The best business ideas often come out of that moment of rebellion when the budding entrepreneur comes to the conclusion that “I could do that better myself”. All those ideas presented to the boss that were never acted upon; colleagues seen to be not pulling their weight but earning the same; watching the profits that are being made from ones efforts heading off in another direction. All these very common scenarios often act as the catalyst to starting a new business.
The great danger is to fall in love with the idea and rush in without thinking it through. This doesn’t mean writing a business plan immediately; important though it is that comes later. The first step is checking on prospective customers, are there enough buyers out there who want the product or service, enough times and at a high enough price to make the idea viable when the bills have been paid.
In short the business idea needs to be seriously challenged. How easy would it be for others to follow and become serious competition? How much competition is there now and how good are they? Is the world changing and the product may no longer be required? Who will be in charge the buyer or the seller? Too much dependence on a small number of big buyers can be very dangerous. Will the business be under the thumb of its suppliers who may be able to impose too many conditions?
If the first hurdle is cleared without mishap it’s time for the research to begin. To look at customers and their needs – who are they, how many are there, where are they?
- Customer behavior – how much they buy, how often and for how much?
- Competitors – who are they, where are they, what are their strengths and weaknesses?
- Costs – what are the direct costs that will occur if a sale takes place and the indirect costs that will be there whether a sales takes place or not?
Armed with this information it’s time to come up with some sales assumptions taking into account businesses tend to start off slowly and build up momentum with increasing sales but often experience peaks and troughs in demand that need to be built into the sales assumptions on a month by month basis.
The Business Plan
The business plan comes next, the narrative that explains the who, where, why, what, when and how of the first year in business. This is accompanied by the financial forecasts in the form of cash flow and projected profit and loss statements.
There are many styles that can be found on the internet but it is important to choose something fit for purpose. The 100 page plan is well over the top for simple one man or woman business but may be absolutely right for the new manufacturing business with plans to create 30 new jobs. There are three good reasons for preparing a detailed business plan: