When you start a business from home, a business plan is necessary if you are going to ask for financing from investors or lenders. Even if you plan on self financing, a business plan can provide a road map to guide you to success and identify the costs and processes you overlooked or underestimated. It helps you really think out the details of your business. – to look ahead and plan resources.
Since we’re discussing a business plan to start a business from home, we’ll assume the financing amounts are modest and the process not as complex as non-home business. After all there’s a practical limit to what you can do starting a business in your home.
When we were starting a medical billing business, we never really sat down and planned the business out. Granted we started very small - basically just a desk and a computer - and grew gradually. Seems like all the planning we did was on-the-fly or on the back of an envelope. We were self financed so we didn’t have to sell our business plan to any bankers or investors. Despite this there were a lot of things that if we would have planned and prepared for would have made growing a lot smoother.
A good business plan should explain the following:
Business plans come in all shapes and sizes. But effective ones have a good summary. Its usually the first thing your potential investor reads so it needs to have a strong impact in selling your idea. If you’re just preparing for your own self financed home business, it doesn’t need to be as structured – it’s for your benefit as a tool for planning to start a business from home.
Here’s the important sections or topics to consider when drawing up a business plan to start a business from home:
The Product or Service, Description of Business, and Management Team are pretty self explanatory. We’ll look at the other topics:
Summary for Cheesecake Business Example
The summary should include a brief description of your product or service, the type of funding you are requesting and how much, the purpose of the loan, major capital expenditures, equity share for the investor if any. Its also a good idea to give a brief description of your and your business partners qualifications that demonstrates your competence and gives the potential investor confidence you know your stuff.
Let’s say we wanted to start a home business making and selling cheesecakes. A good summary might be:
Lee’s Decadent Cheesecakes provides delicious Bavarian cheesecakes made from the finest ingredients. In addition to a great culinary experience, Lee’s Decadent Cheesecakes have a unique crust and appearance creating a memorable indulgent experience for the consumer.
Our keys to success:
Projected sales after 6 months will be $2000 a month. Start up costs will be $10,000 for the purchase of necessary equipment, establishing a web presence, in addition to legal and accounting costs associated with establishing the business.
You may also want to provide a detailed cash flow estimation to demonstrate the specifics of how you will become profitable.
Market Strategy To Start A Business From Home
This is where you would define the market for your product or service. You might base it on your experience, research, the competition, etc. You want to address your potential market, the competition, and your potential customers. Our marketing strategy needs to be in sync with our financial plan and sales goals.
Define the customers you are going after and how you plan to reach them, your unique selling position, and how you differentiate yourself. For our cheesecake home business, it’s the unique look and texture of our cheesecakes. The emphasis on quality ingredients and freshness as well as locally made would differentiate our product.
This is a good place to address pricing strategy and distribution. For our cheesecake example we may want to consider distributing to local coffee shops or restaurants - maybe even grocery stores. Our pricing would be in the $30 to $40 range based on our experiences selling cheesecakes on a small scale, and the success we’ve had. For corporate customers we may want to consider offering nicer packaging at a higher price.
Due to the type of product we’re selling, we’re pretty much limited to a local market – at least when we start a business from home. Shipping cheesecakes can be expensive and the need to refrigerate is another limitation - although there is a restaurant chain specializing in cheesecakes that will ship them. That may be a long term retail outlet.
We would want to make use of friends and family, Facebook. I think corporate customers would be a good outlet as something like a gourmet cheesecake would be a great way to reach their customers – especially if they are delivered with unique packaging and presentation.
A big part of this type of business is letting people experience your product. For example you might want to prepare samples with clever packaging and target to a corporate building. Word-of-mouth would be a good marketing strategy – but it will only get you so far.
One of the most important considerations is a financial plan or cash flow plan. We need to perform a financial analysis to demonstrate our business is sustainable and prove it will make enough to pay expenses and make a profit. Be realistic and reasonable. If you end up with an analysis that shows you have to make and sell 20 cheesecakes a day – that’s not feasible when you start a business from home. You want to show how you plan to spend money and operate until your business becomes profitable – and how long you think that would be.
Say our short term goal to start a business from home with our fictitious cheesecake business is to make $1500 of income profit a month- what we will clear after expenses. We need a plan to get there. This plan would include:
I realize some of this is overkill for a cheesecake business but bear with me – our ultimate goal is to make much more than $1500 a month.
And let’s say you estimated the cost of ingredients to be $8 per cheesecake. And through extensive market research (the cheesecakes you’ve been making and selling during the holidays) you’ve determined that people don’t think twice about paying $25 per cake. With nice packaging and presentation you could easily justify $30 each. (FYI – One of the major restaurant chains that specializes in cheesecake charges between $46 and $52 for a 10 inch cheesecake online)
Your gross profit per cheesecake will be: $30 - $8 = $22 per cheesecake.
Now we need to determine our net profit. This takes into account the cost of operating the business. Say we determined it would cost $10000 to start a business from home and we obtained a loan (OK we put it on a credit card) that costs $150 a month to pay back.
Our other costs are (again these are fictitious costs I just made up for this example):
So let’s say your total monthly operating costs are $500 per month.
In order to meet our goal of $1500 a month, let’s determine how many cheesecakes we would need to sell:
$1500 = $22 (profit per cheesecake) X Number of Cheesecakes - $500
Number of Cheesecakes = 90
So to clear $1500 a month ($2000 total sales) you would need to make and sell 90 cheesecakes – or about 23 a week.
To take this further say our ultimate goal is to make $4500 a month. To get an estimate we could multiply 3 times the number of cheesecakes necessary to make $1500 = 270 cheesecakes a month or about 68 per week – that’s a lot of cheesecakes!
You have to remember that to achieve those kinds of goals it becomes a little more complicated and your costs may not be linear. Chances are you would need to hire help, need more equipment, possibly more space. So you have to factor those costs in when trying to project your growth.
Cash flow analysis is very important to show there’s enough income to order supplies, pay expenses, etc. Especially initially, your start up expenses can be significant so it’s important to plan for those in your initial start up funding.
Good Resources To Start A Business From Home
The Small Business Administration (SBA) has a good comprehensive guideto writing a business plan.
A site called Bplans has example business plans for a wide variety of businesses.
The purpose of the implementation part of your plan to start a business from home is to provide specifics on how you plan on reaching your financial goals. Try to set quantifiable and reasonable goals and timeframes to address:
For our example these would be things like:
Goal: Renovate basement to install 2 industrial ovens and 2 industrial refrigerators along with 1200 square feet of space dedicated to the business.Cost: $4000 (also list other resources needed)Completion Date: 6 months from receiving funding.
Goal: Initial marketing promotion. Create marketing materials and website. Press release to local press outlets with samples. Announce business via social network outlets (Facebook).Cost: $1000Completion Date: 3 months up on completion of basement renovation.
Goal: Obtain business license.Cost: $300Completion Date: 3 months from obtaining funding.
In summary a business plan to start a business from home serves two purposes: to plan your business and as a tool to sell your idea to a lender or investor for funding. Even if you plan on self financing your home business, a business plan is a great tool to capture all the expenses and tasks that you should consider.
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