Writing A Business Plan
Writing a business plan is a something you touch on in your high school business class but if you're anything like me you probably slept on the importance of it, thinking it was business basic shit & not important... 95% of the people in the class probably don't plan on going into business for themselves and the 5% that do completely overlook it.
Being entrepreneurially minded my entire life, I STILL overlooked it. But when I got into the real world and had a normal job, I started grasping the importance of it when I worked for other small business owners.
“How many memberships do we need to breakeven?”
The job where the importance of writing a business plan really began to hit me was when I opened and managed gyms & was signing up new members (You know the entire purpose of a gym). The gym opened & business was booming. We were signing up a ton of members & things were going great... I thought. The owners seem satisfied and I would ask how we were doing and often ask specifically, "How many memberships do we need to breakeven?" - This was just the captain obvious question that came to my head; I mean if you are going to spend all of the money it takes to get a gym going, I would think you would have a rock solid number of exactly how many members you would need to pay the bills; but the answer was never clear. Whatever though, right? I mean after all, things are boomin' (we think) so who cares as long as the account is going up.
**(Hopefully you sense my sarcasm- this is NOT the correct way to think)**
A year or so into business, we had some local competition open: memberships are dropping like flies, the account is no longer going up and the stress is rising. Again, my daily question would be, "So how many memberships do we need to breakeven?"... Still no clear answer.
Fast forward a while longer and I was no longer with them.
Moral of the story: Although writing a business plan before opening probably wouldn't have fixed the problem, it sure as hell would've given them an idea of where they needed to be at.
Why else would you need a business plan?
FUNDING. If you want to go into business for yourself, you are going to need funding.
Maybe you're starting a lawn mowing business and just going to need $10,000 for a nice mower, trailer, weed eater, etc.
Maybe you're opening a retail store and going to need $150,000.
Maybe you're going into the tech world thinking you're going to launch the next Facebook and need to raise $800k.
Whatever the business is, if you don't have the dough to get going, you're going to need it. And you're going to need a business plan for funding - no way around it.
You have a few options for funding your business:
· Bank Loan (SBA, Unsecured or secured, Line of credit, etc.)
· Private Loan (Family member, friend, investor, etc.)
· Equity Investor (Angel investors that invest for a living or maybe you can sell someone you know on your idea to buy some equity in your business and inject the capital needed. etc.)
· Grow major balls and max out a bunch of credit cards (NOT RECOMMENDED - But do read about Kevin Plank, founder of Under Armour. His startup story is incredible.)
So why exactly do you need a business plan?
2 main reasons:
1] Secure funding
2] Know your breakeven
Now some entrepreneurs will talk the hard ass game of how useless writing a business plan is and say, "Business plan doesn't matter if you can't execute" and I couldn't agree more that they don't matter if you can't execute.
But I do think they are a super important step of opening any business & even if you have the cash to get started, they are still necessary for knowing your breakeven due to my exact story above. And I promise you that you will have so much more confidence when you get your business up & running if you know your exact breakeven point and have an estimated rate of return on your initial investment. Not to mention, (especially) if you are a first time business owner and you can't even have the discipline to create & finish writing a business plan, you have no business being in business. Period.
If you can't even have the discipline to create & finish writing a business plan, you have no business being in business. Period.
What should your business plan entail?
Think Shark Tank.
When writing your business plan, get to the point.
Don't get carried away with long winded paragraphs of statistics and bull shit that is ultimately fluff & you just think that this is a "the more, the merrier" type of thing - it's not.
The people reading this (banks, investors, etc.) are busy. If they start flipping through your business plan and see a novel on every page, you have already lost them.
I have had people send me their business plan & I see the full pages of size 12 times new roman and I close that shit as fast as I opened it. GET TO THE POINT.
Have you ever seen Shark Tank?
The sharks ask the wantrepreneurs every question possible about their product/service:
"What is the cost on your product?"
"How will you market your product?"
"What is your breakeven monthly?"
"What is your profit margin?"
"How do you acquire customers?"
Etc...
The answers to questions like these ALL need to be in your business plan. Ultimately, it needs to be comprehensive & contain all of the key elements, but lean.
Expenses High + Conservative Sales
After addressing your company description, your background, key customer wants, competition, etc. early in the business plan, you will get to the most important part: Numbers.
There are a few sections here (in this order):
· Start-up Expense
· Monthly Operational Expenses
· Breakeven Analysis
· Financial Projections
When figuring monthly operational expenses, I highly recommend figuring all of your expenses (both start-up & monthly) on the high end. So for example, if you expect your rent to be $2,300/month, figure it into your plan at $3,000 per month. If you think your buildout is going to be $5,000, figure it into your plan at $12,000.
Why? Nothing ever goes as planned. You always go over budget. Always.
And in the case of the "Start-up Expense", this is how much money you're asking for, so it is much better to go in and ask for $175,000 and only end up using $135,000 than put yourself in a situation where you burn through $100,000 & are going back asking for more money. No Bueno.
When projecting sales, I highly recommend projecting all of your sales to be very conservative. So let's say you have heard of similar businesses in your industry doing $50,000/month in sales, but you're sitting there amped up thinking, "I bet I could blow this business up & do $75,000/month in sales"... Now plug in $40,000/month in sales to your business plan. Conservative.
I love that you're amped and think you are going to blow your business up - you should! If you aren't thinking your business will be boomin', then consider not going into business. But follow me here...
If you are figuring your expenses high + conservative sales and you're STILL turning a profit on your monthly operational expenses AND your breakeven analysis is a number that you know is very attainable then BAM!! You are probably going to have a successful business.
Then when you DO get started and you DO go do $75,000 in sales in a month, it's all gravy!
As the old saying goes though, "Numbers don't lie". Better to figure things this way than figure it all in fairytale world & then realize you are in way over your head when you start.
(In the past, I have even done 2 financial sections for one business plan. I did a conservative one that I showed the bank & I did a badass performance one for myself... ended up blowing them both out of the water my first month in business - that is a good feeling.)
The breakeven analysis section is just as important as the others! This section will tell you how much of your product/service you will need to sell daily/weekly/monthly, how many customers you will need, how much the average ticket price will be per customer, how much your profit margin is, etc... It will literally break all this down, and for me personally, this is the part of the business plan that either gives me complete confidence or uncertainty moving forward. It just allows you to have such a realistic look at things (Ex: Plan says you only need 14 customers per day, you're golden; Plan says you need 125 customers per day, you may need to take a look at a different market.)
"A goal without a plan is a wish."
The whole purpose of writing a business plan is to give you a blueprint of what the next few years will look like once you get started. Realistically though, life is going to be throwing you so many curveballs once you get started, that you will probably never refer back to your business plan.
And quite frankly, to think you can foresee the future with your business plan & projections beyond the next few months (or even years like the bank will probably want) is crazy.
But a goal without a plan is a wish. And this plan is the first step to getting started!
If you are able to discipline yourself enough to write your business plan, still feel confident, secure the funding, know your breakeven analysis & get started (which most people won't), then you begin your business ahead of the people who got this far and don't have a business plan.
Once you are there, it is time to execute. Execution is everything & this is where you truly get to find out if you are cut out for entrepreneurship. Good luck!
I have managed to get funding for my first 4 businesses by having good business plans, starting to earn a track record & pitching my ideas well. The one I'm most proud of so far was being able to secure well over $100k for my first business at just 22 years old. I am very confident in my level of how to teach someone how to go about writing a business plan (especially when it comes to something I have experience with like a brick & mortar store), and in the future, I will do more in depth training on writing a business plan & walk those of you that are serious through the entire process.
Thank you so much for reading!
It would mean the world to me that if you got any value out of this article, you would share it with someone entrepreneurial like yourself!