Guidance for Business Plan
1. MARKET RESEARCH AND COMPETITIVE ANALYSIS
Market research helps you find customers for your business. Competitive analysis helps you make your business unique. Combine them to find a competitive advantage for your small business.
USE MARKET RESEARCH TO FIND CUSTOMERS
Market research blends consumer behavior and economic trends to confirm and improve your business idea.
It’s crucial to understand your consumer base from the outset. Market research lets you reduce risks even while your business is still just a gleam in your eye.
Gather demographic information to better understand opportunities and limitations for gaining customers. This could include population data on age, wealth, family, interests, or anything else that’s relevant for your business.
Then answer these questions to get a good sense of your market.
- Demand: Is there a desire for your product or service?
- Market size: How many people would be interested in your offering?
- Economic indicators: What is the income range and employment rate?
- Location: Where do your customers live and where can your business reach?
- Market saturation: How many similar options are already available to consumers?
- Pricing: What do potential customers pay for these alternatives?
You’ll also want to keep up with the latest small business trends. It’s important to gain a sense of the specific market share that will impact your profits. You can do market research using existing sources, or you can do the research yourself and go direct to consumers. Existing sources can save you a lot of time and energy, but the information might not be as specific to your audience as you’d like. Use it to answer questions that are both general and quantifiable, like industry trends, demographics, and household incomes. Check online or start with our list of market research resources.
Asking consumers yourself can give you a nuanced understanding of your specific target audience. But, direct research can be time consuming and expensive. Use it to answer questions about your specific business or customers, like reactions to your logo, improvements you could make to buying experience and where customers might go instead of your business.
Here are a few methods you can use to do direct research:
- Focus groups
- In-depth interviews
For guidance on deciding which methods are worthwhile for your small business, the Small Business Administration provides counseling services through our resource partner network.
2. WRITE YOUR BUSINESS PLAN
Your business plan is the foundation of your business. Learn how to write a business plan quickly and efficiently with a business plan template.
- BUSINESS PLANS HELP YOU RUN YOUR BUSINESS
- A good business plan guides you through each stage of starting and managing your business. You’ll use your business plan as a roadmap for how to structure, run, and grow your new business. It’s a way to think through the key elements of your business.
- Business plans can help you get funding or bring on new business partners. Investors want to feel confident they’ll see a return on their investment. Your business plan is the tool you’ll use to convince people that working with you — or investing in your company — is a smart choice.
- PICK A BUSINESS PLAN FORMAT THAT WORKS FOR YOU
- There’s no right or wrong way to write a business plan. What’s important is that your plan meets your needs.
- Most business plans fall into one of two common categories: traditional or lean startup.
- Traditional business plans are more common, use a standard structure, and encourage you to go into detail in each section. They tend to require more work upfront and can be dozens of pages long.
- Lean startup business plans are less common but still use a standard structure. They focus on summarizing only the most important points of the key elements of your plan. They can take as little as one hour to make and are typically only one page.
- TRADITIONAL BUSINESS PLAN FORMAT
- You might prefer a traditional business plan format if you’re very detail oriented, want a comprehensive plan, or plan to request financing from traditional sources.
- When you write your business plan, you don’t have to stick to the exact business plan outline. Instead, use the sections that make the most sense for your business and your needs. Traditional business plans use some combination of these nine sections.
3. CALCULATE YOUR STARTUP COSTS
How much money will it take to start your small business? Calculate the startup costs for your small business so you can request funding, attract investors, and estimate when you’ll turn a profit.
- CALCULATE YOUR BUSINESS STARTUP COSTS BEFORE YOU LAUNCH
- The key to a successful business is preparation. Before your business opens its doors, you’ll have bills to pay. Understanding your expenses will help you launch successfully.
- Calculating startup costs helps you:
- Estimate profits
- Do a breakeven analysis
- Secure loans
- Attract investors
- Save money with tax deductions
- IDENTIFY YOUR STARTUP EXPENSES
- Most businesses fall into one of three categories: brick-and-mortar businesses, online businesses, and service providers. You’ll face different startup expenses depending on your business type.
- There are common startup costs you’re likely to have no matter what. Look through this list, and make sure to add any other expenses that are unique to your business.
Estimate how much your expenses will cost
Once you have your list of expenses, you can estimate how much they’ll actually cost. This process will be different for each expense you have.
Some expenses will have well-defined costs — permits and licenses tend to have clear, published costs. You might have to estimate other costs that are less certain, like employee salaries. Look online and talk directly to mentors, vendors, and service providers to see what similar companies pay for expenses.
- Office space
- Equipment and supplies
- Licenses and permits
- Lawyer and accountant
- Employee salaries
- Advertising and marketing
- Market research
- Printed marketing materials
- Making a website
- ADD UP YOUR EXPENSES FOR A FULL FINANCIAL PICTURE
- Once you’ve identified your business expenses and how much they’ll cost, you should organize your expenses into one-time expenses and monthly expenses.
- One-time expenses are the initial costs needed to start the business. Buying major equipment, hiring a logo designer, and paying for permits, licenses, and fees are generally considered to be one-time expenses. You can typically deduct one-time expenses for tax purposes, which can save you money on the amount of taxes you’ll owe. Make sure to keep track of your expenses and talk to your accountant when it’s time to file your taxes
- Monthly expenses typically include things like salaries, rent, and utility bills. You’ll want to count at least one year of monthly expenses, but counting five years is ideal.Add up your one-time and monthly expenses to get a good picture of how much capital you’ll need and when you’ll need it.
4. FUND YOUR BUSINESS
It costs money to start a business. Funding your business is one of the first — and most important — financial choices most business owners make. How you choose to fund your business could affect how you structure and run your business.
- DETERMINE HOW MUCH FUNDING YOU'LL NEED
Every business has different needs, and no financial solution is one size fits all. Your personal financial situation and vision for your business will shape the financial future of your business.
Once you know how much startup funding you’ll need, it’s time to figure out how you’ll get it.
- FUND YOUR BUSINESS YOURSELF WITH SELF-FUNDING
Otherwise known as bootstrapping, self-funding lets you leverage your own financial resources to support your business. Self-funding can come in the form of turning to family and friends for capital, using your savings accounts.
With self-funding, you retain complete control over the business but you also take on all the risk yourself. Be careful not to spend more than you can afford, and be especially careful if you choose to use tap into retirement accounts early. You might face expensive fees or penalties, or damage your ability to retire on time — so you should check with your plan’s administrator and a personal financial advisor first.
- GET VENTURE CAPITAL FROM INVESTORS
Investors can give you funding to start your business in the form of venture capital investments. Venture capital is normally offered in exchange for an ownership share and active role in the company.
Venture capital differs from traditional financing in a number of important ways. Venture capital typically:
- Focuses high-growth companies
- Invests capital in return for equity, rather than debt (it’s not a loan)
- Takes higher risks in exchange for potential higher returns
- Has a longer investment horizon than traditional financing
Almost all venture capitalists will, at a minimum, want a seat on the board of directors. So be prepared to give up some portion of both control and ownership of your company in exchange for funding.
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