In my previous post, I explained why every aspiring entrepreneur must create a business plan. If you are serious about starting your own business while you keep an existing job, a business plan will help you focus your effort and determine what not to do as you build your business. This week’s post will explain how to create a business plan that balances detail, strategy, and effort to help you launch your business.
Too many aspiring entrepreneurs create a business plan to obtain a bank loan. Your business needs a roadmap against which you measure success or improvement needs. Banks and investors will be interested in a business plan, but you must create and maintain your plan to help you run your business. A strong business plan is the most important tool you will create for eventual business success.
Here are four tips to consider to create your own business plan. Every business is different, so please consider these as guidelines and tailor each tip to your unique situation. Feel free to contact me at [email protected] if you have more specific questions about the business planning process.
1. Business plans must tell a story
We all relate better to stories than technical terms or dry language. The more you can write your business plan as a story, the more the business comes to life. Think of a story from your childhood. What details can you remember? Can you see the colors, smell the food, or hear the unique sounds? Great movies or television shows also draw us into a story. We simply follow the details of stories more than technical language.
Great business plans take the creator and readers through the story of the business. Provide examples of how you plan to help people. What “pain points” will your business help? Who are the ideal customers or clients you plan to serve? How will you “wow” these ideal customers with your idea? All of these questions and ideas form the story around which your business will revolve.
2. Business plans cannot start with sales
I created a video on my Whiteboard Business Partners blog several weeks ago showing why starting a business plan with sales assumptions is a bad idea. While the idea of serving
others is noble, the truth is all businesses must earn profits and cash flow. We can’t start a business plan assuming a certain level of sales, because sales are the most unpredictable part of any business plan.
I recommend you start your business plan with what I call a “bottom-up” method of planning. Start your planning by determining your target level of profit, then add your expenses to your profits to reach the needed level of sales. Here is a very simple example of bottom-up planning to illustrate my point.
- Desired profits – $50,000
- Expenses – $25,000
- Required sales – $75,000
In this example, do you believe your business can generate $75,000 of sales? If not, then you must plan for lower expenses or reduce your profit expectation.
When in doubt, assume higher expenses in your planning. Even the best business owners tend to be too optimistic about their expenses. Hidden expenses such as taxes, additional office supplies, and extra advertsing and marketing can quickly make your planned profits evaporate. Be sure to always add additional expenses to your plan to cover any unexpected expenses.
3. Set short-term and measurable goals
Do not focus too much on financial results. While we all want to know “the bottom line”, financial figures are the scoreboard representing the success of our efforts. Focus your goals on what you can control. For example, a consulting company can measure how many sales prospects it meets and how many free consultations it offers. A product business should measure how many products it sells compared to its plan. Most of these goals should only measure the next 90 days of activity. While it’s important to consider what your business can do in the next several years, your immediate focus must be on what you are doing in the immediate future to generate profits and cash.
4. Start business plans from the inside out
Tim Berry, the principal author of “Business Plan Pro” and “Plan as You Go“, emphasizes starting your business plan with the heart of your business. Your identity, target market and ideal customer, and focus are what you can create and develop in your business. Do not start a business plan with financial figures. Start with why you want to start your business and who you can best serve.
Business planning should not be a long, detailed, and boring exercise. Your business planning process should get you excited about where your business is going and how you will deliver meaningful value to your customers.