Three months ago, you were asked to think about the kind of business you wanted. In subsequent articles, you’ve been asked to gather information and understand some of what it takes to get a business started. Now it is time to take that step further and begin to plan the actual business.
Each year many businesses are started, and many more fail. Sometimes, it is the “product” that doesn’t work. It is more common that the business model fails. The business model is the who, what, when, where, how much, and at what price of the why (product). Everyone has experienced different businesses delivering essentially the same product or service. One succeeds and the other closes its doors. Why? Business isn’t only about the “product”.
The most visible aspect of business is typically its “product”. The structure behind the product is the operations that consume resources – people, time, equipment, and cash – and determine success or failure. How efficiently and effectively processes occur to deliver the “product” determines the cash position and profitability of the company. The product is what is sold; getting it to the customer – marketing, selling, delivering, and all of the support processes – determines if you can make money and stay in business.
Business success requires planning – whether formally or informally, on paper or in your head. The business plan generally consists of certain key elements:
- company mission/vision
- marketing/sales plan
- operational plan
- general administration
- capital investment
- financial plan/forecast.
One benefit of doing a formal business plan is that it requires you to formulate and write down all the bits and pieces that are in your head. Those bits and pieces are integrated (hopefully) into consistent assumptions and tasks that are quantifiable and enable you to understand the interconnectivity between the elements of your business. For example, what happens if you add sales staff to sell a new product, but the new product isn’t available for six more months? What happens if your competitor cuts prices?
For most people, thinking about starting their first business is intimidating and overwhelming. There is so much that you know you don’t know and there is so much that you may not know you don’t know. The combination of the two can seem insurmountable. Take a deep breath and pull out a notebook and pen and start writing.
Section One is the “WHY” of the business – what you want to do, sell, make, provide.
Section Two captures ideas and thoughts about “WHO” – customers, advisors, competitors, etc.
and how you think they can help you with the business (and WIIFM the what’s in it for me from their perspective).
Section Three is the WHAT you need – equipment, workers, etc.
Section Four is WHERE and WHEN. These logically combine, because you have to define things like where you are going to operate – to start, in six months, a year, and so on. Be specific about now and for the first year of the plan – out of my home until I have enough money to go to a shared office space, then at one year or when I have revenues of $X to a stand-alone office, etc. See the when and where do go together and lead you to the final section….
Section five captures HOW MUCH – time, money, and everything else. For example, this is where you put information on a computer and how much it costs to lease and buy. [Quick note: Often in small or early-stage businesses the decision is made on which alternative is less expensive in the long run. Instead the decision should consider which takes less cash today, usually the lease. More in a future article on cash flow!] This section is where you want to accumulate the alternatives for your “wish list” – new, used, and “make-do”.
To put it in perspective, when contemplating eating an elephant – you take it one bite at a time.
Copyright © 2004 Lea A. Strickland, F.O.C.U.S. Resource, Inc.