Following on from our overview of how to turn your hobby into a business, let’s look in more depth at the first step: The Business Plan.
So, you’ve decided to start your own business! Yippee! You’ve weighed the risks and decided this fits your flexible life goals, will provide a challenge and ultimately be – financially rewarding. Whether you’re starting from scratch or buying a business or franchise, a lot of thought and planning needs to go into it before you can hope to – make it successful. One very necessary tool that can help you cover your bases before you take the plunge and leave that reliable bi-weekly pay check, is a business plan.
So have you got a business plan in place?
Remember that a solid plan helps you start off strong and ensures you stay that way, and is one of the first things you should do. You may think it’s a total waste of time, but I can assure you, if done properly, it will make you consider things you had never thought of.
Technically, a business plan is a written statement of business goals, the reasons why they are attainable, and the plan for reaching those goals.
Practically, if you are wanting to start your own business, it is very important to go through the business plan process. It will help strengthen your new business idea, expose any weak links or show you how it just will not work. All of these things are very important to know “before” you start your business – not after you are committed.
There is heaps of help on this but remember a business plan is written for different reasons – so think about whom you are writing for (equity lender, debt lender or planning tool for the business), and make sure you get the message across. Work out your objectives and strategies first, before you tackle the business plan. Your objectives should be specific, concrete and measurable. Your strategies should provide insight into how you will achieve the objectives.
The business plan should include qualitative and quantitative elements, and should be realistic when making projections. Let’s be honest – we all want to be bigger than Ben Hur, but… we also have only so many hours in a day, and juggle many responsibilities already. Underestimate your revenues and overestimate your expenses! If the numbers in your estimates show you that realistically there is no chance of a profit at a competitive price that people are willing to pay then you need to re-think the concept.
At a minimum include cash flow forecasts for the next 36 months, and you should definitely include break even cost analysis and a comparison to industry benchmarks and ratios to ensure your assumptions are correct. A solid marketing strategy in the business plan is critical – who is your target market, how many competitors do you have, what are the market trends and seasonal fluctuations (think swimming pool company or a lawn moving business).
Some tips to write a good business plan:
- Arrange it logically with a table of contents, an executive summary and the chapters in a meaningful order.
Keep it the clear and concise and professional looking (use infographics, graphs, photos etc) ideally no more than 15 to 30 pages with attachments. Remember the age old adage KISS!
- Describe the objectives and strategies to achieve the vision and what the expected achievements will be for the next 3 to 7 years.
- Prove the marketability of its products or services using verifiable data – (i.e.) who is your market, and explain how your products or services will benefit your target market (i.e.) what gap in the market do you fill, or how do you do it better than the rest? What is your value add? Financially justify how it will sell its products or services.
- In the case of product(s), explain product development, manufacturing processes and associated costs.
- The people behind the business need to be shown to have the necessary managing experience and complimentary business skills.
- Create believable financial projections with key data explained and well documented.
- Be able to orally present this business plan in an easily and concisely explainable, well- orchestrated manner.
Once complete, the business plan is something you should refer to often and update and change frequently to meet the changing environment of your business.
Remember, Business Plans are not just for start-up ventures. They can also be very useful to existing companies that are expanding, needing additional funding or adding a new product line. Happy planning!