Once you have decided that you have a viable business idea, the next step is planning how you will build it. Planning gives you a more detailed understanding of what is involved in starting your business. A clear picture of the market you will be entering, who your customers are, who your competition is, and how much it will all cost are only a few of the details that will be illuminated in the planning process. Here we will outline two of the most popular ways in which entrepreneurs plan their businesses: the Business Model Canvas and the Business Plan.
It is important to remember, however, that the planning process is an ongoing activity. You will soon find that the way you imagine your business now will be different as you get deeper into the planning process. The idea will evolve and change as it becomes something more tangible. Change is an inherent aspect of business no matter if the business is just being launched or has been around for several years. Your ability to adjust accordingly can mean the difference between success and failure. A periodic review of your plan is recommended as many dynamic factors are at play in the business environment.[ + Expand All ]
The Business Model Canvas, developed by Alexander Osterwalder and Yves Pigneur, is a one-page map of the most important components to your plan. It consists of nine sections:
Within each section, there are a series of questions that help you determine the appropriate response. Once the canvas is filled out, you will have a comprehensive picture of how each element of your business relates to the others and whether there are inconsistencies in your plan.
Download a free Business Model Canvas template from the BRC Toolkit.
Creating a business plan remains the foremost method for guiding you and your team through the start and growth of your business, and is often required to obtain funding. A business plan will help you get started on the right track by giving you some practical goals and engaging you to perform some enlightening research. A well thought-out and detailed plan will also be key to obtaining bank loans or receiving interest from potential business partners or investors.
Anyone making an investment will want to know that you’ve thought seriously about how to make your company successful. While you can hire someone to write your business plan, you will be knowledgeable in all aspects of your business if you write it yourself. The process will make you more confident when reviewing the information, applying for a loan with a banker, or talking about it with potential investors.
Your business plan should be interesting and easy to read. Succinct, yet detailed information helps others understand your ideas more clearly, as do graphics. You should focus on defining your competition, clearly stating your value proposition and market opportunity, and completing thorough and attainable financial projections.
Refer to the BRC Toolkit for links to free business plan templates that offer ideas on details, styling, and formatting for your industry or market. However, it is important to tailor the sequence of each section in order of importance to your business. For example, if your product is most important to your success, insert that section near the beginning of your plan. On the other hand, if the market you are entering is attractive (high growth rates, relatively little competition, etc.) and you have a compelling plan for how you will penetrate that market and grow within it, put that section near the beginning. You are telling a story of how you will bring your business to life. Get the reader interested early on and tell your story simply, clearly, and logically.
The New Mexico Small Business Development Center (NMSBDC) provides a wonderful resource called the “Starting Out Guide” that we recommend all entrepreneurs review before beginning their journey. Additionally, the BRC and other New Mexico institutions (i.e. SBDCs and WESST) are available to help you with any or all of the following sections.
A business plan not only serves as a guide for short term and long term planning, but it also allows you to determine what your finances will look like and give you the opportunity to make a financial plan. You can calculate possible outcomes after realistically estimating your revenue, costs, and profit. Every business is different and costs will be unique to your location, industry, and needs. You can remove some of the unknown variables and mitigate risks associated with starting a business when you have an idea of how much it will cost and what you might expect in profits.
From here, you can start building your financial statements: Balance Sheet, Income Statement (Profit and Loss Statement), and Statement of Cash Flows. These statements will generally project into the future anywhere from three to five years. Your projections will be based on the initial amount of money invested to start the business as well as the initial costs to get operating. From here you can use industry statistics or market growth rates to estimate your financial projections. You can also make use of online financial calculators to assist you when you are recording forecasted numbers for the financial plan. These calculators are easy to use and calculate formulas and totals after you input specific numbers. See the BRC Toolkit for links to these finance tools.
To get your business off the ground, you will need to make some initial investments (either through personal funds, friends or family, or loans) before you start making money. The amount varies across business types, but can be substantial, as in restaurant or franchise operations. You need to determine how much money you will need for inventory, equipment, office space, marketing, staff, and any other necessities. This will enable you to understand how much cash you will need on hand for the first year, as you are not likely to make a profit in year one.
Projecting your monthly expenses and setting a budget will be necessary for starting a business. Budgeting for these expenses not only includes setting aside a certain amount of money for expenses and personal needs, but it also requires itemized monitoring of purchases in order to be most effective. It is a good idea to repeat these steps for your personal expenses.
The Balance Sheet is the financial statement that shows a businesses’ assets, liabilities, and shareholders' equity at a specific point in time. It is characterized by the equation: Assets = Liabilities + Shareholders' Equity.
Assets are things that the company owns such as cash or accounts receivable and equipment. Assets are further broken down into Current Assets, those that can be liquidated within a year (cash or accounts receivable), and Non-Current Assets, those that cannot be liquidated within a year (equipment). Assets can further be described as tangible and intangible. As you might imagine, tangible assets are those that can be physically touched (equipment, inventory, etc.). Intangible assets include those that cannot be touched, but still have value, such as goodwill, intellectual property, and sales contracts.
Liabilities are things that the company owes such as building loans or accounts payable. These are also broken down into Current Liabilities, those obligations that can be paid back within a year (accounts payable), and long term liabilities, those that will be paid back in more than a year (building loan).
Finally, Shareholder’s Equity is the amount of money invested into the company.
This statement is also called the Profit and Loss Statement and it shows the company's revenues and expenses over a specified period of time or accounting period, usually over a fiscal quarter or year. It is broken down into operating activities and non-operating activities, so you can easily see how much money the company is using and making from each of its activities.
The Cash Flow Statement shows how much cash (not net income) is coming in and going out of the company. It is divided into three sections: Operating, Investing, and Financing. The purpose of this is to show how cash is being used in each of these activities.
In order to determine cash flow from operations, you must analyze the changes in cash, accounts receivable, depreciation, inventory, and accounts payable. For example, if accounts receivable decreases, this means that more cash has come in (because clients have paid their bill). On the other hand if there is a change in depreciation, this is not counted as cash on the statement because it is a change in the value of an asset – actual cash did not leave or enter the company. In this case, the amount from depreciation is added back to net sales on the income statement.
For cash flow from investing, you will analyze changes in equipment, assets, or investments. Put simply, if the company purchases new equipment, there is a decrease in cash, and if the company sells an asset, there is an increase in cash. Finally, changes in debt, loans, or dividends determine cash flow from financing. When the company pays off a loan, for example, cash decreases. Similarly, if the company pays dividends, cash decreases.
Visit the BRC Toolkit for financial statement and worksheet templates.
Ratio analysis of the financial statements is useful in determining and explaining the current and projected financial standing of your company. There are a plethora of ratios that can be calculated from the financial statements, depending on what you would like to know about your business' financial standing. Below are a few of the most commonly used in small businesses and startups.
The debt-to-equity ratio shows the business’ financial leverage as a proportion of the debt and equity used to finance assets. It is determined by the formula: Total Liabilities / Shareholders Equity.
This is a liquidity ratio which estimates the ability of a company to pay back short-term obligations. The higher the ratio, the more likely the company will be able to pay its debts. It is found by this formula: Current Assets / Current Liabilities.
The quick ratio measures the short term liquidity of a firm, which is useful in comparing short term debts with the most liquid assets. Just as with the current ratio, a higher ratio is a better indicator for the company. It is found by this formula: (Current Assets – Inventories)/ Current Liabilities.
This is the amount of net income returned as a percentage of shareholders equity, and it estimates the profitability of a business by revealing the amount of profit generated with the money invested by the shareholders. It is expressed as a percentage and can be found with the following formula: Net Income/Shareholder's Equity.
The net profit margin shows how efficiently a business is at controlling costs. The higher the net profit margin, the more efficiently a company is at converting its revenue into profit. This ratio is useful in making comparisons between businesses in the same industry because they are often subject to similar business conditions. It can be found with the formula: Net Profit / Net Sales.
Marketing is the process of generating interest in and awareness of your product/service through activities such as promotion and advertising. Its focus is to respond to the needs and desires of customers in order to drive sales. The business plan has a marketing section, but the marketing plan goes into etensive detail on how you will promote and sell your product or service. The plan serves as a guide for the marketing team to know what goals they need to reach and how they will reach them.
The marketing plan should cover the span of one year. This is due to the fact that there will be many things to complete each year for marketing, and this is one of the areas in your business that will change the most rapidly. Customer tastes and market environments change regularly, so a detailed plan for longer than a year will likely be a waste of time. What customers want this year, will not necessarily be what they want next year.
A quick tip to get you started thinking in the right direction is the concept of the Marketing Mix or the Five P’s of Marketing, which are:
Each component of the Marketing Mix will need to be researched and defined. The information you gather and evaluate will be inserted into sections of the marketing plan. An abbreviated outline of a marketing plan can be found below.* You can find more templates and suggestions for writing your marketing plan online.
*This outline was adapted from content in the article, "Marketing Plan Template: Exactly What to Include" found in Forbes magazine.
Visit the BRC Toolkit for worksheets and guides on marketing.
Marketing costs money, but it also helps you make money. This is especially true if you are using effective forms of marketing. The effectiveness of each action item in a marketing plan will vary from business to business, from market to market, and from customer to customer. The passage of time will also change the effectiveness of each marketing effort. This is why you want to evaluate what worked and what didn’t. With these results, you can determine which efforts are worth the investment of your marketing dollars and which are not. Below are some tips for evaluating the effectiveness of your marketing plan:
Visit the BRC Toolkit for worksheets and guides on marketing.
Social media marketing is an affordable way to begin and supplement your other marketing efforts. Many businesses that use social media to engage customers and other stakeholders find that they are able to build stronger relationships through direct communication and interaction, increase traffic into their retail locations and onto their websites, build their brand recognition, and increase search engine rankings. Some aspects of marketing via social media require payment (usually minimal), but others are completely free of charge and still produce tangible benefits.
As with any business activity, you will need to devise a plan for using social media including: the platforms you will use, who your target audience will be, what your message will be, and what your goals are and how you will track them. The following sections will highlight components of a social media marketing plan as well as some of the most popular social media platforms and how to use them most effectively.
Facebook is a platform that people frequent in order to interact with friends and maybe read some news. Keep this in mind when setting up your Facebook Business Page. You want to be able to relate to your audience on this level. The lifespan of a Facebook post is about three hours, but engagement goes down if you overwhelm your friends/followers with posts. Some recommend posting at a rate of 5 to 10 times per week on Facebook for optimal engagement.
Advertising on Facebook is different from advertising on Google. People using a search engine are actively looking for something, but when they are on social media they are focusing on their personal life and so they are not in a state of mind to be “sold to”. There are 10 types of Facebook ads to choose from. The position of the ad on Facebook is determined by the type of ad you choose. With each type of ad, you have complete control over the content. You pay only if users click on the ad or take some kind of action such as liking it.
Setting up your Twitter profile with your business name and link to your website will increase your search engine rankings. If you are not able to use your company name as your handle, try to get as close as you can to it or to something that relates to your brand. Whenever you write a post, make sure that you are using keywords which will also boost your search rankings. It is important to keep your profile active and up to date. Post important deadlines, events, and information.
Make sure to include relevant hashtags that will help you keep track of your tweets by topic. Hashtags can also be fun to use. Be creative and get people engaged. Tweets have a life span of about two hours, and it is recommended that you post at least five times per day. Remember that it is possible to post online articles or interesting links so you are not always having to create content.
It is a good idea for businesses to set up a Google+ Business page and drive traffic to it. You can do this by posting photos and videos, filling out all of the requested fields, adding keywords, and getting your customers to write reviews. Each of these gives your search rankings a boost. Some people use Google+ regularly so you should try to write an original post at least once per week. In any case, setting up the page and drawing customer activity to it is a worthwhile activity for the sake of your search rankings.
There are many other social media platforms from which you can choose: Pinterest, Instagram, Tumblr, YouTube, and many others. Do some research, determine your audience, and devise your social media plan for the most effective results.
SOURCES: The Top 10 Benefits of Social Media Marketing found in Forbes, Guide to Using Social Media for Marketing found in WordStream, The Social Media Frequency Guide: How Often to Post to Facebook, Twitter, LinkedIn, and More found in buffer social, Facebook Ads Guide found in Social Ads Tool.
There are several free and paid resources for you to use when conducting your market research. We have listed a few of these below.
The Census Bureau Economic Programs data can be used for market research to better understand the target market for your proposed business, the local competition and the national industry.
Statistical data from the Census relating to population, age, race, education, income, poverty, labor force, and sales can be used to study the possibility of locating a business in a particular area. For example, a children's clothing retailer could use age data, income data, and retail sales statistics to select a location. County-level demographic data from the American Community Survey showing number of unemployed people and unemployment rate can be used to determine the location of a training facility.
The Census Bureau houses different programs and provides different tools through which you can access data. The County Business Patterns program provides data that can be used by a potential business to better understand an industry, local competition and market potential. If you want to identify the primary and secondary source of revenue (sales) for a particular business, the Product Lines data from the Economic Census provides that. The Economic Census provides detailed data on sales and employment sizes of a particular industry sector. The Economic Census also provides detailed data on expenses and revenue. All of this data will be important to include in your business plan.
The Census Business Builder (CBB) is a suite of services that provide selected demographic and economic data from the Census Bureau tailored to specific types of users in a simple to access and use format.
Please download the “Economic Data from the U.S. Census Bureau: A Business Plan Case Study and Access” presentation from the Census Bureau to better understand the many uses for Census data.
Additional helpful U.S. Census Bureau programs and tools include:
NMDWS Labor Analysis and Economic Research (LASER) is a one-stop shop for information on New Mexico’s labor market. LASER provides extensive information on: wage statistics across occupations; industry and occupational employment; projected job openings and employment growth; educational opportunities, employers, economic and labor force summaries, including comparisons among areas of the state; online job postings statistics and information on potential job candidates; occupation definitions and area economic comparisons.
Local chambers can provide business development and real estate information and various community facts. They usually also have listings of businesses that are members of the Chamber. The New Mexico Chamber Executives Association lists chambers that belong to their association.
Trade Associations may be useful to help you find out the number of similar merchants in your market area. Members who are currently in the market may also assist you with information to get started. You can find listings in the reference section of the public library in the “Encyclopedia of Associations” or ask the reference librarian how to access this publication online.
Universities are a good source of information. Business school departments may offer students to prepare market studies for no charge. Extensive collections may also be available for public use, such as the New Mexico State Library Portal.
As you write your business plan and talk to people about your idea, you will notice that having a concise pitch is extremely useful and even necessary. You should be able to explain your idea in one sentence as well as give an overall pitch in 60 seconds or less. This pitch is often called an elevator pitch.
In this pitch, you should be able to describe your product/service’s unique solution to an identified problem in the market, specifically convey who the market is, who your competition is, and how you intend to make money. Because this pitch will take place in such a short period of time, it is important to practice making it conversational. Have important facts, such as financial numbers and any milestones you have reached, at the tip of your tongue, if you are asked.
Compiling a presentation of your business plan is a bit different than a pitch. These usually last 5 - 10 minutes and may be accompanied by PowerPoint slides. Presentations like these generally occur in business plan competitions or other startup competitions or when an investor asks you for one at a meeting. You are welcome to download a free Business Plan Presentation template and customize it for your needs.
The process of starting a business is a personal and emotional experience. For this reason, it is sometimes difficult to objectively make decisions and projections. Below is a list of common mistakes entrepreneurs make when writing or talking about their business. These can also happen when you are concerned that your business does not look attractive on paper.