Does the business you want to own require skills and talents you already possess? If you have the necessary skills, do you enjoy exercising them? Think about this for a good long time. The average small business owner spends more time with his venture than with his family. This being so, it makes sense to be at least as careful about choosing your endeavor as you are about picking your mate. A few of us are sufficiently blessed that we can meet someone on a blind date, settle down a week later and have it work out wonderfully. However, in relationships, as in business, most of us make better decisions if we approach them with a little more care.

Be sure you aren’t so blinded by one part of a small business that you overlook all others. For example, suppose you love music and making musical instruments. Running your own guitar shop sounds like it would be great fun. Maybe it would be, but if you see yourself contentedly making guitars all day in a cozy little workroom, you’d better think again. Who is going to meet customers, keep the articles, answer the phone and let potential customers know you are in business? If you hate all these activities, you either have to work with someone who can handle them, or do something else.

Here’s one last thing to think about when considering how much you like your business idea. In fact, it’s a danger that threatens almost every potential entrepreneur. Precisely because your business idea is yours, you have an emotional attachment to it. You should. Your belief in your idea will help you wade through all the unavoidable muck and mire that lies between a good idea and a profitable business. However, your ego involvement can also entail a loss of perspective. I’ve seen people start hopeless endeavors and lose small fortunes because they were so enamored with their “brilliant ideas” that they never examined honestly the negative factors that doomed their ventures from the start.

D. Describe Your Business

What is your good idea? What business do you want to be in? It’s time to look at the specifics. Let’s say you want to open a restaurant. What will you serve? What will your sample menu look like? What equipment will you need? Note that including french fries means you’ll have to install french-fryers, grease traps in the sewer line, hoods and fire extinguishing systems. On the other hand, by not serving fried foods you will save a lot of money in the kitchen, but maybe you’ll go broke when all the grease addicts go next door. Or suppose you want to sell VCRs, video games or video camera equipment. Do you plan to have a service department? If so, will you make house calls, or only accept repairs at your store? What sort of security system will you install to protect your inventory? What about selling component sound systems or home entertainment centers? What about competition from nearby retailers? Answers to these types of questions will be crucial to the success of your venture and to writing your business plan. Let me tell you from hard, personal experience that you need a written document—even if you’re sure you know exactly what your business will do. With this foundation document to refer to, you are less likely to forget your good plans and resolutions in the heat of getting your business under way. Any changes you later make can be made both consciously and with consideration. To write a complete description of your proposed business, simply follow the suggestions on the next few pages.

1. Identify Your Type of Business Find the business category listed below that most closely matches your business. You’ll use the description that follows as a reference when you describe your own business.

WarningEach of the business categories requires different skills to run efficiently. Many small businesses involve one or two types of business in the same endeavor. But if your idea will involve you in several types of business, it may be too complicated for you to run efficiently. As a general rule, small businesses work best when their owners know exactly what they are about and strive for simplicity.

•Retail. Retail businesses buy merchandise from a variety of wholesalers and sell it directly to consumers. Some retailers provide service and repair facilities, while most do not. Most retailers just take in the goods and mark up the price, sometimes doubling their purchase price to arrive at a sales price. Supermarkets, mail order catalog merchants, computer stores, dress shops, department stores and convenience marts are retailers.

•Wholesale. Wholesalers buy merchandise from manufacturers or brokers and resell the goods to retailers. Normally, a wholesaler maintains an inventory of a number of lines. A wholesaler normally does not sell to consumers in order to avoid competing with his retailer customers. Wholesalers usually offer delivery service and credit to customers. This type of business is characterized by low gross profit margins (sometimes varying between 15% and 33% of the wholesaler’s selling price) and high inventory investment. Wholesalers typically buy in large lots and sell in smaller lots. Like retailers, they seldom make any changes to the products. Most wholesalers aren’t well known to the general public.

•Service. People with a particular skill sell it to consumers or to other businesses, depending on the skill. The end product of a service business is normally some sort of advice or the completion of a task. Occasionally, a service business sells products as an ancillary function. For example, a baby diaper cleaning service may also sell diapers and baby accessories. Service business customers normally come from repeats and referrals. It’s common to have to meet state licensing requirements. Hairdressers, carpet cleaners, consultants, housecleaners, accountants, building contractors and architects are examples of service businesses.

•Manufacturing. Manufacturers assemble components or process raw materials into products usable by consumers or other businesses. This type of business ranges from an artisan who makes craft items to General Motors. The most difficult part of the manufacturing business is to find a product, or even better, a series of products, that have acceptance in the marketplace and generate a steady sales volume. Or, as one business person put it: “Production without sales is scrap.”

•Project development. Developers create and finish a saleable commodity by assembling resources for a one-time project. Normally, the developer knows the market value of the finished product before she begins work. When the project is complete, the developer sells her interest in the project, normally directly to the user or consumer.

•To understand project developers, consider a woman building a single-family house on speculation. She buys the lot, secures permits, hires a contractor, gets a loan, builds a house and sells it. She is then ready to go on to another project. Other examples of project developers include someone who buys, restores and sells antique cars and someone who purchases dilapidated buildings at a bargain price, fixes them up and sells them.

NoteSoftware development note: Software development differs from software production and sales in that software developers create a product that another entity produces and markets. For example, Fred Jones creates a articlekeeping program for employment agencies on his own time. Then he sells production and marketing rights to the Acme Programs Co. for $1,000 cash and 5% of future sales. Fred is the project developer and Acme is the manufacturer. If Fred also produces copies and markets them himself, he acts as both developer and manufacturer.

2. Problem Statement

Successful businesses share a common attribute: They do something useful for their customers. One way to determine what is useful for your customers is to identify and describe the problem that your business will solve. For example, a window washing service solves the customer’s twin problems of wanting clean windows but lacking either the time or physical ability to clean windows himself. If you accurately understand your customers’ problems and needs, your business will have a better chance of success. For example, here’s a problem faced by a customer of a pizza-by-the-slice stand: “I’m hungry and I don’t have much time or money, but I’m tired of hamburgers and want a change of pace. Also, I’d like to be able to specify the exact ingredients I want in my meal. And, it would be really swell to have a glass of wine or beer with the meal.” Now, think about your customers for a minute. What is the problem that you solve for them? Take a sheet of blank paper or open a computer file and write out your description of the problem your business solves for its customers. This statement will become part of your completed business plan.

3. Business Description

Next, describe how your business will solve your customers’ problem. Take your time and do a thorough job. It’s very likely that the first time you attempt this task, questions will occur to you that you didn’t consider previously. If so, figure out a good answer and rewrite your description. The important thing is not how long it takes to do this, but that you end up with a realistic, well-thoughtout business description. After all, it’s cheaper to answer questions and solve problems on paper than it is with real money. Your business description should explain exactly what you will provide for the customer as well as what you’ll exclude. Each of the choices you make in your business description will affect the amount of money you’ll need to start or expand and how much sales revenue you can expect. Consider the following series of questions when writing your business description. If you answer both the general business questions and each question that applies to your business, you’ll present your business accurately and fairly. For an example of a well-thought-out business, refer to the accompanying sample, which contains the first draft of Antoinette’s Dress Shop’s business description.

a. General Business Questions

These questions apply to most small businesses. Feel free to skip any questions that don’t pertain to you.

1.What problem do I solve for my customers? (You answered this question in detail in Section D2, above.)

2.Who is my typical (target) customer?

3.How will I communicate with my target customer?

4.What products and/or services will I provide? Are there any products or services my customers may expect me to provide that I don’t plan to provide?

5.Where will my business be located?

6.Where will I buy the products I need?

7.What hours will I operate?

8.Who will work for me and how will they be paid?

9.Who will handle critical tasks like selling, ordering, articlekeeping, marketing and shipping?

10.How will I advertise and promote my business?

11.What are the competition’s strengths and weaknesses?

12.How am I different from the competition, as seen through the eyes of my customers? (Make sure that you answer this question from a customer’s perspective and not from an owner’s point of view.)

b. Specific Business Questions

Some issues your business faces can be categorized by business type. Make sure your business description addresses both the general business questions that apply to your business and the questions specific to your type of business.

Warning

If you plan to conduct operations in more than one category, be sure to use the specific questions for each type of business that applies.

Retail

1.How will I keep abreast of fashion and taste in my field?

2.Does my location have enough drive-by or walk-by traffic to support my business, or must I rely on heavy advertising for sales?

3.Is it better to be in a shopping center with high rents and operating restrictions, or in a separate location with lower costs and less drive-by or walk-by traffic?

4.How much inventory will I buy in comparison to my expected sales revenues? (This is a critical question in the retail field and deserves your close attention.)

Wholesale

1.Which product lines will I carry in inventory and which will I order as required?

2.Will I carry accounts for my customers or work on cash only?

3.Are there any exclusive distributorships available to me?

4.Will I have to market all the products myself or will the manufacturers have marketing programs?

Service

1.Are my credentials and skills equal to or better than others in my field?

2.Can I sell my service as well as I can perform it?

3.Will I take work on speculation or will I insist on cash for each job?

4.Do I have a client list to begin with or will I start cold?

5.Am I better off associating with others or being independent?