Business planning

In preparing to start your own business, it's easy to jump in with minimal cash and say "I can do this!!!!" Been there, done that. It can work. It did for me. I didn't get rich in the process, but I learned a few things about myself in the process. Even so, there was some advance planning that helped me get where I was going. Since a quick start is often on a shoe-string budget, developing a business plan can seem pointless. Still, knowing a variety of parameters and goals will go a long way in helping you determine if "hanging out a shingle" is a smart idea.

Begin with knowing how much you want to make off of your venture. In one instance, I had been laid off and needed to replace the income I had lost. I brought home a certain amount and knew I had to net that much after business costs and income taxes. In addition, I wanted a measurable raise from what I had been making. I started with my hourly equivalent since that included the income taxes withheld from my paycheck. As a rough number, you can figure 25% of your gross earnings are held for income taxes (again, based on living in Pennsylvania). In addition, the Federal government makes you pay the second half of social security taxes if you make a profit as a sole proprietorship of more than $400.00 at the end of the year. That's an additional 7.65% you'll need to include in an hourly rate just to come out even.

Your operating costs - those caused directly by you doing your business... cutting grass, shining shoes or manufacturing widgets, you will charge to be reimbursed for, with a mark-up. Other costs, known as overhead and administrative costs, have to come out of the mark-up you include in your pricing, both for labor and for materials.

Once you know how much you need, you can start setting goals of how much revenue (sales or income) you need to target. This can be determined on a weekly, monthly or annual basis. From knowing your personal situation, you will be able to decide more easily if taking off on your own will be a workable idea. Even now I think about a lot of things I'd like to do. When I consider how much money I do or don't have, what my knowledge level is about the idea, what my family situation is, and how my personality fits the requirements of what I'd like to do, I can decide if it will work or not. Here's an easy example for me: I like using computers. It may be different kinds of software, different ways to develop spreadsheets, learning a different way of showing things in a spreadsheet. What I know I couldn't do for days on end is writing programs.

Getting back on track, though, there is another level to business planning. That level is much more sophisticated, detailed, time-consuming and thorough. It is called developing a formal (or written) business plan. There are quite a few of these on the internet. More than likely, if you will be financing the start-up - or a part of it - of your business, any rational bank or banker will want to see a business plan to assure themselves you are a safe investment for them to deposit their money for a safe return on their investment. This is a superb tool that will help you define your business, target market, market demographics, long- and short-term goals, financing structure, and more. The end result will help you prepare for a more structured, organized business. Be prepared for one thing. Many people who go into self-employment do so knowing what they do and loving it to the death. The caveat to that is to realize that there will be the drawback of having to do the paperwork and the administrative side of a business as well as the exciting part of plying your trade or practicing your profession.

That's all for this entry. Please write and ask questions. I'll be glad to answer questions and to use your questions for future posts.



Gary