Write Your Business Story
Crafting the story of your business can be an exciting process. You are moving forward, taking your notes and turning them into a thoughtful plan that will help you turn your dream into a reality. Your business plan doesn’t have to be long, but it should help you clearly explain your business idea to others.
What is a Business Plan?
A business plan helps you and others answer basic questions about how your business will operate. Pulling your business plan together will motivate you to research the questions you don’t have answers to. It will also encourage you to think through your ideas and look at them critically. A well thought out business plan can help you avoid costly mistakes and prepare you to meet the challenges ahead.
Your business is more likely to succeed when you prepare, are patient, persistent, and have passion. Don’t be intimidated. You can begin your business plan by answering the following questions, then use this information as a springboard for writing a complete business plan.
Ultimately, your business plan will become the key instrument for communicating your plans to associates, bankers, employees, and others who may play a role in your business.
A business plan needs to be in writing and will evolve as your business grows. Think of your business plan as a living document that will continue to develop. You may want to write it in pencil because it will keep changing.
The information you collect here is an essential part of starting a business. Some questions, such as creating a business name, are fun. Others demand factual information. If you cannot answer a question, you need to do more research.
Describe Your Business
Imagine you are telling someone about your business idea. Naturally, the first detail is what type of business you plan to start, so you must be able to describe your business.
- What is your mission or purpose?
- What will you call your business?
You will begin to form your business identity with a name. Consider the following when you name your business:
- Does it clearly describe your business? Is it vague or confusing? Will your customers know instantly what your business does?
- Is it easy to spell and pronounce? Does it use real or made-up words?
- Is it easy to remember? Is it too long?
- Could it possibly have any negative connotations, embarrassing misspellings or abbreviations, or possibly offensive undertones?
- Will your business name distinguish you from competitors? Be sure you are not accidentally implying an association with organizations or people with whom your business is not connected. Can you stand behind what your business name promises? For example, could you live up to a name such as Perfect Every Time Catering?
- If, in the future, you wanted to sell the business, could a new owner assume the name? For example, would a new owner want to run Bob’s Sports and Stuff, or would a business without a personal name involved — such as Good Sports — be more appealing?
- What product are you going to sell or what service will you be providing?
- Why is it needed? Can you make customers’ lives easier? Save them time? Make their lives more comfortable or safer?
- How qualified are you to provide this service?
- Why will it be successful? What are the pitfalls of this business?
- What does it take to make the product or deliver the service? What supplies do you need?
- What specialized skills, training or experience do you have that others may not?
- When will your business open?
- Who is your backup if you are ill, out of town or have an emergency?
- Will you rent or buy office space or create office space at your home?
- Will you need space to manufacture a product? Will you need distribution and warehouse space? Where will it be? How big of a facility will you need?
Describe the Market
No matter how good your product or service might be, you must have customers who are willing to buy it or use it. Do you know whether consumers will want or benefit from your business? To determine this, answer the following questions:
- Are people willing to pay for your product or service? How much? Will customers save money or spend more by using your product or service?
- How did you arrive at the cost of your product or service? Will you make a profit?
- Who are your competitors? What makes you different from them? What makes you better than them? Besides offering better prices, in what other ways can you compete with or be better than your competitors?
- Who are your customers? What are their demographics: age, educational level, income level, etc.?
- How will you reach your customers/clients? How will people or businesses who need your product or service hear about you and find you?
- Will you have a client base or core customers immediately? Are they really committed to using your product or service?
Describe Your Financial Plan
It takes money to start any business. How do you know if you have enough to go into business and still pay your bills? Answering these questions can help:
- How will you pay for your business start-up? Will you work a second job? Do you have money in savings? Are you planning to borrow from a bank or credit union?
- Will others be investing in your business? How will they be repaid, and how long will it take to you repay them?
- What do you expect to earn? How much will it cost to run your business? What financial alternatives do you have if your business doesn’t generate enough revenue?
Describe Your Business Management Plan
How will you run your business on a day-to-day basis? Especially if you will be working another job while starting your business, you need to consider how much time and how many employees you can devote to your business. Consider these questions:
- Are you the only employee of your business?
- Does your background/business experience help you in this business? Are you physically suited to this job? Will you need training or licensing?
- What will your office hours be?
- If you will have staff, what are your staff personnel policies and procedures?
- What is your policy regarding refunds and returns?
What if You Want to Buy an Existing Business?
What if your dream is not to start a business, but to take the opportunity to buy an existing business that seems like something you would enjoy and that would be profitable? Are you hoping to buy a business that is already doing well and gain its income, or are you hoping to buy a business’ client list?
Buying a business can be more expensive than starting a business from scratch because you are paying for some of the fundamental resources that are already in place, such as the business concept, customer base and branding.
You will still need a business plan, because you need to determine your vision for how you want your business to grow. You will need to research the business you want to buy and research how much it is worth. The Small Business Administration offers guidelines for anyone who is considering buying a business. To learn more, go to http://www.sba.gov/smallbusinessplanner/start/buyabusiness/index.html.
Doing research and writing a business plan takes time and work, but a well-crafted plan will help you have realistic expectations about what running a business will require. Getting out of a business that you don’t like or that is failing can take you six months or longer. Preparation can give you a better chance of opening a business that will endure.
If you are interested in buying an existing business, you will need to gather as much information as you can about the overall health of the business before you buy it. Asking the right questions and thoroughly researching the business can empower you to get the best purchase price and the information you need so you can buy, and run, a successful business. As you ask questions and review the data, keep your emotions in check. If a business you want to buy proves not to be the good deal you believed it would be, you need to walk away and wait for the right investment.
Because you are going to ask for a great deal of information, tell the seller of the business that you will sign a confidentiality agreement. The information the business owner gives you should only be used to determine whether you will purchase the business and for what price. You cannot use the information you gain through this review process to start a competing business, or you will find yourself in legal trouble.
First, do you know why the current owner is selling this business?
Does the reason he or she gives you for selling seem reasonable and honest?
Is there any way you can verify what the seller is telling you about why the business is for sale? Check with the Better Business Bureau (BBB) or Consumer Services Division in your state to find out whether any complaints have been filed against the business you want to buy.
Ask for the business’ profit and loss statement for the past three years. Insist on obtaining the business owner’s tax returns for those same three years. Have your accountant compare the profit and loss statements and tax returns. Both are essential, because figures may have been manipulated on unaudited financial statements. Do not settle for one or the other; insist on getting both the three years of tax returns and three years of profit and loss statements.
Ask for a detailed list of all equipment, inventory and supplies being sold with the business. These will probably be separate lists or schedules. Go into the business and physically inspect everything on the lists. You need to know how old the equipment is that you are purchasing. Is the inventory in good shape? Are all supplies accounted for, or is the seller just giving you an estimate? How is the seller determining the price he or she is asking for the equipment, inventory and supplies? Are you purchasing vehicles that belong to the business? What is the current book value of the vehicles, and does that figure compare to how the seller is valuing the vehicles? If large equipment and vehicles are included in the cost of the business, always ask for the year, make, model and serial numbers of each. Your accountant will need to put these items on a depreciation schedule for tax purposes.
Is the building and land also for sale, or are those leased? If they are leased, find out whether the lease is assumable and/or transferable to you. Can the building be remodeled? Does the lease specify who pays for repairs? Who is responsible for increases in taxes and insurance? If the building is for sale, find out if there are any liens against the building.
Is the client list for sale? Ask to see the list of all the customers who have purchased from the company in the last 12 months so you have a clear idea of who the business’ consistent, recent customers are. Purchasing a customer list is often referred to as purchasing “blue sky.” If you buy the client list, keep in mind there is no guarantee that the business’ current customers will purchase from you if you own the business.
Insist on a business appraisal. This will cost the seller money, but you do not want to purchase a business without one. A business appraisal can help you determine the value of the business and may help you avoid paying more than the business is worth when you buy it.
Will you be assuming the Accounts Receivables? This is the money that customers currently owe the business. Will the seller have rights to the current receivables? How current are the receivables? Ask for an aged accounts receivables report. This report will show if the receivables are 30, 60, 90 or more days old. Receivables that are more than 60 days old are difficult to collect. You do not want to pay full price for those receivables.
Will you be assuming the Accounts Payables? This is the money the business currently owes its vendors. If the seller is responsible for the payables but doesn’t pay them, how will this affect the business’ reputation? If you are responsible for the payables, what income will you have to pay them with? Are there any other liabilities that are attached to any equipment, or are there liens against any equipment?
Are there any outstanding taxes that need to be paid? These could include sales/use tax, payroll taxes, property taxes, excise taxes, or possibly city, state or federal taxes. If the seller does not pay the taxes, the new owner of the business will be responsible for them. Do you have enough income if you are faced with a tax bill right away?
Ask to see the projected cash flow. What is the business’ projected income for the next year? Why is it higher or lower than past years? Your potential income and success in business will depend on the financial health of the business now, as well as new ideas you bring to the business when you run it.
Will the seller train you to run the business? Will he or she remain for 60, 90 or 120 days to help you? Do you want the seller’s help? Do you have experience with this type of business? If not, do you need the seller to stay for a longer period of time? No two people run a business the same way. Do you want to implement lots of new ideas, or run the business in much the same way as the seller?
When you and your accountant have reviewed all the business’ documents, building, land and inventory and you have decided you want to buy the business, you must have a contract drawn up detailing the terms of the sale. Have both your attorney and accountant review the contract. Make sure it covers all of the issues mentioned above. If the business includes a building and land for sale, those should be in a separate contract. If something should happen to the business, you want the ability to keep the building and land and sell it if necessary. If your accountant or attorney advises you not to sign the contract, take his advice and have him explain why you should not proceed. You are paying your accountant and attorney to help you and protect you, so you must take their recommendations seriously, no matter how much you may want to buy a business.
Jerome bought an ice cream parlor, a business he was determined to own. Before he bought the business, he did some research, but he did not insist on gaining access to all the financial information he needed. He asked for three years of profit and loss statements and three years of the seller’s tax returns. He only received the profit and loss statements. He never received the tax forms. Jerome and the seller agreed upon a price, and Jerome purchased the business. However, while he was running the ice cream parlor, Jerome never was able to achieve the sales the seller showed on his profit and loss statements. Jerome decided that adding some capital would resolve his business problems, so he took out a mortgage on his house. Despite the extra capital, Jerome’s business was not making enough money. Jerome cut back expenses where he could, but he was still unable to make the business succeed. Jerome was going deeper and deeper in debt.
Finally, Jerome went to an attorney, and they filed a lawsuit against the seller. In court, it was proven that the seller manipulated the figures in the financial statements he gave Jerome. He was never as successful as he led Jerome to believe. Jerome won the lawsuit, and the seller had to buy back the ice cream parlor. However, Jerome also lost. The seller did not have to replace all the money Jerome put into the business after the sale. Jerome ended up losing his home as a consequence of all the debt he incurred while in business. Jerome regrets not insisting on three years of tax returns as well as the profit and loss statements. If Jerome had accurate information about the ice cream parlor, he would have invested in a different business.
What About Work-From-Home Ads?
Maybe you’re a young mother who wants to earn extra money for your family by working at home, or perhaps you want a home-based business so you can be your own boss without the cost of a building or storefront. Choose carefully when selecting a home-based business. If an ad promising you a big salary while you work from home tempts you to start a business, do your research. Check out the company advertising the work-from-home business before you pay the company any money.
According to the Federal Trade Commission (FTC), scam artists attract people looking for home-based businesses with false promises of high earnings for little effort. The FTC suggests that you check with the Better Business Bureau (BBB) in the state where the company is based. If you are unable to find a physical location where the business is headquartered, be wary. You can also try to research the company online. Go to Google.com, type in the business name followed by the word “scam” and see what results show up. Unfortunately, many people send money to these types of companies but never hear from the companies and never receive a refund for the money they send.
Even worse, some people who answer these home-based business ads fall victim to scams involving criminal activity. Beware of any business that wants you to reship goods. Often, the goods reshipped are stolen.
However, if you are careful to research the business you want to start, you can run a successful home-based business.
“Whenever you see a successful business, someone once made a courageous decision.” -- Peter F. Drucker, author and management consultant
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