If you have an idea for a business floating around in your head, it’s easier than you might think to figure out if it will work.
A bit of detailed business planning can help you learn—before you invest your savings or open doors—whether or not your new launch will be profitable.
Here are five steps that will help you create a business plan with minimal risk.
How to Create a Profitable Business Plan
1. Research the market.
The worst thing you can do when launching a business is to ask family and family if they like your product or service. Of course they’ll say yes!
If you launch based on that positive feedback, you might find yourself waiting for buyers who never materialize.
The first step to evaluating a business idea is to find out if you’re creating a demand in the marketplace or satisfying a need that already exists.
Does your product or service have competition? If so, who is it? Find out your competitors’ pricing structure, where they sell, and how they market their product or services.
This will help you with product planning, pricing strategy, distribution methods, identifying a target audience, and advertising and promotions.
2. Test the market.
If you can create a sample of your product, service, or website platform, test it with some blind sampling. Talk to retailers (online or brick-and-mortar) about selling your product. What price would you need to charge, and what profit margin do you need to make? Ask the retailer what type of marketing support they need (e.g., introductory discounts, coupons, free samples, etc.).
Let potential customers (who are not friends and family) try your product or service. Tell them you’re beta testing and looking for feedback so you can make adjustments. By approaching strangers instead of friends, you’ll be more likely to get realistic feedback.
Consider doing some formal surveys or focus groups too—free platforms like SurveyMonkey are good resources for gathering feedback and analyzing reports.
3. Run the numbers.
Now that you know a little more about how you need to set up your product or service, figure out how much it will cost to make and sell it.
First, divide your costs into four areas:
- Production: The expenses to make each unit of what you’re selling. If you’re offering a service, you’ll need to figure out your hourly or project rate. To do that, decide how much you want to earn every year and divide it by your potential sales.
- Overhead: The overhead includes every expense that’s related to running your business. It probably includes paying for phone services, rent, marketing, insurance coverage, business licensing, staff, shipping, and other non-production costs.
- Taxes: Plan to pay sales taxes and income taxes based on your profits.
- Profit: Once you have those numbers figured out, figure out how much money you’re going to have to tack on to each unit to make your desired annual salary or profit.
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4. Write a business plan.
You’ll be able to create more accurate projections, attract investors, and successfully launch and run your business if you write a detailed business plan.
Take as long as you want to write your plan. Some people write and update their plans over the course of several years. Then, when they are out of work, or they’ve come into investment money, they’re ready to go.
Start writing your business plan by creating an outline first. This will let you write your plan a section at a time, when you’re available or feel inspired.
Here’s a good tutorial to get the ball rolling. There are also plenty of examples and templates you can download online.
5. Get professional advice.
Once you’ve written your business plan, show it to associates who can evaluate your ideas and offer advice. Ask people who are in the same business as the one you’re thinking of launching, as well as those outside the field with executive or entrepreneurial experience.
Check out SCORE (formerly, the Service Corps of Retired Executives). This nonprofit organization can pair you with a retired business professional who will review your business plan for free. You can also visit the website of the U.S. Small Business Administration for more free advice on starting a business.
Do you Have a Dream or Daydream?
If you’re waiting for the “right time” to start working on your business plan, or waiting for a partner who will help you, you have a daydream. A dream is something you make happen.
Start working on your business idea this weekend. Set aside some time on Saturday morning or Sunday evening to create a list of action plan items.
Remember, slow and steady wins the race. By scheduling out time to work on your business plan each week, you’ll complete small, manageable tasks over the course of the next year until you’re ready to launch.
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