Wednesday, February 25, 2009
Thursday, February 19, 2009
Using Stop Loss Orders to Determine When to Enter a Trade
This method should help you avoid getting stopped out at insignificant points that have you selling near highs and buying near lows within the established trading range. This method is not to be used exclusively, but it is one that can compliment whatever other indicators or patterns you are using to determine you next trade. Your stop is placed at a level that signifies a change in the recent trend, and therefore is mush less random than most other stops.
You now have both your stop and entry points, and you are only risking whatever amount you determined you were comfortable with. Then take the amount you are willing to risk per trade and either subtract it from your stop if it is a short trade or add it to your stop if it is a long trade. Determine the next closest Fibonacci number and you have your stop point. Next find the highest high in a recent resistance level or the lowest low in a support level. Then look to identify areas of support and or resistance.
First determine if the current market is trending or chopping. So let’s review this method. In this example your target would be a move to 119.50 or below. Your target would be somewhere near the bottom of the range. Once the order is filled, you can trail your stop with the market or move it to coincide with other support and resistance zones within the range.
The next day the market traded up to 121.63 so a limit order at 121.59 should have been filled. To calculate your entry point, simply subtract the 40 pips you are willing to risk from your stop point to arrive at 121.59 (121.89 – 40 = 121.59). Now you have your stop well above a significant point of resistance. Using the Fibonacci stop idea you would run your stop at 121.89 because 89 is the next closest Fibonacci number above 66. Looking at a Daily chart of the USD/JPY, you can see that the most recent high was 121.66.
But let’s say you are comfortable risking $400 on a trade, or 40 pips on a 100k contract. That is not money management, it is gambling. Do not fall into the trap of thinking that your next trade is “the big one” and you are sure it will work, and therefore put half or even all of your account into it. Trading is a long-term endeavor. But try to keep the amount you risk on any one trade as low as you can.
Starting with a $5,000 account and only risking 1% would mean that you can only risk $50 per trade, which in some cases is less than the bid/ask spread once you enter the trade, so it is obviously not realistic. Most traders start with less and therefore are forced to break that rule. That rule really only works for traders using 50k or more. Most money managers will tell you to never invest more than 1% of your account on one trade. This is the point where you want determine how much actual money you are willing to risk on the trade.
Determining your entry point Now that you know where you are going to run your stop you can use that to determine your entry point. Simply find the recent highest high, in this case 121.66, and then find the next closest Fibonacci number (89) and you have your stop (121.89). Once you identify the zone you can then come up with your exact stop point. This is what you want to look for. There have been three attempts to break out from this zone, each one being lower than the last, forming a descending trend line.
Each time the market has reached this zone it has failed to follow through. Look at the daily chart of the USD/JPY and you can see that we have had significant resistance between roughly 121.50 and 122.25. Once you identify the zone you can then come up with your exact stop point. The more volatile, or greater the average true range (ATR), the wider you should go.
So if the last two digits of the highest high in a resistance zone had been 25, then you would use either 34 or 55 depending on which particular market it is in. The sequence is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144… For the purposes of using them for stops I normally only use 8, 13, 21, 34, 55, and 89. The Fibonacci sequence is one that was discovered by a mathematician all the way back in 13th century. This method is not scientific, but one that has served me well over the years. One way that I have used is to simply look for the next closest Fibonacci number.
There are many ways to determine how much extra distance to give each market. Once you find what the highest high is in the case of a resistance level, or lowest low in the case of a support level, you need to go a certain distance beyond that so you are not stopped out by a move of only one or two pips beyond these levels. A move through this level would signify that the market is breaking out from the previously established range. Once you have identified these areas on a chart, you need to look closely and determine where that level would be broken and place your stops accordingly. You only need a support or resistance zone in whatever time-frame you are comfortable trading.
However, you do not need to wait for perfect conditions to use this method. When it does happen, though, it is time to sit up and pay attention. That will only happen if the market is at or near relative new highs or lows. The best are those that coincide through all the time-frames. After going through these different time-frames you should be able to find a number of these zones.
Finally, move to a daily chart and then to a 60 minute chart. Once you determine the underlying market condition, look for significant areas of support and resistance. This will tell you in an instant whether the market is trending or choppy. Start with weekly or even monthly charts, no matter what time-frame you trade in.
These zones are what you want to look for. Markets tend to have certain zones that they “bounce” off of time and time again before penetrating them. Trading the Chop First, start by looking at long term support and resistance zones. What follows is a simple yet effective way to trade the chop.
Therefore, learning how to trade the chop is paramount if you want to be a trader for years to come. The remaining 70% of the time they are trading within a range or chopping. Most markets only trend about 30% of the time. In fact the opposite is true. However, they do not trend all the time.
Currencies tend to trend more than most other markets. If you are more of a swing trader, then daily or even weekly charts would be best. If you only hold your trades for a few hours then a 15 or 60 minute chart should be fine. Choose the chart’s time-frame based on how long you intend to hold the trade.
To do this you will need a chart. Rather than getting into a trade and then deciding where to get out, let’s determine the exit point and let that dictate where we get in. So let us look at these issues from another angle. The individual points that led to the stop being placed are not bad in and of themselves, but put together this way, they often lead to the frustration mentioned above.
All of this on the surface sounds like a good plan, but in practice it often leads to the scenario mentioned before, where the trade gets stopped out and then the market turns on a dime and goes the way the trader had originally anticipated, leaving them to mistakenly blame the stop. They often have a fixed dollar amount that they are willing to risk per trade and they then place the stop loss order accordingly. Most traders get into a trade and then decide where to run a stop, if at all. The reason many traders have had a bad experience with using stops is not the fault of the stop itself, but rather the placement of the stop. The use of stop loss orders is one of the simplest and often most effective way to manage the risks of any given trade.
There are many forms of risk management, from the extremely complex, like cross hedging with options, to the very simple, such as using stops. You may get away with it for a while, but the lesson you are learning will sooner or later prove deadly. Trading without risk management is much the same. Trading without some kind of risk management is like playing Russian roulette by yourself, it may not be the next pull of the trigger that kills you, but pull it enough times and sooner or later it’s a sure thing. They take that to mean that they should not trade with stops.
Many new traders complain that they hate trading with stops because they have been stopped out of a trade that almost immediately turned around and would have been a huge winner had they not run the stop. One of those main differences is not being bothered by getting stopped out. So it seems that the 5-25% of traders who are winning are doing something different then the majority who are losing. Depending on who you believe, anywhere between 75-95% of all retail Forex traders blow out their account within one year.
But let’s look at several statistics for a moment to get some perspective. At this point you are probably saying “who ever wants to get stopped out?” The answer is, not the majority. The overall idea is simple, rather than first looking for a good entry point, look for a point where you would want to be stopped out. This may sound strange, but if you apply this idea to whatever other methods you are using to determine your entry signals, your bottom line should improve.
Just like the generals, start by figuring out when to get out. The approach is simple. This article proposes that traders take a different approach to figuring out when and where to place their next trade. Survival to fight another day is more important that going down with the ship.
The first and most important decision is when to admit defeat and retreat. Traders should do the same. When planning any battle, successful generals begin at the retreat and work their way backwards. Traders need a solid plan before the pull they trigger. Because of the large amount of leverage we are able to use, simply hoping for a profit is not enough.
In Forex we normally use between 50 – 400 to 1 leverage. Many people enter into trades with little more than a desire for profit
You now have both your stop and entry points, and you are only risking whatever amount you determined you were comfortable with. Then take the amount you are willing to risk per trade and either subtract it from your stop if it is a short trade or add it to your stop if it is a long trade. Determine the next closest Fibonacci number and you have your stop point. Next find the highest high in a recent resistance level or the lowest low in a support level. Then look to identify areas of support and or resistance.
First determine if the current market is trending or chopping. So let’s review this method. In this example your target would be a move to 119.50 or below. Your target would be somewhere near the bottom of the range. Once the order is filled, you can trail your stop with the market or move it to coincide with other support and resistance zones within the range.
The next day the market traded up to 121.63 so a limit order at 121.59 should have been filled. To calculate your entry point, simply subtract the 40 pips you are willing to risk from your stop point to arrive at 121.59 (121.89 – 40 = 121.59). Now you have your stop well above a significant point of resistance. Using the Fibonacci stop idea you would run your stop at 121.89 because 89 is the next closest Fibonacci number above 66. Looking at a Daily chart of the USD/JPY, you can see that the most recent high was 121.66.
But let’s say you are comfortable risking $400 on a trade, or 40 pips on a 100k contract. That is not money management, it is gambling. Do not fall into the trap of thinking that your next trade is “the big one” and you are sure it will work, and therefore put half or even all of your account into it. Trading is a long-term endeavor. But try to keep the amount you risk on any one trade as low as you can.
Starting with a $5,000 account and only risking 1% would mean that you can only risk $50 per trade, which in some cases is less than the bid/ask spread once you enter the trade, so it is obviously not realistic. Most traders start with less and therefore are forced to break that rule. That rule really only works for traders using 50k or more. Most money managers will tell you to never invest more than 1% of your account on one trade. This is the point where you want determine how much actual money you are willing to risk on the trade.
Determining your entry point Now that you know where you are going to run your stop you can use that to determine your entry point. Simply find the recent highest high, in this case 121.66, and then find the next closest Fibonacci number (89) and you have your stop (121.89). Once you identify the zone you can then come up with your exact stop point. This is what you want to look for. There have been three attempts to break out from this zone, each one being lower than the last, forming a descending trend line.
Each time the market has reached this zone it has failed to follow through. Look at the daily chart of the USD/JPY and you can see that we have had significant resistance between roughly 121.50 and 122.25. Once you identify the zone you can then come up with your exact stop point. The more volatile, or greater the average true range (ATR), the wider you should go.
So if the last two digits of the highest high in a resistance zone had been 25, then you would use either 34 or 55 depending on which particular market it is in. The sequence is as follows: 0, 1, 1, 2, 3, 5, 8, 13, 21, 34, 55, 89, 144… For the purposes of using them for stops I normally only use 8, 13, 21, 34, 55, and 89. The Fibonacci sequence is one that was discovered by a mathematician all the way back in 13th century. This method is not scientific, but one that has served me well over the years. One way that I have used is to simply look for the next closest Fibonacci number.
There are many ways to determine how much extra distance to give each market. Once you find what the highest high is in the case of a resistance level, or lowest low in the case of a support level, you need to go a certain distance beyond that so you are not stopped out by a move of only one or two pips beyond these levels. A move through this level would signify that the market is breaking out from the previously established range. Once you have identified these areas on a chart, you need to look closely and determine where that level would be broken and place your stops accordingly. You only need a support or resistance zone in whatever time-frame you are comfortable trading.
However, you do not need to wait for perfect conditions to use this method. When it does happen, though, it is time to sit up and pay attention. That will only happen if the market is at or near relative new highs or lows. The best are those that coincide through all the time-frames. After going through these different time-frames you should be able to find a number of these zones.
Finally, move to a daily chart and then to a 60 minute chart. Once you determine the underlying market condition, look for significant areas of support and resistance. This will tell you in an instant whether the market is trending or choppy. Start with weekly or even monthly charts, no matter what time-frame you trade in.
These zones are what you want to look for. Markets tend to have certain zones that they “bounce” off of time and time again before penetrating them. Trading the Chop First, start by looking at long term support and resistance zones. What follows is a simple yet effective way to trade the chop.
Therefore, learning how to trade the chop is paramount if you want to be a trader for years to come. The remaining 70% of the time they are trading within a range or chopping. Most markets only trend about 30% of the time. In fact the opposite is true. However, they do not trend all the time.
Currencies tend to trend more than most other markets. If you are more of a swing trader, then daily or even weekly charts would be best. If you only hold your trades for a few hours then a 15 or 60 minute chart should be fine. Choose the chart’s time-frame based on how long you intend to hold the trade.
To do this you will need a chart. Rather than getting into a trade and then deciding where to get out, let’s determine the exit point and let that dictate where we get in. So let us look at these issues from another angle. The individual points that led to the stop being placed are not bad in and of themselves, but put together this way, they often lead to the frustration mentioned above.
All of this on the surface sounds like a good plan, but in practice it often leads to the scenario mentioned before, where the trade gets stopped out and then the market turns on a dime and goes the way the trader had originally anticipated, leaving them to mistakenly blame the stop. They often have a fixed dollar amount that they are willing to risk per trade and they then place the stop loss order accordingly. Most traders get into a trade and then decide where to run a stop, if at all. The reason many traders have had a bad experience with using stops is not the fault of the stop itself, but rather the placement of the stop. The use of stop loss orders is one of the simplest and often most effective way to manage the risks of any given trade.
There are many forms of risk management, from the extremely complex, like cross hedging with options, to the very simple, such as using stops. You may get away with it for a while, but the lesson you are learning will sooner or later prove deadly. Trading without risk management is much the same. Trading without some kind of risk management is like playing Russian roulette by yourself, it may not be the next pull of the trigger that kills you, but pull it enough times and sooner or later it’s a sure thing. They take that to mean that they should not trade with stops.
Many new traders complain that they hate trading with stops because they have been stopped out of a trade that almost immediately turned around and would have been a huge winner had they not run the stop. One of those main differences is not being bothered by getting stopped out. So it seems that the 5-25% of traders who are winning are doing something different then the majority who are losing. Depending on who you believe, anywhere between 75-95% of all retail Forex traders blow out their account within one year.
But let’s look at several statistics for a moment to get some perspective. At this point you are probably saying “who ever wants to get stopped out?” The answer is, not the majority. The overall idea is simple, rather than first looking for a good entry point, look for a point where you would want to be stopped out. This may sound strange, but if you apply this idea to whatever other methods you are using to determine your entry signals, your bottom line should improve.
Just like the generals, start by figuring out when to get out. The approach is simple. This article proposes that traders take a different approach to figuring out when and where to place their next trade. Survival to fight another day is more important that going down with the ship.
The first and most important decision is when to admit defeat and retreat. Traders should do the same. When planning any battle, successful generals begin at the retreat and work their way backwards. Traders need a solid plan before the pull they trigger. Because of the large amount of leverage we are able to use, simply hoping for a profit is not enough.
In Forex we normally use between 50 – 400 to 1 leverage. Many people enter into trades with little more than a desire for profit
Manage Debtors And Creditors To Improve Liquidity
Higher levels of stock financed by free credit from creditors lowers the cash flow requirements on the other parts of the business High stock levels use valuable working capital which is offset in part by the level of creditors. Stock levels are crucial to financial management of the creditor total. Larger orders on extended payments terms creates a risk area should the goods not be used but can greatly assist cash flow as the business is effectively borrowing free cash from its suppliers. General creditors are a major area to be addressed in terms of both the amount of credit received from suppliers and the time required to pay those creditor accounts.
A sensitive area since it involves the most important people to the business success but adopting a payment period to coincide with the receipt of cash from customers may in some circumstances balance liquidity. Every opportunity should be considered to improve liquidity and that would include the frequency which employee salaries and wages are paid. In the UK value added tax can be paid quarterly or monthly, vat cash accounting can ease the tax liability due in critical periods and paye payments can be paid quarterly rather than monthly for smaller businesses. Small business have alternative payment terms available for the payment of taxes. Consider the frequency of all payments made to suppliers.
Creditors and expenditure management The objective is to extend the time allowed for payment of expenses the business incurs. A bad debt not only uses valuable resources in chasing the debt with the negative impact on cash flow and liquidity but also is a straight loss to the net profit and a strong indicator that the accounting function is failing the business. Bad debts have a double impact on any business and all possible steps should be taken to reduce the risk. Factoring has the disadvantage of often not being cheap but does have the advantage of generating a regular stream of cash. Consider the possibility of factoring sales invoices due from debtors either by selling the sales invoices to a third party or raising cash on the value of those invoices pending payment.
In the UK the Late Payment of Commercial Debts (Interest) Act 1998 sets out the statutory rights of business to claim interest and costs. Incorporate into the terms of trade a set of rules to invoke interest payments for late payment and late payment debt recovery costs. An essential process in the credit control procedure would be to ensure the accountant or bookkeeper always issues sales invoices and customer statements promptly. The credit control function needs consideration from the first step of issuing customers with a sales invoice, producing customer statements of the debt owed and a set procedure of credit control letters and telephone follow ups that actually achieve the end result of getting the cash in.
Any businesses who fail to meet the highest credit score required should remain on a pro forma invoice basis. All new customers where credit check details are not available should be invoiced by the accounting function on a pro forma basis. New customers should be subjected to a strict credit check. Review this practise to obtain a greater proportion of payments faster to improve liquidity.
In some businesses it would be appropriate to obtain up front deposits and scheduled payments. Consideration should be given to using a cash discount system to encourage sales invoices to be paid faster. Because that is exactly what credit terms to customers is, free cash funding in exchange for eventual sales income. Payment terms offered to customers should be clearly stated and fixed as standard accounting figures according to the amount of funding the business is prepared to offer its clients.
Debtors and sales income management The objective is to obtain payment from customers as fast as possible improving cash flow and minimising the risk of bad debts and not being paid at all. A business that runs out of cash resources is dead in the water. The situation is recoverable by producing higher sales and reducing costs and expenses. Urgent attention to the management of working capital can provide every business with the cash resources to exploit its potential Most businesses will experience periods of lower sales and times when losses may be incurred as expenses exceed sales income.
Sales turnover and net profits may follow a rollercoaster pattern familiar to most business but when the cash flow dries up the game is over.
A sensitive area since it involves the most important people to the business success but adopting a payment period to coincide with the receipt of cash from customers may in some circumstances balance liquidity. Every opportunity should be considered to improve liquidity and that would include the frequency which employee salaries and wages are paid. In the UK value added tax can be paid quarterly or monthly, vat cash accounting can ease the tax liability due in critical periods and paye payments can be paid quarterly rather than monthly for smaller businesses. Small business have alternative payment terms available for the payment of taxes. Consider the frequency of all payments made to suppliers.
Creditors and expenditure management The objective is to extend the time allowed for payment of expenses the business incurs. A bad debt not only uses valuable resources in chasing the debt with the negative impact on cash flow and liquidity but also is a straight loss to the net profit and a strong indicator that the accounting function is failing the business. Bad debts have a double impact on any business and all possible steps should be taken to reduce the risk. Factoring has the disadvantage of often not being cheap but does have the advantage of generating a regular stream of cash. Consider the possibility of factoring sales invoices due from debtors either by selling the sales invoices to a third party or raising cash on the value of those invoices pending payment.
In the UK the Late Payment of Commercial Debts (Interest) Act 1998 sets out the statutory rights of business to claim interest and costs. Incorporate into the terms of trade a set of rules to invoke interest payments for late payment and late payment debt recovery costs. An essential process in the credit control procedure would be to ensure the accountant or bookkeeper always issues sales invoices and customer statements promptly. The credit control function needs consideration from the first step of issuing customers with a sales invoice, producing customer statements of the debt owed and a set procedure of credit control letters and telephone follow ups that actually achieve the end result of getting the cash in.
Any businesses who fail to meet the highest credit score required should remain on a pro forma invoice basis. All new customers where credit check details are not available should be invoiced by the accounting function on a pro forma basis. New customers should be subjected to a strict credit check. Review this practise to obtain a greater proportion of payments faster to improve liquidity.
In some businesses it would be appropriate to obtain up front deposits and scheduled payments. Consideration should be given to using a cash discount system to encourage sales invoices to be paid faster. Because that is exactly what credit terms to customers is, free cash funding in exchange for eventual sales income. Payment terms offered to customers should be clearly stated and fixed as standard accounting figures according to the amount of funding the business is prepared to offer its clients.
Debtors and sales income management The objective is to obtain payment from customers as fast as possible improving cash flow and minimising the risk of bad debts and not being paid at all. A business that runs out of cash resources is dead in the water. The situation is recoverable by producing higher sales and reducing costs and expenses. Urgent attention to the management of working capital can provide every business with the cash resources to exploit its potential Most businesses will experience periods of lower sales and times when losses may be incurred as expenses exceed sales income.
Sales turnover and net profits may follow a rollercoaster pattern familiar to most business but when the cash flow dries up the game is over.
HOW TO WRITE A SUCCESSFUL BUSINESS PLAN
Your best bet is a well-researched business plan, with an organized, easy-to-read format and clear, confident prose. In that fifteen minutes, you not only have to relay your most important points, but also convince the reader that your business venture merits a financial investment. Think of your audience as only having fifteen minutes to spend on each business plan that comes across their desks.
These techniques ensure that the reader can skim the business plan quickly and efficiently. Visuals such as tables and charts are also used to quickly relay specific information, such as trends in sales and other financial information. A strong business plan uses bullet points throughout to break up long sections and highlight its main points. Business plans for startup companies and company expansions are typically between twenty to forty pages long, but formatting actually accounts for a lot of this length. Just like with any piece of business writing, it is important to craft your business plan with your intended audience in mind – and the bankers, investors, and other busy professionals who will read your business plan almost certainly won’t have time to read a tedious document with long-winded paragraphs and large blocks of text.
Other information that should be relegated to an appendix includes: • Credit histories for both you and your business • Letters of reference • References that have bearing on your company and your product or service, such as magazines or books on the topic • Company licenses and patents • Copies of contracts, leases, and other legal documents • Resumes of your top managers • Names of business consultants, such as your accountant and attorney Writing a Successful Business Plan Despite the quantity of information contained in your business plan, it should be laid out in a format that is easy to read. Rather than listing the details of the studies in that section, where they will appear cumbersome and detract from the flow of your business plan, you can provide this information in an appendix. For instance, the market analysis section of your business plan may list the results of market studies you have done as part of your market research. Essentially, this is where you put all of the information that doesn’t fit in the other eight sections, but that someone – particularly a bank or investor – might need to see. Appendices The appendix is the final section in your business plan.
However, be sure that the amount of financing you are requesting is in keeping with your projected financials – no matter how impressive your projections are, if you are asking for more money than is warranted, no bank or investor will give it to you. A graph allows the reader to quickly take in this information, and may do a better job of encouraging a bank or investor to finance your business. The financials section should include: • Company income statements for prior years • Balance sheets for prior years • Cash flow statements for prior years • Forecasted company income statements • Forecasted balance sheets • Forecasted cash flow statements • Projections for the next five years – every month or quarter for the first year, with longer intervals for the remaining years • Collateral you can use to secure a loan The financials section is a great place to include visuals such as graphs, particularly if you predict a positive trend in your projected financials. The section also details your company’s financial track record for the past three to five years, unless you are seeking financing for a startup business. This section provides an analysis of your company’s prospective financial success.
loans, investors, etc.) • Any other terms you want the funding arrangement to include Financials The financials section in your business plan supports your request for outside funding. This section should include everything a bank or investor needs in order to understand what type of funding you want: • How much money you need now • How much money you think you will need over the next five years • How the money you borrow will be used • How long you will need funding • What type of funding you want (i.e. You will also need to include: • The specific benefits your product or service offers customers • The specific needs of the market, and how your product will meet them • The advantages your product has over your competitors • Any copyright, trade secret, or patent information pertaining to your product • Where any new products or services are in the research and development process • Current industry research that you could use in the development of products and services Funding Request Only once you have described your business from head to toe are you ready to detail your funding needs. This is more than a simple description of your product or services, though. The section should describe your company’s: • Marketing methods • Distributions methods • Type of sales force • Sales activities • Growth strategies Product or Services Following the marketing section of your business plan, you will need a section focusing on the product or services your business offers.
This section also plans for company growth by describing how the growth could take place. Marketing and Sales Management The purpose of the marketing and sales section of your business plan is to outline your strategies for marketing your products or services. Long-term employees minimize human resource costs and increase a business’s chances for success, so banks and investors will want to see that you have an effective system in place for maintaining your staff. This section should include: • The division of labor – how company processes are divided among the staff • The management hierarchy • Profiles of the company’s owner(s), management personnel, and the Board of Directors • Employee incentives, such as salary, benefits packages, and bonuses This goal of this section is to demonstrate not only good organization within the company, but also the ability to create loyalty in your employees. Organization and Management Once you have described the nature and purpose of your company, you will need to explain your staff setup.
In other words, the company description should thoroughly describe your company, even if certain aspects are covered in other sections. Each section of your business plan should have the ability to stand on its own if need be. This section should describe: • The nature of your business • The needs of the market • How your business will meet these needs • Your target market, including specific individuals and/or organizations • The factors that set you apart from your competition and make you likely to succeed Although some of these things overlap with the previous section, they are still necessary parts of your company description. Company Description After your market analysis, your business plan will need to include a description of your company.
The description of your target market should include detail such as: • Distinguishing characteristics • The needs your company or product line will meet • What media and/or marketing methods you’ll use to reach them • What percentage of your target market you expect to be able to wrest away from your competitors In addition, your market analysis should include the results of any market tests you have done, and an analysis of the strengths and weaknesses of your competitors. This section should also describe your target market – that is, the type or group of customers that your company intends to serve. Your market analysis should describe your industry, including the size, growth rate, and trends that could affect the industry. No bank or investor is going to back a doomed venture, so this section is sure to fall under especially close scrutiny if you are looking for financing. In order to show that your business has a reasonable chance for success, you will need to thoroughly research the industry and the market you intend to sell to.
Market Analysis The next section of your business plan focuses on market analysis. A page or two is usually sufficient for an executive summary. Avoid using too much detail – remember, this section is a summary. This section is a candidate for a bulleted format, which allows you to list main points in a manner that is easy to scan. For instance, your executive summary should include a short history of the business, including founder profiles and start date; a current snapshot, listing locations, numbers of employees, and products or services offered; and a summary of future plans and goals.
The rest of your executive summary should fill in the important details that the mission statement glosses over. The mission statement is only three or four sentences long, but it should pack the most punch out of everything else in your business plan: Those four sentences are responsible for not only defining your business, but also capturing the interest of your reader. One of the most important parts of the executive summary is the mission statement. However, it should also be written last, as you’ll have a better understanding of the overall message of your business plan after you’ve researched and written the other sections. This section is so important that it should literally be the first thing the reader sees – even before the table of contents!
Executive Summary The first – and most important – section of your business plan is the executive summary. To that end, the standard business plan has nine major sections, covering everything from your business’s mission statement to a detailed financial analysis. What to Include in Your Business Plan Your business plan needs to demonstrate that you have thoroughly considered all aspects of running your business. Here is an overview of how to write a successful business plan.
Although writing a business plan can be a lengthy, intimidating project, it is not necessarily difficult. A business plan not only lends your business a sense of credibility, but also helps you to cover all your bases, increasing your chances of success. Whether you are planning to start a brand-new business, expand an existing company, or get financing for a business venture, you will need to write a business plan.
These techniques ensure that the reader can skim the business plan quickly and efficiently. Visuals such as tables and charts are also used to quickly relay specific information, such as trends in sales and other financial information. A strong business plan uses bullet points throughout to break up long sections and highlight its main points. Business plans for startup companies and company expansions are typically between twenty to forty pages long, but formatting actually accounts for a lot of this length. Just like with any piece of business writing, it is important to craft your business plan with your intended audience in mind – and the bankers, investors, and other busy professionals who will read your business plan almost certainly won’t have time to read a tedious document with long-winded paragraphs and large blocks of text.
Other information that should be relegated to an appendix includes: • Credit histories for both you and your business • Letters of reference • References that have bearing on your company and your product or service, such as magazines or books on the topic • Company licenses and patents • Copies of contracts, leases, and other legal documents • Resumes of your top managers • Names of business consultants, such as your accountant and attorney Writing a Successful Business Plan Despite the quantity of information contained in your business plan, it should be laid out in a format that is easy to read. Rather than listing the details of the studies in that section, where they will appear cumbersome and detract from the flow of your business plan, you can provide this information in an appendix. For instance, the market analysis section of your business plan may list the results of market studies you have done as part of your market research. Essentially, this is where you put all of the information that doesn’t fit in the other eight sections, but that someone – particularly a bank or investor – might need to see. Appendices The appendix is the final section in your business plan.
However, be sure that the amount of financing you are requesting is in keeping with your projected financials – no matter how impressive your projections are, if you are asking for more money than is warranted, no bank or investor will give it to you. A graph allows the reader to quickly take in this information, and may do a better job of encouraging a bank or investor to finance your business. The financials section should include: • Company income statements for prior years • Balance sheets for prior years • Cash flow statements for prior years • Forecasted company income statements • Forecasted balance sheets • Forecasted cash flow statements • Projections for the next five years – every month or quarter for the first year, with longer intervals for the remaining years • Collateral you can use to secure a loan The financials section is a great place to include visuals such as graphs, particularly if you predict a positive trend in your projected financials. The section also details your company’s financial track record for the past three to five years, unless you are seeking financing for a startup business. This section provides an analysis of your company’s prospective financial success.
loans, investors, etc.) • Any other terms you want the funding arrangement to include Financials The financials section in your business plan supports your request for outside funding. This section should include everything a bank or investor needs in order to understand what type of funding you want: • How much money you need now • How much money you think you will need over the next five years • How the money you borrow will be used • How long you will need funding • What type of funding you want (i.e. You will also need to include: • The specific benefits your product or service offers customers • The specific needs of the market, and how your product will meet them • The advantages your product has over your competitors • Any copyright, trade secret, or patent information pertaining to your product • Where any new products or services are in the research and development process • Current industry research that you could use in the development of products and services Funding Request Only once you have described your business from head to toe are you ready to detail your funding needs. This is more than a simple description of your product or services, though. The section should describe your company’s: • Marketing methods • Distributions methods • Type of sales force • Sales activities • Growth strategies Product or Services Following the marketing section of your business plan, you will need a section focusing on the product or services your business offers.
This section also plans for company growth by describing how the growth could take place. Marketing and Sales Management The purpose of the marketing and sales section of your business plan is to outline your strategies for marketing your products or services. Long-term employees minimize human resource costs and increase a business’s chances for success, so banks and investors will want to see that you have an effective system in place for maintaining your staff. This section should include: • The division of labor – how company processes are divided among the staff • The management hierarchy • Profiles of the company’s owner(s), management personnel, and the Board of Directors • Employee incentives, such as salary, benefits packages, and bonuses This goal of this section is to demonstrate not only good organization within the company, but also the ability to create loyalty in your employees. Organization and Management Once you have described the nature and purpose of your company, you will need to explain your staff setup.
In other words, the company description should thoroughly describe your company, even if certain aspects are covered in other sections. Each section of your business plan should have the ability to stand on its own if need be. This section should describe: • The nature of your business • The needs of the market • How your business will meet these needs • Your target market, including specific individuals and/or organizations • The factors that set you apart from your competition and make you likely to succeed Although some of these things overlap with the previous section, they are still necessary parts of your company description. Company Description After your market analysis, your business plan will need to include a description of your company.
The description of your target market should include detail such as: • Distinguishing characteristics • The needs your company or product line will meet • What media and/or marketing methods you’ll use to reach them • What percentage of your target market you expect to be able to wrest away from your competitors In addition, your market analysis should include the results of any market tests you have done, and an analysis of the strengths and weaknesses of your competitors. This section should also describe your target market – that is, the type or group of customers that your company intends to serve. Your market analysis should describe your industry, including the size, growth rate, and trends that could affect the industry. No bank or investor is going to back a doomed venture, so this section is sure to fall under especially close scrutiny if you are looking for financing. In order to show that your business has a reasonable chance for success, you will need to thoroughly research the industry and the market you intend to sell to.
Market Analysis The next section of your business plan focuses on market analysis. A page or two is usually sufficient for an executive summary. Avoid using too much detail – remember, this section is a summary. This section is a candidate for a bulleted format, which allows you to list main points in a manner that is easy to scan. For instance, your executive summary should include a short history of the business, including founder profiles and start date; a current snapshot, listing locations, numbers of employees, and products or services offered; and a summary of future plans and goals.
The rest of your executive summary should fill in the important details that the mission statement glosses over. The mission statement is only three or four sentences long, but it should pack the most punch out of everything else in your business plan: Those four sentences are responsible for not only defining your business, but also capturing the interest of your reader. One of the most important parts of the executive summary is the mission statement. However, it should also be written last, as you’ll have a better understanding of the overall message of your business plan after you’ve researched and written the other sections. This section is so important that it should literally be the first thing the reader sees – even before the table of contents!
Executive Summary The first – and most important – section of your business plan is the executive summary. To that end, the standard business plan has nine major sections, covering everything from your business’s mission statement to a detailed financial analysis. What to Include in Your Business Plan Your business plan needs to demonstrate that you have thoroughly considered all aspects of running your business. Here is an overview of how to write a successful business plan.
Although writing a business plan can be a lengthy, intimidating project, it is not necessarily difficult. A business plan not only lends your business a sense of credibility, but also helps you to cover all your bases, increasing your chances of success. Whether you are planning to start a brand-new business, expand an existing company, or get financing for a business venture, you will need to write a business plan.
Monday, February 9, 2009
Guaranteed Extra Cash Online
For college students and other people who feel burned out trying to balance paying the bills and living at the same time, ads like these can prove to be irresistible. Many of them make perfect sense and easily hook you based on good concepts. Unfortunately, many times the product or service does not match the brilliance of a great idea for making money from home or through the Internet. As I’ve learned myself, the further you go down this road, the more excited you get. You basically get hooked, and if you aren’t careful, you will end up working hard and falling further into debt than you can imagine. Much like gambling, the lure of easy money and independence can make just about anyone fall prey to work at home scams that feed off your dreams to get to your wallet so they can go on to the next victim. Hopefully, you will never fall victim to these scam artists. However, the fact of the matter is that these scammers would not be wasting their time if they were not making any money. And as long as people continue to get mixed up in this business, these scammers are going to stick around to trick more and more people. The best way to keep a scammer’s claws away from your credit card is to do thorough research on each opportunity that you are considering. This means doing much more than simply reading a bit about it online. In my personal experience, I have been taken by companies who were savvy enough to pollute the Internet with staged testimonials, guarantees, questionable references to big name endorsements, and even appearances in the Better Business Bureau. A colleague of mine who invested in vending machine placement services even went so far as to physically go to the manufacturing plant to tour the warehouse as well as contact the Better Business Bureau of that state. What he received, in return, were twenty malfunctioning candy machines with a list of local businesses who had apparently agreed to receive them. Not only did none of these businesses know what he was talking about, many of them were hostile when he showed up to place them. What you want to do is check message boards such as the ASK section of Yahoo.com. Another simple method of weeding out the scams from the genuine opportunities is to go to a search engine and simply type in the company name followed by the word “scam”. If you do this, and you are barraged by an endless list of complaints, you my friend have found a nugget of gold in a sea of mud. In terms of the Better Business Bureau, it is best to contact them directly to ask about any complaints, and also find out how long a company has been listed. The Better Business Bureau operates state by state. They will be able to tell you if they have any complaints on file. If they do, you will want to avoid the opportunity at all costs. But if it appears that a company is doing business the right way, you can continue your own research. Being in the Business Bureau is not necessarily that hard to accomplish. Many scammers can use their money and connections to set up a front to initially qualify for the Better Business Bureau just long enough for them to collect their cash from unsuspecting victims, close shop, create a new identity and start again. Before you decide to do anything, attempt to get in touch with the company that you are interested in. Can you get a human being on the phone? Do they have an actually physical address? How long does it take them to respond to your e-mails, if at all? If you cannot even talk to the company before you start, there is not chance that they will be around when you really need them. I once made quite a bit of money selling vacation vouchers on auction sites. The marketing plan was sound, and the money saving vouchers was a hit. Only problem was, I could never get in touch with their customer service department to handle my customer inquiries and complaints once I realized that the promises that existed in writing on the vouchers were misleading at best. This proved to be such a problem that it took me over a year to recover from the negative publicity on my auction site. Of course, there are legitimate home based businesses out there. With the Internet and all the low cost, web producing tools available, there seems to be a renaissance in entrepreneurship. Basically, just find a product or service you can market online, and do your research. Sell on EBay if you don’t want to build your own website. You can have a website their and all search engine marketing is already done by EBay. The Small Business Association has an office in downtown Tacoma and contains invaluable information on their website . Since small business is the backbone of our country economically, sources such as these are eager to help you create a plan with realistic expectations. However, like anything else worthwhile, you have to do your homework and work hard at it. The problem is that too many people make you think you can practically go online and make money just clicking on a mouse. You want to steer clear of any business that asks to you to pay for their “Top Secret” e-book that will teach you how to make an automated income.” Think about it, if you are in dire need of cash, can you imagine any other situation in which you would not only work for free, but pay for the privilege to work. There are no magic formals or secrets worth paying for. All of the information in these e-books can be found for free through your own research if you have common internet skills.
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