I had lunch recently with one
of those consummate entrepreneurs. He had just authored a book and one of the
features in it was a template for the development of a business plan.
It is my belief, and his, that planning is an essential to business success, as well. GMS Talent L P recently surveyed over 400 business-owners asking their opinion about the reasons for business failure and two reasons were at the very top: ineffective or no planning and ineffective or poor leadership.
Like those surveyed, my entrepreneur friend and I are consistent in our belief in the value of planning, before you begin. You may be wrong in your assumptions or misguided in your objectives when you plan ahead of time but you do have a place to begin that seems right and you have some goals and milestones along the way to measure your progress toward your goal. Here are eight steps every entrepreneur should take before he/she starts their business:
1. Estimate the market for your product, are there 5 people who would likely buy from you or 500 million? Bigger is usually better.
2. What percent of your market can you capture, with relative ease, in the first year, third year and fifth year? “Relative ease” means without spending megabucks!
3. If you were successful in capturing your estimated market share, how much revenue would that mean for your business? Be realistic!
4. Given that amount of revenue, what would be the Gross Profit for your business given those revenues (sales)? Gross Profit = Sales – Cost of Goods Sold (GP=S-COGs). More Gross Profit is almost always better.
5. Estimate Expenses (what costs you incur to produce the product, sell it and service it i.e. rent, telephone bill, etc. but most importantly, the people you will need) Less is more, here. Think this part through carefully. Is it important for you to look successful or be successful?
6. Decide how your will grow sales. Develop a plan within a plan. Decide what you believe you will need to do and the kind of people you will need to do it. This may be the most critical piece to your plan because it likely determines both sales and expenses. I.e. good people cost money but poor people cost more money. Selecting you team to help reach your goal is pivotal to success or unsuccess. Hire people better than yourself! You may want to receive our Ebook, Make the Next Hire Your Best Hire. just email us at email@example.com, put “Free Hiring Book” in the subject line and send it off. We will return the book to you within 24 hours.
7. Compute the Profits before Taxes, month-by-month and year-by-year because that is the most important part. Profit is what determines the money you will put in your pocket and whether your business will be successful. Profit Before Taxes = Sales – Cost of Goods – Expenses. Big is better!
8. Compute Profit After Taxes. Don’t forget the taxes which are dependent upon how our business is organized (Proprietorship, Partnership, Sub-Chapter S, LLC or Corporation) and where it is located (different states have different tax rates). This is what you can buy groceries with. A lot is good!
There you have what I call the “Essential Eight” steps to Entrepreneurial Success Planning. Following these eight steps will not guarantee success in your next business venture but they will bring you a lot closer to it.