If You Don’t Have a Business Plan, Make One--Then Use It
Q: How can I put together a real financial outline of costs for my business? Do you have any good references for how to write a business plan?
--Kim Conrad,
San Fernando Valley
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A: A business plan is divided into three separate but interrelated areas: administrative, marketing and financial. The time to write a business plan is when you begin to seriously consider starting a business; that way you will go through the door with your eyes open. Almost all very successful companies operate with a business plan. Even multimillion-dollar companies don’t operate without a plan.
The main reason to write it is so you will have a guide during the lifetime of your business that will allow you to implement changes and make your business more profitable. A second reason is that most every lender or investor requires a business plan for documentation before they will consider giving you access to capital.
If you have already gone into business and do not have a plan, it is never too late to write one. I recommend you do your plan yourself because no one knows your business the way you do. The involvement in the planning process will help you understand your business better and be more effective. If you do not feel up to the task, take a class on business planning and hire a professional planner to meet with you at several points to review your work and give you guidance.
If you have a larger company, pull key employees from each department and get them involved in the planning process. Just make sure their input is coordinated and their ideas will have continuity with your financial plans.
Start at a library or bookstore and find a book you feel comfortable with that will take you step by step through the process. To make it easier on yourself, purchase some business-planning software that has pro forma cash-flow statements already formatted for you.
Depending on how detailed and how large your business is, your plan can take from two weeks to several months to write. An average business plan runs 40 pages, with financial statements.
Remember to make your plan realistic and back it up with supporting documents. If you plan to advertise, make sure you include the ad rates of the media where you plan to run your ads. A lot of people fail at the planning process by being too aggressive in detailing what they’re going to do, but not backing it up with financial data.
In some ways, if you write a solid, realistic business plan and follow it, your business cannot fail--if you live up to your cash-flow estimates.
But don’t write a plan and then put it in a drawer. Keep it active and up-to-date. Do a quarterly budget analysis that will compare your projections with what has actually happened with your sales and expenses, and then adjust your future projections so they become more realistic and start coming into line with reality. That way you’ll be ready at any moment to go to a lender or investor and you will not get caught short.
--Linda Pinson, Tustin
Small-business educator and author,
“Anatomy of a Business Plan” and
“Automate Your Business Plan”
software
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Q: I expanded my business by bringing in a new line of products, but I found out after the fact that the markup I had figured was not enough to cover my costs. How should I have restructured my financial plan?
--Kim Conrad
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A: The most frequent error made by small businesses is in overstating revenue and understating expenses. You should have reworked your financial statement, plugging in the number of products you anticipated selling, the revenue you expected to generate and the extra expenses you would incur. If you had done that, you should have immediately seen problems reflected in your projected cash flow.
If you have not done so yet, get a good publication that will take you through the process, or take a class on business record keeping (it does not have to be an extensive accounting class) and familiarize yourself with the financial end of your business.
--Linda Pinson
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Q: I created a T-shirt design that is unique in content and humor and can be easily marketed. However, the start-up capital I have is very limited. What I’m looking for is a business partnership with a company for four to five years that is willing to manufacture, market and package my concept. Are there any companies I can contact that may be interested in examining the financial possibilities of my designs?
--Carl M. Peppers,
San Bernardino
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A: You may believe your product is unique, but your challenge will be to convince someone else--especially a potential funding source--of that. The first thing to remember is that people who are successful in business really know the business they want to run.
I would advise you to back up and do some research so you thoroughly understand how the T-shirt business works and you don’t waste time courting mismatches between you and another company. It will save you a lot of aggravation, and you will know how to present your idea intelligently.
I recommend you get a book, “Small Business Profiles,” published by Gale Research. This book gives overviews of several hundred small businesses and will connect you to the resources you need to move forward with your idea.
Once you really know the T-shirt business, you will need to decide whether you want to sell the rights to your design, what percentage of profit you will be willing to give up in exchange for another party’s bankrolling your idea and whether you want to enter into a limited partnership.
--Kimberly Stansell
Small-business coach and author of
“Bootstrapper’s Success Secrets”
If you have a question about how to start or operate a small business, please mail it to Karen E. Klein in care of the Los Angeles Times, 1333 S. Mayflower Ave., Suite 100, Monrovia, CA 91016, or e-mail it to business@latimes.com. Include your name and address. The column is designed to answer questions of general interest. It should not be construed as legal advice.
