Nathan said:
Alright, I'm currently in the process of writing an business plan.
So of course I've got a couple of questions.
First, how many of you wrote a business plan when you started out?
Second, did you use any software or templates to help out or did you start from scratch?
Last, how details was your business plan? I'm looking at some of these plans and they are as long as books!
I purchased Busienss Plan Pro 2004 today and I'll tell you how it goes. Theres a lot of information to enter in but it does a good job of holding your hand.
Before I started my business, I figured out that the money I would need was in significant excess of what I had available, so finding lendors or investors was going to be a key step. No-one will either invest or lend unless there's a solid business plan showing your projections 3 years out. I was fortunate to have an acquaintance who worked with several start-ups, and my 10-page business plan quickly grew to almost 50 pages (about half spreadsheets), as I was pushed to detail out my assumptions. The "final" plan was ripped apart by two experienced businessmen, who poked holes in a lot of assumptions. However, the end result was that I knew my numbers cold, from market breakdown, to number and value of sales, to my direct and indirect costs, etc. It also pointed out to me, very forcefully, that had I gone ahead with the original approach, I would have been financially dead within a year.
Despite all the preparation, one key thing to keep in mind is that the business plan is like a battle plan - few survive the first encounter with the enemy. Until you actually do it, you never really know which assumptions are good and which ones not. Sometimes even the best advice is wrong, so you have to always be aware of what's actually going on. Are your costs within budget? Is your marketing giving you the expected amount of return? Is your closing rate higher or lower than originally estimated? If you have staff, are they performing in line with your expectations? A good plan is one where you can still survive if almost everything that can go wrong, will. As you learn, you need to update the business plan, redo the numbers, and see in which direction the business is evolving. Since every starting enterpreneur ends up doing almost everything, you need to work out several key indicators which you can figure out without a lot of number-crunching, to see if you're on track.
While each business is different, some measures come to mind: How much does it cost you to get each sale (that's out-of-pocket marketing costs, plus your time, plus all the expenses you need to incur to get sale, plus any commissions)? What does your current ratio look like (current assets divided by current liabilities)? What is your profit margin (gross revenues less direct costs)? What's your break-even revenue (where gross profits covers overhead)?
In our business, we've figured out that we've got to sell X squares each week to stay in business. Above that number, we're in the money, below that - we're passing bricks. If we think about expanding the overhead, we divide the prospective cost by the gross profit, and see how much more the sales have to increase to pay for the new overhead. From our business plan, we also know the absolute lowest gross profit margin we need to remain in business, and every bid is checked to see that we're comfortably above that. Without a business plan, none of these numbers would be very obvious or clear.
