Business Plan - we hear a lot about it - do we really understand what it means?
You would hear about it from a banker - too late, but still - start as soon as the word is uttered to you. What you need is not that staple document people are making for banks. You need a real plan to do your business that shows you the way to get what you want ... a successful business.
Most of the small businesses fail because they have no business plan. They think that the tailored document to be given to banks is a business plan ... not so. That we will do in a later section and it will all come from this section.
In this section, we are putting down the essentials from the perspective of your business not what your banker or financier wants to see.
How you are going to make your business a success for yourself. If done well, you won't need a banker for a long time to come ... even never... your business will generate a lot of income for you.
Simply put, business plan means - what you plan to manufacture - your product, or service and how you will get it to the target market/buyer.
If you are adding 'raising finance' here - STOP!! You don't need a lot of 'finance' to start 'thinking'. We will tackle that later.
As we saw on the Starting-Up page; you first need to understand what you want as a 'Product' or 'Service'... then find out 'who' wants that product or service. In other words, find out what people 'want', identify a 'need' that your business can fulfill.
In this part of your business plan, you will do a bit of 'Market Research'. Use the internet, see how your unique product and service is needed, find out if it is needed at all.
In doing market research, we ask our friends and family if they would like to buy what we have to offer. Many a times this kind of survey gives incorrect results ... most of the people you ask will readily want the product ... for some reason, it happens all the time! Very few people would say anything negative ... yet when you actually bring it to them, they would not be interested or find a lot of reasons why your product is not what they had in mind. Some would even buy it ... more as a favor rather than actual desire.
Don't worry ... be prepared. First do your own research, look for similar products in stores around you, at exhibitions and trade shows ... be watchful of what sells ... then add your own unique and special 'touch' to it!
Make a small summary of what you are doing. Add notes about your target market ... remember, there will always be some buyers for your product ... very few things are needed or liked by 'all' the people ... so choose your niche well. Learn all about their buying habits, why they want your product, when do they buy, how much are they willing to pay ... everything that you can find out. Add it to your business plan.
Then go back to your 'Product Development' and add those special features that your target customer wants. Keep a balance in what you add and use your own judgment.
Make a 'presentation board' using a pen/pencil and paper. Nothing fancy, a simple outline of what you want to make ... draw it on the piece of paper. Don't worry if it doesn't look good ... it is for your own use ... for now.
Add this to your business plan.
Next you need to decide on the Legal structure of your business i.e. whether it should be a Sole Proprietorship, Partnership or Private Limited Company.
This is discussed in detail on our page on Legal Structures with details on how to set up each under the relevant headings on that page.
A Business Plan is not complete till you have put together the collective wisdom of your team members to deliver what you hope to achieve through your enterprise. This is also called the corporate structure of an entity.
Start putting together an outline of people you would need to carry out different parts of your business operations. That does not mean that you start hiring people immediately. Do not get intimidated at the thought of building a team. It sounds as if a lot of money will be required but in reality we do it all the time but on an adhoc basis. If you build it in your Business Plan you would have more informed decisions rather than one-off adhoc arrangements.
To achieve this effectively, first draw up an Organizational Structure or an Organization Chart based upon your Product, its Demographics that you have found through your Market Research and its operations.
There are several options on how to draw a simple chart.
Once you have identified the several people needed to run the operations, start getting relevant people to first give you advisory services for the operation concerned on an hourly fees basis or any other suitable arrangement, so that you can get their experience based input.
Next engage people that you have to, to actually perform those operations needed for your business and have Trial production done.
The link to building a team is on Organizational Structure/Charts or Organograms to give an idea on how to man your team and who are the important team members that you should include as and when required.
Once you have the Organization Chart in place you can plan on when the required member should be taken into the team as a regular employee or on contract.
It will also help you to grow your team as your business grows rather than being under-staffed or over-staffed both of which are detrimental to business growth.
Now start working on the items you need and the people you need to start putting your product together. Make a list of what you need ... just the basic few pieces, who will do it for you, how much you can do yourself? List these resources down.
If you need specialized machinery ... now is NOT the time to buy any ... try to find someone who already has a manufacturing set-up. Hire their services to make a trial production for you. Build it in your business plan as a need, but also add when would be a good time to set-up your own manufacturing unit.
Use the available resources to get the trial production in place. Don't spend a lot of money at this stage. But remember, make your product as defect-free as possible. Nobody buys a defective product and an unsatisfied customer talks more than a satisfied one.
Do some more drawing to get your packaging ideas in place. Make a logo as a brand for your product ... think well.
Develop some marketing material like brochures with pictures of your product. Very basic, simple material.
Test the market
Your business planning process should have clear ideas about your marketing channels ... how your goods will reach the customer.
Bring out your trial production to a local exhibition ... that is the best. Putting it in a store is usually on credit and most of the times no one makes an effort to sell your product.
You can decide about supply through stores later, when you have checked how the buyers respond to your product. Then also select your stores with care ... a lot of women - and even men - have complained about delayed payments and at times ... even no payments at all. Either ways your business comes in a cash crunch.
Build your Trade Cycle
Once you have tested the market, you have a better idea about the 'demand' of your product.
Modify it according to the buyer's comments - or 'feedback' - and try it out again. Improve your business plan to include modifications and how much they add to costs.
Keep trying out till you are sure that you have exactly what the buyers want. Your sales will be the real gauge to determine demand. Include expected sales in your business plan based on actual data. Build your sales slowly, don't rush into big orders before you have mastered the techniques of product development.
Now you would have a fair idea about what you need for your product ... you are building your supplier-base. Read about Supply Chain Management to have an idea about this segment.
As you increase the sales volume gradually, you can now start to negotiate for a better price for your inputs from your supplier-base ... work on getting 'wholesale prices' for your inputs.
Similarly, as your product starts getting better and the demand increases, add value to the 'extras' you add for the customers' demand. In the beginning give 'extras' for free ... but as you get repeat customers with value addition, raise your price slightly ... not too much.
Your profit margin will start to improve with the increase in volume. When reducing cost of inputs ... DO NOT compromise on quality. Try to work on quantities ... the larger the volumes quantity the better the revenue.
On the other hand your customers are usually buying one or two units at a time so you can raise the price for such customers. However, if you get a bulk order, say for 100 pieces, give a lower rate and once again earn more with the lower cost benefit for bulk quantities purchases.Yo ur aim is to get regular, large orders ... but in the beginning ... work with smaller quantities and build up gradually.
Your trade cycle will start building ... try your best to keep it going.
All this while your business should be generating revenue that you add back to the business ...
Have you paid ONE important team member - YOU!!! Take some money out for yourself as a salary. Remember, your time is money...you should not be working for free. You can put it back in the business, if you want, but then add it as equity. It can be a small amount at the start, but it should be there.
Most small businesses, specially women owned - make the mistake of not taking out some amount as a salary to self. The result is that your business becomes a monster that is feeding off of you. It is imbalanced...when you decide to hire somebody to do your job, it will collapse or, at least, come under substantial pressure.
On the other hand, some small businesses do not keep the business account separate. They spend what they earn, on whatever comes up as a priority...like buying grocery for the house, paying school fees for the kids ... thinking it is 'all theirs'...not right again!! You are starving your business, or at least stunting it's growth.
Plan well and ahead of time ... if you earn 20% more than what you invested, draw some out as your salary or income - put the rest back into producing the next batch of your production.
Cash management or financial management is essential to understand and stick to, if you want success. Work it out in your business plan, just the basics...no need to create elaborate financial statements at this stage. This is for you to know what is happening in reality.
Worst is when you try to get a bank loan and use it for other expenses rather than putting it in business. The expense becomes unproductive while interest starts accumulating from the day you take the money from the bank.
Remember, bank loans are a killer for start-ups, these are growth tools when your trade cycle has already built up and you have regular earning from your business.
STAY AWAY FROM BANK LOANS when you are starting up.
There should be a warning on all bank advertisements like those on cigarette packs: 'BEWARE BANK LOANS ARE HAZARDOUS TO YOUR START UP BUSINESS'S HEALTH'