Starting A Business

Business Plan 2.0

SBOCTeam — Thu, 22 Oct 2009 14:12:00 GMT

Don't forget to update this critical foundation for your small business

By Max Berry

A sound business plan is the foundation of any successful business, but this particular foundation should not be set in stone. The world changes faster and more frequently now than it ever has before. A successful business needs to keep up, which means employing a business model that can change with the times. Doing things today the same way you did them a year ago probably won't work. Here are some tips to help you stay ahead of the curve.

Keep your eyes open

Most business plans are written before the actual business is up and running, before an entrepreneur has dirtied his hands enough to understand how his venture will fare in the real world. Bearing this in mind, it is important to keep your plan fluid from the start. Review it at the end of each quarter to see how it holds up and how it could be adapted to fit current business conditions.

If you haven't already, try to include some hypothetical changes in your industry within your business plan. Imagine what might precipitate those changes and devise ways your own business would cope with them. If you study trends in your own industry, you'll have an idea of where the industry is headed and give yourself a head start on how you'll react when it gets there.

Pay attention to the way other businesses, even enormous corporations, change their approach. If you notice that a company has recently undergone an extreme image makeover, or has drastically changed the way it reaches out to customers, try to determine why those changes were made. Looking at other businesses in the context of the economy and the culture and mapping their progress will provide you with clues as to what works and what doesn't. It will also help you determine the best ways to change and adapt your own business.

The business of revision

When revising a business plan, or writing one for the first time, the emphasis should always be on the consumer. Too many small business owners are so smitten with their own idea that they spend paragraph after paragraph waxing poetic about its potential without identifying who might actually use it. Before you can sell even the most innovative idea, you've got to know who's buying. Pay attention to your own customers; get feedback about how your product or service is working for them. Ask how it could be improved. Use all this information to strengthen your business plan. How, precisely, you will help your customers should be the thesis of your plan, regardless of how that thesis may evolve over time.

Be realistic about how many people your product or service will reach. Given changes in technology, society, and the economy, the number of people who have a use for your service will change. This may mean you need to adapt your product or service, and the plan through which you sell it, accordingly.

And don't forget to be just as realistic about your own capabilities. If, through managing your business, you discover a key skill you and your team lack, be candid about it in your business plan, particularly if you are trying to attract investors. This may seem counterintuitive, but hiding your shortcomings will only ensure that they remain shortcomings. Be open about what you lack and present investors with the opportunity to help you address the deficit.

The best hard time

An economic downturn is an excellent time to revise your business plan, not simply because, with new economic constraints, you will need to adjust your budget, but also because the lean climate actually affords you some new opportunities. Prospective clients, also feeling the weight of hard times, will be looking for new vendors and suppliers; people everywhere will be looking to cut costs and change the way they do business. Look for ways to adapt your own business model to the times you're living in and court some of this new business. If you can show that your business model is adaptable to the times, you may even be able to attract some new capital in the form of investors looking to put their money in a firm that knows how to adjust.

Still, however often you update your business plan, you should always be candid about the risks involved with running a business; even in good times, there are few sure things. By acknowledging the risks you face, and how those risks will change over time, you better prepare yourself to face them.

Business Plans

SBOCTeam — Fri, 19 Sep 2008 17:21:00 GMT

Do I Need One? How Do I Go About It?

By Christopher Freeburn

You're ready to take the plunge. You have a good idea for a new business. You've done the requisite soul-searching and determined that owning your own business is the thing for you. You've spent some time researching the idea and you've figured out where you will locate the business, who your customers will be and what sort of market exists for the business. Now it's time to sit down and create a real business plan.

Benefits of a business plan
There is no understating the value of having a properly written business plan. A business plan helps to clarify the challenges you will face when trying to get your business off the ground. It helps you anticipate problems and obstacles in advance and thus work out solutions before you actually run into trouble. It allows you to make a reasonable estimate of how much money you will need to get things going and to keep them going through the early days. A well-researched plan can give you a handle on how much revenue to expect and how to target your business's promotional efforts.

Business plans are not for your eyes alone, however. If you need to borrow money to get your business started, having a professional looking business plan is crucial. "You want to demonstrate to any potential lender that you are serious about your new business and that you have a good idea of what running it will entail," says Martin Lehman, counselor at the New York chapter of the Service Corps of Retired Professionals (SCORE). By providing potential lenders with a well-drafted business plan that deals honestly with potential expenses and problems and demonstrates that you have done the necessary market research, you greatly improve the chances of landing that loan.

Anatomy of a business plan
In general, most business plans follow a basic format.

Executive summary: The purpose of the executive summary is to define the business-what it does and why you are the best person to run it. The summary should be no more than a few sentences, a paragraph at most. The idea is to convey your business's basic activities as concisely as possible.

Market Research: Follow the executive summary by making a case for the viability of your business in the marketplace you've chosen. Is there enough consumer demand to keep your business going? Are there enough potential customers in the given area in which your business will operate? What are the costs of getting the business started? What sort of revenues can you expect in the first year? What will be the cost of rent, utilities, office supplies, equipment, and materials for your products or services? Are there any competing businesses similar to your own in the same area? How does your business differ from them? Government publications, industry publications, trade groups and local chambers of commerce are excellent sources of demographic and marketplace data that you can use when compiling your research. Be as realistic as possible.

Business Outline: Here you will sketch the anatomy of your business. Identify your management structure, supply chain, and operations. "Be as detailed as you can," advises Lehman. "This is the time to work out fundamental questions about how everything in your business will work." Ask yourself the basic questions. Where will your business be located? Will it be a sole proprietorship, a partnership or a corporation? Who will be the owner? Are there employees? How does it provide products or services to customers? Who are the suppliers? "Iron out ownership and decision making roles ahead of time," advises Lehman. "Who gets the final word on things? If there are other people involved in the business, this is the time to figure that out." If there are partners or employees already in place, make sure that their duties and powers are well defined.

Marketing: The business plan should make clear exactly what you are selling and how you plan to let potential customers know about your business. Detail any advertising plans and their likely cost.

Cash Flow: How much money will your business need to get started? How much revenue can you expect from operations? This is an extremely important part of the business plan, and the one that requires considerable research and attention. Try to estimate, as best you can, exactly how much it will cost to keep things going for the immediate future and how much revenue you think your business can reasonably gain. "This can be really difficult for the first time business owner," Lehman warns, "If you don't have an established track record to draw on, you are going to have to make an educated guess. This is where your market research becomes essential." Lehman says that the biggest mistake new business owners make is being too optimistic with their revenue projections while underestimating costs. "Then they find themselves stuck with higher than expected bills and too few customers and they can't afford to keep things going," he says. It's better to err on the side of pessimism when estimating costs and potential revenues. Potential lenders or investors appreciate a little pessimism in financial projections since it indicates a more realistic outlook on the part of the small business owner.

7 Steps to Small Business Success

SBOCTeam — Wed, 05 Dec 2007 00:04:00 GMT

1. Start Smart
2. Plan Ahead
3. Set up Systems
4. Seek out Sales
5. Aim for Growth
6. Leverage Opportunities
7. Plan Your Exit

1. Start Smart.
Identify a niche. Don't compete to be the lowest cost provider. Look for what makes your product or service unique and adds a special value for the client and charge for that value. Every business has many facets. Start with what you know and like; start a business that has meaning to you. Keep in mind that we don't know what the future holds, many of the jobs and businesses of tomorrow don't exist today. You can create your own success.

Now is the time to dream. To start smart, you should like the idea of the business. The way to earn a good income and build wealth is by serving clients well, making their life better in some way-it's more than filling a need in the marketplace. To succeed you want to test the idea to make sure your potential clients like the idea too. Test your ideas.

2. Plan Ahead.
People often ask me why bother with a business plan? Look at the lottery as an example. You may get lucky and get the winning ticket, but the odds are against you when you rely on random chance. I'm a risk taker...but not that much, minimize the risk of going into business and maximize your potential for success. Take the time to write a plan of how you get from point A to point B. A plan gives you a clear future focus and increases your chances of success.

The first rule of a start-up is put some of your own money in the business. As the owner you must be willing to capitalize the business. The second rule is put as little of your own money as possible in the business. Prepare your plan and look for funding for your business from multiple sources, which can include a business loan or business line of credit.

Don't go it alone. Plan ahead now to build your team. Your team may include a CPA and an attorney that you work with as needed. Add a mentor from your industry and get a SCORE mentor to help you plan for success. No one has all the answers. You get more ideas and information by building a success, support team that can help you plan ahead.

3. Set up Systems.
The most basic system every business should have is a good financial system. Ask yourself how am I going to generate enough income to support myself and my family. Begin here. Put together a personal budget, so you know what it costs you to live. Now, you can move on to the business budget and sales planning, so you can see how many sales you need to break even and make a profit. The start-up expense plan, operating budget and your accounting software are vital to your success.

4. Seek out Sales.
The daunting question is how do you go about seeking out your first sale. Recognize that since you don't have a big ad budget to be seen by everyone, you need to target a niche and get connected in your market community, be it local, regional or national. You need other people selling for you-not employees-goodwill referrals. Get out and talk to as many people as you can. Join organizations that would have clients for your product or service. Become a visible part of your market, and then ask for the sale. You begin the sales process with people that you know. Yes, it's okay to start with friends and family as your first customers, and then broaden from there.

5. Aim for Growth.
The basic tenant of creating a company is that you own the company. You are not just creating a job for yourself. It's less risk and less investment to get a job. Building a business is creating a company that is more than the job itself. Think about the future. How large do you want the company to be in terms of sales, net profit and employees? Your answer to each of these questions will influence how you grow. There are varying costs and profits associated with growth. It's important to make a deliberate choice early about how you want to grow your company.

6. Leverage Opportunities.
Good luck. Good fortune. Good timing. All play a part in business. As a business owner, be very clear about your core focus for the business and how it serves clients. Your core business is what pays the bills. Then, as an entrepreneur you are about opportunity. When you see a potential opportunity or stroke of luck measure it against your core business focus. Good fortune is great, when it matches your vision for the business. Always consider if a good opportunity is the right fit for your business. If something looks great, but it's not in sync with your long-term plan and budget, think carefully before committing your company's resources.

Take advantage of good opportunities that make sense for you long term. A perfect example is McDonalds. Ray Krock started a small business that became a large franchise network with a consistent product, consistent systems and an ability to seize opportunities such as the Arch card and offering healthy salads to meet the interests of today's consumers.

7. Plan Your Exit.
Someday you may want to sell your business or retire from business. Today, ask yourself what's next? How can I have an asset in the future that someone will buy? If you are going to sell someday, you have to have something to sell-a plan, vision, business on the books, equipment and systems. Whether you have been in business for one week, one year or 15 years-look ahead to what the business itself will be as an asset. Your business has value, value you are creating today. To sell or distribute equity in the business you need to have it down on paper and keep good financials. Know the worth of your business, so you can know the value it can bring to your future wealth and/or retirement.

Brought to you by SCORE "Counselors to America's Small Business" www.score.org

Getting Started Part III: The Money Chase

akgold — Sun, 22 Jul 2007 22:01:00 GMT

Finding the capital you need to get your business started may be easier than you think.
By Max Berry

You've come up with a business idea; you've done the necessary research and written a sure-fire business plan. Now what's the next step? Finding the money to turn that business plan into reality. There is a wide array of potential sources of funding available to entrepreneurs. Each comes with advantages and downsides.

All in the Family
Friends and family members are often the first place a budding business owner turns to when looking for money to start his or her company. “Your family is a great starting place for a loan,” says Skip Honigstein, chairman of the Orlando chapter of the Service Corps of Retired Executives (SCORE). “If you have a strong idea, the first people you are most likely to persuade are those who know you the best.” Honigstein notes that family lending is particular common among many immigrant communities, in which families often work together to launch new businesses. “You’re also likely to get much more favorable repayment terms from close relatives than you would from any bank,” he adds. If your family can’t fund your fledgling company directly, they may still be able to help obtain funding from a bank or other financial institution by guaranteeing a loan. Ted Waitt co-founded Gateway Computer in 1985 with a $10,000 loan guaranteed by his grandmother. Today Gateway has revenues of almost $4 billion a year and employs over 1,600 people.

Of course seeking money from family members and close friends has its risks as well. "Money issues can poison what were once close relationships," says business consultant C. Davis Fogg. Being in debt to the bank is one thing, feeling indebted to a family member or friend is a much more personal experience. “If your business runs into trouble and is slow to repay a loan—or unable to repay altogether—that can create serious problems with the family members who gave you the money. Remember, you don't have to spend Thanksgiving with your bank.”

"If your business runs into trouble and is slow to repay a loan—or unable to repay altogether—that can create serious problems with the family members who gave you the money. Remember, you don't have to spend Thanksgiving with your bank."

Play Your Cards Right
Increasingly, budding entrepreneurs are turning to the easiest form of borrowing around—credit cards. "Many people use their personal credit cards to start a business,” Honigstein says. “Credit cards offer a quick and convenient way to purchase needed assets while spreading out the costs over time.” Nevertheless, like any other borrowing instrument, credit cards demand careful use. “You need to watch the balances and make certain not to take on more debt than you can handle." Interest rates on credit cards often rise after certain debt levels have been reached, as well as in the event of a late or missed payment, which can cause your debt to increase rapidly.

“There are genuine advantages to using credit cards wisely,” says Gerri Detweiler, author of The Ultimate Credit Handbook. “Credit cards also provide convenient billing statements that allow you to track expenses,” she adds. However, using personal credit cards can negate that advantage by mixing your personal finances too closely with those of your business. “If you are late with a payment or run too high a balance on a personal card that you are using to run your business, your credit rating will suffer.” That can hurt you in the long term if you need to borrow money for non-business related reasons—car loans and home mortgages, for instance. Detweiler advises trying to separate your business and personal finances as soon as possible.

“Most banks and other lenders are working hard to recruit new small business customers,” she says. “So as soon as you file the forms with the state to open your business, you may find yourself deluged with business credit card offers.” Detweiler says that business credit cards will help insulate your personal credit rating from any trouble your business experiences. (To find and compare business credit card rates, try searching my3cents.com or bankrate.com.) Many business credit cards offer some form of rewards program for specific purchases that can result in considerable savings on items like office supplies. “You should definitely take advantage of rewards programs,” Detweiler says. She adds that having more than one business credit card is often useful because the rewards programs and rates and fees vary significantly between different cards.

The Traditional Approach
Beyond family and credit cards, there is still the traditional bank loan. Many first time entrepreneurs are wary of approaching a bank with plans for a new business, assuming that they will be rejected, but today most banks are eagerly looking for small business accounts. “Banks are going out of their way to find new businesses,” says SCORE’s Honigstein. “But you will still have to demonstrate to them that your idea is workable and that you are a good risk.” That means providing them with a well-conceived, well-researched, clearly written business plan. “Your presentation to the bank needs to be professional in every way,” Honigstein advises.

Among other things, banks will scrutinize your financial history, including your credit record. So make certain you have resolved any outstanding issues before applying for a loan. The Small Business Administration (SBA) has a program to assist entrepreneurs with the process of obtaining a new loan and works with participating financial institutions to provide small business loans for startups. You can learn more about the SBA small business loan program at sba.gov.

Max Berry is an Associate Editor/Writer for Business 24/7 Magazine.

Gettting Started Part II: Get A Plan

akgold — Sun, 22 Jul 2007 21:37:00 GMT

A well-executed business plan is a critical first step for every new business.
By Max Berry

You think you’re ready. You know what sort of business you want to start. You’ve written down your idea, narrowed its focus, and done the basic research. Now, what’s the next step? Turn that idea and research into a formal business plan.

Writing a detailed business plan is an essential step toward getting your business off the ground. Not only will the business plan help guide you through the challenges and complexities of launching your business, but it will also prove essential if you decide to apply for a loan to fund the business. “Banks look for signs that you know what you are doing and that you are really committed to your business idea,” says Martin Lehman, counselor at the New York chapter of the Service Corps of Retired Professionals (SCORE). “They need to see that you’ve worked through the details of your idea in a systematic way and have given real thought to the problems you may face.” The existence of a well thought-out, clearly written, well researched and realistic business plan will prove critical to demonstrating your seriousness and professionalism to any financial institution you decide to approach.

So what goes in the business plan? Business plans have a general layout. The plan should open with an executive summary that states in a few sentences, or a short paragraph, what the business will do and why you are the person—with the right experience, education, etc.—to make it happen.

Research, Research
After the executive summary you will want to lay out your market research and analysis, demonstrating that there exists an adequate pool of consumers willing to purchase your product or service. You can find precise data from government publications, industry publications, trade groups, and local chambers of commerce. You should also define the extent of the competition your business will face within the area it operates and how your business will stand apart from that competition. “You need to be realistic when assessing how much competition your new business is likely to face,” says business consultant C. Davis Fogg. “Too many startups don’t realize how difficult it is to attract customers—especially if there are well-established similar-type businesses already in the area.”

A Solid Structure
Describe your new business’s structure. How will your business deliver its products or services? Who will do what? Where will your operations be located? It may make sense to create charts that lay out the company’s critical processes, and executive decision-making responsibilities. “It’s a good idea to answer as many management questions as possible ahead of time,” advises Lehman. “If you have a partnership, for instance, who gets the final word on difficult decisions? The more detail the better.” Be sure to define the company’s ownership—will you own it completely, or are there co-owners or partners in the business? If you already have a team of key personnel in place, include their resumes or biographies and descriptions of their roles in the business.

Be Descriptive
Be sure to describe your product or service as well as your marketing plans in detail. “Again, detail is key,” says Lehman. “Don’t assume that a simple description like ‘coffee shop’ or ‘retail clothes store’ is enough.” Explain exactly what your business sells with as much specificity as possible and how your product or service distinguishes itself from the competition.

The Bottom Line
Finally, you need to explain the financial workings of your business. How much money will it cost to produce your product or service, rent a location (if applicable), pay any employees (including yourself), market the business, and purchase needed supplies? “If you are just launching your business,” Lehman says, “this can be tricky, since you don’t have an established track record to rely on.” So you will have to project your likely expenses and revenues based on your research. “And this can be the trickiest part of all,” Lehman warns, “because there’s a huge temptation to put everything in the best-possible-case-scenario kind of thinking.” Too many fledgling businesses, he says, are too optimistic when it comes to forecasting just how much money they will need to start the business and keep it running, and even more optimistic when assuming how many customers they will attract in their early days. “Sometimes its better to be a little pessimistic,” he says. “In any range of estimates, look at the less favorable ones.” In short, be conservative—assume expenses will be higher and initial revenues lower. Calculate a break-even forecast that shows the sales figure you will need to achieve just to break even, and then make sure your market research backs up the idea that you will get at least that many customers.”

For more information, including templates and guidelines for writing a business plan:
U.S. Chamber of Commerce (www.uschamber.com)
Small Business Administration (www.sba.gov)
SCORE (www.score.org).

Offline Resources:
Business Plans for Dummies by Paul Tiffany and Steven Peterson
The Complete Book of Business Plans by Joseph A. Covello and Brian J. Hazelgren
Both are available from online vendors or at many public libraries.

Max Berry is an Associate Editor/Writer for Business 24/7 Magazine.

Be sure to look for Part III of this article, which will examine how to raise money to start your business and how to market your products or services.

Getting Started: Part I

akgold — Sat, 21 Jul 2007 00:33:00 GMT

Be sure to do all your homework before you take the plunge and start your own business.
By Max Berry

So you want to start your own business? Maybe you have an idea you think is so good, you believe it will be a sure-fire hit. Or perhaps you are simply sick of working for someone else and just want to strike out on your own. The first step in founding a business is to define exactly what your new business will do, in as specific terms as possible.

If you don’t have a specific idea for a business of your own, you might want to consider buying a franchise—that is, opening an outlet of an existing successful business. If you have your own idea for a business, the first thing you should do is to write that idea down on paper. You can start by writing down a general idea, and then develop it, narrowing its focus. “Too often,” says management consultant C. Davis Fogg, “people have too vague an idea about what they want to do. Just saying ‘I want to open a store,’ or ‘I want to build computers’ isn’t enough. A small business can’t be General Motors—it needs a tight focus in order to distinguish itself from the competition.”

Putting your idea on paper makes it easier to focus on the details. “There is no substitute for writing it down,” say Martin Lehman, counselor at the Service Corps for Retired Executives (score.org), which helps small business owners get their businesses off the ground. “Write down your idea, and then break it down to the smallest elements: Who exactly will be your customers? What products or services will you offer?” Be specific, Lehman advises. Write an exact description of the products or services and to whom they would appeal. “Don’t just assume ‘people’ will want whatever your business is selling—try to figure out what type of people, what age, income, gender. You need to know who your business appeals to before you can judge how it will do in the market.”

Understanding the specifics of your idea is the most important starting point for launching your business. Once you know exactly what you want your business to do, you can begin to research the mechanics of your idea. Where should you locate the business? In what geographic market will your business function? What is the competition? Is there enough consumer appetite for your products or services to keep your new business going? Has anyone else opened businesses similar to yours in the area and what happened to them? What will it cost to procure the equipment or supplies you will need? This applies to franchise operations as well. Franchises generally offer fairly specific information about costs and often have rules regarding location, advertising, and the décor of franchise outlets. Still, whether a particular franchise is a good fit for a given area and for you is something you can only determine through dedicated research.

Your research might include visiting similar businesses, or even working for one in order to gain experience in that business, if you’ve never worked in a similar field. This is particularly true in the case of a franchise. “Seeing how a particular business operates on a day-to-day basis is crucial to figuring out if you actually want to run one of your own,” says Fogg.

If you have never run a business before, or have little experience in the type of business you wish to start, you should seek out people who have and talk to them about their experiences. Their advice can alert you to difficulties you may not have anticipated and point to possible solutions.

“Before I opened my first retail store, I went to several possible locations and stood outside them all day long, just watching who passed by,” Lehman says. “That way I could see what sort of people would be walking past the store on a regular basis, and then I chose the location with the most people I thought likely to buy what was in my store.”

As you progress with your research, you can begin to create a detailed business plan. Your business plan will assemble all the information you gathered during your research and translate that data into a clearly stated outline of your business.

Max Berry is an Associate Editor/Writer for Business 24/7 Magazine.