Simple Online Business Plan

I just love simple. Don’t you. I’m not talking about those simple get rich quick schemes built in to a so-called business plan. I am talking about a simple online business plan that will give you the full details of the necessary step by step instructions.

I have known degree physicists that have previously failed on the Internet because they thought a good online business plan had to be more than simple. I have seen people with 6th grade educations become successful when all they followed was a simple online business plan that is easy to read and follow.

Below I give you 5 major steps that are part of any successful simple online business plan. A simple online business plan that keeps you at a realistic pace so time of completion is not the important factor. What is important is the thorough completion of each step so your business success is assured.

Some of the steps in my simple business plan may seem not even to be part of a true business plan. But with 10 years experience on the Internet each step has worked for me.

Outline of the Simple Online Business Plan Steps

  1. Sit down in front of your computer. Bare with me on this one. You are looking at your monitor. Ask yourself this question: can you be focused enough that when you are at your computer (whether it be an hour or 8 hours a day) you will be 100% focused on business. I am not talking about those occasional family or friend interruptions. I am talking about playing solitaire or surfing the net.
  2. Decide what you want to sell. This applies to both the new online business person as well as those who have been online for a while. You may have an idea for a product. Or you may decide to sell someone else’s product(s). The next step is to do research to find out if people are buying the same or similar product on the Internet. Or you will definitely need to find a source that has already found the successful markets (niche) on the Internet and can provide you with a proven formula to determine whether or not any product can be successfully promoted. Side note: If you have an idea, before you go running around asking people’s opinion do what I tell people who call or email me to get my opinion about their ideas. Write down your idea on a piece of paper. If you have photos or a drawing of it , that’s great. Then mail the idea description and anything else to yourself. Keep the envelop sealed. This will help you prove it was your idea if anyone tries to steal it.
  3. Decide on a domain name and web hosting. Skip free hosting services. They have more drawbacks than I can write in this short article. Here are a few drawbacks: they have other people’s advertising when someone visits your site, pop up and pop under advertising, reliability of up time on the Internet, and are not popular with search engines.
  4. Setting up how you are going to sell your product.. Most hosting services offer what they call a cPanel. Included will be a service called Fantastico that offers such things as free shopping carts, guest books, free blog software, and more. Then decide if you want to apply for a merchant account to accept credit cards. Or you could find many services on the Internet that will offer to process the credit cards for you for a fee. Make sure you investigate at least 8 of these services. You will find the service fees vary widely.
  5. Get a proven and thorough simple online business plan. I am not talking about one that is specifically listed as designed for the type of business you plan on starting. And I am not talking about one that is complicated. Remember the title of this article: “Simple Online Business Plan”. You want a business plan that comes with manual(s), both video and audio discs (so you can listen while you drive). Look for a business plan that gives you the option of hard copy (as I call it) shipped to you or for a less cost an area where you can download everything and print and copy to disc yourself. Once you get the business plan make sure it has some type of checklist. A checklist will help keep you focused. A simple online business plan checklist will make sure you follow the steps in the proper order. Proper order completion is a key to your success. This is not picking up a new mystery novel and first reading the last chapter to see who did it.

My Final Advice

I could have just provided a just a list what I consider the complete steps to a simple online business plan above. But in my experience people who look for business plans that are just major headings miss the necessary ingredients (explanation and sub-steps) that make each step simple and successful. Simple headlines or bullet points are just too simple and incomplete.

Money Guidelines

To accomplish the above steps it should cost you around $100 to $500 (domain, hosting, business plan). If you ever think of going over $500 my suggest is: cut up your credit cards before you spend another dime. I have seen business plans, by themselves, that cost well over a $1,000. I find them filled with material that has nothing to do with setting up a online business. A simple online business plan means you could take that same business plan and set up any type of online business you choose. And come with simple, easy to read complete explanation of what you need to know.

Now that is simple.

May the “force” (of success) be with you.

Technical Methods of Business Valuation – An Overview

At some point in time, every business owner wonders: “How much is my business worth?” After all the effort you’ve expended to build your business, its nice to know that you’ve built a significant asset.

This article provides you with basic information about business valuation so you can: (i) understand the process and basic concepts; and (ii) be an educated consumer of business valuation services.

The most important things to know about business valuation are:

* It’s a combination of art and science;
* It’s not fixed (knowing how the valuation is done can help you increase the value of your business); and
* It’s an educated guess.

True business valuation (i.e., getting the “fair market value” of your business) truly occurs only when you sell a business at arms-length. Only then are all of the factors the effect valuation (including payment terms) known.

However, by using the following methods, you should arrive at a value range for your business.

The first step in any valuation is to analyze the business, its assets, history and market. Of course, a valuation is only as good as the information about the business. So, its critical to ensure all of your information is accurate and complete.

Central to this analysis is financial information. Accurate financial recording keeping is essential to establishing business value.

Yet, often financial information must be legitimately “recast” to reduce the effects of tax decisions and owner benefits, and to be able to compare the results against other similar businesses.

Basic Business Valuation Methods.

There are four basic business valuation methods:

Asset Based Valuation;
Market Based Valuation;
Earnings Based Valuation;
Cash-Flow Based Valuation.

Each method involves detailed analysis and calculations.

Asset Based Valuation

Generally, asset based valuation is used to determine the bottom end price (i.e., liquidation value) for an operating or “going concern” business. However, it is the preferred method for holding companies, such as a real estate holding company, where the company’s assets reflect its true value.

Liquidation Value. To determine the liquidation value, you first establish the current liquidation market prices for all business assets, except those that can’t be sold (e.g., special equipment, or other assets with no market). From that the outstanding liabilities (mortgages, etc.) are deducted, resulting in a business value if operations were ceased immediately.

Replacement Value. To determine the business assets replacement value, you establish the current market prices for the business assets.

Unfortunately, it is difficult to value the intangible assets (e.g., trademarks, goodwill, etc.) when using asset based valuation. As a result, asset based valuation is not usually an accurate estimate of business value.

Market Based Valuation

A Market Based Valuation analyzes the prices of other similar businesses to determine an approximate valuation for your business. Generally, the steps are:

Analyze the public markets to determine price-to-earnings (“P/E”) ratios for similar companies;
Determine the average or median P/E ratio of those companies; and
Multiply that P/E ratio by the net ordinary pre-tax earnings of your business.
Sounds straight forward. Unfortunately, there are several drawbacks.

First, public companies tend to be quite different than closely held businesses, including access to capital, layers of management, liquidity for owners, and many other things. Therefore, even if a P/E ratio for a similar public company is determined, that ratio will have to be modified to account for the differences between the companies. The extent of the modification is the “devil in the details.”

Second, the sale of a public company stock (from which the P/E ratio is determined) usually involves the sale of a minority interest in the company. The sale of a closely held company, on the other hand, usually involves the sale of a majority (controlling) interest. Controlling interest transfers are made at a premium to minority interest transfers. Therefore, an (upward) adjustment to the P/E ratio for transfer of a controlling interest is also necessary.

Third, the public market P/E ratio includes a discounted expectation of the future prospects of the company. For many reasons, public companies can grow at a higher rate than closely held companies and they’re not dependent on the buyer’s expertise. Thus, the portion of the P/E ratio applicable to future prospects should be reduced.

On average a dollar of earnings from a public company represented between twelve and twenty dollars of market price. For closely held companies, however the range is three to seven. Thus, the maximum P/E ratio that should be used to value a closely held business is generally seven.

Earnings Based Valuation

Closely related to the Market approach is the Earnings Based Valuation. Under the earnings based valuation, the business value is set by the following formula:

Valuation = Weighted Average of Normalized Earnings Before Taxes / Capitalization Rate

Weighted Average of Normalized Earnings Before Taxes.

To determine normalized earnings, you calculate a weighted average of earnings over a specific time period, usually five years.

Annual earnings reported on financial statements or tax returns are usually modified. First, deductions are taken from earnings for special events such as one-time extra-ordinary gains and credits given for extraordinary losses.

Second, if owners receive salary or benefits greater than they would receive outside the company, the excess payments are added back to company earnings. Conversely, if owners are not paid a salary or benefits at a market rate, the underpayment is deducted from earnings.

Once earnings are modified, they’re weighted based on the time received. The most recent earnings are heavily weighted, while earlier years’ earnings are discounted.

For example, the present year’s earnings may be weighted at 1.5 or 2 times, while the first year’s earnings may be weighted at.200. Sometimes a 5, 4, 3, 2, 1 approach is used, multiplying each year’s earnings by its factor, adding the totals and dividing by 15.

The weighting value depends on the stage of life of the company and the company’s growth over the time period. For a mature company, weighting will probably be consistent. For a start-up venture, earlier years will probably be discounted more heavily.

But there is no justification for heavily weighting nearer years merely because current financial performance is superb.

Capitalization Rate.

Weighting the earnings may be somewhat difficult, but the real trick with earnings based valuation is the capitalization rate.

Capitalization rate (or just “cap rate”) is the return on investment expected by the investor/buyer. In a way, it is a statement of the risk involved in your business compared with available investments.

For example, if “no-risk” investments (e.g., CD’s and government short term bonds) are generating annual returns of 4.5%, stock market blue chips 10-12%, and “small caps” 15-18%, then your small business capitalization rate will more than all of them.

Why? Because running a small business is much more risky than investing in a public company.

If your venture is heavily dependent on you, the industry is changing or your earnings fluctuating rapidly, the capitalization rate for your business could be as high as 50%.

However, for most closely held businesses, the correct “cap rate” is between 15% and 33%. Thus, as a rule of thumb, most closely held businesses are worth between 3 and 5 times the weighted average of the normalized earnings before taxes.

The obvious problems with the earnings based valuation are selecting the appropriate earnings weighting method and capitalization rate. These problems are, however, less severe than the problems with the other valuation methods.

Cash-Flow Based Valuation

The cash flow based valuation is similar in some aspects to the earnings based approach. Cash flow based valuation bases business value on the future cash coming from the business. That cash flow is discounted to a net present value at a specific discount rate to determine the value of the business.

The cash flow method is the least used method for valuation. First, it is difficult to estimate future cash flows from the business (although a good approximation can be made based on historical cash flows). Second, selecting the discount rate is more problematic than selecting a capitalization rate.

It is, however, useful for analyzing cash available for debt service after a purchase. If projects free cash flow for debt service and uses that as a method to approximate a portion of the business value. Therefore, cash flow is a good check for other methods.

Other Factors:

There are additional “soft” factors to be used in adjusting business value. After an approximate value is determined with other methods, that value can be increased or reduced based on soft factors, including:

* Overall “health” of the Business;
* The reason for selling;
* Cost of entry for new participants;
* Market -growing, steady or contracting;
* Competition – severe, moderate or limited;
* Legal Environment – not regulated to highly regulated; and
* Business Assets:

Facilities

Equipment

Employees

Intellectual Property

Goodwill and Market Image.

Conclusion:
Remember, a business valuation provides a range estimated based on an educated guess. To fully understand the valuation, you must review the methods used to arrive at the value and the information upon which it is based. And prior to acting on a valuation (as a buyer), you should thoroughly review the business for yourself.

Discover How to Write a Business Proposal Properly

The business world is a world unto itself. There is language and etiquette that exists strictly within the business world. To be successful in that world with your new business you will need to have a top-notch business proposal prepared.

Knowing how to write a business proposal is essential to get any new business onto its feet. Having a solidly thought out plan of action behind your business venture will help you know where you are headed. Having specific goals for your business as well as a plan for how to get there is really important. If you are not reaching for something, or if you have not thought about how to make those things happen then chances are you will never achieve those goals. Additionally, one thing that any business needs to get started is startup capital. Typically, this type of funding is something that you are going to look at getting from investors. Having a solid business plan that is realistic and well presented will show investors that you have a plan of attack, and that their money is in good hands.

The first step in writing a top quality business proposal is to solidify who your audience is. Spend some time deciding what type of investors you are interested in securing as well as what type of customers you are hoping to serve with your business. This information will help you to decipher exactly what details you need to address within your business proposal. The primary goal of this proposal is to answer the questions that your potential investors will have regarding how your business is going to operate.

Within your proposal, you will want to provide the details that they are looking for. Decide whether your potential investors are looking for a very detailed plan or if they would rather have simple bullet points issued. When in doubt it is best to make sure that your proposal is easy to read, so if you are giving a lot of information space it out on the page. Perhaps have one bullet point with the main goal or topic, and beneath that provide more specific details.

There is a lot of information to take into account in regards to starting a business, and it is your job to edit what you are going to put into your business proposal. Again, knowing your audience is really quite important so that you can tailor your information to them. For most investors they will want to know how you are going to achieve the day-to-day operations of your business. To clarify this you might want to take some time to outline the staff that you are going to need for your business. Within this outline, you will want to indicate some of the basic duties that those specific job titles would encompass.

Your investors will also be very interested in what is going to be happening with their money.  You want to take steps to assure them that their investment will be used properly.  Show your investors how their funds will help your business to operate properly, and to turn a profit. 

Speaking of a profit, you will want your business proposal to show investors how they are going to profit.  They will want to see what type of profits you are expecting your business to turn.  Typically the bigger the profits for your business, the bigger the profits for the investors.  To entice them to sink their hard earned money into your business proposition they will need to see that it will be a sensible investment that they can expect a return on.  

Additionally, you might want to spend a bit of time to outline the chain of command in your proposed business. Investors need to be sure that your business is a well-organized machine. Having a solid and clear chain of command will give some peace of mind to those investors that there are competent people in line to supervise the business. Additionally, this will show that there is a system of checks and balances in place to ensure that the business is being run properly, and therefore their money is being used properly.

Though business proposals may seem like a tricky thing to put together, the truth is that it is simply a plan for your proposed business. The trick to making it a successful proposition is to be clear and detailed, but remember to keep those details concise. Give the answers that the investors want without all of the complications, and chances are that your proposal will quickly gain their attention and faith.