Starting Your Plan
So, you’ve decided to write a business plan and you’re ready to get started. Congratulations! You’ve just greatly increased the chances that your business venture will succeed. But before you start drafting your plan, you need to plan your draft.
Probably the most important reason for a business plan is so that you can hold yourself accountable for the proposals and projections that is contains. When you own your own business, motivation is one of the key factors that determines success or failure. Having a set time-line for when things need to get done will keep yourself on track.
You will also learn that business plans can be complicated. As you draft your plan, you will be making key decisions on serious matters such as what strategy you’ll use to achieve your goals, along with less serious ones such as what font you’ll use for marketing material. Thinking about these issues in advance and putting them in writing is key to using your time in the future on making your business successful as opposed to thinking about how to run your business.
Your business plan will help reduce time-wasting and provide accountability for you and your staff. To start planning your plan, you’ll first need to set your business goals. Part of that will be assessing the current market of the business type you began to start. This will deduce what the chances are that you’ll achieve your goals. Finally, you need to take a look at the most common elements of a business plan in order to get an idea of which elements you want to include in your own plan.
Determine Your Goals
Turn off the TV, radio, or anything else that is distracting. Close your eyes and imagine that you are five years in the future. Where do you see yourself? Where do you see your business? Where do you want to be? You need to answer this question in order to determine what your future goals are. This is extremely important to crafting a successful business plan. Without knowing where you want to be, it’s not really possible to construct a business plan at all.
Try writing a business goal. It doesn’t have to be formal, just get it on paper. Describe everything you wish to accomplish in five years. Describe where you see your business and how it all came about.
As you read what you’ve written, you may realize that you really don’t want a large, fast-growing enterprise but would be content with a stable small business. Even if you don’t learn anything new, getting your goals down is huge in determining how you will plan your business.
If you are having difficulty deciding what your goals are, here are some questions to ask yourself:
- How determined am I am for success?
- Am I willing to invest my own money?
- Am I willing to work long hours for no pay?
- Am I willing to sacrifice personal time and my lifestyle?
- What do I risk if this fails?
- If my business is successful, how many employees will I have?
- What will be my annual income each year?
- What is my businesses niche?
- What will my market share be in five years?
- Will my company remain privately owned or will it eventually be sold or go public?
- How comfortable am I being a manager? Can I hire, lead, and fire people?
- Who is my target market?
- Is my business dealing with customers on a local, national, or global level?
- What type of tasks do I need help with?
- What type of tasks do I need to start hiring for and when?
- Will I be a hands-on manager or will I delegate a large portion of my tasks?
It doesn’t always take a lot of money to make money, but it does take some. That is definitely true if your projected growth is very rapid.
Many entrepreneurs think that sales growth will take care of everything however, this is rarely the case. Suppliers are almost always the first person you pay before your customers pay you. This is a large reason as to why a lot of businesses require financing from banks or investors in order to initially grow. These type of businesses literally grow faster than they can afford.
Start by asking yourself what kinds of financing you’re likely to need. It’s easy to take this lightly when you are short of cash but each kind of financing is different and careful consideration when you’re planning your business plan. These distinctions take three primary forms:
- You should also consider the amount of money you’re likely to need. Any amount less than several million dollars is too small to be considered for a standard initial public offering of stock, for example. Venture capital investors are most likely to invest amounts of $250,000 to $3 million. On the other hand, only the richest angel investor will be able to provide more than a few hundred thousand dollars, if that.
- You also need to consider the amount of control you’ll have to surrender. An equal partner may, quite naturally, demand approximately equal control. Venture capitalists often demand significant input into management decisions by, for instance, placing one or more people on your board of directors. Angel investors may be very involved or not involved at all, depending on their personal style. On the other hand, Bankers are likely to offer no advice whatsoever as long as you make payments of principal and interest on time and are not in violation of any other terms of your loan.
Almost any source of funds, from a bank to a factor, has some guidelines about the size of financing it prefers. Anticipating the size of your needs now will guide you in preparing your plan.
- The third consideration is cost. This can be measured in terms of interest rates, ownership percentage, and time (paperwork and hassle).
You must also think about what you’ll do with your business plan. A business plan can be used for numerous things such as: monitoring your company’s performance, monitoring your goal progress, and using it as a way of finance. Deciding how you intend to use your plan is an important part of preparing to write it.
Are you planning to use your plan to help fund your business? In this case, you need to focus on your executive summary, the management, the marketing, and your financial aspects. You need to have a clear vision of how your company is going to make money. If you want a bank loan, you need to stress your ability to generate money. Equity investors must be shown how they can cash out of your company and generate an acceptable rate of return on their investment.
Are you planning to use your plan to attract employees? If so, you’ll need to emphasize things such as stock options and other areas of compensation. Work environment, corporate culture, and opportunities for advancement are other areas you want to highlight.
Are you planning to use your plan to ensure suppliers that you’re a worthy customer? If so, you need to focus on areas that will make your suppliers favor you over your competition. This may include arranging supplier credit or stressing your spotless record of repaying trade debts.
Assess Your Business’ Potential
For most of us, unfortunately, our desires about where we would like to go aren’t as important as our businesses’ ability to take us there. It’s simple, if you choose the wrong business, you won’t go anywhere.
Fortunately, one of the most valuable conclusions you’ll make when drafting your business plan will be whether or not the business you have your heart set on will be successful or not. A ridiculous amount of business ideas never make it past the planning stage because their world-be owners, as part of a logical and coherent planning process, find their original assumptions and goals flat out wrong or unrealistic.
Test your business idea against at least two variables: Financial and Lifestyle. Make sure your business make financial sense and make sure it’s a business lifestyle you love and don’t hate.
Answer the following questions to help you outline your company’s potential. There are no wrong answers. The objective is simply to help you decide how well your proposed business is likely to match up with your goals.
- What initial investment will the business require?
- When will the business turn a profit?
- How much control are you willing to relinquish to investors?
- When can investors, including you, expect a return on their money?
- What are the projected profits of the business over time?
- What are the chances the business will fail?
- Will you be able to devote yourself full time to the business, financially?
- What kind of salary or profit distribution can you expect to take home?
- What will happen if it does?
- Where are you going to live?
- How many hours will you be working?
- Does your family understand and agree with the sacrifices you envision?
- Will you be able to take vacations?
- What kind of work are you going to be doing?
- Will you earn enough to maintain your lifestyle?
- What happens if you get sick?
Check out our other articles on Business Plans