The Business Basics
At the beginning of each New Year, we always resolve to either do something new or do something better. This year is a little different. This year I want you to resolve to go back to the basics, The “Business Basics”. That means setting the foundation or checking the foundation on how you do or did business, that means “Business Planning”.
This year BVDC will focus on the business basics and business plans that set the foundation for your business success. We are here to walk and work with you through the process. In this issue, we provide the Steps to do your prep work.
Step 1: Define Your Business
Defining your business is the most vital thing that can help your business become successful. By defining your business, you are better able to achieve your goals and sustain superior performance.
Two things that you need to consider when you define your business are your marketing position statement and your unique selling proposition. A marketing position statement is a one- to two-sentence statement that says what you do and for whom you do it to uniquely solve an urgent need or fulfill a desire. In easy terms, identify a problem and offer a solution. A unique selling proposition is a statement that shows the reader how your product or service stands out and is different than other substitutes on the market. Your USP must be strong enough to attract customers and compel them to buy your product or service. What is your niche?
Step 2: Determine Your Target Audience
Knowing your target audience is an integral part of business plan success. Although your product or service can appeal to many different types of buyers, a one-size-fits-all marketing and sales approach won’t work. The more you know about the audience you target, the better able you are to reach and communicate with them and sell your products and services.
You can get a better idea of your target audience by looking at the demographic and psychographic segments of prospective customers that can benefit from your products and services. Do they fit a specific gender or age range? What income bracket do they mostly share? What problems do they need solved? What common attitudes, opinions, values and behaviors do they share?
Step 3: Create a Competitive Strategy
To demonstrate the viability of your business, your plan needs to demonstrate how you will sustain a competitive advantage. Porter says there are three unique strategies a business could choose from to sustain competitive advantage, namely cost leadership, differentiation, and focus. If you are a small company with limited resources, your best strategy is focus.
Your strategy needs to show how you will capture your target market. What are the marketing strategies and tactics that you will create and execute to generate customers and sales? What advertising message will you create that will resonate with prospective buyers and compel them to buy from you? Who will be on your marketing team? What functions will you perform in house and which will you outsource? These are some of the important questions you need to address in your business plan.
Step 4: Project Your Financial Performance
Your financial performance is a measure of your success. Your business plan must include a projection of how you expect your company to perform based on what you discover developing the first four steps of your plan.
You’ll need to address the price and profitability of your products and services. Your projections include the number of customers you expect you’ll attract. How much will they each buy?
A rule of thumb is to underestimate your expected revenues and overestimate your company expenses. You can never know what types of delays may occur in receiving revenues from the sale of your products or services. Plus, you may be hit with unexpected expenses or hidden costs you don’t yet know about.
Another rule of thumb, especially for start-up and early-stage companies, is that cash flow is more important than profits. Cash is what lubricates the flow of business. You can always manipulate profits through various accounting techniques, such as deciding if you record inventory as first in-first out or last in-first out. But you can’t do this with cash flow.
Your projected financial performance is also a factor that can influence investors. Higher operating profit margins can attract more investors. However, the reality of your ability to achieve these projections comes from the quality of your plan and execution.
Take the next step and create or update your business plan!