Every business, whether a large commercial venture or a small home-based enterprise, needs to analyze its potential, examine its strengths and weaknesses, and determine the future of the organization. It works for the major corporations and it will work for you, especially once you become involved in the day-to-day operations of the business. Having a business plan will give you the freedom to follow the steps you have carefully laid out with regard to budgeting, the success ratio of your product or service, the hiring of employees, and other growth decisions.

Once you have made the decision to become a business owner, you must devise a specific statement that clearly outlines what you plan to do, when you plan to do it, and how you will accomplish the short- and long-term goals.

Not only will this keep you on track, it will serve as an indicator to others of your sincerity and knowledge when you go out to find start-

up or expansion capital, and it will serve as the foundation of your financing proposal.

The other advantage is that the actual task of putting your business plan together will help you define and clarify every step of your concept and, if done in a conscientious and objective manner, will point out potential trouble spots that can be addressed before they become major problems.

If all the necessary components are covered, it will put your business on the road to profit. It is a sure bet that, down the road, if you find your business is not generating the income you had originally projected, this is because you didn’t include one or more of the basic business plan requirements.

Not a Guessing Game

Like any other major project, preparing a business plan involves time and research. It shouldn’t be a guessing game. It will be necessary to ask yourself some very specific questions and to answer them thoughtfully and honestly. The business plan is your foundation, so build it carefully to ensure that it works at optimum efficiency for your needs. And make sure it is typed, orderly, and good looking so that you and others can recognize its importance in the professional scheme of your expanding operation.

An important aspect to remember is that your business plan is not cast in stone. In fact, what makes a business plan so great is that it invites revisions as your business changes and grows. This makes it a companion in your success and, by reviewing it regularly, a partner in your progress.

Key Questions to Ask Yourself

The first question you must ask yourself is: “Why am I interested in this particular business?” Probably the answer will be something to the effect of wanting to be your own boss and making money…independence and income.

This answer is fine as a personal goal, but it isn’t going to be good enough if you are planning to approach potential lenders for funding. They will want to see an overview of your business concept, why you are convinced it will be successful, and where it fits in the scheme of similar businesses in your town or city.

The next question you must ask is: “What is my product or service?” This may seem like a ridiculous question since you know your product is gift baskets or your service is catering, local sightseeing tours, or whatever, but it goes deeper. Your written response will include details about the service or a description of your product (preferably positive), with a focus on why customers will be inclined to work with you.

Additional questions to consider should include:

F Why do I believe there is a need for my product or service?

F How do I plan to develop my business over the next five years?

F How much will I charge to ensure value to the customer and profit for myself?

F Who are my suppliers?

F Who are my customers?

F What equipment do I need to start the business?

F How much inventory and supplies do I need for start-up?

F What will it cost?

F Who are my competitors and where are they located?

F What does the competition offer and how will I offer something different to attract customers?

F What changes are occurring in my marketing area that will impact my business in the future?

F What are my estimated sales figures for each of the next five years? (A guess estimate can be based on researching similar businesses in the area.)

F How will I advertise and promote my business and how will I pay for it?

F How and where is my product going to be manufactured?

F What is involved in the production,materials, labor, costs?

F Where will my service be performed?

F What equipment is required for my service and what are the costs for leasing versus purchasing?

F What are other overhead expenses (rent, employees, etc.)?

F How many people will be involved in the business and what are their qualifications?

F If I don’t have employees, am I qualified to run the business myself?

By talking with people in similar businesses, suppliers, direct competitors, and your local chamber of commerce, you will gather a great deal of information, both positive and negative, about your potential business. People love to talk about their success and, if you ask in the right way, their failures.

If you operate like an investigative reporter for a few days while doing research for your business plan, it’s guaranteed that you will obtain plenty of good, solid information. A Service Corps of Retired Executives (SCORE) representative through the Small Business Administration can also provide assistance or tell you about resources that can help you develop a realistic business plan.

Trade associations, listed in reference books available at your local library, can provide you with invaluable details on industry facts and figures, such as the percentage of gross sales that should be spent on advertising, the percentage that is typically paid for rent in your particular business, and how to price your product or service.

Financial Statements

Once you have written your business plan overview and description sheets, it’s time to get down to numbers. This is the key to your business plan and, unfortunately, the area where many entrepreneurs get bogged down. But without an understanding about the numbers involved, you can never expect to be a good manager and really shouldn’t be surprised if you run into money problems within the first year.

Utilizing resources,chamber of commerce, trade associations,you will need to work up your financial pages to include the following components, which most lenders will want to see projected for one and five years.

F Projected operating expenses. This projected number includes materials, advertising, salaries for employees or outside labor, and other expenses directly related to the cost of doing business.

F Estimate of gross (before tax) sales revenue. If the business is not yet operating, base your estimate on research figures from trade associations and what the local market dictates. If business is under way, base your estimate on how many items or hours of service you plan to sell and the average price you plan to charge.

F How you arrived at the figures for these statements. Generally, you would base your figures on assumptions made about the number of months of operation, estimated number of sales, and the average amount versus the cost of each sale.

F Cost of equipment and furnishings. Get estimated quotes, whether you are planning to purchase or lease these items.

F Cost of materials. You need to know how much items will cost for production, if applicable, and for maintenance on equipment needed to run the business.

F Additional operating expenses. You should research prices for rent, telephone and other utilities, business taxes and license fees, office supplies, and even decorating costs. Include a category called “other” to provide a cushion for unexpected expenses.

F Balance sheet. This shows assets, such as equipment and operating capital you already have, and liabilities or debts and expenses. If the business has not yet started, this would be a personal balance sheet indicating your net worth, listing all possessions of any value plus cash, stock, and other holdings, minus financial responsibilities.

F Leasehold improvements. If you are planning to rent a commercial location or redesign a room within your home strictly for business, estimate cleaning and restoration costs in this statement. By investing the time and energy into this portion of your business plan, you will absorb the numbers into your consciousness and be able to recognize, at a glance, when your costs exceed your profit margin or when you are in a position to start expanding.

If money matters are absolutely beyond your comprehension at this point, it would pay to hire someone to work with you to develop the

financial pages of the plan. There are business consultants and accountants who will probably charge you a substantial amount, or

you can approach the accounting or business department of the nearest college and see if there is a qualified student available to help you.

No matter who you find to assist you, however, be sure to stay involved in the process…the discipline and hard work will guarantee success.

Bob Rhodes is a freelance writer based in Los Angeles.