How to start a business: 3 - Business plan: simple and realistic.

A lot of people get really hung up on the business plan . They worry hugely about it because they may never have done one. The most important thing that anyone starting a business needs to understand is that the plan does not have to be complicated. Some highly successful busi-ness es have been launched with the simplest of plans .

There is a signiﬁ cant difference between the plan that is required by you as opposed to one that is required by another party, such as a bank or investor. The less someone else knows about your idea , the more they will need written down. The more money they are putting in, the more reassurance they will need. But all business plan s should have some basic components: the proposi-tion , the money equirement, the working environment , the company name, and the support elements. There is a knack to good business plan ning. Doing something is the ﬁ rst step. Too many business es fail to get under way because they are still in the planning phase and never come out of it.

WHAT ’ S THE PROPOSITION ?

The proposition is what you are offering as a business . It is essential that you become adept at describing what you do . Proposition s vary hugely, from basic descrip-tions ( ‘ I am a ﬂ orist ’ ) to complicated echnical stuff ( ‘ We have the most advanced software platform in the call centre market, outperforming the ZX22 by a staggering 43%. ’ )

Sole traders and those starting business es will always want to be at the simpler end of this spectrum, because if you can ’ t explain to a stranger what you do in thirty seconds, then it is most likely that you haven ’ t got a clear business proposition .

Deciding on your proposition does not have to be com-plicated. In the same way that there are only a limited number of strategies in the world, there are only a limited number of proposition s. Consider what yours might be and work through some possibilities. A clear proposition can come from many places, and will vary hugely by market. The important thing is that it is easy to under-stand and directly relevant to your potential customers .

To help you articulate these idea s, here are some exam-ples based on a hypothetical business that sells apples:

· Price: Adam ’ s Apples are the cheapest/best value in town

· Results: Adam ’ s Apples win more awards than any other

· Reliability: Adam ’ s Apples are perfect every time

· Guarantee: If you aren ’ t happy with Adam ’ s Apples we ’ ll give you your money back

· Exclusivity/speciﬁ c market/niche: Adam ’ s Apples have been awarded the Royal Family ’ s seal of approval

· Service: We will deliver Adam ’ s Apples any-where in the country

· Quality: Adam ’ s Apples have been voted the best in the country

· Uniqueness/innovation: Only Adam ’ s Apples come from prize - winning orchards Originality: Adam ’ s Apples were the ﬁ rst ever to be sold in the UK

· Experience: Adam ’ s Apples has 500 years of growing experience

· Image: Adam ’ s Apples are eaten by the famous ﬁ lm star Johnny Starr

Have a think about which characteristics are most appro-priate for your market. Write it down as a complete sen-tence, and then read it out loud. If it sounds daft, then change it. When you have a version you are happy with, try it out on your partner, or your mum. They may say it is incomprehensible, in which case you will need to try again.

THE ONE - PAGE BUSINESS PLAN

The one - page business plan enables anyone who has been labouring for some time over massive forms and spreadsheets to simplify matters. This simple plan should unclog it all, and should not take more than twenty minutes to complete. You will need to be able to ﬁ ll in the numbers to establish whether your business is likely to work or not.

Step 1: How much do I want to earn each year?

_________

Step 2: A realistic expenditure per customer/visit/

transaction/project is:

_____

Step 3: A realistic number of customers /visits/transactions/projects is:

_________ per day

_________ per week

_________ per month

_________ per year

Step 4: How much money will this frequency generate?

$ _________ per day

$_________ per week

$ _________ per month

$ _________ per year

Step 5: Now deduct all costs from the £ per year ﬁ gure:

Per year total: $ _________

Minus costs: $ _________

Remaining: $ _________

(If your salary is included in these costs, then make sure it equals the ﬁ gure in Step 1. If it doesn ’ t, see Step 6.)

Step 6: The ﬁ gure remaining should equal or exceed the ﬁ gure in Step 1. If it doesn ’ t, change

something. This could be:

Expenditure per customer

Number of customers

Costs

The amount you want to earn each year (if you were very ambitious)

All of the above

Step 1 : Start by writing in the ﬁ gure you want to earn. Many of you will be thinking: how can I decide what I will earn when I haven ’ t done the plan yet? That ’ s exactly the point. Most business plan s are unhelpful precisely because they build an income or proﬁ t ﬁ gure from a set of hypothetical variables. That doesn ’ t help you to work out whether your business will sustain you or deliver the income you want. It ’ s simple, but effective.

That ’ s why it is instructive to start at the end. So write down what you want to earn. This can either be the total proﬁ t at the end of the year that will go straight into your pocket as the owner of the business , or a decent salary paid for by the busi-ness . The net effect will be the same.

Step 2 : Now you need to take a stab at a realistic cost per customer, visit, transaction, project, or whatever the appropriate description is for the business that you intend to start. Let ’ s take a couple of examples. If you want to run a coffee shop, then you might put in $ 5 per visit. If you think your customers will only buy one cup of coffee, then it might be just $ 1. If you think they will stay for breakfast, then it might be £ 5. If you are selling to a corporate market where visitors come in for hours on end and work on their laptops, then it might be $ 10. Or, if your business is installing boilers for central heating systems , then the price might be $ 2,000 per installation with a $ 250 mark - up on each sale.

The point is that no one would be selling boilers at the same frequency or price as cups of coffee, so work out the parameters that apply to your market and choose an appropriate

average price per transaction.

Step 3 : The number of customers /visits/transactions/projects will vary depending on the nature of your proposed business . The simplest way to do the calculation is to break it down into tiny units, and then build it back up again. Look at it by day, then multiply it by the number of days in aweek, month or year that you will be trading. In the case of a coffee shop, the business might sell 20 cups of coffee per hour in an 8 - hour day. Assuming a 5 - day week, allowing 4 weeks a month, and one month off for holiday, the maths looks like this:

160 per day (assuming 20 per hour, and an 8 - hour day)

800 per week (assuming 5 days a week)

3,200 per month

35,200 per year (assuming one month off for holiday)

You can see how every variable is critical. If your pricing is wrong, then so is the whole model. If you open for an extra day per week, or hour per day, what happens to the ﬁ gure?

Step 4 : Once you have completed Step 3, it is a simple matter to multiply your ﬁ gures by the price per customer, visit, or transaction that you settled on in Step 2. In this example, it is:

$ 800 per day (assuming £ 5 per visit)

$ 4,000 per week

$ 16,000 per month

$ 176,000 per year (assuming one month off for holiday)

This last ‘ per year ’ ﬁ gure is the big one you have been waiting for.

Step 5 : This total income ﬁ gure is not proﬁ t. It is what the business takes in, not you personally. Now you have to work out what your costs will be. There are two basic ways of doing this:

1. Subtract from the expenditure per trans-action every element of cost needed to fulﬁ ll that transaction. What ’ s left is the margin . If there is nothing left, then your pricing is wrong or the business plan is fun-damentally ﬂ awed. For example, if you have a 20% margin on every coffee shop transac-tion, then for each one $ 4 is cost and £ 1 is margin .

2. Alternatively, look at the entire business over the whole year. Add up everything you will need to pay for. Now subtract that ﬁ gure from the ‘ per year ’ ﬁ gure in Step 4.

Step 6 : The ﬁ gure remaining should equal or exceed the ﬁ gure in Step 1. If it exceeds it, then you may well have a successful business model. If there is a ridiculously massive proﬁ t, then check your assumptions and ﬁ gures again to be certain. If it doesn ’ t equal or exceed your expectation, then don ’ t panic yet, but you will have to change

something.

This could be:

[1] Expenditure per customer

[1] Number of customers

[1] Costs

[1] The amount you want to earn each year

[1] Any combination, or all of the above

This seems a simple list, but it includes a huge number of variables and assumptions, so take your time. You may ﬁ nd that you have incomplete information so you can ’ t be sure of a certain ﬁ gure. If so, go and ﬁ nd out other-wise you will be starting your business under false pre-tences. Keep going and rework the plan frequently. If, after many attempts, the plan never generates the surplus that you want, then you may have to conclude that the proposed business isn ’ t going to work.