Roadmap for how to start or expand a small business.

Although each business is unique, there is a common list of tasks that need to be performed.  We have tried to make this information applicable to all businesses, but there are differences in production businesses and service businesses.

Some of these tasks are * Tollgates that if not completed prevent you from going any further down the path.

Greater Bridgeport SCORE 471 counselors have expertise in all of these special areas that may help you identify possibilities for your business.

Defining Your Product/Service (Tollgate) 

This is one of the hardest questions you have to answer. If you cannot answer this question, no one will give you money for your product/service, buy your product/service, distribute, advertise, or stock it.  If you can’t put a description of your product/service on paper you can’t communicate or advertise it. 

Writing a Business Plan (Tollgate)

A business plan is a critical tollgate, a formal document that presents what you have learned about your product and market in a generally recognized business format that everybody easily understands.  The Business Plan is your Bible about your business. It compares results with expectations and can identify weaknesses and point out opportunities. It is also required if you apply for loans or seek private investment.  All of your estimates need to be documented and formalized, including the cost of insurance, accountants, taxes and attorneys for setting up the business.

   

 

Developing a Marketing Plan (Tollgate)

A marketing plan is the best way to convince yourself and others how many of your product you can sell at a given  price.  Remember, you are starting with zero sales and have to come up with a plan to let the correct people know you have the product/service and convince them they should pay that price for it.  You need to have a way to advertise your product to potential customers

  

Pricing Your Product/Service

Your product price has to reflect your total cost plus your profit. Can you reasonably sell enough to make your required profit?  This involves a repetitive process of estimating price and volume and cost. If your first estimates do not show the needed profit, do some more research on the market and recalculate. If your assumptions do not show the target profit, go back to the beginning. If they do, it’s time to start spending your money. Of course there is no guarantee that you will make the expected profit and get your money back. 

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Estimating Cost

Cost is one of the most important facts you need to know at all times, and your cost changes with time.  The cost of the product includes direct costs of materials, labor and benefits and indirect costs such as electricity, water, and taxes. It also includes administrative costs for managers, lawyers, and accountants, as well as your salary.  As you learn more about your future business, costs always seem to go up.

  

Estimating Profit

Profit is the only reason to go into business.  Profit is the revenue received as a result of total sales income minus the total product cost.  It is usually expressed as a percentage of sales.  Your total profit has to be greater than the interest you can earn on safe investments like a bank account, or there is no reason for you and/or your investor(s) to invest

 

Time Phase Cash Flow

 This is an integral piece of the Business Plan. No business can operate without cash. Cash flow predictions can show when you’re going to receive a salary and/or income from this business.  How long can you operate without income or maintain your life style? Blend these estimates into your business plan for the most reasonable implementation plan for starting up your business. 

 

Time Phase Sales Plan

Assuming your initial estimates of your sales are correct but then your sales increase at twice the rate you anticipated or at half the rate in your plan, the Time Phase Sales Plan outlines the steps you would you take to correct your time phase production plan (see below).  

  

Time Phase Production Plan 

Unexpected changes in production requirements call for urgent action. It is normally easier to increase production than to decrease production profitably.  You can lease or buy more equipment and/or handle operations manually versus automatically at the beginning. Decreases call for reductions of a different nature. 

It is your responsibility to keep production and sales in reasonable alignment to maintain your business. Higher sales than production leads to frustrated customers and unmet needs and lost profit. Higher production than sales leads to high inventory and high expenses without income to pay them. 

 

Test Marketing

Build a few products or provide the service at your planned price to a few strangers. Remember, most of your customers will be strangers, not friends.  How many people that you tried to market to did not buy and why?  What did the purchasers have in common?  This is a reality test. Review all the above steps to improve the results if you can. 

If nobody wants the product at a price you can afford to produce and sell it, you do not have a business. 

 

Beating the competition

What do you know about the market for your product?  If you know little or have no experience, we strongly suggest you go and work in that market; it’s better to learn on other people’s money than yours.

Getting Ready to Start

Once you get the loan, the clock starts and loan interest and payments begin, so get a jump-start.  Interview the required experts in advance. Be certain you are in alignment with them so that you can move quickly upon getting financing. Hire an accountant to set up your books and budget and to help you with federal, state and city tax reports and payments.  Next, hire a lawyer to legally set up your company and to choose the form of business that is best for you.  Pass all major contracts, leases and purchases through your lawyer and accountant for their comments and recommendations.  You could lose your business and money with ONE bad contract. 

 

Securing Loans

No commercial institution will give you a loan without seeing a thoroughly thought out, realistic business plan.  Most financial institutions will require that you have 20% to 50% of your own money in the business.  Your percentage can be in the form of collateral such as your home, car, or any real property that has value to the lender. 

 

Protecting Your Product

You should decide how easy/difficult it would be for another company to duplicate your product. Then you should consider what steps are needed to reduce the risk additional competition would create. There are 4 ways to protect your product: Patent, and copyright, trademark and trade secrets. Seek expert advice if this is a major area of risk. 

 

Packaging

Consider how fragile your product is and how important the appearance is to your future markets. Besides protecting your product during shipment, packaging is the only “sales person” you have in mass merchandising channels.  Packaging artwork is expensive and time consuming and must be prepared early. 

  

Targeting Customers

Who is your target customer? It takes time to produce good advertisements and distribute your product through the correct channels to reach the potential customers you want to target for your business.  Broad-brush ads are expensive and will not reach many of your targeted customers.  Targeted ads cost less and have a higher chance of getting more sales per dollars spent.  

 

Finding Employees

Good employees are hard to find so you have to start early. Try to get individuals who know the business or who have skills that complement your knowledge. You will be very heavily involved with setting up the business, payroll deductions for taxes, insurance, benefits, etc. Your employees must keep the production going. 

 

Insurance

You need to consider the types of insurance for your business: fire, theft, and liability, as well as life and health insurance for you and/or your employees. 

 

Planning Your Opening Day

Plan to have your market/sales plan in full force on your opening day.  Get as much free advertisement as possible on your opening day by doing something newsworthy.  Have everything working, clean, neat and ready for business. FIRST IMPRESSIONS ARE CRUCIAL.  Word-of-mouth is still the most effective form of advertisement. Invite everybody you have ever met during this start up period and try to draw people off the street, if appropriate. 

Going For The Long Run

The first few months of a business are full of doubts that anybody really wants your product or service.  This is one of the main reasons for the Business Plan—to anticipate the problems and know what they mean and what to do about them. 

 

Expanding Your Business

A few years after you start the business you may want to grow it. There are two distinct problems: One is “how to grow sales” and the other is “how to grow production capability.” 

Writing an Expansion Business Plan (Tollgate)

This is like the original business plan except sales and production start at your current level and include your most recent year of history.  It is rare that expansion is just doing more of the same, so you should review, update and rethink your original assumptions. 

Growing Sales

The first step in growing sales is to find out who your present customers are and why they are buying your product.  You can then either target more of them, or expand your business to target additional different customers.  

Growing Production

The first step in growing sales is to find out who your present customers are and why they are buying your product.  You can then either target more of them, or expand your business to target additional different customers.  

 

SCORE^®

Service Corps of Retired Executives can provide you with help and consultation all along the path at no cost to you. SCORE is a nonprofit association of more than 10,500 volunteers.  Members are experienced business experts who provide general business advice on everything from writing a business plan, to managing cash flow, and developing a small business advisory board.  As retired or current business owners, business executives or operations managers, SCORE counselors bring to the table real-world experiences.