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This week will complete the discussion of how to craft an exit plan. The Exit Plan should include long term goals, milestones for achieving those goals, the risks involved and how they will be managed, and the final plan for recouping the rewards for you and your investors. Last week I covered long term goal setting and milestones. Today is about risk assessment management and crafting a plan for reaping rewards.

We left off last week at the point of establishing your burn rate through constructing cash flow projections in order to explain your “source and use of funds”. You might conclude, as a result of this analysis, to pursue a multiple phase investment strategy. That is OK if you recognize the prudence of this approach up front. The last thing that you want to happen is to run out of cash prematurely and have to go back to the well again. This round’s price will be considerably higher, if you are at all able to obtain additional funding.

I suggest that you double the amount of estimated capital needed and the amount of time that you expect to reach positive cash flow and profitability. Under promise and over deliver! Be a hero not a heel.

Remember risk vs. reward

You can take this to the bank; sophisticated investors must be convinced that you have adequately assessed the risks of your business proposition and have included ways to mitigate that risk. As the business owner, investing much money and years of work, shouldn’t you thoroughly assess this relationship before taking the plunge?

Beware of being a pie eyed optimist. Think deeply about this topic. Draw from your SWOT analysis in The Opportunity part of your plan (The Norman Transcript, April 26, 2009). Quantify risks as much as possible. Include an explanation of how you will manage these risks.

If you are pursuing outside investors, realize that venture capital is the most expensive money available. However, on the positive side, VCs usually bring sophisticated advice and oversight to the table. They typically will not touch an opportunity unless they are convinced that a minimal annual return of 25% (some 30%) within 3 – 5 years is reasonable to expect.

What’s behind the numbers?

It’s easy to create a string of numbers on a spreadsheet that shows this type of return. They won’t be fooled, and neither should you! Your assumptions and your entire business plan must support the fact that the numbers on your spreadsheet are reasonable.

Angel investors, family, and friends will be less demanding. They normally take a longer term view and anticipate receiving their return through profit distribution. Even if not in pursuit of outside investment, for your own wealth management and retirement planning, make sure that your projections are supported by reasonable assumptions coupled with sound risk assessment. A sage once said: “What most people call thinking is not really thinking at all, but rather rearranging their prejudices.”

The Exit deal

It is time to propose the exit deal and ROI. If you are pursuing VC funding, expect back and forth negotiations to follow. To avoid misunderstanding, regardless of the type of investor you are targeting, have your attorney draft a term sheet that puts the investment proposal in writing. If you are writing a business plan for your own planning, a term sheet won’t be necessary until you are ready to sell.

Don’t be stupid greedy

It is at the point of negotiation with an interested VC party that many entrepreneurs get stuck. The VC offer must acquire enough percentage ownership in the company to enable them to receive their minimum ROI based upon their risk assessment. Many entrepreneurs let the emotion of losing some of their baby get in the way of sound judgment. They would rather own 100% of a $3 million company than 40% of a $30 million company!

If you are pursuing angel or friend/family money, most will be satisfied with a reasonable return (10%/annum) based upon dividends and/or sale of the company. Depending upon your funding source your exit strategy could be:

· To pass the business to heirs with a dividend payout that satisfies investor and your retirement requirements

· Sale of the company, either private or IPO (Initial Public Offering)

· Recapitalization of the company to repatriate investor or founder stock.

To summarize, having a clear vision and understanding of your company’s growth strategy, milestones by which you are willing to be judged, a risk assessment and management plan, and finally, an exit plan that includes rates of return on investment within your target investor’s standards will stack the odds in your favor of obtaining the capital that you need to achieve your dreams.

Join me next week as I discuss the financials part of your business plan.

Rob Garibay is a local business owner and business coach with 30+ years of business experience. Forward your business questions to: 405 573-6537 or robgaribay@actioncoach.com

Finally! The moment investors and/or entrepreneurs have been longing to see – the time to receive the rewards for the risks taken and the hard work and creativity invested! Before you get too excited about the rewards we need to look at the other side of the coin – the risks.

Part 8 of this series is dedicated to describing the exit plan. To you who are starting a business, take heed; what is your exit plan? Exiting your business with a handsome return on your investment of money, sweat, and fears, is one of the main reasons for starting a business. If you don’t have an exit plan, you are likely creating another job for yourself, instead of a valuable asset that is marketable or well positioned to pass on to your heirs while providing a generous retirement income.

Begin with the end in mind!

Don’t take the risks and make the investments to only construct a prison for yourself! For a more in depth discussion of this topic, read my 6 part series called “Where Are You on the Entrepreneur Ladder?” printed in The Norman Transcript from Sept 21 – Nov 24, 2008. The time to assess your long term goals is before you begin.

Long term goals

According to Rhonda M. Abrams, “In developing your company’s long-term plans, you must evaluate your goals, milestones, risks, and exit plan.” Also, “In assessing your business concept, consider which of the following visions you have for your company and yourself:

· Steady Provider. Maintain a stable level of profit; earn a good, reliable income while owning your own business.

· Innovator. Produce new and different products or services; change the way the market views the product or service; act on your creativity.

· Quality Leader. Produce the product or service everyone would buy if price were no object; develop a reputation for excellence; take pride in creating the best.

· Market or Industry leader. Dominate the market in terms of sales and products; have a well-known name and run a large operation.

· Niche Leader. Carve out a narrow place in the market that your company dominates; do only one thing, but do it extremely well.

· Exploiter. Take advantage of the trends of the moment or copy the successes of others; take risk for quick rewards.”

These goals are not necessarily mutually exclusive. You might desire more than one of these for your company.

Milestones

Include in this part of your plan a list of milestones that demonstrate your company is on target to accomplish your overall objectives enabling the investors (including yourself) to receive the anticipated return on investment. Theses milestones must be SMART: Specific, Measurable (quantified), Attainable, Relevant, and Timed (to specific dates from receipt of capital).

Source and use of funds

Every investor worth their salt will want to see how their investment will be used. It is in this section where a “source and use of funds statement” belongs. In my business coaching career, I’ve encountered many entrepreneurs who underestimate the amount of capital they will need to achieve their business plan objectives. This is a serious mistake! It is like filling your airplane with enough fuel to get you half way across the ocean!

Make sure your projections include revenue and expenses for all areas of your business. To help, think of your business as consisting of these four categories and capture all costs associated with each:

1. Getting the business (marketing & sales)

2. Doing the business (operations)

3. Running the business (admin and back office stuff)

4. Guiding the business ( top executive and BOD planning)

Know your burn rate!

A source and use of funds financial analysis will establish your all important “Burn Rate”. This cash flow spreadsheet is vital for determining the amount of time and money you will need to produce positive cash flow from the investment. Positive cash flow equates with investment security.

Next week I will complete our discussion of how to write a compelling exit plan for your business plan. Dreams can and do come true!

Rob Garibay is a local business owner and business coach with 30+ years of business experience. Forward your business questions to: 405 573-6537 or robgaribay@actioncoach.com

Last week we discussed the importance of the M & O part of the business plan because money follows talent, not ideas. It is the execution of ideas by management that determines the greatness of a company, not the idea itself. Our national patent office is chock full of patents that never became successful commercial enterprises because the inventor did not have the skills to commercialize his idea. This article will continue to flesh out the thought process and contents that produce an attractive Management and Organization plan.

Management staff planning and evaluation is a never ending process. When considering the management style that will characterize your company ask yourself some key questions such as:

· How do I want my employees to feel about my company? (see “Your Company Does Have a Culture – Can You Define It?” published in the Norman Transcript June 8, 2008)

· How much influence do I want to allow my employees to exercise on company goals and policies?

· Will task responsibilities be individual or by teams?

· How will the lines of authority flow throughout the company?

· Does my business lend itself more to a strict hierarchical management style due to strict protocols and/or required standards, or does it lend itself to a more open management style tapping into the creativity of the employees, such as an ad agency?

Teamwork is essential

Regardless of the management style through which you choose to run your business, remember that teamwork is always essential to success – no exceptions! Employees are more motivated by recognition, appreciation, inclusion, and challenge than by money.

According to Rhonda Abrams, author of “The Successful Business Plan: Secrets & Strategies”, the five most important elements of your management style are:

1. Clear policies
2. Communication
3. Employee Recognition

4. Employee’s ability to affect change

5. Fairness

Offset talent gaps

If your business is in the fledgling stage, you can offset some of your talent gaps by assembling an advisory board of seasoned business executives, and hiring a coach. Providing your advisory board with some stock options will pay large dividends down the road. It is easier to recruit an advisory board than a board of directors because of the legal responsibilities associated with the BOD position. Once you become a C-Corp or retain outside shareholders a BOD becomes legally required and fiduciarily essential.

Hire up!

Remember, when hiring top management, hire up (smarter than you) and hire successful track records! Identify in your plan the individuals who will determine the company’s strategies, who makes final decisions, and who is in charge of your marketing and sales efforts. Make sure that you list the following:

· Principles (including you!)

· Key employees

· Board of Directors

· Advisory board

· Coach, and/or consultants

· Key personnel to be added based upon your org chart analysis

When writing your plan and hiring in the future, think about your current management staff and your management hiring practices by asking:

· How well management directs and motivates subordinates

· How well their skill sets fit their specific job requirements

· What is their track record

· How past failures will aid in the job

· How their personalities mesh with the rest of the management team

· How you plan for continuation of the business if a key person is lost

If you are writing your plan for investment capital, limit your detailed discussion of management staff to the top 5 or 6. Discuss their experience, successes, education, strengths, and skill gaps with a plan for filling that gap. Also include their compensation, paying particular attention to incentives and golden handcuffs. Place complete resumes for these individuals in the business plan appendices.

In summary, the M&O part of your business plan deserves considerable thought investment. Management personnel and style will determine the future of your company! Too many business owners allow the single most important factor for determining their success to happen in reaction to circumstances rather than as the result of careful planning.

Join me next week as I discuss the happiest day in a business owner’s life – The Exit!

Rob Garibay is a local business owner and business coach with 30+ years of business experience. Forward your business questions to: 405 573-6537 or robgaribay@actioncoach.com

We have arrived at Part 7 of this multi-part series on how to write an effective business plan. If you are writing a business plan for the purpose of raising investment capital, the Management and Organization part of the plan is important for this simple reason: Smart investors invest in people, not ideas.

Money follows management

Keith Cunningham states in his book “Keys to the Vault”, “Money follows management, and money loves a track record.” If you are a regular reader of my columns you’ve seen this before – ideas are important, but it is the execution of an idea or concept that determines success. Who performs the execution of ideas and concepts? It is management! Bank on this: potential investors will carefully scrutinize the qualifications of your staff.

Opportunity to reevaluate your team

If you are writing your business plan for the purpose of annual planning and not seeking investment capital, writing this part of the plan will help you to reevaluate your current team. In Jim Collins’ outstanding book “Good to Great”, one of the clear defining conclusions gained from his study is that great companies differentiate themselves from the rest in their industry by their management team. Jim Collins writes: “Those who build great companies understand that the ultimate throttle on growth for any great company is not markets, or technology, or competition, or products. It is one thing above all others: the ability to get and keep enough of the right people.”

Jim Collins goes on to say: “The good-to-great leaders understood three simple truths:”

1. “If you begin with ‘who’, rather than ‘what’, you can more easily adapt to a changing world”

2. “If you have the right people on the bus, the problem of how to motivate and manage people largely goes away”

3. “If you have the wrong people, it doesn’t matter whether you discover the right direction; you still won’t have a great company.”

Whether you are writing your business plan for investors or for internal planning, or both, periodically examining the effectiveness of your team is a worthwhile endeavor. Do you have the right people on your bus and are they in the right seats? A word of caution; answering this question is not as simple as it might appear.

Look in the mirror

As a business owner, your business is a direct reflection of you! How are you doing in the leadership arena? Are you creating a corporate culture that encourages, recognizes, and rewards achievement? I will be writing some articles on leadership shortly. Tom Meredith, former Dell Computer CFO likes to tell entrepreneurs: “It’s always about the jockey, not the horse.” Think of the recent Kentucky Derby followed by the Preakness. The same jockey won riding different horses!

Organization charts aid planning

When coaching, I have my clients create two organization charts that reflect job descriptions or titles, not individuals. The first chart represents where they envision the company in five years. The second chart reflects current reality. This exercise benefits the client by illustrating the management staffing roadmap they will need to follow to grow their business compared to where they are currently.

They are now positioned to be aware of individuals who might fill some of the gaps between the two org charts. Another realization is that, currently, many individuals are handling numerous positions (usually the owner is handling the most) within the organization. The owner can now begin to think strategically about utilizing his/her own strengths and their staff strengths more effectively.

Note talent gaps, structure, and style

When writing this section of the business plan, be sure to note the talent gaps and define the sequence and milestones for which you plan filling those gaps. Also, be sure to focus not only on the people who run your business, but also discuss your management structure and style. This effort will give you, the owner, and the investor an understanding that there is a coherent staffing plan.

Join me next week when I will complete the Management and Organization part of the business plan by focusing on management style, teamwork, and the essential items to include in your M & O plan.

To prep you for next week, consider this statement from Bill Walsh, Former Coach and President of the San Francisco 49ers, “Building a sense of the ‘team’ must be planned and orchestrated. You must continually note that the team is all-important… Teambuilding is an on-going process…. Look to develop an atmosphere where players expect and demand a lot of each other, where they feel that individually they are an extension of their team-mates. This doesn’t just happen, it must be planned.”

Rob Garibay is a local business owner and business coach with 30+ years of business experience. Forward your business questions to: 405 573-6537 or robgaribay@actioncoach.com

Welcome to the “rubber meets the road” part of the business plan. The marketing plan is the getting part of the business. The operations plan is the doing part of the business. Ideas do not define a business, execution does. The operations plan defines how you plan to execute your ideas!

It’s about the fundamentals

This part of the business plan is all about the fundamentals of running your business. Just as in sports, it is usually the team that masters the fundamentals better than the opposing team that wins. Many businesses experience times when money goes out the back door quicker than it enters the front. Don’t you be one of them! Plan and execute well!

No matter what type of business you own, create a procedures or operations manual for your team. This should not be included in your business plan, but certainly noted as existing and followed. This document will instill confidence into your team and be one of the first steps towards creating a business that doesn’t require your physical presence every day.

Describe only the big picture

Only describe the big picture of how you plan to perform the essential parts of your business, the standards of performance that will differentiate you from competition, and how you plan to monitor and maintain those standards.

If you can identify problems or issues that affect your type of business, describe how you plan to mitigate their impact. I suggest that you refer to operational threats that you uncovered in your SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis within the Opportunity part of your plan.

Providing your USP

Think deeply about your production plan. Whether you are in a manufacturing, distribution, retail, or service business, your production plan is about how you will provide your USP (Unique Selling Proposition) to the marketplace. Think about and document how you can improve efficiencies, quality, customer experience, cost control, and profitability. If applicable, include a production flow chart.

How are you better?

Be sure to include a description of any differentiating aspects of your operation, such as technology, methodology, and/or management philosophy. Also, be sure to document physical expansion plans for accommodating growth.

In retail?

If you are in retail, location is particularly important. Be sure that you have performed your homework by knowing the location of successful businesses that serve your target market. Locate near those successful businesses! If your business is a new launch, document your facilities, equipment, and inventory startup costs.

Flexible staffing

Describe how you will handle staffing and how the employees will function (as a team, independently, under constant supervision, or empowered). If your business shrinks and expands seasonally, what is your staffing plan for accommodating that volatility (permanent vs. temporary)? Also, document your in-house versus outsourcing strategy and the reasons behind your chosen strategy.

In summary, when describing your operations plan, where appropriate, be sure to include the following factors that impact your USP:

· Labor: expansion/retraction strategy, safety, insurance, benefits, pay structure, skill type, sources, training, etc.

· Productivity: how measured, controlled, and optimized

· Capacity requirements: current and future

· Quality Control: methodologies, metrics, and certifications

· Inventory Control: type of goods, FIFO (First In First Out) or LIFO (Last In First Out), turnover metrics, start-up investment, encumbered capital

· Order fulfillment: efficiency KPIs (Key Performance Indicators) coupled with meeting market expectations

· Customer service: goals and KPIs used to monitor effectiveness.

· Research and Development: plans for continuous improvement

· Financial controls: accountability, accounts payables and receivables management, security, etc.

· Backup strategies: to maintain continuous supply of essential materials, as well as preservation of critical data and information

Make sure that you have created a convincing case, that you have a firm grasp on the necessities of doing your business, that you understand how your operation relates to the success of your business, and that you have a clear strategy for maximizing efficiency at the lowest cost. Remember, success is all about execution!

Join me next week as we discuss the management and organization part of your business plan.

Rob Garibay is a local business owner and business coach with 30+ years of business experience. Forward your business questions to: 405 573-6537 or robgaribay@actioncoach.com

Welcome to the “rubber meets the road” part of the business plan. The marketing plan is the getting part of the business. The operations plan is the doing part of the business. Ideas do not define a business, execution does. The operations plan defines how you plan to execute your ideas!

It’s about the fundamentals

This part of the business plan is all about the fundamentals of running your business. Just as in sports, it is usually the team that masters the fundamentals better than the opposing team that wins. Many businesses experience times when money goes out the back door quicker than it enters the front. Don’t you be one of them! Plan and execute well!

No matter what type of business you own, create a procedures or operations manual for your team. This should not be included in your business plan, but certainly noted as existing and followed. This document will instill confidence into your team and be one of the first steps towards creating a business that doesn’t require your physical presence every day.

Describe only the big picture

Only describe the big picture of how you plan to perform the essential parts of your business, the standards of performance that will differentiate you from competition, and how you plan to monitor and maintain those standards.

If you can identify problems or issues that affect your type of business, describe how you plan to mitigate their impact. I suggest that you refer to operational threats that you uncovered in your SWOT (Strengths, Weaknesses, Opportunities, Threats) analysis within the Opportunity part of your plan.

Providing your USP

Think deeply about your production plan. Whether you are in a manufacturing, distribution, retail, or service business, your production plan is about how you will provide your USP (Unique Selling Proposition) to the marketplace. Think about and document how you can improve efficiencies, quality, customer experience, cost control, and profitability. If applicable, include a production flow chart.

How are you better?

Be sure to include a description of any differentiating aspects of your operation, such as technology, methodology, and/or management philosophy. Also, be sure to document physical expansion plans for accommodating growth.

In retail?

If you are in retail, location is particularly important. Be sure that you have performed your homework by knowing the location of successful businesses that serve your target market. Locate near those successful businesses! If your business is a new launch, document your facilities, equipment, and inventory startup costs.

Flexible staffing

Describe how you will handle staffing and how the employees will function (as a team, independently, under constant supervision, or empowered). If your business shrinks and expands seasonally, what is your staffing plan for accommodating that volatility (permanent vs. temporary)? Also, document your in-house versus outsourcing strategy and the reasons behind your chosen strategy.

In summary, when describing your operations plan, where appropriate, be sure to include the following factors that impact your USP:

· Labor: expansion/retraction strategy, safety, insurance, benefits, pay structure, skill type, sources, training, etc.

· Productivity: how measured, controlled, and optimized

· Capacity requirements: current and future

· Quality Control: methodologies, metrics, and certifications

· Inventory Control: type of goods, FIFO (First In First Out) or LIFO (Last In First Out), turnover metrics, start-up investment, encumbered capital

· Order fulfillment: efficiency KPIs (Key Performance Indicators) coupled with meeting market expectations

· Customer service: goals and KPIs used to monitor effectiveness.

· Research and Development: plans for continuous improvement

· Financial controls: accountability, accounts payables and receivables management, security, etc.

· Backup strategies: to maintain continuous supply of essential materials, as well as preservation of critical data and information

Make sure that you have created a convincing case, that you have a firm grasp on the necessities of doing your business, that you understand how your operation relates to the success of your business, and that you have a clear strategy for maximizing efficiency at the lowest cost. Remember, success is all about execution!

Join me next week as we discuss the management and organization part of your business plan.

Rob Garibay is a local business owner and business coach with 30+ years of business experience. Forward your business questions to: 405 573-6537 or robgaribay@actioncoach.com