By Julie King
Two financial statements are used by financial institutions to evaluate a company's loan application, the Income Statement and the Balance Sheet.
The Income Statement shows the sales (incoming revenues) and expenses over a set period of time. This statement is a good indicator of the profitability of a business during a particular period, as it shows the net result when the sales of the business are put against its expenses. The Balance Sheet, on the other hand, shows the business assets, liabilities and shareholder capital on a specific date, and as a result gives a good picture of a company's financial position.
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Assets are anything with commercial value that your business owns. They are divided into three categories: current assets, fixed assets, and other assets.
Current assets are cash, accounts receivable, inventory, and other assets that will likely be turned into cash, bartered, exchanged, or converted into an expense within a year during the normal course of business. Included in the “other current assets” category are loans to shareholders, also known as due to shareholders.
Some business owners will not pay themselves a salary, preferring to take drawings, which they must deal with at year-end. In the current assets section, due to shareholder amounts may artificially inflate current assets if you plan to convert them to bonuses, dividends or management fees at year-end, at which time they become expenses of the business.
Fixed assets have commercial value but are not expected to be consumed or converted into cash in the normal course of business. They are long-term, more permanent or "fixed" items, such as land, building, equipment, fixtures, furniture, and leasehold improvements.
Fixed assets often decrease in value (depreciate) over time due to wear and tear from use. The federal government allows businesses to depreciate items for tax purposes, and it has defined specific depreciation rates for different categories of fixed assets. On your balance sheet, therefore, you will see the initial value of the asset, the amount of accumulated depreciation, and finally the net depreciated value of the asset.
Example of a fixed asset on the balance sheet:
|Accum Deprec - Vehicle||$||-8,500|
* Net depreciated value of the vehicle.
Other assets are things that don't fit into either of the above two categories, yet still belong on the balance sheet. They include things like prepaid expenses, which have value but are not fixed or necessarily to be converted into cash value during the current business year.
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Liabilities are company debts or obligations to outside parties as a result of goods or services that were transferred to your company on a specific date that has already passed. Current liabilities are the portion of those obligations that are to be paid out during the course of the year, while long-term liabilities are the portion of your company's obligations that extend beyond that timeframe.
Current liabilities include accounts payable, accumulated taxes and payroll liabilities, and the current amount owing on business loans and/or leases.
Long-term liabilities, meanwhile, include the balance of your loans, leases, and other liabilities beyond the current calendar year.
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While Intangible Assets do not appear directly on your balance sheet, they can be a significant factor when one looks to buy or sell a business or part of the business. Intangible assets include things like good will; intellectual property such as copyrights, trademarks, patents; leases; franchises; permits and so on.
While you do not list these assets on your balance sheet, they are reflected in the sense that they enable you to maintain profit margins and market share, so in turn they show up on the current assets section of your balance sheet through the revenue and profits they create.
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Something that is often difficult for new entrepreneurs to grasp is the way equity is calculated on the balance sheet, where the total assets always equal the total liabilities plus equity.
In other words, your company's equity is equal to the value of its total assets minus its total liabilities. If the business assets are greater than the liabilities, which is hopefully the case, then the equity of the business is the positive difference between the two numbers.
Sample equity calculation:
On Company ABC's Balance Sheet, the Total Assets are $100,000, while the Total Liabilities are $40,000. In this case, the difference between the assets and liabilities is $60,000. Since equity is equal to this difference, the equity of Company ABC at that time is $60,000.
If Company ABC had Total Liabilities of $50,000, with its Total Assets staying at $100,000, then the equity of Company ABC at that time would be $50,000. The increase in the total liabilities of the company in comparison to its total assets causes the equity of the business to drop.
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Hard to believe the day is actually here. After 18 months of hard work, dozens of meetings, many late nights and hundreds of hours of collaborations, Project Wildfire is about to launch.
All the pieces are in place: the website is up, the launch party is booked, the funding is in place, the mentors are ready... All we need now is your passion and your dreams.
The project came about through the founders' belief that while the private sector can't solve all of the world's most pressing problems, the world's most pressing problems can't be solved without the private sector. We believe that business can and should be a force for good in the world, and that by transforming the way business is done we can change the world.
Around the world, social business or social enterprise is changing the rules of the game. No longer strictly focused on the financial bottom line, social businesses are putting mission first - and making a profit while doing it.
We look forward to seeing the amazing ideas that will come about during the contest.
May you always live your dreams.
Mike Brcic, director,
If you're still working on your Project Wildfire pitch and want some tips and feedback, come on out to our pitch workshop this Thursday!
By Dr Paul E Adams
As we shake hands celebrating our new partnership, we know it will succeed. Yet, as half of all marriages fail, are the odds of a business partnership success any different? Just as we enter in to a marriage contract to share our lives; do we not have the same expectations of our business partnership?
In our society, with a fifty- percent divorce rate, it is wise to think of pre-nuptial agreements. Yet, before the ceremony, many of us hesitate to ask for a contract as such a request suggests the lack of trust. Nevertheless, we do it. And, half of us are glad we did.
I believe all business partnerships need a pre-nuptial agreement. Such relationships can be complex with such thorny issues as: How do you share the workload? How do you split the profits? Do you have similar goals? What happens if the business fails? And if it does go sour- it can be as painful as divorce with similar feelings of anger, disappoint injustice, and deception.
In the business world, some think a handshake is a macho and romantic way of doing business. While such arrangements are great theater, in real life they are stupid and risky. Just as in marriage, misunderstandings are common. Are you aware that success may create more problems than failure? Money affects our behavior. Do you know how you will react to making or losing it?
Thus, if you are going into business with a partner-before you open the doors, get a written agreement. And, if you are in business, perhaps it is not too late to sit down with your partner and draft an agreement. Here are four major points that I advise you to include:
It is my experience, that once an agreement is in place, everyone feels better. You will have removed much of the possibility of unpleasant surprises from a relationship of loose ends to one of definition with a specific understanding of your relationship to each other.
Although, contracts and agreements may work to protect our interests, we can learn from Aristotle, who saw harmonious relationships as critical to well being. He concluded that successful partnerships are a basis of living well. Let me leave you with: Who you select to be in business with is as important as selecting the business to be in.
In this episode of StartmeUp Videos, Dr. Steven Gedeon talks about the challenges of writing a business plan as well as the best practices for writing different sections of the business plan, how should you write the financial section, executive summery, how to create a marketing plan etc How to start a business ? How to write a business plan for a small business ? How to complete the executive summery ? What is a business model? Where should I start ? is it simple ? How to prepare a business plan proposal Need a free Business plan Guide ? http://www.StartMeUpRyerson.com
In this episode of StartmeUp Videos, Dr. Steven Gedeon talks about the challenges of writing a business plan as well as the best practices for writing different sections of the business plan, how should you write the financial section, executive summery, how to create a marketing plan and much more.
How to start a business ? How to write a business plan for a small business ? How to complete the executive summery ? What is a business model? Where should I start ? is it simple ? How to prepare a business plan proposal
visit our website to find out more
Looking to get more involved with Project Wildfire? Check out our requirements
Check out StartMeUp for more business resources.
A social business is a business that integrates two objectives:
A social business can be large or small, a start-up or an established player, it can take any legal form (CICs, co-ops, Ltd companies, and so on) and can operate in most industrial sectors (it's difficult to imagine a social arms manufacturer/trader).
So do companies with grand corporate social responsibility (CSR) projects count as social businesses?
No. A further test of social businesses is to think whether or not an investment into the business which advances the commercial activity of the business will also increase its social impact (i.e. is there a clear correlation between the two and are they of equivalent importance?). If the answer is yes they are a social business, if the answer is no then they are not. Investing in Kraft or BP will not increase their social impact so, despite their efforts, they are not social businesses.
What if a business fits the definition above but does not identify itself as social?
It is still a social business. We have identified two types of social business:
Investment perspective: Social businesses can, in the case of financial surplus, return all or a portion of it to investors (in the form of capital appreciation or dividends) as well as what is known as the ‘social return’.
There are many types of social business covering many sectors; you can explore them here.
Social enterprises mix social, environmental and commercial objectives but, unlike social businesses, they place a clear emphasis on the former. The other big difference between social business and enterprise lies in the treatment of financial surpluses, or profits. According to the UK Government:
"A social enterprise is a business with primarily social objectives whose surpluses are principally reinvested for that purpose in the business or in the community, rather than being driven by the need to maximise profit for shareholders and owners.” Social Enterprise Action Plan 2006
Investment perspective: Social enterprises must ‘principally’ direct financial surpluses back into the business or the cause it serves, whereas social businesses can distribute dividends or create value through capital appreciation.
The traditional vehicle for creating social or environmental benefit is a charity. However, an increasing number of charities are exploring and developing entrepreneurial activities to generate new sources of income. Many social enterprises are actually trading subsidiaries of a charity.
Investment perspective: Charities can only receive donations, not investment. All returns are social, not financial. Any profits made through a trading subsidiary must be invested in addressing the charity’s core cause.
The Community Interest Company (CIC) is a legal vehicle which was created in 2005, and was specifically designed for businesses with a social mission. A CIC is a limited company established for community purposes which has passed a ‘community interest test’ (ensuring it is for the community and not just for profit), and undertaken an ‘asset lock’ (ensuring the company uses its assets and profits for the public good). CICs do not receive the same tax benefits as charities but face a lighter regulatory burden.
Investment perspective: Dividends for investors are capped. The CIC is still, we would say, at an early stage of its development.
A social firm 'aims to create employment opportunities for disadvantaged people through the development and support of Social Firms'. Social Firms are market-led businesses that are set up specifically to create good quality jobs for people severely disadvantaged in the labour market.“ Social Firms UK
A co-operative is a company run and owned by its workers and/or consumers where each member has one vote; it often takes the form of an Industrial and Provident Society. There are many types of co-op, including worker or producer co-operatives, consumer or retail co-operatives, housing co-operatives, credit unions and secondary co-operatives - for more information see the Co-operatives UK website.
ClearlySo sees CICs, Social Firms and Co-operatives as 'social' in nature.
Financial planning and managing the finances of a business can be a challenge. In this episode of StartMeUp Videos, Philip Maguire talks about the different aspects of managing finances of a small business for entrepreneurs. The conversation covers topics ranging from how to get venture capital funding for your business to budgeting,hiring, operations managment and ways to get the money you need to fund and start your startup.
Social business is a cause-driven business. In a social business, the investors/owners can gradually recoup the money invested, but cannot take any dividend beyond that point. Purpose of the investment is purely to achieve one or more social objectives through the operation of the company, no personal gain is desired by the investors. The company must cover all costs and make profit, at the same time achieve the social objective, such as, healthcare for the poor, housing for the poor, financial services for the poor, nutrition for malnourished children, providing safe drinking water, introducing renewable energy, etc. in a business way.
The impact of the business on people or environment, rather the amount of profit made in a given period measures the success of social business. Sustainability of the company indicates that it is running as a business. The objective of the company is to achieve social goal/s.
Clarifications on Social Business
I am not opposed to making profit. Even social businesses are allowed to make profit with the condition that profit stays with the company, owners will not take profit beyond the amount equivalent to investment. Social business is a new category of business. It does not stipulate the end of the existing type of profit-making business. It widens the market by giving a new option to consumers. It does not intend to monopolise the market and take the existing away option. It adds to the competition. It brings new dimension to the business world, and a new feeling of social awareness among the business people.
When we approach the concept of social business from the philanthropy side it looks very convincing and logical. Why everything in philanthropy should be given away. After all our purpose is to achieve the social goal. If some of these goals can be achieved more efficiently and sustainably in a (social) business format why not take that route ?
But when you approach it from the orthodox business side, it tends to look a bit out of tune. Why on earth give up profit ? Why should any one run a business without profit ? I understand the surprise perfectly.
Let me clarify: I am not asking any businessperson to give up any of their businesses. Nor am I asking them to convert some of their businesses into social business. The idea of "giving up" something creates this shock wave. I am not asking anybody to "give up" anything. All I am saying, if you are worrying about a social problem (while totally engaged in your routine business) I have a message for you, you can make a significant contribution in resolving the problem. If you put your mind seriously into it, you may even open the door to eliminate the problem globally. You can do both : conventional business and social business.
It is all upto you to decide whether you want to do a such thing or not. Nobody will raise an accusing finger at you if you do no such thing. But you may feel happy if you do it. I am suggesting a way which may make you a happier person.
A Learning Process
It is a great learning process. You are doing things which you never did before. You are thinking in a way which you never did before. You are surprised to see you are enjoying it a lot. You start digging into your experiences to see what is relevant for the task. You check through the reservoir of technology that you are familiar with start contacting the pool of experts that you got to know in your business, to achieve your new goal. You start exploring a new world which was totally unknown to you. You realise that you are now wearing "social business glasses" on your eyes, you see things which you never saw before. You start sensing that your eyes were fitted with "profit-maximizing glasses" all along, while you thought these were your natural eyes in your economic world.
Now when you turn your eyes to your own profit-making businesses you start noticing things which you never noticed before. You bring new-gained experiences from your new business to your old businesses. Slowly you move towards becoming an multi-dimensional person, rather than a robot-like person.
Some people ask me why can't you run businesses with some profit and some social benefit — "doing well by doing good", as it is popularly described.
Of course, it can be done. I am never against it. But I am trying go to the ultimate point where you don't make any profit for yourself at all. This is easy to identify, easy to handle in day to day decision making.
When you mix profit and social benefit it gets complicated for the CEO. His thinking process gets clouded. He does not see clearly. More often this CEO will take decision in favour of profit, and exaggerate the social benefit. Owners will go along with it. Social business gives a clear unambiguous mandate to the management. There is no balancing act involved. If you can agree to take a "small" profit, you can also persuade yourself to take zero profit. Once you get there you get rid of all old ways of thinking. You prepare yourself to explore a new world, a new way of seeing things, and doing things in a different way. When you were in the world of a "small profit" you were still operating in the old world, with old ways of doing things, only restraining yourself here and there.
Another way to put the same question is : Why can't you allow thee investors in social business to get a small fixed profit — say, 1% dividend. My answer is the same. I may describe by saying something like this : you are in a "no smoking" building, you are arguing "Why can't I be allowed to take just one small puff ?" Answer is simple — it destroys the attitude. In Ramadan, Muslims are not allowed to eat or drink until the after the sunset. Why not take a sip of water during the day ? It destroys the strength of the mental commitment. You lose a lot for a small favour.
Social business is about making complete sacrifice of financial reward from business. It is about total delinking from the old framework of business. It is not about accommodation of new objectives within the existing framework. Unless this total delinking from personal financial gain can be established you'll never discover the power of real social business. Some times you can set up a technically correct social business with the purpose of making profit through your other companies by selling products or services to this social business company. This will be a clear sabotage of the concept. There may be many other subtle ways by which one can weaken the concept and practice of social business. A genuine social business investors must make all efforts so that he does not walk into this trap unwittingly.
Capitalism has created poverty by focusing exclusively on profit. It built a fairy-tale of prosperity for all. This never happened. That's why Europe decided to entrust the government to take care of poverty, unemployment and health. They were smart enough to figure out the emptiness of capitalism in solving these problems.
Author's Summary on Creating a World Without Poverty
While free market capitalism is thriving globally almost unopposed now and bringing unprecedented prosperity to many, half of the world lives on two dollars a day or much less. Eradication of poverty remains the biggest challenge before the world. Colossal social problems and deprivations, mostly poverty-related and very unevenly distributed around the globe, continue to shame us everyday. Obviously the free market has failed much of the world. Many people assume that if free markets can’t solve social problems governments can. After all, the government is supposed to represent the interests of society as a whole. But decades and even centuries of experience has shown that while government must do its part to help alleviate our worst problems, it alone can not solve them.
Fortunately for us there is a keen desire among many to lend a hand through charity for addressing the problems of poverty and other social problems. Charity is rooted in basic human concern for other humans. These days concern is usually expressed in the shape of non-profits and NGOs which may take various names and forms. Then there are aid organizations sponsored by rich governments–bilateral and multilateral. Nonprofits and aid organizations are trying to keep the problems within some control. But charity is a form of trickle-down economics; if the trickle stops, so does help for the needy. On the other hand multilaterals like World Bank focus only on growth as the means of helping the poor, but can not see that the poor people can be actors themselves. There are serious questions about the type of growth that can help the poor. As another response to the global social problems some businesses are identifying themselves with the movement for Corporate Social Responsibility (CSR), and are trying to do good to the people while conducting their business. But profit-making still remains their main goal, by definition. Though they like to talk about triple bottom lines of financial, social, and environmental benefits, ultimately only one bottom line calls the shot: financial profit.
I always believed that poverty can be totally conquered in our own lifetimes if the right approach is adopted. I based my belief on the inherent ability of the poor that can be unleashed once they are given the opportunity to help themselves. This I have proved in action through my three decades of experience with Grameen Bank. The concept of microcredit did not exist before I initiated Grameen Bank in Bangladesh, which basically recognized that credit without collateral is a fundamental right of the poor. Our success with this in my own country has been widely replicated all over the world including in some of the richest countries; and the Nobel Peace Prize 2006 for Grameen Bank and myself is one recognition of that success. The story of Grameen Bank has been told in my earlier book: ‘Banker to the Poor’. In this new book I have described the further evolution of Grameen System. But more importantly I have introduced and elaborated here my broadened concept of social Business, that Grameen experience has led me into.
Grameen allowed the poor to be an actor in the free market and to enjoy some of its fruits to try to come out of poverty. It is fundamentally a business model, pure and simple, but a social Business. There can be other Social Business. They are just like any other business; but for social objectives and not for personal gain or dividend. I have tried to show in the book why Social Business can succeed in addressing social problems where other means mentioned above have failed. Social Business should not be confused with the term Social Enterprise which is used in a more encompassing sense and includes NGOs, personal initiatives, charities etc. and may include Social Business too.
Social Business introduces a totally revolutionary dimension to the free market economy. It does not interfere with the mechanism through which the normal Profit Making Business (PMB) works and prospers – capitalization, expert business management, competitiveness etc. – but investors here do not receive any dividend, though they can recover their investment if they want to, to reinvest in other Social Business or PMB. The satisfaction gained in achieving the social goals are the only motive behind the investment, and the business will be evaluated according to that standard. Essentially it is a non-loss, non-dividend business aimed at social objectives – education, health, environment, whatever is needed to address the problems faced by society. The profits here remain with the business and help it to grow further. The whole thing is based on the premise that entrepreneurs need not be motivated only by the profits they personally receive, but can also be motivated by social goals and may enjoy success there with equal satisfaction. The important thing is not to mix up a Social Business with a PMB. In fact the inclusion of Social Businesses alongside PMBs in the business world will give the free market capitalism a larger, nobler and a more fulfilling purpose. Its advantages over straightforward charity are many–efficiencies, continuous use with each turnover, competition with PMBs following the same rules, utilization of business innovations being some of the most important ones.
There can be two types of Social Business. Type one focuses on businesses dealing with social objectives only, as has just been mentioned. Type Two can take up any profitable business so long as it is owned by the poor and the disadvantaged, who can gain through receiving direct dividends or by some indirect benefits. There are various ways how the ownership can go to the poor. The two types can be mixed together in the same Social Business as has happened in the case of Grameen Bank. In a similar mixture of the two types, a socially beneficial rural toll road or bridge can be built by a company as a Social Business whose ownership will belong to the poor. On the other hand a huge project such as the Deep-Sea Mega Port in Bangladesh I have been advocating for, which will be used by several countries in the whole region and can potentially change the economic face of Bangladesh, can be built as a Social Business owned by the poor women of the country.
Is this an utopia? Will there be Social Businesses outside the realm of microcredit? Who will invest in such Social Businesses? I could answer these questions confidently in my new book, not only because I have faith in my idea and on the ability of the entrepreneurs to have social motives as well as profit making motives; but also because I am seeing this actually to happen at this very moment. I have devoted a good part of the book on the details of the first such Social Business we have started – Grameen-Danone Company which went into operation in early 2007. The idea of the company was born over just a casual lunch I had with Franck Riboud, the Chairman and CEO of Groupe Danone, a large French corporation – a world leader in diary products. It took just that time for me to convince him that an investment in a Social Business is a worthwhile thing for Danone shareholders. Even though it will not give any personal dividend to them, he agreed to the proposition even before I fully explained it to him. It took somewhat more time to fix up the modalities, the product (a fortified sweet yogurt for the poor malnourished children of Bangladesh at a price they can afford), the financing, tax and regulatory issues, new yard sticks for evaluating business and many other such details. And I have devoted many pages of the book on these details to show how all these things can be taken care of. The yogurt – ‘Shokti Doi’ (Energy Yogurt) is already in the market.
The Grameen System has invested in a second Social Business – this time an Eye Hospital where the poor can have eye treatment and cataract operations at a very low cost and all others in the small town and the villages around will have an excellent medical facility where there was not any like that before.
Social Business is a new concept and its practice is just beginning. As my book reveals, it has to make a lot more exploration while gaining more experience. There are challenges to be faced and solutions to be developed. For example, we had to invent a totally innovative marketing system to keep the market fragmented so that the low cost ‘Shokti Doi’ is reserved only for the poor children and does not disappear in the urban market for the well to do. I have also touched upon other issues such as how can the ownership of the Type Two Social Business be transferred to the poor, or how can the wonderful opportunities offered by IT be best deployed for the Social Business.
One thing is very clear to me – that with the Social Business taking off, the world of free market capitalism will never be the same again, and it then will really be able to deliver a deathblow on global poverty. I am sure, many business wizards and successful business personalities will apply their abilities to this new challenge – the challenge of creating a poverty-free world within a short time. At the moment we are seeing merely the line of horizon. Soon a good part of business genius, creativity and innovation of the world will devote itself to this new goal of social good. A whole new stock market with its new indices will thrive in the financial capitals of the world motivated by this new incentive. It will accelerate the process of poverty eradication to an unthinkable pace using the same market mechanism which accelerated the global prosperity for the rich in the first place.
Welcome to the new world of Social Business.
25 December 2007
Types of Social Businesses
Type I: focuses on businesses dealing with social objectives only.
Eg. The product produced is for the benefit of the poor.
Type II: can take up any profitable business so long as it is owned by the poor and the disadvantaged, who can gain through receiving direct dividends or by some indirect benefits.
Eg. The product could be produced by the poor but exported to an international market while net profits would go towards workers benefits.
Wikipedia: Social Business
From Kelley Robertson
Most people have read the Dr. Seuss tale "Green Eggs & Ham", either as kids or to their children. What is interesting is the relevance this story has to selling. Learn the secrets of Dr. Seuss's selling technique and build your sales.
"I am Sam. Sam I am. Do you like green eggs and ham? Would you like them here or there? Would you like them in a box, would you like them with a fox?"
3-Step Selling Technique From Dr. Seuss
1. Sam is selling a product and although his prospect is not initially interested, Sam doesn't let that deter him from asking.
2. Sam consistently offers the prospect a choice when trying to close the sale.
3. He refuses to give up. No matter how many times his prospect says "no", Sam keeps offering alternatives. He offers fourteen options before finally closing the sale.
I am not suggesting that you pester your customers but most people give up too early in the sales process. We hear a few "no's" and decide to turn our attention elsewhere. It is your responsibility as a business owner to ask the customer to make a decision - you cannot expect a customer to do the work for you.
If you have been effective in learning about their specific needs and presented the appropriate solution to your prospect then you have earned the right to ask them for the sale. Here are a few selling techniques that will help you reach this point:
Use Polite Persistence: Take a lesson from Sam and learn the importance of polite persistence. The most successful sales people ask for the sale seven or eight times and don't give up at the first sign of resistance. Research has shown that these individuals consistently earn more than their coworkers and peers.
Use these selling techniques and you are sure to win like Sam I Am.
The Art Of The Business Pitch
Mary Crane, 04.12.07, 3:00 PM ET
Have burning questions about how to run your small business better? E-mail email@example.com with your query, and we will track down the advice.
I am trying to raise money for a great business idea. How can I put some pizazz in my pitch?
It's not so much what goes into a pitch that makes it good, but what doesn't. Whether you're pitching to friends, investors, angels or venture capitalists, the cardinal rules remain the same: Be brief and be clear.
"A good pitch is a short pitch," says Wil Schroter, CEO of the Go BIG Network, which matches start-ups with investors and job-seekers online. After the first few sentences, he says, "it's all downhill, and downhill fast, if the investor gets the sense you're not getting to the point or you have no point."
Video: Your 30-Second Spiel
Go BIG Network receives scads of pitches from entrepreneurs every day, says Schroter, but too few clearly say who they are and what their business does. "Investors respond to pragmatic, specific information," he says. "If you can articulate in two sentences the problem and the solution, you've nailed it."
Patrick Ennis, managing director at early-stage investing firm ARCH Venture Partners, says he often has to skim through 10 or 15 pages before figuring out what a pitch is about. "Tell me what you are doing in the first few minutes--something simple like: 'We make software that we sell to businesses to improve their inventory management,'" he says. "Even a 13-year-old can understand that."
Tailor pitches to the occasion, says Ennis. First, there's the 30-second pitch, where the only goal is to grab someone's attention with your idea so they will give you five more minutes. The five-minute pitch offers just enough time to rattle off a rough outline of your idea so that you will get an hour. The hour-long pitch is all about details--the business model, the product and the management team.
While brevity is always important, don't skimp on industry analysis, says Ennis. If your longer presentation doesn't have a slide or two on what you're up against, "funders will assume you're unaware of your competitors."
Not a good public speaker? Practice. If that doesn't work and you're still quaking in your loafers, have someone else give the presentation. "Investors want to see confidence, but not every entrepreneur with a good idea is confident," warns Schroter.
Finally, pay attention to detail. Contact information should be easy to find--don't make a potential benefactor root around for a phone number. If you plan to e-mail any Microsoft (nasdaq: MSFT - news - people ) Word or PDF files, use the name of your company in the file name, says Ennis. Something simply called "executive summary" will end up in the trash.
Forecasting business revenue and expenses during the startup stage is really more art than science. Many entrepreneurs complain that building forecasts with any degree of accuracy takes a lot of time--time that could be spent selling rather than planning. But few investors will put in your business if you're unable to provide a set of thoughtful forecasts. More important, proper financial forecasts will help you develop operational and staffing plans that will help make your business a success.
My column this month provides some detail on how to go about building financial forecasts when you're just getting your business off the ground and don't have the luxury of experience.
1. Start with expenses, not revenues. When you're in the startup stage, it's much easier to forecast expenses than revenues. So start with estimates for the most common categories of expenses as follows:
Here are some rules of thumb you should follow when forecasting expenses:
2. Forecast revenues using both a conservative case and an aggressive case. If you're like most entrepreneurs, you'll constantly fluctuate between conservative reality and an aggressive dream state which keeps you motivated and helps you inspire others. I call this dream state "audacious optimism."
Rather than ignoring the audacious optimism and creating forecasts based purely on conservative thinking, I recommend that you embrace your dreams and build at least one set of projections with aggressive assumptions. You won't become big unless you think big! By building two sets of revenue projections (one aggressive, one conservative), you'll force yourself to make conservative assumptions and then relax some of these assumptions for your aggressive case.
For example, your conservative revenue projections might have the following assumptions:
Your aggressive case might have the following assumptions
3. Check the key ratios to make sure your projections are sound. After making aggressive revenue forecasts, it's easy to forget about expenses. Many entrepreneurs will optimistically focus on reaching revenue goals and assume the expenses can be adjusted to accommodate reality if revenue doesn't materialize. The power of positive thinking might help you grow sales, but it's not enough to pay your bills!
The best way to reconcile revenue and expense projections is by a series of reality checks for key ratios. Here are a few ratios that should help guide your thinking:
Gross margin. What's the ratio of total direct costs to total revenue during a given quarter or given year? This is one of the areas in which aggressive assumptions typically become too unrealistic. Beware of assumptions that make your gross margin increase from 10 to 50 percent! If and direct sales expenses are high now, they'll likely be high in the future.
Operating profit margin. What's the ratio of total operating costs--direct costs and overheard, excluding financing costs--to total revenue during a given quarter or given year? You should expect positive movement with this ratio. As revenues grow, overhead costs should represent a small proportion of total costs and your operating profit margin should improve. The mistake that many entrepreneurs make is they forecast this break-even point too early and assume they won't need much financing to reach this point.
Total headcount per client. If you're a one-man-army entrepreneur who plans to grow the business on your own, pay special attention to this ratio. Divide the number of employees at your company--just one if you're a jack-of-all-trades--by the total number of clients you have. Ask yourself if you'll want to be managing that many accounts in five years when the business has grown. If not, you'll need to revisit your assumptions about revenue or payroll expenses or both.
Building an accurate set of growth projections for your startup will take time. When I first started my company, I avoided building a detailed set of projections because I knew the business model would evolve and change. But I regret not spending more time on business planning since I would have avoided several expenses along the way. The company's board of directors now requires me to prepare quarterly updates to our financial projections. Now when I lapse into fits of audacious optimism, the projections force me to forecast what these dreams mean for the company's bottom line.