I recently received a request from a reader to write a post on business planning. While I could write it, business planning is not really my specialty. So I asked an expert, Charles McCaffrey, Director of the Small Business Development Center at Community Business Partnership (CBP). CBP is a resource for small business owners, and they provide counseling and classes for businesses at all stages of development. One of their signature classes is the NxLevel business plan writing class, which I highly recommend for all business owners, new and existing. It will help you think about your business in new and effective ways.

So why do you need a business plan? I’ll let Charles answer that question.
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There are a lot of misconceptions about business plans floating around the small business community.

Most notable is the belief that you only need a written business plan if you are seeking outside funding such as a bank loan. It is my belief – based on years of working with small businesses – that you need a business plan regardless of the phase of your business (start-up, growth, expansion or maturity).

The business planning process should serve as your opportunity to educate yourself on the fundamentals of starting and running a business, as well as to create a roadmap for launching and growing your particular endeavor. It should include 5 key functions:

1. Understanding Your industry. Every industry has guidelines for conducting business. I work with a lot of would-be federal government contractors who need to learn the processes for registration and small business certification, as well as the government budgeting and procurement processes – in addition to understanding how to operate a contracting business. It takes on average 18 to 24 months to land that first contract – are you prepared to cover those business development costs while generating little to no revenue? There are others who have gone before you and navigated the pitfalls of starting a similar business. Seek them out and learn from them – they make excellent collaborators and teaming partners.

2. Identifying Your Ideal Client (Your Market). Not everyone needs what you are selling. The key is to identify that segment of the population who not only need your product or service, but who are willing to pay for it. There is a lot of market data available online, but your best source of information comes from potential clients. Get away from the computer and talk to them about your idea. Ask questions – don’t try to sell. Your satisfied clients will become your best marketing resource – word of mouth is 10 times more likely to generate new clients!

3. Refining Your Business Idea. Whatever your initial idea, it is likely to change as you research your industry and your market. This is a good thing – it means you are being responsive to your clients’ needs. Chances are you are selling a commodity – meaning a product/service that has many providers. You need to identify what makes your product/service unique, to tell a story that resonates with your potential clients and to deliver this message in the marketing medium (direct mail, TV commercials or social media) that reaches them. The narrower your market focus, the easier it is to reach them with a valuable message.

4. Understanding Your Business Economics. Business operations are generally based on revenue drivers (the number of product/service offerings), margins (the difference between price and cost) and volume (the number of products/services sold). If you are selling cupcakes (a single revenue driver) then you are operating on narrow margins. You need to sell a lot of these tasty treats in order to make a profit. Is your operation set-up for such volume and is your marketing strategy generating enough customers? And do you really want to be making cupcakes every day for the next several years?

5. Calculating Your Financials and Identifying Funding Options. Most businesses fail because they underestimate costs or fail to understand cash flow. It generally costs twice as much to get started and takes twice as long to start generating adequate revenue as you initially forecasted. And despite advertising to the contrary, most traditional lenders are hesitant to provide funding for first time start-up businesses without substantial collateral and great credit. SBA guarantee loans can help, but you will need a solid business plan. Otherwise, you will have to start with your own cash, or consider micro-loans, crowdfunding or other funding sources.

The question you have to repeatedly ask yourself during this process is if this plan is feasible for you – given the resources at hand? If your plan requires substantial start-up capital, and you are cash short and/or credit poor, then you will need to scale back your start-up goals. For example: if you want a retail storefront but cannot afford the start-up costs – you may consider online sales, renting a pop-up space or even teaming with an existing business. Successful businesses do not start whole, they are built over time.

It is important to remember that you are not alone in the business planning process. The Small Business Administration has nationwide resource partners – including Women’s Business Centers, Small Business Development Centers, SCORE Chapters and Veterans Business Outreach Centers – that provide training and counseling services to help you start and grow. To find the resource nearest you, visit https://www.sba.gov/tools/local-assistance.

Charles W. McCaffrey is a Director of the Small Business Development Center at Community Business Partnership located in Springfield, VA. He can be reached at Charles@cbponline.org.
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Thank you, Charles! If you have any questions, please feel free to leave them in the comments. He’s happy to write follow up posts, if needed.

Speaking of future posts, I’m on vacation next week, so there will be no blog post. When I get back, I’ll finish up the social media roles series.