So You Want to Run Your Own Business – Part 3

Annual Planning

If you are reading this, then I failed in my attempts to scare you off. That is good. That means you have decided to run your own business and have thought long and hard about if you can do it or not. Now it’s time to get to work.

Everyone knows that the first step to running your own business is to make a business plan, right?

Wrong.

Your first step is to do your annual planning. How is that different than a business plan? You got me. It isn’t. The difference is how you think about it. Formal business plans have very little value in the micro-business arena. Annual planning, on the other hand, is your formalized process of taking a step back and looking at your business from the 30,000 foot level. Creating a “business plan” is simply the first time you do this annual planning. In this article, I am going to describe what you should be doing, not only before you start start your business, but every single year.

In fact, you should be looking at pieces of this several times a year, but we won’t get into that now. For now, let’s do our first pass in your business plan. In this article, I will use the terms “annual planning” and “business plan” interchangeably.

Big Picture AKA Strategic Planning

The big picture part of your annual planning can, and should, look very different every year. Sometimes you will want to spend time defining core values. Other times, you will be looking in detail at how you are filling an unmet need. Sometimes it is purely a selfish description of what you want out of life. Most often it is a combination of all these things. Here are the major ideas you want to cover:

Vision Statement, Mission Statement, Value Proposition

These typically don’t have numbers. This is where you start talking about what your business is all about. Write a vision statement to describe what it is you want to do or be. A mission statement is how you will do it.

The most critical piece is your value proposition. This needs to be reviewed at least once a year, if not more often. This defines what makes you special or different. If you can’t describe a clear and concise value proposition, then stop. Do not pass GO. Do not collect $200. You do NOT have a business idea. At best, you are creating your own job.

Here are some questions that will help you get started with this piece of the planning:

  • What do you want your business to do?
  • How do you want to do it?
  • What will it look like when you accomplish those things?
  • Who is your ideal client?
  • What does your ideal business look like?
  • Why are you in business?
  • What is the unmet need you are fulfilling, or what need will you meet better (or cheaper)?

Goal Setting

Goals have numbers but not necessarily researched or supported numbers. This is where you get to make things up. I want to have 10% net profit by year end, I want to have 50 customers by June, or I want to make $100,000 this year are all great examples of goals.

Goals should also be set on several different time frames. This can vary with your business, so do what seems the most appropriate. You should always have one year goals. But depending on the pace of change in your business and how quickly you want to grow you might have 2, 3, and 5 year goals. Or you might have 3, 5 and 10 year goals. Goals beyond 10 years are typically not useful. For goals beyond that point, you are creating your exit strategy. This is another key piece. When is enough enough? When will you be done? How will you profit from your business? How will you exit it? (You can’t work forever!)

The Details AKA Tactical Planning

These items need to have hard numbers supported with research and calculation. They break down into just a few major areas: Marketing, Competitive Analysis, Operations, and Financials.

Marketing

Define your market. I’m not sure how to describe this other than to list all the questions you should be able to answer:

  • Who is your target customer?
  • How do you reach them?
  • Why are they your target customer?
  • Why will they want to buy your product?
  • Why will they pay what you are asking for your product?
  • How will you deliver that product?
  • How will they know about your product?
  • What will your sales cycle look like?
  • How will your prices change over time?

Competitive Analysis

The free market can be a scary beast. As Tyler Durden once said, “You are not a beautiful or unique snowflake!” If you can do it, someone else can too. You need to have as much information on who else is running businesses similar to yours. If you think you can do something better or different than them, why aren’t they doing it that way? Maybe there is a reason you didn’t think of!

Operations Plans

Your operations plan is very simple in concept and very difficult in execution. This is the one area that is the most neglected. How will you create your product and deliver it to customers? Simple concept, but the devil is in the details.

You need to consider scale, and your operations need to tie to your budget. If you expect, say, $200,000 of sales, how many units is that? Will you be able to produce that many? You would be shocked how many business plans I see where the targeted sales means the owner has to BILL 70 hours a week. Even if you can bill that much, you cannot do that and have a successful business. You have to have time for administration, marketing, etc.

I like to tell people to create a draft of their operations manual before the start. Like any good plan, it won’t survive “contact with the enemy.” But the exercise is invaluable. You also need to understand operations on an ongoing basis. How will you supervise staff? When will you know that you need to hire? What will they do, exactly, when you hire them? How your operations will look will also change over time. How will they look when you start? A year from now? Three years from now?

Budgets & Financials

Understanding the numbers is also a critical early step. You need to have a budget for your company AND for you personally. Remember, salary is what you earn for working. Profit is what you receive for being the owner. If you have no profit after paying yourself a salary, then you didn’t create a business, you created a job. I like to keep it simple. After you make your personal budget, your salary should be enough to cover those basic numbers. You should also have profit after that salary is taken out. That profit is how you build wealth.

This is one area where research is important. Do NOT guess at numbers. Pull up your bank statements and look at how much you actually spend. Call your future vendors and get quotes on what it will cost to operate your business. Your first year plan needs to include how you will use start-up funds and how much cash you will need to operate before you get to positive cash flow. Each year, you need to review the prior year’s numbers and redraft your budget for the upcoming year.

There are obviously a million details to doing this entire planning process correctly and well. But it would take a book to cover all the ins and outs. I hope this article will at least make sure you have all the major pieces in place and will get you thinking about some of the parts that you would not have considered.


Other articles in the So You Want To Run Your Own Business series:

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