Some Basic Business Plan Terminology
Being familiar with business plan terminology is an important part of a business plan. Here is a brief list of key terms you may need to use when creating successful business plans.
Barriers to Entry: These are obstacles to entering a market. Barriers to entry might include things like a saturated market, tough financial outlook, existing patents, or even high start-up costs. Should you find any barriers to entry when researching your business plan, you should include how you hope to confront these barriers in your business plan.
Capacity: This is the highest number of goods or services that can be produced by your company. A company should aim to operate near capacity. If the company continuously operates at capacity, it runs the risk of burning out employees and equipment.
Collateral - Any asset that can be used as leverage against a loan by a bank. Collateral is property that can (and will) be repossessed in cases where the individual has defaulted on the loan.
Deferred Compensation - Sometimes when a business is still in the start up phases, the owner holds the revenue owed employees for a later time. Generally, deferred compensation should only be in your business plan if your company is in the first year or two of business, and only if it has been agreed upon.
Equity - This is the total value of the company. A company's equity is calculated by subtracting the liabilities of a company from the assets of a company. If your business plan is for a new company, most likely the company's equity value will be negative. If your business plan is for a company that has been around for a few years, it is possible that it will have a positive equity value.
Exit Plan - Should the business not work out as planned, what will be the way the venture is abandoned? Knowing how you will exit an unsuccessful business venture is just as important as knowing how you will undertake such a venture.
Lead Investor - While part of the purpose of a business plan is to help you solicit money from those with money to lend, you may already have found someone who is putting money into your business. This person, or company, is the lead investor. The lead investor also is the one whom receives the primary responsibility for the company and who may bring other investors aboard.
Mind Share - How well known is the business? If the business is in the awareness of minds of potential clients and customers when considered in opposition to the competitors, then it has a large mind share. If the company is just starting out, then the mind share will be low. How will you work to increase this?
Outsourcing - Will your company send extra work to someone else? When it comes to taxes, will an outside agency take care of this important task? If the business sends any work outside the company for another individual, consultant, or company to handle, it is called outsourcing.
Sole Proprietorship - If your business will be run by only one person, then you have a sole proprietorship. This contrasts with a strategic partnership (when there is an agreement between multiple persons running the company) and a limited liability company (LLC).When putting together your business plan, it will be important to take into account the different methods for organizing the company.
Please continue reading onto page 2 to find out more about business plan basics.