You have always wanted to be your own boss. You are tired of the mindless meeting and the office politics. You’ve come up with a great idea for a new business that your friends say “can’t miss.” So, what’s stopping you from leaving your job to start your own company.
Like most budding entrepreneurs, you probably realize that you need a plan. If you seek financing through a bank or an investor, they require you to have a business plan. Even if you will fund your new venture with your own money, you would be ill-advised to proceed without some form of a plan.
But you have never written a business plan and you have no idea where to start. You’ve come to the right place. I will cover my recommended approach for starting your plan.
Business Concept Your business concept is a brief description of the products and services you will be offering. It should answer these three questions:
1. What products and services does my company offer?
2. What needs of the target market (intended customer) will your products and services satisfy?
3. What competitive advantages will your products and services have?
Write a draft of your business concept with these three questions in mind. Don’t fuss over writing a perfect business concept at this point. You will probably make several revisions to your concept in the course of preparing your plan. The goal here should be to get your concept into written form.
Exit Strategy It may seem counterintuitive to start your plan by devising your exit strategy. But presumably, your company will be a going concern—you expect it to continue beyond your retirement from the company. Therefore, you should write your plan with an exit strategy in mind.
Examples:
• Selling a portion or all of the company
• Passing the company to a family member
• Passing the company to your employees
• Selling shares of the company in the public markets
Choose your exit strategy carefully; it has tax and financing implications and will affect other important decisions, such as choosing the right legal form of organization for your company.
Market Research
Before you launch into writing your business plan, you need to gather data on your company’s industry, market, and competition. Start by identifying your company’s industry. I suggest using the North American Industry Classification System (NAICS) to determine your industry. This will help you more clearly define your industry. The NAICS code will also save you time gathering research information.
Once you have determined your industry, you are ready to begin gathering data on your industry and your market. Some of the main questions to consider include:
• What the industry trends?
• Who is your competition?
• What market segments are being underserved?
• Who should you include in your target market?
• What impact will technology, legislation, and seasonality have on this industry and market?
You should conclude your market research by evaluating your competition. Performing a competitive analysis simply means comparing your products and services to those of your competitors. Doing this will help you align your strengths with the opportunities in the target market. A competitive analysis should help you answer questions such as these:
• How are your products and services superior to your competitors’?
• How are your products and services inferior to your competitors’?
• Why will customers abandon your competitors to buy from you?
• How can you reach new consumers (those being served neither by you nor your competitors)?
SWOT Analysis The SWOT Analysis is a straightforward assessment of internal factors (Strengths and Weaknesses) and external factors (Opportunities and Threats) that could affect your business. Your SWOT analysis should help you answer question such as:
• What special skills does your company possess?
• Do any of your products or services have unique features that make them more attractive to customers?
• Do you have a superior location?
• What crucial skills does your company lack?
• In what ways are your products or services inferior to your competitors’?
• Are there any emerging technologies that could benefit your industry?
• Are any markets in your industry underserved?
• Are there any opportunities to form key partnerships with suppliers, buyers or competitors?
• How easily can new competitors emerge?
• What is the threat of a large competitor moving into your target market?
• How tightly regulated is your industry?
• Do economic cycles severely affect your industry or target market?
Keep in mind, this is not an exhaustive list of questions to consider for your SWOT analysis. However, it should stimulate other questions that lead you to identify more strengths, weaknesses, opportunities, and threats.
Once you have completed your SWOT analysis, you are ready to begin writing your business plan.
Preparing to write your business plan is no small task. Putting your concept in writing, gathering research, and analyzing the data can be intimidating.
But the preparation can be worth the effort. It will help you refine your business concept. It will prevent you from making some costly mistakes. It will force you to think about your company more objectively and strategically. Most importantly, the preparation will increase your chances of writing a successful business plan.
Copyright © Jeff Beckley, CPA 2005. All rights reserved.
Jeff Beckley is the managing partner of Beckley, CPA and is President of Market8, LLC, a leading provider of business plan products including FinancialPlanMaster and BPlanMaster.
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