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.
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 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)
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.