Business planning is an important step in launching your business. A business plan helps you define your business goals and guides the research for how your business is going to become successful in a structured manner. You can use your business plan as an operational document to help you run your business, and you can use it to pitch your business to potential investors or partners.
Accion’s Director of Coaching and Connections Rowan Richards shares business planning strategies to help you reach your entrepreneurial goals and take your business to the next level. After you read this article, please see our series titled Business Plans 101; click on the subtitles for each business plan section to get detailed instructions on how to write a business plan.
Know your WHY
While starting a business can be hard, it can be made easier when you define why you are in business. Richards acknowledges it’s important that you ask yourself the following questions: what are you looking to achieve personally? What problems are you confident you can solve in the industry, community, or marketplace?
In the early planning stages, you have to make sure the type of business you start can give you fulfillment. You have to make sure there’s a personal satisfaction to be found by going into business that goes far beyond finances. You have to make sure you’re best using your gifts and that being a business owner will offer you personal benefits that lead to lasting satisfaction. Richards says you must ensure you have the resources—the people and capital—necessary to start and grow the business of your dreams.
At the beginning stages, you also must consider your exit strategy, according to Richards. How will you eventually let your business go when you’re ready to move on? Will you close your business, or sell your business to an employee, family member, or another corporation?
Mission and Vision Statements
Richards says your mission statement states the purpose for your business. Defining your mission statement helps you define how you’ll operate your business. A mission statement also helps you know what opportunities you should take advantage of and which opportunities don’t fit your mission and should be left behind.
Different from your mission statement, Richards says your business’s Vision Statement is more forward thinking and can address how your business will solve a problem in three years, five years, or ten years in the future.
Your business’s core purpose is tied closely to your mission statement. The core purpose is also related to your marketplace, the problems you vow to solve, and your core competencies. Your core competencies are important because you start with yourself and this can impact the satisfaction you’re able to derive from your business. You are going to spend a lot of time on your business, so you want to focus on what you are strong at and what do you enjoy doing. Once you’ve defined your own core competencies, you want to define those of the people you are partnering with or hiring.
Your value proposition is the value your business can deliver to customers, the value that they would be happy to pay for. Define the problem your business can solve because that’s the opportunity in the market your business can seize.
The executive summary sums up all of the prior points in your business plan, puts all the research together and summarizes the core ideas around your business in a tidy fashion so you can clearly get your ideas across to a potential investor, partner, or a bank.
Richards says in the early stages of planning, it’s important to choose your business structure from the following options:
- Sole Proprietorship
- Limited Liability Company (LLC)
- L3C or Benefit Corp
- Nonprofit organization
In general, Richards recommends structuring your business as an LLC unless a reason presents itself to go with one of the other options. He says an LLC is the most flexible and there are a lot of benefits to it, such as tax benefits and liability protection for your personal assets. However, he also says there are benefits to all of the different structures, so it’s important to do your own research, seek legal advice, and make sure an LLC is a right fit for you before deciding.
Knowing your customer is one of the most important considerations a business owner can have. If you don’t know your customer, you will find it challenging to identify opportunities and deliver a product or service a customer will be excited about.
Create a customer persona to identify who exactly would be interested in the product or service you want to offer. A common mistake many entrepreneurs make is saying that “everybody” would serve as a customer base. It’s important to drill down to the specific demographics of your ideal customer, such as age range, personal interests, and income. The more targeted you can be about who your customer is and what your customer is seeking, the more effective your marketing strategy has the potential to be.
If you identify who your customer is, then you can identify where they spend their time, such as those who prefer online shopping versus though who prefer brick and mortar stores. This will help determine your distribution channels and marketing placements. You can also identify areas where you can provide value beyond the product, such as customer service, discounts, and advice.
Define Your Product or Service
Richards says it’s important to spend a lot of time and energy on developing your initial or flagship product or service. Get customer feedback and make changes as necessary. A great description of your product helps give customers a clear idea of your offering and how it will meet their needs. This will help bring potential customers to the transactional level.
When developing your product description, make sure it’s surpassing the needs of your customer. Specify: where and how a customer can get the service or product; how much the product or service costs to you; plus the price to the customer; the key attributes of the product and service; and the competitive advantage your offering has over similar standard offerings in the marketplace. Richards says to make sure you are priced competitively, but not so low that you disadvantage yourself as you try to grow your business.
Richards says market analysis helps you to create practical financial projections and helps you decide how to position yourself in the market. When doing market research, Richards points out a variety of factors to consider and questions to ask. Seek to understand the size of the market, meaning how many customers exist locally and nationally. How many businesses are offering a similar product or service in each geographic area? How many customers are there in each area, and how much of the market share can my business capture? These questions help you understand the value of the market and determine the steps you need to take and the money you need to spend in order to compete in the space. Then you can calculate your potential market share.
Strengths, Weaknesses, Opportunities, and Threats (SWOT) Analysis can help you define your core competencies and weaknesses internally within your company, plus the opportunities and threats that exist externally in the marketplace or industry.
People Are Key
People, especially the owner/operator are key to the success of the business. One of the roles of a great leader is identifying people who can make the business a success. You will have to determine whether you want to have a business partner or go it alone. You will also need to determine how to structure the management, your team, and how you can help them be successful. The roles and responsibilities of everyone in the organization need to be clearly identified and documented. This not only helps the success of the people and company but can also help draw new talent to your company.
If the CEO or president doesn’t have anyone on the team whom they would be comfortable discussing business strategy and personnel with, then consider bringing on advisors to fulfill that need. It’s helpful to have someone to bounce ideas off of. Advisors might include professional consultants such as legal counsel or an accountant.
“Key partners” is a broad term that could include referral partners who could recommend investors, customers, suppliers, or advisors. Investors can help a business expand and reach a much larger audience through capital or networks and markets. Supplier relationships can also help take work off the plate of the owner by automating certain parts of the process.
Financial projections can help you determine how you run your business. For early-stage businesses, you can create financial projects by determining the cost of doing business and the profit potentials, when you can expect to reach breakeven, and when you expect to be profitable. When business planning, put together one-year, three-year, and five-year projections.
Financial projections help you determine if there is a real opportunity, and the steps you can take to reach those projections. You must determine the cost of the product, the price, and how much money it takes to run every aspect of the business. This means you will determine the Cost of Goods Sold (COGS) and your operating expenses.
Your financial projections must include a Profit and Loss Statement, a Cash Flow Statement, and a Balance Sheet.
To create financial projections, you must identify your business startup costs and the capital needed to produce your offering, how much product you need to sell in order for your financials to be at the breakeven point, and what your profit margins are.
Marketing and Pricing Strategy
You want to use your marketing strategy to get your customers excited about your business’s offering. You need to have a clear understanding of your competitors and your marketplace in order to determine your pricing strategy and positioning of your offering in the market. Ask yourself: what level do you want your offering to fall, whether that’s economy level, midrange or premium? You want to make this decision based on who you are, what your brand says your business is like, and what your customer actually wants.
Producing marketing materials and developing your advertising strategy will depend on whether your audience can be found via print materials, television commercials, or online advertisements. Often there’s a mix of ways in which you’ll market your business to customers.
Depending on the type of business you have, a promotion strategy could get customers excited about your offering. A promotion could come in the form of a discount or an event where you engage customers to participate. Promotions should give a product or business more visibility in the marketplace.
A sales/conversion strategy is basically the strategy you’re going to employ to convert potential customers to buyers. For example, if you reach 20 customers via advertising or promotions, of that 20, how many can you expect to visit your website or your retail location? If eight customers then make a visit, of those eight, how many will actually buy something? The percentage of people who made a purchase from the total number of people reached is your conversion rate. Determining how many people you need to reach in order to meet the sales numbers you need in order for your business to thrive can guide you to better understand your marketing strategy.
Creating a referral strategy involves leveraging current customers or partners to advertise your business for you. You can offer discounts or other incentives to get happy customers and partners to spread the word about your offerings.
Having a solid operational plan will help your business handle growth with grace as opposed to a major crisis when things get busy. If a business doesn’t have a good operational plan in place, it can stunt growth due to an inability to handle it.
Your operational plan gives instructions for Where, Who, How, and What. “Where” is the location of business activities, whether it’s your physical location or online. “Who” names the key personnel needed for each activity required to run the business and fulfill customer needs. “How” is the detailed process each person uses to be successful. “What” includes the tools and technology needed to be productive and for the business to continually meet demand.
You also must develop a method for analyzing productivity and efficiency to see how you are performing against your goals, whether that’s monthly or annually. With a performance analysis, you can see how the business is delivering relative to projections.
As you start a business, it’s important to determine whether funding is needed now or whether it might be required in the future to grow your business. If you decide you want funding, you will have to determine the best method for you. Ask yourself: do I want to take on a loan, or establish a revenue share? How much control of your business are you willing to give up in order to secure capital? Understanding this key point will help determine the type of funding you seek to acquire. For example, a loan doesn’t require handing over the reigns to your business, while enlisting equity partners might require more compromise of your vision with other people.
You might also look at your personal savings, friends and family, and crowdfunding as funding options. Lending organizations like banks and microlenders like Accion are also good options. Angel investment groups exist online and in different cities, so check to see if your business might be a good fit.
Business planning can help you establish and reach measurable, time-bound goals for your business. Going through the process of writing a business plan can help you find the best ways to develop your product or service, and identify and learn more about your customers and competitors. Ultimately, your business plan is a powerful tool that can aid in the successful operation and growth of your business.