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BUSINESS BASICS


Your Idea and Your Market:

Successful businesses are based on plans which satisfy an identified need. You need to start with an idea for a product or service that you KNOW people or businesses will PAY for. You need to be able to "prove", or at least predict with certainty, that a given market of accessible people/businesses will pay for a certain volume of your product or service in a given period of time. That volume must pay for all the overhead, and if investors are required to launch the business, pay them a significant return over time. If there's not an IDENTIFIED market, with quantifiable potential sales figures, you won't get any investors interested.

You need to explain why people will pay for your product/service INSTEAD of someone else's:
  • better prices
  • unique products or services that others don't offer
  • new benefits that others don't offer
  • added conveniences
  • technological advantages
  • better customer service
  • maybe just a huge market that's untapped by existing businesses in the area, a fantastic geographic location, etc.
How will you do things better, or how will you offer something that isn't available elsewhere? Show why you're going to succeed by showing how you'll SATISFY the significant market potential which you've identified, by following your own unique and superior business plan.

Marketing Plan:

You have to explain how you will acquire your customers. Income comes from customers/clients. Without a detailed plan to get them to travel through your doors and give you their money, you won't have any income.
  • What demographic groups may potentially become your clients/customers?
  • How many potential clients are in your geographic area?
  • What percentage of that demographic do you expect to convert to customers?
  • How will you advertise to them (signage, TV, print, radio, direct mail, door to door sales, word of mouth, etc)?
  • How much does that advertising cost?
  • How much does each customer/client cost to get in the door?
  • What's the potential return on investment for each customer per year?
  • What is your marketing/advertising message that not only makes people aware you exist, but converts them to customers/clients?
  • How will you retain them (how will you manage customer/client service so that they stay loyal)?
You need to show not only that the customers exist, and that there is enough potential business to support your plan, but that you have a clear channel to reach them with your message, and to convert them to paying clients/customers WITHOUT OVEREXTENDING YOUR MARKETING BUDGET.

Operations:

You need to explain, in detail, how you plan to operate. What will employees do every minute of every day at your business? Write a complete operations manual that details how every daily activity will be performed and managed.
  • What are the daily/weekly/monthly responsibilities of each employee?
  • Who's going to open and close the building every day?
  • How many hours a week will you be open, and how many people does that require? (i.e., 70 hours of operation typically requires at least 2 people, just to have 1 person always there).
  • Do you need a dedicated receptionist to greet people, answer calls, schedule appointments, return emails?
  • Do you need dedicated sales people to sell your product/service?
  • Do you have a policy/program established to train those sales people to sell your product/service?
  • Are you selling product? If so, who will stock it, and how - what's the routine to order inventory, get pallets into the warehouse, unpack boxes, price items, lay out merchandise and place it on shelves, etc?
  • Will you need software to manage inventory levels, pricing, etc.?
  • Do you need full or part time dedicated cash register personnel to process the required volume of sales?
  • What sort of POS system/software will you use?
  • Will you have a security staff, and what sort of surveillance and alarm systems will you install?
  • Who will have access to the surveillance and security systems, and what are the daily monitoring obligations?
  • Who will train and oversee your security staff?
  • Who should customers/clients speak with if they're unhappy with a purchase?
  • What is your return/refund policy?
  • If the cashiers/clerks/receptionists/warehouse personal/security/maintenance people/managers/etc aren't busy, will they have other/shared responsibilities to take care of during their down time?
  • Who will oversee how that down time is properly organized?
  • How will employees and managers communicate to ensure every portion of the business is working together to keep the overall business functioning (scheduled meetings, project management software, etc)?
  • Will a large portion of your business be run by software? If so, who will train employees to use it, who will maintain/fix the computer systems and networks when they crash, etc?
  • What are your cash and money handling guidelines?
  • How is the money taken in, who prepares and submits the daily/weekly deposits, etc?
  • Who has access to the bank account(s), who signs the checks to pay bills?
  • Who will handle your payroll paperwork, and what sort of software/service will be used?
  • What sort of time clock system will you use?
  • What are your accounting and tax preparation requirements, and who will handle those daily/weekly/monthly/yearly paper work responsibilities - what's their work schedule?
  • Who will manage your web site, Face Book presence, etc., and how?
  • Who writes your advertising copy each week/month?
  • What sort of schedule do you need to meet with advertising reps to place ads?
  • Who's going to order and pick up paper, toner, pencils, staples, and other office supplies?
  • What's your management structure - who reports to whom?
  • Who decides when each employee can take each break?
  • How will you manage employee sick days and time off? (if someone doesn't show up, the business can't close).
  • What's everyone's portion of the total work load, and how do they partition their schedule to complete that work?
  • What's the procedure for changing that schedule and notifying personnel of new/altered responsibilities?
  • Will you have a big enough staff to require Human Resources personnel, or are the daily HR responsibilities just one of the duties of an office manager?
  • Who should he/she call if they're not sure about the legality of a response to any of 1000s of potential daily HR problems?
  • How will you advertise for job openings, and what is your interview/hiring process? Do you know the legalities involved, and do you have all the proper paperwork?
  • Even little things need to be organized: who will take out the garbage, clean toilets, mop floors, change light bulbs, change toilet paper rolls, etc? (in a big building, even those little chores can become full time jobs for several people).
  • Who's going to decide what temperature the building is kept at, and which lights are kept on? (that can become a MAJOR budget issue in big buildings)
  • Maybe there will only be one employee in a small business - how many hours will it take to accomplish each of the cashier/receptionist/maintenance/warehouse/security/cleaning/IT/marketing/sales/customer service/etc. activities, and how will that time be organized so that none of the obligations go unattended at critical times?
  • What is the work flow for any/every employee?
You need to write out a plan that dictates what every single detail of daily/weekly/monthly activity is going to be, and how those activities are going to be managed. A policy about every single topic must be WRITTEN DOWN. Without a detailed explanation of exactly what you're going to be doing each day, and exactly how you'll manage ALL of the things you do to make the business run functionally, no investor will be confident that you've got a solid plan.

Expense Projections:

Expenses and income are the two competing components which make up the heart of your business vitality. You'll never stop working on improving the ratio between the two. Here are some of the main monthly expenses you'd need to think about, based on a simple example of renting a small building and having just a couple minimum wage hourly employees. These numbers are picked out of thin air, but should give you some idea of necessities to consider:
  • Payroll (per $8/hr worker):   $3200 ($1600 each X 2)
  • Rent   $3000
  • Advertising   $2000
  • Insurance   $1000
  • Maintenance/Cleaning/Repair   $600
  • Heat   $400
  • Electricity   $400
  • Phones   $100
  • Internet   $100
  • Water and Sewer   $150
  • Legal   $100
  • Accounting   $200
  • Office, Toiletry and other Supplies   $200
  • Equipment   $400
  • Web Site   $100
  • Service Fees (CC processing, bank, etc)   $100
  • Travel   $(??)
  • TAXES   $(??)
  • Your Salary   $(??)
-----------------------------------------------

         $8850    (*NOT INCLUDING* THE LAST 3 ITEMS!)

The list above only gives a basis for estimating minimum ongoing monthly costs. You need to think about how to create enough income to support each item above, every month, just to break even. *** Add your salary if you need to make an income while starting your new business *** Will you only take a salary, or will you take bonuses and/or profit sharing once sales/profits reach given numbers? Be sure to plan for those numbers, from the beginning, with your investor.

You should plan to have enough start up money to get you through at least the first year entirely without income, and typically part of the next couple years. As you start to become profitable, you have to budget to PAY ALLLLLLLL THIS BACK from the income derived by running the business.

Certain types of businesses may require high insurance premiums. Your business may demand exceptionally high legal costs or other professional service costs. Your payroll may include benefits (health insurance, 401k, etc.), and may require higher salaries for workers with specialized skills and experience. Research the real labor and other expenses associated with running your particular business operations, in your geographic area, to put together realistic expense projections.

Your ongoing goal will be to MINIMIZE EXPENSES to improve your bottom line.

Start Up Expenses:

In addition to the regular monthly expenses, you need to estimate a budget for initial (one time) START UP costs.
  • Equipment
  • Construction/Setup
  • Inventory
  • Architect and Zoning/Code Enforcement Expenses
  • Initial Supplies
  • Signage and Extra Initial Advertising
  • Legal, Accounting, and other Initial Professional Services
These expenses will likely be a HUGE part of the capital you need to get the business started.

INCOME:

Estimating how much money you expect to make, and how those projections compare to the cost estimations, is the core of your business plan. When everything else is in place, initial investment has be spent, construction is done, employees are hired and trained, and daily operations are finally functioning like a well oiled machine, this is the heart beat of your business. One of your most prominent goals will always be to MAXIMIZE INCOME.  When writing your business plan, figure out the minimum number of customers, average sales, etc. required to pay your bills, pay back the startup expenses, and break even.
  • How many clients, how many weekly service appointments, how many sales at a given margin, etc. does it cost just to pay your overhead?
  • DO YOU HAVE ** ENOUGH CAPACITY  ** IN YOUR LOCATION TO BEAT THOSE EXPENSES AND MAKE A PROFIT?
  • How long will it take to reach that capacity?
  • Given your max capacity/max sales at your proposed location, what is the MAX amount of income you can POSSIBLY bring in?
  • How long will it take, and how much money can your investor make yearly, once all the initial expenses are repaid, and the business is running smoothly, at both minimum and maximum expected capacity?
Write PROJECTIONS detailing your minimum and maximum sales figures for your first, second, third, fifth, and tenth years, and beyond. How long will it take to become profitable (no longer require investment capital and begin earning NET money), how much net income do you expect to ultimately bring in, and how does that compare to the required investment? Financial projections are THE most important part of your business plan. They need to be based on real numbers that come from every other part of your business plan: market research, expense budget, operations manual, etc.

Other Considerations:

You'll need to plan for many other startup considerations.
  • Have you created a unique name for your business?
  • Have a professional logo created - you'll need it immediately and constantly.
  • How will you set up the legal entity of your company: Corporation, LLC, sole proprietor, etc.?
  • Where will you bank?
  • Will you accept credit cards, and who will process them?
  • Find a good web site URL and set it up with a reliable host.
  • You'll probably need to submit a floor plan to your city's zoning department. That process can become EXTREMELY expensive - research it well BEFORE signing any lease or buying any property. Make sure your proposed location is actually zoned to allow your proposed use!
  • Hire a well established architect who knows the local officials.
  • Be sure you have legal council on retainer, and have all necessary contracts, new hire paperwork, HR procedures, etc., properly examined and prepared by appropriate professionals.
  • Get to know everyone at your local township office, and get to know the police. - Find fantastic electricians, plumbers, HVAC, maintenance, IT, and other support professionals - you'll need them regularly.
  • Get to know your potential neighbors, especially if you will be sharing any part of a building. Talk to the previous occupants of your proposed location, and find out why they're leaving. Ask them about any unexpected quirks related to the location.
  • Shop around like crazy to get the best and best priced liability and property insurance.
  • REALLY do market research, and comb through your expenses and income projections.
Expect EVERYTHING to cost more than you planned, and expect sales to be far worse than you planned.

Be prepared to work twice as hard as anyone else in your business. Lead by example - be the hardest working person in your business. Spend enough time actually working every position possible, until you can personally train any new employee. Get to know what the reality of every employee's daily life is. Show each new employee how to do their job by working with them until they're fully trained. Treat everyone with respect and kindness, but maintain set policies about what's expected of each employee, and enforce those policies consistently.

Nothing beats experience. If you don't have experience operating/managing ANY portion of your business, then HIRE WELL for those positions. Your employees will make or break you.

Treat customers like GOLD. Happy customers will tell their friends about their good experiences with you. That's more valuable than any paid advertising. Unhappy customers will tell ten times as many potential clients not to do business with you.

Finally:

Put all these things into written form. Write a brief executive summary that describes the whole concept in detail, explains the experience you and your team have, explains why you can be more successful than others, and gets an investor excited about the financial potential of your business idea. Focus intensely on creating detailed projections of your income and expenses, and show how long you expect before the investor will begin earning profit. The LONG TERM result of investing in your business must be FAR better than investing in safer interest bearing financial products (bonds, stocks, or other vehicles): i.e., you should really be able to produce a profit of at least 10-30% of the startup costs, per year, forever. The potential returns should really be MUCH MUCH higher then that, especially if your idea is risky/new, or if there is no proven history of success for your idea. Pay a professional to draw up a business plan in a format which banks and investors expect, but keep your numbers and main points handy, so that you can speak quickly about any part of your proposed plan.

Summary:

Basically: Figure out a way to provide a better service or better product at a better price, or with other decisive benefits, for a known need that people/businesses will pay to have satisfied. Figure out how to market your product/service to obtain customers/clients. Figure out how to manage your proposed operations. Figure out how much it will cost to start, and to maintain, those operations. Figure out how much income you can potentially take in, given your geography, facility, capital, and other limitations. Figure out how long it will take to pay back start up costs and maintain sustained profitability. How much money are you left with each year? Present this to someone with the money to spend, and see if they want to risk the investment, based on your idea and financial projections. If in the long run, the investor believes that they can make MUCH more money then by investing in safer financial vehicles, you may get a CHANCE to make your dream come true. Make your salary part of the financial projections from the beginning :)


Copyright 2011 Nick Antonaccio

Copyright 2011 Nick Antonaccio. All rights reserved.