Five Things to Do Before Writing a Business Plan

Writing a business plan is not an easy task. Most people spent days or even weeks to write a 20- or 30-page business plan. Sure, there are many websites that provide information on how to write a business plan. But before you start writing yours, there are five simple things that you need to do. These five things will make writing your business plan much easier.

1. Describe your product or service

You need to make sure that you can really tell people exactly what your business is going to produce or do. You can start by making a list of the features that your product will have and deciding what your product will look like. After you are sure that you have a perfect understanding of your product or service, you are ready to start writing your business plan.

2. Create a list of your business' sources of income

You should write a list of the things that will be the sources of income for your business. If you plan to build a website that provides recipes for free, for example, you can sell advertising space and products from Clickbooth and Amazon.

Selling a Business for Top Dollar

Business owners often become so involved in their company's daily operations that they sometimes fail to realize the business might be sold. A sale of a business might be forced, for example, by the illness of the owner, by a divorce or by concern over lack of succession. It might also be unexpected as a result of an advantageous offer.

Whatever the reason for selling, an owner of a business will want to obtain the best possible price. As a business owner, then, it makes sense to establish what is known as a departure plan so that your business will attract top dollar should it be sold.

Potential growth

A departure plan isn't something that can be put together at the last moment. It must become part of the business's day-to-day management. Too often, business owners fail to do this. But unless you actually plan for the eventual sale, your business might not achieve its potential growth level nor realize its potential return.

As a business owner, the first step in preparing a departure plan is to have your business valued by a professional business valuator to determine a realistic asking price in order to make the business an attractive buy. The valuation should be reviewed and updated at regular intervals.

But you shouldn't stop there. A business that keeps good accounting records and books and maintains strict internal financial controls will be more attractive to a potential buyer than one which does not. So is a business in good operating condition and efficiently staffed.

Big Companies from Small Ideas

There are some large businesses that were established without the help of big investors. The people who started them only had a few thousand dollars and an idea to start their business. Of course, there were thousands of other people like them who were trying to do the same thing, but not many of them succeeded. And that's what makes these businesses (and people behind them) special.

1. Starbucks

Starbucks was established by two teachers and a writer in 1971. They got together and used their own money to start up a coffee bean seller in Seattle. In 1982, Howard Schultz joined the company as the director of retail operations and marketing. After a trip to Milan, Schultz suggested that the company should sell not only coffee beans, but also coffee and espresso drinks. However, the owners of the company rejected the suggestion. In 1986, Schultz started the Il Giornale coffee bar chain because he was sure that there was money to be made from selling pre-made drinks.

Writing a Business Plan

When you’re done with your business feasibility study and you find that your business idea is feasible, the next step is to write your business plan. Writing a business plan is important, as it will be your guideline in running your business. Your business plan should explain exactly how you will run your business, with all the exact figures including the capital needed to start the business. You should also provide the calculation of payback period in your business plan. You can use all the calculation that you put in your business plan to do a review on your business in the future. You can compare the figures in your business plan to the figures that you currently have to see whether your business is running better or at least just as planned, or not.

If you don’t have enough capital to start your business and you plan to attract some investors, you need to put some extra efforts in writing your business plan. Investors are investing their money to get profit, so they would need to see an excellent business plan before they decide to invest in a business. Your business plan should explain how your business can generate profit, how long will the investors get their return of investment, and how much profit they will get. In short, you should try to see from the investors’ point of view when you write the business plan. 

Calculation of Payback Period

Payback period is the time that we need to get the return of investment that can repay the amount of our initial investment. The calculation of payback period is simple. For example, when we invest $7500 in a business that gets $2500 per year, we would have a three year payback period. In calculation of payback period, the time value of money is not taken into account. Payback period is simply being used to measure how long a business takes to pay for itself.

Even though payback period has some limitations, it is being widely used as a method of analysis (especially by people who are running small businesses) because of its simplicity. In any kind of business, shorter payback periods are better than longer payback periods. However, in the calculation of payback period, the time value of money, risk, opportunity cost, financing, or other important considerations are not taken into account.

Feasibility Analysis for Small Business

Most people want to have their own small business. Unfortunately, we can see that many of them are failing. The failures of small businesses are caused by many different things. One of the things that can cause a small business to fail is the lack of feasibility analysis.

Before starting their own small business, people need to perform a simple feasibility analysis. The main objective of the analysis is to see whether the business idea is worth pursuing. 

The following are several things that people should do when doing their feasibility analysis:

Financial Feasibility Study

In order to know whether a proposed project is financially feasible or not, a financial feasibility study needs to be conducted.

In a financial feasibility study, we analyze the total costs of a proposed project (including all construction costs and operating costs) and the potential revenues that the project can get. If the potential revenues of the proposed project can cover all of the costs, then the project is financially feasible.