EditSetting Out the Basics
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Choose an idea. It might be a product you've always wanted to make, or a service you feel people need. It might even be something people don't know they need yet, because it hasn't been invented!
- It can be helpful to have people who are bright and creative join you for a casual brainstorming session. Start with a simple question like: "What shall we do?" The idea is not to create a business plan, just to generate potential ideas. Many of the ideas will be duds, and there will be quite a few ordinary ones, but a few may emerge that have real potential.
- Consider your talents, experience, and knowledge when selecting a concept. If you have a particular skill set or talent, consider how these resources can be applied to meeting some sort of market demand. Combining skill and knowledge with a market demand increases your odds of having a successful business idea.
- For example, you may have worked with electronics as an employee for many years. You may have noticed a demand in your community for a particular form of electrical work, and combining your experience with the market demand can allow you to attract customers.
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Define your team. Will you do this alone, or will you bring in one or two trusted friends to join you? This brings a lot of synergy to the table, as people bounce ideas off each other. Two people together can often create something that is greater than the sum of the two separate parts.
- Think of some of the biggest success stories in recent times, such as John Lennon and Paul McCartney; Bill Gates and Paul Allen; Steve Jobs and Steve Wozniak; and Larry Page and Sergey Brin. In every case, the partnership brought out the best in both sides of the equation.
- Think about the areas that you are either weak in, or have little knowledge of. Finding partners compatible with your personality who can fill in your knowledge or skill gaps is an excellent way to ensure your business has the resources you need to succeed.
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Choose your partners wisely. When choosing the person or people you're going to build the business with, be careful. Even if someone is your best friend, it doesn't mean that you will partner well in a business operation. Start it with a reliable person. Things to consider when choosing your co-leaders and support cast include:
- Does the other person complement your weaknesses? Or do both of you bring only one set of the same skills to the table? If the latter, be wary as you can have too many people doing the same thing while other things are left unattended.
- Do you see eye to eye on the big picture? Arguments about the details are a given, and are important for getting things right. But not seeing eye to eye on the big picture, the real purpose of your business, can cause a split that may be irreparable. Be sure your team cares about the and buys into the purpose as much as you do.
- If interviewing people, do some reading on how to spot real talent beyond the certifications, degrees or lack thereof. The area an individual is educated in is not necessarily the area they are most talented in. An interviewee may have a background in accounting for example, but their experience and your assessment of them indicates they may be a better fit helping with marketing.
EditWriting a Business Plan
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Write your business description. Describe your business more specifically, and how it fits into the market in general. If you are a corporation, LLC, or sole proprietorship, state that, and why you chose to go that route. Describe your product, its big features, and why people will want it. Answer the following questions:
- Who are potential customers? Once you understand who they are and what they want, come up with a marketing strategy.
- What price are they willing to pay for your product or service? Why would they pay for your product or service over your competitor's?
- Who are your competitors? Do a competitive analysis to identify key competitors. Find out who is doing something similar to what you are planning, and how have they been successful. Just as important is to find the failures, and what made their venture fall apart.
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Write an operational plan. This will describe how you will produce or deliver your product or service and all costs.
- How will you create your product? Is it a service that you are offering, or if it's more complex— software, a physical product like a toy or a toaster — how will it get built? Define the process, from sourcing raw materials to assembly to completion, packaging, warehousing, and shipping. Will you need additional people? Will there be unions involved? All of these things must be taken into account.
- Who will lead, and who will follow? Define your organization, from the receptionist up to the CEO, and what part each plays in both function and financials. Knowing your organizational structure will better help you plan your operating costs, and fine-tune how much capital you will need to function effectively.
- Getting feedback. Friends and family make great resources for asking questions and getting feedback––don't hesitate to use them as your sounding board.
- Needing to increase the size of your premises. This happens more often than expected. Once the stock starts piling up, you may find it ends up in your living room, bedroom and the garden shed. Think rental of storage premises if needed.
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Write the marketing plan. Your operational plan describes how you will produce your product, and your marketing plan describes how you will sell your product. When you create your marketing plan, try to answer the question of how you will make your product known to potential customers.
- You will want to include the type of marketing you will use. For example, will you use radio ads, social media, promotions, billboards, attend networking events, or all of the above?
- You will also want to define your marketing message. In other words, what will you say to convince customers to choose your product? Here, you want to focus on your Unique Selling Point (also known as USP). This is the unique advantage your product has to solve your customers problem. For example, you may be lower cost, faster, or higher quality than your peers.
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Cover the financials. The financial statements translate your marketing and operational plans into numbers — profits and cash flow. They identify how much money you will need and how much you might make. Since this is the most dynamic part of your plan, and perhaps the most important for long-term stability, you should update this monthly for the first year, quarterly for the second year, and then annually after that.
- Cover your startup costs. How are you going to finance your business initially? The bank, venture capitalists, angel investors, Small Business Administration (SBA), your own savings: these are all viable options. When you start a business, be realistic. You will probably not roll out of the gate making 100 percent of whatever you project, so you need to have enough ready reserve to fund things until you are really up and running. One of the surest roads to failure is under-capitalization.
- What price do you intend to sell your product or service for? How much will it cost you to produce? Work out a rough estimate for net profit—factoring in fixed costs like rent, energy, employees, etc.
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EditManaging Your Finances
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Secure start-up costs. Most businesses require capital to start. Money is typically required to purchase supplies and equipment, as well as keep the business operational for the period before your business becomes profitable. The first place to look for financing is yourself.[1].
- Do you have investments or savings? If so, consider using a portion to fund your business. You should never invest all your savings into a business due to the risk of failure. In addition, you should never invest money put aside for emergency savings (experts recommend having three to six months of income put aside for this purpose), or money you will need over the next few years for various obligations.
- Consider a home equity loan. If you have a home, looking to get a home equity loan can be a wise idea, since these loans are typically easily approved (since your home acts as collateral), and interest rates are typically lower.
- If you have a 401(k) plan through your employer, consider borrowing against the plan. Plans typically allow you to borrow against 50% of your account balance up to a maximum of $50,000.
- Consider saving ahead as another option. If you have a job, save a portion of your monthly income over time to cover your start-up costs.
- Visit a bank to inquire about small business loans or lines of credit. When doing this, always visit many providers to ensure you are getting the best rate.
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Decide how to accept payment. You will need to do something to get payment from your clients or customers. You can get something like a Square, which is great for small businesses since it requires the minimum amount of paperwork and the fees are minimal. However, if you feel uncomfortable with technology, you can inquire about a more traditional merchant account.
- A merchant account is a contract under which an acquiring bank extends a line of credit to a merchant, who wishes to accept payment card transactions of a particular card association brand. Previously, without such a contract, one could not accept payments by any of the major credit card brands. However, the Square has changed that, so don’t feel locked in or limited to this option. Do your research.
- The Square is a card swiping device which connects with a smartphone or tablet and turns that device into a sort of cash register. You may have encountered this device in the businesses you frequent, as they are becoming common at coffee shops, restaurants, street food stands and other businesses (look for a postage-stamp sized plastic square plugged into a tablet or phone).
- Note that PayPal, Intuit, and Amazon all offer similar solutions. Make sure to look into all options before making a selection.
- If you are online business, services like PayPal offer an excellent way to receive payment and make transfers.
EditCovering the Legal Side
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Form a business entity. You’ll need to decide what type of business entity you want to be, for tax purposes and hopefully to eventually attract investors. You will do this after you've decided whether you will need money from others either in equity or loans and with the advice of your legal and accounting experts. It is one of the last steps taken before you actually spend money or ask someone for money. Most people are familiar with corporations, LLCs, etc., but for the vast majority of small business owners, you will need to form one of the following[2]:
- A sole proprietorship, if you will be running (not including employees) this business on your own or with your spouse.
- A general partnership, if you will be running this business with a partner.
- A limited partnership, which is composed of a few general partners, who are liable for problems with the business, and a few limited partners, who are only liable for the amount in which they invest in the business. All share profits and losses.
- A limited liability partnership (LLP), where no partner is liable for another’s negligence.
EditMarketing Your Business
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Get a website. If you're selling online, get your ecommerce in gear and either build a website, or have one built for you. It's your storefront, so anything and everything you can do to make people want to visit, and want to stay, do it.
- Alternatively, if your business is more oriented toward the "in person" experience, traditional marketing may be just as important. For example, if you're starting a landscaping business, focus on getting the word out to neighbors before starting a website
- When making a website keep in mind that simplicity and clarity are key. A simple design that clearly states what you do, how you do it, and what you charge is most effective. When making your website, remember to emphasize why your business is the best solution to a clients problem.
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Implement your marketing and distribution plans. With your product being built or services developed, and a reasonable expectation on when either is ready for selling, begin marketing.
- If you will be advertising in periodicals, they will need copy or images at least two months in advance of publication.
- If you will be selling in stores, get pre-orders sold, and shelf space allocated. If you will be selling online, get that e-commerce site ready to sell.
- If you're offering a service, advertise in appropriate trade and professional journals, newspapers and online.
EditLaunching Your Business
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Secure space. Whether it's an office, or a warehouse, if you need more space than your garage or your spare bedroom, now's the time to get that.
- If you don't generally need an office beyond your home, but may occasionally need meeting space, there are often places that can address those needs. A quick Google search on "business meeting rentals [your city/state]" will deliver plenty of rental options in your area.
- Be sure to contact your local municipality about zoning laws. Some types of small businesses cannot be ran out of a home, and it is important to ensure your business is operating within its proper zone.
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