• This should be a description of your company and its potential for success.
• The _____ can cover your mission statement, employees, location, and growth plan.

Executive summary:

This is where you detail what your business offers, its competitive advantages, and your strengths as a business.

Company description:

• Lay out how your company is positioned to perform well in your industry.
• Describe market trends and themes and your knowledge of successful competitors.

Market analysis:

• Who is running your company, and how is your business structured? Include an organizational chart of your management team.
• Discuss if your business will be incorporated as a business C or S corporation, a limited partnership, a limited liability company, or a sole proprietorship.

Organization and management:

• Here is where you describe how your business will solve a problem a nd why this will benefit customers.
• Describe how your product lifecycle would unfold.

Service or product line:

Detail your marketing strategy and how this will reach your customers and drive return on investment.

Marketing and sales:

• If you're looking for financing, lay out the capital you’re requesting under a five-year horizon and where, in detail, it will be allocated, such as salaries, materials, or equipment.

Funding request:

This section shows the five-year financial outlook for your company and ties these to your request for capital. ³

• Having a coherent business plan is important for businesses looking to raise cash and crystallize their business goals

Financial projections:

Setting Goals and Strategies

• Another key aspect of a business plan is setting realistic goals and having a strategy to make these a reality.
• Having a clear direction will help you stay on track within specified deadlines.
• In many ways, it allows companies to create a strategic plan that defines measurable actions and is coupled with an honest assessment of the business, taking into account its resources and competitive environment.
• Strategy is a top-down look at your business to achieve these targets.

Financial Projections and Budgeting

• Often, entrepreneurs underestimate the amount of funding needed to start a business.
• Outlining financial projections shows how money will be generated, where it will come from, and whether it can sustain growth.
• This provides the basis for budgeting the costs to run a business and get it off the ground.
• Budgeting covers the expenses and income generated from the business, which include salaries and marketing expenses and projected revenue from sales.

• Another important aspect of starting a business are the _____ that enable you to operate under the law.
• The help of a legal services professional might save you headaches.
• The legal structure of a business will impact your taxes, your liability, and how you operate.

Legal Requirements

Businesses may consider the following structures in which to operate:

• Each has different legal consequences, from regulatory burdens to tax advantages to liability being shifted to the business instead of the business owner.

• Corporation
• Limited Liability Company (LLC)
• Partnership
• Sole Proprietorship⁴

• Now that you have your business structure outlined, the next step is _____.
• Your location is the second key factor in how you’ll _____.
• In many cases, small businesses can register their business name with local and state government authorities.

Registering Your Business

• If your business conducts certain activities that are regulated by a federal agency, you’re required to get a permit or license.
• A list of regulated activities can be found on the SBA website, and includes activities such as agriculture, alcoholic beverages, and transportation. ⁶

Understanding Permits and Licenses

• There are many different ways to fund a business.
• One of the key mistakes entrepreneurs make is not having enough capital to get their business running.
• The good news is that there are several channels to help make this happen, given the vital role entrepreneurs play in creating jobs and boosting productivity in the wider economy.

Exploring Funding Options

Self-Funding vs. External Funding

• Bootstrapping, the term commonly used to describe self-funding your business, is where companies tap into their own cash or network of family and friends for investment.
• While the advantage of self-funding is having greater control, the downside is that it often involves more personal risk.
• External funding involves funding from bank loans, crowdfunding, or venture capital, among other sources.
• These may provide additional buffers and enable you to capture growth opportunities.
• The drawback is less freedom and more stringent requirements for paying back these funds.⁷

• ____, the term commonly used to describe self-funding your business, is where companies tap into their own cash or network of family and friends for investment.
• While the advantage of self-funding is having greater control, the downside is that it often involves more personal risk.

Bootstrapping

• _____ involves funding from bank loans, crowdfunding, or venture capital, among other sources.
• These may provide additional buffers and enable you to capture growth opportunities.
• The drawback is less freedom and more stringent requirements for paying back these funds.⁷

External funding

Grant and Loan Opportunities

• Today, there are thousands of grants designed especially for small businesses from the government, corporations, and other organizations.
• The U.S. Chamber of Commerce provides a weekly update of grants and loans available to small businesses.

Crafting a Marketing Strategy

• When it comes to marketing, there is a classic quote from Milan Kundera:
• “Business has only two functions—marketing and innovation ."
• In order to reach customers, a business needs a marketing strategy that attracts and retains customers and expands its customer base.
• To gain an edge, small businesses can utilize social media, email marketing, and other digital channels to connect and engage with customers.

Branding Your Business

• Building a successful brand goes hand in hand with building a great experience for the customer.
• This involves meeting the expectations of your customer.
• What is your brand offering?
• Is it convenience, luxury, or rapid access to a product?
• Consider how your brand meets a customer's immediate need or the type of emotional response it elicits.
• Customer interaction, and in turn loyalty to your brand, is influenced,
• for example, by how your brand may align with their values, how it shifts their perception, or if it resolves customer frustration. ⁹

Digital Marketing and Social Media

• We live in a digital-first world, and utilizing social media channels can help your business reach a wider audience and connect and engage in real time.
• Given that a strong brand is at the heart of successful companies, it often goes without saying that cultivating a digital presence is a necessity in order to reach your customers.
• According to HubSpot’s 2024 report,
• The State of Consumer Trends, 33% of the 700-plus consumers surveyed discovered new products on social media and 25% bought a product there in the past three months.¹⁰

Managing and Growing Your Business

• Managing a business has its challenges.
• Finding the right personnel to run operations, manage the day-to-day, and reach your business objectives takes time.
• Sometimes, businesses may look to hire experts in their field who can bring in specialized knowledge to help their business grow,
• such as data analysts, marketing specialists, or others with niche knowledge relevant to their field.

Hiring and Training Staff

• Finding the right employees involves preparing job descriptions, posting on relevant job boards such as LinkedIn, and effectively screening applicants.
• Careful screening may involve a supplemental test, reviewing a candidate's portfolio, and asking situational and behavioral questions in the interview.
• These tools will help you evaluate applicants and improve the odds that you'll find the people you are looking for.
• Once you have hired a new employee, training is the next essential step.
• On average, it takes about 57 hours to train new employees.
• 11 Effectively training employees often leads to higher retention.
• While on-the-job training is useful, consider having an onboarding plan in place to make the transition clear while outlining expectations for the job.

ü Scaling Your Business

• Growing your business also requires strategy.
• According to Gino Chirio, executive vice president at the consultancy group Maddock Douglas,
• there are six (6) ways that companies can grow their business to drive real growth and expansion:

1. New processes:
2. New experiences:
3. New features:
4. New customers:
5. New offerings:
6. New models:

Boost margins by cutting costs.

New processes:

Connect with customer in powerful ways to help increase retention.

New experiences:

Provide advancements to your existing product or service.

New features:

Expand into new markets, or find markets where your product addresses a different need.

New customers:

Offer a new product.

New offerings:

Utilize new business models, such as subscription-based services, fee-for-service, or advertising-based models.

New models:

How Do I Start a Small Business for Beginners?

• A good place to start building a business is to understand the following core steps that are involved in an entrepreneur's journey:
• market research,
• creating a business plan,
• knowing the legal requirements
• researching funding options,
• developing a marketing strategy, and
• business management.

• A good place to start building a business is to understand the following core steps that are involved in an entrepreneur's journey:

• market research,
• creating a business plan,
• knowing the legal requirements
• researching funding options,
• developing a marketing strategy, and
• business management.

How Do I Create a Business Plan?

• A business plan is made up of a number of primary components that help outline your business goals and company operations in a clear, coherent way.
• It includes an executive summary, company description, market analysis, organization and management description, service or product line description, marketing and sales plan, funding requests (optional), and financial projections.

• ____ are assets that can be traded or exchanged.
• Some examples of _____ include stock shares, exchange-traded funds (ETFs), bonds, certificates of deposit (CDs), mutual funds, loans, and derivatives contracts.
• _____ provide efficient flow and transfer of capital among the world’s investors.
• They are assets that may be in the form of cash, a contractual right to deliver or receive cash or another type of _____, or evidence of ownership in some entity.

KEY TAKEAWAYS

• A _____ is a real or virtual document representing a legal agreement that involves any kind of monetary value.
• _____ may be divided into two types: cash and derivatives.
• They also are categorized by asset class, which depends on whether they are debt-based or equity-based.
• Foreign exchange instruments comprise a third, unique type of financial instrument.

Financial Instruments

Understanding Financial Instruments

• Financial instruments can be real or virtual documents representing a legal agreement involving any kind of monetary value.
• Equity-based financial instruments represent ownership of an asset.
• Debt-based financial instruments represent a loan made by an investor to the owner of the asset.
• Foreign exchange instruments comprise a third, unique type of financial instrument.
• Different subcategories of each instrument type exist, such as preferred share equity and common share equity.
• Important: International Accounting Standards (IAS) define financial instruments as “any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.”

____ represent ownership of an asset.

Equity-based financial instruments

_____ represent a loan made by an investor to the owner of the asset.

Debt-based financial instruments

_____ comprise a third, unique type of financial instrument.

Foreign exchange instruments

Different subcategories of each instrument type exist, such as :

preferred share equity and common share equity.

Important: _____ define financial instruments as:

“any contract that gives rise to a financial asset of one entity and a financial liability or equity instrument of another entity.”

International Accounting Standards (IAS)

Financial instruments may be divided into two types:

1. cash instruments
2. derivative instruments.

• The values of _____ are directly influenced and determined by the markets and can be readily brought and sold.
• Stocks and bonds are examples of such primary instruments.
• _____ may also be deposits and loans agreed upon by borrowers and lenders.
• Checks are an example of a _____ because they transmit payment from one bank account to another.

Cash Instruments

• The value and characteristics of _____are based on the
• vehicle’s underlying components, such as assets, interest rates, or indices.
• An equity options contract—such as a call option on a particular stock,
• for example—is a derivative because it derives its value from the underlying shares.
• The call option gives the right, but not the obligation, to buy shares of the stock at a specified price and by a certain date.
• As the price of the underlying stock rises and falls, so does the value of the option, although not necessarily by the same percentage.
• There are over-the-counter (OTC) derivatives and exchange-traded derivatives.
• OTC is a market or process whereby securities not listed on formal exchanges are priced and traded.³

Derivative Instruments

Types of Asset Classes of Financial Instruments

• Financial instruments may also be divided according to an
• asset class, which depends on whether they :

debt-based or equity-based.

• _____ are essentially loans made by an investor to the issuer in return for a payment of interest.
• Short-term _____ last for one year or less.
• Securities of this kind come in the form of Treasury bills (T-bills) and commercial paper.
• Bank deposits and certificates of deposit (CDs) are technically _____ because they earn depositors interest payments.
• Exchange-traded derivatives are traded for short-term,
• _____ such as short-dated interest rate futures.
• There also are OTC derivatives such as forward rate agreements (FRAs).

Debt-Based Financial Instruments

• ______last for more than a year.
• _____ securities are typically issued as bonds or mortgage-backed securities (MBS).
• Exchange-traded derivatives on these instruments are traded in the form of fixed-income futures and options.

Long-Term Debt Instruments

____ on long-term debts include interest rate swaps, interest rate caps and floors, and long-dated interest rate options.

OTC derivatives

• ______ represent ownership of an asset.
• Stocks are _____, as are ETFs and mutual funds that are invested in stocks.

• Exchange-traded derivatives in this category include stock options and equity futures.

Equity-Based Financial Instruments

What Are Some Examples of Financial Instruments?

• A financial instrument is any document, real or virtual, that confers a financial obligation or right to the holder.
• Examples of financial instruments include
• stocks,
• exchange-traded funds (ETFs),
• mutual funds,
• real estate investment trusts (REITs),
• bonds,
• derivatives contracts (such as options, futures, and swaps),
• checks,
• certificates of deposit (CDs),
• bank deposits, and
• loans.

Are Commodities Financial Instruments?

• Commodities such as precious metals, energy products, raw materials, and agricultural products are traded on global markets,
• but they do not typically meet the definition of a financial instrument.
• That’s because they do not confer a claim or obligation.
• However, commodities derivatives are financial instruments.
• They include futures, forwards, and options contracts that use a commodity as the underlying asset.

Is an Insurance Policy a Financial Instrument?

• Insurance policies are not considered securities,
• but they could be viewed as an alternative type of financial instrument because they confer a claim and certain rights to the policyholder and obligations to the insurer.
• An ____ is a legally binding contract established with the insurance company and policy owner that provides monetary benefits if certain conditions are met (such as death in the case of life insurance).
• If the insurer is a mutual company, the policy may also confer ownership and a claim to dividends.
• Insurance policies also have a specified value in terms of both the death benefit and living benefits (e.g., cash value) for permanent policies.

Types of Risk Analysis

1. Risk-Benefits
2. Needs Assessment
3. Business Impact Analysis
4. Root Cause Analysis (RCA)

• Many people are aware of a cost-benefit analysis.
• In this type of analysis, an analyst compares the benefits a company receives to the financial and non-financial expenses related to the benefits.
• The potential benefits may cause other, new types of potential expenses to occur.
• In a similar manner, a risk-benefit analysis compares potential benefits with associated potential risks.
• Benefits may be ranked and evaluated based on their likelihood of success or the projected impact the benefits may have.

Risk-Benefits

• A needs risk analysis is an analysis of the current state of a company.
• Often, a company will undergo a needs assessment to better understand a need or gap that is already known.
• Alternatively, a needs assessment may be done if management is not aware of gaps or deficiencies.
• This analysis lets the company know where they need to spending more resources in.

Needs Assessment

• In many cases, a business may see a potential risk looming and wants to know how the situation may impact the business.
• For example, consider the probability of a concrete worker strike to a real estate developer.
• The real estate developer may perform a business impact analysis to understand how each additional day of the delay may impact their operations.

Business Impact Analysis

• Opposite of a needs analysis, a ____ is performed because something is happening that shouldn't be.
• This type of risk analysis strives to identify and eliminate processes that cause issues.
• Whereas other types of risk analysis often forecast what needs to be done or what could be getting done, a root cause analysis aims to identify the impact of things that have already happened or continue to happen.

Root Cause Analysis (RCA)

How to Perform a Risk Analysis

Step #1: Identify Risks

Step #2: Identify Uncertainty

Step #3: Estimate Impact

Step #4: Build Analysis Model(s)

Step #5: Analyze Results

Step #6: Implement Solutions

• The first step in many types of risk analysis to is to make a list of potential risks you may encounter.
• These may be internal threats that arise from within a company, though most risks will be external that occur from outside forces.
• It is important to incorporate many different members of a company for this brainstorming session as different departments may have different perspectives and inputs.
• A company may have already addressed the major risks of the company through a SWOT analysis. Although a SWOT analysis may prove to be a launching point for further discussion, risk analysis often addresses a specific question while SWOT analysis are often broader. Some risks may be listed on both, but a risk analysis should be more specific when trying to address a specific problem.

Step #1: Identify Risks

• The primary concern of risk analysis is to identify troublesome areas for a company.
• Most often, the riskiest aspects may be the areas that are undefined.
• Therefore, a critical aspect of risk analysis is to understand how each potential risk has uncertainty and to quantify the range of risk that uncertainty may hold.
• Consider the example of a product recall of defective products after they have been shipped.
• A company may not know how many units were defective, so it may project different scenarios where either a partial or full product recall is performed.
• The company may also run various scenarios on how to resolve the issue with customers (i.e. a low, medium, or high engagement solution.

Step #2: Identify Uncertainty

• Most often, the goal of a risk analysis is to better understand how risk will financially impact a company.
• This is usually calculated as the risk value, which is the probability of an event happening multiplied by the cost of the event.
• For example, in the example above, the company may assess that there is a 1% chance a product defection occurs.
• If the event were to occur, it would cost the company $100 million. In this example, the risk value of the defective product would be assigned $1 million.
• The important piece to remember here is management's ability to prioritize avoiding potentially devastating results.
• For example, if the company above only yielded $40 million of sales each year, a single defect product that could ruin brand image and customer trust may put the company out of business.
• Even though this example led to a risk value of only $1 million, the company may choose to prioritize addressing this due to the higher stakes nature of the risk.

Step #3: Estimate Impact

• The inputs from above are often fed into an analysis model.
• The analysis model will take all available pieces of data and information, and the model will attempt to yield different outcomes, probabilities, and financial projections of what may occur.
• In more advanced situations, scenario analysis or simulations can determine an average outcome value that can be used to quantify the average instance of an event occurring.

_{Step #4: Build Analysis Model(s)}

• With the model run and the data available to be reviewed, it's time to analyze the results.
• Management often takes the information and determines the best course of action by comparing the likelihood of risk, projected financial impact, and model simulations.
• Management may also request to see different scenarios run for different risks based on different variables or inputs.

Step #5: Analyze Results

• After management has digested the information, it is time to put a plan in action.
• Sometimes, the plan is to do nothing; in risk acceptance strategies, a company has decided it will not change course as it makes most financial sense to simply live with the risk of something happening and dealing with it after it occurs.
• In other cases, management may want to reduce or eliminate the risk.

Step #6: Implement Solutions

FAST FACT:

• Implementing solutions does not necessarily mean risk avoidance.
• A company can decide to simply live with the current risks it faces.
• Other potential solutions may include buying insurance, divesting from a product, restricting trade in certain geographical regions, or sharing operational risk with a partner company .

• Under ______, a risk model is built using simulation or deterministic statistics to assign numerical values to risk.
• The inputs are mostly assumptions and random variables.

Quantitative Risk Analysis

• _____ is an analytical method that does not identify and evaluate risks with numerical and quantitative ratings.
• It involves a written definition of the uncertainties, an evaluation of the extent of the impact (if the risk ensues), and countermeasure plans in the case of a negative event.

Qualitative Risk Analysis