When writing a business plan do you have to include Standard Industry
Classification index codes ratios, what do the ratios mean, and how
does one read them?

I'm trying to write a business plan and have done great so far.
However, I am stuck on this one part. The Standard Industry
Classification index codes ratios. I can't read them at all, therefore
I can't compare and come up with mine. Can Someone please help me?

Hi itsme26,

I've done several business plans and I have never included them, but I
stared very small businesses on a shoestring. I think it might be
required by some banks or other lending agencies, if not then they DO
require a Financial Statement, from which the many ratios are derived.
It also might depend on the industry and the amount of funding you
hope to receive.


To start, I'd like to bring your attention to this site. It'll make
more sense after you have read my entire answer but I want yo to be
able to locate it easily:

BIZMINER - Financial Analysis Profiles
http://www.bizminer.com/industry-ratios-industry-ratio.asp
Find industry ratios that create a rock-solid basis for your business plan. 


Here's the basics:

Understanding Business Ratios ? posted by Peter J. Patsula
SIC codes, operating ratios, performance indicators, and more. 
http://www.patsula.com/smallbizportal/articles/index.php?artid=20
..."Business ratios are tools to evaluate your business. They come in
many guises including the popular operating ratio, financial ratio,
performance indicator, and benchmark..."

-----------------------
OPERATING RATIOS
-----------------------

..."Operating ratios are usually shown as a percentage of some income
statement item divided by total sales. The US Census loves these
ratios and compiles them every five years for hundreds of business
categories. The most important of these ratios is your Net Profit to
Total Sales. This is calculated by dividing net profit by total sales
and multiplying by 100% to express the ratio as a percentage. A
supermarket may have a net profit ratio of 2% while business services
tend to be higher at 20%. This however doesn't mean a business service
is more profitable. Supermarkets have HUGE revenues. Thus, their
annual net profit dollar value (the money they put in their bank
account at the end of the year) may actually be much higher..."


Business Ratios:  Selected Resources
What are business (or financial) ratios?
http://www.stthomas.edu/libraries/guides/bus/ratios.htm


A bit more details here, this should help you gain insight into how to
interpret and include ratio information in your business plan in a
relevant and meaningful way. This site is excellent, I have used one
example below as to how the use of ratios in a business plan can be
beneficial.

Investopedia's Ratio Analysis tutorial: online tutorial focusing on 20
key ratios and their use.
http://www.investopedia.com/university/ratios/

Here's a list of some common ratios:
http://www.investopedia.com/university/ratios/ratios1.asp


To get started you'll need to find the SIC Code of your business:

Standard Industrial Classification (SIC) System Search 
http://www.stthomas.edu/libraries/guides/bus/ratios.htm


I can see how "selecting" a few ratios that are in your favor and
omitting the ones that don't look so hot, might actually help a
business plan.

For instance:

RATIO: Cash Flow to Assets Analysis:
http://www.investopedia.com/university/ratios/cashflowtoassets.asp
..."Cash flow is often overlooked when people analyze a company. You
can be a profitable company but if you don't have cash moving around
to pay bills then you are really in trouble. It relates a company's
ability to generate cash compared to its asset size. A ratio of 0.30
is quite good, Cory's Tequila Co. shouldn't run into any problems
generating cash. When the ratio declines below 10% then there may be
some cause for concern..."


If you have a high cash flow to assets ratio, I would include it, if
not, I would find another ratio to include that does put me in a
favorable light. If I had to use a poor ratio because it's requested
or required, I would include a plan of action that addresses how to
improve it.

So, in closing, you need to find your SIC Code, and then fine the
ratio numbers that are standard for your industry, and similar
industries. There's a lot of options as to how you can present them.

After going through (or during) the tutorial, use the formulas and
plug in your numbers. Compare it to the example company "Cory's
Tequila Co.", soon, you'll get a sense of ratios.


This next link is another description of business ratios and how they
are important to lenders and business owners:

Business Owner's Toolkit ? Business Ratios
http://www.toolkit.cch.com/text/P06_7100.asp 


And here's where you can locate your industry's statistics and ratio standards:

Business Research Online Tutorial ? Module 4: Industry Research
http://www.library.unt.edu/genref/tutorials/Business%20Research%20Online%20TutorialMod4.htm


Here's a reaseach guide for industry information:
http://library.gmu.edu/research/industry.pdf


COMPANY AND INDUSTRY ANALYSIS
http://www.library.unt.edu/subjects/business/us_business/company.htm

And finally, this might come in very handy:

INDUSTRY AND COMPETITOR ANALYSIS
http://www.library.ilstu.edu/assets/pdf/handouts/indusanl.pdf
This is your roadmap.


I hope this information is satisfactory, and that after reviewing the
links and using the online tutorial with the ratio examples, you will
have a better understanding of what ratios are, and how to use them to
your benefit in your business plan. I am very willing to assist
further, just ask for clarification.


~~Cynthia


Search tersm used at Google:
SIC codes ratios 
"business ratios"
SIC Index Code Ratios

---

Request for Answer Clarification by itsme26-ga on 21 Apr 2006 11:49 PDT

Thank you.  This will very helpful as I finish my business plan and
also as I run the business.  However, I would like to ask if I really
need them in my business plan.  Will it hurt me if I don't and If I do
have the ratios incorporated into the plan will I be asked to explain
them and their meanings?

---

Clarification of Answer by cynthia-ga on 21 Apr 2006 14:48 PDT

If you have not been specifically asked to include them then they are
not required, however if you do include them, I would do it in a
rhetorical way, explaining the ratio/s you have selected to include
and how they are significant to your business. If you are going for
traditional financing, any banker would understand them if you name
the ratio.

One thing I _would_ include, that is difficult to complete (was for
me), that will hurt you if you don't have is the pro-forma.

Here's a page from the SBA that details what is expected in a business plan:
http://www.sba.gov/starting_business/planning/writingplan.html

Here's a page with a sample business plan. The pro-forma is near the
bottom. You can recognize it by looking for the excel spreadsheets...
http://www.morebusiness.com/templates_worksheets/bplans/amt2.brc

Why Business Plans Don't Get Funded
http://entrepreneurs.about.com/cs/businessplan/a/uc073103.htm


Good luck to you!
~~Cynthia

in china,it is very difficult ,too!
come on!