How to put together a business plan that actually worksJul 24, 2020
We've all heard about Business Plans and there are a tonnnnnnn of different opinions and strategies out there about what this should be and whether or not you even need one. In this episode we dive into why we think it's absolutely crucial for you to sit down and think through your business plan. We'll pose some questions for you to consider, and spend time unpacking how this is more than just a document - it's a tool that you can use to really think through what it is you're actually trying to do, and how you plan to make it work.
We hope this is helpful!
Full Episode Summary
No matter what kind of business you’re starting—whether it’s going to be a solopreneur venture or a startup with a lot of investment—one of the first steps is to write a business plan.
Now a business plan doesn’t have to be some 50-page document. It can be one or two pages. It can be 12. The length and detail really depends on who it's for and what you need to do with it.
Sitting down to think through this and ensuring you’ve really done your research will also ensure that you truly understand the market you are getting yourself into. Even if you think you have it all under control, do this. You will thank yourself.
Once you have your plan in place, you’ll want to revisit it once a year, update it as needed, and use it to inform your decision making process. Make this a priority that you put on your calendar in advance. Have a company birthday and on that date, check in on and update your business plan.
Today, we’re going to mainly focus on the financial side of your business plan, but before we dive into that, we wanted to provide a few questions you may want answer to help get started:
Questions to Ask Yourself When Writing Your Business Plan
Why are you starting this? List out both your personal and professional reasons. This will help to guide your decision making and can be a place you return to when faced with a tough decision.
What service or product are you providing? Is it scalable? Can you create processes that will help outsource this service or product production? What new skills might you need to learn in order to do this? How much time and money will it cost to learn those new skills? What skills do you already have that will help you accomplish this?
Who is your target audience? How do you plan to reach them? How large is your target audience?
What are your short and long term goals? These can be both financial and personal. For example, you may have a goal to earn $80k in your first year. Or you may have a goal to only work 15 hours per week. Whatever your goals are, make sure they’re realistic and measurable.
There are a lot of resources out there when it comes to putting together your business plan, including resources within your own city. We highly recommend looking up the resources of the small business development center in your area, as they may even be able to help you (for free!) with your initial business plan. Check out americassbdc.com for more details.
Since this is a Finance Friday post, we learned from Beth all about the financial side of a business plan. Below, Beth walks us through the most important things you need to think about from a financial aspect as you start to plan. As you may have discovered by now, startup and monthly expenses can start to add up real quick, so it’s important that you have a realistic expectation of what this will actually cost you. Managing your own expectations will allow you to go into this with your eyes wide open.
Define How You Plan to Make a Living
If you plan to provide a service, you need to have a decent understanding of how many clients you can actually service at a time. This will usually come down to simply figuring out how much time you have available to work.
A great place to start understanding this is by using our free Capacity Planning Tool!
If you are selling a product (whether physical or digital), you need to take into account the fact that there will most likely be a ramp up period to create said product, which means you may not be earning anything during that time. Or if it’s a physical product, you may be taking on investment to launch.
Next, define the services or products you want to offer. Remember this will change over time as you evolve, so be flexible. Spend some time fleshing this out, and get as clear as possible with your definitions. Make sure that whatever you’re offering is something you’re actually excited about doing—that you're not just something that you think is going to make you money. If it’s not something you’re excited about, it won’t last long.
From there, you will want to determine your pricing. Now, this will vary a lot based on many factors, so we won’t get into this discussion here, but you will want to do your research on this: ask other freelancers how much they’re charging, look online, join communities and forums, etc. Do your homework.
Put Some Numbers On It
Now that you know what you’re going to be selling, how much time you actually have to sell that thing, and for how much (even if that number is a rough estimation for now), you can start to calculate how much you can realistically generate each month. That number will be of utmost importance for the next step ...
Figure Out Your Expenses
Your goal in this section is to set a realistic expectation of how much money you will need to spend to make your plan work. Don't forget to figure out what kind of ongoing services you'll need to pay for. This one can be sneaky, so pay attention! There are certain online services that you will most likely need to pay for, and then there are some that you will want to pay for. This is something you’ll want to figure out for yourself, but here are some examples for you:
- Accounting software
- Email hosting
- Website hosting
- Domain hosting (annual)
- Software (graphic design/editing; project management; etc.)
Other One-time Expenses to Consider:
- Equipment (laptop, microphone, desk, etc)
- Design and development for your website
- Copywriting if you want someone to help you with your messaging
- Other consulting - if you want someone to help you put together a marketing strategy; if you want to take a course on how to optimize your business; etc.
Remember to focus on making money with your time. Sometimes, it makes sense to hire someone to do work that you don’t need to be doing, especially if it frees your time up to produce income-generating services.
Payroll and Facilities - The Biggest Expenses
First, don’t forget to pay YOURSELF! How much money do you need to make? Will you have other employees? When do you think you’ll bring them on? In what order?
Or, are you building this in a way where you will handle this alone? Remember that some of the overhead folks like accountants and HR are more important than you may think. Can you get these folks part-time or contract? These folks can save you LOTS of time and stress, and it is a good thing to rely on experts. Consider your local labor market, and how much you will need to pay people who work for you.
Facilities and Transportation
Are you planning to rent an office or warehouse or facility of some kind? How much will that cost? Include utilities, rent, any other expenses (including seasonal maintenance snow shoveling, raking leaves, etc.).
If you are starting in your home, can you dedicate a space that will only be used for the business? Later on down the line when you want to deduct office space for tax purposes, it can be tricky if your “office” is also the baby’s room. Think about the space you can set aside, even if it’s a closet or in the garage. Consider also that a time may come when you will want actual office space.
How about transportation, for yourself, your employees, or your product(s)? Will you have inventory that needs to be transported, or will it be shipped? These expenses can add up in a big way, so be sure you’ve done your research and planned for these monies.
Now, Start Projecting
Create month by month projections of income and spending. Excel can be a great tool for this, and Beth actually has a cash projection tool that her clients use (and that we will have for you soon!) to help them so they can manage and financially inform short and long-term goals.
How is your business financed, initially? Plan over a period of 3-5 years. What is the realistic growth for your kind of business (in real numbers)? Do you expect $X the first year, and then double the next? Research the industry in your area. If you want to do a business online, research what those businesses are able to charge. Examine the competition, get a lay of the land, and pinpoint some realistic numbers for your business and its growth potential.
If you’re going to have investors, think about these questions first: why do you need investors? What will investors want from you? Do you have something scalable with good margins, that they can have a cut of later? Lenders will want a repayment - what are the terms?
That being said, don’t borrow if you do not have to. What if you borrow a bunch, and then realize your business isn’t going where you want it to? You do not want to find yourself in an ultra-tight budget so you can pay off lenders. If you are transitioning out of another job, you may be able to make it work as you build the company.
For example, if you are providing a service, perhaps you are doing some projects at night and on weekends while you transition out of your job. You can do much of your research phase during that transition, if that’s available to you.
Beth loves this definition of “bootstrap”: get (oneself or something) into or out of a situation using existing resources: "the company is bootstrapping itself out of a marred financial past"
Remember when you do that, you aren’t beholden to anyone, and you own 100% of your business!
After your first year, return and update your business plan based on what happened during year 1, then create a new rolling business plan for the next 3-5 years. Just about any plan of this length will have changes, so don’t beat yourself up! This plan is your roadmap; you take detours or a different route, but as long as you get to your destination, your map is valid.
Remember your business plan is a living document!
All of this can be somewhat difficult for someone to put together by themselves. Have a friend or associate work with you. If you have a board, board members, trusted friends, or whoever, talk with them. The key is to find someone who will think critically with you—not someone who will just tell you how smart and amazing you are and not warn you about a major mistake you might be making.
Monkey wrenches can get thrown into any plan, any time (Hello, COVID-19), so be flexible. Explore possibilities. Keep your numbers and plans grounded in reality, and be sure to update and maintain your plans on a regular basis. Remember your business plan is a living document, live with it!
This is why Kenza Collective is dedicating an entire content channel to the business and financial side of running your company. This can feel daunting, but it doesn’t have to be.
Once you’ve walked through the process and created a solid plan for yourself, you will feel so empowered and ready to go out there and crush it.
You may be surprised at what this process uncovers for you. In your research, you may come across a whole new service path that you didn’t even know about, and the entire plan could shift. Or you may discover that while you wanted to bring employees on right away, you’d actually rather bootstrap for a bit and create a proof of concept before taking on that risk.
Like they say... it's about the journey, not the destination. Most of the time, the main purpose for a business plan is to force yourself to sit down and really think through things beforehand.
So, what are you waiting for? Start planning!