Every year thousands of Americans start their own business. Sadly, the majority of these businesses fail within a few years. While there is no way to avoid the risk of starting your own business completely, you can reduce it. There are several steps to reducing this risk, but the first, and most important is to write out your business plan and stick to it.
If you plan to take out a loan to fund your business, you must have a business plan in place before meeting with the bank. Banks give loans for the sole purpose of collecting interest on those loans, not to help you start your business. The bank is not your friend; it is not your ally, it is not going to help you unless you can prove that your business can be profitable for it. Therefore, a solid business plan is a must; you need to be able to show the bank that your plan can succeed.
In addition to getting a loan, having a solid business plan gives you a model to follow while running your business. It gives you a roadmap, ideally with timeframes and financial goals, but it also gives you something to measure your progress against.
You should set well established, but attainable milestones when writing your business plan. These milestones can be as simple as turning a profit or as complex as opening a second location. It is important to set both small, easily attainable goals, as well as larger, more difficult goals. The smaller goals serve to keep you motivated and help track your progress while larger goals allow you to see the bigger picture and see just how much your business has grown.
It is clear that writing a business plan is one of the most important things you can do early on in your business, but how do you actually go about writing a business plan? It is not as difficult as you might imagine, but it can, and should, take time.
Start With an Outline
When you first start your business plan, you should start with a simple outline. Do not worry about filling in the details just yet that comes later. For your outline, you should determine what type of business you want to start and who you plan to make your target audience. Establishing a solid audience is vital when starting a business.
When selecting your audience, you have two main options, target a general audience with generalized services and products, or target a niche market. While the general market offers a wider range of customers, it can be more difficult to get into because of market saturation. You wouldn’t open a small grocery store right next to a Walmart, would you? If your business idea is already well established in your area, it can be difficult to enter the market. Humans are creatures of habit, so finding a new store when they already have one is unlikely to happen.
The second option is to find a niche market. A niche market can be anything that is specific to one group of people. The problem with starting a niche business is that your clientele is far more limited than a general market. The advantage is that you are unlikely to have as much competition, especially locally. Many niche businesses operate solely online to avoid this lack of clientele. It is much easier to reach a wider customer base online than in your local area. A niche can be an untapped market, if there is not a market, your business is doomed to fail.
Determine How Large You Want to Grow Your Business
This is a vital step that you should not skip. You should decide early on just how large you plan to grow your business. Do you want to open a second location? A third? Maybe your goal is to become a local or regional chain? All these goals are attainable, but not if you do not have a clear vision.
The reason it is so important to determine how large you want your business to be in the beginning is so that you can decide how best to allocate your funds. As your business starts to take off, you should enter the black, but how do you handle being in the black? Do you reinvest in your current location? Do you use it to expand to another area? These are all questions that you must ask yourself, and if you have a plan early on, it is easier to stick with your plan and avoid wasting money.
If your plan is to remain a one-store operation, you may want to invest in your current location and make improvements to your building. You might even consider moving to a new location or even constructing your own building specifically to meet your business needs. You can also improve your offerings to attract more customers and provide additional services. There are countless ways that you can improve your business without expanding to additional locations.
If your plan is to expand, you may consider scouting other locations and possibly purchasing a lot or building for a future location. You must also decide how you plan to manage your new location. Do you plan to leave someone else in charge of your original location and handle the new location yourself, or are you going to hire another manager to take over the new location? You could also have managers at both locations or manage both yourself, but it is important not to overstretch yourself, or your business can suffer.
Then, there is also the web route. Many successful online retailers began as brick and mortar stores but expanded into the web market. If this is your goal, a solid, well-built website is an absolute must. For brick and mortar, a basic website with a location and hours of operation is generally enough. You can also take a hybrid approach, offering online orders that ship or can be picked up from your store.
If you choose to use the web route, it may also be time to consider adding drop shipping as an option. By using drop shipping, you can offer a much wider range of products without having to invest in additional inventory. This reduces the risk to your business as well as the warehouse space needed. If you are not familiar with dropshipping, the customer places an order on your website, then your website automatically forwards the order, along with payment, to the manufacturer, and you keep the profit. The item then ships directly from the manufacturer to the customer.
You must also plan your staffing needs. Do you plan on being your only employee or having your family work at the store, or do you plan to hire a staff? When starting out, it is almost guaranteed that you are going to be working in your own store, but this can change over time as your business grows.
Write an Executive Summary
This is where you really start getting into writing your business plan, rather than just laying out the framework. Your executive summary is vital for attracting investors. It is the first piece of information they are going to read about your business plan and, if it is poorly written, the last.
Your executive summary should be a short, usually no more than one page, a summary of your business model, your growth expectations, your target audience, and your staffing needs. It should be a description of your entire business in the broadest sense, but it should also be detailed enough to show that you have thought out your plan and put in the time to do your research into the market.
If your executive summary is too long or drawn out, it is likely to turn investors away. Likewise, if it is too light on details or too convoluted, investors are likely to feel that you lack the commitment to the business. If your investors feel that you are not committed to the business, why would they invest their capital into you? You need to show them your determination to succeed. It can be difficult to fit all of this information into one page, but it is an effort that you must make, and it is certainly not the last difficult task you are going to face while running your business.
You can hire consultants to evaluate your summary, as well as your entire business plan, or even write one for you. It is generally best to write your own plan and have a consultant rewrite it, rather than have the consultant write the entire plan. If you do choose this route, be sure to familiarize yourself with all aspects of the proposal before setting up any meetings with investors.
Determine your Marketing Strategy
Marketing is the key to any successful business. It does not matter how much startup capital you have or how good of a product or selection you offer if customers cannot find you. This makes marketing one of the single most important aspects of any business model.
In the 1990s and prior, radio and TV ads were the gold standard. If you could take out a local TV or radio ad, you could reach customers in your area with ease. Today, however, more and more people are ditching cable and relying on streaming services for music and shows, making these once-great choices simply obsolete.
While marketing is not as simple as it once was, it is much more customizable. Thanks to the internet, you can target a specific audience based on their browsing habits and interests, rather than targeting a general audience. When targeting a general audience through TV or radio, most people who see your ad are going to ignore it because it is not relevant to them. With internet ads, this is not the case. Sure, most people ignore ads, but you are still able to target a specific group, rather than making a broadcast.
Since marketing is more targeted now than it has ever been, it is important to let your customers know exactly what makes your business different. Tell them why they should come to you, rather than the competition. Remember, large companies have a much larger marketing budget than you, so they can reach more customers. You must convince your customers to come to you and often spend more than they would at a large company.
Determine Your Focus
Thankfully, many people are beginning to shift their business toward small business, rather than corporations. While this may cost more, many see it as a worthwhile expense to support people in the own community, rather than feeding millionaires and billionaires by shopping at stores such as Walmart or online retailers like Amazon.
When writing your business plan, you should decide early on how you plan to pursue marketing based on this. Are you going to hire a consulting firm or handle marketing yourself? You can also hire social media marketing experts to help you reach a wider audience. Be careful with this option; however, as it is common for people to claim to be social media gurus but have not formal training or experience. When pursuing this route, look for a degree in marketing or prior experience with social media marketing.
You can also choose to use a service such as Google or Facebook ad services. Both of these companies offer packages to get your ads to the right customers based on their interests. Using an automated service such as Google or Facebook can also save you a significant amount of money compared to consulting firms.
Use your Staff to the Greatest Effect
Another reason why so many people are switching to small businesses is that small businesses tend to treat their staff better than large companies. Providing your staff with good pay and benefits can have massive ripple effects.
When your staff is happy with their work environment, they are more likely to tell their friends and other people about your business. This, in turn, makes customers more willing to spend the extra money at your store, rather than going for the cheapest option.
The inverse is also true, treat your staff poorly, and you are likely to gain a bad reputation in the community, and encourage customers to avoid your business.
Use Accessible Language
If you are starting a business that relies on technical jargon, it is best to avoid these terms when writing your business plan. You should keep your audience in mind. Since most investors are unlikely to be knowledgeable about technical jargon for various subjects, it is best to avoid it altogether.
If your investors cannot understand your business plan, they are unlikely even to finish reading it. Remember the old adage, KISS. Keep it Simple Stupid. By keeping your business plan in simple, easy-to-read the language, you ensure that your investors can understand the plan and make an informed decision about whether or not to invest in your company. Since you need their investments, it is best to cater to your investors as much as possible.
Likewise, do not make it too simple. If you try to dumb down your business plan too much, it can come across as condescending or even make investors think that you do not understand the material yourself. Balance is particularly important here. This is another area where hiring a consultant that specializes in businesses like yours can be a great help in developing your business plan.
Be Confident
It may seem like everyone else has it all figured out while you are stuck trying to work out your plan. This is not the case, however. Most people who start their own business are just as lost in the beginning as you. Most new businesses are started by people with experience in their field, not business degrees. A business degree can certainly help you establish and manage your business, but it is not a requirement.
The most important thing to remember is to have confidence in yourself and your business. If you don’t believe in your own idea and determination, why should anyone else? These are not your friends that you are pitching your business to; they are investors.
Explain Your Place in the Market
With the market often saturated, it is important to let your investors know exactly why you want to enter the market. What is it that sets your business apart from the rest, and what services are you going to offer that others in the area don’t? If you can’t explain what makes your business unique, you are unlikely to gain the support of investors.
Are you considering opening a bakery? Bring samples to your meeting to show off your skills. If you can prove that you are providing a higher quality product than what is already available, you can get the attention of your investors.
If your business is about research or development, bring a portfolio of your previous projects. If you are a developer who wants to start your own firm, you have likely already worked in a professional environment to gain experience. Show you, investors, what you can do. In a crowded market, you must set yourself apart from the rest in order to be recognized.
Make Financial Predictions
This is one aspect of your business plan that is likely to require outside help. You need to make financial predictions based on current market trends in the area. This can seem like a daunting task, and it is for those who are unfamiliar with the process. In this case, hiring a consultant is the best option for providing accurate estimates.
Your investors are going to want these numbers so that they can see a clear prediction of your expected profits or losses. Just because a business does not show predictions for entering the black early on, that does not mean that you cannot find investors.
Many of the largest businesses today run at a consistent loss and rely on investors to stay afloat. For example, Netflix and Uber have never turned a profit. Both companies are worth millions of dollars, but neither one has ever been in the black. Investors are willing to contribute to these companies, however, because of trends in the stock market and the potential for future profits.
Conclusion
Writing a business plan is no small feat, and it can determine the success or failure of your business right in the beginning. Your business plan should concisely explain your business model, what sets your business apart from the rest, and how you plan to proceed once you open it. It should serve as a roadmap for both yourself and your investors.
Your business plan does not have to be set in stone, and you can easily change it once your business starts to develop, but you should always have a plan in place. By sticking to your business plan, you can reduce wasted money as well as prove to your investors that you are using the capital they provided to its greatest effect.
Remember, a failure to plan is planning to fail. You must know where you plan to take the business as well as set milestones to track your progress. Set small milestones to act as place markers and large milestones to act as concrete goals.
Most importantly, make sure that your business plan clearly outlines the goals of your business, your business model, and your company statement. These are the items that investors are going to look for when considering your proposal. Also, keep it short and concise while still providing all of the relevant information. Investors are not going to read a massive business plan, but they can always contact you for more information if you pique their interest.
