Creating a Money-Making Business Plan

In my experience (at least with the small businesses I’ve worked with), a business plan is often considered an “unimportant” waste of time, and many small business owners forego creating one.  The truth, however, is that a Business Plan can be incredibly beneficial for a business.  Not only can a business plan create a “Guide” for a company and its employees, but a good plan can also be taken to the bank in order to try and raise funding for a small business.  It can attract investors as well, and it can help focus a business owner’s vision in order to make the business as profitable as possible.

While there are tons of business plan models on the internet today, I can’t help but want to throw my own cap into the ring as well.  There are the business plans that a lot of general businesses use to satisfy mentors (or spouses), and then there are the types of business plans I’ve worked on, the type that big businesses pay tens of thousands of dollars (and hundreds of thousands) of dollars before they ever so much as sign a rental-lease agreement.

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The difference between a “General” Business Plan and a Business Plan that Makes Money comes down to one very important thing…Research.

When a small business owner includes research into a business plan, they are showing banks and investors that they are not going into a business venture blind.  A well-researched business plan shows forethought, logic, and realistic thinking.

Therefore, to create a business plan that will help raise money, a business should include the following elements in their business plan:

  1. The Mission Statement: In Bookkeeping Money-Saving Tip # 15: The Mission Statement, I discussed the importance of having a Mission Statement.  It is just as important to put that Mission Statement into the Business Plan.  Consider it the “Sales Pitch” of the Business that basically tells an investor the Business’s main goal.
  2. An Introduction:  The introduction is a fairly simple concept.  You create a page or two (or three) about the basic business concept.  What is the business selling?  If there is a location, where will that location be?  Will the business have an inventory  and if yes, where will that inventory be kept?
  3. Demographics:  Demographics are an excellent option to add to a business plan because it exhibits that you know who your ideal, targeted customers are and who they can be.  The demographics can help a business see where they should be focusing their marketing dollars, and how to theme their business to attract those ideal clients instead of creating a business that tries to “attract everyone.”  (Read Paint a Target on Your Customers for more information on how to do your own demographic analysis.)                                                             teamwork 2
  4. Competition Analysis:  You know the expression, “Keep your friends close, but your enemies closer”?  This expression is just as true in business as it is in life.  You should know what your enemies (ie, your competition) are doing in their businesses, because every choice they make could potentially harm or help your own business.  Therefore, creating a section that lists ALL of your local competition, as well as what products they are selling (that you may or may not sell as well) and what prices those products are marked at.  The more you know your competition, the more you will be able to create a business model that grinds theirs into the dust (should that be your wish).  Either way, it shows investors that you have a strategy to stay afloat despite what your competition is doing.
  5. CompassLocation Analysis:  A large majority of businesses draw their customers from within 10 miles of their location…TEN MILES. However, the more unique that business and its products are, the farther distance a customer is willing to travel in order to buy what that business is selling.  On the flip side, the less unique a business and its products are, the smaller the distance a customer is willing to travel to make a purchase.  For example – Disneyland has a very unique product; people are willing to fly from all over the world to experience the unique product that Disneyland offers (and that no one has been able to yet duplicate).  Another example – Souvenir shops.  Souvenir shops all sell the same products, and they all try to rent space where the tourists are.  The end result, tourists have so much choice on what souvenirs to buy and where to buy them, they don’t need to go far from their hotels to get what they want.  (In fact, they often buy from within the hotel).  So, in order to create a competent location analysis, you need to include the demographics and competition within YOUR 10-mile radius.  (You can read more about Location Analysis in my article entitled:  BOOKKEEPING MONEY-SAVING TIP #4: Analyze Your Business Location.)
  6. Marketing Plan: At this point, you should know your competition AND your customers, so you should have a pretty good idea how you can target your marketing campaign directly to your ideal customers.  Let your investors know as well.  Include a section just about marketing.
  7. The Dollars and Cents:  No investor is ever going to invest in a business that looks as if it is going to fold its doors as soon as it opens (unless that business is a non-profit).  Investors want to know that a business is going to make money and that they will recoup their initial deposit.  Therefore, the dollars and cents is one of the most important things to include in the Business Plan.  If the business is already open, then bankers would ask for a “Profit and Loss” Statement, as well as a “Balance Sheet.”  But whether the business is in operation or not, another excellent idea to include is the “Pro Formas” or basic monetary projections.  You can create a Budget and include it Graph line: up and down 1in the dollars and cents section, and you can project from that budget how you plan to make more money (or save money).  Calculate Budgets with Low Income-Expense Projections, Mid Range Income-Expense Projections, and High Income-Expense Projections.  That way, the investors will know that the business will still say afloat even in “Hard Economic Times.”
  8. An Executive Summary: The Executive Summary is basically the bare minimum summary of what the business has created plans to accomplish.  It takes the main points from each section, and presents them in a direct manner.  The Executive Summary is basically your “In Conclusion” statement, however, this summary is going to go at the BEGINNING of your Business Plan.  Most investors never really read past the Executive Summary (unless there is something in the Executive Summary that doesn’t make sense), so in essence, the Executive Summary can be the main section that makes or breaks your business plan’s goal:  to raise capital.   Therefore, make sure your Executive Summary has ALL the main items you want an investor to know, and put it right after your Business Plan’s Introduction.  Consider the rest a guide for the business and backup for the more thorough investors.

While I cannot guarantee that this business plan format will raise capital (after all, there are many other factors that investors take into account besides the business plan), I will say that a well written business plan can tip funding in a business owner’s favor.  You really have nothing to lose by creating a thorough, well-researched business plan – but you do have everything to gain.

The SpongeBob SquarePants School of Business

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Okay, I have a confession to make:  I am a Mom.  Even worse, I am a Mom with a Toddler.  What that means is that as a “Mom with a Toddler,” I know all the words to “Elmo’s World.”  I also know how to “Do the Pigeon” and that “C is for Cookie” (which is good enough for me).  I know how to read Dora’s map, and I know Hannah Montana’s true identity.

What’s more… I know “who lives in a Pineapple under the sea.”

Why do I know these things, you may wonder?

Well, as any Moms with Toddlers will tell you, having a toddler means having some cartoon playing over and over and over again on the TV.  For a mom, that means no matter how much you try ignore your children or their shows, bits of information tend to sneak into your subconscious until suddenly you’ve realized that you’ve been singing “Absorbent and Yellow and Porous is he…” for the past hour without realizing it.

Which brings me to today’s blog lesson direct from The SpongeBob SquarePants School of Business…

What the Heck Am I Talking About…(Right?)

(Okay, there’s really no such thing as The SpongeBob SquarePants School of Business, but there may as well be.  After all, children all over the world are watching this show and learning from this energetically peppy cartoon.)

Recently, my toddler was watching all 99 episodes of SpongeBob for about the 50th time (give or take a dozen), and I mind-numbingly found myself watching one of the many, many episodes.  Actually, to be precise, I found myself watching Episode 88 (Episode 9 from Season 5) entitled “The Krusty Sponge.”  And as I watched this particular episode, I realized that it was quite brilliant in the very simple business advice it was offering.

The Premise

imageTo give a quick background on “The Krusty Sponge” episode, the mini-story starts when “The Krusty Krab” receives a visit from a food critic.  (The Krusty Krab is the restaurant SpongeBob works at as a “Fry Cook”).  The food critic in the story proceeded to trash everything about “The Krusty Krab” saying it was absolutely terrible…except for the food and the fry cook (SpongeBob).  The food critic then went on to say that if the owner of “The Krusty Krab” was smart, he would “sponge up” as much of what his cook had to offer as possible.

Thus, as cartoon’s tend to do, the business owner (ie, Mr. Krabs) took the advice to heart and went “way too far.”   Mr. Krabs pulled down “The Krusty Krab” sign and replaced it with a sign saying “The Krusty Krab.”  He then added in two new flavors of SpongeBob-themed condiments, a SpongeBob Mascot, a SpongeBob Train, SpongeBob napkins and even SpongeBob hamburger patties.

Eventually, all of these items backfired in a big way, and Mr. Krabs ended up getting arrested and brought before a judge for “poisoning his customers with the bad hamburger patties.”

The Lesson

Now, while I am a big advocate of using a theme in any business, of seeing the bigger picture and adding appropriate merchandise in order to increase profits, I could see right away where this business was about to get into trouble (even if it is only a cartoon business).  The big mistake that the business owner made in this situation was “taking his eyes off the prize.”  It is a common business mistake a lot of business owner’s make without realizing they are doing it.

Here’s what I mean:

imageIn the story, Mr. Krabs got so excited about his new SpongeBob theme, he made one really huge mistake.  He took SpongeBob off the grill and put him on the train.  (In other words, SpongeBob – the prized Fry Cook – was taken out of the kitchen in order to give “the kiddies” a ride on the new SpongeBob train…Mistake # 1.)  Then, Mr. Krabs gave SpongeBob’s kitchen duties to an employee who was unable to run the grill in the same way that SpongeBob could (Mistake # 2).  Finally Mistake # 3, Mr. Krabs sacrificed the quality of the one product that was praiseworthy – the product that brought the customers in.

imageObviously, I am bringing this up for a reason.  This is a common mistake a lot of business owners make in any business industry.  They see some exciting new trend coming along, and they re-vamp their business model to include the cool new product.  They forget about the one (or two or three) products that brought in the customers in the first place, and they end up weakening the overall business structure.  They take the advertising for their prized product and replace it with advertising for the new product.  This can have a negative effect in driving customers away instead of bringing them in – especially if the people looking for the Prized Product are not aware that the business still offers that Prized Product.

Examples

Just to really drive my point home, I will throw out some examples.

  • Imagine if McDonalds changed their fries to a new fry with the skin on.  Or, imagine if they used a different oil that changed the flavor of the fries.  Since McDonalds gives fries with every “Meal Deal,” and the fries are a part of their brand, it could go a long way in hurting their business.  People may start to go over to Burger King instead in order to get fries they are more used to.
  • Jim Carey switching from his classic comic bend to do a movie like “The Majestic.”  (In Hollywood, a move like that can kill an A-list actor’s career… luckily, Carey returned to his usual brand of comedy.)
  • Leonardo DiCaprio stepping back from the Romantic Hero role to pursue the Golden Globe and Oscar awards (meaning he went for the more dramatic and difficult to play roles).  While Leo remains an A-list actor, he no longer has the International Heart Throb status that he had after “Titanic.”
  • Eddie Murphy going from making R-rated movies to G-Rated movies.  It has completely changed the demographic of his customer base (ie, his fans).
  • Roller Derby in the 60’s went from racing and blocking to more violent hits.  Is it really a surprise that the sport died out by the 70’s?  I can honestly say, Roller Derby today is nothing like the original Roller Derby invented back in the 30’s.

Unfortunately, these are the only examples I can think of at the moment, but hopefully, it helps make my point clear.  Taking your eyes off the Prize of your business can really harm your business, or even drive away your clientele.  Learn from Mr. Krabs:  If you’re going to make a change in your business, keep your eyes on the prize.