Pirok Financial Group, Limited

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2009-11-12T03:39:00Z

Financial Statement School

Fact or Fiction

You'll find new stuff about business and finance.

How can the Pirok Financial Group, Limited help you?

2009-10-15T22:28:00Z

Business Planning

It starts with an idea…a concept. You have a product or service that people want. And you know how to deliver. But, unless you have a plan to implement the concept, to attract customers, and to get the financing necessary, your business will never get off the ground. You need a map for your business operations. At the same time, you need a quality presentation showing potential investors and lenders how your business will succeed. Whether your business is new or old, a business plan is crucial because it will help you:

identify your competitive advantage

formulate plans, strategies, and goals to capitalize on your strengths and whatever it is that sets you apart from the competition

find new customers and make sales

make contingency plans

use financial projections to predict cashflow, debt repayment, and return for investors

secure financing for your business

We'll help you plan your business, or we can write the business plan for you. Ask about our business planning courses, where we'll teach you everything you need to know.

Finding Capital

Securing financing is likely to be crucial to the success of your project. That may mean bank financing or venture capital or something else. A professionally prepared presentation will result in a better rate and better terms, and it often spells the difference between getting or not getting the financing you need. We are experts in various types of financing:

bank loans and debt financing

SBA loans and grants

venture capital

angel investing

lease financing

Considering Incorporation and Hiring Employees

How will you choose the legal form of ownership for your organization? Is it time to incorporate? There are many options from a sole proprietorship to an LLC to various forms of corporations. Each has certain tax and risk considerations. Are you ready to hire employees? You must register and withhold taxes for various governmental bodies. The Pirok Financial Group, Limited can work with you and your legal and tax professionals to determine the best legal form for your business. We can also help your business sign-up with each of the many governmental and taxing bodies that require registration.

Getting Started

There are so many questions and uncertainties about starting a business. Where should you locate? Should you buy or rent? How will you find employees? Who will train them? How is payroll handled? We have worked with businesses in every type of industry. We have learned from their successes and their failures, and we have the experience necessary to eliminate as much as possible any uncertainty about your business startup.

Accounting and Set-Up of your Books

Have you tried to use an accounting software package? Have you found its setup confusing or its intricacies frustrating? The Pirok Financial Group, Limited can help. We are experts who can guide you through the most advanced functions of your accounting software. Let us train you and your staff to perform accurate input of invoices, bills, and payroll. And, let us help you prepare financial reporting and analysis of your business and its profitability and value.

Profitability and Financial Analysis

On what do you base important business decisions—intuition…hunches? With a thorough understanding of your financial position, you’ll be able to make informed decisions based upon profit potential, not hunches. And, once we understand your company’s finances, we’ll make projections and incorporate them into your business plan.

Business Valuation

The Pirok Financial Group, Limited specializes in business valuation, whether you’re buying or selling. We provide an objective analysis based upon a variety of factors. You will even get suggestions on how to improve the value of your business.

Buying or Selling a Business

Have you thought about buying a business or buying another business? Let us help you find a business, determine its value, and negotiate a price and terms that are right for you. We can even perform a "due diligence" analysis, analyzing financial statements and auditing the books to determine whether you’re getting what you think you’re getting.

Are you ready to retire or sell your business now, but you just don’t know how to go about it? Is your business worth what it could be right now? We’ll help prepare your business for sale, and we’ll help you maximize its value. We can even help you find the right buyer or broker.

Investment Analysis & Feasibility Studies

Are you considering adding a new business unit or buying a piece of equipment or real estate? You will need to analyze the various investment opportunities. We’ll help you choose from various options, and we can also help you make lease or buy decisions. Whether you are buying a property to house your business or an apartment building as an investment, let us help you make your next real estate investment. We’ll help you work through the numbers, prepare accurate projections, and even help determine and negotiate the best possible price.

Contact the Pirok Financial Group, Limited Today!

We do things a little differently by allowing you to tailor our services to meet your specific needs. For example, we can look over your business plan and provide suggestions with a fresh outlook, or we can prepare your entire plan from scratch and even introduce you to potential financing sources. We provide as much support to your business as you need.

Whether you’re starting a new business or growing an existing one, we’re confident that you will benefit from the sound financial services provided by the Pirok Financial Group, Limited. For more information, or to arrange a free one-hour consultation, please call us at (217) 840-7726. If you have a question or idea, then please make a comment to this entry. Maybe it will become our next topic.

Is Entrepreneurship Growing?

2009-07-07T20:43:00Z

Click here to find out.

Article about How Banks View Commercial Mortgages

2009-07-01T19:58:00Z

I wrote an article for Alex Ruggieri's newsletter. It describes the criteria that banks use to decide whether to make commercial mortgage loans as well as a few ideas for increasing your chances of being approved.

Here is the URL: http://blog.ruggieriteam.com/2009/06/banks-are-still-making-loans.html

Tax Deduction: Mileage

2009-02-12T22:00:00Z

Are you receiving all of your tax deductions? Don’t forget that you are allowed to take a deduction for the miles that you drive your personal vehicle for business purposes.

For 2009, the standard mileage rate for the cost of operating your car for business use is 55 cents per mile.

The rate for January 1, 2008 through June 30, 2008 was 50.5 cents per mile, and the rate for July 1, 2008 through December 31, 2008 was 58.5 cents per mile.

If your business operates as a separate legal entity, such as a corporation, partnership, or LLC, then the easiest way to take the deduction is to simply write yourself a check for the dollar amount of the deductible mileage.

If you are a sole proprietor, then deduct the mileage on your Schedule C and Form 4562.

Should you require up-front deposits from clients?

2008-10-17T16:22:00Z

Tim Berry has an interesting blog for entrepreneurs. Lately, he's been commenting on how to start a consulting business. In one post, he said, "For the record, I never did that advance payment or deposit stuff with clients. Businesses don’t expect to have to pay upfront, and mine never did. The good news is that I never had an invoice that wasn’t paid. Take risks on the client paying. Don’t ask them to take risks on you."

To which I commented, "Wow, you’ve never been stiffed by a client? That’s pretty lucky; most of us consultants have been left with unpaid invoices. If you’ve never had this happen, then I don’t know if you’re doing something right (working with clients with stellar payment ability) or doing something wrong (never taking a risk).

"You should use common sense with advance payments and deposits. If your client is large and creditworthy, then don’t require up-front payment. If your client is small, if you’re being hired to consult on a turnaround of a troubled company, if your engagement requires significant travel or incidental expenses that have to be covered, then get a downpayment. I have never had a problem getting advance payments when I asked for them. If you have a good reason to ask, then be leery of the client who can’t or won’t make that payment."

Who is right? I suppose we both are.

New!

2008-06-10T03:20:00Z

To learn about financial statements and analysis, visit:
www.financialstatementschool.com if you are a beginner, or
www.commercialloananalysis.com if you are an expert.

Associations

2008-05-19T06:26:00Z

When Damon Hackleman first started a carpet cleaning business called KleenRite in 1998, he and his partner concentrated on operations instead of whom they associated with. That all changed when one of their customers, a property manager, suggested that Hackleman join the local association of apartment owners.

"Based upon the relationships I have developed, I can honestly say that the Central Illinois Apartment Association can take credit for increasing our gross sales by at least twenty-percent over the eight years we have been in business."

If there was an association of apartment owners, then there must be an association of carpet cleaners too. Hackleman then found Ethical Services, a directory of 30,000 carpet cleaning businesses with a serious code of ethics guiding their work. Members can face expulsion for knowingly violating the code.

KleenRite is now a member of no less than five professional and trade associations. Hackleman says, "All of these organizations have their place within our company." Some memberships involve networking, while others provide trade information that is invaluable to his business.

These days, there is an association for just about any profession or trade that you can name. Carpet cleaners and dog groomers have associations, as do computational biologists and those in the field of "textile technology." There is even a National Chicken Council.

And, of course, an association exists for associations, themselves. The American Society of Association Executives or "ASAE" is the membership organization for associations. Their membership represents nearly 11,000 organizations, and their website states that there were a total of 86,054 trade and professional associations in the United States as of the year 2004.

Associations typically provide education, information, and networking opportunities. Many also provide certifications or codes of ethics to provide credibility. Some even perform lobbying on behalf of their members.

Many associations, like the apartment association Hackleman joined, allow special memberships for businesses providing products or services to their members. Some even host trade shows allowing vendors to meet and greet the members.

Where do you find about associations? The ASAE website, www.asaecenter.org, has a searchable database of associations. If you subscribe to trade magazines, look for associations there, or contact your local Chamber of Commerce. You may also simply ask your customers whether they belong to associations that you might join or visit.

Accounting for Apartments & Commercial Real Estate Seminar

2007-08-28T20:19:00Z

Alex Ruggieri of Sperry Van Ness/Ramshaw Real Estate and I are hosting a professional seminar on Commercial Real Estate Accounting. If you would like to hold an in-house seminar for your company or organization, then please contact us at 217.398.4258.

Monday, September 17^th, 2007

5:30pm to 7:00pm
(Refreshments)

Illini Plaza Atrium
1817 S. Neil St.
Champaign, IL

RSVP Required: (217) 359-6400
Ask for Sylvia or Adam

This seminar will help you to:

Maximize the appraised value of your property
Understand how real estate is valued
Save time and money on taxes and tax preparation
Get approval for a mortgage or refinancing
Properly account for closings, deposits, remodeling, and loans
Ensure that your books are accurate

Getting Yourself and Your Business Listed and "LInked In"

2007-06-14T18:37:00Z

If you're trying to expand your customer base, there are a couple of websites that you should know about. The Buy Illinois Network was established to promote business to business sales and training within Illinois. I checked it out and was able to get my own business listed pretty easily.

I also joined LinkedIn recently. It's a social networking site for professionals. I signed up, and the system was able to upload my contacts and automatically send a message to each of them who was already signed up on the site. I instantly had a network of twenty or thirty people. You can then use their networks to make new contacts. You can also post a pretty extensive description of yourself, your career, and your business on the site. Some of the people in my network have some really good connections to people with whom I hope to work in the future.

The SBIR and STTR Programs

2007-03-07T02:48:00Z

If you have a technology business, idea, or invention, or if you do any type of research, then you should know about the federal government’s SBIR and STTR Programs. The SBIR or "Small Business Innovation Research" Program has been around since 1982; its focus is on small business. The "Small Business Technology Transfer" Program or STTR was started ten years later in 1992. The STTR Program is similar to the SBIR Program except that it funds cooperative research and development projects involving a small business and a research institution such as a university, federally funded R & D Center, or nonprofit research institution.

The purpose of both programs is to encourage small businesses to explore their technological potential and to provide the incentive to profit through the commercialization of their technology. These programs exist because the risk and expense of conducting serious research and development efforts are often beyond the means of small businesses. They fund the critical startup and development stages, and they encourage commercialization, which in turn stimulates the economy. All rights to the technology remain with the company allowing it to profit from the products or services it develops. The programs have three distinct phases:

Phase I – Project Feasibility: The government provides a grant up to $100,000. The phase lasts up to six months for the SBIR program and up to twelve months for the STTR program.

Phase II – Project Development to Prototype: The government provides an additional grant up to $750,000 during Phase II, and the phase may last up to two years.

Phase III – Commercialization: The completion of this phase must be financed with money from the private sector.

In order to qualify for the programs, small businesses must conform to certain requirements including being U.S. for profit small businesses with 500 or fewer employees and performing the work in the U.S. For the SBIR program, a minimum of two thirds of the effort must be performed by the proposing firm during Phase I, and at least one half of the effort must be performed during Phase II. The STTR program requires that the small business perform at least forty percent of the work and that the research institution perform at least thirty percent of the work during both Phases I and II.

Various federal government departments are required to set aside a portion of their research and development funds for these grants. In fact, they claim to be the "largest source of early stage technology financing in the U.S." Total SBIR and STTR funding for fiscal year 2006 is $2.309 billion. The Departments of Agriculture, Commerce, Defense, Education, Energy, Health and Human Services, Homeland Security, and Transportation as well as the EPA, NASA, and the National Science Foundation all provide SBIR and/or STTR grants. The Department of Defense accounts for approximately half of the total funding.

Applications for the SBIR and STTR programs are made directly to the departments. You may check out their website for schedules and solicitation topics. There are numerous solicitations, and most are quite specific and detailed. The programs are highly competitive, and it often takes multiple applications before a business is successful. Some states also offer supporting or matching grants related to the SBIR and STTR programs.

How Much is Your Business Worth?

2007-01-16T03:01:00Z

This month’s issue of Inc. Magazine contains an interesting article on business valuation. Their website also features an interactive version that allows you to calculate an estimated value of your business.

Their data consists of actual company sales. They present multiples based upon various financial measurements (sales, gross profit, cashflow, EBIT, etc.) This is the most comprehensive presentation of such data that I’ve found without paying for a subscription.

But, I do have some words of caution. First, remember that if your company isn’t in the same size range as those that were used to create this data, then the value may or may not hold true for you.

Also, the best measurements of value are likely to be those that are multiples of actual cashflow or EBIT (earnings before interest and taxes) or EBITDA (earnings before interest, taxes, depreciation, and amortization.) These measurements are equalizers across industries, tax structures, and types and sizes of businesses. They represent the "bottom line" in the sense that they are ultimately measures of cash available to investors. There is no better way to value a business. Unfortunately, only some industries in the survey have these types of multiples.

Instead, the values for most of the industries are presented using multiples of sales. This method can yield very misleading results. (They also present a chart of company sales prices to revenues among industries that doesn’t really tell you anything.) What about a company that has a lot of sales, but isn’t profitable? I always tell people, "A business that is not or cannot be profitable is worth nothing more than the liquidation value of its assets."

I hope your business does have plenty of sales and plenty of profits, and hopefully, you’ll find this valuation information useful too.

If you are interested in learning more about valuations or how to maximize the value of your business, contact the Pirok Financial Group, Limited at 217.398.4258.

Year-End Accounting

2006-11-21T07:57:00Z

The holidays are here, and the new year is just around the corner. Read on for year-end accounting tips…

Do you use accounts receivable? If you use invoices (and accounts receivable) to bill your customers, then you must always remember to match payments from your customers with the previously entered invoices. For some reason, people always seem to forget that payments from customers have outstanding invoices waiting to be paid. No accounting system will make this link for you. You have to do it yourself. The end of the year is a good time to look for outstanding invoices that have already been paid.

You should also write off those receivables that, in all probability, you will not collect. Any amount that you don’t expect to collect or that exceeds some reasonable time-period (such as being ninety-days past due) can be written off as bad debt. In no way does this mean that you cannot or should not continue to try to collect the debt. It just means that you’re not going to pay tax on some income that you don’t actually expect to receive.

Print out your income statement, and look at significant accounts (especially sales and cost of goods sold.) Prepare detailed reports listing the individual transactions for these accounts. Look for negative numbers as signs of trouble. Typical mistakes leading to negatives include items set up incorrectly or accidentally choosing the incorrect account for a transaction.

Do you have a large profit? Maybe you should consider a purchase if you had been planning one in the near future anyway. You might as well make the purchase this year and get the tax benefit.

Once you have finished your accounting for the year and provided financial statements to your banker, your accountant, and the IRS, you cannot change any transaction prior to the end of the year. Similarly, you should never change a paycheck after you have made a tax liability payment or filed payroll tax returns. Use your accounting software to formally close the books each year, so you won’t run into trouble. (If you have any questions or problems with this, leave a comment below or call me at 217.398.4258. Same goes for any other processes or errors with your books.)

Don’t forget to update your payroll tax tables after the last payroll of the year and before the first payroll of next year. With most accounting software, you will need to manually change the rate for state unemployment. This must be done between the last payroll of one year and the first payroll of the following year. Think of other tax changes that may affect your business before the start of the year. For example, sales tax rates sometimes change. Be sure to change them in your accounting or POS software before the year begins.

Finally, backup your company file and store it somewhere other than your place of business.

Questions to answer before you start planning your business

2006-11-01T01:27:00Z

Are you thinking about starting a business? What does it take to get a business off the ground? Have you started writing a business plan? Do you have what it takes? Before you go any further, here are some questions you should ask yourself:

What are the main reasons you want to be in business?

Bad reasons for going into business typically include wanting to spend more time with your family or thinking that you will get rich quick. The fact is that starting a business is a lot of work, and building a successful business takes time-months and years. The fact that you cannot get along with your boss is not a good reason either. In business, you will have to work with people all the time, and even when you are the owner, the customer is still basically your boss.

The best reason to start a business is that you have a great idea; that is, you have some way to do things differently or better than the others. Another good reason is that you want to be the person in control of your income. If you expect a huge amount of hard work, and if you expect to receive the financial benefits of these efforts, then being an entrepreneur may be for you. If these are your thoughts about starting a business, then read on…

What type of business are you interested in operating?

Your business should consist of something that you are good at and something you will enjoy. You will be spending a lot of time on it; your business will become your livelihood. You might as well enjoy it, and you better be good at it.

The first businesses people often think of starting are restaurants, bars, salons, retail stores, and entertainment and recreation businesses. These businesses are risky, and they are among the most likely to fail. For this reason, they are very difficult to finance; most banks won’t touch them.

Such businesses are risky because they require significant up-front expenditure for equipment, because they are subject to people’s ever-changing tastes, because they are cash businesses subject to employee (or owner) theft, and because, contrary to popular belief, they require significant experience before you can run them properly. These types of businesses should be at the bottom of your list, unless you have experience in the industry, a really good idea, and your own money to try the idea.

Who will be your customers?

Who will pay for your products or services? How will you attract them? Depending upon your type of business, you should already be able to name exactly who some of your customers will be.

Who will be your competitors?

If don’t think you have competition, think again. Every business has competition, both direct and indirect-from sources you may not have even considered. You must be able identify exactly who and where your competitors are before you get into business.

What will be your competitive advantage?

What exactly will you do differently or better than your competition? How does your product or service benefit your customers? This is the entire basis for your business and your business plan, and the answer to this question makes or breaks your business. The right answer represents a great opportunity, waiting for you. But, if you cannot come up with a strong competitive advantage and be able to communicate it effectively, you will probably not even get a business started at all.

Will you offer lower prices than your competition? If your answer is "yes," then think again. This is an extremely difficult strategy for a newcomer to pull off.

What are your personal strengths?

Do you have experience in the industry? This is an absolute must. To be successful, you do not necessarily need to be an expert in business. Instead, you should be an expert in providing some special sort of product or service. You can hire professional help, but there’s no substitute for providing a great product.

What are your limitations?

Are you prepared to be responsible for attracting customers and for ensuring that the business makes money? Are you prepared to pay your bills if the business is not profitable or in the likely event that it takes months (or even years) longer than you expect to become profitable? Are you prepared to work longer hours and to work outside of the typical eight to five workday? Are you organized?

How will you overcome these limitations?

Can you afford employees and professionals to perform the duties that you cannot? Are you willing and able to delegate responsibility? How do you deal with stress? Do you have a business plan? Are you ready to get started now?

There is truly something magical about owning a business. Your business stirs a pride in ownership that is difficult to replicate by any other means. The feelings become even deeper as you create a team and satisfy customers as well as provide financial security and career advancement to employees. But, if you are going to be successful, you must first think and research and plan. It takes a special person to write a business plan and then to put it all together, to implement it, to make it happen, and to make it work. It takes responsibility and self-discipline.

At the same time, you may very well have the opportunity of a lifetime. You will ultimately be responsible for all of your successes and failures. Planning and effort are required, but your hard work will be rewarded with financial success. That is part of the magic. Business ownership takes a lot of hard work, but the rewards can make every ounce of effort worth it.

Business Plan Outline

2006-10-24T05:35:00Z

Executive Summary (Entice them to read on! Include all financing and investments being requested. Write this part last.)
Business ownership (List all partners who will own 20% or more. What form of ownership is used? (corporation, partnership, etc.))
Mission, vision, and values statements (Your mission may be considered the “thesis statement” of the plan. Communicate what do you do differently or better. Can readers easily communicate it back to you in their own words?)
Product or service description
Product or service life cycle location (innovation, growth, maturity, decline)
Pricing
Market definition (Do you sell to individuals or businesses? Do you sell to end users, resellers, or manufacturers?)
Market size (total potential customers in target geographic area)
Market share (current and anticipated percentage share of market)
Marketing
Advertising (List media and costs.)
Sales and sales goals (Surveys, contracts, and orders as quantifiable evidence)
Customers or Clients (List them.)
Concentrations (Identify customers comprising significant shares of sales.)
Seasonality
Cyclicality
Industry and industry analysis
Suppliers (List them, and include payment terms.)
Competition (Has your idea been tried here or elsewhere? Did it work? Why? Can you visit a similar business? Are their demographics the same? Include indirect competition or substitute products or services.)
SWOT Analysis (Strengths & weaknesses-internal; 0pportunities & threats-external)
Research and development
Location
Local market analysis (Use local Chamber of Commerce, Board of Realtors.)
Operations and Management
Operational goals (Specific, measurable, tied to incentives)
Cost‑cutting goals/Cost Containment
Labor and local labor market
Key employees and managers
Management structure (Include resumes, organizational chart.)
Management succession (plans for death, disability, retirement)
Board of directors
Board of advisors
Financing requests
Financial statements (Income statements and balance sheets for three to five prior years; income statements and balance sheets for this year-to-date; personal financial statement not less than three months old)
Projections (Income statement and cashflow statement by month for first year; income statement and balance sheet for first three years)

Your Business Plan Audience

2006-09-13T08:05:00Z

Write the business plan with you and your employees and your potential employees as the intended audience. All too often, business owners cater their plans specifically to potential lenders and investors. These types of plans typically include only background information on the business followed by a sales pitch.

Instead, the business plan should be written for internal use. The plan should identify your competitive advantage and describe the strategies you will use for capitalizing on that advantage. It should be practical and include things like customer, competitor, and vendor lists and contact information, job descriptions, and goals and timelines for achieving them.

It should be written for you, but that should not stop you from providing this type of plan to bankers, investors, and even to potential key employees. From it, they can learn virtually everything about your business that they need to know. However, conversely, you cannot use a business plan consisting merely of background and a sales pitch to guide the operations of your business. As a matter of fact, any sophisticated financing source will expect to see the detail of a business plan written for internal use as opposed to mere fluff. If your business is so great, you will not have to state its level of greatness. Instead, your business plan will speak for itself.

Business Planning: Predicting Your Sales

2006-09-13T08:01:00Z

Your business plan must show that your numbers can be made a reality. The bank will be repaid, investors will receive their expected rates of return, and you will make a good living too. So, your sales projections and the evidence that there is, indeed, a market for your product or service is crucial.

In this area, it is all too tempting to measure the overall market and make it seem very large. Too many business plans state something like, "There are fifty million Americans who buy widgets each year." It doesn’t take much time or thought to look up these numbers, so if you’re going to mention them a business plan, keep in mind that they are not really evidence that anyone will buy your product.

An easy second step is to take the projected sales of the business and divide them by the total market to measure projected market share. This amount usually turns out to be quite tiny, with the implication that such a sales level will be very easy to achieve. It may seem reasonable on paper to say, "We only need to obtain five percent of the total market in downstate Illinois to achieve our sales goals." But, this type of thoughtless projection most often turns out to be too good to be true.

Your sales and marketing plan should, instead, be built from the bottom up. To do this, you must identify potential customers that, one-by-one, add up to sales volume. Perhaps the most tangible evidence that your sales plan will come to fruition is the existence of written contracts or purchase orders or if your business has a backlog of orders. These details should certainly be included in your plan, and your plan should also always include lists and details of significant existing and potential customers.

Unfortunately, not every business has the luxury of having a bunch of orders in hand, especially when it is new. But, there is still a great deal you can do to show that a market exists for your product or service. If your customers will be other businesses, then rent a booth at a Chamber of Commerce event or a trade show. Ask potential customers to fill out surveys; offer them discounts or prizes; exchange business cards; create an e-mail list or an informative website. Your attendance at such a show, your communication with potential customers, and, perhaps most importantly, their answers to your questions will go a long way toward gauging your true market.

If your customers will be individuals, then you may also try to survey them. Meet them at home shows, purchase lists from a local mailing list vendor, start a blog, or post to other blogs. If you have a retail store, then you may want to shop at a competing store and keep track of foot traffic and purchases. Call your competitors and act like a customer; find out their prices. Better yet, if you can find a similar business in a different geographic market, it may be a good idea to take a trip there, shop, talk to the owner, and make some notes.

It certainly takes creativity mixed with hard work, but you should do all that it takes to present a "bottom up" sales plan to show how you will actually make your plan a reality.

Understanding Your Competition

2006-09-13T06:07:00Z

How many business plans contain the words, "We have no competition"? Every time an investor or a banker reads these words, he or she cringes. Every business has competition. If you ever find a business without competition, then buy it; do whatever it takes, because that business will make you rich. While you’re at it, see if you can find a business with no customers to deal with or an opportunity that requires no investment of time or money. A business with no competition is fictional.

Never, ever state that your business has no competition. You will instantly lose credibility with your banker or with that potential strategic partner who is interested in learning more. The reason so many entrepreneurs make this mistake is that they confuse competitive advantage with lack of competition. Your competitive advantage is whatever you do differently or better than others; it’s what sets you apart from the competition.

If you’re opening a coffee shop, will you really sell coffee? Or, is the convenience or location of your shop the true attraction? Have you created the place where the cool kids hang out, or do customers come in to buy special baked goods or chocolates? Maybe it really is the coffee. Just make sure that you understand and communicate what "it" is, because your competitive advantage is the essence of your business and your plan.

But, just because you’ve identified a competitive advantage, this does not mean that others aren’t trying to outdo you. Despite the fact that no one else may exactly match your product or service or the way you do business, competitors will try to attract your customers. Neither will your competitive advantage necessarily keep others from simply imitating or expanding your business model if it’s successful. Remember Friendster?

To construct a complete competitive analysis, start by listing all direct competitors. Use web searches, trade associations and publications, the local Chamber of Commerce, and the yellow pages to identify them. Mention pertinent details about each competitor in your business plan. How do their products and their prices compare to yours? What are their competitive advantages? If location is an important factor in your business, then include a map where you plot your competitors’ places of business.

If you are a new entrant to a market, do not assume that businesses with whom you plan to compete will not react (aggressively, if necessary) to maintain their positions. They may lower prices, spend more on marketing, increase their quality, or perform any number of strategies if threatened. Quizno’s built a business model based upon toasting sandwiches for their customers; now it seems that almost every sandwich place does this. If you plan to become the low-cost provider, you cannot assume that competitors' prices will remain the same once you get going. And, it’s likely that an incumbent can handle a price war a lot longer than a newcomer.

Let’s just say you’re lucky enough that it is difficult for you to identify any direct competition. There’s no coffee shop in the neighborhood or anywhere near the proposed location. Your business plan must still identify and address indirect competition. Bookstores, theaters, restaurants, bars, art galleries, even bowling alleys, compete for people’s food, beverage, and entertainment dollars. There’s only so much time and money to go around. Your customers may drive through McDonald’s for their coffee or choose to meet at the library instead of your coffee shop. Any of these venues could represent competition.

Indirect competition does not even necessarily come from other businesses. Many people buy coffee at the grocery store and make it themselves at home or in the office. Similarly, service providers such as plumbers, accountants, travel agents, and carpet cleaners have one big source of competition-customers who decide to perform those services themselves. To compete, you must provide some level of quality or customer service that exceeds what your customers can do for themselves. Your strategy may even embrace customers doing it themselves as a method of attracting business. The big coffee shop chains sell their coffee in grocery stores. Service businesses typically develop relationships and some even teach classes so that when the do-it-yourselfers need extra help, they know exactly whom to call.

The bad news is that you do have competition. The good news is that there is something special about your business. Your business plan should be the place where you identify this competitive advantage and a strategy to capitalize on it. With some creativity and effort, you will attract those customers and become successful.