

Excel, Google Sheets), which basically acts like a two-dimensional calculator. You may

be thinking spreadsheets exist only to torture you, but I swear that’s not the case.

Before I begin, three promises from me to you:

1. I promise to keep this chapter as uncomplicated as possible.

2. I promise that I’ll only use financial lingo if I absolutely, positively can’t avoid it—

and then, only after I’ve explained what it means.

3. I promise to hold your hand (virtually) the whole time.

First... the importance of being realistic.

Many startups write their business plans with the goal of raising money or securing a

loan, but a business plan can be a double-edged sword. As the calling card for your

business, your plan will either hook the reader and leave them wanting more or it will

turn them off and leave them saying “No, thanks.”

Don’t blow your big chance. Every founder believes his/her business will be a success,

but a seasoned investor or loan officer can spot unrealistic assumptions a mile away;

and if you’re self-funding, what good will it do to be unrealistic?

By definition, financial projections are based on assumptions. Being realistic, even

pessimistic, is a must. More importantly, your assumptions need to be defensible.



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That means you have to be able to explain and defend them based on sound reason, not emotion.

Remember, your numbers need to support your story. For example, you can’t talk

about product development without allocating funds for prototypes, and you can’t rely

on free samples as part of your marketing plan without budgeting for those samples.

So be sure that your story and your financial projections line up with each other.

The spreadsheets I use.

The following spreadsheets are the primary ones used in preparing a startup’s financial

projections. However, it’s important to note that not every spreadsheet is relevant to

every startup. That’s why I don’t use all of them with every client (as I explain later).

1. Sources & Uses of Funds

2. Equipment List*

3. Balance Sheet*

4. Profit & Loss Statement (also known as an Income Statement)

5. Cash Flow Projections

* Used with some, but not all, startups.

There are other spreadsheets I may also use, depending on the circumstances. For

instance, I haven’t included a breakeven analysis here because it’s not especially

helpful for startups in the pre-launch stage. Financial projections are, by nature,

educated guesses; and I find that doing a breakeven analysis before launch ultimately

becomes a wild guess.

Why it’s useful.

1. Sources & Uses of Funds

The name describes it perfectly. ‘Sources’ shows who is loaning money to or investing

in your startup (and how much). ‘Uses’ shows how you plan to spend that money.

Why it’s useful: It shows how much money is needed to launch your startup and where

that money is coming from.



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2. Equipment List

An equipment list itemizes the name, model, and cost of each piece of capital

equipment needed for your startup. Capital equipment is used for the manufacturing,

delivering, storing, or selling functions of your business, but doesn’t include

equipment that’s replaced annually (or more frequently), and doesn’t include anything

you sell to customers (that’s inventory).

Why it’s useful: It forces you to identify the exact equipment your business requires, as

well as how much it will cost to purchase, deliver, and install it.

Why you may not need it: Some startups need to purchase equipment and some don’t.

For those that don’t, an equipment list is irrelevant.

3. Balance Sheet

A balance sheet lists the assets, liabilities, and equity (ownership value) of a company,

and is used to calculate how much the business is worth (net worth) of a business. The

balance sheet is a snapshot in time—one specific moment in time—as opposed to

profit & loss or cash flow statements, which show a period of time.

Why it’s useful: It shows what a company owns and what it owes at a single point in

time.

Why you may not need it: Since most startups have no assets or liabilities when they

launch, a balance sheet is often irrelevant.

4. Profit & Loss Statement (also known as an Income Statement)

A profit & loss statement shows when sales (also called revenues) and expenses are

incurred during a specified period of time. It’s based on a fundamental accounting

equation: Revenues – Expenses = Income.

In other words, a P&L shows your sales, the expenses related to making or buying what

you’re selling, and the expenses related to running your business.


NOTE

Your cash flow projections and (if relevant) your equipment list need to be completed before working on this spreadsheet.



Why it’s useful: It shows how much money was made (profit) or lost (loss) within a

specific time period.

5. Cash Flow Statement

Think of the cash flow statement as your company’s checking account statement, but

in the form of a spreadsheet. Cash flow statements show exactly when cash flows into

and out of your company’s bank account during a specific period of time (as opposed

to profit & loss statements, where they appear as of the invoice date).

Why it’s useful: It shows your startup’s ability to pay its bills.

NOTE

Revenues and expenses typically appear on P&Ls based on the invoice date (or when they are earned), whereas on cash flow projections they appear when cash flows in and out of your bank account..

Step 2: The Distilling Process – The Numbers Chapter 21: Equipment List

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CHAPTER 21

How to Prepare an Equipment List (What capital equipment do you need for your startup?)

In this chapter you’ll learn:

• What ‘capital’ equipment is• Whether it’s relevant to your startup• What you need to put together your own equipment list

What is capital equipment?

Quite simply, capital equipment is used to operate your business. Examples include

office furniture, computers, retail store fixtures, machinery, and delivery vehicles.

In other words, equipment your startup uses for:

• Manufacturing

• Delivering

• Storing

• Selling

Capital equipment is not:

• Equipment you replace annually or more frequently

• Merchandise you’re planning to sell to your customers (that’s inventory)

Do you need an equipment list?

An equipment list is the spreadsheet where you list each piece of capital equipment

you plan to purchase for your business. It’s not relevant to every startup—it really

depends on the demands of your business.


Step 2: The Distilling Process – The Numbers Chapter 21: Equipment List

72

If you need to purchase office furniture or computers or refrigeration units, for

example, then you should include an equipment list in your financial projections. If

that’s not the case, or you only need to purchase one computer or a single office chair,

it’s not necessary to include it.

How an equipment list helps you.

Putting together a list of your startup’s capital equipment needs not only forces you to

identify your company’s specific requirements—down to the exact model number—it

pushes you to get real and figure out what your actual costs are going to be, which can

be a real eye-opener.

This process also helps you decide where you’ll actually buy the equipment because

you’ll need to call around to get actual prices. This is a good thing. It may not sound

like it at first, but it is, and here’s why.

By talking to vendors, you can begin building relationships as well as shopping around

for the products, prices, and service that best meet your needs. Then, when you’re

ready to buy, you’ll discover that you’ve already done the necessary research and can

hit the ground running.

What’s included in an equipment list?

The equipment list is one of the most straightforward spreadsheets out there. It’s really

simple. Well, mostly.

Here are the details you need to include:

• The name of the item

• The item’s model number or other identifying information

• The price you will be paying (which may be less than the retail price)

• Sales tax that will be added to your purchase price

• Delivery and installation fees

Additional considerations.

Purchasing capital equipment may have a tax impact on your business. Be sure to

speak with your accountant to discuss depreciation and other tax implications.


Step 3: The Distilling Process – The Numbers Chapter 22: Balance Sheet

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CHAPTER 22

Understanding the Balance Sheet (Some talk about assets, liabilities and equity)

Most startups launch with a clean slate—no assets or liabilities. If that’s the case with yours, you won’t need a balance sheet right now. But it’s still a good idea to understand what it is and what it tells you. After all, hopefully you’ll be using one soon enough.

What is a balance sheet?

A balance sheet is sometimes referred to as a “statement of financial position,” and

frankly, that’s exactly what it is. It’s a snapshot of what your company owns and owes at

a particular moment in time. In other words, it shows your company's assets,

liabilities, and owners’ equity (that is, ownership interests in your business).

How to know if you need to include a balance sheet.

Since most startups have no assets or liabilities when they launch, a balance sheet

usually isn’t necessary at the outset. However, if your business has assets—for

example, your company (not you personally) owns a delivery vehicle or the building

where your business is located—then you should include a balance sheet in your


How a balance sheet helps you.

A balance sheet helps you calculate your working capital. Remember seeing those

vocabulary words earlier? Working capital refers to your liquidity, or the cash you can

access quickly, and it’s calculated as follows:

Working Capital = Current Liabilities – Current Assets

It may surprise you to know that a company can be profitable while still having little or

no liquidity. That’s why cash flow projections are so important. (We’ll talk about them



74

later.) Meanwhile, let’s just say that calculating working capital is important because

you need to be sure you have enough cash to pay your bills on time, including any loan

payments.

What’s included on a balance sheet?

A balance sheet is divided into three broad categories:

1. Assets.This section shows anything of value your company owns. It’s divided into two

categories: current assets and long-term assets.

Current assets are things your company owns that:

(a) You can easily convert to cash

(b) You expect to use in the next 12 months to pay your bills

Examples include:

• Cash (in your cash register and in your bank account)

• Accounts Receivable (money due from customers)

• Marketable securities (stocks, bonds, and other types of securities)

• Inventory

Long-term assets are things your company owns that you expect to hold onto for more

than 12 months, such as land, buildings, equipment, furniture, and vehicles. For

instance, a manufacturing company may have a line item called Tools, Dies & Molds;

or if a company owns property, they may have a line item called Land and Buildings.

Both of these are tangible assets—things you can actually hold or touch. There are also

intangible assets, things that aren’t physical objects, such as intellectual property (e.g.,

patents, copyrights, and trademarks) and franchise or government licenses.

2. Liabilities.This section shows what your business owes to others. It’s divided into two categories: current liabilities and long-term liabilities.



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Current liabilities are all the debts you expect to pay within the next 12 months.

Examples include Accounts Payable (e.g., bills due to suppliers and service providers)

and Current Portion of Long-Term Debt (the principal due on any outstanding loans

within the next year).

Long-term liabilities are debts that will be paid over a period longer than 12 months.

Examples include Mortgages Payable and Loans Payable.

3. Owners’ Equity.

Every business needs money to get started, and that money has to come from

somewhere. Perhaps investors are providing your startup capital. Maybe friends and

family have decided to invest in your company. It may be that some or all of your

startup capital is coming from your own savings. Regardless of the source, that money

will appear on the balance sheet as equity, and equity refers to ownership (of the

business).

The line items that appear on a balance sheet as equity will vary depending upon

whether the company is incorporated. Here are some examples:

Capital is used for unincorporated companies, and refers to the money invested by

owners and/or others. If your company has more than one owner, the balance sheet

usually shows separate line items for each owner.

-or-

Stock is used for incorporated companies, and refers to ownership shares in your

company.

Draw is used for unincorporated companies, and refers to the money taken out of your

company by any owners. If your company has more than one owner, the balance sheet

usually shows separate line items for each owner.

Retained Earnings refers to all profits that have been reinvested into your company.


Step 2: The Distilling Process – The Numbers Chapter 23: Profit & Loss vs. Cash Flow Statements

76

CHAPTER 23

The Difference Between Profit & Loss and Cash Flow Statements

(The difference between profit and liquidity)

In this chapter I’ll explain:

• Profit & loss statements*

• Cash flow statements• The difference between the two

We’ll talk about the kinds of information you need in your projected P&L statements*

and cash flow projections, what these two types of financial statements tell you, and

the similarities and differences between them. As always, I’ll try to keep it simple.

* Also referred to as P&Ls or income statements.

What is a projected profit & loss statement?

A P&L is a summary of a company’s anticipated financial activities during a specific

time period. It shows that company’s profitability by presenting its projected:


NOTE

In this book I tend to use the words statements and projections interchangeably, but I don’t mean to mislead you.

Statements refers to historical financial information.

Projections refers to future, estimated financial information.

Business plans always use financial projections. Your accountant will prepare statements for you to see how your startup did (financially) during the previous time period.


77

• Revenues

• Costs associated with buying or making the products/services

• Expenses associated with operating the business

In other words, it shows your anticipated revenues, expenses, and what’s left after

paying all those expenses. That way, you can see whether your revenues will be greater

than the cost of providing your products and services.

What’s in a projected profit & loss statement?

P&Ls include line-by-line categories of information about a company’s anticipated

financial activities.

The five most important categories are:

1. Revenues: The total amount you expect to earn from all of you’re the products and

services you’re selling.

2. Cost of Goods Sold: What your company spent to buy or make what you’re selling

(usually calculated as a percent of anticipated sales).

3. Gross Profit: How much money your business expects to make before subtracting

out operating expenses.

Revenues – Cost of Goods Sold = Gross Profit

4. Operating Expenses: How much you expect to spend on day-to-day business

operations, including such things as payroll, marketing expenses, rent, and utilities.

5. Net Profit (Loss)*: The company’s expected profit or loss during the period.

Gross Profit – Total Expenses = Net Profit (Loss)

* When it comes to financial statements, negative numbers are often shown with parentheses around them rather than a minus sign in front so that they’re easier to see.

What are cash flow projections?

Cash flow projections show how much money you anticipate flowing into and out of

your company’s bank account.




This, in turn, tells you:

• How much cash your business will need to pay bills and meet day-to-day expenses

• When that cash will be needed

What is in cash flow projections?

Cash flow projections look a lot like profit & loss statements because they include

much of the same information... except for the last few lines.

1. Instead of the last line being Net Profit (Loss) the last line will be Net Cash Flow.

2. I also like to add the these two lines after Net Cash Flow to keep an eye on the

cumulative cash balance:

• Beginning Cash Balance

• Ending Cash Balance

Tracking the cumulative cash balance is important because it will show when your

startup becomes self-sustaining. By ‘self-sustaining’ I mean the point at which your

cash flow becomes consistently positive, generating enough cash to reliably cover all of

your day-to-day business expenses, plus a little extra (a cushion).

Remember, though... if you plan to grow your business you will probably need to make

additional expenditures when you’re ready.

The differences.

Cash flow statements and P&L (income) statements look very similar, which can be

confusing. But there are important differences:

1. Timing.

The difference is subtle, yet very important: how the numbers are entered.

• P&L Statement: Revenues and variable expenses appear based on the invoice

date, while fixed expenses are divided evenly across the year.

• Cash Flow Statement: Revenues and expenses appear based on when cash

actually moves into and out of your bank account.



For example, let’s say that you receive a $1,200 invoice dated March 1 for your

annual liability insurance premium and you pay it on March 20.

- On your monthly P&L you’ll divide the $1,200 by 12 so that your insurance

expense appears as $100 every month (or divide by 4 for a quarterly P&L so that

$300 appears every quarter).

- On your monthly cash flow projections, that entire $1,200 expense will appear

on your cash flow statement for the month of March.

2. Types of Expenses.

There are expenses that may take cash out of your business, but aren’t related to

your everyday business operations. Loan payments and capital equipment sales

and purchases are good examples.

For instance, if you sell your company’s delivery van, the money from the sale will

flow into your bank account and show on your cash flow statement. But the van is

not part of your operating profit—it’s capital equipment—so it will show up on

your balance sheet, not your profit & loss statement. (For further explanation, I

recommend speaking with your accountant.)

3. Depreciation and Taxes.

The P&L is where your company’s depreciation and tax liability appear. I haven’t

included those line items in the financials template because I want you to discuss

them with a qualified accountant. That said, it’s important to know that both items

will impact your P&L.

If you only use one spreadsheet: Cash Flow Projections.

It may surprise you to know that a company can be profitable while having little or no

money in the bank. That’s because it’s all a matter of timing.

If it takes too long for customers to pay, you could end up in a cash crunch.

It’s important to keep in mind that a strong P&L does not necessarily guarantee a

sound financial position. That’s why cash flow projections are so important.



Bottom line: You need to be able to pay your bills if you want to keep your doors open.

Not having enough cash to pay your employees, rent, and other expenses can kill a

business—even a profitable one. The key word here is liquidity (access to cash).

If you don’t have enough money in the bank (also known as working capital), you can’t

pay your bills; and if you can’t pay your bills, you can’t keep your doors open.

Cash is generated primarily by sales, but remember, not all sales are cash sales. Credit

sales affect the timing of when cash flows into and out of your bank account.

For instance:

• If you offer your customers charge accounts or the option of paying by credit card,

you’re offering them credit. So you need to know when those credit sales will

become cash in your bank account.

• If one of your suppliers offers you payment terms of 2/10 net 30 (sometimes written

as 2%/10 net 30), that means you have 30 days to pay the invoice; but if you pay

within 10 days, you get a 2% discount. So payment terms can affect both the

amount and the timing of money leaving your bank account. The same holds true if

you offer your customers payment terms—the amount and timing of money going

into your bank account will be affected.

REMINDER

It’s important that you speak with a qualified accountant before acting on your financial projections or showing them to others.

Step 3: The Distilling Process – The Numbers Chapter 24: Preparing P&L and Cash Flow Projections

81

CHAPTER 24

How to Prepare P&L Statements and Cash Flow Projections

In the previous chapter we talked about how P&Ls and cash flow projections differ. Now we’ll focus on the similarities, and how to prepare both types of spreadsheets.

Here’s what we’ll cover:

• Predicting the future• The role assumptions play• Financial projections vs. financial models• My special method for estimating revenues and expenses

Educated guesses.

By definition, financial projections are estimates or forecasts. In other words, they’re

educated guesses about the future.

While no projections are 100% accurate, the more thorough they are, the more useful.

Admittedly, it’s not easy figuring out your expected revenues and expenses. The devil

really is in the details. Keep in mind, the better your information, the better your

estimates will be and the better you can plan.

For instance, budgets are a key planning tool and P&Ls are the starting point for

building them. By pulling numbers out of thin air you’re reducing your odds of

success.

List your assumptions!

A necessary part of preparing financial projections involves making assumptions. That

means predicting what you think will happen, but without proof.



82

Documenting your assumptions is especially important for two reasons:

1. They provide context for the reader.

2. They remind you of the factors that can affect your bottom line. With a few simple

clicks you can change your assumptions and instantly see the impact.

Since there’s a lot of information to keep track of, I strongly recommend keeping a list

of your assumptions as you make them. Recording them as you work not only saves

time, but is a lot easier than trying to remember them later.

Financial projections vs. financial models.

For those who are comfortable working with Microsoft Excel, Google Sheets, or other

spreadsheet software, I recommend building your projections as models rather than

standard projections.

Financial projections and financial models may sound like the same thing, but there’s

a key difference. Let me explain.

Standard financial projections show a single, static view of the future. Numbers are

typed into the spreadsheet cells, with formulas occasionally used to add up key rows

and columns.

Financial models are something more... kind of like financial projections on steroids.

The difference comes down to a single concept: variables. Variables transform a static

spreadsheet into a dynamic one by showing how your business responds to change.

For example, if some customers pay in cash and others by credit card, your estimated

expenses need to show the percentage of sales coming from credit card transactions.

That’s because credit card companies like Visa and Mastercard charge a processing fee

for each transaction, and that fee needs to be included in your projections.


NOTE

If the rest of this section starts to read like a foreign language, don’t worry—just skip ahead to the next one: How to Estimate Revenues.


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Here’s an (admittedly) oversimplified example:

Let’s say you’re predicting that half (50%) of all your sales will be credit card

transactions. The formula to calculate each month’s credit card sales depends on

whether you want to build standard financial projections or financial models.

For standard projections you’d type this into each cell for Row 3 (Credit Card Sales):

Standard projections: B2*.50 (and C2*.50, D2*.50... through Column M)

To build a financial model, this is what you’d type into each cell instead:

Financial models: B2*P3 (and C2*P3, D2*P3... through Column M)

If you want to see the impact of having 70% of your sales come from credit card

transactions, in standard projections you’d need to type a new formula in each cell all

the way across Row 3, whereas in a financial model you’d simply type .70 once, into

cell P3, and you’re done!

Financial models make it incredibly easy to view different scenarios since changing a

single number instantly shows the impact in all the related cells—thereby making your

projections more powerful and far more useful.

How to estimate revenues.

The P&L and cash flow projections are all about details. The more detail, and the more

accurate they are, the more useful your projections.

Thinking you only need one line item for revenues? Not detailed enough. What about

returns? What about discounts? These need to be shown as separate line items if

they’re relevant to your business.


A B C M N P

1 January February December Total

2 Total Sales 1,000 2,000 2,500 25,000

3 Credit Card Sales 500 1000 1,250 12,500 50%


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Don’t forget about gift cards. They’re an unusual category because customers pay in

advance without receiving any merchandise. I like to use a line item labeled

Allowances. Technically, an allowance is a liability because the person with the gift

card will eventually come back to select merchandise without having to pay anything

at that time. So you need to subtract out any allowances (or returns, if that’s a line item

relevant to your business) from your total revenues.

If your offerings fall into more than one category, be sure to show each as a separate

line item. An easy way to do this is by product line or service category (e.g., furniture,

rugs, accessories). Think about all your revenue sources. If you regularly earn

advertising revenue from your website or app, that should be a separate line item. And

don’t forget to show how buying patterns change during the year. Christmas may be

very busy, while summer may be very slow—or vice versa.

Last but not least, I urge you get out there and start meeting with vendors, suppliers,

prospective customers, and even your competitors. The more people you meet, the

better the information you’re using to make realistic assumptions. You may even learn

a thing or two to help improve your business.

How to estimate expenses.

Estimating expenses is easier than estimating revenues because you can research

actual numbers. It may take some legwork, but it’s definitely time well spent. You’ll

have more realistic numbers, which will be far more useful in the end.

So go ahead... call the pest control company, the Internet service provider, and the

credit card processing company. Another benefit: you’ll be able to identify companies

with competitive prices and great service. If you’re not sure who to call, talk to friends,

acquaintances, or others in your industry. If you want to speak directly with a supplier,

go ahead; don’t be shy. You’d be surprised how helpful people are—even competitors.

As with revenues, don’t forget to show changing patterns during the year. For instance,

if your business relies on fuel for, say, delivery vehicles, prices are often different in the

summer than in the winter. And don’t forget to spend time thinking about expense

categories that may not be listed in the template.




Estimating low, realistic and high.

Estimating can be a challenge, so I like to use this 5-step approach to put my clients in

the right frame of mind. Here’s how it works for revenues (it’s the same for expenses):

Step 1. Make a table with a row for each category of products and services you’re offering. Be

sure to include all possible sources of revenue.

Step 2. Create three columns: Low, Realistic and High.

Step 3. Start with Low and assume the worst. What happens if everything goes wrong? What if

there’s bad weather or new competitors appear or your competition offers aggressive

pricing you just can’t match? Assume your suppliers don’t deliver on time or your sales

team is lazy. After going through your doomsday scenario, fill in the Low column.

Step 4. Now assume that everything goes your way. What if all your marketing efforts hit just

the right people at just the right time and you negotiate unbelievable pricing with your

vendors? After going through your dream sequence, fill in the High column.

Step 5. Finally, it’s time to get real. Think about the most realistic, yet slightly conservative

scenario. It may surprise you to know that the numbers in this column are typically

more realistic after you’ve completed Steps 3 and 4.

LOW REALISTIC HIGH

Wholesale

Retail

Online Sales


86

THREE tips to help you build realistic projections.

Cash really is king when it comes to running your business. Without it you’re left with

no resources to pay your employees, your rent, and your suppliers, and no way to keep

your doors open.

So how do you make sure you have enough cash to keep your business up and

running? By being careful. By being conservative. By being a realist. Even better? By

being a pessimist.

As I’m writing these words, I’ve got a wry smile on my face and I’m shaking my head.

Know why? Because entrepreneurs are, by nature, optimists. You’ve got to have at least

a bit of the dreamer in you, the visionary.

So I know it will probably go against your nature when I tell you that being a financial

pessimist is the way to make your startup a success. But that’s what I’m telling you

(well, that and two other tips).

Here are three tips that will help make your startup a success:

1. Be a pessimist. Find your inner Eeyore (or Charlie Brown).

As a founder, you’re naturally programmed to believe your startup will be a resounding

success. Being optimistic and having a positive outlook are important when it comes to

staying motivated and not giving up in the face of rejection. But when it comes to your

financial projections, it’s important to rein yourself in and find your inner pessimist.

Operating under the “if you build it, they will come” assumption is a recipe for disaster,

so I’ll say it again: your assumptions have to be based on sound reason, not emotion.

I’m a big believer in the “under-promise / over-deliver” model—understating expected

sales and overstating the expenses (within reason).

In fact, I recommend taking it a step further and actually planning for catastrophe.

Think about the 2008 financial crisis or Hurricane Sandy or some other disaster,

natural or otherwise. Who knows what the future holds? The point is to prepare for the

unexpected and set aside funds—at least several months’ worth of your operating

budget—so that if the unexpected does happen, your business will have a fighting

chance.




2. Keep up with current events, especially broad economic trends.If you look closely you may notice how interconnected and interdependent our

economy is—not only in the US, but globally. Stay current; stay informed. Read up on

and get involved in your industry, town, city, region, and beyond. Pay attention to

consumer spending as well as buying habits—how they’re changing and how they’re

not. Read articles that cover more than your industry or region, such as The New YorkTimes, The Wall Street Journal, The Economist and Time magazine. Watch the national

news on a regular basis—whether on television or online. Read blogs and online

magazines such as Entrepreneur, Slate and Business Insider.

3. Speak with a qualified accountant.Never underestimate the value of a trained professional. I’ve said it before and I’ll say it

again. Always have a qualified accountant go over your financial projections with you.

An accountant is trained to:

• Properly advise you

• Help you develop strategies to (legally) reduce your annual tax burden

• Catch any miscalculations

• Explain anything you don’t understand

Don’t be shy or feel embarrassed about asking questions, no matter how basic they

seem. As a business owner, it’s your obligation to understand anything and everything

financial relating to your startup.

Regardless of how wonderful your accountant is—or your bookkeeper, for that

matter—it’s your responsibility to make sure you understand everything that

affects your business financially. Anyone who tries to make you feel stupid for

wanting to learn is not someone you want to trust with your company’s

financial health.

Step 3: The Distilling Process – The Numbers Chapter 25: Sources & Uses of Funds


CHAPTER 25

How to Prepare a Sources & Uses of Funds (Where’s the startup money coming from? How are you going to spend it?)

In this chapter I’ll explain:

• What is meant by ‘sources’ and by ‘uses’• The difference between startup capital and working capital• The virtue of limited resources, and how it can drive innovation

Before we get started... why order matters.

For those of you who are especially observant, you may have noticed a discrepancy of

sorts. If you open the financial projections template you’ll see that the Sources & Uses

of Funds spreadsheet appears first. However, this chapter and its worksheet appear

last, after the chapters and worksheets for all the other financial projections.

There is a reason for this. It turns out that some of the information in your Sources &

Uses of Funds has to come from other spreadsheets—specifically, your cash flow

projections and, if relevant, equipment list. So I didn’t want to talk about the Sources &

Uses of Funds until after we’d talked about the supporting spreadsheets.

What it’s for.

The Sources & Uses of Funds is used to:

1. Calculate how much money you’ll need to:

a. Launch your business

b. Operate your business until you can pay the bills without needing outside funds

c. Raise from investors or borrow from a bank

2. Show how the funds needed will be spent (uses)

3. Where the funding will come from (sources)



SOURCES: Where are you getting the startup funds you need?

The Sources section lists each person or institution providing you with investment

funds and/or loans (including you if you’re using your own money). Each source’s

name, along with the amount invested or loaned, should be listed on its own line.

Regardless of whether you’re planning to use your own money, secure a loan, find

outside investors, or some combination, this part of the spreadsheet needs to show all the sources of your funding.

USES: How much money do you need, anyway?

The Uses section lists, by category, the money you need to:

• Launch your startup

• Operate it until your business becomes self-sustaining

That means you need to figure out all sorts of things. For example, do you need to

buy/lease equipment? Furniture? If so, at what cost? Other typical startup expenses

include legal fees, grand opening expenses, and build-out costs, to name a few. Again,

you won’t have any of this information until you prepare your financial projections.

One of the most important calculations is figuring out how long it will take for your

business to become self-sustaining. In other words, when your business will have

enough cash to consistently cover all of its expenses without needing outside funds. On

the spreadsheet this number will appear as its own line item with this label: Cash Needs for ___ months of Operations (you’ll fill in the blank).

The totals need to match.

Total Sources needs to equal Total Uses. This isn’t my rule, it’s an accounting rule.

TIP

To cover unexpected cash outlays, I also like to include a separate Cash Reserves line item in the Uses section.



So... if the two totals are close but not exact, I use the Cash Reserves line item to adjust

slightly as needed. And I do mean slightly. Having said that, I do like to include a little

extra to cover the unexpected.

If there’s a significant difference, there must be something missing in either the

Sources or Uses section, so it’s important for you to figure it out, especially before

showing it to investors.

Startup capital vs. working capital.

There are two broad categories to think about when it comes to Uses of funds: startup

capital and working capital. Some people use the terms interchangeably, but I make a

distinction between the two.

Startup capital is used for expenses that aren’t part of your company’s normal daily

operations (I also refer to them as startup expenses). That’s why they appear in the

Sources & Uses of Funds rather than Cash Flow Projections and the P&L. They’re

typically one-time expenditures, such as:

• Expenses related to your launch/grand opening

• Legal fees to establish your business (e.g., establishing and registering your legal

entity, partnership agreements, investor documents, etc.)

• Furniture, fixtures, and equipment (which comes from your equipment list)

Working capital is the cash you need to cover your startup’s normal daily operating

expenses. To figure out how much working capital is needed, take a look at your cash

flow projections to see how much cash is needed until your business is generating a

consistent positive cash flow.

NOTE

On the actual spreadsheet I don’t use ‘startup capital’ and ‘working capital’ headings. Instead, I like to list cash needs by category, with separate line items for each (as shown in the template).


91

The totals need to match.

Total Sources needs to equal Total Uses. This isn’t my rule, it’s an accounting rule.

So... if the two totals are close but not exact, I use the Cash Reserves line item to adjust slightly as needed. And I do mean slightly. Having said that, I do like to include a little

extra to cover the unexpected.

If there’s a significant difference, there must be something missing in either the

Sources or Uses section, so it’s important for you to figure it out, especially before showing it to a prospective investor.

The connection between resources and innovation.

Over the years I’ve noticed a connection between resources and innovation. The more

constrained or limited a startup’s resources, the more innovative they tend to be. This

goes back to that old saying, “Necessity is the mother of invention.”

A startup with unlimited resources can easily fall into the laziness trap. Instead of

working really hard to come up with the best, most efficient, most effective solution,

it’s very tempting to simply choose the easiest solution. In other words, the path of

least resistance. Why beat your head against the wall if you can just throw money at a

problem?

On the other hand, limitations force you to work harder on solving problems in the

most creative, efficient way possible. They push you to focus and be more resourceful,

which makes it more likely you’ll make smart choices rather than convenient ones. You

know what else? This kind of behavior—innovative problem-solving—is like catnip to

investors. They love startups that are deliberate in their spending. Oftentimes, less

really is more.


STEP 4: THE FINISH

As you wrap up your business plan I’ve included some advice on:

• How to use the appendix effectively and add valuable elements toenhance your business plan.

• How to get the most out of your business plan, even after you’velaunched your business.

Step 4: The Finish Chapter 26: Extras to Consider


CHAPTER 26

Extras to Consider (How to use the appendix)

This is the only part of the book where I treat bootstrapping (self-funding) startups differently than those looking for outside funds.

For both types of startups the value of writing a business plan is in developing your proof of concept as well as your operating blueprint. However, bootstrapping startups don’t need to sell their business plans to outside investors.

Startups that plan to raise funds have an additional step relative to those that plan to

bootstrap. That step—raising funds from outside sources (investors, banks, friends,

and family)—means you need to sell your vision. Your plan, whether a slide deck,

business model canvas, or full business plan, acts as your calling card.

So if you fall into the ‘fundraising’ camp, your business plan now has the added

purpose of selling your concept, yourself, and your team to others. This added

dimension sometimes demands more detail than what’s included in the body of your

plan. Hence, the appendix.

Carefully curated extras.

At this point we’ve talked about almost every element of a business plan. Almost. After

you finish the worksheets you may discover there are a few more things you’d like to

include in your plan—things that can help you more fully express your concept. That’s

where the appendix comes in.

Sometimes there’s additional information you’d like to include, but it just doesn’t

belong in the main body of the plan. It may better illustrate your vision or strengthen

the case you’re making for your idea. The appendix is a great way to add valuable

information without distracting from your story.



Other people don’t know what you know.

Remember, other people can’t read your mind. Even family and friends don’t

necessarily know the depth of your experience or the extent of your professional

accomplishments. They may not know what you mean when you say (for example)

that you want to start an educational software business.

What I’m trying to say is, other people aren’t necessarily on the same page you are.

They can’t be. Not without you taking them by the hand and walking them through

your business plan. It’s the fairytale concept I discussed in Chapter 9. You’ve got to lay

out the story, but in this case certain details really help. You need to do a mind-meld of

sorts and help them see what’s in your mind’s eye.

However. (This is a big however.)

The kind of detail I’m talking about doesn’t belong in the body of your business plan.

It’s too distracting. Your business plan needs to have laser-like focus. So what’s a

startup to do? Well, that’s the beauty of the appendix. It’s tailor-made for details like:

• Management team resumés

• Floor plans

• Photographs

• Maps

• Screenshots

How will adding these things help?

Adding things like resumés, floor plans, and screenshots help investors better

understand your vision. For example, including the full resumés of your management

team helps investors get more comfortable with your team’s experience and expertise;

floor plans can help investors envision the layout of your restaurant; screenshots help

them see how your software and/or website works.

All of these items enhance what you’re describing in the body of your business plan.

It’s additional color commentary. If these elements or anything similar can help you

tell your story, then include them; however, DO NOT use the appendix as a dumping

ground. Consider this an area of carefully curated, extremely valuable information.



A few words on resumés.

I like to include full resumés for each member of the management team whenever I

can. Frankly, investors bet on people more than ideas. What investors are really saying

with their dollars is, “I believe you’re really smart, talented, perceptive, and tenacious. I

believe that you’ll work extremely hard. So even if your idea isn’t exactly 100% spot-on,

I’m betting that you’ll figure it out before you run out of time and/or money.”

So if investors are betting on people, they’re going to want to know more than what

you’ve included in the bios, which are short overviews. Serious investors want details.

If they’re serious enough to ask for your full business plan, then they’re going to want

to evaluate the management team.

Step 4: The Finish Chapter 27: The Gift that Keeps on Giving


CHAPTER 27

The Gift that Keeps on Giving (Why you should re-read your business plan every year)

Whew, we’re almost done!

Now that we’ve talked about every element of a business plan, you’re ready to tackle

the worksheets. Before you do, though, I want to take a moment and fast-forward to

the end, when you’ve finished writing your plan.

Imagine that day... What happens next? Well, the first order of business is to begin

executing the plan. It’s time to take action and make it happen, don’t you think?

Now let’s fast-forward again, to one year later. You’ve launched. You’ve put your plan

into action and your first anniversary is approaching. You’re working hard to grow

your business. That’s when I recommend to my clients that they carve out some time

to re-read their business plans.

What?! Who has time for that?!

Proactive vs. reactive.

Listen: This is your business, your lifeblood. I promise you, it’s worth the time. Why?

Because once you launch your business you’ll shift from macro-thinking/proactive

mode to micro-thinking/reactive mode. Let me explain.

When you’re in the planning stages for your startup you’re thinking about the big

picture—the macro stuff, like the kind of business you want to build. Yes, you’re

thinking about micro details, too. But this is when you’re specifically investing the time

to think about things like company culture, product-market fit, optimal product mix,

ideal customers, target markets, and how to allocate your limited resources.

In other words, you have the luxury of time. You’re able to be proactive,

brainstorming and working through challenges ahead of time.



Then, you launch.

Everything changes in an instant. Forget about the big picture, now you’re in firefighter

mode. Every day your job consists of putting out whatever fires spring up. So

congratulations. You’ve officially shifted into micro-thinking/reactive mode.

Have you heard that saying, “Man plans and God laughs”? Well, you’re living it.

Your primary focus is (or should be) on customers—finding them, connecting with

them, selling to them, making them happy, keeping them happy and finding more like

them. It’s about logistics—making or creating the product (or deliverable) and getting

it out the door on time and on budget, or getting your suppliers (or partners) to deliver

what you need, when you need it, and at the right price.

Next thing you know, a year flown by.

Whew! Where did all that time go? You haven’t had a single moment to step back and

think about your business. That’s why it’s so important to set aside time to re-read your

business plan.

You need to take a minute to slow down so you can hear yourself think and ask yourself

questions like these:

1. Where is your business heading?

a. Is that the best direction for your company in the long-term?

b. Do you even want to go in that direction?

2. How efficiently and effectively are you allocating your resources? If you’re spending

80% of your resources on 20% of your revenues, it’s time to reallocate so that you’re

directing 80% of your resources toward 80% of your revenues.

3. Are you missing opportunities to improve or grow your business?

a. Could you partner with another company to reach more customers? Is there a

way to better serve your customers?

b. Are you leaving sales on the table by not cross-selling? Are your customers

subtly telling you that you’re missing out on up-sell opportunities?



c. Are there new markets you should consider entering? Perhaps with related

products or services?

Perspective.

Setting aside time to re-read your business plan allows you to get some perspective.

You’re able to think about where you’ve been and where you want to go. It’s a valuable

investment, if only to ensure that you’re on the right track—or even the track you want

to be on.

It’s sooooo easy to unintentionally allow inertia to rule the day, and you don’t want

that to happen. A healthy company (and happy founder) is the one choosing its destiny

rather than having it chosen for them.

So re-read your plan every year. Take a few days. Digest it. Think about the big picture

for a change. Talk it over with your team. Brainstorm. Problem-solve. Pull everyone out

of firefighter mode and have them join you in big-picture/proactive mode to gain a

fresh perspective and plan for the future.

Step 4: The Finish Chapter 28: Some Closing Words


CHAPTER 28

Some Closing Words

Launching a successful startup means you’ve got to do your homework. Or research.

Or legwork. Call it what you will. Regardless, it comes down to understanding your

industry inside and out—what’s working for others and what isn’t; past and current

market trends, customer trends, pricing trends, and the competitive environment.

Yes, it’s a lot of information; but that’s why you’re writing a business plan. Yes, it can

feel overwhelming. Yes, it can feel scary. But here’s the thing:

You are not alone. I am here to help you.

This kit walks you through each step, one at a time. And if you get stuck, have

questions, or just need some extra help, you can hire me for a few hours by simply

calling me or going to startupdistillery.com/products.

As you’ve read through this kit, I hope you’ve discovered that it’s about more than just

writing a business plan. It’s about developing a thorough understanding of your

business and its place in your industry. It’s about developing a roadmap for where you

want to go and how you plan to get there.

This is your golden opportunity to think about the big picture as well as the details. So

make the most of it. Once you launch you’ll be in firefighter mode, dealing with the

endless daily challenges that are part of running your own business.

You cannot phone this in.

I’ve said it before... you cannot, cannot, cannot phone this in. You’ve got to do the

work.

I know, I know; for most people doing worksheets seems like a form of mental torture.

But here’s the bottom line: If you don’t do the work, you won’t get the results.



The worksheets will help you extract the information that’s already in your head, or

prompt you when you need to get out there and do some legwork, like talking to

prospective customers, suppliers, partners, even competitors.

So remember: the value you get out of this process is directly proportional to the time

and effort you put into each worksheet. In other words, garbage in/garbage out. But

not to worry, as I said earlier, the worksheets walk you through each section of the

business plan one step at a time. And of course I’m always available. You can hire me

for as little as 1 hour if you get stuck, need specific guidance, or just want some advice.

A few reminders.

Now that you’re about to begin the worksheets, here are a few reminders:

1. Be kind to yourself during this process.

Writing a business plan takes time and plenty of thought. So give yourself a break

and don’t be too hard on yourself. This isn’t a one-day project.

2. Pace yourself.

This kit isn’t meant to be done in a single day. In fact, it should take most people

anywhere from weeks to months. So take your time and do it right—none of that

garbage in/garbage out for you, right?

3. Feel free to take advantage of my FREE Virtual High Five Program.

I know it sounds corny, but everyone can use a high five, pat on the back, attaboy,

or gold star when they’re working hard—why should you be an exception?

So here’s the deal:

• Now that you’ve finished reading this book, you can send an email to

[email protected] and tell me. You’ll get a high five email—from me—

congratulating you for making it through.

• Every time you finish a worksheet, send an email to my ‘hi five’ address and I’ll

send you a virtual high-five for that, too. Feel free to do this as often as you like.

After all, who can resist having their very own cheering section?

• Keep me posted on your successes—they really make my day—and I’ll keep

giving you virtual high fives for those, too!



Now let’s get started on the worksheets!

REMINDER

You can refer back to any chapter in the book as often as you like.

TIP

You may find it helpful to print out a copy of Distilling Your Dream.

• Bring it to your local copy shop • Put on a spiral binding (along with back cover and clear

front cover).

That way, you can write notes in the margins, highlight valuable passages, and dog-ear important pages.

THE WORKSHEETS that build you a great business plan

Instructions Instructions for The Words


Instructions for The Words

REMINDER: I recommend that startups hire two indispensable professionals right from the start:

(i) a qualified lawyer

(ii) a qualified accountant.

The worksheets.

1. Take a look at the template before you begin.

That way, you’ll understand me when I make references to “Section A” or “Section

B,” etc.

2. I recommend doing the worksheets in order.

If you don’t want to do it that way, I won’t hunt you down—the important thing is

for you to keep moving forward and making progress in whatever way is most

productive for you. However, writing a business plan is a process, and in this case I

think order matters.

3. Finish The Words before you begin The Numbers.

Why? Because it’s the words that drive the numbers (not the other way around).

4. You don’t need to use complete sentences.

Don’t put pressure on yourself by thinking you need to use complete sentences or

polished writing in your worksheet answers. Just get the information down on

paper. Wordsmithing can and should be done later—once you transfer your work

to the template.

NOTE

Your words (your story) drive the numbers. How can you talk about your stellar sales team without allocating appropriate funds in your financial projections?

So don’t forget to make sure that both the words and the numbers are line up with each other.



5. In the worksheets PDF there’s a general correlation between the size of the

answer space and the ideal answer length.

However, there are places where the formatting just didn’t allow for it—Worksheet

6, Question 1 is a prime example. So, please... use your judgment; don’t let the

space limit you. However, if I specifically recommend that your answer be 1-2

paragraphs, I mean it.

6. Use bullet points and numbered lists when you can.

It will be easier for you to distill the important points and it’s easier on the eye.

7. You’ll be surprised how your perspective evolves during the writing process.

After you complete all the worksheets, read through your answers and edit as

needed. For Sections A, B, and C in particular, you may have developed more

clarity since first writing those answers.

8. Do not use the template until after you’ve completed all your worksheets!

The Words template.

I’ve designed this template as a plug-and-play document. So the formatting, spacing,

and fonts have been built in for you, as well as these items:

1. Title page.It’s all ready to go. All you need to do is type in your company name and contact

information. If you like, you can add your company logo, too.

2. Table of contents.Once you’ve completed your final draft, just plug in the page numbers as needed.

3. Section headings.Each section has been labeled, and consistent spacing between subheadings and

sections has been built in. Simply replace the answer guides in the brackets—

e.g., [Worksheet 9: Questions 1-4]—with your worksheet answers.

4. Subheadings within each section.Subheadings have been included in the template. Some are standard, such as

Problem, Solution, Target Market(s). Feel free to add or customize subheadings to

suit the specific needs of your business plan.



5. Copy and paste your worksheet answers.All you need to do is put your worksheet answers in their designated locations.

Well, almost; there’s still some work you’ll need to do:

• Wordsmith your text as needed. Make it understandable to all readers, even

your mother. Remember, investors may not be as familiar with your industry as

you are. Explain things simply and clearly. You may want someone who has

strong writing skills to help you edit and/or wordsmith as needed.

• Use bulleted and numbered lists when possible. Mix them in with your

narrative text to make it easy for readers to see what’s important and follow

your train of thought.

Helpful Hints (for The Words template).

Many founders write their business plans with the goal of raising money or securing a

loan, but a business plan can be a double-edged sword. As the calling card for your

business, your plan will either hook the reader and leave them wanting more or turn

them off and leave them saying “No, thanks.”

Don’t blow your big chance by making a mistake that can be avoided. Even if your

business plan is only for yourself, you’ll still need to share your concept with others,

whether it’s customers, suppliers, employees, or partners. So it's just as important that

you avoid the following missteps—perhaps even more so because you won’t be getting

outside feedback (unless you seek it out, which would actually be a good idea).

1. Too much jargon.

If readers can’t understand what you’re saying, they won’t buy in. Another caution:

go easy on the latest buzzwords. If your business plan is laden with the latest

jargon, readers’ antennae go up—are you using fancy words to hide a lack of

substance? Better to write a plainspoken, easy-to-understand business plan.

Investors, especially, will thank you for it.

2. Too many generalizations.

Discuss your specific solution(s) to solve the problem you’ve identified. Support

your statements. Too often business plans are filled with superlatives,

generalizations, and over-the-top optimism—guaranteed red flags.



Pitch/Summary template.

Regardless of the form your executive summary takes—slide deck, canvas, or

Google/Word doc—the same elements apply.

This template will help you distill your business plan to accommodate any format. It’s

similar to the worksheets, but instead of questions there are eight headings (after

which you can insert your answers):

1. The Problem

2. The Solution

3. Products & Services

4. Target Market(s)

5. Competition

6. Sales & Marketing Plan

7. Management Team

8. Financial Summary

Each heading covers a critical part of your business. Your job is to further distill your

business plan to accommodate the condensed format. The template’s eight sections

act as the basic framework for most of my slide decks, and I typically limit my decks to

10-12 slides.

Helpful Hints (for the pitch/summary template).

1. If you’re looking for investors, I like to begin with a sentence that states how much

money you’re seeking and how you plan to use it. For pitches, I include this kind of

information toward the end of the slide deck with your financial summary slide.

EXAMPLE:

_______ [name of your startup] is seeking $___. These funds will allow us to:

[then explain how the funds will be spent by looking at your Sources & Uses of Funds spreadsheet]

2. It takes a lot of paring down to write an effective summary. Don’t just cut and paste

the full narrative from your business plan. Distill it. Refine it. Include only the most

important and compelling parts.



3. In the Products & Services section, keep it short and sweet, going only as far as

providing a numbered list of your offerings. The same can be done in the Target Market section.

4. In the Competition section, only include a refined summary of how competitive the

marketplace is, your primary competitor(s), and what sets you apart from them.

5. In the Management Team section, be sure to highlight any and all industry-related

experience that adds credibility to the team.

Instructions Instructions for The Numbers


Instructions for The Numbers

REMINDER: I recommend hiring two indispensable professionals right from the start:

(i) a qualified lawyer

(ii) a qualified accountant.

Each spreadsheet in The Numbers template has an accompanying worksheet that

explains its purpose and the steps to help you build it. Some worksheet information

may repeat what’s covered in the book, but I figure it’s worth it for you to have the

information at your fingertips as you work.

The worksheets.

1. Words before numbers.

Your concept is the driving force behind your startup, so it’s the words that drive

the numbers (not the other way around). That’s why you need to finish your

narrative before beginning work on your financial projections.

2. Order matters.

I recommend completing the worksheets in order. It will make it easier for you in

the long run because each spreadsheet builds on the next. However, if you don’t

want to do it that way, I promise no one will hunt you down.

3. Open both documents.

For each worksheet it’s best to have the accompanying spreadsheet open and

visible at the same time so you can easily refer back and forth between them.

The template.

The Numbers template is a series of spreadsheets contained in a single document. The

formatting and fonts built in for you, and I’ve embedded formulas where possible.

This template differs from The Words template because you will be working in it

directly rather than transferring worksheet answers into it.



Your job is to:

1. Customize the spreadsheets to fit your business. Be sure to add and delete line items to suit your specific business. For example, if

your startup won’t be using pest control services, go ahead and delete that line

item. If your startup will have an operating expense not listed, be sure to add it in.

2. Type your numbers into the designated locations. Remember, try to use the most realistic numbers you can. For example, call your

Internet service provider (ISP) or phone company to get actual pricing.

3. Create your own formulas, as needed. Depending on your experience and comfort level, you can add your own formulas

to make these your financial projections.

4. Check every formula to make sure it’s working properly and accurately. For example, if you’re totaling Column A for Rows 2-10, make sure the formula is

includes Rows 2-10 of Column A and you haven’t inadvertently missed Row 2. Or

Row 10. You get the picture. It sounds obvious, but you’d be surprised how

inserting a row here or deleting one there can mess up a formula.

5. Write down all your assumptions at the bottom of the relevant spreadsheet. I recommend doing this as you work; if you wait until the end, you’re more likely to

forget the assumptions you’ve made. Take it from me: I learned this the hard way.

REMINDER

1. Don’t blow your big chance... A seasoned investor can spot unrealistic assumptions a mile away; and even if you’re bootstrapping, it does no good to be unrealistic.

2. Your numbers need to support your story. Don’t forget to make sure that your words and your numbers are consistent with each other.



Accountants, again.

Always have a qualified accountant go over your financial projections with you to

prevent any problems and catch any miscalculations.

Yes, I’m repeating myself... because it’s that important.

Worksheets for The Words Worksheet 1: Describe Your Business


WORKSHEET 1

A. Describe Your Business

CROSS-REFERENCE: For a refresher, see Chapter 10 (p. 22)

1. What problem or frustration are customers experiencing? What need isn’t being

met?

REMINDER: DO NOT talk about your solution here. Only talk about the problem or frustration people are experiencing.



2. What is your solution?



3. Why will customers be willing to pay for your solution?

HELPFUL HINTS: 1. Giving a broad (and vague) explanation saying that your solution is better than what’s currently

available isn’t good enough. Explain your solution in terms of what needs aren’t being met or what frustrations people are experiencing.

2. Resist the urge to describe your product or service here.

3. Saying that your product or service is superior is not good enough; the same goes for superior customer service.

4. Keep in mind that when it comes to attracting customers, your worst enemy is inertia. It’s harder than you think to get people to change the way they do things. It’s hard to change patterns—even if your solution is more efficient, more cost effective, more logical, etc.

in·er·tia [in-ur-shuh] n. When someone or something maintains its current state of momentum or rest unless or until it’s changed by an external force.

After you’ve written your answer, read it and ask yourself—really ask yourself—if your solution is compelling enough to overcome customer inertia. Even though your solution may be better than what’s currently available, it has to overcome customers’ natural resistance to and fear of change.



FOR PRODUCTS ONLY:

4. List any proprietary features. (Anything that is patented or otherwise legally protected

as being usable only by you.)

NOTE: Even though features are typically addressed in Section B (Products & Services Offered), proprietary features are so extra special and unusual that they deserve a special shout-out up front in Section A (Describe Your Business).

Worksheets for The Words Worksheet 2: Products & Services Offered


WORKSHEET 2

B. Products & Services Offered


1. List each product and service you’re selling. Include a short explanation of each.



2. What are the features of what you’re selling?

REMINDER: A feature is part of the product or service – it’s objective – a fact or function, such as an iron’s auto-shutoff. A benefit is why it matters to the buyer – it’s subjective, such as safety (e.g., due to the iron’s auto-shutoff) or saves time. The more technical the product or service, the more you can talk about features; the less technical, the more you want to focus on benefits.

CAUTION: Just the facts. No writing about customers, target market, etc. You’ll do that in Section C.

3. What are the benefits of what you’re selling?

CAUTION: I know it’s hard, but try to avoid talking about features here.



4. What price are you charging for each of your products and services?

TIP: Research what your competitors are charging, and if your prices are different be sure to explain why.

If you’re selling directly to consumers from a brick-and-mortar location (e.g., restaurant, retail shop) and the atmosphere is relevant to your business:

5. Describe the atmosphere.



If you’re selling something unusual that hasn’t been seen before or that’s especially technical and would be unfamiliar to most people (e.g., an automatic wine dispenser):

6. In one paragraph, briefly explain what is unusual or technical in a way that even

your mother would understand. (No offense, Mom.)

7. Explain how you will manufacture, source and/or deliver your products and

services. (step by step)

Worksheets for The Words Worksheet 3: Market Analysis


WORKSHEET 3

C. Market Analysis


1. Give an overview of your industry.

a. Is the market competitive? If not, why not?

b. What’s the approximate size of your market? (e.g., annual spending by consumers

or annual industry sales)

c. Is there growth potential? If so, explain why.

TIP: Assume the reader knows little or nothing about your industry. Start by providing color commentary, explaining the market: Is there a history behind how the market has evolved? What drives/motivates customers and/or service providers?



2. Will demand be seasonal?

TIP: For example, will Christmas be your busy season and summer your slow season? Vice versa?

3. List your target markets.

TIP: Be as specific as possible, adding relevant characteristics such as geography or industry (go easy on the statistics). Include whether you’re selling to other businesses (b2b), directly to consumers (b2c), or both.



4. Describe your ideal customers. Why do they buy from you?

TIP: Picture your ideal customer in your head. Imagine as many details as possible. If there’s more than one type, do this exercise for each, listing all the reasons that make them ideal (e.g., needs, wants, personality, demographics).

5. How can you find more people like these? How will you attract them?



6. How will you keep these customers coming back?

Worksheets for The Words Worksheet 4: Business Location


WORKSHEET 4

D. Business Location


1. Where will your business be located?

TIP: Include city, state, town, neighborhood... any relevant info.

IF YOU HAVE ALREADY CHOSEN YOUR SPECIFIC LOCATION:

2. Why this location?

TIP: Give examples, such as lots of foot traffic; easy parking; near public transportation.



IF YOU HAVEN’T YET CHOSEN YOUR SPECIFIC LOCATION:

3 (a). What features must you absolutely have at your location?

TIP: Give examples, such as specific zoning; lots of foot traffic; easy parking; near public transportation.

3 (b). What features would you like to have, if at all possible?

TIP: Give examples, such as lots of foot traffic; easy parking; near public transportation; next to Wal-Mart, the local garden store, a high-end department store or other like-minded startups.



4. List the expenses associated with this location.

TIP: Even if you haven’t chosen a specific location yet, try to Include price per square foot, build-out requirements and expenses, if you can.

IF YOU’RE PLANNING TO ADD LOCATIONS:

5 (a). Do you plan to open additional locations in the next 3 years? If so, where and

why?



5 (b). Discuss the factors that could speed up or slow down your expansion plan.

Worksheets for The Words Worksheet 5: Competition


WORKSHEET 5

E. Competition


1. Give an overview of the competitive environment in your industry/market

segment. Is the market competitive? If not, why?

2. How do your products/services differ from others offering the same or similar

products/services?



IF YOUR PRODUCTS/SERVICES ARE NEW OR UNIQUE:

3 (a). What makes your products or services different? Desirable?

IF YOUR PRODUCTS/SERVICES ARE NOT NEW OR UNIQUE:

3 (b). Why would people buy your products/services? Where are your target

customers currently spending the dollars they would otherwise spend with

you?



4. Choose your top 3 – 5 competitors and complete the following for each.

(Print multiple copies of this—one for each competitor)

NOTE: If you don’t have any (or enough) strong direct competitors, choose indirect competitors. For example, an indirect competitor of a movie theater could be a bowling alley since couples looking for evening entertainment can choose to do one or the other.

Who They Are:

TIP: Information you can/should include:

• Company logo. Go to their website and just click ‘n drag it onto your desktop. You can then drag ‘n drop it into the business plan document.

• Company name, address and URL (website address)

• Company size in terms of revenues, employees or both. If the company is publicly or privately owned, you can mention that here, too.



TIP: For the remaining sections, use bullet points to list your answers.

Products/Services:

Strengths:



Weaknesses:

(optional) Lessons Learned From Observing:

Is their business growing? shrinking? Why?



BONUS! Here’s a sample to help you get started.

SAMPLE Competitive Analysis.

Here’s a typical template I use in my business plans.

• When it comes to strengths and weakness, sometimes I only provide a list of bullet

points. However, most of the time I type a short description in bold and then

explain further.

• In the ‘What Was Learned...’ section I show you 3 examples.

ABC Company

[logo]

Who: Company name Website URL Location

About: I write a two-sentence summary, typically including when they were founded and by whom as well as who owns them (i.e., if they’re privately owned, publicly traded, a subsidiary of another company, etc.). If it’s relevant, I’ll include the size of the company in terms of revenues, employees or both.

Products/Services: I write 2-3 sentences specifically describing what the company sells, as well as any other generally descriptive information that distinguishes this company from the others.

Strengths:

• Innovative. Consistently add new products that appeal to target markets.

• Great Location. Just off the main road that gets all the tourist traffic in the area.

• Top Quality Ingredients. Organic, locally grown.



Weaknesses:

• Poor Layout. Too large a room with a lot of dead space, disjointed, unfocused.

• Too Loud. Music is too loud; acoustics are terrible (hardwood floors, no sound absorption). Too difficult to have a conversation—can’t hear other people speaking.

Lessons Learned From Observing:

No. 1

Their business is growing. They’ve built their party planning business by advertising to the tourism industry and have been very successful. They’ve spared no expense with their PR efforts and it shows—they’ve received tremendous positive press and accolades.

No. 2

They did a poor job with their launch party(ies). Weak PR push. No defined message tied to their brand identity, which leaves the public confused.

Worksheets for The Words Worksheet 6: Management Team


WORKSHEET 6

F. Management Team


1. Write a short professional bio for each member of your management team. (See

the end of this worksheet for three different styles.)

TIP: Here’s a structure I recommend (feel free to adapt as needed):

Name, Title - Describe business background and management experience - Describe any direct operational experience in this kind of business - Other managerial experience (clubs, teams, civic, or religious organizations)? - Education - Special abilities/interests that relate to the business either directly or indirectly - (optional) Reasons for going into this business



2. What are the responsibilities of each management team member?

NOTE: Sometimes the duties of team members are self-explanatory based on their titles (e.g., Chief Financial Officer). When that’s not the case, or further clarification is needed, I like to add a paragraph that outlines the job responsibilities.



FOR STARTUPS WITH CO-FOUNDERS:

3. Explain the relationship history and current working relationship

between/among co-founders. How did you get to know each other? How do you

(your skills, your personalities) complement each other?

a. Who reports to whom? Who makes final decisions?



4. Do you have an advisory board? If so, provide a 1-paragraph bio for each

member, including an explanation of how his/her experience will benefit your

company.

NOTE: Some startups find it helpful to put together an advisory board made up of experienced professionals, often from varied professional backgrounds. These advisors not only share their experience and know-how, but their contacts (introductions to accountants, lawyers, partners, suppliers and industry experts can be invaluable).



BONUS! Here are a few samples to help you get started.

SAMPLE Bios.

Here are a few sample bios you can use as a guide:

No. 1

John Smith, Chief Operating Officer John is a seasoned manager with more than 25 years of operations and management experience, including:

• General management: Managed up to 120 employees; multi-site operations.

• Sales and customer service: Developed national sales force; managed company with 170 sales reps; showed at national trade shows.

• Operations management: Relocated 3 businesses without loss of production, including 40,000 sq. ft. in San Francisco; managed recovery from the Loma Prieta earthquake (evacuations, FEMA, re-establishment of suppliers, production).

• Startup management & growth: Doubled size in 18 months, 3-fold in 3 years; increased shipping 10-fold in 18 months; developed accurate financial models; secured SBA loans.

John’s background includes firsthand experience running manufacturing, retail and mail order companies. He earned a B.A. in American Studies from Macalester College and an MBA from the MIT Sloan School of Management.

No. 2

Jane Roby, Founder Jane has worked in the financial services industry for the past 10 years, currently working at a major investment management firm. During the last four years she worked with digital startups in the education industry.

Twelve years ago, Jane began her side business of coaching students graduating from college and young professionals in the early stages of their careers who were looking to make a change. It all started when colleagues and friends asked her to counsel their children on career issues. Today, she takes on a few select clients, helping them navigate the complicated post-graduate world. She most enjoys demystifying what many describe as a harrowing process. Jane is a graduate of Tufts University, where she majored in economics, and Harvard Business School.



No. 3

Ben Jones, President Ben has more than 15 years experience in real estate development and construction. His work focuses on the strategic management, operations and finances of XYZ, Inc. His prior experience includes owning and operating ABC Real Estate Development, Smith Land & Lumber Company, Jones Sawmill & Logging Company, and DEF Forestry. Ben was also recognized as the top new business development talent at GHI Construction, a major construction company based in Seattle.

Ben earned a B.S. in Finance from the University of Smithville. He continues his education by regularly attending educational events related to the construction industry, keeping his skills sharp and staying ahead of the curve.

Responsibilities: Ben develops XYZ’s budget; establishes, manages and implements quality standards for all of XYZ, and ensures that construction does not disrupt facility operations. He also supervises day-to-day activities on project sites and ensures that all OSHA requirements are met.

No. 4

Alex Smith, Director of Product Development Alex is a seasoned design and retailing professional with more than 20 years experience. His educational background includes degrees in both retail management and interior design, and his professional experience includes:

• Product development for Target Corporation, including design, international sourcing and production

• Department store and specialty store retailing for 10 years

• Interior design for 10 years

Alex’s product development experience encompasses the process from start to finish: from putting the design on paper, to production, to packaging, to getting it on retailer shelves. In addition, he has successfully managed a staff of 10 and regularly managed multiple, time-sensitive projects simultaneously.

Responsibilities: Alex will oversee the sales and design functions of ABC, Inc., working directly with the factories and the agent in India. He will also oversee factory performance and negotiate the first cost of the products.



No. 5

Marc Roberts, Founder & Director of Marketing Marc is an accomplished professional specializing in marketing and promotions, special event planning, concept consulting and project management for Austin’s bars, nightclubs and restaurants.

As a successful team manager, Marc’s ability to recognize individuals’ strengths and weaknesses is the reason he’s able to develop productive teams, smooth operations and memorable brand images. Marc produces measurable results that include:

• Increased profits • Tightly managed costs • Increased brand awareness and buzz • Increased attendance by target audiences • Increased consumption by target audiences • Increased customer loyalty and repeat business

Marc works directly with venue owners to develop and implement new marketing concepts that build awareness and increase revenues. This includes identifying and securing marketing partners to offset costs and increase profit margins.

His creativity, analytical skills and strategic thinking are key to Marc’s success in his direct marketing campaigns and in securing major sponsors for his special events. Marc has spent years cultivating relationships with Austin’s media, including local television and radio personalities as well as the who’s who of Austin, ensuring that his clients receive maximum publicity and exposure.

SAMPLE Responsibilities.

No. 1 Responsibilities: Jill will be responsible for managing day-to-day operations, including procedures, personnel policies, inventory and financial controls, as well as regulatory and business practices compliance and customer relations.

No. 2 Responsibilities: Bob is responsible for all graphic design and product development, i.e., packaging, buyer presentations, as well as the showroom display. He develops the product lines from conception through packaging while keeping abreast of marketplace trends. In the long-term, Bob will build and manage the art department, including in-house and freelance artists.

Worksheets for The Words Worksheet 7: Staffing


WORKSHEET 7

G. Staffing


1. What are your staffing needs now and in the next 3 years?

TIP: I recommend using a table like this to list the titles and pay rate (hourly or annually, whichever applies) for each employee. If you’re relying on part-time hourly employees, don’t forget to add a column showing estimated hours of work for each employee.

2. Will you be paying overtime? If so, explain why.

REMINDER: Don’t forget to include estimated overtime costs in your financial projections.

Title YEAR 1 YEAR 2 YEAR 3

Qty Pay Rate Qty Pay Rate Qty Pay Rate

Worksheets for The Words Worksheet 7: Staffing


3. Will you be training your employees? If so, describe.

REMINDER: Don’t forget to include training costs in your financial projections.

4. List each position you plan to fill. Write a job description for each that includes

the title along with the knowledge, skills and abilities required for the position.

BONUS! These job descriptions can also be used for your actual job postings.

Worksheets for The Words Worksheet 8: H. Purpose & Use of Funds


WORKSHEET 8

H. Purpose & Use of Funds


1. How, exactly, will you be spending your investment/loan funds?

TIP: Be sure to give a line-by-line description of how any outside money—whether from investors, a bank loan or yourself—will be spent. I recommend using a table like the one below.

Expense Amount



BONUS! Here are a few samples to help you get started.

SAMPLE Templates.

When you’re ready to prepare this section of your business plan, it’s surprisingly

simple. I like to give a line-by-line description of how any outside money—whether

from investors, a bank loan or yourself—will be spent.

Here are some examples of exactly what I do in the business plans I write:

No. 1

XYZ is seeking to raise $______ in order to cover the following expenses:

Startup Expenses Architect & Design Fees $ xxx Build-out xxx Business Plan xxx Furniture, Fixtures & Equipment xxx Inventory xxx Legal xxx Marketing/PR (pre-opening) xxx Office Supplies xxx Signage xxx Stationery, Menus, etc. xxx Utility Deposits xxx Cash Needs for 12 Months of Operations* xxx Cash Reserve for contingencies xxx

Total Uses $ xxx

* You may need cash for a different length of time, depending on how much working capital you need.



No. 2

XYZ is seeking to raise $______ in order to cover the following expenses:

Startup Expenses (pre-opening) Legal $ xxx Marketing/Advertising/PR xxx Office lease, utilities, furniture, etc. xxx Payroll xxx Website, computers, etc. xxx Other operating costs xxx Cash Needs for 12 Months of Operations* xxx Cash Reserve for contingencies xxx

Total Uses $ xxx

* You may need cash for a different length of time, depending on how much working capital you need.

No. 3

XYZ is seeking a first round of $_____, which will be used as follows:

Capital to fund trading $ xxx Operating expenses xxx Pre-Construction engineering studies xxx Personnel xxx Capital Reserve for contingencies xxx Round 1 Investment $ xxx

Worksheets for The Words Worksheet 9: Intros for Sections A & B


WORKSHEET 9

Introductions for Sections A -and- B (Describe Your Business –and– Products & Services Offered)

SECTION A. Describe Your Business

Combine the answers to all four questions into 1-2 paragraphs describing your

business.

1. What is your company name?

TIP: For written business plans and executive summaries, Include your legal entity, such as Inc., LLC, LLP, etc. For slide decks, don’t include it. If you haven’t formed a legal entity yet, that’s fine; but you need to do so before you begin doing business.

2. Where is your company officially registered?

TIP: Give the city and state where your legal entity is registered.



3. Give a one-sentence explanation of what your business does.

TIP: This is VERY important for slide decks!

4. If you want to add 1-2 short paragraphs to expand upon your one-sentence

description above, do so here.

TIP: For slide decks this can be part of your script, but typically should not appear on a slide.



SECTION B. Products & Services Offered

5. Write 1-2 paragraphs that SUMMARIZE the products and/or services you’re

offering.

Worksheets for The Numbers Worksheet 10: Equipment List


WORKSHEET 10

Equipment List


Purpose:

The equipment list shows each piece of capital equipment you’ll need to purchase for

your business.

Additional Information:

Capital equipment is used for manufacturing, delivering, storing, or selling as it relates

to operating your business—but it’s not equipment you replace annually or more

frequently. And it’s not the merchandise you’re planning to sell to your customers

(that’s inventory). Examples of capital equipment include office furniture, computers,

store fixtures, machinery and delivery vehicles.

Steps:

1. Have this worksheet and the spreadsheet open for easy reference.

2. Directly on the Equipment List spreadsheet, list the following:

• The item, including model number or any other identifying information

• The price you will pay

• Sales tax

• Delivery or installation fees

3. Speak to your accountant.

Be sure to discuss any depreciation or tax implications related to your capital

equipment.

Worksheets for The Numbers Worksheet 11: Balance Sheet


WORKSHEET 11

Balance Sheet

CROSS-REFERENCE For a refresher, see Chapter 22 (p. 73)

Purpose:

A balance sheet shows the assets, liabilities, and net worth of a business as of a specific

date.


Since most startups have no assets or liabilities at launch, a balance sheet is usually

unnecessary.

However, if your business has assets—for example, your company owns delivery

vehicles or the building where your business is located—then you should include a

balance sheet in your financial projections.

Steps:


2. Customize each line item in the spreadsheet to suit the needs of your business.

Examples are provided directly on the spreadsheet.

Worksheets for The Numbers Worksheet 12: Projected P&L Statements


WORKSHEET 12

Projected Profit & Loss Statements

CROSS-REFERENCE: For a refresher, see Chapter 24 (p. 81).

CAUTION: There are several items not addressed on this spreadsheet that need to be discussed with a qualified accountant, such as depreciation and taxes.

Purpose:

A projected profit & loss statement (a.k.a. P&L) shows a company’s profitability during

a specific time period.


“Projected” means it’s an educated guess about the future. While no projections are

completely accurate, it’s important that your estimates be as thorough and detailed as

possible. This is especially important with your projected P&L since you’ll be basing

your budgets on them.


Estimating revenues and expenses can be challenging, so I like to use a 5-step process

to put my clients in the right frame of mind.

Here’s how it works:

Step 1.

Create a line item for each revenue source or type of expense.



Step 2.

Create three columns to help you develop your estimates: Low, Realistic and High.

Step 3. Start with Low and assume the worst. What happens if everything goes wrong? What if

there’s bad weather or new competitors appear or your competition offers aggressive

pricing you just can’t match? Assume your suppliers don’t deliver on time or your sales

team is lazy. After going through your doomsday scenario, fill in the Low column.


the right people at just the right time and you negotiate unbelievable pricing with your

vendors? After going through your dream sequence, fill in the High column.


scenario. It may surprise you to know that the numbers in this column are typically


I’ve included the following chart to help you.

REVENUE/EXPENSE LOW REALISTIC HIGH



Assumptions:

Be sure to list ALL your assumptions when building any spreadsheet.

Worksheets for The Numbers Worksheet 13: Cash Flow Projections


WORKSHEET 13

Cash Flow Projections


TIP: If you only complete one spreadsheet, this is the one!

Purpose:

Cash flow projections are all about timing—when cash will flow into and out of your

company’s bank account. They show how much cash your business will need and

when it will be needed.


Estimating revenues and expenses can be challenging, so I like to use a 5-step process

to help put my clients in the right frame of mind.

Here’s how it works:

Step 1.

Create a line item for each revenue source or type of expense.

Step 2.

Create three columns to help you develop your estimates: Low, Realistic and High.

Step 3.

Start with Low and assume the worst. What happens if everything goes wrong? What if

there’s bad weather or new competitors or your competition offers aggressive pricing

you just can’t match? Assume your suppliers don’t deliver on time or your sales team is

lazy. After going through your doomsday scenario, fill in the Low column.




the right people at just the right time and you negotiate unbelievable pricing on your

inventory? After going through your dream sequence, fill in the High column.


scenario. It may surprise you to know, but the numbers in this column are typically


I’ve included the following chart to help you.

REVENUE/EXPENSE LOW REALISTIC HIGH



Assumptions:

Be sure to list ALL your assumptions when building any spreadsheet.

Worksheets for The Numbers Worksheet 14: Sources & Uses of Funds


WORKSHEET 14

Sources & Uses of Funds


Purpose:

The Sources & Uses of Funds is a number version of the Purpose & Use of Funds from

The Words. It shows:

• The source(s) of the funds you’ll be using to launch and run your business

• How you plan to use/spend those funds

Helpful Info:

This spreadsheet helps you understand how much money you’ll need to launch your

startup and keep it going until you start earning enough to reliably pay your bills.

You’ll need this information regardless of whether you’re planning to:

• self-fund,

• obtain a loan, or

• find outside investors.

Steps:


2. Customize each line item in the spreadsheet to suit the needs of your business.

I’ve included plenty of examples directly in the spreadsheet.



3. List each source (and amount) of funds you’ll use to launch your business.

On the spreadsheet, each source should appear on a separate line.

Sources include:

a. Outside investors (including family and friends)

b. Loans (from banks and family/friends)

c. You



4. List how you plan to use the investment/loan funds (by category and amount).

The total should cover all necessary expenses until your business becomes self-

sustaining (or until your next planned cash infusion, if this is one of several

investment rounds).

5. Look at your cash flow projections to decide on a conservative, comfortable

number that will cover your cash needs until your business becomes profitable.

6. Total Sources must equal Total Uses.

If the two totals are close but not exact, I adjust/round the cash reserve as needed.

Having said that, I do like to include a little extra to cover the unexpected. If there’s

a significant difference, there must be something missing in either the Sources or Uses section, so it’s important for you to figure it out.

Documents

DISTILLING YOUR DREAM - Startup Distillery · Introduction Chapter 1: Welcome to Distilling Your Dream DISTILLING YOUR DREAM: The Step-By-Step Kit for Business Plans 2 Distilling