Business Plan for Starting an SMB

How to Start a Business

# Research
# What do I Want to Sell?
# The Next Step
# Who Will My Customers Be?
# Who Are My Competitors?
# Where Should I Locate?
# How Do I Finance My Business?
# Programs and Incentives for Minority and Women-Owned Small Businesses
# The Business Plan

Research

Research is for your business what the four food groups are for your body: it is fuel; it is nourishment; it is essential for health and growth. Before starting a business, the entrepreneur needs to prepare a business plan. Before preparing a business plan, the entrepreneur needs to do a little homework, otherwise known as research. Research provides the "what," "where," and "how much" that every business owner needs to know to be successful. Keep up with your homework, and the whole process of starting and running a business will go much more smoothly. Your research will also create the foundation for all financial projections that you will make related to your business. Do a thorough job conducting your research and you will create a sound foundation for your future financial projections and for the future health of your business.

What? Where? How Much?

The first thing an entrepreneur needs to determine before starting a business is:

What do I Want to Sell?

Look at your interests, your past experience, your skills. For example, if you spend your weekends taking car engines apart and putting them back together, perhaps you could operate a successful auto repair shop. If your whole family raves about your cooking, you may want to consider opening a catering business. If you have a knack for creating beautiful flower arrangements, consider becoming a florist.

If you need help coming up with ideas for your business, you may want to visit your local library. Ask the librarian for assistance in finding a helpful book or magazine.

Here are some ideas for books :

201 Great Ideas for Your Small Business: Revised & Updated Edition
by Jane Applegate

Turn Your Talents into Profits: 100+ Terrific Ideas for Starting
Your Own Home-Based Microbusiness
by Darcie Sanders and Martha Bullen

What Color is Your Parachute
by Richard Nelson Bolles

The 100 Best Businesses for the 21st Century
by Gregg Ramsay and Lisa Rogak

The Next Step

Once you know what you want to sell, the next step is finding out as much as you can about your chosen business. Skipping this step is like building a brick house without mortar. The research you complete here will help you determine sales and income projections, the size of your market, and facts about your competition. In the United States, all types of businesses are classified with a number. This classification system is called the North American Industry Classification System, or NAICS. Formerly it was known as the Standard Industrial Classification (SIC) system. The NAICS classifies 1,170 industries, of which 565 are service-based. It is very specific in its classification. For example, a search using the word "food" produced forty-three matches, ranging from "Food Service Contractors" (number 722310) to "Food Machinery Repair and Maintenance Services" (number 811310). Each match is broken down even further. Select "Food Service Contractors" and the classification is broken down into seven more specific categories ranging from "Airline Food Service Contractors" to "Industrial Caterers." For more information about NAICS codes, visit the Small Business Administration site's relevant pages: http://www.sba.gov/size/indexsize.html#Introduction.

To find out the classification number for your business, go to the U.S. Census Bureau's web site ( http://www.census.gov/epcd/naics/framesrc.htm). You will be prompted to enter a word related to your business. For example, if you want to manufacture garden furniture, you could enter "garden." From the list of businesses with "garden" in the description, there are three related to "garden furniture." Once you know the NAICS number assigned to your business, you will be able to find out a lot of information about your specific industry.

To find out more about your industry once you know your NAICS number, go to the part of the Census site that contains data from the economic census (http://www.census.gov/epcd/ec97/us/US000.HTM. On this page, you can find information such as the number of retail trade establishments in your area. At the top right-hand side of the page, there will be a drop-down box from which you can select a location in which you are interested. Then once the data appears, click on the arrow located on the far left in the row next to the category in which you are interested. Clicking this arrow will make your search more specific. Continue clicking the arrow until the industry you are interested in appears.

Who Will My Customers Be?

Once you know what product or service you want to sell, you will want to find out who will buy it. Years of experience may have given you an excellent idea of who your customers will be. For example, if you are opening a shop that sells designer wallpaper, you may know that your customers have higher incomes and own their own homes. If you don't really know who might be interested in what you are selling, do some homework. In both cases, once you have a general idea about your customers, you will want to find out their specific characteristics and where they can be found.

Decide what you know.

The first step of all research is to write down what you already know. So write down what you now know about your customer. The next step is to write down what you don't know. You know that the customers for your designer wallpaper shop have higher incomes and own their own homes. You don't know their age, their race, the neighborhoods they live in, their religion, their education level, etc. What might motivate them to buy your product? So make a list, and then find the answers to these questions.

How?

Determine what information is already available. Much of the information you seek is probably on-line, on this CD, in a book, in a magazine or in some other resource available through your local library. This information is called "secondary data."

If the information you need is not currently available, you can gather it yourself. If you're opening a designer wallpaper shop, stop by the designer wallpaper shop in the neighboring town and see what its customers look like.

Develop a brief survey and take it to an area of town where people who would purchase your product shop, live or congregate. Ask the questions on the survey to some of these people to gauge their interest in your shop.

Offer coupons for a discount in your store (once it opens) if they answer the questions. You may also direct your survey questions to people on a random basis.

Who Are My Competitors?

Before deciding where to locate your business, you will want to find out about your competitors. Who are they? How many are they? Where are they located? Although there are exceptions, you probably will not want to locate your small business close to someone who would be in direct competition with you.

Finding out as much as possible about your competitors will help you in many ways. You may be able to avoid mistakes they made. You will gain information that will help you with decisions about where to locate your business, what to charge for your products or services, and ways to advertise your business.

How do I find out about my competitors?

If you have completed research about your industry and about your customers, you have already done some of the necessary homework for finding out about your competitors. Industry research will let you know, for instance, how many other businesses like yours are operating within your city or county. Customer research will guide you to where your potential customers are shopping and why. As part of your competitor research, you may want to ask potential customers survey questions geared to discover information about the competition. If they currently use products or services like yours, where are they buying them? What are they paying for them? What do they like and dislike about your competition?

Once your industry and customer research guides you to who your competitors are, visit their web sites (if they have one). You can learn a lot from a visit to your competitors' web sites. For instance, they may have information about prices, services, locations and contact information. The look and features of the web site itself will give you an idea of your competitor's professionalism and possibly his or her resources as well.

After visiting web sites, you may want to call your competitors directly to find out more about them. Ask the kinds of questions a customer would: questions about the prices they charge, the types of products and services they sell, turnaround time for service, etc. If your competitor has a shop, visit it for ideas about products and advertising.

Another way to find out about your competitors is to talk to other business owners who have had dealings with them. What kind-of service did they provide? What were the pros and cons of working with them?

Where Should I Locate My Business?

Congratulations. If you have conducted research on your industry, your potential customers and your competitors, you have completed much of the homework you should do before deciding where to locate your business. For instance, if you find out from your research that your customers are only willing to travel fifteen miles out of their way to visit your shop, you will want to open it close to a neighborhood where many prospective customers live. If you are opening a donut shop, you will probably want to make sure you do not open on the same street as a nationally known donut shop.

Additional things to consider when deciding on a location include taxes, laws and permits, roads and facilities, incentives that might be offered to new businesses, access to interstates, availability of warehousing, and complimentary businesses located nearby.

For instance, a shop selling wedding dresses might do well located close to a bakery selling wedding cakes. Another consideration is the cost of operating in a certain area related to the benefit. For example, perhaps your business does not need to be located in a high-rent mall. Keep in mind alternative locations for businesses.

One such alternative is a business incubator. Incubators provide clients access to rental space and flexible leases, shared basic business services and equipment, technology support services and assistance in obtaining the financing necessary for company growth. To find a business incubator near you, go to http://www.sbtdc.org/services/incubators.pdf.

And, of course, many choose to run their small businesses from home. If you decide to operate from home, make sure you will be able to meet any city, county and/or state regulations related to running your particular home-based business.

How Do I Finance My Business?

You have a great idea for your business and you have found the best place to locate it. You know who will buy your product or service and you know who your competitors are. But starting and running your business is going to take cash, possibly a lot of cash.

Working capital, otherwise known as cash, is the oxygen that keeps your business breathing. Without enough working capital, your business' vital functions will fail. It won't be able to meet its daily requirements for living, such as purchasing supplies, paying rent, and paying salaries. In a word, before creating your business, make sure you will have enough money to keep it alive. The NX Level Guide for Business Start-ups (February 2002 by the Community College Workforce Alliance) states that inadequate capital is the most common reason given for the high failure rate of small businesses.

Where are you going to find the funds to start and run your business successfully?

There are several steps to take to ensure that your business will have enough capital to start and continue running.

1) Complete your Business Plan

The Business Plan includes a section about Financial Matters. Within this section, you will tabulate financial data and projections related to your business.

The Financial Plan portion of the Business Plan includes: a) Start-up Expenses; b) An Estimate of Future Sales; c) Estimated Cost of Units Sold; d) Fixed and Variable Expenses; e) Cash Flow Projections (very important); and f) A Break-Even Analysis.

2) Determine how much capital you will need to start your business and to keep it running.

Based on the estimated projections contained within your Business Plan, you will be able to determine how much money you will need, both to start your business, and to keep it humming.

3) Determine how much cash you have available through personal sources that you are willing and able to use to fuel your business.

Personal sources include: savings accounts, insurance policies, stock and other investments, second mortgages, and donations from friends and relatives. Note: You will probably need to provide at least 20% of what you need from personal funds if the needed funds are coming from a bank.

4) Figure out how much money you will need for the business after you have contributed all of the personal funds that you are able and willing to contribute.

5) Find a source for the remaining needed funds. Other sources include:

a. Debt . Debt is a loan made to you or your business. Sources of debt lending include banks, credit unions, federal lending programs and state financing programs.

b. Equity . Equity is ownership rights and privileges in your business that you give away in return for capital. Businesses seeking this type of financing must become a Partnership, Corporation or Limited Liability Company.

c. Alternative Funding . Alternative means of funding include: suppliers who provide concessions, such as extended payment periods and discounts; and grants.
*note: Grants, for the most part are only available for non-profit organizations.

6) Prepare a written Financing Proposal.

The Financing Proposal is used to secure loans and equity financing. Before preparing the Financing Proposal, complete the Financial Plan portion of the Business Plan. This section of the Business Plan will contain much of the information and data you will need for the Financing Proposal.

The Financing Proposal contains the following:
a) Cover Letter
b) Summary (contains the purpose of the financing, amount and terms requested, how the funds will be repaid, and collateral)
c) Details on how the capital invested or loaned will be used;
d) Details on Collateral (if seeking a secured debt
e) Information on the financial return for investors (if seeking equity financing); and
f) Your prepared Business Plan (Financial data and projections are particularly important).

If you follow the steps above, you will equip your business with the cash it needs to breathe, both at its creation, and into what will hopefully be a long life.

Programs and Incentives for Minority and Women-Owned Small Businesses

Minority and women-owned small businesses face unique challenges. Fortunately, there are many programs geared to help them meet these challenges and succeed.

What is a Minority Business Enterprise?

The United States Small Business Administration (SBA) defines the demographic group that includes minorities as "socially disadvantaged" and defines that description within its website as:

"Socially disadvantaged individuals are those who have been subjected to racial or ethnic prejudice or cultural bias because of their identity as members of a group. Social disadvantage must stem from circumstances beyond their control. In the absence of evidence to the contrary, individuals who are members of the following designated groups are presumed to be socially disadvantaged:

Black Americans;
Hispanic Americans;
Native Americans (American Indians, Eskimos, Aleuts, and Native Hawaiians);
Asian Pacific Americans (persons with origins from Japan, China, the Philippines, Vietnam, Korea, Samoa, Guam, U.S. Trust Territory of the Pacific Islands (Republic of Palau), Commonwealth of the Northern Mariana Islands, Laos, Cambodia (Kampuchea), Taiwan; Burma, Thailand, Malaysia, Indonesia, Singapore, Brunei, Republic of the Marshall Islands, Federated States of Micronesia, Macao, Hong Kong, Fiji, Tonga, Kiribati, Tuvalu, or Nauru; Subcontinent Asian Americans (persons with origins from India, Pakistan, Bangladesh, Sri Lanka, Bhutan, the Maldives Islands or Nepal); and
Members of other groups designated by the SBA."

The SBA 8(a) Business Development web site lists the following benefits of the 8(a) program:

Participants can receive sole-source contracts, up to a ceiling of $3 million for goods and services and $5 million for manufacturing. While SBA helps 8(a) firms build their competitive and institutional know-how, the agency also encourages them to participate in competitive acquisitions.
Federal acquisition policies encourage Federal agencies to award a certain percentage of their contracts to SDBs. To speed up the award process, the SBA has signed Memorandums of Understanding (MOUs) with 25 Federal agencies allowing them to contract directly with certified 8(a) firms.
Recent changes permit 8(a) firms to form joint ventures and teams to bid on contracts. This enhances the ability of 8(a) firms to perform larger prime contracts and overcome the effects of contract bundling, the combining of two or more contracts together into one large contract.

The Business Plan

You will be able to use much of the research you have completed when compiling and writing your business plan. The business plan is the blueprint or map for your business. Compare starting your business to going on a vacation. Your vacation will go much more smoothly with a plan. What week is best for the whole family to be away from home? Where do you want to go? How will you get there? Do you need a reservation? Will you have enough money for the trip? Without putting forethought into the trip, you might never leave your driveway. It's the same with starting a business. In order to have the best chance of a smooth and successful venture, do some homework, consisting of research, analysis and planning.

A business plan greatly increases your odds of success. This CD is designed to make the creation of your business plan easier. If you would like to get started right now on your business plan, continue reading if you would like to analyze the research you have just completed.

Resource: North Carolina Small Business Center Network

How to Start a Business