From Part #1 of this blog I made the case that creating a business plan prior to starting your business is essential because statistics show that creating a plan before you start, dramatically increases your probability of success. I also wrote that from experience I know that going through the business planning process verifies that you are starting the right business for you. In this blog post I would like to cover another critical reason why doing a business plan before you start your business is so important.
One of the problems that new small business owners have is that they do not charge enough for their products or services. One of the reasons for this is that most small business owners are not even aware of how much they need to charge in order to stay in business! This may sound astonishing, but it is true. New BizOwners often set their prices by guessing instead of actually seeing what they need to charge in order to become a solid, profitable business. The only way of knowing for sure if your prices will make you enough to survive AND grow the business is to do some simple projections and let the numbers speak the truth! By doing simple projections you will see how many sales you need to breakeven at the “guess” prices, and then you can change your prices to see how raising your prices can get you to breakeven a whole lot faster. Playing with numbers is one of the things I strongly encourage when you are creating a business plan.
One big advantage of having the numbers (financials) help set your prices is that you now know what you need to charge in order to have a “real” (profitable) business. Knowing this makes you are far less likely to discount and give stuff away, which is something new small business owners do too much! Here is some good news for you…Doing projections is really easy. When I was creating the 21 Question Business Plan™ I wanted the numbers part to be so easy anyone could do it. Six of the questions in the 21 Question Business Plan™, deal with creating a financial projection spreadsheet. Just answer these six questions, insert your answers into our program and you have a great set of projections for your new business.
More will follow on this topic of why you need a business plan before starting your new business. Remember if you would like to comment on this blog or have me answer your new business question, e-mail me at firstname.lastname@example.org.