Starting and managing a business takes motivation and talent. It also takes research and planning. Although initial mistakes are not always fatal, it takes extra skill, discipline, and hard work to regain the advantage. Take time beforehand to explore and evaluate your business and personal goals, then use this information to build a comprehensive and thoughtful business plan that will help you reach these goals.
Developing a business plan will force you to think through some important issues that you may not otherwise consider. Your plan will become a valuable tool as you set out to raise money for your business, and it will provide milestones to gauge your success.
1: List your reasons for wanting to go into business. Some of the most common reasons for starting a business are self-management, financial independence, creative freedom and full use of personal skills and knowledge.
2: Next determine what business is right for you. Ask yourself these questions:
* What do I like to do with my time?
* What technical skills have I learned or developed?
* What do others say I am good at?
* Will I have the support of my family?
* How much time do I have to run a successful business?
* Do I have any hobbies or interests that are marketable?
3: Identify your business niche. Research and answer these questions:
* What business am I interested in starting?
* What services or products will I sell?
* Is my idea practical, and will it fill a need?
* What is my competition?
* What is my business's advantage over existing firms?
* Can I deliver a better quality service?
* Can I create a demand for my business?
4: The final step before developing your plan is the pre-business checklist. You should answer these questions:
* What skills and experience do I bring to the business?
* What legal structure will I use?
* How will my company's business records be maintained?
* What insurance coverage will be needed?
* What equipment or supplies will I need?
* How will I compensate myself?
* What are my resources?
* What financing will I need?
* Where will my business be located?
* What will I name my business?
Your answers will help you create a focused, well-researched business plan that will serve as a blueprint for business operations, management, and capitalization.
Once you have completed your business plan, review it with a friend or business associate. When you feel comfortable with the content and structure, review and discuss it with your banker. The business plan is a flexible document that should change as your business grows.
Is entrepreneurship for you?
There is no way to eliminate all the risks associated with starting a small business. However, you can improve your chances of success with good planning and preparation. A good starting place is to evaluate your strengths and weaknesses as the owner and manager of a small business. Carefully consider each of the following questions.
Are you a self-starter? It will be up to you -- not someone else telling you -- to develop projects, organize your time and follow through on details.
How well do you get along with different personalities? Business owners need to develop working relationships with a variety of people including customers, vendors, staff, bankers and professionals such as lawyers, accountants or consultants. Can you deal with a demanding client, an unreliable vendor or cranky staff person in the best interest of your business?
How good are you at making decisions? Small business owners are required to make decisions constantly, often quickly, under pressure, and independently.
Do you have the physical and emotional stamina to run a business? Business ownership can be challenging, fun and exciting. But it's also a lot of work. Can you face 12-hour work days six or seven days a week?
How well do you plan and organize? Research indicates that many business failures could have been avoided through better planning. Good organization -- of financials, inventory, schedules, production -- can help avoid many pitfalls.
Is your drive strong enough to maintain your motivation? Running a business can wear you down. Some business owners feel burned out by having to carry all the responsibility on their shoulders. Strong motivation can make the business succeed and will help you survive slowdowns as well as periods of burnout.
How will the business affect your family? The first few years of business start-up can be hard on family life. The strain of an unsupportive spouse may be hard to balance against the demands of starting a business. There also may be financial difficulties until the business becomes profitable, which could take months or years. You may have to adjust to a lower standard of living or put family assets at risk.
Finding a niche
A market in its entirety is too broad in scope for any but the largest companies to tackle successfully. The best strategy for a smaller business is to divide demand into manageable market niches. Small operations can then offer specialized goods and services attractive to a specific group of prospective buyers.
There are undoubtedly some particular products or services you are especially suited to provide. Study the market carefully and you will find opportunities.
As an example, surgical instruments used to be sold in bulk to both small medical practices and large hospitals. One firm realized that the smaller practices could not afford to sterilize instruments after each use like hospitals did, but instead simply disposed of them. The firm's sales representatives talked to surgeons and hospital workers to learn what would be more suitable for them. Based on this information, the company developed disposable instruments that could be sold in larger quantities at a lower cost. Another firm capitalized on the fact that hospital operating rooms must carefully count the instruments used before and after surgery. This firm met that particular need by packaging their instruments in pre-counted, customized sets for different forms of surgery.
While researching your own company's niche, consider the results of your market survey and the areas in which your competitors are already firmly situated. Put this information into a table or a graph to illustrate where an opening might exist for your product or service. Try to find the right configuration of products, services, quality, and price that will ensure the least direct competition.
Unfortunately, there is no universally effective way to make these comparisons. Not only will the desired attributes vary from industry to industry, but there is also an imaginative element that cannot be formalized.
For example, only someone who had already thought of developing pre-packaged surgical instruments could use a survey to determine whether or not a market actually existed for them. A well-designed database can help you sort through your market information and reveal particular segments you might not see otherwise.
For example, do customers in a certain geographic area tend to purchase products that combine high quality and high price more frequently? Do your small business clients take advantage of your customer service more often than larger ones? If so, consider focusing on being a local provider of high quality goods and services, or a service-oriented company that pays extra attention to small businesses.
If you do target a new niche market, make sure that this niche does not conflict with your overall business plan. For example, a small bakery that makes cookies by hand cannot go after a market for inexpensive, mass-produced cookies, regardless of the demand.
Protecting your ideas
It's not easy to think about ideas as property, but for some businesses it's vital. Most of us have had an idea for a new product or service only to dismiss, postpone, or neglect it. Sometimes we later find that others had the same idea, but took it to market before we did. By that time, it is too late for us to take advantage of the idea.
Ideas are relatively easy to come by, but inventions are more difficult. It takes knowledge, time, money, and effort to refine an idea into a workable invention, even on paper. Turning an invention into an innovation - a new product accepted by the marketplace - takes a lot of effort and a little luck. There are substantial barriers in the path of those who pursue innovation. Overcoming them requires careful planning and plenty of input from others.
Hundreds of thousands of inventors and innovators file each year for protection under U.S. patent, trademark and copyright laws.
However, it can be hard to decide which of the three vehicles is most appropriate for the protection of a particular invention. Although a single product or service may require a patent, a trademark, and a copyright, each category protects a distinct aspect of a creative work or expression.
Patents, copyrights and trademarks, as well as know-how or trade secrets, are often collectively referred to as intellectual property. Many firms have such property without even being aware of it or of the need to take measures to protect it.
Many people's notions of intellectual property are unrealistic. Some believe, for example, that simply having a patent on a product will enable one to succeed in the marketplace. Consequently, they may spend thousands of dollars to obtain the exclusive rights to market something that no one wants or can afford to buy. Others may decide that intellectual property protection is not worth the trouble.
People who may not be interested in protecting their own rights must still take precautions to avoid infringing on the rights of others. This calls for more than the avoidance of copying. Some copying is unavoidable; but one can easily infringe on the rights of others without deliberately imitating specific features of goods or services.
Business plan basics
A business plan precisely defines your business, identifies your goals, and serves as your firm's resume. The basic components include a current and pro forma balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions.
Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan application. Additionally, it informs sales personnel, suppliers, and others about your operations and goals.
The importance of a comprehensive, thoughtful business plan cannot be overemphasized. Much hinges on it: outside funding, credit from suppliers, management of your operation and finances, promotion and marketing of your business, and achievement of your goals and objectives.
"The business plan is a necessity. If the person who wants to start a small business can't put a business plan together, he or she is in trouble," says Robert Krummer, Jr., chairman of First Business Bank in Los Angeles.
Despite the critical importance of a business plan, many entrepreneurs drag their feet when it comes to preparing a written document. They argue that their marketplace changes too fast for a business plan to be useful or that they just don't have enough time. But just as a builder won't begin construction without a blueprint, eager business owners shouldn't rush into new ventures without a business plan.
Before you begin writing your business plan, consider four core questions:
* What service or product does your business provide and what needs does it fill?
* Who are the potential customers for your product or service and why will they purchase it from you?
* How will you reach your potential customers?
* Where will you get the financial resources to start your business?
Writing the plan
What goes in a business plan? The body can be divided into four distinct sections:
1) Description of the business
Addenda should include an executive summary, supporting documents, and financial projections.
Although there is no single formula for developing a business plan, some elements are common to all business plans.
Elements of a Business Plan
1. Cover sheet
2. Statement of purpose
3. Table of contents
I. The Business
A. Description of business
D. Operating procedures
F. Business insurance
II. Financial Data
A. Loan applications
B. Capital equipment and supply list
C. Balance sheet
D. Breakeven analysis
E. Pro-forma income projections (profit & loss statements) -- three-year summary; detail by month, first year; detail by quarters, second and third years; assumptions upon which projections were based
F. Pro-forma cash flow
III. Supporting Documents
A. Tax returns of principals for last three years Personal financial statement (all banks have these forms)
B. For franchised businesses, a copy of franchise contract and all supporting documents provided by the franchisor
C. Copy of proposed lease or purchase agreement for building space
D. Copy of licenses and other legal documents
E. Copy of resumes of all principals
F. Copies of letters of intent from suppliers, etc.
Using the plan
A business plan is a tool with three basic purposes: communication, management, and planning.
As a communication tool, it is used to attract investment capital, secure loans, convince workers to hire on, and assist in attracting strategic business partners. The development of a comprehensive business plan shows whether or not a business has the potential to make a profit. It requires a realistic look at almost every phase of business and allows you to show that you have worked out all the problems and decided on potential alternatives before actually launching your business.
As a management tool, the business plan helps you track, monitor and evaluate your progress. The business plan is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments.
As a planning tool, the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. Many business owners share their business plans with their employees to foster a broader understanding of where the business is going.