According to the Small Business Administration, one of the most common reasons for small business failure is lack of operating capital. If you are like most business owners, you probably do not have excessive amounts of capital to start a business, which can pose a dilemma to your company start-up plans. On the bright side, there is a solution. In order to raise the funds, you will need a business plan to help them secure operating capital.
Business plans are an important tool not only to securing operating capital but also to understanding the expenses you are likely to incur as your business operates. Once you decide to start a business, as the owner you need to have a firm understanding of the expenses you will need to operate on a monthly basis. The best way to prevent being underfunded is to create a budget for common ongoing expenses. Some of the most common expenses underestimated by a start-up business include rent, electric, phone, water, office supplies, employees, liability insurance, health insurance, cleaning, maintenance, inventory, accounting, and marketing.
As a business owner not only is it important to prepare an accurate budget for your business plan, you must also have realistic expectations on how much you expect to achieve in sales during your first six months. The number of employees, location of your business, and general market conditions will all have an impact on the number of people actually purchasing your good and services. This is especially true of a small business startup that doesn’t market or advertises, because customers are unaware that they exist or of their competitive strengths.
It often takes several months to a year to develop a committed customer base to help businesses break even. Too often people start a company and underestimate this factor. The truth is that you need to build awareness, trust, and credibility among your target market and that will not happen overnight. Most industry professionals recommended that you have a minimum of two months operating capital to cover your startup should it receive no sales. Having a two-month cushion is important because it allows business owners to work out logistics without the added pressure of having to be self-sustaining the first few months of operations.
Understanding your budget and sales is only half the battle of a business plan. When you start a company, it is equally important to understand the market conditions for your industry. Some of the more pressing company start-up questions all business plans should answer include:
- How many businesses like yours are there in your local community? What are their strengths and weaknesses?
- Is the industry growing or contracting? Are new technologies making the industry obsolete?
- Who are your customers? What niche is your business trying to serve?
- What do you bring different to the table that other businesses don’t have? Why will someone choose your small business startup over some of the more established businesses in the area?
Answering these questions will let you know if there is enough demand for your services or if the market is oversaturated and unable to support your business. It’s better to find this out when planning to start a company rather than after you’re already committed with the loan money spent.
If you think you may be ready to start a business there are a few things to remember. A great budget, realistic expectations of sales, and a strong understanding of the market conditions are important tools to make your business plan a roadmap to your success. Best of all, a strong business plan is a great asset to gaining that all-important operating capital required to make your small business startup success for years to come.
BizCentral USA serves as a one-stop-shop for company start-ups. We offer an array of services from marketing and small business certifications to business plan writing and web design. For more information about how to start a company please visit us online today.