Creating a Business Plan
Even for a small home business, a business plan is not only a good idea; it's essential. A business plan grounds the vision that spawned the idea and provides a concrete road map to guide your business through start-up and the first six to twelve months of operation. It will also contain long-range planning — projections for five to ten years — to keep you on course.
Not only does your business plan serve as a researched road map for your desired progress, it will provide a necessary and impressive way to solicit investors, to seek loans, and to have absolute clarity on what needs to be done and what you can achieve. The business plan comes before everything else.
Fact
At a 1994 Canadian Bankers Association conference, a speaker reported that companies with a written business plan earned, on average, ten times more than companies without a written plan. When assessing potential investments, bankers and financiers look for extensive and viable market research, solid and comprehensive planning, financial savvy and realistic expectations, and relevant qualifications and commitment of the founder.
Research every topic you can imagine related to your idea, and then keep on researching until you drop. You want to know how others have succeeded or failed, what the pitfalls were, and how successful entrepreneurs overcame their obstacles.
The more you are armed with knowledge, the more likely you are to structure your business for success. While deciding what business to start involves dreaming, this task involves accessing reality. To get underway, answer the following questions:
• What is your product or service?
• What is your target market?
• Who are your customers?
• Who is your competition?
• What will make you stand out?
• What resources will you need to make this dream come alive?
• What are the first steps you need to take to set it in motion?
• How much start-up capital do you need?
• Who will be your suppliers?
• How will you market your business?
Your Marketable Idea
Just as screenwriters pitch movie ideas in short, staccato sentences that create a clear, engaging, spellbinding, and marketable story, you need to sharply define your idea. Write it out long, if you must, but then whittle it down to a two-minute “pitch” that captures its essence, builds enthusiasm, and proves its viability. Ideas don't have to be huge, but original, innovative, or niche-fulfilling ideas are good ways to begin. Ideally, you will choose something that makes you feel passionately about it, as if you are finally taking on your life's mission.
Essential
In creating a niche business — by focusing on a narrowly defined, previously ignored market within a larger market to which you offer a unique service or product — you position yourself as a bigger fish in an already established smaller pond. This brings improved marketability, stability, pricing capability, profitability, and loyal customers. Starbucks, Chico's, and Papa Murphy's Pizza all snagged lucrative niche markets.
Your Business Name
The selection of a business name plays an important role in visibility and identity. You want a name that catches your customer's attention and builds brand identity. Give a lot of thought to this. If you can't come up with something, consult with a marketing professional for ideas and commission that person to create an icon or logo that you will use on stationery and advertising to establish brand identity.
Your Purposes and Goals
This aspect needs serious contemplation. Knowing the purpose of your business speaks to motivation, determination, and vision. You, and your investors, need to feel inspired enough to fork over the time, energy, and money required to meet your goals. Your goals need to be sharply defined and include both short-term and long-term progressions. Goals should be realistic, concrete, and time based.
Partners and Advisors
If you will have professional advisors involved, by all means list them. Ideally, you will have a financial consultant, a tax consultant, and a lawyer to turn to for advice. If you need a partner, brainstorm on the best candidates. If you will need to hire five employees, list the job description and probable costs.
Your Start-Up Capital
This section needs to be thoroughly researched and flushed out as minutely as possible. Don't delude yourself or your potential investors. Write down each and every cost you can imagine, and you'll avoid nasty surprises and impress your investors or financiers.
When establishing any business, no matter how small, it's imperative that you keep meticulous financial records. Since many business expenses are deductible, the IRS will be your friend, particularly in the formative years, but you must have accurate records. Visit the IRS website to request the IRS booklet Starting Your Own Business and Keeping Records, or take a bookkeeping class at your local Small Business Development Center (SBDC) or community college.
Your Location
If you will begin in your home, you still have to account for the space, equipment, and costs. If you plan to move into an office space or storefront soon thereafter, include research into rental expense. Keep in mind the your local or state governments may have “urban renewal zones” that may offer cheap rents and affordable labor. Also, the SBA may have “incubator”spaces in which other small start-ups share office space and equipment. Shop around for low-cost opportunities and plan for future growth.
Fact
Arnold Goldstein, author of Starting on a Shoestring, defined a “one-tenth financing principle” (a term coined by Jerome Goldstein, no relation to the author) as the ability to start a business on one-tenth of what you think you will need to finance it, or less, as long as you work ten times as hard to make it succeed.
Business Plan Format
When you are constructing a formal business plan, find a book that illustrates an in-depth business plan or consult with your local Small Business Administration (SBA) or Small Business Development Center (SBDC). In general, an official business plan includes the following:
Cover page: This provides the name of your future business, as well as your full and complete contact information. Minimize copy, but if you have a logo, by all means use it.
Introduction: Brevity and absolute clarity reign supreme here. Remember the pitch mentality and write sparkling prose — one or two paragraphs maximum — that will entice investors to believe in your idea.
Mission statement: Brevity, passion, and clarity also apply here. If you don't believe solidly in your mission, no one else will. Tell readers why your new business will be unique in its market, why you're the one to run it, why you're embarking on this adventure, and how much it means to you — and to your future customers. And whittle it down to one or two persuasive, very tightly written sentences.
Overview: Be specific, but not wordy. Succinctly describe the type of business you want to create, what the product or service will be, what the target market is, who the competitors are, and why your business will succeed.
Economic analysis: Discuss the market in general — what is happening in your field, why it's an ideal time to launch this business, how you will fit within the industry, and how you will compete successfully. Talk about relevant trends that support your idea.
Financial analysis: Create multiple spreadsheets illustrating how much capital you have, how much you need, how funds will be spent, projected sales, projected cash flow, and projected annual budget (include fixed costs, overhead costs, employment costs, rental costs, taxes, and so on). You'll also need a balance sheet that shows your company's net worth (assets minus liabilities, and equity, if any), and a feasibility report that plots your costs versus your profits. This report also establishes a “break-even” point to help your investors understand the viability of the business.
Market analysis: Discuss the product or service market specific to your business — who your competitors are, how they operate their businesses, how your business will fare against them, as well as your advertising and promotional ideas. Emphasize the strategies you will employ to build the business. Demographics, trends affecting the industry, the industry's major players, and supporting materials (such as articles or statistics) round out the picture.
Operational plans: This is the nitty-gritty breakdown of how your business will operate, including location, number and skill level of employees, management structure, timetables, and plans for growth. Goals or objectives need to be specific, quantifiable, and time-based.
Summary: Condense the most salient points, highlighting the decision-making aspects: name, location, owners, staff, market, financing, and start-up time requirements.
Appendices: Charts, graphs, tables, or anything that supports, clarifies, or answers questions should be attached.
Prospective financiers will require an in-depth business plan, and once the business is up and running, revisiting the plan regularly helps assess how you are doing in terms of achieving your goals, as well as pinpointing where and when they need updating. It will also serve as a barometer and road map for your continued success.
