“ An essential book to help entrepreneurs.”NOLO               ®                    DALLAS MORNING NEWS10TH EDITION        ...
The                         Story                                                    Emma Cofod      Dear friends,      Fo...
Products                & ServicesBooks & SoftwareGet in-depth information. Nolo publishes hundreds of great booksand soft...
The Trusted Name                       (but don’t take our word for it)“ In Nolo you can trust.” THE NEW YORK TIMES“ Nolo ...
10th editionHow to Write aBusiness Plan   by Mike McKeever
TENTH EDITION                                JANUARY 2011Editor                                       RICHARD STIMCover De...
Dedication       This book is dedicated to the memory of my late grandmother,       Elizabeth Eudora Woodall Darby, whose ...
About the Author       Mike P. McKeever’s education, work experience, business ownership,       writing, and teaching care...
Downloading Forms and Other MaterialsThe printed version of this book comes with a CD-ROM that containslegal forms and oth...
Table of Contents		 Your Legal Companion                                        .............................................
Common Money Sources to Start or Expand a Business..............................................59        Additional Money...
9	 Editing and Finalizing Your Business Plan                                                   ..............................
Appendixes	 A	 Business Plan for a Small Service Business                                                    ................
Your Legal Companion  “Nine to five ain’t takin’ me where I’m         Writing a plan is a journey through thebound.”      ...
2  |  how to write a business plan    backers to support your business.              Revenue Forecast, Profit and Loss    ...
your legal companion |  3If a series of #### symbols appear in a         Getting Startedbox in a spreadsheet, that means t...
4  |  how to write a business planAnd a Few More Words                            415-816-2982 and I’ll listen or help if ...
1                                                                                                                         ...
6  |  how to write a business plan“Marry in haste, repent at leisure.”               your proposal ­ eriously. Even some  ...
Chapter 1  | benefits of writing a business plan |  7here serves a dual purpose. It is designed       pass through your pl...
8  |  how to write a business planHelps You Keep on Track                         business. Experienced lenders, investors...
Chapter 1  | benefits of writing a business plan |  9Securities Laws                                your management skills...
2                                                                                                                         ...
12  |  how to write a business planIntroduction                                       Power. When it is your business, you...
Chapter 2  | do you really want to own a business? |  13success.” Unless you, as the prospective       you don’t have the ...
14 | HOW TO WRITE A BUSINESS PLANmakes no difference whether you refer topeople who give you money as clients,            ...
ChApter 2 | DO YOU REALLY WANT TO OWN A BUSINESS? | 15another part of the insurance business that      deficiency. For exa...
16 | HOW TO WRITE A BUSINESS PLANabout the business—simply concentrate on                  CAUTiONwhat makes you happy or ...
Chapter 2  | do you really want to own a business? |  17How to Use the Self-                              price required t...
18  |  how to write a business planwith people so close to their ideal loan        has no relationship to hot dog selling....
Chapter 2  | do you really want to own a business? |  19   A small distributor we know has a well-     me, I’ll still do e...
3                                                                                                                         ...
22  |  how to write a business plan         quick plan                             My answer is always the same—start a   ...
Chapter 3  | choosing the right business |  23shops make lots of money and you want               layout, as well as keep ...
24  |  how to write a business planBe Sure You Like Your Business                     because your business idea is yours,...
Chapter 3  | choosing the right business |  25What about competition from nearby                        •	 Retail. Retail ...
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  1. 1. “ An essential book to help entrepreneurs.”NOLO ® DALLAS MORNING NEWS10TH EDITION AL OMHow to Write a L L O - R F F RM D S ON CBusinessPlan • Write a winning proposal • Prepare cash flow and profit & loss forecasts • Get backers to invest THE LEADING BUSINESS PLAN BOOK FOR 25 YEARS Mike McKeever Free Legal Updates at Nolo.com
  2. 2. The Story Emma Cofod Dear friends, Founded in 1971, and based in an old clock factory in Berkeley, California, Nolo has always strived to offer clear legal information and solutions. Today we are proud to offer a full range of plain-English law books, legal forms, software and an award-winning website. Everything we publish is relentlessly researched and tested by a dedicated group of in-house legal editors, who together have more than 150 years’ experience. And when legal changes occur after publication, we promptly post free updates at Nolo.com. Tens of millions of Americans have looked to Nolo to help solve their legal and business problems. We work every day to be worthy of this trust. Ralph Warner Nolo co-founder
  3. 3. Products & ServicesBooks & SoftwareGet in-depth information. Nolo publishes hundreds of great booksand software programs for consumers and business owners. They’re allavailable in print or as downloads at Nolo.com.Legal EncyclopediaFree at Nolo.com. Here are more than 1,400 free articles and answers tocommon questions about everyday legal issues including wills, bankruptcy,small business formation, divorce, patents, employment and much more.Plain-English Legal DictionaryFree at Nolo.com. Stumped by jargon? Look it up in America’s mostup-to-date source for definitions of legal terms.Online Legal DocumentsCreate documents at your computer. Go online to make a will or livingtrust, form an LLC or corporation or obtain a trademark or provisionalpatent at Nolo.com. For simpler matters, download one of our hundredsof high-quality legal forms, including bills of sale, promissory notes,nondisclosure agreements and many more.Lawyer DirectoryFind an attorney at Nolo.com. Nolo’s unique lawyer directory providesin-depth profiles of lawyers all over America. From fees and experienceto legal philosophy, education and special expertise, you’ll find all theinformation you need to pick a lawyer who’s a good fit.Free Legal UpdatesKeep up to date. Check for free updates at Nolo.com. Under “Products,”find this book and click “Legal Updates.” You can also sign up for our freee-newsletters at Nolo.com/newsletters/index.html.
  4. 4. The Trusted Name (but don’t take our word for it)“ In Nolo you can trust.” THE NEW YORK TIMES“ Nolo is always there in a jam as the nation’s premier publisher of do-it-yourself legal books.” NEWSWEEK“ Nolo publications…guide people simply through the how, when, where and why of the law.” THE WASHINGTON POST“ [Nolo’s]…material is developed by experienced attorneys who have a knack for making complicated material accessible.” LIBRARY JOURNAL“ When it comes to self-help legal stuff, nobody does a better job than Nolo…” USA TODAY“ The most prominent U.S. publisher of self-help legal aids.” TIME MAGAZINE“ Nolo is a pioneer in both consumer and business self-help books and software.” LOS ANGELES TIMES
  5. 5. 10th editionHow to Write aBusiness Plan by Mike McKeever
  6. 6. TENTH EDITION JANUARY 2011Editor RICHARD STIMCover Design SUSAN PUTNEYProduction MARGARET LIVINGSTONProofreading CATHY CAPUTOCD-ROM Preparation ELLEN BITTERIndex MEDEA MINNICHPrinting DELTA PRINTING SOLUTIONS, INC.McKeever, Mike P. How to write a business plan / by Mike McKeever. -- 10th ed. p. cm. Includes index. Summary: “Contains the detailed forms and step-by-step instructions needed to prepare a well-thought-out, well-organized business plan. The 10th edition has been completely updated with the laws, banking regulations, andresources”--Provided by publisher. ISBN-13: 978-1-4133-1280-5 (pbk.) ISBN-10: 1-4133-1280-2 (pbk.) ISBN-13: 978-1-4133-1297-3 (e-book) ISBN-10: 1-4133-1297-7 (e-book) 1. Business planning. 2. New business enterprises--Planning. 3. New business enterprises--Finance. 4. Smallbusiness--Planning. 5. Small business--Finance. I. Title. HD30.28.M3839 2010 658.15’224--dc22 2010021162Copyright © 1984, 1986, 1988, 1992, 1999, 2002, 2004, 2007, 2008, and 2010 by Mike McKeever.All rights reserved. The NOLO trademark is registered in the U.S. Patent and Trademark Office.Printed in the U.S.A.No part of this publication may be reproduced, stored in a retrieval system, or transmitted in any form or byany means, electronic, mechanical, photocopying, recording, or otherwise without prior written permission.Reproduction prohibitions do not apply to the forms contained in this product when reproduced for personal use.For information on bulk purchases or corporate premium sales, please contact the Special Sales Department. Call800-955-4775 or write to Nolo, 950 Parker Street, Berkeley, California 94710. Please note We believe accurate, plain-English legal information should help you solve many of your own legal problems. But this text is not a substitute for personalized advice from a knowledgeable lawyer. If you want the help of a trained professional—and we’ll always point out situations in which we think that’s a good idea—consult an attorney licensed to practice in your state.
  7. 7. Dedication This book is dedicated to the memory of my late grandmother, Elizabeth Eudora Woodall Darby, whose influence I acknowledged only recently.Acknowledgments After more than a decade of working with many people, I am amazed at the uniform spirit of goodwill and cooperation. My first editor, Ralph “Jake” Warner, showed patience working with a first-time author. My second editor, Lisa Goldoftas, ­ hallenged the grammar c while gracefully deferring to my knowledge about the subject. Also at Nolo: Steve Elias designed many charts; Adam Stanhope educated me about computers; Mark Stuhr tuned sections on computer- related material; Stephanie Harolde worked her word processing wonders on the manuscript; Terri Hearsh designed the book; Eddie Warner gave helpful suggestions on online information; and many more folks at Nolo improved the book greatly. A special thanks to a number of generous individuals, each of whom knows a great deal about starting and operating a small business. Peg Moran, Terri Hearsh, Roger Pritchard, Jason Wallach, Harry Keller, Dan Peters, Sharyn Simmons, Larry Healy, and finally, Hugh Codding and Leroy Knibb of Codding Investments. For these and all my readers, clients, and students who have shared their hopes, dreams, and problems with me over the years, thank you for your help. The best parts are yours—all the mistakes are mine. Many of your stories and suggestions appear here in disguised form. I hope all the readers will profit from your wisdom and generosity. Mike P. McKeever Santa Rosa, California
  8. 8. About the Author Mike P. McKeever’s education, work experience, business ownership, writing, and teaching careers give him a broad and unique perspective on business planning. He has a BA in Economics from Whittier College and a Master’s in Economics from the London (England) School of Economics, and has done postgraduate work in financial analysis at the USC Business School. Mike has taught classes at numerous community colleges in entrepreneurship and small business management. He has published articles on entrepreneurship for Dow Jones publications, the Sloan Publications Business Journal, and numerous newspapers and periodicals. Mike has successfully purchased, expanded, and sold a number of businesses, including a manufacturing company, tune-up shop, gas station, retail store, and commercial building. He has worked for a variety of companies ranging from small groceries to multimillion-dollar manufacturers. As an independent business broker, he ­ ssessed the a strengths and weaknesses of hundreds of companies. As senior financial analyst for a Fortune 500 company, he wrote and analyzed nearly 500 business plans. Currently, Mike enjoys email correspondence with a few readers relating to business plan issues. He also acts as consulting controller and financial advisor to an online retail business. You can contact him at mckeever.mp@gmail.com.
  9. 9. Downloading Forms and Other MaterialsThe printed version of this book comes with a CD-ROM that containslegal forms and other material. You can download that material by going towww.nolo.com/back-of-book/sbs.html. You’ll get editable versions of theforms, which you can fill in or modify and then print.
  10. 10. Table of Contents Your Legal Companion ................................................................................................................... 1 1 Benefits of Writing a Business Plan ................................................................................... 5 What Is a Business Plan?.................................................................................................................... 6 Why Write a Business Plan?............................................................................................................. 6 Issues Beyond the Plan....................................................................................................................... 8 2 Do You Really Want to Own a Business? ..................................................................11 Introduction..........................................................................................................................................12 . Self-Evaluation Exercises..................................................................................................................13 How to Use the Self-Evaluation Lists........................................................................................17 Reality Check: Banker’s Analysis..................................................................................................17 3 Choosing the Right Business ..................................................................................................21 Introduction..........................................................................................................................................22 . Know Your Business...........................................................................................................................22 Be Sure You Like Your Business...................................................................................................24 Describe Your Business....................................................................................................................24 Taste, Trends, and Technology: How Will the Future Affect Your Business?.........30 Break-Even Analysis: Will Your Business Make Money?.................................................34 What You Have Accomplished....................................................................................................47 PotentialYour SmallofBusinessto Start or 4 Expand Sources Money ...................................................................................................49 Introduction..........................................................................................................................................51 . Ways to Raise Money........................................................................................................................51
  11. 11. Common Money Sources to Start or Expand a Business..............................................59 Additional Money Sources for an Existing Business........................................................68 If No One Will Finance Your Business, Try Again..............................................................70 Secondary Sources of Financing for Start-Ups or Expansions....................................72 Conclusion..............................................................................................................................................75 5 Your Resume and Financial Statement ......................................................................77 Introduction..........................................................................................................................................78 . Draft Your Business Accomplishment Resume..................................................................78 Draft Your Personal Financial Statement...............................................................................85 6 Your Profit and Loss Forecast .............................................................................................101 Introduction.......................................................................................................................................102 . What Is a Profit and Loss Forecast?........................................................................................102 Determine Your Average Cost of Sales ...............................................................................103 Complete Your Profit and Loss Forecast.............................................................................106 Review Your Profit and Loss Forecast...................................................................................119 7 Your Cash Flow Forecast and Capital Spending Plan ..............................121 Introduction.......................................................................................................................................122 . Prepare Your Capital Spending Plan......................................................................................123 Prepare Your Cash Flow Forecast............................................................................................125 Required Investment for Your Business...............................................................................135 Check for Trouble............................................................................................................................136 8 Write Your Marketing and Personnel Plans .......................................................139 Introduction.......................................................................................................................................140 . Marketing Plan..................................................................................................................................140 Personnel Plan....................................................................................................................................152
  12. 12. 9 Editing and Finalizing Your Business Plan ............................................................157 Introduction.......................................................................................................................................158 . Decide How to Organize Your Plan.......................................................................................158 Write Final Portions of Your Plan............................................................................................159 Create the Appendix......................................................................................................................165 Create Title Page and Table of Contents.............................................................................166 Complete Your Final Edit.............................................................................................................166 Consider Using a Business Consultant.................................................................................168 10 Selling Your Business Plan ......................................................................................................171 How to Ask for the Money You Need..................................................................................172 How to Approach Different Backers.....................................................................................174 What to Do When Someone Says “Yes” ............................................................................178 Plan in Advance for Legal Details............................................................................................179 11 After You Open—Keeping on the Path to Success . ...................................183 Introduction.......................................................................................................................................184 . Watch Out for Problem Areas..................................................................................................184 Getting Out of Business...............................................................................................................189 . 12 Good Resources for Small Businesses .......................................................................193 Introduction.......................................................................................................................................194 . Business Consultants......................................................................................................................194 Books......................................................................................................................................................196 Pamphlets............................................................................................................................................203 Magazines—Continuing Small Business Help..................................................................203 Computers and Business..............................................................................................................203 Online Business Resources ........................................................................................................206 Formal Education.............................................................................................................................209
  13. 13. Appendixes A Business Plan for a Small Service Business ...........................................................211 B Business Plan for a Manufacturing Business .....................................................227 C Business Plan for Project Development .................................................................245 D How to Use the CD-ROM .......................................................................................................255 Installing the Files Onto Your Computer............................................................................256 Using the Business Plan Files......................................................................................................257 Using the Spreadsheets.................................................................................................................258 Forms on the CD-ROM.................................................................................................................260Index
  14. 14. Your Legal Companion “Nine to five ain’t takin’ me where I’m Writing a plan is a journey through thebound.” mind of one person. Even in partnerships —Neil Diamond, from “Thank the Lord for the and corporations, usually one person hasNighttime” the vision and energy to take an idea and turn it into a business by writing a business “You’ve got to be careful if you don’t plan. For that reason, I have addressed thisknow where you’re going because you book to the business owner as a singlemight not get there.” individual rather than a husband-and-wife —Yogi Berra team, group, committee, partnership, orA corporation. And you’ll find that the same re you concerned about whether financial and analytical tools necessary to you can put together a first-rate convince potential lenders and investors business plan and loan appli­ that your business idea is sound can alsocation? Don’t worry. help you decide whether your idea is the How to Write a Business Plan contains right business for you.detailed forms and step-by-step instruc­tions designed to help you prepare a well-thought-out, well-organized plan. Coupled What Kind of Plan Do You Need?with your positive energy and will tosucceed, you’ll be able to design a business You can use How to Write a Businessplan and loan package that you will be Plan to write whatever type of plan bestproud to show to the loan officer at your suits your needs:bank, the Small Business Administration, • Complete business plan. A completeor your Uncle Harry. business plan is especially helpful After working with hundreds of business for people who are starting a newowners, I have observed an almost business. This form of plan is alsouniversal truth about business planning: excellent for convincing prospective
  15. 15. 2  |  how to write a business plan backers to support your business. Revenue Forecast, Profit and Loss You’ll be more successful in raising Forecast, Capital Spending Plan, the money you need if you answer all Cash Flow Forecast, Appendix, and of your potential backers’ questions. Supporting Documents. A complete plan should include the following elements: Title Page, Plan quick plan Summary, Table of Contents, Problem The “quick plan” icon appears at the Statement, Business Description, beginning of each chapter containing quick plan Business Accomplishments, Marketing components and guides you to the sections Plan, Sales Revenue Forecast, Profit and you’ll need. Loss Forecast, Capital Spending Plan, Cash Flow Forecast, Future Trends, • Customized plan. You can start with a Risks Facing Your Business, Personnel quick plan and add components from Plan, Business Personality, Staffing the complete business plan to suit your Schedule, Job Descriptions, Specific needs. When deciding what to include Business Goals, Personal Financial and what to exclude, ask yourself: Statement, Personal Background, Appendix, and Supporting Documents. n Which of my statements are the strongest? • Quick plan (one-day plan). If you know your business, are familiar with n Which statements do my backers and able to make financial projections, want to see? and have done the necessary research, Note that the appendixes contain blank you may be able to create a plan in forms as well as business plans for a small one day. But understand that a quick service business, a manufacturing business, plan is a stripped-down version of and a project development. All the forms a business plan. It won’t convince (except for the Loan Interest Calculation either you or your prospective backers Chart) and business plans are included on that your business idea is sound. It is the CD-ROM located at the back of the appropriate only if your business idea book. The forms—for calculating sales is very simple or someone has already forecasts, personal financial information, committed to backing your venture. A profit and loss forecasts, and cash flow stripped-down quick plan has these forecasts—are provided in Microsoft Excel few components: Title Page, Plan spreadsheet format and include helpful Summary, Table of Contents, Problem formulas for making calculations. The “CD” Statement, Business Description, icon appears whenever forms or business Business Accomplishments, Sales plans are reproduced on the CD. (Note:
  16. 16. your legal companion |  3If a series of #### symbols appear in a Getting Startedbox in a spreadsheet, that means that youwill need to widen the column in order to Before you sit down to write your plan,display the numbers.) you’ll want to gather together these essentials: • a word processorMeet Antoinette • a calculator or computer spreadsheet programIn an effort to make sense out of the • a good supply of 8½" by 11" paperthousands of types of small businesses, • several pencils and a good eraser, andI have roughly divided them into five • access to a photocopy machine.main ones: retail, wholesale, service,manufacturing, and project development. Now, here’s a word about revisions andAll the financial tools I present can be changing your plan. I firmly believe inused by all five. However, for the sake of writing your first thoughts on paper andsimplicity, I follow one particular retail letting them rest for a day or two. Thenbusiness—a dress shop. In so doing, I you can edit, expand, and revise later toillustrate most of the planning concepts get a more perfect statement. In this book,and techniques necessary to understand I show examples of Antoinette’s writingand raise money for any business. process. (I’m grateful she’s such a good As you read through the text you’ll sport.)meet Antoinette Gorzak, a friend of mine. Most people discover about halfwayAntoinette wants to open a dress shop, through writing their plan that they wantand she has allowed me to use her plans to change either their assumptions or someand thought processes as an example of of the plan they’ve already written. Mya complete and well-prepared business best advice is this: Complete the plan allplan for a retail store. You’ll find parts of the way through on your original set ofher plan presented in different chapters as assumptions. That way you can see thewe discuss the various components of a financial impact of your ideas, and it willcomplete business plan. be much easier to make the right changes in the second draft. If you start revising individual parts of the plan before you have the complete picture, you’ll waste a lot of energy. If you’re like me, you’ll rewrite and edit your plan several times once you’ve finished the first run through.
  17. 17. 4  |  how to write a business planAnd a Few More Words 415-816-2982 and I’ll listen or help if I can. You can also email me at mckeever.mp@As I write this, the book has been in print gmail.com. Please mention “Nolo Busi­for over 25 years and has sold more than ness Plan Book” in the subject line of your150,000 copies. I have heard that it has been email, otherwise I might delete it as a spampirated in some parts of the former Soviet message. Finally, to avoid always using theUnion. Since it first came out I have taught, pronoun “he” when referring to individualslectured, and consulted on business plans in in general, and to further avoid clumsya wide variety of forums. I have taken that neologisms like “s/he” and awkwardexperience and reformulated the exercises phraseologies like “he/she” and “he orin the book to make them more effective as she,” I have compromised by the randomwell as easier and quicker to use. use of “he” in some instances and “she” I remain friends with many of the people in others. I hope I have arrived at a fairI met through the book and occasionally balance. Also, keep in mind that whereverhelp them over rough spots in their possible, this book uses plain language, notplanning, which is the most gratifying part jargon. As a result, you may find that I haveof the experience for me. My business is often substituted simple terminology forhelping people write business plans that traditional business plan lingo. ●find money for their businesses. Call me at
  18. 18. 1 C h a p t e rBenefits of Writing aBusiness PlanWhat Is a Business Plan?............................................................................................................................................ 6Why Write a Business Plan?..................................................................................................................................... 6 Helps You Get Money...................................................................................................................................... 6 Helps You Decide to Proceed or Stop..................................................................................................... 6 Lets You Improve Your Business Concept............................................................................................ 7 Improves Your Odds of Success................................................................................................................. 7 Helps You Keep on Track............................................................................................................................... 8Issues Beyond the Plan............................................................................................................................................... 8 Bookkeeping and Accounting ................................................................................................................... 8 Taxes.......................................................................................................................................................................... 8 Securities Laws..................................................................................................................................................... 9 Your Management Skill................................................................................................................................... 9 Issues Specific to Your Business ................................................................................................................ 9
  19. 19. 6  |  how to write a business plan“Marry in haste, repent at leisure.” your proposal ­ eriously. Even some s (proverb) landlords require a sound business plan before they will lease you space. Before making a commitment to you, they want to“A stitch in time saves nine.” see that you have thought through critical (proverb) ­ssues facing you as a business owner and i that you really understand your business. They also want to make sure your business has a good chance of succeeding.What Is a Business Plan? In my experience, about 35% to 40% of the people currently in business doA business plan is a written statement that not know how money flows through theird­ escribes and analyzes your business and business. Writing a business plan with thisgives detailed projections about its future. book teaches you where money comesA business plan also covers the financial from and where it goes. Is it any wonderaspects of starting or expanding your that your backers want to see your planbusiness—how much money you need and before they consider your financial request?how you’ll pay it back. There are as many potential lenders and Writing a business plan is a lot of work. i ­nvestors as there are prospective businessSo why take the time to write one? The owners. If you have a thoroughly thought-best answer is the wisdom gained by out business and financial plan thatliterally millions of ­ usiness owners just b demonstrates a good ­ikelihood of success llike you. Almost without ­ xception, each e and you are persistent, you will findbusiness owner with a plan is pleased she the money you need. Of course, it mayhas one, and each owner without a plan take longer than you expect and requirewishes he had written one. more work than you expect, but you will ultimately be ­ uccessful if you believe in s your business.Why Write a Business Plan?Here are some of the specific andimmediate ­ enefits you will derive from b Helps You Decide to Proceed or Stopwriting your business plan. One major theme of the book may surprise you. It’s as simple as it is important. You, as the prospective business owner, are theHelps You Get Money most important person you must convinceMost lenders or investors require a written of the soundness of your proposal. There­business plan before they will consider fore, much of the work you are asked to do
  20. 20. Chapter 1  | benefits of writing a business plan |  7here serves a dual purpose. It is designed pass through your plan. Then you read anto provide answers to all the questions that article about the declining exchange ratioprospective lenders and investors will ask. of U.S. dollars to Korean currency. AfterBut it will also teach you how money flows doing some homework about exchangethrough your business, what the strengths rate fluctuations, you decide to increaseand weaknesses in your business concept your profit margin on the jackets to coverare, and what your realistic chances of anticipated declines in dollar purchasingsuccess are. power. This change shows you that your The detailed planning process described prices are still competitive with otherin this book is not infallible—nothing is jackets and that your average profits willin a small business—but it should help you i ­ncrease. And you are now covered for anyuncover and correct flaws in your business likely decline in exchange rates.concept. If this analysis demonstrates thatyour idea won’t work, you’ll be able to avoidstarting or expanding your business. This is Improves Your Odds of Successextremely important. It should go without One way of looking at business is thatsaying that a great many businesspeople it’s a gamble. You open or expand aowe their ultimate success to an earlier business and gamble your and the bank’sdecision not to start a business with built-in or investor’s money. If you’re right, youproblems. make a profit and pay back the loans and everyone’s happy. But if your estimate is wrong, you and the bank or investors canLets You Improve Your lose money and experience the discomfortBusiness Concept that comes from failure. (Of course, a bankWriting a plan allows you to see how probably is protected because it has titlechanging parts of the plan increases profits to the collateral you put up to get the loan.or accomplishes other goals. You can tinker See Chapter 4 for a complete discussion.)with individual parts of your business with Writing a business plan helps beat theno cash outlay. If you’re using a computer odds. Most new, small businesses don’tspreadsheet to make financial projections, last very long. And, most small businessesyou can try out different alternatives even don’t have a business plan. Is that onlymore quickly. This ability to fine-tune your a coincidence, or is there a ­ onnection cplans and business design increases your between these two seemingly unconnectedchances of success. facts? My suggestion is this: Let someone For example, let’s say that your idea is to else prove the connection wrong. Whystart a business importing Korean leather not be prudent and improve your odds byjackets. Everything looks great on the first writing a plan?
  21. 21. 8  |  how to write a business planHelps You Keep on Track business. Experienced lenders, investors, and entre­ reneurs want a plan that takes pMany business owners spend countless these issues into account. Of course, thishours handling emergencies, simply book can’t cover everything. Here arebecause they haven’t learned how to plan some of the key business components thatahead. This book helps you anticipate are left out of this initial planning process.problems and solve them ­ efore they bbecome disasters. A written business plan gives you a clear Bookkeeping and Accountingcourse toward the future and makes your This book discusses the numbers anddecision making easier. Some problems concepts you as the business owner needand opportunities may represent a change in order to open and manage your smallof direction worth following, while others business. You have the ­esponsibility rmay be distractions that referring to your to create bookkeeping and accountingbusiness plan will enable you to avoid. The systems and make sure they functionblack and white of your written business a ­ dequately. (Some suggestions for settingplan will help you face facts if things don’t up a system are contained in Chapter 6.)work out as expected. For example, if One of the items generated by youryou planned to be making a living three accounting system will be a balancemonths after start-up, and six months later sheet. A balance sheet is a snapshot at ayou’re going into the hole at the rate of particular moment in time that lists the$100 per day, your business plan should money value of everything you own andhelp you see that changes are necessary. everything you owe to someone else.It’s all too easy to delude yourself intokeeping a business going that will nevermeet its goals if you approach things with ­ Taxesa “just another month or two and I’ll be While there are a few mentions of taxthere” attitude, rather than ­ omparing your c issues throughout the book, most of theresults to your goals. planning ­nformation doesn’t discuss how i taxes will be ­ alculated or paid. The book c focuses its efforts on making a profit andIssues Beyond the Plan a positive cash flow. If you make a profit,I have written this book to provide you’ll pay taxes and if you don’t make ayou with an overview of the issues that profit, you’ll pay fewer taxes. A CPA or taxdetermine success or failure in a small advisor can help you with tax strategies.
  22. 22. Chapter 1  | benefits of writing a business plan |  9Securities Laws your management skills. If you have any doubts about your management ability,If you plan to raise money by selling check out the resources in Chapter 12. Alsoshares in a corporation or limited see Chapter 11 for a thought-stimulatingpartnership, you’ll fall ­ nder state or u discussion of management.federal securities regulations. You can,however, borrow money or take in ageneral partner without being affected by Issues Specific to Your Businesssecurities laws. A complete discussion of How successfully your business relatesthese issues is beyond the scope of this to the market, the business environment,book. For now, take note that you must and the competition may be affected bycomply with securities regulations after you patents, franchises, ­oreign competition, fcomplete your plan and before you take location, and the like. Of ­ ecessity, this nany money into your business from selling book focuses on principles commonshares or partnership interests. to all businesses and does not discuss the specific items that distinguish your business from other ­ usinesses. For bYour Management Skill example, this book doesn’t discuss howThis book shows you how to write a very to price your products to meet yourgood business plan and loan application. competition; I assume that you haveHowever, your ultimate success rests on enough knowledge about your chosenyour ability to implement your plans—on business to answer that ­ uestion. ● q
  23. 23. 2 C h a p t e rDo You Really Want toOwn a Business?Introduction..................................................................................................................................................................12Self-Evaluation Exercises.........................................................................................................................................13 Your Strong and Weak Points....................................................................................................................14 General and Specific Skills Your Business Needs.............................................................................15 Your Likes and Dislikes..................................................................................................................................15 Specific Business Goals..................................................................................................................................16How to Use the Self-Evaluation Lists...............................................................................................................17Reality Check: Banker’s Analysis.........................................................................................................................17 Banker’s Ideal......................................................................................................................................................17 Measuring Up to the Banker’s Ideal.......................................................................................................18 Use the Banker’s Ideal....................................................................................................................................18
  24. 24. 12  |  how to write a business planIntroduction Power. When it is your business, you can have your employees do it your way. There“Hope springs eternal in the human is a little Ghengis Khan in us all, so don’tbreast,” said English poet and essayist be surprised if power is one of your goals.Alexander Pope several centuries ago. If it is, think about how to use this goal inHe wasn’t describing people expanding a constructive way.or starting a business, but he may as Right Livelihood. From natural foodswell have been. Everyone who goes into to solar power to many types of servicebusiness for themselves hopes to meet businesses, a great many cause-drivenor surpass a set of personal goals. While small businesses have done very well byyour particular configuration is sure to doing good.be unique, perhaps you will agree with If owning a small business can helpsome of the ones I have compiled over the a person accomplish these goals, it’syears from talking to hundreds of budding small wonder that so many are started.entrepreneurs. Unfortunately, while the potential for great Independence. A search for freedom and success exists, so do many risks. Runningindependence is the driving force behind a small business may require that youmany businesspeople. Wasn’t it Johnny sacrifice some short-term comforts forPaycheck who wrote the song “Take This long-term benefits. It is hard, demandingJob and Shove It?” work that requires a wide variety of skills Personal Fulfillment. For many people, few people are born with. But even if youowning a business is a genuinely fulfilling possess (or more likely acquire) the skillsexperience, one that lifetime employees and determination you need to successfullynever know. run a business, your business will need Lifestyle Change. Many people find that one more critical ingredient: Money.while they can make a good income You need money to start your business,working for other people, they are missing money to keep it running, and money tosome of life’s precious moments. With the make it grow. This is not the same thingflexibility of small business ownership, you as saying you can guarantee success incan take time to stop and smell the roses. your small business if you begin with Respect. Successful small business a fat wallet. Now, let me confess to oneowners are respected, both by themselves major bias here. I believe that mostand their peers. small business owners and founders are Money. You can get rich in a small better off starting small and borrowing,business, or at least do very well or otherwise raising, as little money asfinancially. Most entrepreneurs don’t get possible. Put another way, there is no suchwealthy, but some do. If money is your thing as “raising plenty of capital to ensuremotivator, admit it.
  25. 25. Chapter 2  | do you really want to own a business? |  13success.” Unless you, as the prospective you don’t have the skills and temperamentbusiness founder, learn to get the most to run it. Simply put, I’ve learned thatmileage out of every dollar, you may go no business, whether or not it has soundbroke and will surely spend more than financial backing, is likely to succeedyou need to. But that doesn’t mean that unless you, as the prospective owner,you should try to save money by selling make two decisions correctly:cheap merchandise or providing marginal • You must honestly evaluate yourself toservices. In today’s competitive economy, decide whether you possess the skillsyour customers want the best you can give and personality needed to succeed in athem at the best price. They will remember small business.the quality of what they get from you long • You must choose the right business.after they have forgotten how much they (How to select the right business ispaid. covered extensively in Chapter 3.) In practical terms, that means you A small business is a very personalmust buy only the best goods for your endeavor. It will honestly reflect yourcustomers. Anything that affects the image opinions and attitudes, whether or not youyour business has in your customer’s mind design it that way. Think of it this way: Theshould be first-rate. It also means that you shadow your business casts will be yourshouldn’t spend money on things that don’t shadow. If you are sloppy, rude, or naivelyaffect the customer. For example, unless trusting, your business will mirror theseyou’re a real estate broker your customers attributes. If your personal characteristicsprobably won’t care if you drive an old, are more positive than those, your businessbeat-up car to an office in a converted will be more positive, too. To put thisbroom closet, as long as you provide them concretely, suppose you go out for thean honest product or service for an honest Sunday paper and are met by a storeprice. Save the nice car and fancy office, clerk who is groggy from a hangover anduntil after your business is a success. badmouths his girlfriend in front of you. Chances are that next Sunday will find you at a different newsstand.Self-Evaluation Exercises I’m not saying you need to be psycho­ logically perfect to run a small business.Here’s a question to ponder: Are you the But to succeed, you must ask peopleright person for your business? Because for their money every day and convincerunning a business is a very demanding a substantial number of them to give itendeavor that can take most of your time to you. While providing your goods orand energy, your business probably will services, you will create intimate personalsuffer if you’re unhappy. Your business can relationships with a number of people. Itbecome an albatross around your neck if
  26. 26. 14 | HOW TO WRITE A BUSINESS PLANmakes no difference whether you refer topeople who give you money as clients, Antoinette Gorzak:customers, patients, members, students, My Strong and Weak Pointsor disciples. It makes a great deal of Strong Points (in no particular order)difference to your chances of ultimate 1. Knowledge of all aspects of women’ssuccess if you understand that these fashion businesspeople are exchanging their money for the 2. Ability to translate abstract objectivesconviction that you are giving them their into concrete stepsmoney’s worth. 3. Good cook The following self-evaluation exercises 4. Faithful friend and kind to animalswill help you assess whether you have 5. When I set a goal, I can be relentless inwhat it takes to successfully run a small achieving itbusiness. Take out a blank sheet of paper 6. Ability to make and keep goodor open a computer file. business friends—I have had many repeat customers at other jobs.Your Strong and Weak Points Weak Points 1. ImpatienceTake a few minutes to list your personal 2. Dislike of repetitive detailand business strengths and weaknesses. 3. Romantic (is this a weak point inInclude everything you can think of, even business?)if it doesn’t appear to be related to your 4. Tendency to postpone working onbusiness. For instance, your strong points problemsmay include the mastery of a hobby, your 5. Tendency to lose patience with foolspositive personality traits, and your sexual (sometimes I carry this too far—charisma, as well as your specific business especially when I’m tired).skills. Take your time and be generous. To provide you with a little help, Iinclude a sample list for Antoinette Gorzak,a personal friend who has what she hopes Your list of strong and weak pointsis a good business idea: a slightly different will help you see any obvious conflictsapproach to selling women’s clothing. between your personality and the businessYou’ll get to know her better as we go you’re in or want to start. For example,along. Her strengths, weaknesses, fantasies, if you don’t like being around peopleand fears are surely different from yours. but plan to start a life insurance agencySo, too, almost certainly, is the business with you as the primary salesperson, youshe wants to start. So be sure to make your may have a personality clash with yourown lists—don’t copy Antoinette’s. business. The solution might be to find
  27. 27. ChApter 2 | DO YOU REALLY WANT TO OWN A BUSINESS? | 15another part of the insurance business that deficiency. For example, let’s say you wantdoesn’t require as much people contact. to start a trucking business. You have a Unfortunately, many people don’t good background in maintenance, truckrealize that their personalities will have a repair, and long distance driving, and youdirect bearing on their business success. know how to sell and get work. SoundsAn example close to the experience of good so far—but, let’s say you don’t knowfolks at Nolo involves bookstores. In the the first thing about bookkeeping or cashyears since Nolo began publishing, they flow management and the thought of usinghave seen all sorts of people, from retired a computer makes you nervous. Becauselibrarians to unemployed Ph.D.s, open some trucking businesses work on largebookstores. A large percentage of these dollar volumes, small profit margins, andstores have failed because the skills needed slow-paying customers, your backers willto run a successful bookstore involve more expect you to learn cash flow managementthan a love of books. or hire someone qualified to handle that part of the business.General and Specific SkillsYour Business Needs Antoinette Gorzak: General and Specific Skills My Business NeedsBusinesses need two kinds of skills to 1. How to motivate employeessurvive and prosper: Skills for business in 2. How to keep decent recordsgeneral and skills specific to the particular 3. How to make customers andbusiness. For example, every business employees think the business is specialneeds someone to keep good financial 4. How to know what the customersrecords. On the other hand, the tender want—today and, more important intouch and manual dexterity needed by the clothing business, to keep half-a-glassblowers are not skills needed by the step aheadaverage paving contractor. 5. How to sell Next, take a few minutes and list the 6. How to manage inventoryskills your business needs. Don’t worry 7. How to judge people.about making an exhaustively completelist, just jot down the first things that cometo mind. Make sure you have some generalbusiness skills as well as some of the moreimportant skills specific to your particular Your Likes and Dislikesbusiness. Take a few minutes and make a list of the If you don’t have all the skills your things you really like doing and those youbusiness needs, your backers will want don’t enjoy. Write this list without thinkingto know how you will make up for the
  28. 28. 16 | HOW TO WRITE A BUSINESS PLANabout the business—simply concentrate on CAUTiONwhat makes you happy or unhappy. if your list contains several things you If you enjoy talking to new people, really don’t like doing and nothing at all thatkeeping books, or working with comput- you like doing, it may be a sign that you haveers, be sure to include those. Put down all a negative attitude at this time in your life. Ifthe activities you can think of that give you so, you may wish to think carefully about yourpleasure. Antoinette’s list is shown as an decision to enter or expand a business at thisexample. time. Chances are your negative attitude will As a business owner, you will spend reduce your chances of business success.most of your waking hours in the business,and if it doesn’t make you happy, youprobably won’t be very good at it. If this Specific Business Goalslist creates doubts about whether you’re Finally, list your specific business goals.pursuing the right business, I suggest Exactly what do you want your businessyou let your unconscious mind work on to accomplish for you? Freedom from 9 the problem. Most likely, you’ll know the to 5? Money—and if so, how much? Moreanswer after one or two good nights’ sleep. time with the children? Making the world or your little part of it a better place? It’s Antoinette Gorzak: your wish list, so be specific and enjoy My Likes and Dislikes writing it. Things I Like to Do 1. Be independent and make my own Antoinette Gorzak: decisions My Specific Business Goals 2. Keep things orderly. I am almost 1. Have my own business that gives compulsive about this me a decent living and financial 3. Take skiing trips independence 4. Work with good, intelligent people 2. Work with and sell to my friends 5. Cook with Jack and acquaintances as well as new 6. Care about my work. customers Things I Don’t Like to Do 3. Introduce clothing presently 1. Work for a dimwit boss unavailable in my city and provide a 2. Feel like I have a dead-end job real service for working women 3. Make people unhappy. 4. Be part of the growing network of successful businesswomen 5. Be respected for my success.
  29. 29. Chapter 2  | do you really want to own a business? |  17How to Use the Self- price required to be successful as a small businessperson. If you are still eager toEvaluation Lists have a business, you have said, “Yes, IAfter you’ve completed the four self- am willing to make short-term sacrificesevaluation lists, spend some time reading to achieve long-term benefits and to dothem over. Take a moment to compare the whatever is necessary—no matter theskills needed in your business to the list of inconvenience—to reach my goals.”skills you have. Do you have what it takes? Show them to your family and, if you’rebrave, to your friends or anyone who Reality Check: Banker’s Analysisknows you well and can be objective. Banks and institutions that lend moneyOf course, before showing the lists to have a lot of knowledge about the successanyone, you may choose to delete any rate of small businesses. Bankers are oftenprivate information that isn’t critical to your overly cautious in making loans to smallbusiness. If you show your lists to someone businesses. For that very reason it makeswho knows the tough realities of running sense to study their approach, even thougha successful small business, so much the it may seem discouraging at first glance.better. You may want to find a formerteacher, a fellow employee, or someoneelse whose judgment you respect. Banker’s Ideal What do they think? Do they point outany obvious inconsistencies between your Bankers look for an ideal loan applicant,personality or skills and what you want who typically meets these requirements:to accomplish? If so, pay attention. Treat • For an existing business, a cash flowthis exercise seriously and you will know sufficient to make the loan payments.yourself better. Oh, and don’t destroy your • For a new business, an owner who haslists. Assuming you go ahead with your a track record of profitably owning andbusiness and write your business plan, the operating the same sort of business.lists can serve as background material or • An owner with a sound, well-thought-even become part of the final plan. out business plan. You have accomplished several things if • An owner with financial reservesyou have followed these steps. You have and personal collateral sufficient tolooked inside and asked yourself some solve the unexpected problems andbasic questions about who you are and fluctuations that affect all businesses.what you are realistically qualified to do. Why does such a person need a loan,As a result, you should now have a better you ask? He or she probably doesn’t,idea of whether you are willing to pay the which, of course, is the point. People who lend money are most comfortable
  30. 30. 18  |  how to write a business planwith people so close to their ideal loan has no relationship to hot dog selling. Incandidate that they don’t need to borrow. this situation, you might be able to get aHowever, to stay in business themselves, loan if you hire people who make up forbanks and other lenders must lend out the your lack of experience. At the very least,money deposited with them. To do this, you would need someone with a strongthey must lend to at least some people software marketing background, as well aswhose creditworthiness is less than perfect. a person with experience managing retail sales and service businesses. Naturally, both of those people are most desirableMeasuring Up to the Banker’s Ideal if they have many years of successfulWho are these ordinary mortals who slip experience in the software marketingthrough bankers’ fine screens of approval? business, preferably in California.And more to the point, how can youqualify as one of them? Your job is to show Use the Banker’s Idealhow your situation is similar to the banker’sideal. It’s helpful to use the bankers’ model A good bet is the person who has in your decision-making process. Use aworked for, or preferably managed, a skeptical attitude as a counterweight tosuccessful business in the same field as your optimism to get a balanced view ofthe proposed new business. For example, your prospects. What is it that makes youif you have profitably run a clothing store think you will be one of the minority offor an absentee owner for a year or two, small business owners who will succeed? Ifa lender may believe you are ready to do you don’t have some specific answers, youit on your own. All you need is a good are in trouble. Most new businesses fail,location, a sound business plan, and a little and the large majority of survivors do notcapital. Then, watch out Neiman-Marcus! genuinely prosper. Further away from a lender’s ideal is Many people start their own businessthe person who has sound experience because they can’t stand working formanaging one type of business, but others. They don’t have a choice. Theyproposes to start one in a different field. must be either boss or bum. They areLet’s say you ran the most profitable hot more than willing to trade security fordog stand in the Squaw Valley ski resort, the chance to call the shots. They meet aand now you want to market computer good chunk of their goals when they leavesoftware in the Silicon Valley of California. their paycheck behind. This is fine as farIn your favor is your experience running a as it goes, but in my experience, the moresuccessful business. On the negative side is successful small business owners havethe fact that computer software marketing other goals as well.
  31. 31. Chapter 2  | do you really want to own a business? |  19 A small distributor we know has a well- me, I’ll still do everything I can to keep mythought-out business and a sound business promise to my customer, even if it costs meplan for the future. Still, he believes that money.” This sort of personal commitmenthis own personal commitment is the most enables this successful business owner toimportant thing he has going for him. make short-term adjustments to meet hisHe puts it this way: “I break my tail to long-range goals. And while it would belive up to the commitments I make to my an exaggeration to say he pays this pricecustomers. If a supplier doesn’t perform for gladly, he does pay it. ●
  32. 32. 3 C h a p t e rChoosing the Right BusinessIntroduction..................................................................................................................................................................22Know Your Business..................................................................................................................................................22Be Sure You Like Your Business...........................................................................................................................24Describe Your Business............................................................................................................................................24 Identify Your Type of Business..................................................................................................................25 Problem Statement.........................................................................................................................................27 Business Description.......................................................................................................................................27Taste, Trends, and Technology: How Will the Future Affect Your Business?................................30 Taste.........................................................................................................................................................................31 Trends.....................................................................................................................................................................31 Technology..........................................................................................................................................................32 . Write a Future Trends Statement............................................................................................................34Break-Even Analysis: Will Your Business Make Money?.........................................................................34 Forecast Sales Revenue..................................................................................................................................36 Forecast Fixed Costs.......................................................................................................................................40 Forecast Gross Profit for Each Sales Dollar........................................................................................41 . Forecast Your Break‑Even Sales Revenue............................................................................................43 .What You Have Accomplished...........................................................................................................................47
  33. 33. 22  |  how to write a business plan quick plan My answer is always the same—start a If you’ve chosen the quick plan venture that you know intimately already.method to prepare a business plan (see Intro- I don’t believe any business exists that isduction), you need to read and complete only so foolproof that anyone can enter andthese sections of Chapter 3: make a sure profit. On the other hand, a • “Problem Statement” skilled, dedicated owner often can make • “Business Description” a venture successful when others have • “Forecast Sales Revenue.” failed. ­ emember, your potential customers R will exchange their money only for the conviction that you are giving them theirIntroduction money’s worth. And that means you’ll needThis chapter helps you determine whether to know what you’re doing. While thisyou have chosen the “right” business for point should appear obvious, sadly—it isn’t.you—one that you know, like, and will Many people enter businesses theywork hard for and that makes economic know little or nothing about. I did it oncesense. Most experienced businesspeople myself. I opened an automobile tune-upcomplete several steps as a rough and shop at a time when, seemingly, theyready template to decide whether to couldn’t miss. I knew a good deal aboutcomplete a plan. If your business passes all running a small business, had a personalitythese steps with flying colors, it means it’s well suited for it, and could borrow enougha good idea to write a full business plan money to begin. The end of what turned(although it doesn’t guarantee success). out to be a very sad story is that it tookOn the other hand, if your proposal doesn’t me two years and $30,000 to get rid of thepass, you’ll probably want to modify or business. Why? ­ ecause in my hurry to Bchange your plans altogether. make a profit, I overlooked several crucial If you’re like most people, chances are facts. The most important of these was thatyour business will pass some tests easily I knew virtually nothing about cars and Iand fail some of the others. Antoinette didn’t really want to learn. Not only was Ifaces just that problem in this chapter. Pay unable to roll up my sleeves and pitch incareful attention to how she ­ pproaches a when it was needed, I didn’t even knowthat dilemma; her method of proceeding enough to properly hire and supervisemay help you in your decision. mechanics. In short, I made a classic mistake—I started a business in a “hot” field because someone was foolish enoughKnow Your Business to lend me the money.One of the most common questions people How can you apply my lesson to yourask me is this: What business should I start? situation? Let’s say you’ve heard pasta
  34. 34. Chapter 3  | choosing the right business |  23shops make lots of money and you want layout, as well as keep a coherent set ofto start one. First, if at all possible, get a books. If it’s your elegant little restaurantjob working in one, even if you work for and the food isn’t perfect, you’re the onefree. Learn everything you can about ­ verye who ­ ither ­mproves it in a hurry or goes e iaspect of the business. After a few months, broke. If you don’t like getting your handsyou should be an expert in every aspect dirty, choose a clean ­ usiness. bof pasta making, from mixing eggs andflour, flattening the dough, and slicing itinto strips. Ask yourself whether you enjoy Are You Choosing a Risky Business?the work and whether you are good at it.If you answer “Yes,” go on to the second When considering the businesses you know,important question: Is the business a it is helpful to know how well they typicallypotential money maker? You should have fare. For instance, these businesses havea pretty good ­ nswer to this question after a higher than average failure rates:working in the field for a few months. • computer stores If you’re unable to find employment • laundries and dry cleanersin the pasta business, make a tour of • floristsdelicatessens and shops that make their • used car dealershipsown pasta. Interview the owners. To get • gas stationsreliable answers, it’s best to do this in a • local trucking firmsdifferent locale from the one in which • restaurantsyou plan to locate. Small business owners • infant clothing storesare ­ ften quite willing to share their o • bakeriesknowledge once they are sure you will not • machine shopscompete with them. • car washes I remember reading a management • e-commercephilosophy that said that a good manager • grocery and meat stores.doesn’t have to know every job, only If your business idea is on this list, ithow to get other people to do them. doesn’t mean you should abandon itThat approach may work well in a large automatically. However, it should remindcorporation, but for a small business, it’s you to be extra ­ ritical and careful when cdangerously naive. In short, don’t start your preparing your plan. I’ve known successfulsmall ­ enture until you know it from the v businesspeople in every category listed, justground up. I mean this literally. If you’re as I have known people who have failed inopening a print shop, you should be able each of them.to run the presses and do paste-up and
  35. 35. 24  |  how to write a business planBe Sure You Like Your Business because your business idea is yours, you have an emotional attachment to it. YouDoes the business you want to own should. Your belief in your idea will helprequire skills and talents you already you wade through all the unavoidable muckpossess? If you have the necessary skills, and mire that lies between a good ideado you enjoy exercising them? Think about and a profitable business. However, yourthis for a good long time. The ­ verage a ego involve­ ent can also entail a loss of msmall busi­ ess owner spends more time n perspec­ive. I’ve seen people start hopeless twith his venture than with his family. This endeavors and lose small fortunes becausebeing so, it makes sense to be at least as they were so enamored with their “brilliantcareful about choosing your endeavor ideas” that they never examined honestly theas you are about picking your mate. A negative factors that doomed their venturesfew of us are sufficiently blessed that we from the start.can meet someone on a blind date, settledown a week later, and have it work outwonderfully. However, in relationships, Describe Your Businessas in business, most of us make betterdecisions if we approach them with a little What is your good idea? What businessmore care. do you want to be in? It’s time to look at Be sure you aren’t so blinded by one the specifics. Let’s say you want to openpart of a small business that you overlook a restaurant. What will you serve? Whatall others. For example, suppose you love will your sample menu look like? Whatmusic and making musical instruments. equipment will you need? Note thatRunning your own guitar shop sounds like including french fries means you’ll haveit would be great fun. Maybe it would be, to install french-fryers, grease traps in thebut if you see yourself contentedly making sewer line, hoods and fire extinguishingguitars all day in a cozy little workroom, systems. On the other hand, by not servingyou’d better think again. Who is going to fried foods you will save a lot of moneymeet customers, keep the books, answer in the kitchen, but maybe you’ll go brokethe phone, and let potential customers when all the grease addicts go next door.know you are in ­ usiness? If you hate all b Or suppose you want to sell DVDs,these activities, you either have to work games, or digital cameras. Do you plan towith someone who can handle them, or do have a service department? If so, will yousomething else. make house calls, or only accept repairs Here’s one last thing to think about when at your store? What sort of security systemc­ onsidering how much you like your busi­ will you install to protect your inventory?ness idea. In fact, it’s a danger that threatens What about selling ­ omponent sound calmost every potential entre­ reneur. Precisely p systems or home entertainment centers?
  36. 36. Chapter 3  | choosing the right business |  25What about competition from nearby • Retail. Retail businesses buyr­etailers? merchandise from a variety of Answers to these types of questions will wholesalers and sell it ­ irectly to dbe crucial to the success of your venture consumers. Some ­etailers provide rand to ­ riting your business plan. Let me w service and repair facilities, whiletell you from hard, personal experience most do not. Most ­etailers just take rthat you need a written document—even in the goods and mark up the price,if you’re sure you know exactly what your sometimes doubling their purchasebusiness will do. price to arrive at a sales price. With this foundation document to refer Supermarkets, mail order catalogueto, you are less likely to forget your good m ­ erchants, online stores (e-tailers),plans and resolutions in the heat of getting ­ computer stores, dress shops,your business under way. Any changes you department stores, and conveniencelater make can be made both consciously marts are retailers.and with consideration. • Wholesale. Wholesalers buy merchan­ To write a complete description of your dise from manufacturers or brokersp­ roposed business, simply follow the and resell the goods to retailers.suggestions on the next few pages. Normally, a wholesaler maintains an inventory of a number of lines. A whole­ aler normally does not sIdentify Your Type of Business sell to consumers, in order to avoidFind the business category listed below competing with his retailer ­ ustomers. cthat most closely matches your business. Whole­ alers ­ sually offer delivery s uYou’ll use the ­ escription that follows as d service and credit to customers. This ­a reference when you describe your own type of busi­ ess is characterized by nbusiness. low gross profit ­ argins (sometimes m varying between 15% and 33% of the caution whole­ aler’s selling price) and high s inventory investment. Each of the business categories Wholesalers typically buy in largerequires different skills to run efficiently. Many lots and sell in smaller lots. Likesmall businesses involve one or two types of retailers, they seldom make anybusiness in the same endeavor. But if your idea changes to the products. Most whole­will involve you in several types of business, salers aren’t well known to the generalit may be too complicated for you to run public.efficiently. As a general rule, small businesses • Service. People with a particularwork best when their owners know exactly skill sell it to consumers or to otherwhat they are about and strive for simplicity.

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