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138  |  how to write a business plan • to quickly reduce or eliminate items odd size clothes, you are very aware of this that move slowly, and merchandising policy. I wear shirts with 37-inch sleeves because I’m six feet, four • to keep the overall investment inches tall, and it has only been in the last in inventory in line with profit 20 years that some department stores carry expectations. this size. That’s because retailers used to think that 37-inch-sleeve shirts never sold. Good retailers keep current with the Then the baby boom generation came of merchandise customers want now. They age, with many men needing larger sizes, make it a point to always have the popular and it ­became economical to serve these items in stock. No self-respecting popular folks. music store would be caught dead without the top ten CDs and Blu-Ray discs in Good retail managers accomplish all stock. Good retailers quickly mark down of these ends and also keep the total slow-moving items for a quick sale. They dollar investment in line with profit then use the cash from selling these dead goals by carefully managing ­“inventory items to buy new and popular ones. For turnover”—how many times per year you example, there is nothing ­sadder than a completely replace the stock. For example, small bookstore still trying to sell last year’s if your average cost of sales is 50% and hardcover bestseller when the drugstore your sales are $300,000 and your inventory down the street already has the paperback is $40,000, you turn over your inventory version. 3.75 times per year ($300,000 × 0.50 ÷ $40,000). As before, many retail managers A good retailer has a wide enough strive for three to four turns per year. Some selection to appeal to customers. In a businesses, like gasoline stations, may turn bookstore’s case, this might mean a strong over their inventory every week. Make sure backlist in several areas of local interest. your plans reflect your industry standard Good inventory management also means deciding that some customers just aren’t and good, common sense. ● worth catering to. For example, if you wear

Write Your Marketing and 8C h a p t e r Personnel Plans Introduction............................................................................................................................................................... 140 Marketing Plan..........................................................................................................................................................140 Review Chapter 3 Work.............................................................................................................................140 Competition Analysis .................................................................................................................................141 Differentiate Your Business From the Competition.................................................................. 142 Describe Your Target Customer........................................................................................................... 142 Decide How to Reach Customers........................................................................................................ 143 Create a Marketing Budget...................................................................................................................... 145 Write Your Marketing Plan...................................................................................................................... 147 Discuss the Risks Facing Your Business............................................................................................. 147 Personnel Plan........................................................................................................................................................... 152 Analyze Your Business Personality...................................................................................................... 152 Write Your Staffing Schedule................................................................................................................. 153 Write Job Descriptions............................................................................................................................... 153 Write Your Personnel Plan....................................................................................................................... 155

140  |  how to write a business plan Introduction assumptions that will influence your marketing plan: Decisions you make about marketing and personnel can spell the difference between • Problem Statement. This identifies the your future success or failure. This problem you’ll solve for your customer chapter helps you answer these important and provides the underlying reason questions about your business: people will frequent your business. • Who is your competition and how are • Business Description. This states exactly you different? what your business does for your customers. After all, if you don’t • Who are your potential customers and provide a valuable product or service, how can you contact them? you won’t have many customers. • Exactly what steps will you take to • Taste, Trends, and Technology: How reach your sales projections? Will the Future Affect Your Business? This covers the developments you • How can you hire the right people for expect for the next few years and your business? how they will affect your business. Even a “perfect” business can become • How can you make sure that your obsolete overnight due to future employees work effectively? developments. Marketing Plan • Sales Revenue Forecast. This shows your ­estimates of future sales revenue Marketing is a broad term that covers many for your business. To finish your specific issues. Your marketing plan will marketing plan, you’ll need to spell out cover areas ranging all the way from deter­ the specific actions you will take to mining how your business fits into the achieve your forecast sales revenues. national and local economies to deciding what color your logo should be. The Take a moment before proceeding market plan you’ll develop in this section any further and reread your work from will outline the specific steps you’ll take Chapter 3 to decide if it still represents an to generate the sales dollars you forecast accurate statement of how you view your earlier. business. If the statements are not accurate and complete, stop here and rewrite them. Review Chapter 3 Work Make sure they correspond to your current thinking. In Chapter 3, you were deciding whether or not you chose the right business. As part of that work, you made some important

ChApter 8 | WRITE YOUR MARKETING AND PERSONNEL PLANS | 141 Competition Analysis write a short statement of each competitor’s main strengths and weaknesses. Remember When customers consider patronizing your to place yourself in the mind of your business, they first consider whether or customers when you do this exercise. not you can solve their problem. But they don’t stop there. They also compare your In the accompanying example, note that business with other businesses. Antoinette grouped her competitors instead of treating each store separately, because It’s helpful for you to make a similar some stores are very similar. You might comparison so that you understand how choose to group your competition or list your customers think. This exercise, as any more than three competitors. exercise in the marketing area, requires some mental gymnastics. Your job is to Antoinette’s Dress Shop: place yourself in your customers’ frame Strengths and Weaknesses of mind and objectively compare your business to the competition. of Three Competitors Sometimes business owners let their Department stores. Bagnin’s, Jerry’s, personal prejudices taint their opinion of Glendale’s. a competitor. If your competitor provides Principal strengths: Wide selection of a larger selection of merchandise or better merchandise. service and lower prices than you, it won’t Principal weaknesses: High prices, matter much to your customers that you inconvenient hours, no alterations. don’t like the other business’s television ads or think it has ugly delivery trucks. Latest fashion stores. Wild Thing, Marian’s, Golden Frog. Think for a moment about the decisions Principal strengths: Fashion conscious, your customers face. What specific frequent new styles, low prices. methods can they use or places can they Principal weaknesses: Casual wear go to solve their problem? Incidentally, only, don’t cater to mature women, no some of these places and methods may not alterations. involve a competing business. Customers do things for themselves or get their Specialty stores. Lady Esquire. needs solved from friends, community, and Principal strengths: Sells our style government agencies or other sources. merchandise to our type customers. Principal weaknesses: High prices, First, identify the most likely three employees have reputation as snobs, ways your customers are going to solve alterations take a long time. their needs in addition to your business, and make a note of each. These are your principal competitors. To be thorough,

142 | HOW TO WRITE A BUSINESS PLAN Differentiate Your Business Antoinette’s Dress Shop: From the Competition How My Business Differs From the Competition Your next job is to describe how your business differs from the competition’s Antoinette’s will offer a wide selection of strong and weak points. Again, remember merchandise to our target customers, as do to carefully look at your business from the the department stores and specialty shops. customer’s perspective. We will offer low prices and convenient hours for the working woman. Antoinette’s If you’re not sure how your pricing will take particular pride in more efficient policies compare to the competition, here services such as special orders and altera- are some guidelines. Most people associate tions as well as a stable, helpful, and high prices with high quality and extra knowledgeable sales staff. service, while they associate low prices with low or average quality and minimum To summarize, Antoinette’s takes the service. Make sure you provide extra worry out of clothes shopping by providing quality and service if your prices are higher a good selection, good prices, good service, than your competition—or make sure and helpful people who know their field. that your prices are lower if your quality is average and your service is minimum. Describe Your Target Customer Check your assumptions by making a price survey of the competition. The next step is to describe your target customer in specific, individual terms. As Remember that customers may take for you know, business is a very personal granted that you have the same strong endeavor. When you sell services or points as the competition; if so, you merchandise, you sell to one person at a can leave those out of your description. time. As a matter of fact, most people don’t Customers hope that you do not share the like being treated like members of a group same weak points as the competition. But instead of individuals. That’s why the if you do share some weak points, it is most successful restaurants have owners probably a good idea to mention the ones or maitre d’s who remember your name you have in common. and ask about your family or your interests whenever you patronize their business. Additionally, most of us are more comfortable talking with one person than making speeches to a large group. So it

ChApter 8 | WRITE YOUR MARKETING AND PERSONNEL PLANS | 143 makes sense to address your advertising, Antoinette’s Dress Shop: promotions, and other marketing activities Target Customer to a single person instead of a group. Terry is 32 years old and has a college Of course, no two customers are exactly education; she is married and has a son, the same. But if you can personalize your Jimmy, in elementary school. She works as marketing program to a typical customer, a salesperson for a large corporation and it will be more effective because it will makes about $65,000 per year. Her husband seem more friendly to your customers. Peter makes a little more than she does, but The easiest way to do that is to create a the family needs her income to support the mythical target customer and individualize lifestyle they have chosen. that target customer so that you consider her a friend. Be as specific and as personal Terry’s work is not a hobby for her; she as you can. If you have friends you hope is very serious about it. Her work makes her will be your customers, describe one travel frequently and she calls home at least of your friends. Include age, education, twice a day when she’s on the road. Since occupation, income, hobbies, family status, the business world is very competitive in reading preferences, favorite television the era of downsizing companies, she must shows, favorite music, and so forth. present a good image while maintaining a strict budget. In the accompanying sample, Antoinette describes her friend and target customer, Terry keeps current with the latest Terry Chen. With Terry in mind, it is very movies and enjoys dinner out with Peter easy for Antoinette to write ads, letters, once or twice a week. She watches mostly and flyers and to decide how and where children’s programs on television in order to promote her business. For example, to spend time with Jimmy, whenever the television ads are unlikely to reach Terry TV is on. She reads business journals and since she has so little time to watch TV. economic reports and occasionally reads Radio ads during commute time can be some fashion magazines. Mostly, she gets effective, but may cost too much. her fashion sense from seeing current styles in the workplace. Her greatest regret is that Decide How to Reach Customers she has so little time for Jimmy and Peter. Once you describe your target customer, it’s easier to create a list of possible ways to reach that person. One of your jobs as a businessperson is to decide which of all the possible methods of communication will give you the most exposure for the

144  |  how to write a business plan least cost in money or time. There are Ways to Reach Your an infinite number of communication Target Customer methods. These methods range from personal visits to each customer to mass Here are some common methods business­ media advertising, with a wide range of people use to reach customers: possibilities in between. We list some in “Ways to Reach Your Target Customer,” • Take each prospect to lunch. below, as a stimulus to your thinking. • Visit or telephone each prospect There are lots of alternative strategies regularly. you can use to reach your market. For • Handwrite and send a personal example, businesses with a few large- dollar customers will have different choices greeting card to every prospect. than businesses with many smaller-dollar • Write a technical article in a trade customers. Technical consulting businesses tend to fall in the category of having a few journal. customers with large contracts, whereas • Attend or make presentations fast food restaurants or retail stores have many ­customers who make small at trade or industry shows and purchases. conventions. • Create and distribute or mail a regular Above all, remember that the most newsletter. effective way to reach and keep customers • Appear on radio and television shows in the long run is by word of mouth. All about your field. the marketing and ­advertising you do • Write a newspaper or magazine can only entice your customer to try your column about your field. business the first time. After that, she will • Write a personalized letter to each come back to your business if she likes prospect. what she received, and she’ll tell all her • Mail brochures or flyers to each friends. But be aware that customers are prospect. even more likely to let friends know if a • Advertise in print—daily newspapers, business doesn’t meet their ­expectations. magazines, or weekly papers. • Advertise on radio and television. To complete this next exercise, write • Place leaflets on car windshields or down the five or so methods you think will home doorknobs. reach most of your customers. Remember • Put notices on supermarket bulletin to select methods that are appropriate for boards. the overall number of people in your target • Enter notices in computerized market. For instance, if your target market networks. is every married woman in the U.S.A., • Join service clubs and take part in community affairs.

ChApter 8 | WRITE YOUR MARKETING AND PERSONNEL PLANS | 145 you will probably use mass media as an Antoinette’s Dress Shop: effective communication method. On the Costs of Reaching My other hand, if your target market is the Target Customers presidents of the 100 largest companies in your trade area, you are more likely to use I have about 20,000 potential customers in individual contacts than mass media. the greater New City trading area. I don’t anticipate reaching customers beyond this Once you’ve chosen the communication area. methods you like best, figure out how much it will cost to reach your customers 1. I like direct mail, since I can develop using each of the five methods. lists of active businesswomen in the area. I’d like to bulk-mail a f lyer Note that some of Antoinette’s more announcing our opening for about 30¢ sensible ideas don’t take any money to 50¢ each, for a total cost of $6,000 at all, just some time to convince the to $10,000. magazines and papers to carry her material and the time to produce it. Perhaps you 2. Limited ads in the New City Monthly can develop some similar ideas for your will run about $300 to $500 per month business. for a few months. Create a Marketing Budget 3. When anyone comes into the shop, I’ll ask for her name and address and later Now that you have a wish list of things I’ll send notices of fashion shows and you’d like to do, it’s time to decide which fashion tips. The cost will depend on of the promotional ideas you can afford the size of my list and the frequency of and which are too costly. In Chapter 7 mailings. you prepared a Capital Spending Plan and estimated how much money you’d allow 4. I can place announcements of my for an opening promotion to let people fashion shows in the two daily papers know you’re in business. In Chapter 6 you serving the area at no cost. prepared a Profit and Loss Forecast that took into account your monthly marketing 5. I’ll see if one of the local papers will costs. If you allowed enough money to carry a column I’ll write for free on provide the sort of promotion you want, fashion tips. you can finish writing your marketing plan now. 6. I’ll join all the professional women’s groups in the area and become a visible However, if you didn’t allow enough spokesperson for my shop. money, or if you’re not sure how much money is enough, you’ll want to stop here

146  |  how to write a business plan for a moment and think about it. Ask quotes for now. Just balance your wish yourself these questions: list against your b­ udget to develop your marketing plan. • How much money do I need for an • Have I allowed enough money in my opening promotion? I suggest that you monthly expense budget for ongoing allow enough money to tell all your advertising and promotion? Take a target customers one time that you are look at the advertising expenses you open for business. If you tell them all forecast in the Profit and Loss Forecast once, they can decide when to come in Chapter 6. If that amount needs see you. And if you have designed changing, you’ll need to change both your business so that it truly addresses your Profit and Loss Forecast and the a customer need and is different from Cash Flow Forecast (Chapter 7). If that’s the competition, your target customers your situation, do it after you complete will be very alert to your opening. Even this chapter. But, if you’re not sure if they don’t see your first message, they about how much money to allow for will hear about you by word of mouth. monthly advertising and promotion, go If your opening promotion plan back and reread the discussion about exceeds your budget, you’ll need to go a­ dvertising in Chapter 6, “Complete back and revise your Capital Spending Your Profit and Loss Forecast” line 4d, Plan to allow for the promotional “Marketing and Advertising.” expense. If that’s your situation, To create a marketing plan, start by complete this chapter, then go back to listing each of the promotional items you Chapter 7 and revise the cash totals. decided on for your preopening promotion together with their costs. Then add up the • Are my methods of promotion cost- preopening promotional costs and fill in the effective? Once you’ve estimated the total. cost of reaching all your target customers Next, list each of the promotional items with the first m­ essage, compare that you plan to use during the first two years cost with the amount of money in your of your business together with the monthly budget. Your job is to get the most cost of each. exposure for the least outlay. Making that Those two groups of specific actions final decision may mean that you have and costs, preopening promotion and to refine your promotion cost estimates monthly marketing, advertising, and pro­ from rough guesses into bids and quotes mot­ional costs, will become the blue­print from suppliers. Normally, unless you’re for your marketing plan. really unsure of promotional costs, you shouldn’t take the time to obtain those

ChApter 8 | WRITE YOUR MARKETING AND PERSONNEL PLANS | 147 Antoinette’s Dress Shop: hard choices about which marketing tools Marketing Budget to drop and by how much to increase the marketing budget. We’ll leave her now Preopening promotion to solve that problem in peace and quiet while we move along to the next step. 1. Mail 10,000 pieces announcing If you’re in the same predicament, grand opening $ 5,000 take your time to balance costs and effectiveness the best you can, and then 2. Advertisement in New City 500 move ahead to the next step. Monthly, one month (including graphics) Write Your Marketing Plan 3. Publicity from papers, New City 0 By now, you have asked some tough Monthly, no cost—but much questions and faced some critical issues. time to write articles and contact You may wish to combine the major points of the exercises into a summary narrative, editors or you may wish to present the results of each exercise independently. Total preopening costs $ 5,500 If you summarize the work into a Monthly advertising narrative, your plan will read more easily and look more professional. However, 1. Newsletter every two months to the potential downside to combining the answers into a narrative format is that mailing list—approximate cost you may inadvertently leave out a point of major interest to your backers. If you per month $ 650 do elect to combine the answers into a narrative, be careful to cover all the 2. Monthly column in daily paper, 0 points in each exercise. Use Antoinette’s no cost—but time to write marketing plan as a guide. column Discuss the Risks Facing 3. Advertising for sale every three 250 Your Business months, estimated monthly Every business faces risks. The people 4. Join service clubs, estimated 100 whom you will ask for money will want monthly lunch and membership to see that you can not only face reality fees but also deal with possible difficulties. Total monthly cost $ 1,000 Despite Antoinette’s well-thought- out marketing plan, her original budget allowed nothing for an opening promotion and $1,000 per month for ongoing advertising. She could, however, decide to take some of the $15,000 contingency and use it for preopening promotions. It looks like Antoinette needs to make some

148  |  how to write a business plan The following discussion outlines risks Slow Times. Every business experiences small business owners typically face. Once ups and downs. Is your business small and you’ve analyzed these factors, you’ll be simple enough, or capitalized adequately ready to write a summary of the risks that enough, to ride out slow times? Or do you apply to your own b­ usiness. have some other ­strategy, such as staying open long hours in the busy season and Competition. Most businesses have closing during times of the year when competition. How will your business business is dead? differ in significant and positive ways from your competition? If your competition is Owner’s Expertise. Nobody knows every­ strong, don’t minimize that fact, but figure thing. How do you plan to compens­ate out ways you will adjust to or use that for the knowledge you’re short on? For strength. For example, if you plan to open example, if you’ve never kept a set of a ­restaurant next to an extremely popular books, you may need to hire a part-time one, part of your strategy might be to bookkeeper and an accountant to make cater to the overflow. Another might be to sure the bookkeeping system is adequate. open on days or evenings when the other Or you may need to buy a computer and restaurant is closed. an accounting program and devote some time to mastering your new tools. Pioneering. If you anticipate no direct competition, your business probably Example: involves selling a new product or service, Doreen Cook wanted to establish her or one that is new to your area. How will own restaurant. She had cooked for you avoid going broke trying to develop a other restaurant owners for years and market? knew the practical side of putting good food on the table. However, Cycles and Trends. Many businesses have she had little patience with financial cycles of growth and decline often based matters and was honest enough to on outside factors such as taste, trends, or admit she didn’t want to learn how to technology (discussed in Chapter 3). What keep books. To solve this problem, is your forecast of the cycles and trends she invited George, her CPA, to be her in your business? For example, if your junior partner, with full responsibility for forecast tells you that the new electronic financial management. She and George product you plan to manufacture may emphasized this ­connection in her decline in three years when the market business plan and loan package, which is saturated, can you earn enough money George designed. In addition, George in the meantime to make the venture was invaluable in lining up a list of worthwhile? potential lenders.

Chapter 8  | write your marketing and personnel plans |  149 Cash Flow. Seeing the money come and tip go on a daily and weekly basis is very different from looking at a yearly Profit and A note of philosophy: This is the Loss Forecast (Chapter 6). You also want to stage when remorse or jitters may set in. You be sure that your business can survive long may be thinking, “Am I really doing this? Think enough so you can ­enjoy your profits. If of all the things that could go wrong. I could you filled out a Cash Flow Forecast such as lose everything!” Your purpose in writing the one set out in Chapter 7, you should be a risk discussion is to force yourself to face able to demonstrate that you can survive your fears and concerns, not to scare yourself foreseeable cash flow problems. out of going into business. If your rational, intellectual analysis tells you that the risk Write your risk analysis by first thinking factors are manageable, proceed as hard and of the main dangers your business faces. fast as you can. You don’t have time for useless This shouldn’t be hard, as you have and unnecessary worry. On the other hand, if probably been concerned about them for you really do get overwhelmed worrying about some time. Some of these may be on the potential disasters, pay attention to your list set out above; others will be unique to anxieties. They may be telling you that you your business. Once you have identified don’t have either the personality or knowledge the ­principal risks facing your business, of your business to handle the risks you’ll take write out a plan to counter each. But don’t in a small business. bog yourself down worrying about all sorts of unlikely disasters. The purpose of this book is to help you ­understand the dimensions of the risks your ­business faces, but you as the potential business owner must put your money and belief on the line. Abe Lincoln said it: “Be sure you’re right, then go ahead.”

150 | HOW TO WRITE A BUSINESS PLAN Antoinette’s Dress Shop: Marketing Plan Antoinette’s Dress Shop will concentrate on 2. Latest fashion stores such as Wild Thing, developing a clientele consisting primarily Marian’s, and Golden Frog. of working women. We are particularly interested in professional women who Some of our target consumers presently expect to advance in their chosen career. shop at the department stores for the type These women require fashionable clothing at of business clothes we will sell, and others reasonable prices. According to the Chamber shop at fashion stores for casual clothing. of Commerce, the greater trading areas of However, we believe we can capture a lot of New City include some 20,000 women who this business for a number of reasons. fit this description.1 Forecasters expect this market to continue to grow at the same 10% Antoinette’s will appeal to customers who growth rate it has enjoyed for the past five are either shopping at one of the local stores years. We believe the trend toward a higher or going out of the area to meet their needs. concentration of professional women in this For instance, many professional women travel county may even accelerate because of the as much as 35 miles to South City to shop at increased concentration of professional and Freida’s because their needs are simply not management industries locating here.2 being met locally. Personal experience and market research3 Generally speaking, the department demonstrate that upwardly mobile working stores offer a wide mix of merchandise. women prefer fashionable, but slightly However, it isn’t easy to find a large conservative, clothing at moderate or sale selection of appropriate business clothing at prices. These women prefer to shop where reasonable prices in any of them. In addition, they receive personal attention, especially S. Bagnin and Glendale’s are only open one prompt, free alterations that traditionally evening a week after 6 p.m., the time most have not been provided to women. Women working people prefer to shop. Further, the in this group normally prefer to shop between department stores offer fairly impersonal 5 p.m. and 8 p.m. or on their lunch hour. services, with a constant turnover of personnel. Alterations are an additional charge Most of our target customers shop at two and usually take a week or more to complete. types of stores for their clothing: Our policy of offering free alterations within 24 hours is sure to appeal to women who 1. Department stores such as S. Bagnin, put in at least a 40-hour week in addition to Jerry’s, and Glendale’s. maintaining their homes. 1 Annual Survey of Business Conditions, New City Chamber of Commerce, January 19, 20xx 2 Bank of New City economic forecast for 20xx 3 See attached article from September 27, 20xx issue of Woman’s Monthly.

ChApter 8 | WRITE YOUR MARKETING AND PERSONNEL PLANS | 151 Antoinette’s Dress Shop: Risk Analysis Like every new business, Antoinette’s faces trouble meeting our sales revenue goals. In several risks. I believe I can overcome each addition, by starting with relatively modest risk with the actions discussed below. capital, we will have no large loan payments. Also, we have had several potential investors The primary risk we face is that our express an interest in the business. If our concept of an entire store selling business working capital reserves are exhausted, clothing to working businesswomen is new to but the business demonstrates potential, this area. No one else in New City is presently we should be able to attract investors. [But doing exactly what we propose. Although remember we discovered that, on the basis of we believe we have identified a market niche the Cash Flow Forecast, Antoinette’s business that the competition has failed to adequately has a fatal flaw (Chapter 7) and her entire exploit, our assumption remains to be proven plan will need reworking from the beginning.] here in New City. On the positive side, the population base of our target customers is Finally, there is a slight risk that the more than adequate to support a store of population of younger working women in our size and we have based our volume and New City will decline. However, we do not profit projections on average figures for the expect this to happen. White collar jobs have industry. In addition, the type of store we doubled here in the last decade and it seems propose has been very successful elsewhere. reasonable to expect that the population of Nevertheless, we must demonstrate that working women will continue to grow and this type store will work here. It must take that we will profit from that expansion. This sufficient business away from stores with a projection is based on the fact that many broader line of merchandise to make a profit. well-established firms have located here and more are expected to do so. Nevertheless, if A secondary risk is that we are thinly for any reason general industry declines, or a capitalized. If our sales volume fails to meet significant number of local companies fail or projections in the first year, our small working move overseas, we could face some problems capital reserve may be inadequate to meet and might have to change our marketing our cash-fl ow needs. On the positive side, strategy. however, we believe our sales projections are conservative and that we will have little

152 | HOW TO WRITE A BUSINESS PLAN Personnel Plan Analyze Your Business Personality Chances are that you’ll need some help Every business has a personality that to run your business. It’s hard to over- customers and suppliers spot right estimate the impact employees have on away. Your employees help create that small businesses. First, your paperwork personality in their daily interactions with explodes when you hire the first employee. customers, suppliers, and each other. Your Many government agencies regulate your job as the business owner is to decide relations with your employees, and you’ll what personality you want your business need help if you’ve never employed to have. Once you are clear about your anyone before. Your accountant can business’s personality, you can easily look help with payroll forms, and your local for employees who fit in well. Take out a employment development agency can help blank sheet of paper or open a computer with other regulations. file and write a statement of the personality you want your business to have. Second, how to successfully hire, manage, and fire people is a fine art, Antoinette’s Dress Shop: which this book can’t possibly cover. If Business Personality you have any doubts about your abilities in this area, make sure you get guidance The impression I want my customers to from employment agencies, the local receive is that our store provides the best employment development department, or a selection of merchandise in our clothing private consultant. category. We also provide prices and service that take the worry, regrets, and hassle Fortunately there are some basic out of shopping. Our employees should be steps you can take that will increase sincerely helpful and dedicated to solving your chances of making hiring decisions our customers’ problems. I want them to be correctly. Many business owners fail to very knowledgeable so that our customers be clear in their own minds about basic consider us as their clothing advisors, in details affecting an employee; that’s a addition to the best store. mistake almost guaranteed to cause trouble.

ChApter 8 | WRITE YOUR MARKETING AND PERSONNEL PLANS | 153 Write Your Staffing Schedule Write Job Descriptions Now that you know what sort of people Next, open a new computer file or take you want to hire, your next job is to decide out several blank sheets of paper and title how many people you need. (You may each one “JOB DESCRIPTION.” Make sure have completed this already in Chapter 6, you have room for a separate description “Complete Your Profit and Loss Forecast,” for each person you plan to hire. Each job line 4a.) description should include several items of information: The following example shows how Antoinette thought through her staffing • job title schedule. You will make your decisions a • job duties little differently, depending on the needs of • skills required, personality desired your particular business. • education required • supervisor, and Antoinette’s Dress Shop: • pay rate and monthly total wages/ Staffing Schedule salary, including benefits, if any. My dress shop will need two people on As an example, here’s how Antoinette the fl oor at peak times (lunch and after completed a job description sheet for her work). I can open the store at 11 a.m. and sales clerks. can usually be available to fill in if the store suddenly gets busy at an unexpected time, as well as doing the books and ordering when the store is not crowded. Therefore, I plan to hire one full-time clerk, with the title of assistant manager, to work 40 hours a week, and two full-time clerks, so that there is always one employee in the store. That’s a total of 120 hours per week of labor. The assistant manager will work from 12 p.m. to 8 p.m. Tuesday through Friday and from opening to closing on Saturday. The two clerks will be scheduled so that all the open hours are covered.

154 | HOW TO WRITE A BUSINESS PLAN Antoinette’s Dress Shop: Once you complete a job description Job Description for Sales Clerk for each employee, add together all the monthly total wages/salary amounts Job Title: Sales Clerk you’ll pay each employee. Verify your calculations against the numbers you used Job Duties: Sell clothing, interact with on line 4a of the Profit and Loss Forecast customers, and present a good image of my (Chapter 6). shop. exAmple: Skills and Personality: The clerk must Antoinette learns that sales clerks often have basic retail and cash handling skills make minimum wage, even with one or and must demonstrate good math skills more years’ experience, and that there before hiring. She must be friendly and well- are lots of qualified people looking for dressed. She must know current fashions clerk positions. Assistant managers with and proper accessorizing as well as basics several years’ experience make about about alterations. She must be adept at $11 per hour. In each case, Antoinette working with the occasional irate customer. plans to pay above the low end of the wage range to assure she’ll find Education: She must be at least a high competent people and to minimize school graduate. problems with turnover. Accordingly, Antoinette plans to pay Supervisor: Since she will be supervised her sales clerks $8 per hour. Although by both my assistant manager and by me, she could probably hire an assistant she must be comfortable in situations with manager for $10 per hour, she decides to more than one person able to give orders. pay $11 because she knows an excellent person whom she really likes and trusts. Pay Rate and Monthly Wages: The clerk will If each of her two sales clerks and her work about 40 hours per week for a total manager work 40 hours per week, her of approximately 170 hours per month. I weekly wage cost will be $1,020 ($8 + think I can hire a suitable clerk for about $8 $8 + $11 = $27, which she multiplies by per hour plus payroll taxes. That brings her 40). Multiplying these weekly f igures monthly total to $1,376 ($8 × 40 hours × 4.3 by 4.3 weeks to get an average month weeks). results in an average monthly wage cost of $4,644. Extra costs for mandatory employers’ contributions to Social Security, unemployment insurance, and

Chapter 8  | write your marketing and personnel plans |  155 so forth will average out to about 14% of Write Your Personnel Plan each person’s salary. She uses this 14% figure since she plans no extra b­ enefits, As we discussed before under the like health insurance or vacations, until marketing plan section, you may wish the business is a success and she can to summarize the information in these a­ fford them. exercises into a narrative personnel plan. Just make sure you don’t forget some When you work out these numbers for i­mportant information when you do that. your business, check them against your Here’s Antoinette’s written summary of her entries on lines 4a and 4b of your Profit personnel plan. and Loss Forecast.

156 | HOW TO WRITE A BUSINESS PLAN Antoinette’s Dress Shop: Personnel Plan Antoinette’s Dress Shop will employ a full- The sales clerks will be paid slightly above time assistant manager and two full-time prevailing wage. They must be personable, clerks. presentable, and have some prior retail sales experience. They will work evening hours The assistant manger will be Sally Walters Thursday through Saturday and be available (resume attached). I have known Sally for to help Sally and me during peak selling several years and believe we will work well times. They will also assist in keeping the together. Until recently, she was the assistant store attractive by stocking, cleaning, and manager of the dress department of a large developing window displays. Sally and I know department store, where she helped modern- several acceptable candidates and the local ize the merchandise line. Her department unemployment office indicates that many increased sales by 25% in two years. more are available. Sally will be paid $11 an hour to start, with I will work six days a week at the start, a raise to $12 as soon as the business pays but will consider closing the store on the owner $3,000 per month and shows a Mondays if that proves to be a slow day. I profit. My goal is to fully involve Sally in the will act as seamstress until business expands business so that I will feel comfortable leaving significantly. If business expands more rapidly her in charge when I take time off or have than forecast, additional part-time clerks obligations outside the store. and a part-time seamstress will be hired as appropriate. Sally will work a 40-hour week primarily assisting customers. She will also assist in Antoinette’s will not offer health insurance ordering decisions. Sally will sometimes open or other employee benefits until the profit and close the shop and make bank deposits, picture warrants them. although she will not have to do so regularly. She will work from 12 p.m. until 8 p.m. Tuesday through Friday and all day Saturday. ●

Editing and Finalizing 9C h a p t e r Your Business Plan Introduction............................................................................................................................................................... 158 Decide How to Organize Your Plan.............................................................................................................. 158 Quick Plan (One-Day Plan)— Suggested Outline.................................................................................................................................... 158 Complete Plan—Suggested Outline.................................................................................................. 158 Write Final Portions of Your Plan................................................................................................................... 159 Write Your Plan Summary....................................................................................................................... 159 Section Introductions................................................................................................................................. 162 Personal Goal Statement.......................................................................................................................... 162 Create the Appendix............................................................................................................................................. 165 Create Title Page and Table of Contents....................................................................................................166 Complete Your Final Edit....................................................................................................................................166 Let Your Plan Rest.........................................................................................................................................167 Final Details......................................................................................................................................................167 Consider Using a Business Consultant........................................................................................................168

158  |  how to write a business plan quick plan you’re happy with the order in which the If you’ve chosen the quick plan various parts appear, chances are that your method to prepare a business plan (see readers will be also. ­Introduction), you need to read and complete these sections of Chapter 9: Quick Plan (One-Day Plan)— • “Decide How to Organize Your Plan” Suggested Outline • “Write Your Plan Summary” • “Create the Appendix” Title Page: Section: “Create Title Page and • “Create Title Page and Table of Contents” Table of Contents” of this chapter Introduction Plan Summary: Section: “Write Your Plan Summary” of this chapter Lenders and investors see lots of business plans. You’ll want to make sure your plan Table of Contents: Section: “Create Title Page gets the­a­ ttention it deserves by presenting and Table of Contents” of this chapter it in the best possible manner. This chapter shows you how. Problem Statement: Chapter 3 Business Description: Chapter 3 Decide How to Organize Business Accomplishments: Chapter 5 Your Plan Sales Revenue Forecast: Chapter 3 Profit and Loss Forecast: Chapter 6 Each business plan has a unique structure Capital Spending Plan: Chapter 7 that to some degree is determined by the Cash Flow Forecast: Chapter 7 particular ­business and fundraising needs. Appendix: Table of Contents: Section: Although you’ll be writing a few more “Create the Appendix” of this chapter short sections in this chapter, you’ll Appendix: Supporting Documents: Section: probably want to take a few minutes now to get organized. Take out all the work “Create the Appendix” of this chapter. you’ve completed so far using this book. Then arrange the various components in Complete Plan—Suggested Outline the order suggested below for a complete plan or a quick plan, whichever you’ve Title Page: Section: “Create Title Page and chosen. (See the Introduction for an Table of Contents” of this chapter explanation of these ­different methods.) Of course, you can vary the sequence if a Plan Summary: Section: “Write Your Plan different order makes more sense to you. If Summary” of this chapter Table of Contents: Section: “Create Title Page and Table of Contents” of this chapter Problem Statement: Chapter 3 Business Description: Chapter 3 Business Accomplishments: Chapter 5 Marketing Plan: Chapter 8

Chapter 9  | editing and finalizing your business plan |  159 Length of Your Plan Appendix: Supporting Documents: Section: “Create the Appendix” of this chapter. Some of you probably wonder how long a b­ usiness plan should be. Should it be five Write Final Portions of Your Plan pages or 500 pages? The best answer is that your plan should completely and concisely Now that you have an overview of what cover all the issues that we raise in this your f­inished plan will include, it’s time book. You may be able to place all that to begin writing the final sections. Every information on 15 to 20 pages or you may business plan needs a summary, which need more, especially if you provide several is covered below. In addition, you may appendixes. choose to write several short statements that will improve your plan and make it The key is to include all the information more cohesive. Those optional statements you need to tell your story and exclude any are also covered below. information that isn’t needed. Remember, more isn’t necessarily better. If you have any Write Your Plan Summary doubts about this, have a consultant review your plan’s length. The plan summary introduces and empha­ sizes the high points of your plan. It Sales Revenue Forecast: Chapter 3 includes a statement of the total amount Profit and Loss Forecast: Chapter 6 of money you seek. Because the summary Capital Spending Plan: Chapter 7 is based on the rest of your plan, we’ve Cash Flow Forecast: Chapter 7 waited until now to cover it. Your job is to Future Trends: Chapter 3 tell your readers who you are, what you Risks Facing Your Business: Chapter 8 want to do, how much money you need, Personnel Plan: Chapter 8 and how much money you expect to make, all on one page. • Business Personality: Chapter 8 • Staffing Schedule: Chapter 8 caution • Job Descriptions: Chapter 8 Pay attention! Many people will Specific Business Goals: Chapter 2 never read your entire package. They will make Personal Financial Statement: Chapter 5 their preliminary decision about lending you Personal Background: (Your Strong and money or investing in your project on the Weak Points, General and Specific Skills, basis of their first impression of your plan Your Business Needs, Your Likes and summary. Others will d­ ecide to read the rest of D­ islikes): Chapter 2 your materials only if your summary engages Appendix: Table of Contents: Section: “Create the Appendix” of this chapter

160  |  how to write a business plan their interest. So put all your strong points in almost certainly not propose selling stock the first few paragraphs, saving the details for to the public at large. Therefore, you will later. Absolutely follow these rules: need to propose that investors will receive a significant share of ownership of the business • Keep it short. and perhaps some monthly or a­ nnual cash • Be specific. payment as well. (For more details on equity investments, see Chapter 4.) Your plan summary needs a statement of the total cash you need to begin or Example: expand your business. This is the sum of An investment of $20,000 in John’s Roof the preopening costs and the maximum Repair business will result in the investor negative cash flow. (See Chapter 7.) receiving a 33% interest in the business. Present plans are to distribute one-half of the Example: annual profit of the company to the owners This summary introduces Juanita’s each year. Based on projections contained Waffle Warehouse. in this proposal, this means a person who “My Waffle Warehouse requires invests $20,000 will receive $5,000 the first $45,000 in preopening costs, which year, $17,500 the second year, and $25,000 are detailed on the following pages. I each year thereafter. In addition, investors will have researched my equipment costs be entitled to have any necessary roof repairs carefully, resulting in a ­potential savings done to their homes or business buildings of $15,000 by buying second-hand and those of immediate family members at (reconditioned and guaranteed) cooking 50% off the regular rate. equipment. Also, my grand opening costs are firm estimates resulting from Some people worry about their ability to verbal quotes from the ad agency write in a businesslike style. If that applies recommended by the Waffle Warehouse to you, you’ll probably want to follow the franchising company. I am confident same three-step process as Antoinette: that these are accurate estimates and I look forward to proceeding.” • First, list the positive facts you want to cover; you’ll probably need to review caution the work you’ve done to get that information. Businesses seeking investors. If you will solicit equity investors instead of applying • Second, rearrange the facts in a logical for a loan, you’ll need a statement delineating s­equence that presents the most what investors will receive for their money positive facts in a coherent pattern. rather than information about how a loan will be repaid. As a small business, you will • Finally, write the facts in simple prose.

ChApter 9 | EDITING AND FINALIzING YOUR BUSINESS PLAN | 161 Here is Antoinette’s preliminary outline Next, Antoinette rearranges these of the most positive facts of her business highlights in a logical order. Here is how plan. Remember, at this stage she is only her second version looks. doing this exercise for herself, so she has no need to be fancy. Antoinette’s Dress Shop Business Plan Summary: Antoinette’s Dress Shop Outline of Most Positive Facts Business Plan Summary: Outline of Most Positive Facts (2nd draft) • Dress shop catering to working women 1. Open a dress shop catering to • 20,000 potential customers in the city professional working women/need $162,500 to do it. and it’s a growing market • No competitor exploits market 2. My market analysis demonstrates the concept is sound and that I have more systematically than enough potential customers • Risks such as newness of my concept to (20,000) to make it work. our community appear moderate and 3. I have several unique marketing ideas I have a plan to overcome all identified that should attract customers. risks • I have a good friend with solid 4. No competitor targets our customers qualifications to be assistant manager systematically. • My background includes responsibility and knowledge in all critical areas 5. Both my qualifications and Sally’s prove • My personal goals coincide with the that I can do it. financial success of the business • Detailed f inancial projections show 6. Financial projections show the loan can that I can start the business and reach be paid back with ease. my goals with $162,500 • Creative marketing ideas include free 7. The money will be well-used for alterations, clothing tips for working opening inventory, equipment, working women, occasional fashion shows. capital, and the other things necessary for starting the business. 8. Conclusion: This business represents my long-held dream and I am eager to begin.

162  |  how to write a business plan Finally, Antoinette writes a narrative in those assumptions. Also list your summary, which is shown below. major ­assumptions about cost of sales and fixed expenses that you used in Section Introductions creating the Profit and Loss Forecast. You may choose to make lists instead When you look over your plan, you may of writing a prose ­narrative. Finally, notice that some of the sections seem summarize the annual sales and profit incomplete or that one section doesn’t flow figures you forecast. into the next. If so, you have these options: • Capital Spending Plan and Cash Flow Forecast. This narrative should list • write short introductions to those the major ­assumptions you made sections that need more explanation in adjusting your monthly profits to derive the monthly cash flow. Also • rewrite the entire plan into a single summarize the preopening costs you’ll comprehensive narrative, taking care to incur. Mention whether or not you will cover ­every important point, or sell on credit or seek extended terms from your suppliers and how long it • leave the plan as is—it’s possible that will be before your customers pay you your circumstances make it appropriate and before you pay your suppliers. to use rough drafts and financial docu- (See Chapter 7 for more details.) ments and nothing more. Personal Goal Statement Many of you will take a middle course of r­ewriting some of your earlier work, You may include a statement of your presenting some of it intact, and providing personal goals. It is a tricky part of written introductions and summaries for your plan, even though it’s a big help to others. If you write a narrative or introduc- potential backers who don’t know you tion, keep your writing as short as ­possible personally. Your lenders and backers want while presenting all your conclusions and you to be happy in your new venture, assumptions. since you’ll be likely to work hard at it. However, people who back you will also Sections that typically benefit by short want to be sure that you’re truly committed narrative introductions include: to the financial success of your project. For instance, they won’t back a beekeeper • Profit and Loss Forecast. You don’t who loves bees so much she can’t stand need a lengthy treatise, but you to disturb them by removing honey from should describe the assumptions you the hive. made about the ­significant numbers. Explain how you d­ erived the sales volume forecast you used to ­create the Profit and Loss Forecast; your backers will be extremely interested

ChApter 9 | EDITING AND FINALIzING YOUR BUSINESS PLAN | 163 Antoinette’s Dress Shop Business Plan Summary [In her summary, Antoinette puts her best foot fund will be allocated as follows: furniture, forward and tries to answer any questions the fixtures, and leasehold improvements lender may ask.] $110,000, rent deposit $7,500, opening This business plan requests a loan of $110,000 inventory $30,000, and contingency $15,000. to open a dress shop catering to working and Cash fl ow forecasts show a positive cash professional women in New City. fl ow from opening, so no allocation is made for working capital. Today, many women identify themselves as “professionals.” This is part of an evolution in My qualifications include three years of work force patterns and no local store caters experience as a clothing buyer and assistant to this group’s needs for moderately priced, merchandise manager for the local Rack- stylish work clothing—including carrying the a-Frax department store. I was able to three most popular labels: Narak, YYY, and show a 35% sales increase in my principal Pag. Antoinette’s will fill this gap. We will sell area of responsibility, the Designer Dress stylish, good quality, and moderately priced Department. During that time, I developed clothing to upwardly mobile women, provide many industry contacts which will be free alterations, and help our customers dress invaluable at Antoinette’s. well at a reasonable cost. Sally Walters will be my assistant Financial projections show first year reve- manager. She has five years’ experience in nues of $450,000, with a profit of $35,000 the field, the last three as assistant manager before loan payments and a nominal personal of the dress department at Glendale’s. We draw. Second year revenues rise to $540,000 plan to open Antoinette’s by Labor Day in and profits increase to $46,000. Profits are the downtown shopping mall and have an adequate in both years to service the loan and informal commitment from the shopping provide me with a draw. To secure the loan, I center manager to lease space to us. We will will consider a second trust deed on my home, both continue our activities in New City which has equity of about $200,000. service clubs, especially those that feature women members. I will combine loan proceeds with $50,000 in savings to provide a $160,000 cash fund. The Dated Antoinette Gorzak

164 | HOW TO WRITE A BUSINESS PLAN Ideally, your personal goals and plan come true; enjoy the prestige and commitments will tie into the business independence accruing to a successful goals exactly. In reality, you probably have business owner; provide a legacy for at least some personal goals that don’t have my children; and provide the means to much to do with business profitability. a richer and more fulfilling life for both myself and my family.” exAmple 1: “My reasons for starting this business Notice that in Example 2, “time to are to make a good living, prove I can work on cars” was translated to “provide be successful, enjoy the freedom of the means to a richer life.” Perhaps your independence, and have lots of free statement will neither be this lyrical nor time to work on my car collection. obfuscatory, but hopefully you get the In addition, I would like to create a picture. business that I can bequeath to my children.” Most people starting small businesses Antoinette Gorzak’s are tied to them full-time (if not more), Personal Goal Statement and it’s unrealistic to think that there will be a lot of time left to tinker with I want to accomplish a number of goals by a car collection. Assuming our budding starting Antoinette’s Dress Shop. entrepreneur is willing to postpone most of his tinkering until his business I want to prove that I can create a is established, here’s how this statement successful and worthwhile business by could be rewritten to sound a little better drawing on my educational background to a potential backer. and work experience. I feel that choosing and selling good clothes at a fair price will exAmple 2: be an honest service to my customers and “My personal and business goals largely the community generally. I want to spend coincide. Successful implementation of my time working with customers and this business plan will enable me to meet people in the clothing business who share the following personal goals: provide my values. a good living for my family; work in a field I know and like; achieve the I want the chance to make a better personal satisfaction of seeing my living than I can make by working for others, along with the responsibility and freedom to be my own boss.

Chapter 9  | editing and finalizing your business plan |  165 Create the Appendix Here are several things that you should c­ ommonly include in your appendix: This book covers the primary business building blocks all businesses share. Of • prior years’ financial statements if you necessity, it leaves out any mention of are expanding an existing business items that are specific to any one business. (profit and loss statements and balance Yet, in many cases, specific items are sheets from at least two prior years) critically important to the success or failure of your business. Your job is to decide • copies of proposed lease agreements which items to include in your business • copies of bids for any needed construc- plan. tion work For example, suppose that you are • plans for construction work establishing a franchise business. You • drawings of business signs or logos want to include all the information about • a list of what will be purchased for the franchise you can, including copies of the agreements and any information your opening inventory the franchisor provides you about the • key employees’ resumes, if available, operation. Or let’s say you have invented a revolutionary new gadget. You’ll want to and include a copy of the patent, patent search, • copies of any newspaper stories or or patent application to ­support your claims. other publicity you have received which relates to your business. This is The key to deciding what to include is particularly important for people who whether the information helps the reader are entering service ­businesses, where understand your proposal. Include proof of they are their own main product. statements a lender or investor would be Finally, organize your material in likely to question—for instance, horse­shoeing a logical ­order and include a table of is a growth industry. Do not include support contents for the ­appendix. for obvious statements—for example, people like ice cream. Don’t be afraid to edit by cutting and pasting, as long as you don’t unfairly change the meaning.

166 | HOW TO WRITE A BUSINESS PLAN Antoinette’s Dress Shop: • Title page. This is a separate page with Table of Contents for Appendix the title of your business plan, the date, and your name and address. 1. Annual Survey of Business Conditions, New City Chamber of Commerce, • Table of Contents. This appears after January 19, 20xx the Plan Summary and before the body of the plan. List the headings 2. Bank of New City Economic Forecast for the major sections of your plan as for 20xx well as important subsections. After you assemble your plan and number 3. Article from September 27, 20xx issue the pages, come back and put the of Woman’s Monthly concerning the appropriate page number next to each need for specialized clothes for the heading. working woman Complete Your Final Edit 4. Newspaper articles and picture of Antoinette when she put on a large and By now, your material should be assembled successful fashion show for working and ready for a final edit. It’s wise to make women at the Rack-a-Frax Department a working copy of the entire plan that Store incorporates all the changes you’ve made so far, either from a computer printout or 5. Copy of proposed store lease (critical by photocopying your earlier work. Read pages only, others available on request) through everything you’ve written to spot any inconsistencies or obvious goofs. Make 6. Planned fixture layout for Antoinette’s any necessary corrections. Dress Shop CAUTiON 7. Antoinette’s Dress Shop sign drawing and bid, Smith Sign Co. First impressions count. You won’t have time to show your potential backers a 8. Leasehold improvements bid for shop, rough draft, followed by a final edit and more Jones Construction Co. revisions. Somebody said that you only get one chance to make a first impression; make your 9. Quote from Meyer Supply on dress first impression your best. racks and cash register. Create Title Page and Table of Contents Every business plan should have these two pages:

Chapter 9  | editing and finalizing your business plan |  167 Let Your Plan Rest sophisticated market. On the other hand, if you’re planning to establish a bait and Put your completed and organized business tackle shop on Pier 37, your plan won’t plan aside for a day or two. You want to need fancy graphs and charts. come back to it as fresh as possible. As one of the last steps, number the Assess the overall business message pages of the plan and place the numbers of your proposal. Does it make sense? in the Table of Contents. If your report is Would you lend money on the strength of thick, use divider pages with colored tabs it? Can you make it more convincing by to mark each major section, so readers can strengthening some of its sections? Can find what they want quickly. you document all your claims? If someone asks you to elaborate on your plan, are you It may seem obvious, but good writing, ready with facts and figures? good organization, and good spelling can make all the difference. If you’re uncertain Check for consistency one more time. about your plan, have it reviewed by a Your plan should say the same things professional writer. If you don’t know a in the financial section that it says in reasonably priced experienced writer, the business description, and so on. For check the local newspaper, an ad agency, example, if Antoinette says she will do free or the English department at the local high alterations, she must budget enough money school or college. For a modest fee, you for a sewing machine. may well be able to improve your work substantially. But don’t go overboard—just Final Details make sure that your writing is clear and to the point. Your plan needs a neat and businesslike appearance to give the best impression. You may want to check out a word If you are using a word processor, make processing service in your area if you sure it has a laser or ­letter-quality printer. haven’t already done so. Some of these Most low-cost dot matrix printers do not services can offer effective and inexpensive produce acceptable results. It should be ways to improve the visual appeal of your placed in a three-hole binder or folio. plan at a reasonable price. Also, they may be able to offer suggestions about binding What about visuals, charts, colors, and your final plan. But above all, remember so forth? Simply watch the sophistication that your plan’s content will speak the level of your business plan. If you’re loudest. Don’t make your document so going to market a new laser printer, fancy that it detracts from the message or your plan will include elaborate ­visuals suggests that you like to spend too much that demonstrate your product’s abilities in inappropriate places. as well as your ability to compete in a

168  |  how to write a business plan When your plan is complete, make a consultant or CPA who specializes in point to hang onto the original; don’t give businesses similar to yours may be able it away. Also, make sure you keep a list of to save you from a costly mistake or point the people who get copies and the dates out a­ dditional profit opportunities. At the they received them. very least, he should be able to suggest how to improve the way your information Finally, take yourself out for a terrific is presented. If he gives you minor dinner with someone whose company you suggestions for improvement, you can enjoy. You deserve it. incorporate them easily. If the suggestions are more major, give some thought before Consider Using a making changes. Remember, this is your Business Consultant business and your proposal and it’s up to you to make the final decisions. (See It is often wise to have your plan reviewed Chapter 12 for a ­discussion of consultants.) after you think it is in good shape. For a modest fee, a good small business

ChApter 9 | EDITING AND FINALIzING YOUR BUSINESS PLAN | 169 Antoinette’s Discouraging Moment Antoinette was pleased with her plan after Antoinette was stunned. She expected putting it together, reviewing it, and polishing to discover some minor f laws, not a it. She was convinced she had a winner. possibly fatal one. Nevertheless, after much Almost as an afterthought, she decided soul-searching, she was relieved to have to have a business consultant review her uncovered the problem before, not after, business plan before taking it to the bank. she began her business. She decided that She was glad she did. In brief, here is what raising the extra money for inventory wasn’t the consultant told her. “Antoinette, you an insurmountable problem. The question have written a fine business plan and have a was whether she could reasonably increase good idea for a business, but your financial her sales projections enough to justify the projections contain one serious error. I believe increased inventory. To make this decision, she that you have underestimated the amount of decided to again talk to a number of women inventory you will have to carry by $45,000 in the target audience to get a better idea of to $50,000. Unfortunately, changing this how often they might patronize her store. number will inf luence all your other f inancial projections and will mean you have to rethink I shall leave the decision to you as to your entire plan.” whether Antoinette decides to proceed with her plans or decides to go back to work for The consultant then discussed the same a salary. After all, it’s much the same sort of inventory turnover problem we discovered difficult choice you may have to make about in Chapter 7. The consultant suggested that your own business. Antoinette take a few days to decide if she wished to try and raise more money and rework her entire plan or drop the idea. ●



Selling Your Business Plan 10C h a p t e r How to Ask for the Money You Need......................................................................................................... 172 Write a Telephone Pitch............................................................................................................................ 172 Telephone for Appointments................................................................................................................ 172 Meet Your Backers....................................................................................................................................... 173 Ask for the Money ...................................................................................................................................... 174 Leave Your Plan With Your Backer...................................................................................................... 174 Follow Up.......................................................................................................................................................... 174 How to Approach Different Backers............................................................................................................ 174 Friends and Relatives ................................................................................................................................. 174 Business Acquaintances............................................................................................................................ 175 Supporters........................................................................................................................................................ 175 Banks.................................................................................................................................................................... 176 Equity Investors (Venture Capitalists)............................................................................................... 177 Government Agencies............................................................................................................................... 178 What to Do When Someone Says “Yes” .................................................................................................... 178 Plan in Advance for Legal Details................................................................................................................... 179 Loans.................................................................................................................................................................... 179 Equity Investments...................................................................................................................................... 181

172  |  how to write a business plan How to Ask for the Telephone for Appointments Money You Need Avoid lengthy telephone discussions when Once your business plan has been polished making the call; you simply want to set to perfection, you’re ready to use it as part up a personal appointment to discuss all of your campaign to get financing. If you the details and ask for the money. If you’re haven’t done so already, you must decide not sure what to say, read the sample where you’d ideally like to get the money telephone script below. You can adapt it to you need. You should know whether you suit your style and needs. prefer to get financing from a lender or an investor. (This is discussed in Chapter 4.) “Hello, Jack? This is Antoinette. How are you today? How’s the family? Say, Jack, the Before you call people and make reason I’m calling is that I have a great idea appointments, give some thought to a few for a new ­business and I’d like to meet preliminaries. Like it or not, you’re now a with you and show you my business plan salesperson. Your task is to sell your plan. to see what you think of it. Don’t let this discourage you, even if your experience with selling has been negative. “Can we get together next Thursday There are all sorts of good ways to sell morning in your office? Oh, you’d like to things, most of which depend on a good hear a little more about my ideas before product and an honest, straightforward we meet.” (Antoinette briefly explains why presentation. I can’t tell you exactly how to she wants to open her business—she can sell yourself and your plan, but I can make read her list of reasons if she’s ­nervous.) a number of suggestions. “Well Jack, I’m glad to hear that you like my ideas.” Write a Telephone Pitch (Before she discusses the loan she Since some of your preliminary selling will wants, she asks Jack for an appointment. If be done over the telephone, you’ll want she can personally meet with him, she will to be p­ repared. Write a short statement wait until then to ­discuss money.) of what you’re doing and why. Simply list your two or three ­major reasons for “What about next Thursday? Oh, entering or expanding this ­particular how much money do I need? I need a business. Then write down how much good-sized loan that I can pay back in money you need and how much you’ll three years. So we can get ­together next pay the lenders or investors for using their Thursday morning in your office? Good. money. I’ll see you at 10:00 in the morning. Bye, Jack.”

Chapter 10  | selling your business plan |  173 Meet Your Backers Your relatives, on the other hand, may be interested in family solidarity and the Show up on time, well-prepared to answer prestige of a family-owned business as well any questions that may arise. Then let your as making a good investment. natural enthusiasm help you explain your business idea fully. Your basic objective in Offer investors/lenders a fair return, as the meeting is to­answer all the questions much security as you’re comfortable with, you are asked. If you can’t handle a and a little romance. By romance, I mean question on the spot, do not make up an to emphasize the fact that investing and answer—promise to find the information. lending money are very personal activities. Then promptly write, phone, or visit with Your backer wants to feel good about you the information later. and your project. Your backer also wants to share in your enthusiasm. So, in a­ ddition Talk about what the investment will do to presenting a potential lender or ­investor for your prospect. For example, bankers with a sound financial plan, make sure he want to hear that their loan will be soundly knows what makes the project exciting secured and paid back with no problem. for you. How to Handle Past Financial Problems What if you’ve previously declared bankruptcy students have an obligation to take what they or have had other credit problems, such as a can to partially balance the scales.” lawsuit for a delinquent student loan? Don’t try to camouflage it. The banker or investor Here’s a better way to handle the same will probably find out this sort of informa- s­ ituation: tion from a credit reporting agency anyway, so it will help you to be up front. However, “Yes, I did have a student loan and wasn’t you need to come up with a ­plausible—and able to pay it back. I had a rough time adjust- true—explanation for your past credit prob- ing to the working world for several years after lems. It should also reflect your determination I graduated and couldn’t come up with the to meet your obligations in the future. money in time. Since then, I have discovered work I like to do and am good at, as evidenced Here’s the wrong sort of explanation for a by my recent work history. I have arranged a student loan lawsuit: sensible monthly payment schedule, which I have been honoring.” “Yes, I acknowledge that I took a student loan and didn’t pay it back. I didn’t pay it back The second explanation shows that you because the militaristic system we live under will play by conventional credit rules. It also is shameful. It’s my firmly held conviction that tugs at the heartstrings a little, something that never hurts a good cause.

174  |  how to write a business plan Ask for the Money Follow Up Here’s one bit of essential advice about After a week or ten days, telephone all meeting with your backers: You must ask of your potential backers and ask if they for the money. Don’t make the common have any q­ uestions. If they do, you can mistake of discussing your plan in gener­ answer them on the telephone or make an alities and then saying “Thank you” as you appointment to meet. Remember to ask for walk out the door. the money you need. As part of every presentation, you must How to Approach ask the potential source of funds if he Different Backers will invest in your venture or lend you the money. Repeat this phrase: Chances are you have long since decided whom to approach first for a loan or invest­ “Thank you for listening to my business ment. For e­ xample, you might decide to plan. Will you invest/lend me the money I first approach your father, then the Bank need to get started?” of Newcastle, then the Small Business Administration. If you haven’t decided If you are turned down, don’t hang your yet, review Chapter 4 and develop a list of tail between your legs and slink away in a ­priorities now. Below are some ways you puddle of embarrassed perspiration. Ask might approach specific types of backers. why. Sometimes the reasons why a person won’t help finance your business will be Friends and Relatives more valuable to you than the money. The first rule of borrowing money from Leave Your Plan With Your Backer people close to you is that you want to be very sure they can afford to lend it to you Give your potential backer a copy of the and that you will be able to pay it back. business plan after you’ve met with her. Everyone who works with small business If at all possible, don’t mail copies of financing can tell horror stories about your business plan, or ­summaries of your business owners who had to deal with plan, to people before you meet. Your both the failure of their enterprise and a presentation loses a great deal without bunch of ­angry relatives. Put simply, it’s your personality and enthusiasm. It’s also no fun. a good idea to number each copy of your plan and keep track of who gets which plan. That way you can remember to follow up with everybody. Also, if you’re selling stock in a private offering you need to keep track of who gets the plans.

Chapter 10  | selling your business plan |  175 If you want to ask a relative or friend for Business Acquaintances a loan, much of your approach depends on the people involved and your relationship One good way to approach business to them. We can’t tell you much about acquaintances is by networking. For either of these ­areas, but here are some example, you might call your attorney or general suggestions: accountant or someone you know who owns a small business and say, “I’ve got • Approach your friends in a respectful a great business proposal in the retail and organized way. Don’t spring your clothing business. I need about $40,000 request on anyone in a social context. and the investor will get a 25% annual return on the money they invest, paid • Don’t assume your relatives and monthly. Do you know anybody who friends know all your plans and might be interested?” accomplishments, even though they know you well. Make your She might reply, “Well, I’m not interested presentation just as professional as for ­myself, but why don’t you try Joe Spats? your banker, even if it’s less formal. He just retired from the menswear business and has been a little restless lately.” • Tailor your presentation to your Obviously, the next step is to call Joe, audience. For example, if you stop by mention your mutual friend’s name, and your brother’s place early Saturday set up a meeting. If he’s not interested, ask morning wearing your banker-meeting if he knows anyone who might be. If you best, he will probably laugh you out strike out with your accountant, attorney, of the kitchen. But bear in mind that or business friend, try your uncle, the your brother will be as interested as a owner of the local hardware store with banker in seeing your well-thought-out whom you trade jokes, or the investor who business plan. put money into the bakery where you buy coffee. • Above all, give the person you’re talking to a graceful way not to lend Supporters or invest. ­Remember, this is a business proposition, not proof of someone’s Supporters are people who care—often feelings for you. Once everyone is deeply—about the subject area of your assured an easy exit if they don’t have business. Your best approach is to try to the money or desire to invest, you may enlist this enthusiasm and to honestly find they will be relaxed enough to involve these people in your dream. ­Often give you a fair hearing. it’s best to involve supporters at an early

176  |  how to write a business plan stage so that you get the full benefit of owns a successful small business will have their good ideas. friendly contacts at a ­local bank, as will accountants or business consultants. See if If your business will have enthusiastic you can arrange an introduction or at least supporters, whether it’s a music store or a get permission to use your contact’s name. dentist’s office in a rural area where there If all else fails, call the receptionist and ask is no dentist now, these people may offer the name of the small business loan officer. financial help. Figure out ways to get the word out in the correct circles. If people Once you have a name, telephone care, they may respond favorably. for an a­ ppointment and briefly describe the subject m­ atter you’ll want to discuss. Banks Show up on time with your business plan and loan package. Open the discussion The main point to remember about banks by talking about your personal business is that they lend money, they don’t invest and employment history. Highlight your it. A banker will want to know all about community involvement while trying to you and your business, but when it comes ­discover common interests and acquain­ to saying “Yes” or “No,” the security of the tances. Maybe you both have children in loan will be paramount. Little League, maybe you both belong to the Rotary Club or the Symphony When approaching a bank for the first Association or the Volun­teer Fire time, it is important to understand that Department. Who you are in the com­ within all banks, responsibility for different munity and what you have accomplished in tasks is divided. You want to talk to the other jobs or businesses is an important part loan officer in charge of small business of the loan a­ pplication process. loans, not the trust officer or the person in charge of getting the automatic teller While it’s important to be businesslike, machine to work right. it’s also important to take your time. After all, you want to avoid giving the banker Bankers, like almost everyone else, the impression that you’re in a hurry or are prefer dealing with people they know. desperate—he is not going to approve your The ideal way to meet a bank lending plan immediately under any circumstances. officer is to know a bank vice president Expect lots of checking and probably a socially and have her refer you to the loan series of meetings. But never forget that to officer. However, if you are like most mere get a loan, you have to ask for it. As part of mortals and don’t have any old school each meeting with the bank, ask politely but ties or country club connections, you will specifically about the status of your loan. have to be creative. Almost anyone who

Chapter 10  | selling your business plan |  177 Here are a few things to emphasize Equity Investors when talking to bankers: (Venture Capitalists) • Your other bank business. If you don’t I use the term “venture capitalist” a bit already patronize the bank in question, loosely to include people who invest make sure the lending officer knows relatively small amounts of equity financing. you plan to do so if you get the loan. These may be relatives, ­acquaintances, or anyone else with money to ­invest in what • Security. Remember that the banker looks to be a profitable business. wants to lend money, not invest it. Tell the banker how sure he is to get his As you should know from reading money back with interest. If you can the discussion in Chapter 4, the ­primary offer collateral for the loan, emphasize distinction between a venture capitalist it. (See the discussion of bank loans in and a lender involves risk, security, and Chapter 4.) amount of return. The venture capitalist is traditionally willing to take more risk • Be realistic. Your banker wants to be­ in exchange for a chance to make a large a­ ssured about your knowledge and profit. Here are some suggestions: enthusiasm about your business. But he also needs to know that you have • Prepare a summary of what you are your feet on the ground. If you puff offering. In addition to the business too hard, the banker is almost sure to plan you have already designed, you be turned off. need to tell the ­equity investor both what you are offering (partnership, • Be persistent. There are lots of limited partnership, shares in a banks. People who work with small corporation, etc.) and what the businesses in your area can probably projected return is. suggest the banks that are most likely to lend to your type of business. If you • Do not promise a certain return. are turned down by one bank, make Especially if your potential investor sure you understand why you were is unsophisticated, emphasize in rejected. If it’s realistic, change the writing that there is always some risk items in your proposal that caused this associated with a high potential return. ­rejection. Pay extra attention to aspects Make certain the investor knows your of your plan that continue to receive projections are just that—projections. negative comments. In short, never guarantee a return that you may not be able to deliver. The person ­putting up the money should

178  |  how to write a business plan even understand there is a possibility What to Do When she may lose the entire investment if Someone Says “Yes” things go very badly. • Ask for names of others who might Your first job when someone indicates his invest. If a potential investor turns interest in lending you money or investing you down for any reason, ask if he in your plan is simple—don’t faint. It’s fine knows anyone else who might be to prepare for a ­negative result so you are interested in investing. Don’t be not too disappointed if you are rejected, surprised if someone suggests putting but remember also to be prepared for a deal together for you for a fee. This a positive reception. If your proposal is means he acts as a finder or broker as good, it will be funded sooner or later. discussed in Chapter 4. One good approach is to have a number Government Agencies of answers ready, depending on what the lender or investor offers. It’s a little like The hardest thing about getting money being a major league baseball outfielder in from the government is finding out which a close game, with several men on base. program can help you. The second-hardest Depending on where the ball is hit, you thing is finding out who in that agency need several alternative plans. You can see can make a decision for or against your some pretty funny plays when a fielder proposal. Compared to these two, filling fails to think ahead and throws to the out the forms is easy. wrong base. Ask your bankers if they know any of If you’re asking for a loan for a set the ­programs. Most will have some exper­ amount of money at a certain interest rate ience with at least one of the agencies, and the lender says “Yes,” presumably you such as the Small ­Business Admini­s­tration will, too. But, what if the lender offers (www.sba.gov), and can steer you in the you less than you want, asks for a higher right direction. If you run into a wall, try interest rate, wants collateral, or proposes your local elected representatives. They a different financial formula entirely? have aides whose job it is to help people Make sure you understand exactly what like you. If you find a ­program that looks the proposal is. Think through your risks, good, be sure your elected representative especially if the lender wants collateral. knows about your application. (See the Compare the terms—for instance, a small discussion of the SBA in Chapter 4.) increase in interest rate could mean that you will end up paying more money for a longer period of time.

Chapter 10  | selling your business plan |  179 Don’t answer on the spot. Take the Plan in Advance for Legal Details proposal home and see if you can live with it. If you can’t, meet with the person again Taking money into your business requires and explain exactly what you can’t accept lots of legal documentation. You will and why. Then propose changes. If this present a more professional image if you doesn’t result in agreement, start looking understand some of the basics. for other funding sources. It’s far better to say “No” than to accept a bad deal. Anyone Loans who has been in business for a while will tell you the times he turned down Whatever loan you arrange will have to poor business proposals were at least as be ­reduced to writing. If you deal with a important to his ultimate success as the bank or other institutional lender, it will ones to which he said “Yes.” have the necessary forms. However, if your arrangement is with a friend, family Example: Charlie wanted a loan of member, or private investor, these details $20,000 to start a limousine service. will probably be up to you. The bank offered him $20,000, but wanted equal monthly ­payments of If your loan is simple—a specific $1,018 over two years. Charlie had amount of money, at so much interest, expected to make payments of $530 to be paid at regular intervals—you can per month over five years. After he ran safely design it yourself. While a course in the d­ ifferent loan payments through contract law is beyond the scope of this his cash flow schedule, he discovered book, the sample notes provided may help that he couldn’t pay his own rent and you focus on this task. grocery bill if he had to pay $1,018 per month on the loan in the first two However, if the loan involves compli­ years. After he explained his problem cated ­default provisions, security, and to the loan officer, the bank offered balloon payments, you and the person Charlie interest-only payments for the you are dealing with would be wise to first two years. That was a much better have it checked by an attorney. If you have deal and Charlie took it. done most of the work, this shouldn’t be expensive; negotiate the fee in advance.

180 | HOW TO WRITE A BUSINESS PLAN exAmple 1: exAmple 2: Promissory Note Promissory Note Robert Lee of 1411 South St., Homer, $8,639.00 July 30, 2010 Alaska, and Gertrude Fox of 123 Main St., Fairfax, Alaska, agree that Gertrude Fox For value received, the undersigned hereby lends Robert Lee the sum of Fifty-Six promises to repay to Sebastian Grazowtski, Thousand ($56,000) Dollars to be repaid on of New City, Oregon, the sum of EIGHT- the following terms: THOUSAND SIx-HUNDRED AND THIRTY- NINE DOLLARS ($8,639.00) including 1. Principal and interest of 10% per year interest at 12% per year. This money is to be will be paid in equal monthly installments paid in equal monthly payments of $315.00 on the first day of each month beginning (principal only) commencing on September the first day of September 2010 and 1, 2010 and continuing until November 1, continuing through the first day of August, 2011, at which time the monthly payments 2011. will increase to $440.61 per month until the entire balance of principal and interest is 2. On September 1, 2011 the entire paid. unpaid balance of principal and interest shall be due and payable in full. Should default be made in the payment of any installment when due, then, at the 3. Should Robert Lee fail to pay an option of the holder of the note, the entire installment on the date due, as set out in amount of the principal and interest shall Paragraph 1 of this agreement, the whole become immediately due and payable. In sum of the principal and interest then the event of any default on this note, the outstanding shall, at the option of Gertrude holder shall be entitled to recover all costs Fox or any subsequent holder of this note, of collection of same, including reasonable immediately become due and payable. attorneys’ fees and costs. 4. Should Robert Lee fail to meet any Date condition of this agreement, and should Sebastian Grazowtski Gertrude Fox or any subsequent holder of this note take legal action to collect Date it, Robert Lee shall be responsible for all Virginia Woo attorneys’ fees and costs. Date Robert Lee Date Gertrude Fox

Chapter 10  | selling your business plan |  181 Equity Investments Example: Wilhelmina Whalen needed $35,000 If you plan to arrange for an equity to start a coffee shop. She decided investment, you have considerable work to to form a small corporation and sell do beyond the scope of this book. In short, an investor 25% of the company for you need to have a detailed plan for the $35,000. If the coffee shop succeeded, legal form of organization you prefer—a as she expected, the 25% investment general partnership, limited partnership, or would be worth $100,000 in three years. small corporation. Harrison Flyright liked Wilhelmina and her business idea. He offered $25,000 Most entrepreneurs form corporations but wanted 50% of the company. and sell shares to raise money. They are Wilhelmina thought that was too high regulated by both the federal Securities and a price and said “No.” Sometime later, Exchange Commission and by their state’s Harrison increased the amount to corporation department. All require confor- $32,000, and Wilhelmina agreed to give mity to numerous regulations designed to him 49% of the stock, thereby retaining protect investors from dishonest promoters. control of her business. As a California resident, Wilhelmina incorporated her While the regulations are extensive, business using How to Form Your Own they are designed to help the process. California ­Corporation, by Anthony For example, some stock offerings can Mancuso (Nolo). She issued 49% of the be exempt from expensive filings if they stock to Harrison in exchange for his involve a small number of shareholders and a small amount of money. (Chapter 4 cash, and was off and r­unning. ● discusses corporations and partnerships in more detail.)



After You Open—Keeping on the 11C h a p t e r Path to Success Introduction............................................................................................................................................................... 184 Watch Out for Problem Areas.........................................................................................................................184 It’s Lonely at the Top...................................................................................................................................184 Anticipate Problems Before They Arise............................................................................................ 185 You May Be the Problem and Not the Solution..........................................................................186 Plan Beyond Opening Day.......................................................................................................................186 Know When You’ve Succeeded—Or Failed................................................................................... 187 Prepare for Success......................................................................................................................................188 Getting Out of Business......................................................................................................................................189 Lock the Doors and Leave........................................................................................................................189 Sell the Business.............................................................................................................................................189 Close the Business and Negotiate With Your Creditors..........................................................190 Hold a Going Out of Business Sale......................................................................................................190 Declare Bankruptcy.....................................................................................................................................190

184  |  how to write a business plan Introduction of determination and drive to make things happen. As a result, you may focus so If you have followed all the steps in this completely on the immediate goals at hand book, you have completed a thorough that you lose sight of the larger picture. plan for your business. You should feel good about completing a hard, demanding Recognizing that you don’t know every­ task. It’s also important to remember that thing is a good first step toward business completing your plan, finding the money success. If you’re unsure of yourself in you need, and opening or expanding your any particular area, please take advantage business are just the first three steps in of the advice and help that is there for your journey. the asking. That way, you’re less likely to be sabotaged by something you didn’t Many small business books take fairly know—and didn’t know you didn’t know. extreme approaches. Two common ones can be summarized as follows: It’s Lonely at the Top 1. Here comes another lamb to the As a business owner, you often make slaughter—hopefully this book can decisions in a vacuum. Most of the time frighten him out of his dumb idea. you won’t have immediate peers who understand your business and can also offer 2. Anybody can find fame and fortune in you good, dispassionate advice. Probably a small business; just read this book you have to go it alone, and that can be and get a big strongbox in which to pretty tough. store your surplus gold. You and your business become targets I hope to steer a middle course by for an army of job-seekers, government offering you both encouragement and regulators, charities, competitors, consul­ caution. In my view, small business is tants, salespeople, insurance brokers, and one of the last great frontiers of both so forth. All these people have their own individualism and opportunity, but like the goals and objectives, which may or may prairies of yesteryear, there are more than not coincide with yours. As a matter of a few rattlesnakes among the poppies. This survival, you must become skeptical about chapter contains some highly personal what people claim they can do for you or recollections and observations on pitfalls your business. This isn’t necessarily either and diversions you may encounter on your bad or good, it’s just the way things are. way to business success. You are the only one who can decide what is good for your business. Watch Out for Problem Areas You also have to manage relations As a small business owner, you’ll have to with your three primary sources of work hard to meet your goals. It takes a lot

Chapter 11  | after you open—keeping on the path to success |  185 business success: customers, suppliers, Things always go wrong in business. and employees. Again, each person in Your job is to notice troubles and problems these groups has her own set of goals and before they become major hurdles. If you objectives. Your job is to reconcile all those don’t notice the mistake until others tell competing interests so that your business you about the unfortunate results, it may prospers. be too late for an easy, inexpensive cure. Incidentally, I hope this doesn’t read like If your business is like most, you’ll a nightmare to you, because it isn’t a night­ spend some time every day creating mare. In fact, I think it’s one of the best solutions to problems. But, if you don’t like parts about being in business for yourself. playing detective and prefer sailing along As a business owner, you decide the goals on smooth waters so much that you don’t and the steps to reach them. The compar­ see the first signs of storms, you may have ison is similar to the difference between a problem surviving for long. riding in the back seat of a car and driving the car. If you’re like me, you’re a lot more Here’s one way to keep a handle on comfortable when you’re driving the car. problems. Every month, make a line-by- line comparison of your monthly actual Axiom: If you need approval from others to profit and loss statement to the monthly ­function at your best, you will be uncomfortable Profit and Loss Forecast you made for as a business owner. your business plan. That way, you’ll see problems as they develop and before Advice: Get tough. Learn how to set goals and they become serious. For example, if reach them. Learn when to take others’ views your profits are down by $1,400 and your into consideration and when to ignore them. advertising expenses are up by $2,000, you’ll want to spend some time analyzing Anticipate Problems why that happened and what you should Before They Arise do about it. Your business plan describes the risks Another way to spot problems before your business faces. Periodically reread they become too large is to listen to what that risk discussion to see if you’d like to your customers, suppliers, and employees add anything to the list. If you’re like most say about your business. While some of people, you’ll admit that there may be their comments may be self-serving, you something you missed and that you don’t can’t afford to ignore all their complaints know what it is. and suggestions. Experience shows that most customers will tell their friends about a problem they had with your business long before they tell you. So, you may have to develop creative ways to encourage your customers to communicate with you.

186  |  how to write a business plan Axiom: The business owner constantly makes Axiom: Everybody has blind spots. Your blind small corrections to keep the business on course. spots can determine whether your business will The business may fail if the owner falls asleep at succeed or fail. the wheel. Complacency kills. Advice: Ask a friend who knows you well Advice: Establish an information system that where your blind spots are. You can’t afford not lets you know when the business goes off course. to get help if they are critical. You may also choose to have an experienced business consultant review your business Plan Beyond Opening Day periodically. To illustrate the importance of planning You May Be the Problem for the operation of your business after it and Not the Solution opens, I’d like to share the experiences of Molly, a friend and former student, who “To live is to change, and to be perfect wanted to open a bath supply shop. Molly is to have changed often.” (John Henry encountered a long series of depressing Newman, as quoted in First Data Resources obstacles on the way to getting the money ad in Credit Card ­Management, January to open her business. But since she was 1992, Volume 4, Number 10.) Unfortu­ both stubborn and a fighter, each setback nately, most people aren’t very good at made her even more determined. In truth, analyzing their own strengths and weak­ before long, getting the necessary money nesses objectively and then changing their had become an obsession. Finally Molly behavior to compensate. They just go succeeded. Unfortunately, at this point ahead doing what they’ve always done, she became strangely lethargic. Molly had regardless of the outcome. put an enormous push into opening her ­business, but she hadn’t prepared herself Many businesses are started by people for the gritty day-to-day realities of owning who are very good at a skill that people a business. Now Molly lacked energy, demand. But many of these people know innovative ideas, and the knowledge of little about the complexities of starting and how to compete in a changing market­ growing a business and can be hurt badly place. Her business closed in 12 months, by their lack of knowledge about basic which was just about how long it took to management skills. start it. She lost a lot of money and a lot of pride.

Chapter 11  | after you open—keeping on the path to success |  187 Axiom: You need a flexible continuing four months? Do you triple the advertising operating plan for your business. budget and hope that sales will pick up? I hope not. A more sensible approach is to Advice: Make sure you can adapt your make another business plan, adjusted to business plan to changing circumstances. the sales you are actually getting. This is psychologically difficult for many people Know When You’ve to do. It’s all too easy to get hung up on Succeeded—Or Failed proving that your original plans were right, rather than accepting what the numbers Success in a small business involves tell you. meeting your objectives, especially the one that says you have a positive cash flow by Example: a specific date. Normally it shouldn’t take Pierre, who had never run a business, long to know whether your business will bought a failed cafe. He was confident meet your objectives. in his abilities to turn the cafe around, since he had a degree in hotel manage­ Many people wait a year or two to ment and was an accomplished chef. see whether the business will succeed. I Pierre projected $30,000 a month in think that’s a mistake. Instead, figure out sales and budgeted accordingly. Actual how long it should take for your potential sales in that first three months were customers to hear about your opening $12,000, $18,000, and $16,000. Sales and then add a month or two. In a retail leveled off at the $14,000-per-month business, that’s usually no more than three level for the next several months, to six months, depending on the type of resulting in a first quarter loss of $60,000. business and how good a promoter you are. Pierre cut back to where he was only Put another way, your sales will probably losing $2,000 or $3,000 per month for level out three or four months after you the next three months, but stuck to the open. People in service, wholesale, and idea that he could generate monthly small manufacturing businesses may expect sales of $30,000. In the meantime, he a longer start-up cycle. For example, a sold his house and his wife’s jewelry real estate agency normally allows six to to keep up with the bills. Many people 12 months for money to begin coming in. suggested that he make cutbacks so That’s how long it takes to find clients, that he could make a profit on $14,000 negotiate deals, and generally get known in per month or, as an alternative, sell the the community. restaurant. So far, he has refused. If he doesn’t take in $30,000 a month soon, What if your sales are less than you he’ll go broke. expected after you have been operating