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Welcome back. It's Lee, again. In this video,
I'm going to explain why a business plan can qualify you for deductions
even if your business hasn't ever made a profit.
We will also examine the remainder of my business plan
and view each page's content. Now you may have heard
that your network marketing business has only three years to become profitable.
That statement is absolutely untrue. In the IRS
Enhanced Examiner Guide it states that a taxpayer
who can demonstrate that their expectation of eventual profit
outweighs their cumulative losses is likely to establish that a profit-motive
exists. The Enhanced Examiner Guide further states
that the test to determine whether a taxpayer is conducting a
for-profit activity is from a consideration
all the facts and circumstances. A well written business plan
will absolutely present all the facts and circumstances needed
to make that determination. Even if a home-based business
loses money for 10 out of 10 years, that business
will still be qualified to claim home business deductions
and have them be fully accepted by the IRS
during an audit. Now let's get back to examine the rest at this business plan.
One way that the IRS
verifies that you have the knowledge and expertise necessary to run a for-profit
business
is to examine your company's marketing web sites.
Technology changes rapidly and if you're able to show
you're using replicating technology to enhance
and accelerate your customer base and your marketing teams growth potential,
that's very advantageous. It shows that you can consistently communicate your
company's message
and build a very large business, via long-distance
sponsoring, education and mentoring, using modern technology.
There are three key benefits of having a corporate Blog.
A blog promote your brand. It puts a human voice to
your company's name -- it's a way to start a conversation with your industry,
your clients and your potential marketing team members.
But most importantly, it provides a measurable way to drive traffic to your
website.
Having a blog to promote your business is the norm
in today's business environment, so it's very important that your business plan
describes your blog's implementation strategy.
The milestone section is one of the most important sections of your business plan.
Your business is currently at point A. Where you want to go
is to point B. Now getting from point A to point B
requires you to complete milestones. Milestones are the events that occur
on the way towards achieving your business goals. They signal whether your
business venture
is growing according to plan. Any assumptions
upon which your business milestones were based are detailed
in this section. The next section details your sales strategy
with regards to your target market. This is where you'll document the
primary tools that your business will use to generate sales.
Be sure to discuss the specifics of your sales
web sites, as well. In the sales forecast
part this sales strategy section
you'll describe the assumptions that were used in selling your sales forecast. The
sales forecast table
and the monthly and annual sales charts are
very important elements of your business plan. The IRS will examine this section
closely
in their effort to validate whether or not your business
has a reasonable chance of becoming profitable
at some future point. Most business plan readers
are interested determining the viability, the
feasibility and the profitability of a business
Thus far our videos have presented a pretty convincing argument for the viability of
our business.
The remainder of this video delves into the feasibility
and profitability question. Feasibility is addressed
in this, the operations section. The profitability question
will be addressed in the financial statements that follow.
The operations section is where we dig into the
nuts-and-bolts of our business -- it's basically an outline of the
actions that are taking place to keep this home-based business
on a true-course towards profitability.
It includes information: On how the business
conducts itself in a business-like manner
Whether the business is operated on full or part-time
basis. How milestones and goals
are evaluated and modifications are made to improve sales and profitability
On what experts and resources are consulted
to grow the marketing team and increase sales
Exactly what activities are considered to be paramount
in generating the cash flow necessary to fund operations
On whether capital assets are available
On what continuing education efforts are underway
And what tools are being regularly used daily.
Every business has options which, due to current circumstance,
they might not be able to immediately undertake. Future plans
should be detailed in the upcoming options
section of the business plan. A business plan
is all conceptual until the financials are provided.
Information about your marketing strategy and sales plan
are interesting to read, but they don't mean a thing if you can't substantiate
your bottom line in your business plans financial plan section.
And even though most home based businesses don't need to win over investors
or obtain financings from a bank, a financial forecast
is still essential because, should you ever be audited,
it makes it much easier for an IRS examiner
to declare the hobby-loss rule if your business plan lacks the financial plan
section.
The most important reason to compile a realistic financial forecast, however,
is for your own benefit. Basically, a financial plan section
consists of the five parts listed here. Sound financial planning is critical --
it allows you to project the speed at which your business accomplishments
will be made. Making financial projections based on solid assumptions
is a necessity. Clearly stating what assumptions were made while developing
the projections
in a business plan serves two purposes:
It gives a business plan reader conference in your projections
and it helps you recognize the financial impact
should the bases up an assumption change.
Break-even analysis delineates the amount of sales income that
needs to be generated on a monthly basis in order to cover the costs of doing
business --
that's the break-even point. At the break even point,
no profit has been made nor have any losses
been incurred. Aa profit and loss statement
lists sales and expenses, recorded on a monthly and yearly basis.
This business plan's profit and loss statement, which is also referred to as
an income statement,
lists all sales and expense items with the dollar amount
for the next five years. It's important to understand that
profit and cash flow are two different things.
Profit is a result of sales over a given period
and cash flow is what's required to keep a business funded
by covering day-to-day expenses. Poor cash flow
is one of the main reasons why small businesses fail.
In this business plan, the cash flow statement lists all
incoming and outgoing cash items with the monthly dollar amounts
for the current year and annually for the next four years.
The Internal Revenue Service requires that businesses
report their principal business activity using a
NAICS business activity code, on their federal tax return.
Companies that show substantially different ratios from the average for
the industry group
are more likely to be scrutinized. In the business ratio section,
this business plan provides the NAICS code information
along with the ratios for a network marketing home-based business
with respect to other businesses in the direct sales
industry. Now just like we did in the last video,
let's examine each half page of this business plan, in random order,
so you'll gain a greater understanding of what a network marketing
home based business plan should contain. I'm sure that the contents of this business
plan will spark a host of ideas
how to modify this business plan to reflect your own direct sales business.
Once again, I'll show a random table of contents line-item
followed by a half-page view of the information being provided.
Don't forget to pause the video whenever necessary
to read the text on each page.