Business Plan Checklist

A well prepared business plan serves several purposes:
 
  • It helps the owner of a new business determine the feasibility and desirability of pursuing the steps necessary to start a business.
     
  • It is an important sales tool for raising capital from outside investors.
     
  • It forms the basis of a more detailed operational plan and becomes an important management tool for monitoring the growth of the firm and charting future directions.

        Following is a general approach that you can use as a foundation. However, you should tailor your plan to meet the specific circumstances of your business, emphasizing its strengths and addressing the potential problems and challenges to be faced.

            Summary
        The summary should concisely describe the key elements of the business plan. For the firm seeking financing, the summary should convince the lender or venture capitalist that it is worthwhile to review the plan in detail. The summary should briefly cover at least the following:

  • Name of the business;
  • Business location and floor plan description;
  • Discussion of the product, market and competition;
  • Expertise of the management team;
  • Summary of financial projections;
  • of financial assistance requested (if applicable);
  • Form of and purpose for the financial assistance (if applicable);
  • Purpose for undertaking the project
  • (if financial assistance is sought);
  • Business goals.


            The Company
        This section provides background information on the company and usually includes:

  • A general description of the business, including the product or service;

  • Historical development of the business, including: -Name date and place (state) of formation;

    -Legal structure (proprietorship, partnership, corporation);

    -Significant changes, including dates, in ownership, structure, new products or lines, acquisitions;

    -Subsidiaries and degree of ownership, including minority interests;

    -Principals and the roles they played in the formation of the company.


            The Product or Service
        Describe the present or planned product or service lines, including:

       
  • Relative importance of each product or service including salesprojections, if possible;

       
  • Product evaluation (use, quality, performance);

       
  • Comparison to competitors' products or services and competitive advantages over other producers;

       
  • Demand for product or service and factors affecting demand other than price.

            The Project
      If financing is sought for a specific project, describe the project, the purpose for which it is undertaken, its cost and the amount, form and use of the financial assistance.


            Management
  • Organizational chart;

  • Key individuals (include supervisory personnel with special value to the organization);

      -Responsibilities;

      -Personnel resumes (describing skills and experience as they relate to activities of the business);

      -Present salaries (include other compensation such as stock options, bonuses);

      -Planned staff additions.


    Other employees:
      -Number of employees at year end, total payroll expenses for each of previous five years (if applicable) broken down by wages, benefits;

      -Method of compensation;

      -Departmental/divisional breakdown of work force.


    * Planned staff additions.
       Ownership

  • Names, addresses, business affiliations of principal holders of subject's common stock and other types of equity securities (include details on holdings);

  • Degree to which principal holders are involved in management;

  • Principal non-management holders;

  • Names of board of directors, areas of expertise and role of board when business is operational;

  • Amount of stock currently authorized and issued.


            Marketing Strategy/Market Analysis

  • Description of the industry.  Include:

      -Current description of industry;

      -Industry outlook;

      -Principal markets (commercial/industrial, consumer, government, international);

      -Industry size--current as well as anticipated in the next 10 years (explain sources of projection);

      -Major characteristics of the industry. Effects of major social, economic, technological or regulatory trends on the industry.


  • Description of major customers. Include:

      -Names, locations, products or services sold to each;

      -Percentage of annual sales volume for each customer over previous five years (if applicable);

      -Duration and condition of contracts in place.



  • Description of market and its major segments.  Include:

      -Principal market participants and their performance;

      -Target market;

      -Customer requirements and ways for filling those requirements;

      -Buying habits of customers and impact on customers using your product or service.



  • Description of competition:  Companies with which your business competes and how your business compares with these This section is a more detailed narrative than the maintained in the description of the product or service, above.

  • Description of prospective customers. Include reaction to your firm and any of its products or services they have seen or tested.


  • Description of firm's marketing activities.  Include:
      -Overall marketing strategy;
      -Pricing policy;
      -Method of selling, distributing and servicing the product;
      -Geographic penetration, field/product support, advertising, public relations and promotion and priorities among these activities.


  • Description of selling activities.  Include method for identifying prospective customers and how and in what order you will contact the relevant decision-makers.  Also describe your sales effort--sales channels and terms, number of salespersons, number of sales contacts, anticipated time, initial order size--and estimated sales and market share.

            Technology

  • Describe technical status of your product--idea stage, development stage, prototype--and the relevant activities, milestones and other steps necessary to bring the product into production.

  • Present patent or copyright position (if applicable).  Include how much is patented and how much can be patented (how comprehensive and effective the patents or copyrights will be).  Include a list of patents, copyrights, licenses or statements of proprietary interest in the product or product line.

  • Describe new technologies that may become practical in the next five years that may affect the product.

  • Describe new products (derived from first generation products) the firm plans to develop to meet changing needs.

  • Describe regulatory or approved requirements and status, and discuss any other technical and legal considerations that may be relevant to the technological development of the product.

  • Describe research and development efforts and future plans for research and development.


            Production/Operating Plan
  • Explain how the firm will perform production or delivery of service.  Describe in terms of:

  • Physical facilities-owned or leased, size and location, expansion capabilities, types and quantities of equipment needed. Include a facilities plan and description of planned capital improvements (if any) and time-table for those improvements.

  • Suppliers: name and location, length of lead time required, usual terms of purchase, contracts (amounts, duration and condition) and subcontractors.

  • Labor supply (current and planned): number of employees, unionization, stability (seasonal or cyclical) and fringe benefits.

  • Technologies/skills required to develop and manufacture the products.

  • Cost breakdown for materials, labor and manufacturing overhead for each product, plus cost versus volume curves for each product or service.

        * Manufacturing process.
  • Describe production or operating advantages of the firm; discuss whether they are expected to continue.

  • Specify standard product costs at different volume levels.

  • Present a schedule of work for the next one to two years.

            Financial
  • Auditor: name, address;

  • Legal counsel: name, address;

  • Banker: name, location, contact officer;

  • Controls: cost system used and budgets used;

  • Describe cash requirements, now and over next five years, and how these funds will be used;

  • Amount to be raised from debt and amount from equity;

  • Plans to "go public"--relate this to future value and liquidity of investments;

  • Financial statements and projections for next five years:

  • Profit and loss of income statements by month until break even, and then by quarter;

  • Balance sheets as of the end of each year;

  • Cash budgets and cash flow projections;

  • Capital budgets for equipment and other capital acquisitions;

  • Manufacturing/shipping plan.

      If financing is sought, most lenders and venture capitalists will require:

  • A funding request indicating the desired financing, capitalization, use of funds and future financing;

  • Financial statements for the past three years, if applicable;

  • Current financial statements;

  • Monthly cash flow financial projection including the proposed financing, for two years;

  • Projected balance sheets, income statement and statement of changes in financial position for two years including,
    the proposed financing.

            How Much Money Do You Need?
       To help you estimate the amount of financing you will need to get your business off the ground, use the following checklist. For each item, estimate a monthly amount needed.  

            Monthly Expenses:
         Salary of owner-manager (if applicable)
        All other salaries and wages
        Rent
        Advertising
        Delivery expense
        Supplies
        Telephone
        Utilities
        Insurance
        Taxes, including Social Security
        Interest
        Maintenance
        Legal and other professional fees
        Miscellaneous

            One-Time Start-Up Costs:
         Fixtures and equipment
        Decorating and remodeling
        Installation of fixtures and equipment
        Starting inventory
        Deposits with public utilities
        Legal and other professional fees
        Licenses and permits
        Advertising and promotion for opening
        Accounts receivable
        Cash
        Other


            TOTAL
       Your total will depend on how many  months of preparation you want to allow for.


        Small Business Financial Status Checklist: What an owner/manager should know:

            Daily
        1. Cash on hand.
        2. Bank balance (keep business and personal funds separate).
        3. Daily summary of sales and cash receipts.
        4. Errors corrected in recording collections on accounts.
        5. Record of all monies paid out, by cash or check.

            Weekly
      1. Accounts receivable (take action on slow payers).
      2. Accounts payable (take advantage of discounts).
      3. Payroll (records should include name and address of employee, Social Security number, number of exemptions, date ending the pay period, hours worked, rate of pay, total wages, deductions, net pay, check number).
        4. Taxes and reports to state and federal government (sales, withholding, Social Security).

            Monthly
      1. That all journal entries are classified according to appropriate account numbers (these should be generally accepted and standardized for both income and expense) and posted to general ledger.

      2. That a profit and loss statement for the month is available within a reasonable time, usually 10 to 15 days following the close of the month.  This shows the income for the business for the month, the expense incurred
    in obtaining the income, and the profit or loss resulting.  From this, take action to eliminate future loss
    (adjust mark-up? reduce overhead expense? pilferage? incorrect tax reporting? failure to take advantage of cash
    discounts?).

      3. That a balance sheet accompanies the profit and loss statement. This shows assets (what the business has), liabilities (what the business owes), and the investment of the owner.

      4. The bank statement is reconciles.  (That is, the owner's books are in agreement with the bank's record of the cash balance).

      5. The petty cash account is in balance. (The actual cash in the petty cash box plus the total of the paid out slips that have not been charged to expense should total the amount set aside as petty cash.

      6. That all federal tax deposits, withheld income and  FICA taxes (form 501) and state taxes are made.

      7. That accounts receivable are dated, i.e., 30, 60, 90 days, etc., past due. (Work all bad and slow accounts.)

      8. That inventory control is worked to remove dead stock and order new stock. (What moves slowly? Reduce. What moves quickly?  Increase.)


            Common Communication Traps
      Open communication is critical if you are going to manage well. Following is a partial list of communication roadblocks, examples of how they are used and the problem-solving detours that can result.


      1. Ordering: "You must . . ." "You have to  . . ."Make an employee feel resentful of the manager's power. Put down or frustrated, the employee responds with anger, refusal or dissent.

      2. Warning: "You'd better . . ." "If you don't, then . . ."Place a threat on the future and make the employee feel humiliated or embarrassed.

      3. Moralizing: "You should . . ." "It's your responsibility . . ."--Attempt to make employee feel guilty and communicate lack of trust in his or her judgment.

      4. Advising: "What I would do is . . ." "It would be best for you if . .."Imply superiority and can make a person feel inadequate and encourage dependency. If the manager's suggestion turns out to be wrong, the employee can duck responsibility.

      5. Persuading with logic: "Here's why you are wrong . . ." "The facts are. . ." -- Label another person as "wrong" and foster defensiveness as well as feelings  of inadequacy.

      6. Judging: "You are acting foolishly . . ." "You aren't thinking straight . . ."--Make an employee feel incompetent and stupid and if used often enough may become incorporated into the employee's self-image. A defensive reaction in the future may be to decide not to tell a manager about a problem.


            Serve Your Customers Well
      Quality doesn't only apply to merchandise.  It also means good service and caring about your customers wants and needs. Here are five specific steps for taking better care of your customers.

      1. Conduct your own survey.  Profit from the ideas, suggestions and complaints of your present and former customers. Solicit their ideas for new products and better service.

      2. Meet your customers in person.  if your business has grown to the point where you spend most of your time in the office or traveling, take the time to talk to the customers who buy and browse.  Observe and ask questions. Think like a customer.

      3. Check telephone handling.  Bad handling can undermine efforts to build a profitable enterprise. Rules of good handling, such as prompt answering and a cheerful attitude of helpfulness, are of critical importance.  Check on telephone manners periodically by having someone whose voice is unfamiliar play the role of a customer, perhaps a difficult one.

      4. Make it a team.  Continually drive home the crucial message that everyone is part of the success machine. Build customer consciousness throughout your organization.  When you hold group meetings, invite ideas from everyone and discuss those ideas.

      5. Take advantage of after-hours influence.  This is the time when you build, in an informal way, the friendly feeling that draws people to you and your business. Turn friends into customers and reinforce customer loyalty. Take advantage of the relaxed atmosphere of a golf game or cocktail party or just a neighborly chat.


            Follow Fair Employment Practices
      Current state and federal human rights legislation concerning discrimination in hiring places burden of proof on the employer. In other words, if questions asked in a pre-employment interview are perceived as discriminatory, it is up to the employer to prove they are not. Following are some examples of questions that are acceptable and some that may lead to charges of discrimination.


            Acceptable to Ask
  • Why are you interested in this job?
  • Describe your education.
  • What experience have you had that qualifies you for this job?
  • Do you have other abilities that will help you perform the job?
  • Do you have all the necessary licenses and certification?
  • Are you willing to travel? (Depending on your job relatedness)
  • What, if any, are your concerns about the job?
  • What are your salary expectations?
  • May we inquire of your present employer?

      You may also discuss job duties and responsibilities, the organization, its programs and achievements, career and growth potential, opportunities for advancement and facilities available.


            Unacceptable Questions
  • How old are you or what is your date of birth?
  • Have you ever been arrested or convicted of a crime?
  • How many children do you have?
        - What are their ages?
        - Have you made child care arrangements?
  • What is your national origin?
  • What is your credit record?
  • What is your maiden name?
  • What is your marital status?
  • What is your spouse's name or work?
  • Do you have any handicaps?


            Evaluating Prospective Sites
      When choosing a location, a method for evaluating each potential site is crucial. By using some form of scoresheet, you will be able to carefully consider a site's strengths and weaknesses and eliminate the factors that may be equal in all sites. In addition, as you make your tally, be aware that some factors may be more important because of your line of business. Be sure you assign the proper weight to those factors.

      Below is a basic checklist to help you rate each site. First, read through the criteria and weigh them on a scale of 1 to 5 according to their importance to the success of your business (1 is low, 5 is high). For each site you are evaluating, make a copy of this list with the weights filled in. Go through each criterion again and grade it on a scale of 1 to 10 based on how well the site you are rating meets the need. Multiply the grade times the weight for your site's points on each factor. Add up the points to get a total score for the site. Repeat this process for each site and  compare the total scores. The highest one will be the site that best meets your most important requirements. Happy hunting!

            Factors
       1. Centrally located to my market
      2. Raw materials readily available
      3. Quantity of available labor
      4. Transportation availability
      5. Vehicular and pedestrian traffic (important in retail and small service operations)
      6. Parking availability
      7. Labor rates of pay/estimated productivity
      8. Adequacy of utilities (sewer, water, power, gas)
      9. Local business climate
     10. Provision for future expansion
     11. Tax burden
     12. Topography of site (slop, foundation)
     13. Quality of police and fire protection
     14. Housing availability for employees
     15. Environmental factors (community atmosphere)
     16. Estimate of quality of this site in future
     17. Estimate of this site in relation to that of my major competitor

            Total Score

            ARE YOU MAKING A PROFIT?
      Making a profit is the most important--objective of a business. Profit can be simply defined:  

    Revenues - Expenses = Profit.

    So, to increase profits you must raise revenues, lower expenses, or both. This checklist is a series of questions with comments to help you analyze your profits. This material is not meant to be a definitive presentation on the subject. However, it may help you identify areas where further study might be, well, profitable.


            Analysis of Revenues and Expenses
      Since Profit equals Revenues less Expenses, to determine what your profit is, you must first identify all revenues    and expenses for the period under study.

      1. Have you chosen an appropriate period for profit determination?  Yes or No For accounting purposes firms generally use a twelve month period, such as January 1 to December 31 or July 1 to June 30.  The accounting year you select doesn't have to be a calendar year (January to December); a seasonal business, for example, might close its year after the end of the season.  The selection depends upon the nature of your business, your personal preference, or possible tax considerations.

      2. Have you determined your total revenues for the accounting period? In order to answer this question, consider the
    following questions:
    - What is the amount of gross revenue from sales of your goods or services?

      (Gross Sales)
      - What is the amount of goods returned by your customers and credited?

      (Returns and Rejects)

      - What is the amount of discounts given to your customers and employees?

      (Discounts)
      - What is the amount of net sales from goods and services?
    (Net Sales = Gross Sales - [Returns and Rejects + Discounts])

      - What is the amount of income from other sources, such as interest on bank deposits, dividends from securities, rent on property leased to others?

      (Non-operating Income)
      - What is the amount of total revenue?  (Total Revenue = Net Sales + Non-operating Income)

      3. Do you know what your total expenses are? Expenses are the cost of goods sold and services used in the process of
    selling goods or services.  Some common expenses for all businesses are:
      - Cost of goods sold (Cost of Goods Sold = Beginning Inventory + Purchases
      -Ending Inventory)
      - Wages and salaries (Don't forget to include your own--at the actual rate you'd have to pay someone else to do your job.)
      - Rent
      - Utilities (electricity, gas, telephone, water, etc.)
      - Supplies (office, cleaning, and the like)
      - Delivery expenses
      - Insurance
      - Advertising and promotional costs
      - Maintenance and upkeep
      - Depreciation (Here you need to make sure your depreciation policies are realistic and that all depreciable items are included.)
      - Taxes and licenses
      - Interest
      - Bad debts
      - Professional assistance (accountant, attorney, etc.)

      There are, of course, many other types of expenses, but the point is that every expense must be recorded and deducted from your revenues before you know what  your profit is. Understanding your expenses is the first step toward controlling them and increasing your profit.


            Financial Ratios
        A financial ratio is an expression of the relationship between two items selected from the income statement or the
       balance sheet. Ratio analysis helps you evaluate the weak and strong points in your financial and managerial
       performance.

        4. Do you know your current ratio? The current ratio (current assets divided by current debts) is a measure of
           the cash or near cash position (liquidity) of the firm.  It tells you if you have enough cash to pay your firm's
           current creditors. The higher the ratio, the more liquid the firm's position is and, hence, the higher the
           credibility of the firm.  Cash, receivables, marketable securities, and inventory are current assets. Naturally,
           you need to be realistic in valuing receivables and inventory for a true picture of your liquidity,
           since some debts may be uncollectable and some stock obsolete. Current liabilities are those which must be paid in
           one year.

        5. Do you know your quick ratio?
           Quick assets are current assets minus inventory. The quick ratio (or acid- test ratio) is found by dividing quick
           assets by current liabilities. The purpose, again, is to test the firm's ability to meet its current obligations.  
           This test doesn't include inventory to make it a stiffer test of the company's liquidity. It tells you if the
           business could meet its current obligations with quickly convertible assets should sales revenues suddenly cease.

        6. Do you know your total debt to net ratio?
           This ratio (the result of total debt divided by net worth then multiplied by 100) is a measure of how the company
           can meet its total obligations from equity. The lower the ratio, the higher the proportion of equity relative
           to debt and the better the firm's credit rating will be.

        7. Do you know your average collection period?
           You find this ratio by dividing accounts receivable by daily credit sales. (Daily credit sales = annual credit
           sales divided by 360.)  This ratio tells you the length of time it takes the firm to get its cash after making
           a sale on credit.  The shorter this period the quicker the cash inflow is. A longer than normal period may mean
           over due and uncollectable bills. If you extend credit for a specific period (say, 30 days), this ratio should
           be very close to the same number of days.  If it's much longer than the established period, you may need to alter
           your credit policies. It's wise to develop an aging schedule to gauge the trend of collections and identify
           slow payers. Slow collections (without adequate financing charges) hurt your profit, since you could be doing
           something much more useful with your money, such as taking advantage of discounts on your own payables.

        8. Do you know your ratio of net sales to total assets?
           This ratio (net sales divided by total assets) measures the efficiency with which you are using your assets. A
           higher than normal ratio indicates that the firm is able to generate sales from its assets faster (and better) than
           the average concern.

        9. Do you know your operating profit to net sales ratio?
           This ratio (the result of dividing operating profit by net sales and multiplying by 100) is moat often used to
           determine the profit position relative to sales.  A higher than normal ratio indicates that your sales
           are good, that your expenses are low, or both. Interest income and interest expense should not be included in
           calculating this ratio.

       10. Do you know your net profit to total assets ratio?
           This ratio (found by multiplying by 100 the result of dividing net  profit by total assets) is often called return
           on investment or ROI. it focuses on the profitability of the overall operation of the firm. Thus, it allows
           management to measure the effects of its policies on the firm's profitability. The ROI is the single most
           important measure of a firm's financial position. You might say it's the bottom line for the bottom line.

       11. Do you know your net profit to net worth ratio?
           This ratio is found by dividing net profit by net worth and multiplying the result by 100. It provides information
           on the productivity of the resources the owners have committed to the firm's operations.

        All ratios measuring profitability can be computed either before or after taxes, depending on the purpose of the
       computations. Ratios have limitations. Since the information used to derive ratios is itself based on accounting rules
       and personal judgments, as well as facts, the ratios cannot be considered absolute indicators of a firm's financial
       position.  Ratios are only one means of assessing the performance of the firm and must be considered in perspective
       with many other measures. They should be used as a point of departure for further analysis and not as an end in
       themselves.


            Mix Of Profit
        The profit and ratio analyses of each major item helps you find out the strengths and weaknesses in your operations.
       They can help you make profit increasing decisions such as to drop a service, product line or to place particular
       emphasis behind one or another.

            Sufficiency Of Profit
        Making a profit is only the first step; making enough profit to survive and grow is really what business is all about.
       The following questions are designed to help you measure the adequacy of the profits your firm is making.

       12. Have you compared your profits with your profit goals?

       13. Is it possible your goals are too high or too low?

       14. Have you compared your present profits (absolute and ratios) with the profits made in the last one to three years?

       15. Have you compared your profits (absolute and ratios) with profits made by similar firms in your line? A number of
           organizations publish financial ratios for various businesses, among them Dun & Bradstreet, Robert Morris
           Associates, the Accounting Corporation of America, NCR Corporation, and the Bank of America. Your own trade
           association may also publish such studies. Remember, these published ratios are only averages. You probably want
           to be better than average.


            Trend of Profit
       16.  Have you analyzed the direction your profits have taken? The preceding analyses, with all their merits, report
            on a firm only at a single time in the past.  It is not possible to use these isolated moments to indicate the
            trend of your firm's performance. To do a trend analysis, performance indicators (absolute amounts or ratios)
            should be computed for several time periods (yearly for several years, for example) and the results laid out in
            columns side by side for easy compar-ison. You then can evaluate your performance, see the direction it's taking,
            and make initial forecasts of where it will go.

       17.  Does your firm sell more than one major profit or provide several distinct services? If it does, a separate profit
            and ratio analysis of each should be made:
            - To show the relative contribution by each profit line or service;
            - To show the relative burden of expenses by each product or service;
            - To show which items are most profitable, which are less so, and which are losing money; and
            - To show which are slow and fast moving.


            Records
        Good records are essential. Without them a firm doesn't know where it's been, where it is, or where it's heading.
       Keeping records that are accurate, up-to-date, and easy to use is one of the most important functions of the
       owner-manager, his or her staff, and his or her outside counselors (lawyer, accountant, banker).

            Basic Records
       18. Do you have a general journal and/or special journals, such as one for cash receipts and disbursements? A general
           journal is the basic record of the firm. Every monetary event in the life of the firm is entered in the general
           journal or in one of the special journals.

       19. Do you prepare a sales report or analysis?

      (a) Do you have sales goals by product, department,and accounting period (month, quarter, year)?
      (b) Are your goals reasonable?
      (c) Are you meeting your goals?

        If you aren't meeting your goals, try to list the likely reasons on a sheet of paper. Such a study might include
       areas such as general business climate, competition, pricing, advertising, sales promotion, credit policies, and the
       like. Once you've identified the apparent causes you cantake steps to increase sales (and profits).


            Buying and Inventory System
       20. Do you have a buying and inventory system?
           The buying and inventory systems are two critical areas of a firm's
           operation that can effect profitability.

       21. Do you keep records on the quality, service, price and promptness of delivery of your sources of supply?

       22. Have you analyzed the advantages and disadvantages of:

       (a) Buying from several suppliers,
       (b) Buying from a minimum number of suppliers?

       23. Have you analyzed the advantages and disadvantages of buying through cooperatives or other such systems?

       24. Do you know:    

       (a) How long it usually takes to receive each order?
       (b) How much inventory cushion should you (usually called safety  stock) have to maintain normal sales while waiting
           for orders to arrive?

       25. Have you ever suffered because you were out of stock?

       26. Do you know the optimum order you need for each item you need?

       27. Do you (or can you) take advantage of quantity discounts for large-sized single purchases?

       28. Do you know your costs of ordering inventory and carrying inventory?
           The more frequently you buy (smaller  quantities per order), the higher your average ordering costs will be,
           (clerical costs, postage, telephone costs, etc.) and the lower the average carrying costs (storage, loss through
           pilferage, obsolescence, etc.). On the other hand, the larger the quantity per order, the lower the average
           ordering cost and the higher the carrying costs. A balance should be struck so that the minimum cost overall for
           ordering and carrying inventory can be achieved.

       29. Do you keep records of inventory for each item?
           These records should be kept current by making entries whenever items are added to or removed from inventory.
           Simple records on 3 x 5 or 5 x 7 cards can be used with each item being listed on a separate card. Proper
           records will show for each item: quantity in stock, quantity on order, date of order, slow or fast seller, and
           valuations (which are important for taxes and your own analyses).


            Other Financial Records
       Creation of financial records is governed by generally accepted accounting principles.

       30. Do you have an accounts payable ledger?
           This ledger will show what, whom, and why you owe.  Such records should help you make your payments on schedule.
           Any expense not paid on time could adversely affect your credit, but even more importantly such records
           should help you take advantage of discounts which can help boost your profits.

       31. Do you have an accounts receivable ledger?
           This ledger will show who owes money to your firm.  It shows how much is owed, how long it has been outstanding,
           and why the money is owed. Overdue accounts could indicate that your credit granting policy needs to be
           reviewed and that you may not be getting the cash into the firm quickly enough to pay your own bills at the
           optimum time.

       32. Do you have a cash receipts journal?
           This journal records the cash received by source, day and amount.

       33. Do you have a cash  payments journal?
           This journal will be similar to the cash receipts journal but will show cash paid out instead of cash received.
           The two cash journals can be combined, if convenient.

       34. Do you prepare an income (profit and loss or P&L) statement and a
           balance sheet?
           These are statements about the condition of your firm at a specific time and show the income, expenses, assets,
           and liabilities of the firm. They are absolutely essential.

       35. Do you prepare a budget?
           You could think of a budget as a "record in advance," projecting "future" inflows and outflows for your business.
           A budget is usually prepared for a single year, generally to correspond with the accounting year. It is then,
           however, broken down into quarterly and monthly projections. There are different kinds of budgets: cash,
           production, sales, etc.  A cash budget, for example, shows the estimate of sales and expenses for a particular
           period of time.  The cash budget forces the firm to think ahead by estimating its income and expenses. Once
           reasonable projections are made for every important product line or department, the owner-manager sets sales and
           expense targets for employees.  You must plan to assure a profit. And you must prepare a budget to plan.

            A Guide to Record Retention
        Organizing, filing and retaining records can be a burden for the small business owner. The following checklist is a
       guide to record retention. This guide provides a timetable for transferring records from active files to inactive
       storage and ultimate destruction.

        To maintain up-to-date files, develop a retention schedule that specifies when certain records are to be destroyed.
       Be sure your record retention program contains storage and disposal instructions for multiple copies, including
       non-paper media such as film, microfilm, computer disks, carbon paper and carbon ribbons.

        This checklist takes into account the more than 900 federal and state regulations, State statutes on tax and payroll
       records vary widely, however.  Check with each tax commissioner in the states you conduct business for further details.
       The normal statute of limitations on federal returns is three years. Under some circumstances it is six years.

        The Office of the Federal Register, National Archives and Records Administration has produced the Guide to Record
       Retention Requirements in the Code of Federal Regulations.  To obtain a copy, contact the Superintendent of Documents,
       U.S. Government Printing Office, Washington, D.C. 20402-9325.


            Classification of Accounts (Sample)
        Avoid using too many accounts.  Break down sales into enough categories to show a clear picture of the business.  
       Use different expense accounts covering frequent or substantial expenditures but avoid minute distinctions, which
       will tend to confuse rather than clarify. Use Miscellaneous Expense for small, unrelated expense items.

            Assets
         100-Cash in Banks
        101-Petty Cash Fund
        102-Accounts Receivable
        103-Inventory
        105-Materials and Supplies
        107-Prepaid Expenses
        108-Deposits

        120-Land
        121-Buildings
        122-Accumulated Depreciation -- Buildings (Credit)
        123-Tools and Equipment
        124-Accumulated Depreciation -- Tools and Equipment (Credit)
        125-Automotive Equipment      
        126-Accumulated Depreciation -- Automotive Equipment (Credit)    
        127-Furniture and Fixtures
        128-Accumulated Depreciation -- Furniture and Fixtures (Credit)
        130-Organization Expenses (to be amortized)

            Liabilities    
         200-Accounts Payable
        201-Notes Payable
        205-Sales Taxes-Payable
        206-FICA Taxes-Payable
        207-Federal Withholding Taxes
        208-State Withholding Taxes
        209-Unemployment Taxes
        220-Long-Term Debt-Mortgages Payable
        221-Long-Term Debt-SBA Loan
        225-Miscellaneous Accruals

            Capital Accounts
         For Corporations
        300-Common Capital Stock
        301-Preferred Capital Stock

        For Proprietorships
        300-Proprietorship Account
        301-Proprietor's Withdrawals
        305-Retained Earnings

            Sales (Revenue) Accounts (Credits)
         400-Retail Sales
        401-Wholesale Sales
        402-Sales-Service
        405-Miscellaneous Income

            Expenses (Debit)
         500-Salaries and Wages
        501-Contract Labor
        502-Payroll Taxes        
        503-Utilities
        504-Telephone
        505-Rent  
        506-Office Supplies
        507-Postage
        508-Maintenance Expense
        509-Insurance
        510-Interest
        511-Depreciation
        512-Travel Expense
        513-Entertainment
        514-Advertising
        515-Dues and Contributions
        520-Miscellaneous Expenses


            RECORDS RETENTION SCHEDULE
        Accident reports/claims (settled cases) 7 years
        Accounts payable ledgers and schedules  7 years
        Accounts receivable ledgers and schedules    7 years
        Audit reports  Permanently
        Bank reconciliations      2 years
        Bank statements      3 years
        Capital stock and bond records: ledgers, transfer registers, stubs showing
        issues, record of interest coupons, options, etc. Permanently
        Cash books     Permanently
        Charts of accounts  Permanently
        Checks (canceled-see exception below)   7 years
        Checks (canceled) for important payments, i.e. taxes, purchases of
        property, special contracts, etc. Checks should be filed with the papers
        pertaining to the underlying transaction     Permanently
        Contracts, mortgages, notes, and leases
        (expired) 7 years
        (still in effect)   Permanently
        Correspondence (general) 2 years
        Correspondence (legal and important matters only) Permanently
        Correspondence (routine) with customers and/or vendors 2 years
        Deeds, mortgages, and bills of sale     Permanently
        Depreciation schedules   Permanently
        Duplicate deposit slips  2 years
        Employment applications  3 years
        Expense analyses/expense distribution schedules   7 years
        Financial statements (year-end, other optional)   Permanently
        Garnishments   7 years    
        General/private ledgers, year-end trial balance   Permanently
        Insurance policies (expired)  3 years
        Insurance records, current accident reports, claims, policies, etc. Permanently
        Internal audit reports (longer retention periods may be desirable) 3 years
        Internal reports (miscellaneous)   3 years
        Inventories of products, materials, and supplies  7 years
        Invoices (to customers, from vendors)   7 years    
        Journals  Permanently      
        Magnetic tape and tab cards   1 year
        Minute books of directors, stockholders, bylaws, and charter Permanently
        Notes receivable ledgers and schedules  7 years
        Option records (expired) 7 years
        Patents and related papers     Permanently
        Payroll records and summaries      7 years
        Personnel files (terminated)  7 years
        Petty cash vouchers       3 years
        Physical inventory tags  3 years
        Plant cost ledgers   7 years
        Property appraisals by outside appraisers    Permanently
        Property records, including costs, depreciation reserves, year-end trial
        balances, depreciation schedules, blueprints, and plans     Permanently
        Purchase orders (except purchasing department copy)    1 year
        Purchase orders (purchasing department copy) 7 years
        Receiving sheets    1 year
        Retirement and pension records     Permanently
        Requisitions   1 year
        Sales commission reports 3 years
        Sales records  7 years
        Scrap and salvage records (inventories, sales, etc.)   7 years
        Stenographers' notebooks 1 year
        Stock and bond certificates (canceled)  7 years
        Stockroom withdrawal forms    1 year
        Subsidiary ledgers  7 years
        Tax returns and worksheets, revenue agents' reports, and other documents relating to determination of income tax
            liability Permanently
        Time books/cards    7 years
        Trademark registrations and copyrights   Permanently
        Training manuals    Permanently
        Union agreements    Permanently
        Voucher register and schedules     7 years
        Vouchers for payments to vendors, employees, etc. (includes allowances and
        reimbursements of employees, officers etc., for travel and entertainment expenses)   7 years
        Withholding tax statements    7 years


            QUIZ  FOR SMALL BUSINESS SUCCESS
        We conducted a survey of more than 100 California business owners. Their comments about small business success
       guided us in creating the following quiz. Choose the answer you think is best for each question.  Use the
       sheet at the end to determine your total point score and then see where you stand in the Success Quotient Ratings.
       There are no "wrong" answers. Each answer listed represents a segment of the responses we had to questions in our
       survey and the final rankings correspond with the importance successful owners gave to different answers.


            Questions 1 - 5
        1. What is the key to business success:

           a.  business knowledge
           b.  market awareness
           c.  hands on management
           d.  sufficient capital
           e.  hard work

        2. If a relative ever asks me for advice about starting a business I will tell them to:

           a.  work for someone else in the field first
           b.  write a business plan
           c.  study marketing
           d.  give up the idea
           e.  learn about budgeting

        3. Which is the largest potential trouble spot:

           a.  too much growth
           b.  too little growth
           c.  too fast growth
           d.  too slow growth
           e.  sporadic growth

        4. I trust: (select as many as apply)

           a.  nobody
           b.  myself
           c.  my partner
           d.  a few key employees
           e.  my customers

        5. I am unhappy when my employees are:

           a.  late
           b.  unhappy
           c.  abrupt with customers
           d.  resigning
           e.  less dedicated than me


            Questions 6 - 10
        6. My customers are:  (select as many as apply)

           a.  always right
           b.  too fussy
           c.  demanding
           d.  worth listening to
           e.  dumb

        7. Rank these in order of importance for small-business marketing success:

           a.  word-of-mouth
           b.  advertising
           c.  signs
           d.  location
           e.  community events

        8. When it comes to money I am:

           a.  careful
           b.  too carefree
           c.  emotional
           d.  shrewd
           e.  hardnosed

        9. Financially my firm:

           a.  has trouble with cash-flow
           b.  has a good line of credit
           c.  is financed totally by receipt--no credit
           d.  is making better profits this year than last
           e.  knows exactly where it is all the time

       10. In hiring people:

           a.  I take far too long
           b.  I look for the cheapest person
           c.  personality is more important than experience
           d.  I look for the best person, and am willing to pay
           e.  I only hire at the trainee level
         

            Questions 11 - 15
       11. With my employees:

           a.  I treat everybody the same
           b.  I try to talk privately to everybody once a week
           c.  To whatever extent possible I tailor assignments to personalities
           d.  I encourage them to talk to me about the business
           e.  I try to work alongside them whenever possible

       12. The real key to business success is:

           a.  hard work and perseverance
           b.  fine products and service
           c.  advertising
           d.  knowing the fundamentals of business
           e.  employees

       13. Competition is:

           a.  dumb
           b.  smart
           c.  cunning
           d.  everywhere
           e.  a constant threat

       14. The best competitive advantage is:

           a.  experience
           b.  understanding what the market wants
           c.  confidence
           d.  conducting a business ethically
           e.  a detailed plan

       15. I keep:

           a.  careful financial records
           b.  in touch with my customers
           c.  in touch with my employees
           d.  trying new techniques
           e.  wanting to retire


            Questions 16 - 20
       16. My dream is:

           a.  to grow the business until someone else can run it
           b.  to work until I drop
           c.  to give up these headaches and have more fun at work
           d.  to try another business
           e.  to take a vacation

       17. I think business plans are:

           a.  for the birds
           b.  nice but not necessary
           c.  something I can do with my accountant
           d.  useful and informative
           e.  essential--wouldn't do business without them

       18. What makes a terrific entrepreneur?

           a.  creativity
           b.  discipline
           c.  consumer orientation
           d.  technical proficiency
           e.  flexibility

       19. What does a business need most?

           a.  money
           b.  market research
           c.  help
           d.  time
           e.  a solid business plan
     
       20. What is essential to marketing?

           a.  "a sixth sense"
           b.  market research
           c.  customer awareness
           d.  experience
           e.  testing


            Quiz Results
        Find each question in the scoring box.  Write the score for the answer you selected in the margin next to every
       question, (If you didn't select the highest scoring choice, take a look at that one and try and figure out why
       it scored so well.)  When you've worked through the entire quiz, go back and add up your points. Then compare your
       total with the Success Quotient table to see how you compare with some of California's most successful business people.

            SCOREBOX

        Question  Points    
        1.   a = 5, b = 4, c = 3, d = 2, e = 1
        2.   a = 5, e = 4, b = 3, c = 2, d = 1
        3.   c = 5, a = 4, b = 3, d = 2, e = 1
        4.   b = 5, e = 4, d = 3, c = 2, a = 1
        5.   b = 5, d = 4, c = 3, a = 2, e = 1
        6.   d = 5, c = 4, a = 3, b = 2, e = 1
        7.   a = 5, d = 4, c = 3, b = 2, e = 1
        8.   a = 5, d = 4, e = 3, b = 2, c = 1
        9.   e = 5, d = 4, b = 3, a = 2, c = 1
        10.  d = 5, a = 4, c = 3, b = 2, e = 1
        11.  c = 5, d = 4, e = 3, b = 2, a = 1
        12.  e = 5, d = 4, a = 3, b = 2, c = 1
        13.  e = 5, d = 4, c = 3, b = 2, a = 1
        14.  a = 5, b = 4, c = 3, e = 2, d = 1
        15.  b = 5, a = 4, c = 3, d = 2, e = 1
        16.  e = 5, a = 4, b = 3, c = 2, d = 1
        17.  e = 5, d = 4, c = 3, b = 2, a = 1
        18.  c = 5, a = 4, b = 3, e = 2, d = 1
        19.  b = 5, e = 4, a = 3, d = 2, c = 1
        20.  c = 5, b = 4, e = 3, d = 2, a = 1

            Score     Your Business Success Quotient    

        75-100    You are a successful entrepreneur whose operations reflect tried and true business practices.

        50-74     Your business is probably headed for long-term success. But success will come sooner if you sharpen
                  your awareness of solid management skills and marketing techniques.

        25-49     While you may be enjoying customer loyalty and repeat business, never forget that savvy competition is
                  always looking for ways to take the lead. Don't let comfort lull you into false security. Be creatively
                  assertive!

        0-24      You may well have the right product. But to sell it successfully, you need to increase your market
                  awareness and improve your operating philosophy. Reach out for practical classes, seminars and advice from
                  people who have good business track records.  And - keep persevering.  It's the key ingredient to winning!


            INTERNATIONAL TRADE: A GLOBAL OPPORTUNITY
        The concept of doing business overseas can be intimidating to owners of small businesses. Very often they believe
       such an undertaking is beyond their reach; one that is open only to larger companies. For many, the images of
       McDonald's Golden Arches piercing the Beijing skyline or of Coca Cola dispensing machines tucked away in remote
       African villages symbolize the magnitude of resources necessary to do business outside the domestic U.S. market.

        But according to recent statistics, that is a misconception, and there is a vast market out there waiting to be
       tapped. For example, 95 percentof the world's population and two-thirds of its total purchasing power are located
       outside the United States. World trade has grown at more than twice the rate of the U.S. economy since 1960. Further,
       according to the U.S. Department of Commerce, 60 present of American firms now exporting successfully have fewer than
       100 employees; in other words, small businesses.

        The returns are obvious.  Doing business overseas allows you to broaden your marketing base, which means greater
       sales growth; increase production while reducing per unit production costs; extend the life of your product; and
       bottom line, increase your profits.

        If up until now international trade has seemed off limits, it is time for a change in attitude. Because if growth
       and expansion are your goals, you need to adopt the views of companies like Coca Cola and McDonald's and think of
       your market as global rather than merely domestic.  To help you do that, we have written this article, drawing on
       the expertise of many export specialists. The article was designed to answer some of your questions and to address
       many of the considerations involved in successful competition inoverseas markets.


            Do Your Homework
        Once you have decided international trade is the way to go, the hard work begins. Just like when you started your
       business, homework and hard work will be the keys to your success.  The first step in the process is research, and
       in most cases, more detailed research than you had imagined.

        One expert advises that market research should begin on a macro-economic basis. "By this, I mean investigating such
       items as population, gross national product, climate, trade statistics, political structure and stability, economic
       climate, and so on.  Such items will allow you to immediately exclude some countries and save you time."

        After you have a feel for a country's viability, you can launch into more targeted market research. It is critical
       that you identify the markets with the most potential for your products or services; identify competitors that
       currently serve those markets; decide what product or service modifications, if any, are needed; determine the
       appropriate market entry strategy for your chosen market; and decide the most efficient way to sustain profitable
       operations there.

        As one expert notes, "Foreign trade does not require unique talents. It calls for evaluating the same basic
       considerations and risks that you would prudently apply to your domestic business. The difference is that you will
       have to do more research; because of differences in culture, language, consumer appeal and individual purchasing power,
       many facets ofthe foreign market are far less familiar."

        Just as markets are different,  so are the needs of your potential customers.  Variations in climate, physical
       environment, personal income and spending habits as well as national traditions and religious beliefs influence the
       types of goods and services customers need.

        You must also analyze the competition, including the strengths and weaknesses of your major competitors; their market
       share; the reasons for their success; and the methods they use to market, package and distribute their product or
       service. You should also try to ascertain whether there are any market segments that your competition has overlooked.
       You may find a relatively untapped market where you can get off to a good start.


            Research The Marketing Environment
        The next step in the research process is to thoroughly investigate the marketing environment. If you plan to export
       merchandise, you need to find out how products are distributed; the types and availability of transportation; freight
       costs; packaging and storage facilities; and the availability of media and personnel for advertising, sales promotion,
       publicity and personal selling.  Once you have this information, you can decide how to market and distribute your
       product.

        Don't forget to check on tariffs, quotas and non-tariff barriers and possible government imposed trade restrictions.
       You should also be familiar with a country's legal system and regulatory framework including contract law, trademark
       law, patent law, taxation, and corporate and general commercial law; its currency restrictions; and restrictions on
       foreign investment and operations.

        And while you are researching the market potential of various foreign countries, you should also evaluate your
       company's potential for expanding into those markets.  This evaluation should include analyses of your potential
       product or service, your domestic opportunities versus your prospective foreign ones and your operation's abilities
       to handle problems that arise in managing an international business.

        Experts recommend that in evaluating your product's compatibility with a particular foreign market, you should
       consider:

      - The country's product standards, such as quality, safety and technical;
      - Your product's technical specifications and codes ensure compatibility with locally manufactured products;
      - Product life cycle--understanding where your product fits in that cycle; a product that has reached maturation level
        in the United States may find new life in a foreign market;
      - Price--the cost of doing business internationally may cause you to raise your price in order to realize a profit
        (this is true of either product or service exporting); and
      - Alternative uses--foreign needs may be quite different than domestic and may require you to modify your product.

        Before you jump head first into overseas markets, you need to fully investigate the product's potential uses in the
       country and assess such factors as competing and compatible lines of products, brand loyalties, customs, packaging
       and marketing techniques, all of which influence customer preferences.

        Once you have looked closely at prospective markets, it is time to take a good look at your internal operations.
       To achieve success in the international marketplace, experts say, you must be willing to commit yourself to overseas
       sales for at least three to five years and ideally for the long run. Just like American customers, foreign customers
       expect consistent and continuous products and service.  And the products and services you provide your international
       customers should be of comparable quality to those you offer your domestic customers.


        Another internal consideration is staffing. In the past, American companies preferred sending their own employees
       overseas to handle operations. That practice is changing as owners of American businessesincreasingly realize the
       important contribution local nationals can make. They know the culture, traditions and nuances of their market and
       may also have advantageous business connections.


            Exporting Versus Foreign Production
        The majority of small businesses that trade internationally prefer to export, at least initially. It involves less
       risk, requires less investment and presents minimal expo-sure to the political and economic environment. It also
       offers greater flexibility because you can choose your level of involvement.

        The pluses of foreign operation, on the other hand, include lower production costs such as materials and labor;
       the elimination of barriers such as tariffs and import quotas; and incentives such as tax credits and exemptions,
       financial assistance and government protection.


            Methods Of Export Distribution
        Taking into consideration the advantages of both approaches, most small businesses still find it simpler to export.
       Once you have decided which way you want to go, the next decision is method of distribution. Two channels are
       available; the indirect and the direct.

        Under the indirect method, you hire a foreign sales representative who acts as your intermediary. This company or
       individual is responsible for doing the actual exporting, thus you have no contact with the overseas buyer. Plus,
       you usually assume no responsibility for transporting the product to its destined market.

        The direct method, however, requires you to arrange your own overseas sales, which means you are also responsible
       for shipping the product.

        When using the indirect method, you have a choice of channels. Export merchants/brokers are usually based
       domestically and specialize in a particular type of product.  Because they own the merchandise, they usually
       control pricing and marketing policy.  They also assume the credit risks.

        Export management companies (EMCs) serve as the export department for several manufacturers of non-competing products,
       offering services that would not be economical for individual companies to handle on their own.

        Their services include researching foreign markets, choosing overseas distributors, exhibiting your products at
       trade shows, handling the routine shipping details, preparing advertising and sales materials and advising on
       overseas patent and trademark requirements.

        In choosing an EMC, you should consider the number of clients it serves and sales volume, the type of clients, the
       reputation and quality of its management, its financial status and its coverage of world markets.

        Trading companies combine some of the qualities of both merchants/brokers and EMCs. Trading companies purchase
       merchandise outright, handle goods on consignment or act as commission agents for buyers. Trading companies
       generally pay cash for their purchases and extend credit to their customers.  

        You can choose from foreign trading companies such as European, Korean or Japanese or, as a result of the 1982
       Export Trading Company Act, from the newly developed American trading companies established by some of the
       major U.S. banks and corporations.

        Direct selling to overseas markets is more difficult and involves either direct mail, where you send catalogs,
       brochures or other collateral materials to foreign retailers; or selling direct to the customer via advertising and
       promotion in magazines with overseas circulation, local publications and other media (billboards, for example).

        Or there's another route.  Many exporters prefer to sell their merchandise abroad using foreign sales representatives
       or distributors. These individuals usually work on commission, assume no risk or responsibility and are under
       contract for a certain period of time. The foreign distributor purchases goods at a significant discount, acquires
       title and then markets the products. The sales representative, on the other hand, does not purchase goods but
       places orders.

        Working with sales distributors or representatives has distinct advantages. They can often provide the initial
       contacts you need in a foreign country; they have already established relationships with buyers of related items; and
       they have knowledge of the local market, which is important in any marketing effort.


            Test The Market
        You have chosen your product, your market and your method of distribution.  It is time to do some test marketing.  
       For no matter how much you have researched your potential market, you still can't be sure of your product's
       reception abroad.  And while there is no substitute for actually bringing your product to market, there are various
       testing methods that will allow you to, if necessary, modify your product, its packaging or your prices before
       committing yourself to a full scale program.

        The first of these methods--trade missions--is organized by the U.S. Department of Commerce. There are three types
       of these events:

          - Specialized trade missions, planned and led by the department and which bring you into contact with potential
            buyers, agents and distributors;
          - Seminar missions, which feature one- or two-day technical presentations by a team of U.S. industry
            representatives and are followed by appointments and sales activities similar to those of the specialized
            trade missions;and
          - Industry-organized, government-approved trade missions, which are organized by trade associations, chambers of
            commerce and other groups with the assistance of the U.S. Department of Commerce.

        Another method for test marketing is trade fairs and exhibitions. Hundreds of major general and specialized
       international trade fairs and exhibitions are held each year.  Most of them are open to any firm in the
       particular industry. U.S. firms that participate in these events benefit from a full range of promotional and display
       assistance. In return, they pay a specified sum to offset the cost of the services they receive.

        To find out about the dates and locations of the various trade missions and trade fairs and exhibitions, ask the
       U.S. Department of Commerce to send you a copy of its latest "Export Promotion Calendar." The calendar lists
       department-supported events in the U.S. and overseas as well as the officer to contact for further information.

        The final testing method is also the least expensive: catalog shows and video/catalog exhibitions. Participation in
       a catalog show does not require that you have a company representative present. Instead, you send your product
       catalogs, sales brochures and any other sales materials, which are displayed at exhibitions held at U.S. embassies
       and consulates.

        At video/catalog exhibitions, visitors can watch video tapes of products in use. These exhibitions are an excellent
       method for promoting machinery, equipment and other products that are expensive to ship.


            Pricing And Promotion
        Now that you have information upon which to base these decisions, it is time to establish product or service pricing
       and develop promotion plans.

        When establishing a price overseas, you need to consider most of the same factors that you do for the domestic
       market: the competition; costs including production, packaging, transportation and handling, promotion and
       selling expenses; the amount of demand for your product or service and its relationship to price; and the maximum
       price the market is willing to pay.

        There are three common methods of pricing exports:

        - Domestic pricing, using the product or service's domestic price as a base and adding export costs including
          packaging, shipping and insurance;
        - Incremental cost pricing, determining a basic unit cost that takes into account the costs of producing and
          selling products for export, and then adding a markup to arrive at the desired profit margin; and
        - Cost modification, reducing the quality of an item by using cheaper materials, simplifying the product or
          modifying your marketing program.

        The rules of pricing are not hard and fast. When making pricing decisions, you should also consider your company's
       objectives, the price sensitivity of your market and the uniqueness of your product.

        Once you have determined a price for your product or service, the next step is to promote it. Critical to the
       success of your advertising and publicity is local assistance.  Because the needs and buying habits of foreign
       consumers are often very different from those of U.S. buyers, individuals familiar with the local culture should aid
       in the design of your promotion activities.

        As in the United States, advertising is a major medium of communication around the world. You must decide if
       advertising is important to the success of your product or service.  Chances are good that if you need it in the
       domestic market, you will need it even more overseas where customers are unfamiliar with you and your product or
       service.

        You will also need to decide if you can afford advertising and if your profit margin can support an effective
       campaign. An overseas advertising agency can help you make this decision. It can also help you plan the campaign,
       because the available media may differ significantly from those in the United States.  For example, in some
       countries television and radio do not carry advertising.  In addition, advertising techniques and copy used in
       domestic markets may not be successful because of cultural differences or problems with translating the message
       from English into a foreign language. This also may be true of the name of your product. Before you decide to use
       the same name for your product overseas as you do in the domestic market, it is wise to make sure there are no
       translation problems.

        When investigating advertising alternatives, you also may want to consider outdoor advertising, such as billboards,
       posters, streetcar and bus signs, which tend to reach a wide audience.

        Product packaging is another important promotional medium.  Like in the United States, it must attract the buyer's
       attention, identify the product and provide a reason to buy.  However, packaging designed for the domestic market often
       isn't appropriate overseas. In addition, when designing packaging, you should also consider protection for your product
       against breakage and spoilage while in transport.


            Transport And Distribution
        According to the U.S. Department of Commerce, American companies lose more business in the movement of products
       overseas than in any other phase of the export process.  Overseas transport involves modes of transportation,
       packaging requirements and documentation, all of which are quite different than those required for domestic shipping.

        The methods of moving goods to foreign markets fall into three categories: sea, air and land transportation. When
       choosing a mode of shipping, you should consider product characteristics such as size and value, destination, required
       speed of delivery and cost. You should also take into account compatibility with the other elements of your
       distribution system such as packaging, warehousing, inventory control and handling. The largest tonnage of goods
       shipped to and from the United States travels by water. You can choose from three types of ocean transport:

        - Conference lines, associations of carriers that operate in a specific area (called a "trade") and which have
          established common rates and shipping conditions;
        - Independent lines, which operate and quote rates individually and accept bookings from all shippers depending on
          space availability; and
        - tramp vessels, which operate on charters wherever they can  get cargo and usually carry only bulk cargo.

        No matter which carrier you use, your cargo must be insured. Ocean marine cargo insurance is arranged by either
       the buyer or seller, according to the terms of sale, and is a one-time policy insuring a specific shipment.

        Increasingly, air transport is the mode of choice, especially by manufacturers of valuable high technology products,
       exporters of perishable foods and equipment manufacturers replacing broken machinery or parts. The growth in the use
       of air transport has been spurred by innovations in the air cargo industry, which have resulted in more efficient
       loading and handling of goods.

        For obvious reasons, the uses of land transportation are more limited in the export distribution process. Companies
       sending merchandise to foreign markets use land transportation to move goods to the nearest port of departure
       (except for goods bound for Canada, Mexico and Central America) or as one leg of a sea/land or air/land combination.

        Whatever method of transport you use, you must make sure your products are well packaged to protect them from the
       often hazardous conditions of overseas shipping.  When designing your packaging, you should consider breakage, weight
       and volume, moisture and other climatic conditions, theft and customer requirements. For advice on packing, talk to
       your carrier, marine insurance company or freight forwarder or talk to export packers who are well informed about all
       special packing and marking requirements of a particular country.

        The final consideration in the transport and distribution process is documentation.  Without packing lists, bills of
       lading, export declarations and export licenses, your shipments will not be permitted to pass through customs, loaded
       onto a carrier and transported to a foreign destination.

        In addition, many foreign countries require certificates of origin, which indicate where the goods were produced.
       These facilitate customs clearance and are also used to establish preferential rates for import duties under most
       favored nation agreements.


            Financing Your Overseas Operations
        Just like domestic expansion; expansion into international markets requires capital. You need funds for inventory,
       receivables and promotional activities.  Plus, if you intend to open foreign branches, you will also need capital for
       facilities and related operating costs.

        Most owners of small business expanding overseas are unable to generate the additional funds themselves and must
       turn to outside financing.  Your first stop should be your own bank.  If it is a large one, it will have its own
       international department or loan officer responsible for handling foreign transactions. Banks not involved in foreign
       trade usually have correspondent relationships with banks that are.

        When choosing a bank, you should ask what international services it provides. Services such as short-term and
       medium-term export financing, foreign credit and business information, commercial letters of credit, collection or
       discount export drafts, and purchase and sale of foreign exchange are very valuable when doing business overseas. In
       addition, many banks conduct market surveys and prepare trade reports and lists of prospective foreign distributors.
       They may also serve as advisers to companies contemplating business overseas.

        If you are unable to find a bank that meets your needs, the federal government provides financial assistance through
       a number of agencies:

        The Export-Import Bank of the United States (Eximbank), whose primary purpose is to facilitate the export of American
       products and services through its various financing programs.  Those programs include direct loans, guarantees and
    discount loans.  Eximbank also arranges financing for the overseas buyer and, consequently, underwrites the transaction.

        The U.S. Small Business Administration Export Loan Guarantee Program, which guarantees up to $500,000 of commercial
       financing to companies that want to establish or expand their export operations.  To qualify, you must meet the SBA
       criteria for a small business. Qualification requirements vary according to industry. (See your local SBA office for
       details.) In addition, the program also offers an Export Revolving Line of Credit, which can be used to finance
       pre-export production; purchase labor, supplies, materials and inventory; and fund marketing development.

        The Overseas Private Investment Corporation (OPIC), which provides medium- to long-range financing for U.S. business
       ventures in some 100 developing countries through its direct loan and guaranteed loans programs.  OPIC will make
       direct loans of $100,000 to $400,000 for projects sponsored by or involving U.S. small businesses (those having annual
       revenues of less than $22 million or net worth of less than $4 million). OPIC will also guarantee loans from U.S.
       financial  institutions for projects with significant U.S. involvement.

        The Private Export funding Corporation (PEFCO), which is a private corporation owned by a group of commercial banks
       that works with Eximbank in using private capital to finance U.S. exports.  Their loans are made to foreign borrowers
       who need medium- to long-term financing to purchase U.S. goods and services.


            Develop An Export Plan
        Once you have all the facts and figures before you, it's time to tie all the details you have considered into one
       neat package: an export strategy plan.  Just as the development of a business plan is critical to the success of your
       business domestically, so is an export plan important to your efforts overseas.

        An export plan provides a detailed blueprint of your market and product, your goals and objectives and your strategy
       for achieving them.  It should include specific short-, medium- and long-range objectives; timeframes for
       implementation; and mileposts for measuring success.

        The basic elements of your plan do not have to be elaborate or detailed. However, your plan should outline:

        - The country or countries in which you plan to do business;
        - Your strategy for reaching these markets;
        - Specific operational steps and scheduled implementation;
        - A budget based on the amount of money you will commit to your overseas operation.

        Your export plan should closely resemble that of your business plan. It should include an executive summary, an
       export policy commitment statement, background analysis, market and product selection, marketing objectives and
       strategy, budget, controls and procedures, personnel and organization, and methods of evaluation.

        Your export plan should be a management tool, with the objectives in the plan used to measure results and success.
       Once you become experienced and gain new information, you can modify the plan and make it more specific.


            Conclusion
        It used to be that doing business overseas was an option available only to major corporations. But as the marketplace
       becomes increasingly global and through an increase in federal assistance programs the U.S. government works hard to
       over-come this country's trade imbalance, the international opportunities for small business to grow. The export of
       goods and services is no longer the complicated undertaking it used to be.  And there are countless organizations and
       other resources to which you can turn for information and help.  However, like any other business endeavor, it
       requires hard work, the ability to plan and commitment.  Because if you are willing to give it your all, your success
       can be boundless.


            The 12 Most Common Mistakes Made By New Exporters
        1. Failure to obtain qualified export counseling and to develop a master international strategy and marketing
           plan before starting an export business.

        2. Insufficient commitment by top management to overcome the initial difficulties and financial requirements of
           exporting.

        3. Insufficient care in selecting overseas sales representatives or distributors.

        4. Chasing orders from around the world rather than concentrating on one or two geographical areas and establishing
           a basis for profitable operations and orderly growth.

        5. Neglecting export business when the domestic market booms.

        6. Failure to treat international distributors and customers on an equal basis with domestic counterparts.

        7. Assuming that a given market technique and product will automatically be successful in all countries.

        8. Unwillingness to modify products to meet regulations or cultural preferences of other countries.

        9. Failure to print service, sale and warranty messages in locally understood languages.

       10. Failure to consider use of an export management company when firm cannot afford its own export department
           or has tried one unsuccessfully.

       11. Failure to consider licensing or joint venture agreements when import restrictions, insufficient resources
           or a limited product line cause companies to dismiss international marketing as unfeasible.

       12. Failure to provide readily available servicing for the product.


            Market Research And Assessment Outline
        Very often, American firms fail to realize the importance of market research. Before you decide whether your
       entrance into the international marketplace is feasible and desirable, it is critical that you assess a market's
       potential and profitability. Following is an outline that you can use for making that assessment.  

        I. Which countries (or regions) offer the best prospective markets according to the company's goals?  Which offer
           the highest profits and largest business potential?

       II. What is the political government in each prospective market?

           A. System of government;
           B. Government stability and continuity of policies;
           C. Internal and external (foreign) opposition;
           D. Present and historical attitudes toward business and business relation with the United States;
           E. National economic and development priorities and goals.

      III. Demographic/Economic Conditions

           A. Population size, growth, distribution;
           B. Literacy rate and education level, availability of labor, indigenous management potential;
           C. National income, per capita income and distribution;
           D. Economic growth, gross national product (GNP), industrial sector growth;
           E. Role of foreign trade in the economy, percentage of GNP, balance of payments, debt service ratio
              on foreign loans;
           F. Currency situation, inflation rate, conversion and currency controls in the local economy and
              internationally, credit regulations;
           G. Government/business cooperation and priorities.

       IV. Development Level and Infrastructure

           A. Natural resources;
           B. Industrial and technological development;
           C. Physical distribution and communication network;
           D. Similarities and differences with the U.S. market.

        V. Regulatory Market Entry Considerations

           A. Limitations on trade: tariff levels, quotas and other non-tariff barriers to trade such as restrictions
              on payments and import licenses;
           B. Documentation and import regulations of the importing country;
           C. U.S. documentation and export regulations;
           D. Foreign standards, accepted industrial practices, measuring systems and certification procedures.

       VI. Legal Considerations

           A. Code of laws, civil or common law system;
           B. Investment and licensing laws;
           C. Taxation and capital repatriation laws;
           D. Employment laws;
           E. Patent, trademark, antitrust, advertising laws;
           F. Relevant treaties (signed and enforced) by foreign nations;
           G. Reality of the law vs. letter of the law.

      VII. Government Assistance

           A. U.S. government assistance;
           B. Foreign government assistance and attitudes toward the specific technology being transferred;
           C. Bilateral relations, programs and treaties between the United States and the importing nation;
           D. Development incentives, tax "holidays" for foreign investors.

     VIII. Competition

           A. Host country;
           B. Third country.
       

            The Export Decision: Management Issues
        When trying to decide whether or not exporting is for you, you need to ask yourself some questions about the
       structure of your organization, your production capacity and your financial capacity. Following are some of the
       issues you should consider.

            Management And Personnel
        Who will be responsible for the export department's organization and staff? How much senior management time
        Should be allocated?
        Could be allocated?
        What are management's expectations for the effort ?
        What organizational structure is required to ensure that export sales are adequately serviced? (Note political
          implications, if any.)
        Who will follow through after the planning is accomplished?

            Production Capacity
        How is the present capacity being used?
        Will filling export orders hurt domestic sales?
        What will be the cost of additional production?
        Are there fluctuations in the annual workload?  When?  Why?
        What minimum order quantity is required?
        What would be required to design and package products specifically for export?

            Financial Capacity
        What amount of capital can be tied up in exports?
        What level of export department operating costs can be supported?
        How are the initial expenses of export efforts to be allocated?
        What other new development plans are in the works that may compete with export plans?
        By what date must an export effort pay for itself?


            Plan Your Export Strategy
        Following is a simple outline you can use in developing your export strategy plan.

        I. Executive Summary (one or two pages maximum)

       II. Introduction: Why your company should export

      III. An export policy commitment statement

       IV. Situation/Background Analysis

           A. Product;
           B. Operations;
           C. Personnel and export organization;
           D. Resources of the firm;
           E. Industry structure, competition and demand.

        V. Marketing Component

           A. Identification, evaluation and selection of target markets;
           B. Product selection and pricing;
           C. Distribution method;
           D. Terms and conditions;
           E. Internal organization and procedures;
           F. Sales goals -- profit/loss forecasts.

       VI. Action Steps

           A. Countries where firm has special advantages (for example, family ties);
           B. Primary target countries;
           C. Secondary target countries;
           D. Indirect marketing efforts.

      VII. Export Budget

           A. Financial statements -- projected sales and expenses
           B. Long-term financial forecasts;
           C. Export taxes.

     VIII. Implementation Schedule

           A. Follow-up;
           B. Periodic Operational/management review (measuring results against plan).

       IX. Addenda -- (Background data on target countries and market)

           A. Basic market statistics: historical and projected;
           B. Background facts;
           C. Competitive environment.
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