What is a business plan?
Simplifying the business plan — so that you don’t run in fear!
This week we will be looking at creating a basic business plan for your business — and once again we are in conversation with Paolo Rigo fro Studio Rigo Tax & Accounting.
I have added an info graphic to explain it in a simple way. (Link at end)
Paolo, to get started, can you explain to us what is a business plan?
A business plan is a written statement that describes and analyzes your business’ objectives, how you will achieve them as well as giving opportunity for detailed projections about its future. A business plan also covers the financial aspects of starting or expanding your business — how much money you need and how you’ll pay it back. A business plan is designed to provide answers to all the questions that prospective lenders and investors will ask. Lenders, for example, want to make sure your business has a good chance of succeeding. In my experience, about 35% to 40% of the people currently in business do not know how money flows through their business.
Well I can understand that, I am one of those who never did a business plan, just seemed so daunting at the time. Lucky for me, I suppose, my business model is a simple one and I do know how money flows into my business, and to an extent how it flows out.
It really is important to a business plan, even now, even if you are not, right now wanting to lend money for expansion etc, you, business owner, are the most important person you must convince of the soundness of your proposal. But it will also teach you how money flows through your business, what the strengths and weaknesses in your business concept are, and what your realistic chances of success are.
Yes, I can see why it will be a good idea for me to have a business plan, especially now that businesses are struggling and work is slow due to the economic fallout from COVID 19.
Yes, Jacci, writing a plan allows you to see how changing parts of the plan increases profits or accomplishes other goals. You can tinker with individual parts of your business with no cash outlay.
Do you realize that by revisiting your business plan regularly you can act before emergencies happen, change course before you have a calamity. That is the beauty of a business plan? Many business owners spend countless hours handling emergencies, simply because they haven’t learned how to plan ahead. An accurate business plan helps you anticipate problems and solve them before they become disasters.
A written business plan gives you a clear course toward the future and makes your decision making easier. Some problems and opportunities may represent a change of direction worth following, while others may be distractions that referring to your business plan will enable you to avoid.
What questions should I nswer in my business plan?
- What problem do I solve for my customers?
- Who is my typical (target) customer?
- How will I communicate with my target customer?
- What products and/or services will I provide? Are there any products or services my customers may expect me to provide that I don’t plan to provide?
- Where will my business be located?
- Where will I buy the products I need?
- What hours will I operate?
- Who will work for me and how will they be paid?
- Who will handle critical tasks like selling, ordering, bookkeeping, marketing, and shipping?
- How will I advertise and promote my business?
- What are the competition’s strengths and weaknesses?
- How am I different from the competition, as seen through the eyes of my customers?
So now that we have established that I need to do a business plan, what kind of information would I start to put into my business plan?
For most small businesses, the difference between success and failure lies with keeping costs down. You could start making a list of the fixed or regular monthly expenses of your business. The objective is to develop a dollar amount of expense that you are committed to pay every month, including rent, utilities, salaries of employees, payroll taxes, insurance payments, postage, telephone, utilities, bookkeeping, and so forth. Some costs will be paid each month and others will be paid once or twice a year.
Next job is to forecast how much money you’ll need, so you’ll need to make a number of decisions about how your business will operate and forecasts of financial results.
A profit and loss forecast is a projection of how much you will sell and how much profit you will make. This is the foundation of your business plan. It gives you and your potential backers the basic information necessary to decide whether your business will succeed. Basically, a profit and loss forecast forces you to estimate how many dollars you will take in and how much money you will spend in the future.
Your business’s profits result from three specific dollar figures:
- Sales revenue. This is all the money you take into your business each month, week, or year. It is also called “gross sales,” “sales income,” or simply “sales.”;
- Cost of sales. This is your direct cost of the product or service you sell. Sometimes it is called “direct product cost,” “variable cost,” “incremental cost,” or “direct cost.”;
- Fixed expenses. These are sometimes called “overhead,” and you must pay them regardless of how well you do.
So, to sum it up?
In a given period, you make profits when sales revenues exceed your total cost of sales and fixed expenses. To put it another way, sales revenue minus both cost of sales and fixed expenses equals profits or losses for a given time period.
Once I have my business plan down on paper, what should I do next?
Your business plan describes the risks your business faces. Periodically reread that risk discussion to see if you’d like to add anything to the list. If you’re like most people, you’ll admit that there may be something you missed and that you don’t know what it is.
Things always go wrong in business.
Your job is to notice troubles and problems before they become major hurdles. If you don’t notice the mistake until others tell you about the unfortunate results, it may be too late for an easy, inexpensive cure.
If your business is like most, you’ll spend some time every day creating solutions to problems. But, if you don’t like playing detective and prefer sailing along on smooth waters so much that you don’t see the first signs of storms, you may have a problem surviving for long.
Thank you Paolo, I think you have broken this down into its most simple form, I know I understand it better now.
You can contact Paolo Rigo here.
Article written by Jacci from JacciR Design | www.jaccirdesign.com
Follow the link to the
FREE infographic here.