Before starting on any possible money making venture you really should put some serious research and planning into it. See if there is a market for the product or service, decide who your target market is, and see who, or what possible competition you will be carving up the profits with. There is one other step I see many new enterprises ignore that is probably the most important above and beyond all of the previously mentioned elements of planning. All those elements are a part of the most important device you will need. The Business Plan!
A recent article in the Enterprise section of the Wall Street Journal stated that "when it comes to planning, small businesses need some improvement". The story went on to report some scary statistics concerning small businesses:
1. Only 13% have an annual budget in writing,
2. Only 14% have an annual business plan in writing, and
3. Only 12% have a long range plan in writing.
In all, nearly 60% of small businesses have no plans on paper at all! This could be a major reason why over 80% of small businesses fail within three years. The Journal goes on to repeat the old adage, "if you fail to plan, you plan to fail".
But small businesses and entrepreneurs aren’t the only culprits. Many large corporations and multimillion dollar enterprises operate without a business plan. Whenever I call on a consulting prospect, I always ask about their business plans. It amazes me how few have a written plan. And of those who do, very few employees below the level of the owners or corporate board room even know about it.
There are many excuses for such haphazard management, but no justifiable reasons. Downsizing has eliminated a swatch of middle management who used to develop such plans. Some say that the volatility of the global markets makes such long range planning useless. Cost or lack of time is often mentioned as a deterrent. Family run and privately held businesses seem to think they don’t need it, since they have been successful for years without formal planning.
I once spoke to a group of experienced consultants and entrepreneurs, professionals who are paid very high fees to advise clients and customers on the benefits of business planning. Of the 65 in attendance, only 17 had an annual business plan. Only 8 had a marketing plan! I have asked dozens of self-employed professional photographers if they had an annual budget on paper (No!). I asked further how they could possibly determine their hourly rates...and they tell me they charged as much as they thought their market would bear, (not what they needed to be profitable)!
Sound business planning doesn’t have to be costly or time consuming. It should also be a "living" document, not some report printed, bound and sentenced to the filing cabinet in your office. Plans should be reviewed quarterly, with variance analysis reporting (actual figures vs. planned figures vs. last year's figures). It is also very simple to do. Your local Small Business Administration office can help with small business planning and their services are free!
I recently read an article from another consulting firm talking about the same topic. This is their annual procedure:
"Each year during the last two weeks of December (our slowest period), we develop the following: a long range plan, a marketing plan, a sales plan and a budget. The long range plan (3 years maximum) is a revision to last year’s plan, and it updates our goals and objectives for the coming year. The marketing plan lists the markets we need to improve in, new markets to penetrate, and those we want to drop. The sales plan lays out which services to concentrate on, the mix we expect, and how we expect the revenue to distribute. The budget lays out our revenue and detailed cost on a monthly basis, and projects profit, taxes, and expected payroll contributions. We can then accurately forecast our "breakeven" points for fees and income.
Each is done on one 8 ½ x 11 sheet of paper, and remains on the wall above their desks to be seen every single day."
Who says planning has to be difficult? Take the time to lay out your own business plan. I promise you will not only learn from the process but you will also give your business their most valuable tool for success!
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