Before proceeding, careful planning is needed to ensure business success.
Special "business tools" reduce risk and increase chance of success if used properly. Each tool
covered in this chapter plays a big part in the success of your business, so don't leave any of them out.
These tools include Cash Flow Analysis, a Business Plan, Budgets, Business Volume Projection and Time Management (calendars, time lines, etc.).
The business plan is the overall outline of the business. It forces a business owner to think about all areas
of the business and make some important decisions regarding the business. If any of the plan is
incomplete, it means there is a hole in that area of business management. The business plan can be
an informal set of ideas kept in one's head, or a carefully written out document. I prefer a
written plan, although there are plenty of very successful businesses that work from a loose set of
ideas that are nowhere but in the owner's head. Banks don't ask for a business plan as often as they
have in the past, but a business owner needs to know the answers to the questions that a business plan addresses.
The following is an example of a business plan format. There are several different types of
business plans; the following plan is simple, but addresses areas that I think
should be covered. If you are able to complete
all sections, you have covered a lot of key areas of business management, and you greatly enhance
your chance of success.
1.0 The Company
1.1 Historical Development
Write a few paragraphs about the history of the business. Purpose? Background? Need? Who started the business?
How did the business come about?
1.2 Current Status
Write a few paragraphs about the current status of your company. Who is involved now? Current focus? Location?
Qualifications of owners? Who does the business work within the community? Competitive edge?
1.3 Plan For The Future
Write a few paragraphs about plans for expansion into new areas (new product or locations). Also address any
increased services pertaining to current services or products.
The above is rather general. You do not need to be extremely specific, but it shows that you know where
your business has been and where it is going. Later parts are much more specific.
2.0 Products / Services
2.1 Description / Application
This section may be several pages. Write very specific paragraphs about your products and services.
Spectrum Accounting specializes in meeting the basic accounting and business management needs of small businesses and
professionals. The purpose is to provide high quality, affordable support services to this market. Such services include:
Accounting / Business Management Consultation
Business Image Consulation
Accounting Software Training
Productivity Tool Development (Spreadsheets to compute productivity)
etc.: list of all services
From here, you would go into detail on each of the above services. For example, for the first one, I might
start out as "Accounting services are supplied to businesses either on an as-needed consulting basis, or as a monthly
service. A reasonable monthly fee covers accounting reports, as well as one-on-one consultation at the time
the reports are presented..." Each topic would have its own paragraphs (or section of paragraphs).
How do your customers or clients benefit from your products or services? If there is no benefit for them,
they will not purchase it! You must be able to demonstrate a clear benefit - a "need" that you
"By understanding their current financial status, and where they are
going, clients of Spectrum Accounting can avoid many of the problems which lead to failure in so many small
businesses. By providing alternatives to other high-priced services, Spectrum Accounting allows for effective
financial management of the small business, which otherwise would have been forced to omit these critical
areas of business management..."
3.0 Market Analysis
3.1 Customer Profile
Write a brief description of your typical customer or set of customers.
3.2 Overall Market
This is a tough one because it requires RESEARCH on your part. You need to know how many of your type of consumer
there are, how many competitors you have etc. You must understand your market in order to know how
you will get clients or customers to come to you, rather than to a competitor. Know your customer as well as your
competitor! Charts and graphs can work well here. Refer to graphs showing the growth rate of your area, especially if
it easily correlates to an increase in need for your product. You can learn a lot of key information by
completing this area of the business plan.
3.3 Market Segment
You need good, specific data here. What percentage of the market are you planning
to overtake in each area of service or product? For example I might state that I plan to take on x% of new businesses
forming in my community and there are x number of new businesses forming each year; therefore I plan to
increase the accounting portion of my business by x clients per year. This part of the plan takes time and requires
work on your part. No "imagined" numbers here - you need real facts and figures. Also be sure to address
the competition - what do they provide and how will you be different? Why, specifically, would someone come
to you rather than to your competitors? Location? Service? Access to clients?
4.0 Marketing Strategy and Sales Plan
4.1 The Prospective Customer
Who is your customer? Are they divided into specific groups (women, children, seniors, etc.)? You need to
identify your specific customer types so you can plan your marketing strategy. Remember the car detailer in Chapter 5?
He knew that professional business people were likely candidates for his service; therefore
he posted fliers on expensive cars in the parking lots of medical and legal offices. It worked very well. Divide
your customers into groups and attach them to the various services you provide. In the example I just gave,
he had one group of professional clients whom he advertised his total detailing service to. If he also provided
basic cleaning, he could have advertised this service to another market.
4.2 Sales Plan
What will you use as advertising pieces? Business cards? Brochures? Yellow Pages ad? A website? Ebay? List them in this section.
You might also include samples of what you plan to create. You might have different business cards, brochures etc.
that target your different customer types.
List other types of advertising that would be useful. You might join a crafter's group, your local chamber of commerce,
etc. Be specific, because you need to have a well thought out plan.
4.3 Marketing Costs vs. Sales Projections
This is a difficult area. People often make up all kinds of nice numbers here that look good on paper but
cannot be backed up by any real statistical analysis. What you are looking for in this section is an idea of how
your marketing will pay off. How much in sales are you expecting to get by joining a crafter's guild? Sometimes, there
are no hard facts here. For example, you may not make direct sales from the guild, but your membership might
open other avenues for you.
5.0 Operations: Service Delivery
How do you plan to deliver your services and products to your customers? How will you initially reach them? This
is the section that covers your plans for the actual operation of these activities. Do you plan to meet potential
customers through phone calls? Craft fairs? Craft Circles? Internet? Where will your products be physically
located? How will they be delivered to your customers? Mail? Customer pickup? Break down your business again into different products and
services/products and customer types and decide how you will get your products out to these people. Will you provide "free samples"? How will
these be delivered? If you have "home crafting parties" how will your products be delivered? All of these details are
worked out in this section.
5.2 Materials and Inventory
If you must maintain inventory, where will it be stored? How will you keep track of it? How will you ensure the inventory
is kept at an adequate level? How will it be safeguarded (this is especially important if you have employees)?
What equipment is required for your business? Sewing machines? Storage containers? Computers? Shipping containers and materials? List all necessary
equipment. This is important because you might find in making this list that important pieces are missing. It would be a shame to grow
quickly and get a large amount of sales only to find out that you are not prepared to ship the products in an efficient and timely
manner to your customers.
Will you have employees? What will their specific functions be? How will you prepare for company growth? Will you have
a sales staff? What is the compensation plan? This book doesn't cover the full scope of company responsibilities regarding
employees. You need to call your local, state, and federal governments for more information. Refer to Chapter 3.
5.5 Quality Control
How will you maintain quality control? Who in your business is responsible for ensuring that all products meet your
standards? Can you maintain quality control as your business grows?
6.1 Operational Areas/Management Responsibilities
Identify your areas of service or product types here. Who will manage the different areas? Do you have a partner? Perhaps one
of you is responsible for procuring materials, as well as marketing and sales, and one is responsible for making the items that will
be sold, or overseeing the making of the items. Perhaps you will run your own craft business, but your spouse will take care of the books or
6.2 Skill Requirements
Do you have the skills necessary to get the job done? If your spouse is going to do the bookkeeping, does he or she
know how to do this? What skills are necessary for your business to be successful? How do you plan to obtain
any missing skills?
Financial Plan: Resources Needed
7.1 Needs, Sources and Costs
Equipment and Facilities
Again, make a list of equipment needed. This time, however, add the cost of each piece of equipment. What about facilities? Do
you need to rent space? Remember storage space! List every piece of equipment you will need including an office chair for the
computer, pens, paper, "Bookkeeping For Dummies" book etc. This area can add up quickly and you need an accurate
list of costs. If renting space, do you need a coffee machine? Cart for your coffee machine? You would be surprised
at how much it can all cost by the time you finish the list (this is where you might decide you don't really "need" some things!).
Start Up Costs
This area includes other costs of starting a business. What will a CPA cost? Lawyer? License fees? Permit fees?
Make up a list of monthly overhead costs. The list must be detailed. You might think there is no overhead because you work
out of your home, but you will incur extra costs with your business. If you sew, you might use more laundry soap due
to pre-washing fabric. Your electric or utility bills may be effected as well.
Typical costs of overhead include:
meals & entertainment
telephone and utilities
dues and subscriptions
postage and freight
Employees may be part of overhead if they are paid a set fee as office help.
This is where most businesses run into trouble. Do you have enough funds to maintain your business? If your monthly
costs of overhead come to $1,200 per month, do you have funds to cover this? You must be able to accurately say
that your profit margin on your products will be at least this much. This doesn't include an amount to be paid to you (unless you
included a fee for yourself as part of your "overhead"). What will be your minimum amount kept in checking? It should be an amount to
adequately cover your basic (overhead) costs. Overhead costs are costs that are not tied to sales. They are incurred
whether or not you have sales, such as rent (if you are working at home, higher utilities would probably only occur while
you are manufacturing your product, so utilities would not be overhead in that case - if you had no sales, you would not
have higher utility bills). In the world of economics, overhead is called a fixed cost. It is "fixed" at a certain
amount because you will have that same cost no matter what your sales are (remember that fixed costs are only fixed
until a certain point - if your sales really boom, you may need to rent a larger space).
When do you plan to pay yourself? Remember that all payables must be considered first (i.e. remember what bills need to be
paid before paying yourself).
7.2 Timing and Source of Investment
You need a carefully laid out plan that uses a time line for costs expected. How will the overhead be covered? What is the source
of funds? When will various pieces of equipment be purchased and how will they be tied to funds? I always gave
my clients a "cash flow" file I created on Excel. They used it on an on-going basis. Before making any decisions effecting costs
they were to plug the numbers into this spreadsheet and see how it played out over time. When a client called and asked whether
he should hire someone to help with filing, my first question was, "How does it look on the spreadsheet"? It may look fine for a while,
but 5 months out (maybe insurance is due then), he sees that he suddenly runs negative. The shortage may be 5 months away and cash flow
spreadsheets are less accurate the further out they go, but this gives a good warning.
How long can you stay in your current facility? If you work at home, how long can you do that? Will you need a larger space?
If so, when? Will increased funds become available by that time?
In this section, remember that you are not just identifying costs. The key to this section is identifying the timing
of the costs to ensure that funding will be available.
Financial Plan: Activity Projections
This is the section that contains your charts and graphs and financial statements, which are based on all of the
Remember to keep the following rules in mind when developing your plan.
1. Address all sections of the business plan. This will point out to you the areas in which you
really don't have a clear enough idea on how to proceed.
2. Be complete, but not overly specific; don't create a need to constantly
update your plan.
3. Keep your plan confidential. This is your "business bible" and contains many of your most
important business secrets.
4. Your business plan may be helpful in obtaining financing.
5. Refer to your plan often. It will help keep you on your planned path (although you may have
good reason for changing from your plan - in that case you might need to update your plan).