PLANNING FOR SUCCESS
Our Little Tycoon knows that if you want to succeed you must plan yet the process can be intimidating. In this section, our Bizmaster gives advice on planning and develops a planning checklist to make the process easier.
Our Computer Wizard tackled the toughest part of the job and developed interactive software which assists you in estimating the profit potential of a new business before you even start. When the results are printed in our "TAX FORMAT" you can compare your estimate to operating businesses at Bizstats.com.
Planning checklist Financial checklist The biggest problem in doing a business plan is often, "Where do I start?"
If you have never done a plan before, it might be wise to start with the BIZMASTER'S INTRODUCTION.
If you have completed your search for knowledge, you might be tempted to save time by skipping the introduction and jumping into the organization of your thoughts with our verbal planning checklist.
Often, the biggest problem for the business planner is doing financial projections on the cost to enter business and the prospects of earning a profit. If you need a little guidance, jump to the financial planning checklist.
If you would like to review plans that others have done, visit the sample plans offered by PaloAlto.com.
When you are ready to do a plan, you can do it on your own by using our checklist or use the software from our partner PaloAlto.com. For a free demonstration, Click below:
BIZMASTER'S INTRODUCTION
The first issue to discuss is why anyone would need a business plan and there are several good reasons. First and foremost, no one "except perhaps your family and friends" would invest in a business without a description of the business and estimates of the chance of the business making money.
Even if you are rich enough to start a business without loans and venture capital, it is still a good idea to have a plan because it improves your chance of success. When people create detailed plans for houses, most houses will survive for hundreds of years. Some are even strong enough to survive the unusual conditions of earthquakes, hurricanes and tornadoes.
An outrageous percentage of new businesses fail because they were started without plans. Most banks require a business plan for a business loan because it helps them to understand the business and it also improves the business' chance of success.
Small businesses without plans fail during good times as well as bad because people open the doors to their business and hope for the best. When you plan, you have a good idea of the revenues to expect and the expenses you will incur. You have a realistic idea of profits before you open the doors.
By now, it should be obvious that the first step in developing a business plan is the search for information and during this phase, it is natural to focus on how to start your business. An equally important problem is how much money will you make.
If you are having trouble with organizing your search, you might want to read 10 Steps to Business Success.
Planning for an unknown future is tough. However, there are some elements that should be included in the perfect business plan.
- A well-defined product description and marketing plan to sell and deliver the product to a specific target market.
- Full knowledge of all competitors including their target markets, product lines and pricing strategy.
- The product must fill an apparent need which is currently week or missing in the market.
- The estimated sales volume must be realistic and sufficient to support the new business.
- The price that the product is offered at must be correct for the target market. It must be high enough to earn a good profit yet low enough to be competitive.
- There must be complete and realistic estimates of all expenses.
- Realistic estimates of sales from steps 4 & 5, and expenses from step 6 means very realistic estimates of Potential Profits
The concept of developing a plan involves both verbal and math skills and a lot of knowledge. The verbal and math are interrelated and it doesn't matter much which side you start with once you have a good understanding of your business.
Before attempting to develop the final plan, it is a good idea to use the following checklist to see that you have most of the answers. To make the process easier, the checklists are divided into VERBAL DESCRIPTION and FINANCIAL PROJECTIONS.
Start with your strength and then do the second part. The most logical sequence is to start with the verbal description, because choices you make involving the facility, renovations, product line, location, and advertising will all alter how much you have to invest and your income potential.
If you want to know even more about business plans, check the advice from our business partner Paloalto.com.
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VERBAL CHECKLIST FOR A BUSINESS PLAN (Printable version) I. Business Description
a. What type of business are you planning?
b. What products or service will you sell?
c. How is it unique?
d. What is the growth potential?
e. Why does it promise to be successful?
f. Who is the owner and why?
g. What is the organization structure?
II. Product Description
a. Describe in detail your product or service. What is the source of your product?
b. What is the breadth and depth of the offering?
i. How many different products or services?
ii. How many variations of a particular product?c. What will be the quality of your offering?
d. Describe your after sales service.
e. What brand names will you offer?
f. What arrangements are you making for customer financing?
g. What warranties will you offer?
III. Marketinga. Who are your potential customers?
b. How large is the market? Is the group of customers large enough to earn a profit?
c. Does your product or service meet the needs of your target market?
d. How will you price your product or service?
e. Is your price compatible with your target market?
f. What advertising and promotion will you use to reach your target market?
g. What is the cost of advertising and promotion?
IV. Competition
a. How many potential competitors do you have?
b. Where are they located?
c. What do they charge for their services or products?
d. Who are the best?
e. How will you be different?
f. How will you be better?
V. Location/facility
a. Where will your business be loacted? Why? What special features does this loaction have?
b. What steps are required to produce your product or service?
c. What will it cost to set up your facitlity?
d. How much inventory is needed and at what cost?
e. Who will be your suppliers?
f. What type of transportation is available for customers, suppliers and laborers?
g. What is the supply of labor?
h. What will it cost to produce your product or services?
i. Is rent reasonable compared to your competitors?
j. What utilities will you need and are they available?
k. Is security necessary and at what cost?
VI. Research, Design and Development
a. Have you carefully researched the industry you are entering?
b. What technical assistance have you received?
c. What research needs do you anticipate?
d. Are the costs involved in research resonable?
VII. Organization
a. Who will manage the business?
b. What qualifications does the manager have?
c. How many employees will you need? What will they do?
d. How will you keep your employees honest?
e. How will you structure your organization?
f. What are your plans for your employee salaries, wages and benefits?
g. What consultants or specialists will you need? Why?
h. What legal form of ownership will you use? Why?
i. What licenses and permits will you need?
j. Describe any trade association you have joined.
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FINANCIAL PLANNING CHECKLIST (Printable version)There are really two financial questions that have to be answered about your business. The first is, "How much money will I make?" And the second is, "How much will it cost me to get in business?"
If either answer is unacceptable, you must rethink the project. Most of the answers to the financial questions are dictated by the information obtained in the search phase. If the answers are unexpected, it may be because the search was incomplete and initial assumptions inaccurate. Don't quit - start the search over.
QUESTION I - HOW MUCH WILL I MAKE?Part one variable expenses. Some expenses rise proportionate to sales. For instance, the more sales the more employees, or the more sales the more sales tax and the more items you have to purchase to resell. Many accountants like to argue about the variable and fixed costs, and the answer is KISS (keep it simple stupid). If you know in your heart, you will not fire mom no matter how incompetent she is or how bad sales are then that is a fixed cost. If you have to pay rent, utilities and advertising no matter how bad sales are, they are fixed expenses. If some are mixed like utility bills in a restaurant, take a guess at how much is fixed and how much will go up with sales. Do not worry if your guesses are not perfect; just try to be accurate on your total expenses.
FIRST YEAR INCOME ESTIMATER (INTERACTIVE VERSION ) PART ONEPART TWO - ADMINISTRATIVE EXPENSES
TOTAL REVENUES OR INCOME
___________
___________ ___________ ___________ ___________ ___________ ___________ ___________ NET REVENUES FROM OPERATIONS
___________
PAYROLL & PAYROLL EXPENSE NOT COVERED ABOVE ___________ TAXES AND LISCENSES NOT COVERED ABOVE ___________ INTEREST ON BUSINESS LOANS ___________ TRAVEL & ENTERTAINMENT ___________ VEHICLE EXPENSE NOT COVERED IN PART ONE ___________ SUPPLIES NOT COVERED IN PART ONE ___________ LEGAL AND ACCOUNTING FEES ___________ RENT ___________ UTILITIES NOT COVERED IN PART ONE ___________ TELEPHONE ___________ INSURANCE ___________ ADVERTISING ___________ OFFICE, POSTAGE, ETC. ___________ BANK CHARGES ___________ DUES & SUBSCRIPTIONS ___________ REPAIRS ___________ EQUIPMENT RENTAL & LEASE ___________ DEPRECIATION ___________ OTHER_____________ ___________ OTHER_____________ ___________ TOTAL ADMINISRTRATIVE EXPENSES FROM PART TWO ___________
NET PROFIT BEFORE TAXES
(NET PROFIT FROM OPERATIONS LESS
TOTAL ADMINISTRATIVE EXPENSES)___________ LESS INCOME TAXES THAT WILL BE OWED ___________ NET INCOME AFTER TAXES ___________ Add back depreciation ___________ Less loan repayment ___________
NET CASH FLOW
___________
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