This sounds obvious, but many would - be business owners don ’ t really cover the groundwork in this area. What is required here is not a forest of spreadsheets – just a really clear impression of how your business will work fi nan-cially. Put simply, there are three types of money that you will need to examine:
1. Investment at the start
2. Monthly cash fl ow
3. The profi t (monthly or annual)
Here is the layperson ’ s guide to the three types.
1. INITIAL INVESTMENT
Looking fi rst at the investment needed at the start:
[1] Do you need to put any money in at all at the beginning? Pause on this one for a moment. If the answer is no, then don ’ t do it.
[2] If you do need to borrow from some other source, what demands will the lenders make on getting it back? Banks want interest. Investors want cash back. They don ’ t lend money out of kindness, and they may want to be involved in the way you run the business . Therefore, if you can do it without them, then do.
[3] If you have to put money in yourself, when are you going to get it back? Don ’ t delude yourself by excluding this amount from your assessment of whether the business is going to be a success. Many people who have recently started a business say that their business is ‘ successful ’ whilst simultaneously failing to remember that the business owes them thousands. This may be acceptable in the early stages, but not if there is no likelihood of you being repaid in the foresee-able future.
2. MONTHLY CASH FLOW
This is the amount of income you need each month. Write down what you need. Then write down what you think you can get. Then build in time delays for late pay ment in the early days. This becomes your fi rst cash - fl ow projection. This projection has to be very, very real-istic. You must have a reasonable level of confi dence that it is achievable. You need to distinguish carefully between income and profi t. Never be tempted to call income profi t. You can have a huge amount of income and yet still be making a loss. Make sure that you make proper allowance for all the outgoings that may crop up, as well as an amount to pay yourself as salary to keep the wolf from the door.
Calculate how much you need to make each month. Once you write it down, it is more likely to happen. (This is a general principle that works for almost everything.) You can have a sensible minimum and maximum, but it is better if you have just one fi gure. Now you have to work out where it ’ s coming from. Write down a realistic list of the value of your income in the fi rst three months. If this turns out to be too fanciful, write a more realistic list next time. As you become better at predicting, you will natu-rally build in time lags to refl ect slow decision - making and slow payment.
3. The profit
The fi nal thing to consider is the profi t margin . Ask yourself:
[1] How much is the profi t?
[2] Does it vary depending on what you have sold?
[3] Does it vary by month or season?
[4] Does it fl uctuate wildly?
[5] Why?
[6] What would make it more consistent?
[7] What would make it higher?
[8] What are the tolerance levels?
[9] What is the average target?
[10] Is that realistic?
[11] Is it good enough for you?
You need to keep a regular and close eye on this. You also need to decide whether you wish to draw on the
profi t margin monthly, annually or over any other time period. If you need the profi t margin monthly, does this mean that your business plan does not include an amount for your own salary? If so, is that wise or realistic? If you can take the profi t annually, how are you keeping tabs on the surplus that is (hopefully) building up? Can you equate it back to the running monthly amount?
Be aware that if you manage to convince yourself that you can wait quite a long time to realize a certain margin (a year or more), then you may well have a vulnerable business . Successful business es make a good margin with almost everything they do, effectively from day one.
Consider this carefully. There is no point in driving your-self into the ground all year only to make a few percent, unless you are extremely happy with the fi gure that it generates.
GET YOUR WORKING ENVIRONMENT RIGHT
Your business plan needs to take into account the type of working environment that is most likely to prove a success. Given that running your own business is a daily process of motivation and reinvention, you cannot hope to achieve this if you don ’ t like where you work. Some business es require a place of work away from home. If this is the case for yours, then do consider:
[1] Does the place that I work in really refl ect my style?
[2] Is my journey to work sensible or is it just as bad as travelling to a salaried job in a company?
[3] Do I get to fraternize with like - minded people, or would I be better off somewhere else?
It is important that you think about the mood and style in your work place, for both you and any staff or col-leagues. Match the environment you choose, and the way you fi t it out, to the nature of your business and the mood you want to create for your customers .
If you plan to work at home, there are all sorts of things that you can do to get comfortable. Some people like to have a clearly differentiated room to work in where they can spread out, have all their stuff, and generally make a mess. Others only need a desk in the corner of the bedroom. Work out your preferred style. Decide on the level of tidiness you require about the place and arrange things accordingly. If you have a partner or other family members around you at home, talk to them about the bits that matter to you. What is out of bounds?
Which things do you use in a working context that are in the house? Are there any aspects of other people ’ s clutter and behaviour that prevent you from getting things done? If so, have you found a polite way of discussing it?
Once you have mentioned it, they can understand better that the home is also a working environment , and perhaps make a few adjustments to help.
One way or another, you need to be inspired to get your work done: if your environment isn ’ t right, change it..
These questions apply also to your chosen work environ-ment if you intend to run a company with staff, or with regular interaction with customers . Assuming the money allows it, plan for a workplace that refl ects your style and has a reasonable chance of keeping you and your staff sane and happy. You may need to start modestly, but if you are choosing offi ces, try to make sure that there is plenty of natural light, somewhere nearby to take a break, and a reasonable journey to work. If you are choosing a shop, try to make the premises refl ect the product you are intending to sell.
Financially, aim to keep a sensible balance between cutting corners and overstretching. It may be appropri-ate to invest upfront in premises before your income is known, as long as you have thought carefully about the likelihood of getting a return on your investment . If this is doubtful, consider starting somewhere more modest and then moving when cash allows. On the other hand, if your business concept relies heavily on location or the feel of the environment, then weigh up carefully whether compromising on this could jeopardize the initial success of your business .
PROGRESS NOT PERFECTION
When forging your business plan , do consider that the rough shape will do. This may sound like heresy in as much as many would claim that everything has to be perfect before you proceed to launch. However, the pursuit of perfection is precisely what prevents many business es from ever getting going. This is because per-fection never quite arrives. Too many business es sit around pontifi cating about the so - called ‘ perfect ’ solu-tion that is just around the corner. The trouble is, around the corner is where it usually stays. Many Japanese companies practice Kaizen (the art of continual improve-ment), but none of them ever claim they have it perfect. So aim for progress, not perfection. Another way of stop-ping your plan being paralyzed by the possibility of ‘ just another thing ’ is to pursue MAYA: Most advanced yet
acceptable. This approach encourages a business idea to be pushed as far as it can, but stops short of neutering itself by refusing to proceed unless everything is perfect.
This may sound like a cop out, but it isn ’ t. If you genu-inely think you can fi nd perfection, then hats off to you. More likely, though, you will be tempted to use the pos-sibility of it as an excuse not to proceed, and that ’ s no help to you at this critical early stage when the important thing is forward motion. Give it your best shot and fi x things as you go along.
INVEST IN A DISTINCTIVE NAME AND IDENTITY
Your plan should allow for a distinctive name and iden-tity . Your business needs to look good. Your company, shop or service needs a memorable name, a good logo, high quality headed paper, good quality signage, and business cards that invoke a reaction. Every detail counts. Don ’ t skimp on quality of paper or thickness of business produce a more realistic projection. When it comes to product description, get it down in a sentence or two and then move on. Don ’ t be distracted at this stage by fi ne detail such as design, legal copy, and so on. As long as you know how it can be enacted, then that is enough at this stage.
Your plan should allow for a distinctive name and iden-tity . Your business needs to look good. Your company, shop or service needs a memorable name, a good logo, high quality headed paper, good quality signage, and business cards that invoke a reaction. Every detail counts. Don ’ t skimp on quality of paper or thickness of businesscards. Thin business cards are as weak as a limp hand-shake. Don ’ t have them printed at a booth in a railway station. Check the spelling and punctuation really care-fully on everything you produce. What many business es fail to realize is that if there are mistakes in the way the business markets itself, many potential customers will conclude that what they offer will be as shoddy as their
marketing materials.
Choosing a name for your business can fraught, but it can be approached methodically. There are fi ve main types of company name:
1. Descriptive (Premier Sandwiches)
2. Owner - named (Dave ’ s Sandwiches)
3. Multiple owner - named (Johnson Hobson Wilson Potato Peeler)
4. Pointless initials (DS Ltd)
5. Irrelevant but memorable (Orange, as in the mobile phone company)
If you wish to portray a solid but unremarkable image, then the descriptive approach may be justifi ed. It is worth noting, however, that inventive branding has permeated almost every product category these days, so you should be as brave as you can be. The second option may be relevant if you have a reputation from a past life and it will be helpful for past clients to know that it ’ s your busi-ness . In the case of Dave ’ s Sandwiches, this is unlikely, but if you are a prominent expert in a specifi c fi eld, then it may be relevant.
Multiple owner - named company names are unwieldy and hard to remember. As a start - up this is unlikely to be an issue, but if you are going into business with several part-ners then do consider the pitfalls of choosing a long - winded name just to satisfy the egos of the founding partners. It may not benefi t the business , so resist this route if you possibly can, because it usually just leads to hoots of derision from potential customers .
Option four, pointless initials, is also highly undesira-ble. A quick glance at the phone book reveals thou-sands and thousands of these acronyms. Initials say nothing about you and are unremarkable, so try to resist using them. The last option, irrelevant but mem-orable, can be fun if it is done well. For example, if you work in a fairly dry sector, the use of a fun, lively name might make your business more memorable. All of this is of course a matter of personal taste, but usually it really is worth dreaming up a distinctive, memorable name for your business , and working out how much time and money needs to be allowed for in the plan in order to enact it.
GET THE HELP YOU NEED
It may be the case that you simply cannot complete your business plan without help, or that you already know you will not be able to run your proposed business without it. Either way, it is important to work out exactly what that outside help might be. First of all, let ’ s look atthe help you may need to compose the plan. If you are uncertain what needs to go into the plan, there are many books on the subject, and the websites at the end of this chapter should point the way. Help with the fi nancial elements can be provided by most high street banks , which have ready - made templates of what they want to see in a business plan . Ask your bank for theirs and use the format if necessary.
Researching your market and looking at the competition is usually something you could and should do yourself. If this is not possible or appropriate in your area, then investigate market surveys and research panels that can be purchased. The data can often add signifi cant rigour to a plan. If it is a new market, consider commissioning an online survey to save time and money . If you need to show your plan to others but it lacks pazzazz with regard to presentation, then consider downloading images and data from the web, or using design software to liven it up with graphics, illustrations and projections. This is not to propose a smoke and mirrors approach to the plan, but to give it a lift if others need to be convinced of its value before launch. There may be a case for involving other people in the design of the plan. If the fi nancial projections are genu-inely complicated, and necessarily so, then you may need to ask an accountant or other money expert to help create, or perhaps just check, the fi gures. If the legal issues are complicated, then seek specialist advice. If there are areas of experience that you lack, then ask for advice from those who have been there before.
When it comes to who should be involved when the business does actually launch, make sure you consider who these people should be when you write the plan. Some may be kind enough to offer their services for free, but others will need paying, and so their costs should be built into your projections from the beginning. The overriding rule is that if you don ’ t know how to do something
