Business Plan Critical Factors

This business plan course will walk you through every step of developing your business plan, thereby enabling you to determine two critical factors.
First, is your business idea viable? Will it work? Will your business model be profitable? Will you be able to sell a sufficient quantity and quality of your products and services within a reasonable time to be profitable?

Second. Your business plan will give you is an assessment of the amount of money you need both to start your business and then to operate your business until you break even and earn a profit. Until you have done a complete business plan, including a competitive analysis, detailed financial projections, and an estimate of profit or loss for the first 12, 24, and 36 months. It\’s hardly possible for you to raise or attract any money other than your own.

Entrepreneurs tend to be optimists. If they were not, they probably wouldn\’t start a business in the first place. To temper this optimism, you must be calm, cool, and objective with yourself.

  • You must ask yourself brutal questions about your business and its potential.
  • You must act as your own management consultant and as an outside observer to determine the amount of money you need and when you will need it.
  • You already know that a business plan begins with a projection of your estimated sales volume month by month for the first year, with general projections for the second and third years.

From your top line, your sales projections, you deduct the cost of goods sold to get your gross profit. From your gross profit, you deduct 100 percent of the costs of operating your business. To arrive at your profit and loss for the month and for each subsequent month. Your bottom line will be a total of your profits or losses projected out at least 12 months. This will estimate the amount of money you will require at the lowest point in your business cycle. It\’s a good idea for you to calculate high, medium, and low levels of sales, especially if you have no or limited experience generating sales at this time. The way you do this is to apply a probability percentage to your sales numbers. Everything in life is probability. There is a probability that anything can happen, and these probabilities can be calculated with some accuracy, especially with experience. With sufficient experience, these probabilities can be calculated so accurately that you can make predictable forecasts based on them. If you estimate that you will make a certain number of sales per month, you can then multiply that by the probability or percentage confidence you feel that you will actually achieve that number. If you estimate $10,000 in gross sales for the month, you ask on a scale of 1 to 10 how confident, anyway, that I will actually achieve that level of sales. Depending on your level of experience, you could estimate your probability of success as anywhere from 50 percent to 100 percent. But let us say that you\’re starting with a new product or service, and in all honesty, you give yourself an 80 percent probability of achieving $10,000 in sales. This number of $8,000 would then become your high estimate for sales volume.

You then ask what my medium level of sales volume would be and the percentage of probability that I would attach to that number? Let\’s say you\’re a medium projection would be $8,000 per month, but you give this medium projection a probability of 90 percent. This means that your medium-range number would be 90 percent multiplied times $8,000 or $7200 in sales for the month. You then ask, what is my lowest estimate for monthly sales? Imagine that it is $6,500. You then multiply that amount by your probability of achieving those sales.

Assume that your confidence level was 100 percent, that you would at least hit your lowest estimate. This would mean that you would be absolutely confident that the probability of achieving $6,500 in sales is 100 percent. You are now further ahead than most businesses. You now have a high, medium, and low sales estimate. You have managed to get the stars out of your eyes and be honest and objective about the true prospects for your business.

  • Rule. Whatever your lowest sales estimate might be, this amount should be sufficient for you to either break even or become profitable in a reasonable period.

If the success of your business plan relies upon your hitting your highest possible estimate consistently, you\’re setting yourself up for disappointment and failure. There are several sources of money that you can use to start, build and operate your own business.