Episode Overview

In the second show of our series on business planning.  In the first episode, we went through some of the common business planning myths, as well as going into some of the benefits of doing business planning. Today, we are going to dive in and discuss the 7 essential elements that your business plan needs.

Episode Key Points

  • The biggest challenge with running our businesses
  • The three reasons that you would create as business plan
  • Which section of your business plan is like your “elevator pitch”
  • The information that you should include in the team section of your plan
  • Our recommended approach for explaining how your business operates
  • Why we recommend thinking about how the “backend” of your business will function
  • Our 3 step process for starting a growing a business
  • How to research your audience and create your ideal customer avatar (ICA)
  • What you should be looking at when analyzing your competition
  • The key financial aspects to think about when starting your business
  • What a roadmap is and how it will help you in your business

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Episode Transcript

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Tom:                      This is the Serial Startups Podcasts Show 20. In the previous episode, we discussed whether or not your business needs a business plan. Today, we’re going to break down the 7 essential elements that every business plan needs. This episode is a Serial Startups podcast as brought to you by the Business Planning Mini Course.
Ariana:                 Are you dreaming about starting your own business but don’t know how to take the first steps? Or maybe you already have a business but are still struggling to get that comfortable income. A solid business planning process will make your ideas come to life, and get you on the road to true profitability, and we can help you achieve it. Head on over to www.serialstartups.co/businessplan now to find out more information and get started.
                                Welcome to the Serial Startups Podcast, where we bring you the real deal when it comes to masterminding a business, juggling personal relationships and a busy household. We are your hosts and Serial Entrepreneurs; Tom and Ariana Sylvester. This is the podcast for people who want to get more out of life. We want to show you how to make multiple streams of income and get on the fast track to being your own boss. Join us as we talk about our ideas, successes and failures, both in business and in life.
Tom:                      Welcome back to the Serial Startups Podcast. We are in Episode 2 of our 3 Episode Business Planning mini-series. In case you missed the first episode, you can check it out at www.serialstartups.co/show19. In that episode, we really talked about what a business plan is, and why you need one.
Ariana:                 All right. Before we get started I have a question. Tom, what is your least favorite thing about running our businesses?
Tom:                      There’s a lot of good aspects but I’d have to say the biggest thing is probably the strain and the struggle that it causes on our relationship. Especially if you’re a business owner, and you’re not relying on a job or a W-2 income, you ultimately have to make sure your businesses are successful, otherwise it’s going to impact your family and your relationships. I think some of the challenges it causes for us is that sometimes we have to put the businesses first, which will ultimately cause some strain on our relationship and our family which are our why and our reason for doing this; it’s ultimately to have a better life, family and relationship. Any entrepreneur out there knows it’s a struggle to basically say, when do I have to put the business [first 00:02:22]. How do I make sure that I’m not impacting the family too much because eventually, it’ll be the other way and I won’t have to worry about it.
Ariana:                 Mm-hmm (affirmative).
Tom:                      Especially if you’re in that start-up phase, there is going to be an impact on you family and relationships. I struggle finding that balance and I think you pull me back in a lot .
Ariana:                 That’s the reality checker in there.
Tom:                      Absolutely. You know on the flip side, I think one of the nice things about that is it forces us to communicate and work through those things together. Ultimately, our relationship grows stronger as we do those things.
Ariana:                 For sure. It definitely does.
Tom:                      What about you? What’s your least favorite thing about us having our businesses?
Ariana:                 I think my least favorite thing is; because I’m running them from home, technically working from home, being constantly on call for those day-to-day issues that come up, and having to all of a sudden drop everything to take care of them. It’s kind of a struggle, because when you’re a work-from-home mom, you’ve got the kids, and we’ve got two kids under the age of 4, so it’s a little tough sometimes to be able to drop everything and take care of those issues. I have to do that because those are our businesses, and like you said, those are our livelihoods, we have to make sure that they’re running well but it’s also … You know I’m home with the kids and I have responsibilities to them and it’s a little tough for me sometimes to get that balance between the two I think.
Tom:                      Yeah, and I think that … You know our mini-series obviously is around business planning and I think, if you do business planning well, obviously you’re still going to run into some of those struggles …
Ariana:                 Correct.
Tom:                      … I think it forces you to really get that right and make sure that you set up the business right, and you set up the right people, so that hopefully, it’s not causing too much of an impact on your relationship and hopefully you’re not constantly getting those calls day to day. One of the key things is, when we look back and review what’s going well and what’s not, it’s always those what’s not, what isn’t going well that we look at, well how do we make that better.
Ariana:                 One of the pluses to running a business nowadays is that technology is everywhere, so the fact that I have a smart phone and I have a laptop and I can take care of those issues wherever I am is very helpful. I might be in the living room with an angry baby and I can kind of answer a text or answer a phone call, an email with my phone and put out the fire initially, and then as soon as I have a free minute, then I can go and do what I need to do.
Tom:                      That’s actually an excellent point. Prior to that technology being able to do that stuff remote, you might have to actually go and physically be somewhere and do something.
Ariana:                 Yeah. I’d be in so much trouble if that was the case.
Tom:                      Yeah, and that’s a great point. With the technology you may be able to send a text or [have 00:05:03], especially if you got the right systems of people set up, someone else can actually take care of it, and you’re just guiding and coordinating those people.
Ariana:                 Yap. Here’s what we’re going to go through today; we are going to first talk about the 3 types of business plans, then we’re going to hit on those 7 essential sections common to every business plan, and then we’re going to throw in a little bit of additional information when you’re seeking business partners and investors. As a reminder, we’re offering a free business planning template, you may want a copy as we go through today’s show so that you can create your own business plan. To get that you can head on over to the show notes page, at  www.serialstartups.co/show20 to download your free copy.
Tom:                      All right. With that, let’s jump into today’s show; the 7 essential elements of a business plan.
Ariana:                 All right. We want to talk about a couple of things first. There are many, many formats out there for business plans, and it can be really overwhelming for someone who’s just jumping in and may not have that business background or that management background. We want to make sure that you’re not getting too overwhelmed. You don’t need to have anything specific as we talked about in our last episode, it doesn’t have to be a certain length or a certain format, it just needs to be what you need for your business. We personally have gone through a ton of them over the years with our business plan. I am usually a little lost when we talk about business plans, we have set on a more simple one, now that we’ve gone through a couple, so that we can really just get down to the basics and what we need for our goals.
Tom:                      Yeah. I can’t tell you how much time I spent earlier on, when we were starting these businesses, because there’s a lot of stuff to learn. It was like every site I went to had a business plan and a different format, and I didn’t know if I was putting the right stuff in or you know, all of that. I think to a point, it can really be a lot simpler that we make it out to be. Even though we provide that free download and the format, that format is a good guide so that you don’t get lost and are worried about if you’re including the right stuff or not. The reality is, you really just need to include what you need, and then, if something comes up later, you can always add it then.
Ariana:                 Yeah, or you start with the basics and if you need to make it more complex as you go, then you can build off that.
Tom:                      Yeah. I think that’s important. What we’ve generally found is there’s 3 reasons for having a business plan, or 3 audiences for them. The first one is yourself. If you’re going to start a business, especially if it’s just for you, and you’re not getting outside funding, that business plan really just helps you validate the idea and then give you an understanding of what some of the goals are and how you’re going to run the business. That’s the most basic one. Then there is also two other scenarios, you may want to bring in other people to work in your business or be partners, so there’s some tweaks and stuff you’ll do to that business plan to draw them in. You may also need some funding or investors. You have a little bit of a different business plan for that focus. Ultimately, what we found is these 7 essential elements for the business plan, are relevant in all three of those.
Ariana:                 Mm-hmm (affirmative).
Tom:                      The big difference is, if you’re going to do a business plan where you’re going to seek a partner, or seek investors or financing, you’re just going to add a couple addition sections, and probably go a little bit deeper.
Ariana:                 Yeah, more details.
Tom:                      Yeah. Back to your point, don’t over-complicate it, download the free template, use that as a guide, add or remove what you need to. Then remember, that you’re going to start out just creating this for you, and then ultimately if you’re going to have partners or investors, you can add those sections on later, but don’t get overwhelmed from the beginning.
Ariana:                 All right. Lets jump in. Section number 1 of the 7 essential aspects you need, is the overview. Tom, why do you tell people to do this section last?
Tom:                      This is the first section of your business plan, but have you ever been, like when you’re writing that book report in school, and you got to write like a 10 page report and you just get blank when you sit down [inaudible 00:09:00]?
Ariana:                 Every time I was supposed to write a report.
Tom:                      Exactly. The problem is, you don’t know where to start, and you’re overview really covers like the entire business plan. It’s like the elevator pitch for your business plan. If you don’t  know what an elevator pitch is, everyone in business should have an elevator pitch, and essentially imagine you’re in an elevator with someone important and they ask what your business is about. You should be able to explain your business through that elevator ride, so, in 30 seconds. This is what an overview section is. It explains you’re entire business, on a one or two page sheet. That’s very tough to do if you haven’t done the rest of your business planning.
Ariana:                 Okay. I see why that would make sense to do that last.
Tom:                      Yeah, so if you see, you’ll go through the rest of your business plan, then you can come back and this can really just be a summary. What I tend to do is create like one or two paragraphs around each of the other sections and that really draws them together for a nice overview.
Ariana:                 Okay.
Tom:                      All right. Section 2, and this is really where you’ll start, is with the team. What we always talk about is, the first thing, and the most important thing in business is the people. With that, we’re going to start with the people on the team. Ariana, what does that mean for the business plan?
Ariana:                 Well, you start with the easiest and simplest as the owner, which is yourself, and if there’s more than one of you then you want to do everyone, so we obviously would be co-founders of all of our businesses. You really want to talk about yourself and who you are, and what you bring to the business.
Tom:                      Yeah. I think that’s a great point. What you bring to the business could be …
Ariana:                 Your background, your history …
Tom:                      Your education.
Ariana:                 Yeah.
Tom:                      Your experience, anything that’s going to help that business be successful.
Ariana:                 Yap. Then you also want to make sure that you’re including any other members. If you have any other employees, you want to put what their roles are down on paper. If it’s only you to start, but you have some people that you may think you need to hire at some point to help you out, you want to make sure you’re putting those roles in, so that when you need to hire someone you have that position already detailed.
Tom:                      Yeah. That’s a great example. Every business has key roles, so someone’s got to handle the financial piece, someone’s got to handle the marketing piece. At the beginning it may all be you, but especially if that’s a weakness you have, you may want to call out that this business requires a lot of marketing, so we’re going to need that role, and maybe it’s filled by someone else in the future.
Ariana:                 Mm-hmm (affirmative). All right. Section 3 is your operations. This is a big chunk of your business plan.
Tom:                      Absolutely. I like to break this out into two different sections. The first one is really, how does it work from the outside perspective, so if you’re going to explain your business “How does it work?”. Then the second one that we’ll get into in a little bit is really “How does it work behind the scenes to support that”. How does it work from an outsider customer perspective? My favorite way for explaining this is, if you have to describe your business in 6 steps or less to someone, what do those 6 steps look like?
                                For example, your customer starts out and they do this, and then they do this, and then they do this and then they’re ultimately happy. By going through 6 steps, you make sure that you simplify your business down enough so that you can explain it and really, anyone should be able to understand what your business is after looking at those 6 steps.
Ariana:                 Now we’ll jump into the next portion which is, how does it work from behind the scenes. This is where you really get into your process management, how does your business run and especially how does it run when you’re not there. What we like to do is go through and create that process binder for our employees when they start, at least for our liquor store business and for our real estate business. It really goes through, what does it take every day to open your business, or what does it take every day for your business to run and how do each of those processes work, what are each of the steps. You want to make sure you go through and detail that out as much as possible so that you have everything down and you can see what works and what doesn’t and where you need to fix things.
Tom:                      Yeah and I think what is key here is that as you go through and actually define that out, you’re not going to create all of your standard operating procedures or all of that in your business plan but this is going to be a good glossary for then, what you have to build out to actually support that.
Ariana:                 Yeah. This would be like a little bulleted list of here’s all the things you need to run.
Tom:                      Exactly. Like our 3 step process when we start a business is we first a start a business and grow it to profitability. As we’re doing that, we document the processes and procedures so that we can then get to the next step where we’re outsourcing that to other people so that we buy our time back and to your point earlier, we’re not having to be constantly on call.
Ariana:                 Mm-hmm (affirmative).
Tom:                      This is a great way to start that and say, “How is the business going to run,” and that, “What are those operating procedures that I’m going to need,” so that eventually either as I’m starting out hiring people or as I hire people in the future, they know the processes that are going to be needed to support the business.
Ariana:                 Section 4 is your audience.
Tom:                      Yeah. This one is so important and to be honest it’s going to a little bit of time and research for this one and don’t skimp over it. Essentially your audience is going to be why you’re in business. They’re the people that are ultimately going to buy from you. What we like to do here, is start at the 50,000 foot view; so your audience exists within an industry. If you look into that industry, how is the industry doing? Is it going up or down? Is it a big industry or is it a pretty small and niche down on?
                                Once you get within there, you can say, “Well, my audience or my market isn’t the whole industry. It’s a segment of that.” You can start to identify what is that segment and then how many potential customers are there and then on average, how much money are they each going to spend. That gives an idea of, maybe your industry is a $5 billion industry, but for the people you’re actually going to target, maybe they’re a $5 million. You know that you could get a section of that business and maybe you can make a million dollar business.
                                Once you have that section, what you want to do is really define your customer and what we commonly call this, an ideal customer or an avatar.
Ariana:                 Mm-hmm (affirmative).
Tom:                      What that is, is really understanding, who is this product ideally for. It doesn’t mean …
Ariana:                 What do they need and what do they want.
Tom:                      Yeah. It doesn’t mean they’re the only one that are going to buy it but you really want to get inside their head and their thought process so that you can cater your marketing, your product and everything else to that person. We recommend creating that avatar, giving them a name, understanding their demographics and then looking at a day in the life of what does their life look like and then looking to your point, two things: what do they need, what are the pain points, what are the things that are hurting them or causing them pain that they want relief from. That’s one thing your product can do.
                                The second thing could be what do they want so if they don’t have the pain anymore, what are the things that are going to give them pleasure that they’re going to spend money on. As you’re trying to look at that whole thing, that’s really going to help you refine your product and make sure that you understand your audience and you can merge those two up.
Ariana:                 Mm-hmm (affirmative). Next section, section 5 is your competition.
Tom:                      All right. We talked about the industry and we talked about your market. Your market, when you look at the potential customers that you could have times how much money they’re going to spend, that’s a 100% of the market. The reality is, you don’t have 100% of the market especially if you’re just starting.
Ariana:                 Correct.
Tom:                      You’re going to have some competition. Understanding your competitors is going to allow you to see, who are they serving now? Who are their customers? What are they doing? How are they solving the pain points? How are they providing pleasure so that their customers are either reducing their pains through the products or increasing their pleasure through buying the products?
                                Ultimately, what you’ll be able to do is see how you stack up against them. What things are they doing well that you want to model and incorporate into your service or your product and then what gaps do they have where you could go in and fill that gap and actually bring out some customers as a result of that?
Ariana:                 Again like your audience, the competition is going to take a little bit of research again on your part. Get ready to do some Google searching and to talking to some of those potential customers.
Tom:                      Yeah and a lot of people look at competition as a bad thing. The reality is, if there’s competition, that means that there are customers out there that are paying money for our product.
Ariana:                 Yeah.
Tom:                      If there’s no competition, it’s one of two things; either you have a brand new product that is going to be a little difficult to get into the market because people don’t know what it is and you have to educate them, or there just isn’t a demand for that product and it may be a sign to not actually go forward with that product or maybe to make some tweaks.
                                The other thing with competition is, you can learn a lot from them. Like when we opened our retail wine and liquor store, we initially just went around to a bunch of the other liquor stores and started to write down, what were some of the commonalities, what were the things that every store had, what were some of the gaps or things we didn’t like and that helped us open our store.
                                Now, you can go and actually buy your competitors product and try it out. You can really understand, how is their product satisfying those needs and those wants, or not satisfying it. You can get a lot of information just by studying your competition.
Ariana:                 Yes. That brings us to section number 6, which is your financials. This is a big one, we know a lot of people have issues with this one. One of the first and foremost problems that a lot of startup entrepreneurs have is they don’t look at their startup expenses.
Tom:                      Yeah, absolutely. When you’re going to start a business, you really got to look at, what do I need to start that business and then how much is that going to cost. You may be able to fund this yourself or you may have to go out and get some investors or get some loans. It’s very important especially as you start talking more and more money that you understand, what is it actually going to cost to start this business.
Ariana:                 Yes. Then also people don’t look at their projections for those first 3 to 5 years. You really want to makes sure you understand what your expenses are going to be and then also what you’re going to be bringing in for those couple of years, whether you have investors that you have to pay back or a loan from the bank that you have to pay back. You want to know where you are with that.
Tom:                      Yeah and that’s such a key point. We definitely don’t have enough time to really go into the full financials here and we’ll do probably a full month in the future on financials, understanding financial statements. Ultimately, if we take it down to the basics here it’s, how much money are you going to bring in from a revenue perspective? How much are you going to make from selling stuff? What are all the expenses that are going to be required to run your business? From there, what profit is left over?
                                Out of that profit, you’re going to have to pay back some of your loans, if you’ve taken loans out. You want to understand what do those numbers look like. One of the things you mentioned was, when do you break-even? You’re going to have some startup costs, which means you start out negative.
Ariana:                 Mm-hmm (affirmative).
Tom:                      You’re going to have some sales and then how long does it take before you actually bring in enough money to cover what you put into the business and then you can actually start making money. A couple of key things you [learn 00:20:17] on this financial section and a lot of this is just going to be a gut feel at this point, we’re going to prove it out as you start that business but you’re going to want to basically understand: what are your startup expenses, what does your income statement and you balance sheet look like for at least the first 3 years but ideally the first 3 to 5 years and then at what point in time do you break-even and at what number do you break-even.
Ariana:                 Okay. That brings us to our last section. Section 7 is the roadmap.
Tom:                      Yes. We talked in our previous episode about how this can really be like your GPS. What’s nice for this section is you’re going to really identify what are the goals for the business. Typically it’s nice to go out, let’s say 5 years. Depending on the type of business you may go out 10 years, but ultimately, 5 years is probably good. 3 years may even be enough and what’s more important is your short-term goals.
                                If you know those bigger goals, then you can work backwards and say, “Well, in order to achieve this goal in 3 years, we’ve got to do this goal in 1 year.” What we tend to like to do is break the yearly goals down into quarters and then, especially for the next quarter, break those goals down into months.
Ariana:                 Mm-hmm (affirmative).
Tom:                      What this roadmap does is essentially say, “Here’s the goals that we want to get to,” either from a client perspective or ultimately it’s going to tie to your financial perspective. Then ultimately work backwards so that you can look at it and say, “Okay. We’re in month number 1, here’s the goal we got to get to in order to get to our quarterly goal.” What things do we have to do in month number 1 in order to hit that goal.
Ariana:                 Yeah.
Tom:                      This is where the GPS comes in because it lets you track those major milestones and then how you’re working against those major milestones so that you can ultimately achieve your goals.
Ariana:                 Yeah and every time you hit a major milestone, you get to celebrate a little bit, “Yay!”
Tom:                      Especially if you have a wine and liquor store.
Ariana:                 Yay!
Tom:                      Let’s do a quick recap of those 7 sections. The first one is the overview section and you’re going to do this last. As we just went through all the rest of the sections, you can now see how it’s much easier to come back and do an overview of your company where you already identified who your team is, how you operate, who your customers are, who your competition is, what your financials are and what your roadmap looks like. 
Ariana:                 I think you just recapped everything. We’ll go through it a little bit more. Section 2 is your team, that’s who the owners are and what are the key roles that the business needs.
Tom:                      Operations is really two perspectives. You want to 6 step process for what your business does, really from the customer perspective and then ultimately looking at how does your business run in order to support that process.
Ariana:                 Section 4 is your audience: who are your customers and what do they need or want.
Tom:                      Section 5 is the competition: who else is in your space, how are they satisfying your customers, how to do you stack up against them and how can you figure out how to create your own uniqueness or a unique selling point.
Ariana:                 Section 6 is your financials: what are your startup expenses, what are your first 3 to 5 year projections, what are you expecting those expenses to be for those first 3 to 5 years, what are you projecting as your profit and then what is your break-even number.
Tom:                      Finally, section 7 is your roadmap. These are the goals for your business and then the milestones that will help you get to those goals.
Ariana:                 That brings us to the tip of the week. We just went over a lot of things to help you write your own business plan but we don’t want you to spend a lot of time trying to wordsmith it and make it perfect. It’s really just for you and even if it is for investors, you can add that stuff in later. Focus on getting the right information first and then make is sound nice if you’re sharing it with other people. 
Tom:                      Yeah. A secondary tip is, once you finish your business plan, make sure you have a couple of other people review it. Even if this plan is just for you and you’re not seeking partners or investors, it’s good to have other entrepreneurs look at that business and basically pull [inaudible 00:24:08] in it. One of the things that we like to do is basically ask them, “Would you invest in this business?” Then if they say, “No,” you say, “Why?” Understanding why they wouldn’t invest is calling out maybe some holes or just some areas that you got to look a little deeper into.
                                We said that these 7 sections are essential for really creating any business plan but primarily this is focused on a business plan for you. If you’re ultimately going to go out and get partners or investors, you’re going to need some additional sections. We’re not going to go too deep into this here, but ultimately what a partner or what an investor is going to look at is, have you done your research and then ultimately what’s in it for them; what benefit are they going to get from being a partner in your company or what benefit are they going to get from being an investor in your company. They’re really going to want to look at the financials and then understand how that’s going to benefit them.
                                There’s a lot of information in here. You can check out the show notes at www.serialstartups.co/show20 and then make sure to head over there and get the free download for this episode, which is the free business plan template that includes the 7 sections that we walked through today.
Ariana:                 Our next episode, we’re going to bring it all together and tell you how to use your business plan in your business.
Tom:                      All right. Awesome.
Ariana:                 That’s our show for this week guys, we’ll talk to you next week.
Tom:                      Have a great week guys.
Ariana:                 Bye.
                                Do you want a free copy of the template that we use when we create out business plans? Head on over to www.serialstartups.co/bptemplate to download your free copy. If you want a step-by-step guidance for creating your business plan and how to use it to grow your business, head on over to www.serialstartups.co/businessplan for access to our Business Planning Mini Course.