Do you have a small business idea? What next?
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While some business ideas turn into reality and flourish beyond the entrepreneur’s wildest dreams, others do not. What makes a successful business start up? Entrepreneurs take different paths to nurture their ideas and transform them into successful businesses. In one conversation I had with an entrepreneur, she compared her business to a newborn baby. When she decided on what business to pursue, it felt as if she was expecting. As such, she decided to reference her prenatal activities and thoughts in context of her business. Business development classes (prenatal classes), consultations with experts in similar businesses (doctor appointments), business membership associations (mothers community groups), company and product brand names (baby names) and so on. By so doing, she followed systematic steps towards developing her business idea into a business plan and ultimately implementing a successful small business.
Once you have identified your business idea, research your industry to better understand your product and its potential market. Creating a strong business plan is your next step. Keep in mind that this plan is an invaluable tool to market your business and is often required when presenting your business to funders. Consider attending a small business development program to help you develop a business plan with professional guidance. In Toronto, the Rotman School of Management runs the Small Business Program for Regent Park & Neighbouring Communities, which assists entrepreneurs to convert their business ideas into business plans. This month-long evening program targets entrepreneurs with a practical business idea, who reside in target areas including Regent Park, Moss Park and St. James Town and other neighbouring communities. Other available programs include The Business Abilities Program, Youth Employment Services and the Toronto Business Development Centre - BIZ Futures program . There are also many online resources to assist aspiring entrepreneurs in creating business plans.
Business plan formats may vary depending on the type of business and the target audience for your plan. However, the content should provide the reader with details on:
• Your business and the idea: What do you do? How do you do it? For who?
• Your market: Who is buying? Why do they buy? Who else offers similar products/services?
• Your products/services: What are you selling? At what price? Why is it better than others?
• Your abilities to offer these products/services: Your skills and experiences.
• Your expected income over the next year from gross sales and other income.
• Your expected business costs over the next year. These may include raw materials, labour, insurance, gasoline, utilities, business rent, credit card payments, loan payments etc.
• Your business assets (Examples: Materials, inventory, equipment, furniture, vehicles, accounts receivable etc.) and business liabilities/debts (Examples: Leased vehicles, accounts payable, existing loans, credit card debt etc.)
• Your financing need. How much will you will personally invest in your business (in kind and directly)? How much will you need to borrow? What will the financing be used for? (Examples: purchasing inventory, working capital, equipment, etc.)
By answering these questions, you will be able to:
(i) Understand your market: Knowing your customers and competition will help you position your business for success. You will identify the strengths, weaknesses, opportunities, and threats that exist for your new venture.
(ii) Identify gaps in your financing needs: Determine if you require external financing to start your business. Useful financial information that can be extracted from your business plan analysis includes: net worth (assets minus liabilities), cash position (money coming in minus money flowing out) and the breakeven point (the point at which your business generates sufficient sales to pay off its costs).
After identifying financing gaps, your next step is to explore funding options for your business. Among the financing sources to consider are personal savings, funding from family and friends and financing (such as loans) from financial institutions. Research the options: What are the interest rates, available loan amounts and loan terms? Also, remember to maintain a healthy debt level – your business income should be sufficient to cover the business costs and loan instalments.
A financing resource often overlooked in Canada is microfinance – the provision of financial services (i.e. loans, savings, and insurance products) to individuals who are unable to access mainstream bank financing. Organisations providing microfinance services base their lending decision on the character of the entrepreneur, the potential for the business, collateral (items or assets used to secure a loan) and the ability of the entrepreneur to repay the loan. A number of microfinance organisations exist throughout Canada. Some target specific groups such as women, aboriginal communities, people with disabilities and new immigrants, while other programs provide services to larger demographics. Rise Asset Development is an Ontario based microfinance organization that works with entrepreneurs with a history of mental health and/or addiction challenges. As mentioned earlier, a business plan is often a prerequisite for a financing request – another motivation for you to dedicate time in developing a strong and convincing proposal.
Remember that a business plan is a process which should be constantly updated and adapted. This implies that from the onset of developing it, you should start testing your product, albeit on a small scale. During this time, you can evaluate your business to determine what works (and what doesn’t) and remain flexible to adapt to the market. By testing your product and creating a roadmap for your venture, you can successfully convert your small business idea into a viable business.