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For Type of Business

Manufacturing

• Planned production levels

• Anticipated levels of direct production costs and indirect (overhead) costs—how do these compare to industry averages (if available)?

• Prices per product line

• Gross profit margin, overall and for each product line

• Production/capacity limits of planned physical plant

• Production/capacity limits of equipment

• Purchasing and inventory management procedures

• New products under development or anticipated to come online after startup

Service Businesses

• Service businesses sell intangible products. They are usually more flexible than other types of businesses, but they also have higher labor costs and generally very little in fixed assets.

• What are the key competitive factors in this industry?

• Your prices

• Methods used to set prices

• System of production management

• Quality control procedures. Standard or accepted industry quality standards.

• How will you measure labor productivity?

• Percent of work subcontracted to other firms. Will you make a profit on subcontracting?

• Credit, payment, and collections policies and procedures

• Strategy for keeping client base

High Technology Companies

• Economic outlook for the industry

• Will the company have information systems in place to manage rapidly changing prices, costs, and markets?

• Will you be on the cutting edge with your products and services?

• What is the status of research and development? And what is required to:

  • Bring product/service to market?

  • Keep the company competitive?

• How does the company:

  • Protect intellectual property?

  • Avoid technological obsolescence?

  • Supply necessary capital?

  • Retain key personnel?

High-tech companies sometimes have to operate for a long time without profits and sometimes even without sales. If this fits your situation, a banker probably will not want to lend to you. Venture capitalists may invest, but your story must be very good. You must do longer-term financial forecasts to show when profit take-off is expected to occur. And your assumptions must be well documented and well argued.

Retail Business

• Company image

• Pricing:

  • Explain markup policies.

  • Prices should be profitable, competitive, and in accordance with company image.

• Inventory:

  • Selection and price should be consistent with company image.

  • Inventory level: Find industry average numbers for annual inventory turnover rate (available in RMA book). Multiply your initial inventory investment by the average turnover rate. The result should be at least equal to your projected first year's cost of goods sold. If it is not, you may not have enough budgeted for startup inventory.

• Customer service policies: These should be competitive and in accord with company image.

• Location: Does it give the exposure that you need? Is it convenient for customers? Is it consistent with company image?

• Promotion: Methods used, cost. Does it project a consistent company image?

• Credit: Do you extend credit to customers? If yes, do you really need to, and do you factor the cost into prices?