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.

Damage Control - Mistakes to Avoid

akgold — Sat, 21 Jul 2007 01:44:00 GMT

Before you consider starting your own business, be aware of the three most common mistakes to avoid
By Max Berry

When Doug Malone tried to start his first home renovation business in Boston, Massachusetts, several years back he quickly discovered that the market was already so saturated with general contractors that he had trouble attracting customers. “I just assumed that because I had a lot of experience working in home renovation and that it was something so many people were interested in, I wouldn’t have any problems.” After barely scraping by for two years, Malone relocated to another town further outside Boston with fewer contractors and tailored his business to specialize in remodeling kitchens. His new business flourished. “If I’d done my homework the first time, I’d have known that there was too much competition where I’d been living, and that I needed more focus,” Malone says.

Mistake No. 1: Little or No Research
Malone’s problem illustrates a common mistake new entrepreneurs frequently make when trying to start their businesses: failure to properly research their idea. All too often, fledgling business owners are so impressed with the brainstorm they had for their business that they neglect to ask fundamental questions regarding both their business concept and the marketplace where they plan to locate. Will my products/services appeal to enough people? Are there any similar businesses operating in the area? Are the local economic and cultural demographics likely to support the sort of business I’m contemplating? Has anyone tried to start such a business there before?

Learning about the type of business you are planning to start is critical, says Martin Lehman, counselor at the New York Chapter of the Service Corps of Retired Executives (SCORE), which offers advice to small business owners. “Have you ever worked in the field? If you plan to open a store, for instance, have you ever worked in retail? Before you open your own apparel store, you should probably take a job at another clothing store to see how a store like that is run,” Lehman advises. Getting hands-on experience is critical for making realistic judgments about the viability of your idea and how much getting it running will cost. “Write up a business plan,” Lehman says, “and be as specific as possible.”

Mistake No. 2: Not Asking for Help
Gathering enough information to adequately plan for your new business may require more than just looking through phonebooks, business directories, chamber of commerce reports, and studying the neighborhood. You may have to consult experienced business people who can help you navigate the often complicated and hazardous challenges of your company’s earliest days. Unfortunately, that’s another mistake new small business owners often make—failing to seek help when they need it. Many entrepreneurs are willing to consult family and friends, most of whom have no experience building a business, but are reluctant to approach a professional organization or consultant who has experience truly relevant to the entrepreneur’s needs. Organizations like the Small Business Administration (sba.gov), or SCORE (score.org) offer considerable resources and counseling to would-be small business owners and can help you research and develop your business plan, as well as providing useful advice once you have the business up and running. Also check with your local chamber of commerce for any small business advocacy organizations in your area.

Mistake No. 3: Being Unrealistic About Time and Money
Perhaps the biggest mistake entrepreneurs make is underestimating the time and cost involved in launching a new business. Even though technology has made it possible for small businesses to accomplish more for less money, building a business still requires an ongoing financial investment. Moreover, it requires time—a lot of it. Many would-be entrepreneurs try to start their businesses while still holding down a full time job, and when they see the costs and time demands escalate, they throw in the towel rather than endanger their savings or career. Computer industry observer and author Paul Graham lists this as one common problem in his book 18 Mistakes that Kill Startups. Graham argues that many entrepreneurs secretly lack confidence in their new business effort and balk at the idea of spending too much time or money on it. “Most startups fail because they don’t make something people want, and the reason most don’t is that they don't try hard enough,” Graham says. “The biggest mistake you can make is to not try hard enough.”

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

Starting A Business

Business Plans

Damage Control - Mistakes to Avoid