Business Management

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The LGBT Entrepreneur 10 Steps To The Perfect Business Plan

December 22, 2017 (updated April 19, 2021) Published by Dennis Velco

Every business needs a plan. Your business plan will keep you focused and help convince investors to lend you money. But what needs to go into the perfect business plan? Here are 10 steps to help you get it right.

Why do you need a business plan?

You may be wondering why you need a plan in the first place. After all, you have a clear idea in your mind about what you want to achieve. You know the market, you have the necessary skills. So why do you need a plan?

There are many good reasons. Here are just a few of them:

To clarify your ideas
Writing something down gives it structure and substance. Your ideas will be clearer on paper than in your head.
To discover and solve problems
The business idea you have in mind may have some holes – you might not have covered everything. This will become much more apparent when your words are on the page.
To get feedback from others
A properly written business plan can be shared with trusted people to get their advice.
As a formal document
Banks, investors, accountants, and lawyers will want proof that you’re serious about your business. A written plan will provide that proof.
To guide you as your business grows
A good business plan will keep you on track and focused, even as day-to-day work becomes a distraction.

If you’ve never written a business plan before, it can be a daunting prospect. But these 10 steps will help you create the perfect business plan.

1. The executive summary

This is where you describe your company and the product or service that it will sell. This must be brief, to catch and hold people’s attention.

Try to describe the goal and mission of your business in just a couple of sentences. Work hard at this and try to make it memorable.

Treat this section as an ‘elevator pitch’ document – it should be short, concise, and easy to remember.

2. Who are your customers?

Do you have a clear idea of the type of people (or businesses) who will buy your product or service? If not, think carefully until you do. Understand who is your target audience.

This is one of the first questions any investor will ask you about your business plan. Have your answers ready:

Know whether your customers will be consumers or businesses. If they are businesses, who will you target within those companies? Maybe it’s the salesperson, or perhaps it’s the CEO?
Determine whether you’ll have regular clients or one-off buyers.
Make sure you’ve actually spoken to some of your potential customers.

3. Evaluate the target audience

There’s no room for guessing here. You need to identify the people who will buy from you. Think about the following:

Demographics – such as age, gender, and social status.
Firmographics – this applies when selling to businesses. Firmographics include the size of the company, revenue of the company, and services or products of the company.
Location – perhaps a specific area, town, or even country.
Profession – maybe you’re targeting accountants, police or lawyers, for example.
Groups – such as people with shared interests or habits.

The better you evaluate your target audience, the more comprehensive your business plan will be.

4. What are your opportunities?

Successful businesses think big. You might be starting small, but you don’t have to stay that way. So write down the possible opportunities for your business as it grows. Check out our article turning your hobby into a business.

For example, perhaps you’re planning to start by selling over the internet. That’s great, but how will you get traffic to your site? How will people find you online? Will you need salespeople? If not, how will you convince people to buy from you?

As the business grows, is there scope for a bricks-and-mortar retail outlet? What other opportunities will you have if your business grows as planned?

Understand the competition

Every business has competition. If you don’t mention yours, investors will think you’re unprofessional – or just plain naive. You must understand your competitors. Be thorough, and list all your existing and potential competitors:

Who are your direct competitors – those selling the same products or offering the similar services as you?
Who are your indirect competitors – those whose market overlaps yours?
What will prevent other companies from competing with you – what are the barriers to entry?
What is your USP (unique selling proposition)? In other words, what’s your point of difference that makes you different from your competitors?

That last point is important. You need to explain how your business will differentiate itself from all the others. That might be based on price, service, quality, range or value. Make sure you spell it out.

6. Build a simple financial plan

All business plans should contain some financial information. This should include the overall costs of setting up your business. For example:

Cost to make or buy products.
Costs for labor and manufacture, including raw materials.
Staff costs, especially for service businesses.
Distribution and marketing costs.
Fixed and variable overheads.

Good accounting software will help you create a draft financial model. We’ll look into this in more detail in a future guide. For now, talk to your accountant or bookkeeper for help and advice.

7. Include an outline marketing plan

Every business must do some level of marketing. For this section of your business plan, you need to think about the five ‘Ps’:

Pricing – how will you price the end product?
Positioning – how does your product or service fit into the market?
Promotion – what channels will you use to attract and communicate with customers?
Profit – how much do you expect to make per item sold?
Place – what are your sales channels?

8. Plan your operations

Put your vision to one side for a moment. What are the daily tasks that need to be done when running the business? Include all business processes such as manufacture and packaging. Try to cover all departments too, including sales and customer service.

9. Get the right people

This is one of the most important factors. Think about who you want to hire. How will you find people whose skills complement yours? And how will you convince them to work for you?

Also think about who you want as your business advisors. You’ll need people you can trust, to guide and mentor you at times when you need it.

10. Simplicity is the key

Keep it simple. Complex and long documents won’t be read – either by you or by potential investors. A business plan should be brief, relevant, and focused.

If you find yourself getting carried away while writing, stop, and take a break. Then go back and edit what you’ve written. Shorter is better. The core of a good business plan should be just a few pages long.

Plan your business around your strengths

As you write your business plan, keep in mind your strengths – and also any areas for improvement. This will help you construct a plan that makes the most of your abilities, while still being realistic. That’s more likely to convince investors that you’re serious.

Your business plan is a roadmap for your business – but it’s not set in stone. Review it at least once a year and make changes if necessary.

Above all, keep getting feedback from your advisors – official and unofficial ones. With their help, you’ll create the perfect business plan that takes you where you want to go.

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LGBT Business Owner How Much Should You Pay Yourself?

December 22, 2017 (updated April 21, 2021) Published by Dennis Velco

You are an LGBT Entrepreneur and started your own business to do something you love and make money.

You rock.

You are AWESOME.

Likely little nuts like most risk-taking entrepreneurs, but we LOVE YA.

But how much should you pay yourself? Too little and you may struggle to survive. Too much and your business might be at risk. So how do you strike the right balance?

Take the guesswork out of your salary

For many, the chance to set your own salary sounds like a dream come true. But small business owners know the reality is a little more complicated.

You should only pay yourself out of your profits – not your revenue. When you see money coming into your business, don’t assume you can pay yourself a big slice of that. Before you take your cut, you also need to take account of things like taxes, payroll, fixed costs and overheads.

Good accounting software will really help you work out how much you can afford to pay yourself. It will let you keep track of all expenses and calculate profit rather than revenue or turnover. It will also help identify areas you can make tax deductions.

Setting your own salary will depend on your location, your industry, your profits, and how much you want to earn. But there are a few things to think about that can help you land on a reasonable figure.

Don’t undervalue yourself

If your business is still in its startup phase, you might not turn a profit during your first year. Of course, this doesn’t mean you shouldn’t pay yourself.

There’s no point in being a complete miser with your company’s money if it causes you financial and emotional problems. Personal money issues are a big cause of stress, and if you’re stressed then you won’t make good business decisions.

Undervaluing your time and the work you’re doing can harm your productivity and your business, so you should pay yourself enough to live comfortably without worrying. Take out what you need to avoid causing problems for your business and your personal life.

Add yourself to the payroll and pay yourself regularly

Don’t just dip into your business funds as and when you need to. Set up payments for you and your employees (it may be weekly or monthly) in your payroll software, and stick to them.

Build that into your business plan right from the start, perhaps with a rising salary as your business grows. That way you’ll get used to the amount of money you receive and won’t have to worry about taking out occasional large lump sums.

This will also look better to your employees. Regular small payments will be more acceptable to them than random large lump-sum withdrawals from the business. They will also look more acceptable to the government, too. If you take out big sums of money at irregular times, it may raise eyebrows at the tax office or lead to an audit of your company.

Take out ‘reasonable compensation’

Depending on where you live in the world, ‘reasonable compensation’ or a similar term may apply to you. This is known as the amount of money that the government expects you to take from your business. It depends on the size of the business, the market sector, and the level of turnover and profit.

Here are some pointers for what’s a ‘reasonable’ amount:

How much would a similar business pay for the work you do in your role?
What do recruitment ads and agencies offer to pay for someone in your position?
Are your wages equal to your duties and are those duties being performed?
Do your wages seem reasonable when you take into account your level of responsibility and the amount of business you handle?
Is your pay directly related to the amount of time you spend working?
Does your pay seem reasonable when compared with your employees’ wages?

You can also talk to founders of other, similar businesses and try to find out roughly what they pay themselves. This is a good way to start networking, though you might have to be tactful about it. And take a look at your government’s tax websites for further guidelines.

Consider the legal structure of your business

How much you can pay yourself, and when, might be restricted by the legal structure of the business you run.

For example, if you’re a sole proprietor you’re usually free to pay yourself whatever and whenever you like. That’s partly because you’re not accountable to shareholders or stockholders.

But other types of business, like incorporated businesses, usually have the business owner on the payroll. They would receive wages on a regular basis, just like any other employee.

However, the rules do vary from country to country, so check with your accountant before you decide anything. Be sure to record all transactions in your accounting software so you have an audit trail too. Do this just in case the tax office decides to investigate your payments to yourself.

Be tax-efficient: Five pointers

Now you’ve decided how much is a fair salary for you, what’s the best way to withdraw that money from your business while remaining as tax efficient as possible?

There’s no one-size-fits-all approach because tax laws vary from one jurisdiction to another. Tax rates and allowances will also vary depending on how your business is legally structured. Here are some ideas to consider:

Take a straight salary
It’s simple, easy to manage and account for, and is unlikely to raise any eyebrows. It’s not always the most tax-efficient option, though.
Balance salary with dividend payments
If, as the business owner, you also own stock or shares in your company, you could take a minimal salary and then pay the remainder out of dividend payments. This can be more tax-efficient (since dividends are usually taxed less than the salary). Make sure you check the legality with your tax office first.
Take payment in stock or stock options
This can be a useful way of paying yourself in a tax-efficient manner.
Take a combination of salary plus annual bonus
This arrangement isn’t just the preserve of the banking industry and it can be tax efficient in certain circumstances.
Create a business agreement to pay yourself later
If you’re not desperate for money right now, you could create a written business agreement to pay yourself later, deferring payment to yourself. But this becomes a liability for the company and would need to be accounted for.

Don’t forget deductions, expenses, and benefits

Leaving aside wages, there are some great financial benefits to running your own business. Medical insurance and 401(k) contributions are just two types of benefits to consider. They can make a big difference to your personal financial situation and they’re legitimate business benefits.

Here are some examples of expenses that can be offset against the tax your company pays:

Car expenses (business mileage of your car)
Mortgage interest payments (if you work from your home)
Capital equipment expenditure (such as new computers).

You’re not usually allowed to claim expenses in the “personal, living or family expense” category. But you can claim for the business use portion of an item. This might mean you get to drive a new car in your personal life at a reduced overall cost. When in doubt, check with your accountant to find out what will work for you.

Invest money for growth

The money you take out of the company (that doesn’t relate to your business) is money that can’t be used for investment and business growth. You’re likely to be taxed on money you take out, so the real value of the money you keep in the company is even greater. That’s because it will be untaxed or offset against tax, depending on how it’s used.

If you think your business is going to grow in the future, it makes sense to use some of your profits to help fund that growth. The more money you invest sensibly into your business, the more likely it is that your company will grow. And that means you should be able to pay yourself more at a later date.

When not to pay yourself

If your business is going through a tough time financially, it’s usually not a good idea to take any money out of your business for personal use.

You should avoid taking any money if your employees haven’t been paid. It looks bad, and would seriously affect their morale if you did.

When you owe a lot of money it’s also wise to refrain from paying yourself a large amount. Creditors are unlikely to be impressed if you’re still taking home a large pay packet while their invoices or loans remain unpaid.

Pay yourself what you deserve

Ultimately the amount you pay yourself will depend on the success of your business. The more money your business brings in, the higher the salary you could reasonably be expected to draw from it.

It makes sense not to get carried away and pay yourself too much, for reasons described. But if your company is profitable, there’s no reason why you shouldn’t reward yourself for that success.

LGBT Entrepreneurs Leverage Key Performance Indicators in Your Business

December 22, 2017 (updated October 12, 2020) Published by Dennis Velco

How do you measure the success of your business? How do you find out where it’s performing well and where there’s room for improvement? KPIs (key performance indicators) can help you. Here’s how they work.

KPIs are useful tools to help you measure the performance of your business. But you need to use them sensibly.

Using KPIs can give you better business insight

Doctors use KPIs to measure our health and wellbeing. Our body mass index (BMI), blood pressure, and cholesterol level are all KPIs that have a specific medical meaning. In the same way, business KPIs carry specific meanings too. Debt/equity ratio, receivables days, and gross profit percentage are all measures that have specific meanings in a business context.

Key performance indicators are used by businesses of all sizes. KPI measurement uses data to show how well your business is performing. They will be different for each business, but the basic idea is the same. That is, to measure the important features of your business.

On its own, your blood pressure reading only says a little about your overall health. When you combine this with cholesterol levels and BMI, you and your doctor get a more informed picture of your health. In the same way, a business KPI tells a small part of the story about your business. Looking at set of business KPIs or metrics tells a bigger story. Measuring KPIs helps you understand your business from top to bottom. You can use that knowledge to make effective, strategic decisions.

Choose what you measure with care

Think carefully about which areas of your business are suitable for measurement. Different sets of metrics are important for different businesses. Focusing on the right ones gives you early confirmation of success or early alerts to potential problems.

Your accountant will be able to help you decide which are the important KPIs for you. When they advise you about this they will consider:

the field that you are in.
your business size and location.
where you are in your business life-cycle.
what your short and long-term business goals are.
any unique personal circumstances you have.

What does a KPI look like?

A KPI is a metric, which means it’s a way of measuring your business. To be effective, it should be:

Relevant
The best metrics are those that have the most impact.
Balanced
Measure short and long-term KPIs.
Understandable
Everyone in the business should know what the KPI means.
Shared
Everyone in the business should know why it’s important.

Financial KPIs come from the data in your accounting system. Non-financial KPIs come from data outside of your accounting system, such as your website and your CRM system. This guide focuses on financial KPIs.

Here are examples of what you might measure:

Debtor days
Average margins
Inventory turnover
Debt ratio
Net profit percentage

Identify the key areas you want to measure

If you’re measuring key performance indicators then you need to concentrate on your key areas of business. There’s no point in measuring things that won’t make a difference to your business over time.

How many KPIs should you measure? It depends on your business. Small businesses may only need half a dozen or so. Larger organizations might have that many per department – or even per manager!

More doesn’t necessarily mean better, so don’t get carried away. Too many metrics can complicate the picture. Make sure you have just enough to give you a clear overview of your business. Your accountant will be able to help choose the ones most relevant for you.

Understand what your metrics are telling you

KPIs are useful tools to help you measure the performance of your business. But you need to use them sensibly. Don’t just take them at face value.

A sales dip recorded by a KPI might be due to seasonal variation. For example, people don’t buy much winter clothing in the summer. There’s not a lot you can do about that – it’s not the fault of your sales staff.

Similarly, inventory turnover might drop because you bought lots of inventory while a supplier had a sale. Normally a drop in inventory turnover would be a bad thing. In this case, you would monitor inventory turnover to check that it returns to normal as you sell the surplus inventory.

So it is important to understand what KPIs are telling you before you try to solve a problem. If you use common sense, key performance indicators are useful tools. Again, your accountant can really help out by interpreting the message the metrics are giving you.

Four KPI groups to improve your business

Effective key performance indicators can be organized into groups. Here are four groups that could have a big impact on your business.

1. Efficiency

Reducing waste and making the most of your resources.
Finding ways to improve staff productivity.
Lowering inventory days on hand to reduce storage costs.

2. Growth

Increasing your sales, measured by gross and net revenue.
Improving wealth, measured by business equity.

3. Health

Balance debt and equity levels to the best proportions.
Balance inventory levels with trade payables to get the best performance.
Optimizing trade terms to speed up receipts.

4. Resilience

Reducing credit risk by optimizing debt levels.
Improving profitability to increase interest coverage.
Reducing financial risk by increasing equity-to-asset levels.

These are just examples. No doubt you can think of others that might apply to your particular business.

Remember, you can use modern accounting software to track some of these KPI groups. And if that software is cloud based, you can keep an eye on your KPIs from anywhere and at any time.

Get a better view of your business

As you can see, key performance indicators are useful in all areas of business. But it’s important to use them in the right way and not just define a KPI and then forget about it. Make sure that whatever you choose to measure is reviewed and tracked on a regular and frequent basis.

KPIs will help you get a clear view of where your business is now – and where it’s going. Used properly, they help you take the pulse of your organization’s health.

Category: Business Management