Part 1 – Build a business plan based on the following eight components

Clearly outline answers to these points     

1. Does this product or service really (not maybe!) fill a market need? Just because you’re fanatical about something does not mean there are enough customers willing to buy the idea at a price that allows you to make a profit. Answer these questions: 1) Why do customers need this product? 2) Is it a necessity (soap) or a luxury (chocolate)? The answers to these questions lead to the second, critical question. 

2. Is the idea unique? This question has a number of straightforward yes/no answers. 1) Does this product/service exist in the market or if you’re already operating illustrate why it’s unique? 2) If it does exist can you deliver it to customers in a totally different way? A great example is DVD rentals positioned in convenience stores and at garage outlets. Many entrepreneurs fail because they believe they’ll do what’s already been done in a better way or by offering a better service. If that’s the case, let’s go to need number three. 

 

3. How will your product service be different? This question is critical because if it’s not 100% unique then the likelihood of success is much, much lower. Draw up a table of all the competitors in your market space and in tabulated format create the following headers: competitors, colour of logo, pay-off line, cost of product/s, marketing, sales methodology, key strengths, differentiators and invoicing. Take a long hard look at how your product/service is different. 

 

4a. Budget: revenue. Work out sales, then re-work at 75% and again at 50%. The 75% and 50% rule is absolutely imperative. You have to know the cash flow factor of selling 50% of your projections because this will be the difference between success and failure. Here’s an example. If you need R100 000 a month to break even and you sell R50 000, in six months you’ll be R300 000 short of cash. NOTE: Include answers to ‘What if’ questions such as a competitor entering the market or a sudden, bad recession.

 

4b. Budget: costs. Work out your costs, re-work them and finally work them again! Divide the costs model into two stages: the development stage (how many months it will take to get to market – this includes all preparatory work such as registering the business, renting a post box/premises, designing the product (in our case it was layouts of how Entrepreneur magazine would look and its sections), the sales plan, recruitment of staff, furniture etc. (this alone could take 2-3 months depending on staff size and notice periods required) and then work out 12 months of operation. Break the expenses into cost of production (COS) and overhead costs (OH). Get quotes for everything you will need to buy and have them fixed for 6 months. Remember to build in an increase of at least 8% for the second six months. 

 

4c. Budget: cash flow. Work out your cash flow. There are many cash flow models available and people to assist you. But here’s the golden rule. Your cash flow must indicate costs exactly as you’ll need to pay them (every 30 days – assuming you have negotiated 30-day terms) but with the total revenue reflecting collection in 33% batches at 30, 60 and 90 days. (NOTE: Any money collected ahead of this 33% spread schedule will result in an easing of cash flow.) 

 

5. Operational plan. Set out a document of who has to do what by when for all key aspects of the business. Be very specific and pay attention to detail. 

 

6. Sales plan. The sales plan must indicate who the driver is and their key duties. It must indicate the number of sales executives, their monthly targets (that must tie back to the budget), how they will be rewarded and, most importantly, how they will sell – from prospecting to closing the deal and to after sales service. 

 

7. Marketing plan. The marketing plan must indicate the objectives and goals, how you’ll market (advertising, promotions, etc) the mediums (own website, radio, etc) period (which months) and the budgeted cost. 

 

8. The people. Some say entrepreneurs are generalists. It does not matter what they say. What is important is that you have the following facets of the business 100% covered as a shortfall in any one will spell disaster; product/service delivery, sales, marketing and accounting.   

 

Source: Entrepreneur Magazine http://www.entrepreneurmag.co.za/