By Jack Clauson, Accredited Business Councilor, Score NE Mass
When starting a business, planning is essential for success. Planning includes estimating revenue, expenses and profits needed to manage, sustain and grow the enterprise. The appropriate time to plan and the type of planning varies depending on what phase the business is in.
THE BEST TIME TO PLAN
Initially, to define the business; start by setting revenue, expense and profit goals.
- Monthly review performance goals; adjust the plan to align with current operations and economic circumstances.
- Annually compare last year’s results with planned goals and develop a new scheme for the coming year. Your planning tool, which ever one you use, should allow for side-by-side comparisons, goal-to-actual results.
TYPES OF PLANNING:
A Business Plan
The business plan is made up of the following: a summary, a marketing plan and a financial plan. They are all essential to define what the business will deliver to the customer and to determine if the effort will be sustainable, that is, make a profit to ensure the enterprise's growth and continuation.
Will the operation:
- be home based, web based, have a store front, or a combination of them;
- sell a product or a service;
- identify typical customers;
- differentiate us from our competition; and,
- note what will attract a customer/client to do business with us initially and then what will draw them back repeatedly?
First zero in on what our start-up costs and on-going monthly costs will be. How much start-up money do we need and who will provide it? A cash flow statement helps to itemize the monthly expenses and the cash available to pay them. It is amazing how quickly we can incur thousands of dollars of monthly expenses from renting space, buying vehicles, paying salaries, taxes, utilities, insurance, accounting and legal fees, etc. The other very important element of financial planning is to estimate what our expected monthly sales revenue will be and then from this what our product(s) or service(s) profit margin(s) will be. Many new businesses may not be profitable for the first year so it is important to understand how much cash you will need to make it to profitability and a positive cash flow. You might want to add a best, average and conservative estimate to see what may or may not happen.
Remember, the whole reason we are going into business is to make money and achieve some degree of financial security. So if the profits aren’t there, we will be working very hard for little or no financial reward. Once you start, on-going monthly cash flow and profit/loss monitoring is essential to know how healthy the business is and to decide if changes are needed.
It is essential to define how we will promote our business’s products or services so that we may successfully launch the business and attract new customers. These actions should be focused on generating revenue and profit while maintaining excellent customer service. We can’t lose sight of our customers. They are so easy to lose and it is so hard to acquire new ones.
The Steps in Market Planning
- A 2-3 minute verbal business summary is necessary to tell people what product or service your business provides, what the benefits to them are and why they should buy or try your product or service. If it takes you 5 minutes to explain what you do, you lose your audience. Prospects tend to lose interest after 30 seconds unless something is said that interests them. If you catch the person’s interest in the first 30 seconds, you may get 3-5 minutes of his or her time to have a longer discussion.
- A web site with relative key words is essential to allow people to discover and learn about your business when they use any of the popular search engines when hunting for a product or service.
- Advertising is important though expensive and therefore its cost should be carefully considered and budgeted in your financial plan. Apply it effectively; consider these sources:
- Yellow pages, newspapers and local magazines may be worth trying to see what type of response they provide.
- Less expensive alternatives are one page flyers that can be delivered door-door, smaller flyers that can be displayed in other non-competitive stores.
- Church bulletins, or
- form a marketing alliance with a related but non-competing business.
Monthly or even more frequent cash flow and profit/loss information is needed to monitor what is going on and make corrective or reactionary changes if there is a problem. Frankly, in the initial years, a business should be reviewing financial results maybe as often as weekly. This ensures that financial data is being entered consistently and accurately and any errors become apparent right away.
This provides an avenue as a way to adjust your plans to resolve any crisis that occurs. A new competitor pops up, a key employee leaves or the economy goes into a down turn. All of which affect revenue and profits. Many people find that having a “brain storming” session with someone outside of the business helps to identify the possible alternatives and to examine the pros and cons of each alternative. This process usually identifies the best alternative for the situation. Some possible responses to falling revenue may be to cut expenses, borrow money or refocus the business.
This is a look back, look forward process. This is often best done in the company of experienced mentors. Your accountant, a trusted, disinterested business friend, your SCORE team are all good places to go for this review. Step back and evaluate what happened in the last year. Did I make or lose money? Is the business growing? Am I satisfied with the time I am spending on the business and the money I am earning? What is working and what is not working? Am I happy?
I AM TOO BUSY TO PLAN was the first thing that used to come to my mind when someone told me that I needed to prepare a plan. If you are starting or are already in business, you are probably overwhelmed with work related tasks and financial issues. But planning will help you gain control of your life and the business again.
HELP WITH PLANNING is available from several organizations. SCORE provides free business counseling to help with the process of defining a business, preparing business and financial plans and discussing many other business issues. SCORE counseling locations can be found at www.scorenemass.org or call 978-922-9441.