Your First Business Plan

At this point, you have made initial decisions about what product or service you will be offering; and you have made a preliminary selection of your target demographic.  The time has come to write your first business plan.

Don't be a perfectionist about your first business plan.  This is a rough draft, and you should expect to revise it several times.  As your business grows, you will gain experience and insight into your own operations and your customers' motivations; and these will spark new ideas that you can incorporate into your future business plans.  For now, you just need some clearly defined goals to keep yourself on track.  Also, your business plan can be crucial to helping you obtain some of your initial funding.  

So sit down with a cup of hot cocoa, or your seasonally appropriate beverage of choice, and write out a thoroughly detailed explanation of how you will achieve business success.  You will need to address such details as:

Products: you have already made your decision about initial products you will be offering.  You may revise your product line in the future, to stay competitive or to address customer demand; but to begin, keep it simple, and try to do a small number of things with excellence, rather than spreading yourself too thin.

Customers: you have already identified an initial target market.  In the future, you may revise your estimation of who your ideal customers are; or you may decide to expand into additional target markets.  For now, include in your business plan who your initial target market is, why they are a good target, and what factors will motivate your target audience to actually kick down some cash and become customers.

Distribution channels:  distribution is one of the most important aspects of your business.  How will you connect buyer demand to the product or service you are offering?  Will you have a street corner cart, a stall or booth at an open-air market, a physical storefront or shop, or a large industrial facility?  Will your products be carried in retail outlets such as grocery stores or shopping malls?  Alternatively, if you are a service provider, you may decide to keep your internal operations completely separate from your customer relations.  For example, your clients might phone in to a call center (or your mobile phone) and request an in-person visit from a service technician. 
Finally, will your business have a web presence?  Your website is an important marketing tool that can also serve as a secondary distribution channel.  This series of blog posts will address the topic of websites in more detail in a future post; so for now, suffice to say that Basementia Design™ can help you set up your e-commerce website. 

Employees: within your business plan, briefly outline who will be performing the essential work of your company.  Estimate how many employees your organization will require, what their job descriptions will be, how many hours per week you expect them to work and at what rate of compensation.  Who will answer the phone, who will meet with customers, who will process the paperwork, who will make the products or supply the labor, who will package and ship the products, who will process the payments, and who will do all the bookkeeping?  These questions are at the heart of your business model.  Even if you intend to do all the work yourself, try to note all the different functions you will be performing; you may discover that your job will be easier if you can hire a part-time assistant to take care of certain details while you perform other essential duties.  Finally, note that not all work has to be performed by an employee of your company: many companies commonly hire an outside contractor or consultant to help with certain business functions, from facilities maintenance and housekeeping to payroll and tax accounting.  This brings us to:

Suppliers and Contractors:  your relationships with suppliers and outside contractors may be just as important to the success of your business as your relationships with your customers.  Your suppliers provide your raw materials, equipment, and critical infrastructure.  Some critical portion of your value chain activity may be outsourced to a contractor; for example, many companies contract with a call center to handle their customer service requirements; and most major manufacturing firms subcontract some portion of their manufacturing work to partner firms who can more efficiently supply certain components.  Take the example, imagined in previous posts in this series, of a work-from-home business model sewing clothes to sell at an open-air market.  Your suppliers, contractors, and business partners include the store where you purchase your fabric, buttons, zippers, needles, thread, and other sewing supplies; the manufacturer, retailer, and servicer of your sewing machine; the utility companies that supply your residential business with electricity and telephone communications; and of course the organizers of the open-air market, who organize the events and lease you your stall space for a fee.  Quality components, competitive pricing, and timely access are all critical to your business, so note all these relationships in your business plan, and briefly state which ones provide an excellent value to your company and which ones could possibly be improved by seeking out your present supplier's competitors. 

Corporate Structure: your business plan should note the legal structure of your company.  Is it a sole proprietorship, a limited liability partnership, or a corporation?  Choose your company's legal structure depending on who has bought in, or may be reasonably expected to buy in; but keep in mind that your choice has serious legal and tax implications.  Often, a company's corporate structure is determined by its capital structure: the source of financing may determine the company's legal structure.  This topic is worthy of its own future detailed post in this blog series.  For now, my previous overview of business structures is posted on Basementia's website.  Once you have settled on a legal structure, you will have to file the appropriate paperwork and pay the necessary fees to make it a reality.


Marketing Strategy: your marketing strategy is sure to evolve and change more rapidly than your overall business plan.  Nonetheless, your business plan should consider a preliminary strategy.  Will you use signage, stickers, or handouts such as business cards, fliers, and brochures?  Will you purchase print advertising in newspapers or trade magazines?  Will you purchase ad spots on billboards, radio, or television stations?  Will you have a website; and if so, will you purchase advertisements through Google AdWords and similar programs?  Will you work with a marketing firm or design your ads yourself?  How many customers do you hope to reach with your ads, how much will the ads cost you, and how many sales will your ads need to drive in order to provide a worthwhile return on your expense?  Give these questions some thought before you consider your business plan complete, because they will help you determine the final step, which is one of the most important aspects of the creation of a new business.

Financing:  without proper financing, your business startup is dead in the water.  None of your suppliers or contractors will want to wait until your business becomes profitable before they receive payment.  You should try to estimate how long it will take for your company to become profitable, and estimate how much it will cost to fully fund your business operations, including your own salary, throughout that period.  Next, whatever you have estimated, it was probably low, so try to obtain twice that much capital.  Sources of capital financing may be generally broken down into equity financing and debt financing.  Cash that you contribute out of your own pocket or bank account is equity, and you should track it carefully, because it represents the basis of your ownership of the company, and may be tax deductible depending on usage; see IRS regulations for details.  Cash provided by friends, family members, and business partners is generally also equity financing, and provides those stakeholders with an ownership position in your company, which also gives them a legal claim to a portion of your company's assets in the event of bankruptcy liquidation.  Borrowed money is debt financing; and debt financing is typically characterized by the need to make interest payments.  Large, established companies can issue bonds; but your best bets for debt financing will start with your personal credit card, and may also include bank loans and Small Business Administration loans.  Additional financing sources may be available through certain programs in your local area.  There are no hard and fast rules, but personally, I would advise against heavily leveraging your company through debt financing until the business is profitable enough to be able to pay off the loans plus interest.

Well, that's a lot to think about!  Best of luck writing your initial business plan.  Future posts to this blog will expand on some of these concepts, and address the implementation of your business plan as you turn your idea into a reality.