By Mark Rosenzweig, Score NE Mass Accredited Counselor
Every week or so, a client comes into SCORE wanting to start a new business but is not sure how to begin. They often have spent a long time thinking about what they would like to do and have detailed ideas about it. What they don’t have is an understanding of what it takes to get going. The reality that most people don’t want to hear is that they need a business plan and to do some hard work.
Why do you need a business plan?
Would you start a trip to California by taking a car with a full tank of gas and start driving down 128 assuming that you will get to California? Probably not! You might go to the AAA and get a set of maps or a trip tick that lays out all the turns you need to make to get to your destination. You might even figure out how much money you will need to make the trip; gas, food, motels, etc. Sounds reasonable, doesn’t it?
Then why would you start a business (where you will have to invest a lot of your net worth) without a similar amount of preparation and a good set of road maps to go by? That is what a business plan will do. It will answer the questions of how you will reach your business goal(s) and what you need in terms of money to reach it. It is the Trip-tick of business success.
What do you need in a business plan?
What a business plan needs to do is answer some basic questions; the who, what and where of your proposed business. They are:
- What are you going to be making or providing your customers?
- Where will you do this work?
- Who is going to do the work or provide the service, and, how?
- What are your business goals in 6 months, a year or 3 years and how will you reach them?
- What are the milestones along the way that you need to achieve if you are going to reach your goals in the time frame you have given yourself.
- What will it take in terms of people, equipment, facilities and most importantly in money to reach those goals and where will that money come from?
Each of these questions will be answered by a good business plan. The process of going through the creation of a business plan is as valuable as the finished plan itself because it causes you to face the tough realities before you start your business. If you cannot plan your way over the foreseeable obstacles to your business idea, then you are not likely to reach your goals and you may fail all together. A good plan, well developed and thought through, will multiply your chances for success. Time spent planning beforehand will save a lot of work and hardship later as you rollout of your business.
Sections of a plan
Regardless of what your business is, the plan has the same basic parts.
- Executive summary
The who, what and when questions telling the reader what you plan to be and accomplish in the planning period (2-3 paragraphs max)
- Top Level Goals and objectives:
The Objectives are the long-term targets you have set for the business and the goals are the milestones you will need to reach along the way. At the top level, three objectives and three goals are sufficient.
- An example:
- Objective: have $1m in sales by the end of year 1.
- Goals: have $100K by end of the first quarter, 400K by the end of the first half.
- Markets and market analysis:
This is a critical section which people often skip thinking they know they have a good idea. I don’t need data to prove it. Wrong. Data is key. For instance, if you’re going to have a coffee shop, where do you want it to be located? Near where a lot of people walk or drive by would be really a good idea. It would also seem to make sense to pick a town which has a high disposable income and a lot of working commuters. Data should drive your decisions and choices. The other key part of this section is to understand the competition since it is rare to have a business without competition. As the new guy on the block you will need to take business from the competition and you need to know your Strengths, their Weaknesses and what Opportunities you will have to take market share from your competitors. At the same time you will have some Threats where a competitor can attack you. You will need to defend yourself from them. This is called the SWOT analysis and can be very beneficial if done well.
- Sales projections:
After gathering the data, you can project what level of sales you can achieve over a period of time. It is best to do three different sets of numbers; best case, worse case and those you will run the plan by. This allows you to see what volume changes do to the profitability of your business.
- Detailed goals and Objectives:
Here you flesh out in detail the steps (objectives) necessary to start the business and establish goals for those working with you to reach the objective(s).
- Operating requirements:
Here are the nuts and bolts of what you will need in equipment, people, facilities, overheads, and most importantly the cash to do these things.
Now crunch the numbers to discover the financial results you can expect from your sales plans. You will need a sales forecast, a profit and loss statement and most importantly a cash flow analysis. If this sounds like Greek to you, you might want to take a course in basic business accounting so that you can understand these numbers and why they are important to you. We at SCORE can help you to create and understand this process.
Here you restate your top-level goals, reasons you expect to succeed and what funding you need to get started.
Ready to Go
Now you have the Plan, the road map to business success. When you have completed the plan, read it through and test the assumptions driving the plan and make sure you have them right. Bring the plan to a meeting with your local NE Massachusetts Score office and let us help you get started.