Small Business Start-Up Guide
by Robert Sullivan
. . brought to you by The Small Business Advisor
Planning is mandatory for business success.
Fail to plan and you plan to fail.
ways this is the most important chapter in the book since planning is
the single most important element in starting and operating a business.
Amazingly enough, it is also the most overlooked. Lack of planning is
the cause for the majority of business failures. If you only take one
thought from this book, remember this:
START PLANNING FROM DAY ONE AND KEEP PLANNING
THE LIFE OF YOUR BUSINESS. MODIFY YOUR PLAN AS YOUR
BUSINESS GROWS AND AS EVENTS DICTATE.
is difficult because there is no immediate feedback as to its value.
But if you think of starting and operating your business in the same
way you might think about climbing the mountain that was mentioned at
the beginning of Chapter 1, the purpose and advantages of planning become
start up the mountain you never know what to expect: sudden change in
weather, lost or broken equipment, mistakes in maps, an injury. If you
plan for these events, you will be able to deal with them and still
reach top of the mountain in spite of the setbacks. On the other hand,
if you fail to plan, you will not be prepared to meet problems that
happen due to circumstances beyond your control. This can be disastrous.
If you take the time to plan carefully, you will anticipate more of
the potential problems, find solutions, and be able to achieve your
books have been written on how to write an "effective" business plan
and most provide good advice. The traditional business plan is a very
well defined and structured document. You write it so that it can be
shown to lenders, potential investors, and bankers in order to raise
capital for the business. So, it's sort of an advertising document and,
well, maybe tends to exaggerate a little.
people will argue that the business plan is a planning document. However,
it frequently is not because of these exaggerations. After a while YOU
will start to believe the business plan ... even if you know that what
is contained within the document is absurd in places. (Yes sir, there
is no doubt about it, sales will easily double each year ... as long
as we can obtain adequate financing.)
business is going to require investor capital at the onset, you will
need that traditional business plan. See the references listed at the
end of this chapter for some examples of where to find information on
preparing a traditional business plan. But BEFORE you even get to this
point, or if you are like so many of us and are starting a small business
venture where little or no formal investment is needed, you need another
plan ... A plan for YOURSELF ... A HONEST plan for you. You need a strategic
plan is your plan for success. It will define your business mission,
your present situation, and where you want to be in three to five years.
A strategic plan, like the traditional business plan, should be well-structured,
and include a number of short succinct statements covering the following
in your strategic plan will be important since it defines what your business
will be, what your objectives are, and how you intend to achieve these
objectives. If you find you cannot write about the areas that are about
to be discussed, you need to stop and think carefully about your situation
until you can. A strategic plan will allow you to anticipate problems
and to make decisions that will help you meet your business goals and
objectives. Without a clear goal in mind, the best decision may not be
obvious and you are reduced to guessing.
is a short statement that defines your overall long term goal. This
statement should define WHAT your business will be. It should be brief
(20-30 words) and clearly describe what you will be providing; and who
the customer base will be. If the statement is too specific, it's not
much of a vision; too general and it's unattainable. Your vision should
be something to strive for ... usually a multi-year effort.
the best automobile repair service in town." (too general)
the largest Porsche repair garage in the country." (too general)
automobile painting services." (poorly defined)
rebuilding services for 12-cylinder Ferrari engines." (too specific)
Build an automobile repair business, specializing in Porsche, that will
gain a reputation for outstanding service within the community and will,
first and foremost, always be responsive to customers needs.
a definitive comment that tells WHY you are pursuing your vision. Why
do you want to start a business? What do you have to give? Keep in mind
that a lot of people have a vision but very few have a mission ... At
least one they are willing to pursue (many people shared Martin Luther
King's dream but he was the one who also had a mission to do something
about it). Think about what your mission really is.
Make use of my background and experience with Porsche automobiles to
provide high quality repair and restoration services; to provide jobs
for locally qualified individuals; to provide for my family's needs.
to spell out the boundaries of your business. You cannot be everything
to every-body. If the scope of your business is too narrow, the probability
for success may be diminished due to the smaller number of potential
customers. On the other hand, if the scope is too broad, you will never
be able to achieve your objectives. You may make a few customers happy
in the short term, but it is not a good idea to spread your energies
over too broad an area.
automobile repair service." (too broad)
Porsche repair services." (still to broad)
high performance engine modifications for Porsche." (too narrow)
We will provide our services for all Porsche automobiles with the exception
of the 914 series. Our services will include general repairs and maintenance
(less major body work), detailing, storage, rebuilding and restoring.
important to understand what specific assumptions you are operating
under concerning your new business since they can determine and dictate
how your business will grow and prosper. The more specific these assumptions
are, the better. It may require a little research on your part to lay
out these assumptions but the planning stage is the time to do it. It
is difficult to give general examples, but in keeping with our Porsche
repair facility, here are a few:
GOALS & OBJECTIVES.
- I will
keep my present job for the next 12-months.
are many Porsche owners in this area.
Porsche repair facilities are not perceived as doing a good job or
being responsive to customer's needs.
spouse will continue his/her current employment.
- I will
limit my involvement to 20 hours per week for the first 12-months.
- I have
fifteen customers that I can start with right now whose cars require
is a listing of specific goals and objectives you want to achieve with
your business. Think through this carefully. Your list should include
items that can be "measured." This way you will know when you've achieved
success. Goals should be realistic and doable within a one to three
to be independently wealthy."
to be my own boss."
my job, I want to do something new and exciting."
to be able to set my own work hours."
able to quit my present job within 12 months.
at least $150K gross sales in the first year of operation.
at least 100 new customers by the end of the first year of business.
a racing team by the third year of business.
as many risks as you can. This might be difficult since it requires
some negative thinking, but it is important for you to consider the
downside in your planning. A new business venture can be risky, but
what is important is that you identify as many specific risks to your
proposed business as possible. By doing this, you can plan to deal with
the risks. In our example, consider the following:
the listing are "acts of God." Risks of this type are usually covered
by insurance. Refer to Chapter 10, Protect Thyself.
damage or loss of tools, inventory, facility.
of customers due to the competition.
of an important supplier.
in cost of tools, parts, etc.
of lease requiring a new location and facility.
the risks have been identified, you can list the ways to deal with them.
Your strategies are the methods you will use to achieve your goals and
objectives in spite of the risks. Here are some proposed strategies
for dealing with the above risks.
a monthly "clinic" in which we will provide the use of my facility
to members of the local Porsche club. (generates loyal customers)
parts at a discount and free advice for those taking advantage of
the clinic. (gain a competitive edge)
a monthly newsletter for all my customers. (excellent marketing)
direct mail to identify potential new customers and send them our
newsletter. (keep looking for new customers)
two reliable parts suppliers. (guard against loss of one)
reassess pricing with respect to the competition and costs.
in close touch with my Realtor in terms of other locations in the
event I have to move due to growth or problems with my current facility.
an employer worth working for ... treat my employees like the important
asset they are. (See Chapter 11, Hiring and Working with Employees.)
need to identify a way for periodically re-porting the progress of the
elements of your plan. If you write your plan and then forget about
it, it doesn't serve the purpose for which it is intended. Your business
is constantly changing ... many situations that affect your business
are changing constantly and your plan must be updated or modified to
reflect these changes. You must continually measure your performance
against the plan. It is amazing how many planning documents are generated
with great care and then placed in a drawer never to be looked at again.
Don't you do it!
A plan that is not periodically reviewed
and updated is nearly worthless
your strategic plan monthly and revise and update it as required.
planning, if you have considered risks and especially the unexpected,
should help you improve your chances for success. However, some businesses
will fail for any of a variety of reasons. We've already talked about
the fact that you must constantly update your plan to make sure it is
tracking with changes as they happen. If you find, by referring to your
planning documents, that you are not making satisfactory progress towards
your goals, in spite of your best efforts, you must be ready to admit
failure. Pull up stakes and cut your potential losses. Hanging on and
watching your business slowly die can be financially and emotionally
devastating. Alternatively, you might consider setting a new goal for
a new business. In this case, the planning process starts again.
a post-mortem and assess the failure. What went wrong? Were the circumstances
beyond or within your control? Could the event(s) contributing to the
failure have been anticipated and possibly mitigated?
true entrepreneurial spirit, you will probably be involved in a new
business venture sooner or later and you want to be able to take advantage
of your previous experiences. By spending time performing a careful
assessment of your failure, you can document the lessons learned for
you should be aware of this very important "planning for failure" truism:
Pay yourself first or you may end up with nothing for your efforts.
make the mistake of putting every dollar of profit back into your business.
Your business may very well prosper for a number of years and then be
plunged into sudden bankruptcy through no fault of your own. If this
happens, and, if you have not planned ahead, you may very well have
nothing to show for your time or efforts. Plan for this disaster by
remembering that YOU are the business and deserve to be appropriately
paid for your efforts. Never forget to pay yourself first. In bad times,
the creditors may hound you, but they will wait.
should you pay yourself? There is no easy answer or magic formula and
it is difficult to give specific advice but some general guidelines
are worth noting.
your business is equity financed, your salary should be formally
determined based on a formula agreed to by the equity lenders. For
example, the initial salary could be based on current monthly needs
with subsequent in-creases as the business becomes profitable.
your business is debt financed (by yourself or others), your business
or strategic plan should include your own salary and its basis.
Clearly, if you are using your own money to finance a new business
you probably won't initially take a salary. In this case you should
ensure that your savings and any other sources of income will support
you until you become profitable. However, as soon as the business
starts re-turning a profit, start paying yourself a reason-able
a balance between growth considerations and your salary. This will
be different for each business but thoughtful planning will allow
you to determine an effective split.
plan for success but in the world of small business, failure is all
too possible, and for reasons beyond your control. So plan for both
success and failure - don't return every dollar to the business -
keep some for #1, yourself!
terms of protection, you should be placing a certain percentage of
your income into a retirement account such as a SEP or 401K plan.
Money in these types of accounts is protected from creditors.
ahead, you won't be sorry!
to plan and you plan to fail. This statement, or something similar,
has been made in just about every business book ever written ... and
many entrepreneurs still don't take it seriously! Be the exception
... plan, assess, and plan some more. You MUST have a clear goal and
a well-defined metho-dology for getting there. Take all the time necessary
to produce a well thought out strategic plan. Plan for your success
but also plan for failure. Do this in part, by paying yourself first
and having an appropriate savings program.