So you’ve decided to make the leap and after all these years of being “Mr. Fixer-upper” you realize it’s time to let those handy-man skills start truly paying for themselves. Plus, you think the idea of having a business card with your name as owner is pretty darn awesome. So you’re actually going to start, or legalize, your business and you’re really excited, but what exactly do you need to do to make that happen? Well there are lots of steps and things to consider but first and foremost, you need to lay some groundwork for the future. It’s hard to find a new destination with absolutely no directions, map or GPS and setting out on a business venture is very much like this. If you are hoping to end up at the intersection of profit and success, you need to know the exact way to get there and an invaluable guide to reaching those goals is a business plan. A business plan in no way will guarantee that you’ll never have any issues and that what you think is a great idea now won’t change in 6 months or 6 years down the road but it’s a great place to outline the direction you’d like to see your business take plus can help you think through some issues on the front-end that could be much more problematic if they arise unexpectedly.
Luckily for you, our buddy “Pete” is in the process of writing up a business plan and has agreed to let us peek over his shoulder as he goes through the steps. Pete has been doing little side jobs here and there for years but is ready to be his own boss and step up his earning potential. Pete has successfully completed the steps of becoming a licensed general contractor and is now ready to start building his home-remodeling business from the ground-up.
Initial things to consider…
Pete will be undertaking this venture by himself, but it’s important to know at the very beginning how your ownership will be structured. Will you have a partner or co-owner? Will you be the “sole proprietor” listed on all formal documents but have a spouse, sibling, or friend who you share all of the major decisions and responsibilities with “off-the-books”? Obviously if more than one owner/partner is involved, the major issues are usually responsibility, power and division of earnings. It’s understood that sometimes relationships just don’t work out, whether personal or business, so the decisions you make today can obviously change tomorrow, but making it perfectly clear who does what and who owns what at the beginning of a business’s life can greatly reduce the chances of issues or upset later.
It might seem petty or even funny, but another major decision is the name of your business. Maybe you want something catchy or witty, maybe you just want something simple, or maybe you’ll simply use your name, which is what Pete will be doing. Either way, make sure this is something you’re comfortable saying many times a day and being represented by. Not to be pessimistic but also consider that if you will be sharing the ownership with another person and both of your names are involved in the business’s name/title, if there were an issue someday, it could mean lots of extra legwork to get their name removed, plus the added embarrassment of having to potentially change logos, cards, materials, or simply explain it to customers. This is obviously a worst-case scenario but bear these things in mind.
Pete has been squirreling away money for several years with this possibility in mind and has a nice chunk of change to purchase a few extra tools and a designated work truck. If however, you need a little help from a bank, investor, or well-to-do friend a business plan is a crucial tool to proving your case for funds. Banks will almost always require a well-written and thought-out business plan to help them decide whether or not your business is credible, you truly understand the risks and necessary steps of operating it, and to determine your abilities as a manager. Any private investor or financier who is responsible and of good business-mind will also want to see your detailed plans for the future, because honestly, who enjoys loaning money to a friend or family-member and then being taken-advantage of or not getting repaid?
Designing a detailed plan…
Since these crucial steps are out of the way, Pete is ready to dig into finer details of business planning. Since he is much more comfortable with blueprints than business plans, he has asked a friend with years of banking experience to help him draft and finalize his plan. There are plenty of online guides and templates available if you’d like to complete this yourself or you could ask a friend or even attorney. There is no specific formula for the length or detail of a business plan but you would do yourself a favor to really think it through and cover all aspects possible, as opposed to sketching out a few lines of notes on the back of a napkin. There are also several organizations available to help small businesses or entrepreneurs as they start a business. The U.S. Small Business Administration would obviously be the biggest and most credible of these, with lots of online resources and guidance to local assistance, but there might be other smaller, more locally-based organizations in your area as well if you simply check into it. Don’t be afraid to ask for help, especially from people who are willing to help and have first-hand experience with what you’re going through.
Pete’s banking buddy explained to him that most business plans will deal with the short-term future, generally planning for the upcoming 3-5 years. The overall goals of a business plan are to outline what the company will do, how they will do it, who they will be competing against, how to advertise or promote their business, and the structure or organization of the business itself. A well designed business plan will have easy to read and understand sections that address all of these issues in an organized manner. The Small Business Administration has very helpful resources that explain easy ways to design, organize, and explain your content, as well as an actual step-by-step tool that helps draft the plan itself.
Whether you plan to have a very formal plan with details down to the type of nails you prefer and where you’ll buy them or a broader overview, there are a few topics that rank a bit higher on the priority list of things to consider and outline. As previously mentioned, management and organization are crucial to discuss and plan for. Pete will be making all decisions and handling all the day-to-day responsibilities himself, so this makes things a bit easier for him. If you will be working with someone else make sure the roles and responsibilities are clearly defined for your benefit, as well as that of the other partner and the understanding of any investors. No one will probably have to remind you that making money is of utmost importance so another crucial consideration is income, profit potential, and how much you might need to get your business off the ground. Banks in particular will be highly interested in your reasoning for how much you need to borrow and how you’ll manage it once it’s loaned. They also will want to know more detail about what areas or markets you’ll serve, how you’ll set yourself apart from and compete with other businesses of a similar nature, and the projections you can offer for future income and growth potential.
Pete was also encouraged to consider how he’ll “get the word out” about his business and services. Many old-school craftsmen might overlook this consideration but it’s important to remember that a business with no customers can’t succeed, no matter how great their product or services. While designing your business plan, it’s important to think on these things and outline what methods of advertising will be best for you. Obviously in contracting, there’s an undeniable benefit to word-of-mouth referrals so encourage any clients to speak highly of you and your skills when you complete a job to their satisfaction (you might even consider a referral bonus or discount.) Will you have a website featuring pictures of your handiwork? Will you advertise in local papers or publications? Are you or will you become involved in local business organizations such as the Better Business Bureau, the Chamber of Commerce, or a builders organization? These are all important things to consider and detail in your plan.
After a couple of revisions, Pete and his friend feel confident in the business plan they have produced. Consider printing and putting together a couple of copies, one for more easier access and frequent reference, and one to be kept in a safe or protected area. Consider including permits, contracts, licenses, and other official documents in this copy so you’ll always have a central location for relevant documents. You might also need or be required to leave a copy with an investor or bank so plan for that as well.
It might seem a bit tedious at the beginning and if you are like Pete, you might have grumbled a bit about having to spend that much time thinking and writing, but the most successful business people realize that planning and preparation greatly increase your chances of success, no matter the industry. It’s guaranteed you’ll thank yourself later if you take the little extra time and attention required to hammer down the details before you start hammering down the nails.