Starting a Small Business
Introduction Thinking about starting your own business is both exciting and scary. One of the objectives of this guide to help you sustain the feelings of excitement and dispel some of the fear. Starting a new business is a daunting task for the typical entrepreneur. Often there are so many questions and unknowns that they cloud the business vision and concept, convincing the budding entrepreneur to give up the idea prematurely. The purpose of this book is to provide both basic business information and a process for applying business principles in an orderly, understandable way. This guide has two goals:
* Teach you what you need to know and do to start a small business. * Teach you how to develop a basic business plan.
These are not unrelated goals. You can't write a viable business plan without having some basic business knowledge. At the same time, you need a business plan to validate your business concept and to provide a road map for the first six to twelve months. In using this guide, you will see that basic business issues are discussed in a systematic manner. The data and decisions resulting from a discussion of these issues are directly transferable to a business plan format, thereby "killing two birds with one stone". If this guide is successful in helping you achieve these goals, you will be in a better position to determine the desirability of proceeding with your business initiative.
The Guide has Four Parts
This guide is divided into four Parts. It is designed to lead you progressively through three levels of business analysis and planning before finalizing the business plan in Part 4. Each of the first three levels has a different purpose and a different level of detail - from less to more. The topics within each group also have a synergy - they relate closely and are usually dependent upon each other. They are designed to provide a concentrated view of an important aspect of the business. Let's preview each of the four parts and the tools we use to establish order and relationships. Then you will understand how the guide is structured and how to benefit from each step in the process.
Part I: Business Concept - A High-Level View We start the process by describing the broad basic characteristics of the business using a one-page Concept Model composed of five topics:
1. Fundamental business concept 2. Market opportunity 3. Legal form and ownership of the business 4. Owner's goals 5. Strategies that will drive attainment of the goals
Completion of the Concept Model confirms that you have a well thought-out and documented high-level view of the business and that you are ready to move to the next step. Inability to complete this model suggests that you may still have basic research or decision-making tasks to complete. When the Concept Model is completed, you may be surprised at how well it describes your target business. Also, do not be surprised if your view of the business opportunity changes somewhat as you drive down the level of detail in the subsequent models. As you will see later, the topics covered in the Concept Model are directly transferable to the business plan.
Part II: Business Niche - A Mid-Level View
The purpose of the Niche Model is to focus on the five core elements of all businesses and establish their specific characteristics for your business. These five elements are alluded to in the Concept Model. This is the opportunity to define them in more detail and make sure you fully understand their relationships.
The five elements of the Niche Model are: 1. Your products and services 2. Your ideal customer profiles 3. Basis for your pricing policy 4. Your competition and competitive edge 5. Your marketing, advertising and sales approach
The Niche Model is the tool that forces you to consider these five elements individually, and in relationship to each other. They establish an important business context. The elements must be fully understood and balanced with each other to produce an effective business configuration. In fact, you may need to complete more than one version of the model to capture different product/service and customer profile variations. Information from this model transfers directly to sections of the business plan.
Part III: Business Financials - A Detailed View The greatest level of detail always occurs in the financial projections. Financial projections require that planned business activities be converted into detailed monthly projections for a two or three-year period. The validity of these financial projections is dependent upon the accuracy of the assumptions used in their preparation. That is the reason that financial projections are the final phase in the business planning sequence. You need the source information from the Concept Model and the Niche Model to create the assumptions that underlie the financial projections. Too often in planning, the financial projections are completed first and the business is forced into that financial mold. Later someone wonders why things didn't turn out as projected. Making financial projections is always risky. It is even more risky if it is not based on sound facts and assumptions.
The Financial Model contains the following five types of information: 1. Sales projections by product/service, price and volume 2. Gross Income 3. Cost of Goods 4. Expenses 5. Net Profit (or Loss) Other essential financial reports are also covered, including Startup Expenses, Balance Sheet and the Cash Flow Statement.
Part IV: Business Plan - The TechServ Story A fictitious small business is used to illustrate application of the various elements of the planning process. The business, named TechServ, LLC, is introduced in Chapter 1. The three planning models and other financial reports for this business are populated at the appropriate points. Part IV contains a sample business plan for TechServ that was created from the information extracted from these worksheets. This sample demonstrates how easy it is to extrapolate worksheet data into a comprehensive business plan.
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