Business Planning Fundamentals

I'm a baby boomer, born in 1948. I've seen recessions before. I was job hunting during the recession of 1971. My wife and I were deeply in debt and trying to buy a house during the recession of 1982. We sold a house in California and moved to Oregon during the recession of 1992. We had to lay people off--five of 35--during the recession of 2001. And this recession seems like the worst I've seen.

So it's time to go back to fundamentals. That doesn't necessarily mean cutting costs, dropping products or selling off inventory. And it definitely doesn't have to mean cutting people.

The first fundamental is your planning, which essentially means watching things more closely. Track your progress on cash, sales, expenses, new projects, customer satisfaction, internet traffic, ad spending--all of it. And track it more closely.

Look for built-in indicators. It's your business; you know what they are. Think about what drives your sales--or expenses--and how you can get early warning about changes that might affect you. For some, it's as simple as street traffic or floor traffic. For others it's internet traffic or e-mail response rates or deal flow or lead generation. Don't wait for the results to play all the way through your system--look for them early.

One of the first things to do when things get tough is tighten the planning and shorten the planning cycle. Review your progress more often than usual. Think of it as zooming in on the detail--look at things by week instead of by month or by month instead of by quarter.

If ever there were a time for careful planning, it's now. It brings me back to one of my favorite quotes from Dwight D. Eisenhower: "The plan is useless; but planning is essential."

The second fundamental is watching the drivers of cash flow. Keep a very close eye on burn rate vs. revenues. Burn rate, in this context, is a lot like fixed costs, but more. Fixed costs are what you'd pay even if your business closed down. Burn rate is what you pay regularly every month to keep your business running, but without the variable costs of sales or direct costs. That includes probably all of your salaries (unless you have some assembly labor or part-time labor that goes up when sales go up and down when sales go down), your rent, your ongoing marketing expenses, your office expenses and all the rest. If your revenue goes down, you can maintain your burn rate for a while, sacrificing profits; but you can't let revenues stay under the burn rate for very long without losing capital and, if the problem continues, going under.

I know you know that, but I put it here because the vocabulary helps. Revenue vs. burn rate: keep the revenue higher than the burn. And don't forget that if you've got business-to-business sales, business customers are likely to take longer than usual to pay. That involves factoring in collection days--the measure of how fast customers pay what they owe you. If the collection days increase, cash decreases.

The third fundamental is people. Don't make the mistake of laying people off too soon. No matter how carefully you follow your plan, layoffs might be necessary. But don't be too quick because the recession will end. People are hard to find--especially trained people who know your business.

By Tim Berry

Guide To Low Cost Business

If you dream of being an entrepreneur, but lack the big startup bucks required by some new ventures, don't fret. With a little time and not a lot of money, you can still make your business dream a reality. A low-cost business, which requires a minimal investment for supplies and marketing, is perfect for whetting an entrepreneurial appetite if you're:

1. Already employed, but looking to dabble in your own side venture
2. Unemployed and looking to start your first business
3. A stay-at-home parent or student who's looking for extra income
4. A new "retiree" who isn't quite ready to completely retire

Action Steps
The best contacts and resources to help you get it done

Find low-cost business ideas and opportunities online
Coming up with ideas for low-cost businesses is easy with simple Web searches. With just a few clicks on your keyboard, you can find business opportunities that won't break the bank.

I recommend: Find a list of low-investment business startup opportunities at BusinessNation.com and go to Entrepreneur Magazine's SmallBizBooks.com to purchase how-to guides for businesses that take less than $10,000 to launch. Work.com's Guide to Resources for Starting a Business will hook you up with all of the help you need to get going.

Personal services
You already need to run your own errands; why not run other people's, too? With a reliable vehicle and available credit you can easily do other people's shopping — for a fee, of course.

I recommend: Advertise your services at Craigslist, which allows you to post free classified ads that stay online for as long as 45 days, depending on the type of ad and the city in which you live.

eBay sales
You can make a decent living buying antiques and collectibles at garage sales or flea markets, then selling them to hungry buyers online.

I recommend: Sell your stuff online at eBay. You'll need a digital camera with which to photograph your products, which you can buy for under $150 at Best Buy or Circuit City. Or take your items to an eBay drop-off store, such as AuctionItToday, which takes professional photographs of your items, writes copy and posts it for you.

House- and pet-sitting
Give your neighbors peace of mind by taking care of their houses when they're out of town, and their pets while they're at work.

I recommend: Market your services online at HouseCarers.com, which for a small fee will let you post an ad — good for an entire year — to its searchable directory of house-sitters nationwide.

Professional organization
Everyone wants to be organized, but few people have the time. For a fee, you can save people from their own stuff.

I recommend: Join the National Association of Professional Organizers, which will connect you with customers and teach you the tools of the trade.

Clerical work
Many businesses can't afford to hire a full-time secretary. That doesn't stop the paper from piling up on their desks, however. Make a business out of doing data entry, bookkeeping and transcription for your fellow business owners.

I recommend: Microsoft Office Small Business Edition 2003 is all you'll need to do office work for other businesses; it includes all the necessary applications and will be compatible with most any client's existing software.

Tutoring
Were you a good student? If so, consider tutoring. You can help kids of any age in any subject, from young children who need help learning to read to teens who need help studying for the SAT.

I recommend: You'll need to study up on a subject yourself before you can teach it; SparkNotesTutorNation.com. offers free online study guides on a variety of topics within a number of subjects. Obtain tutor certification from

Tips & Tactics
Helpful advice for making the most of this Guide

• A low-cost startup isn't likely to make you any money in its first few months. Stick with it, though, and it may just burgeon into a full-time opportunity.
• Run your business from your home to save money on rent and utilities. Doing so will save on taxes, too, because a portion of your mortgage and bills will be tax-deductible come April.
• If you're new to business, consider being a weekends-only entrepreneur until you learn the ropes of running your own company.

By Matt Alderton

Business Marketing Plan

Every marketing plan has to fit the needs and situation. Even so, there are standard components you just can’t do without. A marketing plan should always have a situation analysis, marketing strategy, sales forecast, and expense budget.

• Situation Analysis: Normally this will include a market analysis, a SWOT analysis (strengths, weaknesses, opportunities, and threats), and a competitive analysis. The market analysis will include a market forecast, segmentation, customer information, and market needs analysis.
• Marketing Strategy: This should include at least a mission statement, objectives, and focused strategy including market segment focus and product positioning.
• Sales Forecast: This would include enough detail to track sales month by month and follow up on plan-vs.-actual analysis. Normally a plan will also include specific sales by product, by region or market segment, by channels, by manager responsibilities, and other elements. The forecast alone is a bare minimum.
• Expense Budget: This ought to include enough detail to track expenses month by month and follow up on plan-vs.-actual analysis. Normally a plan will also include specific sales tactics, programs, management responsibilities, promotion, and other elements. The expense budget is a bare minimum.

Are They Enough?
These minimum requirements above are not the ideal, just the minimum. In most cases you’ll begin a marketing plan with an Executive Summary, and you’ll also follow those essentials just described with a review of organizational impact, risks and contingencies, and pending issues.

Include a Specific Action Plan
You should also remember that planning is about the results, not the plan itself. A marketing plan must be measured by the results it produces. The implementation of your plan is much more important than its brilliant ideas or massive market research. You can influence implementation by building a plan full of specific, measurable and concrete plans that can be tracked and followed up. Plan-vs.-actual analysis is critical to the eventual results, and you should build it into your plan.

by Tim Berry

Small Business Funding Tips

Obtaining funding should start with a solid business plan. If you write a convincing business plan, then your chances of obtaining funding are greatly enhanced. Lenders and investors want to see proof that customers want your product or service and are willing to buy it for a price at which you can make a profit. The more tangible evidence you offer of this claim, the better chance you have.

Other factors that improve your chances to get funded are:

• Your plan should show good profit potential in a short period of time.
• The higher the rate of return you can offer investors and the faster you can produce it, the better your chances. Your plan should target a clearly defined market with enough size and purchasing power to produce a profit.
• Investors also prefer large markets with high growth potential. They avoid businesses that attempt to be “everything to everybody.” Your plan should clearly explain the “competitive edge” your product or service has over rivals.
• You should show an ability to control both the delivery and the quality of the product or service. Also, that managers and employees have the skills and the experience to make the company a success.
• Show that you have made a personal investment in this business venture.
• If you don’t believe in your own venture enough to invest at least some of your own money in it, how can you expect others to? “Sweat equity”—unpaid personal time and hard work—can be important, but lenders and investors like to see an entrepreneur with an important financial stake in the business. It’s a tremendous source of motivation.
• Lay out a clear, well-conceived, workable strategy for getting this business up and running. Show realistic financial projections covering most likely, pessimistic, and optimistic scenarios.
• Potential lenders and investors want to be sure that the “dollars and cents” of the deal make sense, and that’s why realistic projections are important. Most entrepreneurs underestimate the amount of money needed for start-up. Don’t get caught short!

by Tim Berry

Right Business For You

If you want to work for yourself, but don’t have a particular business in mind, you’re probably wondering what kind of business you should start. Fortunately, the answer is always the same: start a venture you know intimately.

Know the ins and outs of the business
Don’t fall into the trap of starting a particular business just because someone tells you, “It’s a sure thing.” Potential customers will part with their hard-earned money only if you convince them that they’re getting their money’s worth, so you’ll need to know what you’re doing, no matter what the task.

Choosing a business you know
Starting a business in which you already have experience has many advantages. You can use your knowledge about the industry, your training and skills, and your network of contacts, who might help you find financing, suppliers and customers.

Example
For ten years Steve worked for several different construction companies — first as a journeyman carpenter and then as a project manager. When he got the itch to start his own business, it made perfect sense for him to start a small contracting business specializing in home-improvement. He knew the industry well, including the best places to buy supplies and what he could charge for services, and he had the required skills, such as how to estimate and bid jobs — and it didn’t hurt that he knew how to pound nails as well. The contacts he had developed over the years were glad to talk to him about running a small contracting business, and many customers he had worked with in the past told him they’d be willing to hire him if he were working on his own.

If you’re interested in turning something you know and love into a business, talk to people you’ve worked with about what it takes to run that kind of business. Learn all you can about start-up costs, overhead and expenses and how much revenue you can expect to make. If you have several interests but aren’t sure which would make the best business, consider how you can translate your strengths, education and skills into business opportunities, and research the marketplace to see which types of business are presently needed in your area.

Starting a business in an unfamiliar industry
Unfortunately, the lure of quick profits convinces many people to start businesses in areas they know little or nothing about. This is a sure recipe for failure.

Example
Leo opened an upscale nursery and garden supply outfit at a time when, seemingly, such a business “couldn’t miss.” Leo knew a good deal about running a small business, had a personality well suited for it and could borrow enough money to begin. However, the business never took off, and it cost him two years and $30,000 to get rid of it.

Why? In his hurry to make a profit, Leo overlooked several crucial facts. The most important was that Leo, a self-described “brown thumb,” knew virtually nothing about plants and didn’t really want to learn. Not only was Leo unable to chat with customers about what types of flowers grow well in partial shade or how to get rid of various garden pests, he didn’t even know enough to properly hire and supervise salespeople. In short, Leo made a classic mistake — he started a business in a “hot” field because someone was foolish enough to lend him the money.

If you don’t know much about the business you want to start, but are set on it, be prepared to spend enough time learning it before you begin.

Research and evaluate your business idea
Here’s a step-by-step guide to evaluating whether you and your chosen business are a good fit.

1. Try it out. Before you start a business of your own, get some experience in the industry or profession that interests you — even if you work for free. Learn everything you can about every aspect of the business. For example, if you want to start a pasta shop, but don’t know ravioli from cannelloni, go out and get a job with a pasta maker. After a few months, you should be an expert in every aspect of pasta prep, from mixing eggs and flour to flattening the dough and slicing it into strips.
2. Talk to entrepreneurs in the same field. If you’re not familiar with the business you want to start and you’re unable to find work in the field, talk with others who provide the product or service that interests you. To increase your chances of getting interviews and reliable answers to your questions, it’s best to do this in a different locale from the one in which you plan to locate. Small business owners are often quite willing to share their knowledge once they are sure you will not compete with them.
3. Evaluate whether you enjoy the work and excel at it. If not, find a new venture. It’s a lot harder to make a success of a business you don’t like, and it’s unlikely you’ll like something you’re not good at. If you enjoyed the work and determined you were skilled enough to base your own business on it, go on to the next step.
4. Judge your ability and desire to handle every aspect of the business. If you don’t want to or can’t pitch in wherever and whenever something needs to be done — whether it involves manufacturing a product, dealing with customers or keeping the books — you should think twice about starting that kind of business.
5. Determine whether the business has a solid chance of turning a profit. After working in the field for a few months, you should have a good idea of whether the business is a potential moneymaker. To be sure, you should analyze your market and conduct a break-even analysis, a preliminary financial projection that shows you the amount of revenue you’ll need to bring in to cover your expenses (this amount is called your break-even point). If you’re able to bring in more revenues than your break-even point, you’ll be in the black (that is, you’ll make a profit).
6. Evaluate the risk this particular business requires. Even the best-laid plans can sour if you pick an unusually risky business. For instance, the following businesses have higher than average failure rates:
   • computer stores
   • laundries and dry cleaners
   • florists
   • used car dealerships
   • gas stations
   • trucking firms
   • restaurants
   • infant clothing stores
   • bakeries, and
   • grocery and meat stores.
   by Nolo

Different Types Of Business Plan

Business plans are also called strategic plans, investment plans, expansion plans, operational plans, annual plans, internal plans, growth plans, product plans, feasibility plans, and many other names. These are all business plans.

In all these different varieties of business plan, the plan matches your specific situation. For example, if you’re developing a plan for internal use only, not for sending out to banks or investors, you may not need to include all the background details that you already know. Description of the management team is very important for investors, while financial history is most important for banks.

Some of these specific case differences lead to different types of plans:

• The most standard business plan is a start-up plan, which defines the steps for a new business. It covers standard topics including the company, product or service, market, forecasts, strategy, implementation milestones, management team, and financial analysis. The financial analysis includes projected sales, profit and loss, balance sheet, cash flow, and probably a few other tables. The plan starts with an executive summary and ends with appendices showing monthly projections for the first year.
• Internal plans are not intended for outside investors, banks, or other third parties. They might not include detailed description of company or management team. They may or may not include detailed financial projections that become forecasts and budgets. They may cover main points as bullet points in slides (such as PowerPoint slides) rather than detailed texts.
• An operations plan is normally an internal plan, and it might also be called an internal plan or an annual plan. It would normally be more detailed on specific implementation milestones, dates, deadlines, and responsibilities of teams and managers.
• A strategic plan is usually also an internal plan, but it focuses more on high-level options and setting main priorities than on the detailed dates and specific responsibilities. Like most internal plans, it wouldn’t include descriptions of the company or the management team. It might also leave out some of the detailed financial projections. It might be more bullet points and slides than text.
• A growth plan or expansion plan or new product plan will sometimes focus on a specific area of business, or a subset of the business. These plans could be internal plans or not, depending on whether or not they are being linked to loan applications or new investment. For example, an expansion plan requiring new investment would include full company descriptions and background on the management team, as much as a start-up plan for investors. Loan applications will require this much detail as well. However, an internal plan, used to set the steps for growth or expansion funded internally, might skip these descriptions. It might not include detailed financial projections for the whole company, but it should at least include detailed forecasts of sales and expenses for the new venture.
• A feasibility plan is a very simple start-up plan that includes a summary, mission statement, keys to success, basic market analysis, and preliminary analysis of costs, pricing, and probable expenses. This kind of plan is good for deciding whether or not to proceed with a plan, to tell if there is a business worth pursuing.

by Tim Berry

Business Startup Strategy

I strongly suggest that would-be entrepreneurs do a business plan. As a result of completing the plan you will be much better prepared and know whether or not your business idea is feasible. Try the following article for a short-cut. However, I caution you on following a short-cut unless you have substantial experience or knowledge about your area. Proceed with caution without a business plan!

How is your business unique, and why will your goods or services appeal to customers? What are the primary differences between your company and your competitors? What are the driving factors to choose your business over another?

In other words, what is the underlying reason a customer would do business with your company?

1) Define Your Business and Vision

Defining your vision is important. It will become the driving force of your business. Here are questions that will help you clarify your vision:

• Who is the customer?
• What business are you in?
• What do you sell (product/service)?
• What is your plan for growth?
• What is your primary competitive advantage?

2) Write Down Your Goals

Create a list of goals with a brief description of action items. If your business is a start up, you will want to put more effort into your short-term goals. Often a new business concept must go through a period of research and development before the outcome can be accurately predicted for longer time frames.

Create two sets of goals:

1. Short term: range from six to 12 months.
2. Long term: can be two to five years.

Explain, as specifically as possible, what you want to achieve. Start with your personal goals. Then list your business goals. Answer these questions:

• As the owner of this business, what do you want to achieve?
• How large or small do you want this business to be?
• Do you want to include family in your business?
• Staff: do you desire to provide employment, or perhaps, you have a strong opinion on not wanting to manage people.
• Is there some cause that you want the business to address?
• Describe the quality, quantity and/or service and customer satisfaction levels.
• How would you describe your primary competitive advantage?
• How do you see the business making a difference in the lives of your customers?

3) Understand Your Customer

It is not realistic to expect you can meet the needs of everyone, no business can. Choose your target market carefully. Overlook this area, and I guarantee you will be disappointed with the performance of your business. Get this right and you will be more than pleased with the results.

• Needs: what unmet needs do your prospective customers have? How does your business meet those needs? It is usually something the customer does not have or a need that is not currently being met. Identify those unmet needs.
• Wants: think of this as your customer’s desire or wish. It can also be a deficiency.
• Problems: remember people buy things to solve a specific problem. What problems does your product or service solve?
• Perceptions: what are the negative and positive perceptions that customers have about you, your profession and its products or services? Identify both the negative and positive consequences. You will be able to use what you learn when you start marketing and promoting your business.

4) Learn From Your Competition

You can learn a lot about your business and customers by looking at how your competitors do business. Here are some questions to help you learn from your competition and focus on your customer:

• What do you know about your target market?
• What competitors do you have?
• How are competitors approaching the market?
• What are the competitor’s weaknesses and strengths?
• How can you improve upon the competition’s approach?
• What are the lifestyles, demographics and psychographics of your ideal customer?

5) Financial Matters

How will you make money? What is your break-even point? How much profit potential does your business have? Take the time to invest in preparing financial projections.

These projections should take into account the collection period for your accounts receivables (outstanding customer accounts) as well as the payment terms for your suppliers. For example, you may pay your bills in 30 days, but have to wait 45-60 days to get paid from your customers.

A cash flow projection will show you how much working capital you will need during those “gaps” in your cash position.

I recommend thinking about these six key areas:

1. Start up Investment
2. Assumptions
3. Running Monthly Overhead
4. Streamlined Sales Forecast
5. Cumulative Cash
6. Break-even

6) Identify Your Marketing Strategy

There are four steps to creating a marketing strategy for your business:

1. Identify All Target Markets: define WHO is your ideal customer or target market. Most companies experience 80% of their business from 20% of their customers. It makes sense then to direct your time and energy toward those customers who are most important.
2. Qualify the Best Target Markets: the purpose of this step is to further qualify and determine which customer profile meets the best odds of success. The strategy is to position your business at the same level as the majority of the buyers you are targeting. It is critical to figure out who your best customers are and how to best position your company in the marketplace.
3. Identify Tools, Strategies and Methods: a market you cannot access is a market you cannot serve. Marketing is the process of finding, communicating and educating your primary market about your products and services. Choose a combination of tools and strategies, that when combined, increase your odds of success.
4. Test Marketing Strategy and Tools: the assumptions we do not verify are typically the ones that have the potential to create business problems. Take the time to test all business assumptions, especially when you are making major expenditures.

by Greg Balanko-Dickson