Biz Tips: How to Make a Business Plan That Will Make You Money in Your Smallbiz

Biz Tips: How to Make a Business Plan That Will Make You Money in Your Smallbiz

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How to Make a Business Plan That Will Make You Money in Your Smallbiz

How to Make a Business Plan That Will Make You Money

What You Need to Know in Order to Have More Clarity in Your Small Business

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When you have a business plan you will have a precise document that identifies your goals and serves as your firm’s resume. It’s basic components include:

  1. a market study
  2. marketing/promotional strategy
  3. current balance sheet
  4. an income statement
  5. a cash flow analysis

The business plan helps you allocate resources properly, handle unforeseen complication, and make the right decisions. Because it provides specific and organized information about your company and how you will repay borrowed money, a good business plan is a crucial part of any loan package. Additionally, it can tell your sales personnel, suppliers and others about your operations and goals

Going into business without a business plan is like going on a mountain trek without a map or GPS support — you’ll eventually get lost and starve! ― Kevin J. Donaldson

Now let’s talk about each of the 5 points mentioned above.

1. How do you do a market study?

When you start thinking of creating a business plan you must already have in mind what product or service you are going to offer to the people. You should already know who your ideal client is and how you are going to serve him. That being said, the market study is going to give you an overview of the industry you are getting into. The study should also include statistics that support your idea. Generally the market study will have information about the industry, your ideal target market, who are your main competitors and how are you going to market your product or service. The market analysis should include the following:

  • A short description of your industry (size, growth rate, trends, and outlook)
  • A detail description of your target market (who is your ideal client or customer, basic demographics like age, gender, income level, lifestyle preference as some details about their purchase potential and what motivates them to buy)
  • A result of the market test result (before you do a business plan you must test out your idea… Some of the results should be included here… If you want to learn how to test out your idea, read this medium article)
  • Lead time (the time it takes for an order to be fulfilled once a customer makes a purchase)
  • A competitive analysis (who is your competition? What are their strengths and weaknesses? What are some potential roadblocks that might prevent you from entering the market?)
Photo by rawpixel on Unsplash

How do you white a market study? Here I will show you 6 tips to make your job much easier:

  • Use the internet (get demographics from the U.S. Census Bureau about your future clients and get more data on your competition as well)
  • Become a customer of your competitor (this will help you discover their processes, their marketing, and see where you need to do a better job)
  • Do you market research really well (gather as much information as you can, use surveys, focus groups and ask for feedback from others)
  • Use photos or visual aids (this can help you better present your plan)
  • Don’t use too many words (cut to the chase and give only the most important data in your study. Nobody wants to read a 200 pages business plan.)
  • Always give references to your business (the data in your study should always point back to your products or services. When talking about your client’s needs, always put in focus how you are uniquely positioned to fulfill those needs)

2. What should you include in the marketing/promotional strategy?

This portion builds upon the market study part we did at first point. Here you will outline how your business fits/will fit into the market, how you are going to promote your small biz and pricing your products or services. This section of your business plan should always contain the 4 Ps of marketing: Product, Promotion, Price, and Place. I would add another P to this mix and that would be People.

Not every single broke and unemployed person needs a job; some need customers. ― Mokokoma Mokhonoana

Product refers both to physical products, digital products, but also services. Here you should focus on the brand name, related products or services, packing, quality, and warranty.

The promotion covers various points of your future marketing campaigns. Here you should think about advertising, marketing budgets, promotional strategies, sales and how are you going to gain publicity and authority in the market space.

Price your products accordingly with your business vision. Do you want to have a premium quality product? Do you have to be the place with good prices and good quality? You have to decide. Whatever you do you should take into consideration some cost of doing business like, rent, cost of production, employees salaries and everything else. If you are not clear here, you won’t be able to know how much can you spend on attracting a new customer, how much you can reduce your prices if someone wants to buy wholesale and how much flexibility you have to do a sale period.

The place is very important. If you have a physical product with a physical store you have to make sure you have enough people passing by your store and that you have parking for your customers. You also have to think about logistics and transportation. You need new materials to make your products and ways to move it to your customer. If you only have an online business, then this becomes a little bit simpler. You have to have a good website that converts visitors into customers and good social media presence.

People are the business blood. Without people, you will have just a job better paid. People are going to help you take a vacation and move your business forward. Here I am talking about both employees and customers. Do you have a good team already built up? Are you just building your business and don’t know if you should hire someone? Finding good people is going to help you build your business faster and easier. On the customer side, if you know somebody famous or with good connections, a product endorsement from him/her could really boost your business.

Life is what happens to us while we are making other plans.― Allen Saunders

3. Why do you need to know how to look at a balance sheet?

“A man in a shirt writing on printed sheets of paper” by Helloquence on Unsplash

The answer to the question above is very simple. Balance sheets reflect your business health. They give anyone a good perspective on the company’s assets, liabilities, shareholder equity and a perspective on the financial position. This allows you find out the differences between what is owned versus what is owed. Knowing how to properly read a balance sheet is going to find financial issues early so you can plan knowing them and help your business thrive no matter of the circumstances.

Here are some points you should become familiarized with from you balance sheets:

  • Net worth — This is the grade-book of your business. If your business net worth is going down you should probably make some changes. If your net worth is going up you should keep doing what you have been doing so far.
  • Accounts payable — how much money do you owe others
  • Accounts receivable — how much money others owe you. This section could allow you to spot a bad client that is always late on his payments to you or someone who is owing to you a lot of money.
  • Inventory — this part should be treated with the respect it deserves. If you have too small inventory, you risk of not being able to fulfill your orders (dealing with angry customers is not always delightful), if you have too much you will have to pay more to deposits and the production cost will increase making your profit smaller.
  • Gross profit — sales of good or services minus the cost of goods or how much are you spending to make or buy item sold.
  • Operating expenses — how much it costs you to run your business without raw product materials cost. Here you have salaries, benefits, advertising, rent, utilities, depreciation and other operating costs. If the expenses are growing up quicker than gross profit, you have to take some actions. Cut costs somewhere or get more sales.

Knowing all these aspects of the balance sheet now you have a new perspective on your business. No matter how good is your accountant, he is only like a teacher in school. He get’s paid no matter if your business makes a profit or takes a loss. Develop a good relationship with your accountant and always ask about the key indicator presented above. If you want to see a detailed model of a Balance Sheet you can click here.

Give me six hours to chop down a tree and I will spend the first four sharpening the ax. ― Abraham Lincoln

4. How to create a proper income statement

The income statement is a report of revenues generated and expenses incurred by your business. In simpler words, how much you sold and how much you have to pay others (here are your employees also). It is also called profit and loss statement because the report shows either a profit or a loss of your business.

What does an Income Statement include?

First is your business name and the period the statement will analyze. The first category is titled Revenue. This included all the amounts earned from the sale of goods and services. Here we have a subcategory called Cost of Goods. Here you will find all the money you spend to produce or buy products. By subtracting the cost figure from the revenue figure you get Gross Profit.

Next category is Operating Expenses. Here you will discover all the expenses your business had in the period analyzed. Here you will also find Operating Income (the cost of administering your business). If you sum up the total operating expenses and subtract this figure from the Gross PRofit, you get the Operating Income figure.

Unless commitment is made, there are only promises and hopes; but no plans.― Peter F. Drucker

Photo by rawpixel on Unsplash

Next, you have to think about the Non-Operating Expenses. Here you will discover money spend on litigation, lawyers, and other expenses not directly tied to business administration. If we talked about Non-Operating Expenses, we have to mention Non-Operating Revenues as well. These are revenues indirectly related to your business administration. As an example here we will add revenues from interest rates. By subtracting Non-Operating Expenses from Non-Operating Revenues you get Non-Operating Income.

In order to help you better understand all the math presented in the example above, I found a model for you from my friends at QuickBooks. View it by clicking this link.

5. How does Cash Flow affect your business?

If you don’t know exactly where you’re going, how will you know when you get there? ― Steve Maraboli

Cash flow problems can kill businesses that might otherwise survive. According to a U.S. Bank study, 82 percent of business failures are due to poor cash management. Here are some of the biggest mistakes small business owners make when it comes up to Cash Flow:

  • Overestimating future sales volumes — here you have to be both pessimist and optimist in the same time. Is better to be pleasantly surprised by a larger than anticipated sales volume than to create too many products and to have 0 or negative cash flow.
  • Doing impulse spending in the startup phase — be sure to only pay money for things that give you a positive return on investment (spending money on marketing could be a good investment; buying an expensive company car would not make sense if you only use it to get to the office)
  • Being a nice guy about past-due receivables — this applies mostly to B2B business, but you can also encounter bad clients if you are not working with other businesses. If you aren’t active about collecting your payments, you could be on the way to a dangerous cash-flow problem. Develop a system that allows you to be very clear to your customers on when a bill has to be paid and what happens if that doesn’t happen. Have clear procedures and make sure you get your money.
  • Not budgeting your cash-flow — if you anticipate a large sale period coming up (let’s say like Christmas) you must have money prepared to increase your supply orders and make more products.
  • Not having a cushion of cash on hand — you never know what happens tomorrow in your life. In business is the same. Having some money put aside available when needed could help you survive difficult times in your business.

Now that you know all the things you have to do to be safe from cash-flow problems, let’s talk about the cash-low analysis. This is an examination of your company cash-flow inflows during a specific period. The analysis begins with a starting balance and generates and ending balance after accounting for all cash receipts and paid expenses during the period. The cash flow analysis is often used for financial reporting purposes. See also cash flow projection, cash flow forecast.

Someone’s sitting in the shade today because someone planted a tree a long time ago. ― Warren Buffett

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How to Make a Business Plan That Will Make You Money in Your Smallbiz was originally published in Marketing And Growth Hacking on Medium, where people are continuing the conversation by highlighting and responding to this story.

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