Starting Your Own Business Series: Creating A Business Plan

Article by Gene Muchanski, Executive Director

 

Dive Industry Association, Inc.

 

Creating a business plan is a process that Entrepreneurs go through before deciding whether to start their own business. It is a way of gathering as much information as possible on what you need to know to start, operate, and succeed in your business. It’s a safe way of building your business on paper, writing down the things you will do to start and operate the business. It’s a way of succeeding on paper before you commit to a substantial investment of time, money, and workforce. The best advice I can give as a Business Consultant is first to build your business on paper. I guarantee it will be a learning experience for you. If the numbers make sense to you and your business is a success on paper, you may have a better chance of succeeding when you go through the start-up process.

 

If you have been reading our business series on starting your own business, you have already gone through four steps in this process. You have determined that you have a legitimate reason to create your own business and feel you have a solid purpose. Hopefully, you have considered what it takes to start, run and succeed in a recreational diving business. You are confident you have the necessary knowledge, education and experience to accomplish your mission and have sufficient time, money, and workforce to invest in the venture. Finally, you’ve created your feasibility study. You are confident there is a good market for your programs, products, and services, and you believe that you can operate the business within your financial limitations. Now it’s time to prove it on paper before you take that long leap of faith. The first question is: “Does everyone need a business plan to start a business?” The answer is no but let me tell you why creating a business plan is essential and what it does to increase your chances of success. If you have a strong desire to start a business and have unlimited resources to invest in your business, nothing is stopping you from ploughing ahead and creating your business as you go. However, if your time, money, and workforce resources are limited and you haven’t travelled down the path of entrepreneurship, it may be the wisest decision you ever make.

 

Over the past 40 years, I have consulted with hundreds of prospective entrepreneurs planning to start their businesses. I have seen countless business plan books on the market then and have recommended only a few great books on the subject. My all-time favourite is Rhonda M. Abrams’ The Successful Business Plan: Secrets & Strategies. Her first edition was published in 1991, and she has updated it through time. The 7th Edition (2019) is called Successful Business Plan: Secrets & Strategies and is available through Rhonda’s company, The Planning Shop. There is a reason why this publication is called The #1 best-selling business plan guide of all times!

 

As you begin your business planning process, you will examine two specific subject matters. The first matter of importance is what the business does. A recreational diving market retail store will teach diving, sell dive equipment, conduct group dive trips, and do other things. We call them profit centres. You will be able to cover diving-related issues in the chapters on products, customers, and the market. The business plan text that you choose to guide you through the process will address the business side of what the business does.

 

How you perform your revenue-producing efforts are usually covered in the Executive Summary, Company Description, Marketing & Sales Strategy, and the chapters on Operations and Financials. As Michael Gerber wrote in his classic book, The E-Myth, someone has to do what the business does for revenue and run the business. He made it very clear when he said that someone has to work in the industry, and someone has to work in the business. That holds as true today as it did when Gerber wrote his book.

 

Your business plan should be a working document that goes into as much detail as possible to understand what you must do to run your business successfully. It’s all about defining what you do and how you will be it. It’s important to know what tasks you will need to perform and what tools and technologies you will need to complete them. Your detailed spreadsheets should include your anticipated sales and revenue, expenses, investments, and cash flow. One good thing about building your business on paper is that you can always go back and change your numbers if you don’t like the outcomes your first numbers give you.

 

I’ve used several business plan textbooks, documents, and spreadsheets to create desired outcomes in my plan. It would help if you did the same thing. I used a concept I saw in Intuit’s QuickBooks early in my consulting career. They talked about small business activity in terms of flow. How will money flow in and out of your business? Income, expenses, and profits? How about the flow of inventory, in and out? Employees and their pay and benefits flow in and out of your business too. And don’t forget the all-important Cash Flow Statement, the Income Statement, and the Balance Sheet.

 

As you build your business on paper, think of it as chapters in a book. Design one chapter at a time and go back to it as often as necessary to make it flow smoothly with the other chapters. Here is an example of a typical 10-part business plan. Each part should be a 2-page summary of ideas and concepts you explored in the chapter documents, spreadsheets, tables, and appendices. That gives your readers a 20-page document that adequately summarises how you will start, grow, and succeed in your venture. It summarises what your planned outcomes for the business are and how you are going to achieve them. While the business plan presentation may be only 20 pages, your backup notes, forecasts, charts, spreadsheets, and appendices may be many times that size. Remember, the work you do in a business plan is for you. You need to know things about the inner workings of a business. You can learn them before you invest your time, money, and workforce, or you can learn them later under fire, stress, and duress.

 

Executive Summary: The first chapter of the business plan is always written last because it is a summary of the entire project. You will want to start by explaining your company mission, followed by your concept. You must be clear about what you plan to sell and who you plan to sell to. It would be best to summarise your understanding of the market’s size, trend, and potential. Your summary should include your knowledge of your competitive position in the market and how your management team will work to keep you competitive. You should include significant milestones you have planned and any outcomes you are planning to achieve. End the summary with a description of your Pro-forma financials and show that your income statement, balance sheet, and cash flow projects reflect a successful outcome..

 

Your Company: This is where you summarise the general description of the business, its mission statement, the reason for being, and a short explanation about what you plan to accomplish. You may talk about your history, background, present-day situation, and perceived strengths, weaknesses, opportunities, and threats.

 

Products & Services: This is where you will be presenting your revenue-generating programs, products, and services. This chapter talks about what your business sells. Areas you should cover are your product’s uniqueness, your anticipated price-toquality ratio, and your product’s standard features and benefits. For the scuba diving business, it’s a good idea to research product life cycles and seasonality curves.

 

Customers & Consumer Behavior: This chapter discusses the people you will sell your products to. You may want to start by estimating the current market size and any trends that may impact sales in the next few years. Understanding your customers is a priority, and you would do well to research your potential customers (target market) as to their demographics, geographics, psychographics and genegraphics. From this moment onward, consumer research and analysis will be a high priority for you. You should explain how you will acquire new customers, retain the current customers you acquire, and should you lose customers through the normal attrition process, what you will do to reactivate them in the future. It would be best if you learned to build a centre of influence for active scuba diving customers by adapting a simple ongoing sales program. Your business should focus on teaching people to dive, selling them diving equipment, taking them diving, and keeping them active in the recreation.

 

Industry Profile: The United States Government defines industries by the type of products like-minded businesses produce. The six-digit codes are part of the North American Industry Classification System (NAICS). The first 2-digits represent the industry. Sporting Goods Manufacturing is code 33. Sporting Goods Retail Stores are code 45. The Travel Industry is code 56. Sports and Recreation Instruction is code 61. Using these codes, you can research the size of your industry using the vast data of the US Census Bureau. If you want to know how many stores, employees, or sales in dollars each industry has, you can quickly look up the industry and subcategories that apply. If you wanted to know more about Retail Sporting Goods Stores, you would look up NAICS Code 451110.

 

One of our jobs as an Industry Trade Association is to look at the various industries to see which ones have businesses specialising in diving. From there, we can determine the collective size and economic impact of the industries that produce and sell diving equipment, training programs, travel services and lifestyle products associated with diving and adventure travel. The collective size of the goods and services sold in the market constitutes the Diving Industry.

 

Industry information should always be obtained from a first-hand source if possible. It’s up to a business owner and operator to know the ins and outs of their industry, not just second-hand information from a supplier or vendor who is not in or even an expert in your industry. The best place for a retailer to get information about operating a successful retail store is from the Retail Industry Trade Association.

 

The Market: A market is made up of buyers and sellers. It is a place where the exchange of products and compensation takes place. Market places are where the economic supply side and demand side meet. To be successful in your business, you need to understand your market. Understanding the market you are buying, and selling is necessary to succeed. It’s best to break it down into the functioning parts of the distribution channels for your market. As a professional retailer, you are both a buyer and a seller. We call the people you purchase from your suppliers or vendors. Before you go into business, you’ll need a current database of the companies selling the products you need to buy or resell. The Dive Industry Association publishes a Trade Directory and Buyers Guide available to every Dive Industry Professional at no cost. Contact information for the sellers of diving equipment, training programs, travel resorts and destinations, and lifestyle products is updated monthly. Because our Buyers Guide is circulated to buyers of diving equipment, training, travel, and lifestyle products at the retail level, dive stores will most definitely want to be listed in our directory.

 

The recreational scuba diving market is only one of many markets where diving equipment is bought and sold. You should become familiar with as many markets and marketplaces as possible to maximise your sales. Your business planning research will lead you to identify the different vendors selling products at the wholesale level, and you will want to know who to contact at each company. Some vendors are small, and you may have to deal with the owner or partner. Some medium-sized companies have Sales Managers, and the larger companies will likely want you to speak with their Regional Sales Rep about becoming a Dealer. It’s best to have your local Trade Association help you navigate the supply chain in our industry, but only after you have researched the possible wholesale distributors who could become your future vendors.

 

A market comprises buyers and sellers, so it will also include your competitors. It is wise to understand your competitive position in the market. Start by creating a database of your competitors’ current contact information. I wish retail dive stores were more friendly with their direct competitors because we all have more in common than we think. Direct competitors are

businesses that sell the same type of products to the same kind of people that you do. Other Dive Stores are direct competitors. Secondary competitors may be other recreational businesses trying to cross over divers to their recreation. Other non-direct competitors are businesses competing for your customers’ discretionary dollars. Your job is to increase the size of the market that applies to you while you increase your market share within it.

 

Marketing & Sales Strategy: Marketing is all about paving the way for sales. Sales are the ultimate goal of every company. You can build the most outstanding company in the world, but nothing happens until you sell something. The fact is, we do business because we want to sell something. A program, product, or service. This chapter will be about your strategy to reach your customer base, with a message about the products you sell, hoping to get them to buy your products. You will need to know how to create a message about your products that will be a call to action leading to consumer purchase. To reach your customer base, you will first have to have a customer database of current, former, and prospective customers. Secondly, you will need to be aware of the costs and usage of various marketing vehicles to deliver your message to a receptive audience. Your sales strategy will follow up on your marketing efforts to engage with your customer and close the sale. Marketing and sales occupy two of our three-time frames (past, present, and future). Marketing is something we do today to get sales tomorrow. Sales are what we do today to get sales.

 

Management & Ownership: Most business experts will agree that a business plan’s management and ownership chapter is the most important and read chapter of your project. Especially if you are asking for funds to start the business. The main reason is that money follows management. Investors, sponsors, vendors, employees, and customers respect well-qualified owners and business managers. Vendors consider bringing you on as a new Dealer and possibly advancing your credit terms will refer to this chapter to see who owns the company, who will be running the company, and what their educational, experience and financial backgrounds are.

 

In this chapter, you will want to mention your business structure, the principal owners (20% ownership or more), your Board of Directors, Board of Advisors, Management Team, and Key Employees. You will want to include resumes for your key contact people.

 

Operations & Administration: This chapter summarises the nuts and bolts of the operation. It is what we call the business side of your business. It’s about your business’s physical structure and the tools and techniques you use to operate it. You will want to start by describing the physical aspects of the company, the location, building type, and layout. Areas to cover would be your Supplier Relationships, Inventory Management, Order Fulfillment, Customer Service, Research and Development, Equipment and Technology, Management Information Systems, Safety, Health & Environmental Concerns, Record Keeping Functions, Operational Controls, Risk Management, and Government Compliance Procedures.

 

Financial Tracking: The financial tracking summary should be short but precise. The spreadsheets, charts and graphs in your appendix will include all the necessary details. Numbers of people will go straight to your financial attachments. In this chapter, you will want to explain what your numbers mean. Start by defining your Financial Strategy and how you will handle your company finances. Explain how you arrived at your projected sales forecast. Use an appendix for Sales Forecast in Units, another for Sales Forecast in Dollars, and a third for Cost of Projected Units Sold. This will give you arguable data for your Pro Forma Income Statement. Explain how you will manage your assets and liabilities by evidence of your Pro Forma Balance Sheet. Your Cash-flow Projection spreadsheet will show how you will manage your cash flow, balancing revenue and expenses.

 

Because opening a retail store is a very capital-intensive venture, ensure you include a startup list of the fixtures and equipment you will need to start and operate your store. And finally, if you are seeking funding to open your store, you will need to create a section that discusses funds sought and Utilization. Follow this up with an estimated Loan Repayment schedule so that you understand the cost of debt financing.

 

After you finish your business plan, you should have a document covering as many business operational details as possible. It would help if you shared this plan with your spouse, your immediate family, and a business consultant from your local Small Business Development Center. Tell them what you plan to do and get their objective opinion. If you put good numbers and assumptions into your plan and come to a positive conclusion, your next step will be to create an action plan to begin the startup process.

 

For more information on creating a Business Plan as it relates to a Dive Industry Professional Business, contact Gene Muchanski, Executive Director, Dive Industry Association.