The One Thing You Must Do Before Starting a Small Business – The Motley Fool

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by David Chang, ChFC®, CLU® | Published on Dec. 5, 2022
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So, you want to start a small business. Congratulations! This is a huge accomplishment. But before you get too ahead of yourself, there is one very important thing you must do first. No matter how great your business idea is, you won't get very far without a solid plan. After starting numerous businesses (with many failures and some successes), I have learned how important a business plan is. It's essential for any new business, as it gives you a roadmap to follow and keeps you accountable as you work to grow your company.
When starting a business, nobody thinks they are going to fail. But chances are there will be many obstacles along the way. Your business plan helps you navigate through those obstacles. Creating a business plan doesn't have to be complicated or time-consuming, however. You have access to free resources, such as the Small Business Administration (SBA), to help you with your business plan as well as market research. Also, you don't have to do it perfectly the first time. It is a dynamic, living document that you will need to continually adjust. In addition, if you plan to get a loan or investors, they will typically require a business plan to consider your business for financing. Here's what you need to include in your business plan.
An executive summary is a brief overview of your business plan. It should include your company's mission statement, a description of products or services you're offering, and your target market. The executive summary is often the most important part of your business plan, as it gives investors and lenders a snapshot of your company and its potential for growth. Think of this as your elevator pitch.
Your company description should include an overview of your business, your products or services, and your target market. This is your chance to sell investors on your business idea and convince them that you have a viable company.
Your products and services section should give a detailed description of what you're offering and how it will benefit your customers. Be sure to include any unique features or selling points that will set you apart from the competition. You want to show how your business differs from others.
Your market analysis should include information about your target market, including demographic information, buying habits, and growth potential. This section will help investors understand who your customers are and whether there's a demand for your product or service. This is often one aspect that many business startups fail to get a good understanding on. Ultimately, you want to know how big your market is. Is it growing and sustainable? Who is your competition? Is the market saturated? No matter how great your idea is, it will be tough to succeed if your target market is shrinking rapidly.
Your marketing and sales strategy should outline how you plan to reach your target market and generate sales. Be sure to include information on your pricing strategy, promotional activities, and distribution channels. I have seen it countless times. Entrepreneurs believe that people will flock to their business automatically. Unfortunately, with the average person bombarded with so much information, it will take a planned and concerted effort to make people aware of your brand. I have found from personal experience that "word of mouth" alone isn't enough to take your business to the next level.
Your financial plan should include your startup costs, your operating expenses, and your sales projections. This section will help you with your cash flow. It also gives investors a clear idea of how much money you'll need to get your business off the ground and how you expect to generate revenue. Many entrepreneurs are focused on their idea and tend to overlook the bookkeeping and accounting components of their business. The number one reason businesses fail is they run out of money. Your financial plan will help you make every dollar count.
By including these key components in your business plan, you'll give yourself the best chance for success as you start your new small business. Writing a business plan isn't as hard as you think. The return on your investment on time spent writing one is substantial — according to Wave Financial, entrepreneurs who had a business plan grew their businesses 30% faster than those without one. As mentioned earlier, you can visit your local SBA branch for free help on writing your business plan.

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David S. Chang, ChFC®, CLU® is an award-winning entrepreneur and financial planner with over two decades of experience in the personal finance space. He is a graduate of West Point and a Lieutenant Colonel in the Army National Guard. He has an MBA from the UCLA Anderson School of Management.
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