Stage 1: Business Design & Planning

Don’t just dive into business, take time to design your own masterpiece


Most people take starting a business for granted. You shouldn’t!

The success of any business is usually in the planning; both at the beginning and at regular intervals.

Business planning stage: Issues to address

Before you set out to run a business, there are issues that you need to research and decide on. Going through these may take you some time but it can save you a lot of pain in the future. The business planning stage helps you decide if your business has any real chance at success.

Business Environment Analysis

The truth is, your business operates in a landscape of overlapping ecosystems. The better your analysis of your business environment, the more effectively you will be able to position yourself to take advantage of opportunities and navigate potential threats.

Primarily, business environment analysis is the process of identifying internal and external elements which may affect your business’ performance. In order for your business to be a success, you have to scan its environment to assess developments and understand factors that can contribute to its success. Thus, business environment analysis helps you identify your customers, threats, happenings in the marketplace as well as to forecast the future.

A PESTEL business environment analysis systematically evaluates your position relative to political, economic, social, technological, ecological and legal factors. Another type of environmental analyze includes the evaluation of the strengths and weaknesses of your company’s internal environment as well as external opportunities and threats. This is called SWOT analysis.


SWOT stands for strengths, weaknesses, opportunities and threats. It is a strategic method used to evaluate places (business locations), products, price and promotion strategies. This powerful strategic tool identifies the internal and external factors that may affect your business future.

The internal factors are the strengths and weaknesses of the evaluation. Internal factors are financial resources, company’s location, employees, software systems, legal elements like patents and copyrights and business processes. The external factors are the opportunities and threats. These include the market, demographic and economic trends, relationships with suppliers and business partners as well as regulations.


These are your strengths that can contribute to achieving your intended objectives. When formulating the strengths, it is important to approach these from an internal perspective as well as from the perspectives of the customer and the market. It is necessary to remain realistic in order to prevent that the organization or the project from being positioned too highly with respect to the market and the competition. To determine what they are, you should ask yourself the following questions:

  • What advantages do you want to offer to customers?
  • What do you want to do better than your competitors?
  • Why would customers choose you over competitors?
  • Which factors have a significant influence on the buying behavior of your customers?

These are weaknesses that may have a negative effect on achieving your intended objectives. To determine what these weaknesses are, the following questions should be asked:

  • What could be improved by your business?
  • What should especially be avoided within the business?
  • What are customers likely to see as your weaknesses?
  • What factors make you lose customers or market share?

These are the opportunities that present themselves for the business. To determine what these opportunities are, the following questions should be asked:

  • What interesting trends should your business respond to?
  • What are the opportunities for the business?

These could be possible obstacles that can negatively influence the business from the market. To determine what these threats are, the following questions should be asked:

  • What possible obstacles or external risk can be identified for the business?
  • What is the financial situation of the business?
  • Can new technologies pose a threat to the business or project?
  • Do the identified weaknesses pose a threat for the project or business?
  • How can you meet the quality requirements of the market and how you can compete with other suppliers?

b) PESTEL – Political, Social, Economic, Technological, Ecological, & Legal factors

A PESTEL analysis is a framework or tool used to analyze and monitor the macro-environmental (external environment) factors that have an impact on a business. The result of which is used to identify threats and weaknesses which is used in a SWOT Analysis.

Political Factors

These are all about how and to what degree a government intervenes in the economy. This can include government policies, political stability or instability in overseas markets, foreign trade policy, tax policy, labour laws, environmental laws, trade restrictions and so on. Political factors often have an impact on organizations and how they do business. Your business needs to be able to respond to the current and anticipated future legislation and adjust your marketing policies accordingly.

Economic Factors

Economic factors have a significant impact on how you do business and also how profitable it will be. Factors include economic growth, interest rates, exchange rates, inflation, disposable income of consumers and businesses and so on. These factors can be further broken down into macro-economic and micro-economic factors.

Macro-economic factors deal with the management of demand in any given economy. Governments use interest rate control, taxation policy and government expenditure as their main mechanisms they use for this. Micro-economic factors are all about the way people spend their incomes.

Social Factors

These are also known as socio-cultural factors. They are the areas that involve the shared belief and attitudes of the population. These factors include population growth, age distribution, health consciousness and career attitudes. These factors are of particular interest as they have a direct effect on how you understand customers and what drives them.

Technological Factors

We all know how fast the technological landscape changes and how this impacts the way we market our products. Technological factors affect marketing and the management thereof in three distinct ways:

  • New ways of producing goods and services.
  • New ways of distributing goods and services.
  • New ways of communicating with target markets.
Ecological Factors

Ecological factors have become important due to the increasing scarcity of raw materials, pollution targets, doing business as an ethical and sustainable company and carbon footprint targets set by governments. These are just some of the issues you might face in doing business. More and more consumers are demanding that the products they buy are sourced ethically and if possible from a sustainable source.

Legal Factors

Legal factors include health and safety, equal opportunities, advertising standards, consumer rights and laws, product labelling and product safety. You need to know what is and what is not legal in order to trade successfully. Conclusively, business environment analysis is central to business growth, success and survival. Knowing your market niche structure, how well your competitors are doing and whom you will be creating value for is essential in designing your business. Competitive advantage is key in business.

Market Research

Growing a business is not easy. You can have the greatest concept or business idea in the world, but there are so many other factors, all interconnected, that determine success or failure. Never ever has a business been able to succeed without conducting a thorough market research of its audience, products and services.

Specifically, market research helps you strengthen your position, minimize investment risk, identify potential threats and opportunities and facilitates strategic planning. Market research is the systematic approach used to gather information about your audience, your competition, your business and how the three all interact. It’s a crucial step in developing everything from your unique selling proposition to actually figuring out what platforms to connect with clients on. Generally, the process is carried out through techniques such as surveys, product testing and focus groups.

For instance, in July 2011, HP introduced its own TouchPad in an attempt to compete with the Apple’s iPad. Despite large scale press events and promotions, the HP TouchPad was a colossal failure and was discontinued almost immediately. People were now used to the Apple iPad with powerful video capability and impressive processing speeds unlike the HP one. Thus, thorough market research helps you understand your customers’ preferences as well as monitoring competition with minimizes investment risks.

How to conduct market research

i) Problem Identification

Identifying a problem is the first step in the research process. In many ways, research starts with a problem identification. Once you approach the problem from a research angle, it is easier to find a solution. Thus, the problem needs to be understood, the cause diagnosed and solutions developed. You have to know what is lacking in your market niche so that you create a profit making business design. It is of no use to venture into a flooded business line of work.

ii) Identify your target audience

Identifying what audience you want to reach is a huge part of market research because you can’t conduct it properly without that information. You have to know who you are creating value for.

In other words, know who is your product or service meant to help, what niches or groups of people will it appeal it, what do they need and how can you connect with them and are they most likely to engage through email, or Facebook or LinkedIn? When you are identifying your target audience and getting ready to create buyer personas, you should be able to know everything about them. This includes but is not limited to their age, location, gender, income, family size, education, job titles and interests.

iii) Check out your competition

Competitor research is an important part of market research because it helps you to actually understand the market. You have to know who else is out there, what they are offering, how they are offering it and for what price. You want to understand the USPs (unique selling propositions) that they are using and the general value propositions that they are using to appeal to your audience.

This can help you gauge important information such as the price you can charge for your product, value propositions you could use and marketing campaigns that your audiences may be responsive to. For instance, if your biggest competition has the best blog, that may be an indication to invest in content marketing. Again, if you notice that they are aggressively going after Google Ads, you could do some research to steal their own keywords out from under them.

iv) Engage with your prospective audience

At this stage, you want to reach out to your audience and learn more about what they find valuable in your product or service, how it’s helping them and what they would like to see. This will help you whether you want to just get a feel for how your customers feel about your business or if you are ready to develop additional products or services and wondering if they would be a good fit. You can engage with your prospects through questionnaires, focus groups and interviews.

v) Compile your data and analyze it

After conducting your research, compile your data and analyze it. This will help you evaluate your business plan in relation to the market needs and the expectations of your prospects. Most importantly, data analysis will help you offer the best most suitable product or service for your customers, with high demand and at a market responsive price and eventually gain you competitive advantage.

Ultimately, competitive advantage is the greatest asset in business. In a nutshell, market research should be conducted before you start creating your marketing content including your website so that it can properly inform and direct it. You need to consider your specific audience when creating everything from your tagline to what marketing platforms to be used. It will help you to uniquely fulfill and exceed customer expectations.

Your Ideal Customer

The most important activity as an entrepreneur is to clearly identify the very best customers for your product or service. The truth is, no matter how good your product or service is, no one will buy it if they believe they don’t need it. You cannot persuade anyone to buy what you are offering unless you clearly understand what it is your customers really want.

Most importantly, the ability to find a customer, sell your product or service to that customer and satisfy them so that they buy from you again should be the central focus of all your entrepreneurial activities. The greater clarity you have with regard to your ideal customer, the more focused and effective your marketing efforts will be.

An example is that of Readerest Company. In 2010, the American entrepreneur Rick Hopper, created a magnetic pocket filler that allows glass wearers to clip their spectacles to their shirts when not in use. Unlike glasses kept in a loose pocket, the clip prevents them from slipping and crashing to the floor when a person bends over. Rick identified his ideal customers and their problems and created a solution for them. As a result, the product has resulted in enormous profits and since then, they have made over $27 million in sales.

Primarily, once you have this knowledge, you can use it to persuade potential and existing customers that buying from you is in their best interests. Knowing who you are creating value for will save you a lot of investment risks. It helps you offer the right product or service to the right people at the right time. Thus, making profit. Ultimately, there are 10 things you must know about your prospects when designing your business:

  • Who they are
  • What they do
  • Why they buy
  • When they buy
  • How they buy
  • How much money they have
  • What makes them feel good about buying
  • What they expect of you
  • What they think of you
  • What they think about your competitors

How to identify your ideal customer

a) Determine what problems your product or service solves

If you want people to buy your product or service, you need to make sure it will it solve some kind of problem for them. The problems you identify can be anything, as long as you believe there are enough people who have that particular problem to support your business.

However, be as specific as possible when identifying the problems your product solves. Identifying an overly broad problem, such as the need for food, will not be very helpful. You can start with this broad problem, but then narrow it down by asking yourself some follow up questions such as: “where do my customers need food?” or “what kind of food do my customers need?”

b) Analyze your competitors

It’s rare to come up with a product or service that doesn’t already exist. While the idea may be somewhat unique, you will still be part of an existing industry. In fact, other people are already doing what you are trying to do. Therefore, you have to find out how well your competitors are doing and what needs improvement.

Again, know who your competitors are targeting as well as their methods of advertising. This will basically show you how consumers behave in that industry. You can therefore attempt to go after the same market or focus on a group your competition may be overlooking.

c) Consider demographics and psychographics

Demographics and psychographics play a pivotal in identifying your ideal customer. Demographics are socioeconomic characteristics of a population expressed statistically. These include age, sex, education level, income level, occupation, marital status, religion and family size.

Contrarily, psychographic information entails your buyer’s habits, hobbies, spending habits and values. Generally, if you want to identify your perfect potential customer, you have to observe people’s buying behaviours, incomes, how often they buy and why they buy. Again, you have to know how much they are willing to spend, how often, where they stay and their family sizes. Ultimately this information will help you provide the best suitable product or service for the right people at the right time.

d) Consider geographic factors

Location is another important factor when it comes to identifying your ideal customer. This is because it affects your decisions and strategies on your communication and distribution channels. Primarily, geographic factors entail cities, provinces, regions and countries (if your business is international).

e) Determine buying strategies

You should determine how you want your ideal customer to buy your product or service. Following that, know whether people buy similar products or not, how they buy and why they buy. Determining buying strategies will enable you to deliver a product in demand, thus saving you from a lot of investment risks.

Although it may be time consuming up front, determining a target market allows you to focus your marketing efforts in the most cost effective way possible. Understanding the needs of consumers is essential. You can often discover exactly how you can meet consumer needs through careful market research including running a focus group, scanning industry reviews or doing a market survey.

Value Proposition

Starting a business from the ground is a scary and intimidating notion. There are too many unknowns to take the plunge. However, being an entrepreneur means being a smart competitor because from the day you start your business, you are in a battle for the top spot in your niche. To emerge victorious, dethrone the current dominating companies by offering a unique value proposition.

Generally, value proposition is an innovation, service or feature intended to make your company or product attractive to customers. It is a clear statement that explains how your product solves customers’ problems or improves their situation, delivers specific benefits and tells the ideal customer why they should buy from you and not from competitors. It is a promise of value to be delivered, communicated or acknowledged.

Value proposition entails the questions: What problems do you want to solve with your product? What value do you want to deliver to customers and which customer needs do you want to satisfy? The goal is not to be better than existing businesses but to be different. In this modern world’s ultra-competitive marketplace, a critical factor in determining the success of a company is how good of a job it does at identifying, expressing and communicating its unique value proposition to potential customers. Thus, a company’s unique value proposition is a primary marketing tool.

For instance, Uber Technologies is a peer-to-peer ride sharing, taxi cab, food delivery and transportation network company. Its value proposition is to offer a convenient, fast and effective way of transportation. The value proposition of Uber is that with just one tap of the software, a car comes directly to you, the driver knows exactly where to go and the payment is completely cashless.

How to write a value proposition

1. Know who your customers are

First, you need to figure out who your customers are. These are people who are going to buy your product or use your service. Contrarily, a lot of first-time business owners want everyone to be a customer and that is a huge mistake. Marketing to everyone is the opposite of marketing to your target market. If you try to appeal to everyone, your business and product will get lost in the noise. Hence, it is very important to know exactly who you are creating value for.

2. Identify all the benefits your product offers

Write down how your business or product solves a problem or alleviates a pain point for customers. Can your product do something that other products can’t? Does it save time? Is it more affordable than other products? What about your product or service makes it a must-have for customers? Why can’t they live without it? Take that list and cross off any need pain point that your competitors can claim to address too.

3. Describe what makes these benefits valuable

Ask yourself how your product or service benefits are valuable in solving your customers’ problems. However, this is not entirely about the product itself but also how you work as an organization. Are your products valuable? Can someone in your market niche solve the problem you are trying to eradicate? Is there a replacement for your product or service? Can your customers live without it? Once you know the answers to all the questions, then you can produce a product that is best suitable for your prospects.

4. Differentiate yourself as the preferred provider of this value

To separate yourself from your competitors, you have to know who they are and what they stand for. Research your competitors inside and out, from their mission statement to the types of employees they have. You can only set yourself apart if you know what’s already been done. Putting together a competitive matrix can be a helpful way to visualize how you stack up against them. Don’t make the mistake of assuming you don’t have any competition.

In fact, every business has competition, even if you are in a brand new industry. Therefore, when you are writing your UVP, articulate why your customers should buy from you instead from your competitors. You wouldn’t want to produce a product that has a lot of quality substitutes. Eventually, you will make loses.

In short, a good unique value proposition has to distinguish your business from its competitors. It has you show your product benefits and values. Without it, you allow the prospect’s buying decision to become very arbitrary. In such cases, the low price often wins out. Unique features, quality materials, better style, elite service and brand reputation are common attributes on which a company creates its unique value proposition.

Form of Business Incorporation

When planning to start business, the first step is to register your business. However, you have to figure out what type of business you would want to incorporate under. Basically, incorporation is the legal process used to form a corporate entity or company. It is a legal obligation that ensures that a business is operating under the lawful obligations of its control.

Primarily, there are two types of companies in Zimbabwe which are the Private Limited Company (PLC) and the Private Business Corporation (PBC). PBCs are mainly meant for medium businesses. In addition, a PBC accommodates sole traders and has a maximum of 20 directors. With a PBC, members are the same as shareholders and members are responsible for the day to day management of the company. After registration, you get company papers and a certificate of incorporation.

Contrarily, a PLC is meant for larger entities and has a maximum of 50 directors. With a PLC, shareholders are owners and can be different from the directors. Annual returns and meetings are compulsory and directors are responsible for the day to day management of the company. Finally, after registering a PLC, you get a certificate, CR6, CR14 as well as the memorandum and articles of association.

Procedure for company registration in Zimbabwe

The procedure for company registration in Zimbabwe is divided into 2 stages. There is the name search and reservation stage and then there is the incorporation and registration stage. The procedure is basically the same whether you are registering a PBC or a PLC. The name search stage is the same for both company types so we shall list it the same for both.

Company registration steps:
Stage 1: Name search

A request is made to the Registrar of Companies office (also called the DCIP – Department of Companies & Intellectual Property) for a search to be made in the Register of Companies. The following is applicable at the name search stage:

  • The purpose of an application for reservation of name is to get the authority of the Registrar to use a particular name.
  • If the Registrar approves your application to reserve a name, he will reserve that name for you for a period of up to two months to enable you to register your company. He will not allow any other person to use that name during that period.
  • You are advised to give four names in your application so that if one name is not accepted, another one may be. You should list the names in order of preference.
  • The Registrar will not accept a name which is similar to that of another company or is likely to mislead the public or is indecent.
  • The Registrar will give a written notice of whether any of your names were accepted or if they were rejected. This process takes 3 to 6 working days.
a) Reasons why names may be rejected
  • Your chosen name is too close to a registered company or PBC either when written down or when pronounced e.g. OK and Okay.
  • Your company name is likely to be offensive, blasphemous or indecent to any person or class of people.
  • Your company name is likely to deceive or mislead the public e.g. a company called Ministry of Computers.
  • Your company name suggests patronage of the Government or some other authority or organization.
  • Your company name is undesirable for any other reason.
Stage 2: Incorporation and Registration
a) Procedure for registration as a PBC (Private Business Corporation)
  • After your name has been successfully reserved, the documentation for the registration of the PBC must be submitted to the Registrar of Companies. This process involves the appointment of members (shareholders/ directors) of the PBC. Each member is assigned a percentage of ownership in the PBC. The total percentage for all members must add up to 100%.
  • The Registrar will then register the PBC and assign to it a registration number. The Registrar will put his seal, his stamp and his signature to the PBC Incorporation Statement to signify its authenticity. The PBC is also entered into the Company registry and becomes searchable in the Registrar’s database. This process takes 3 to 6 working days.
b) Procedure for registration as a PLC (Private Limited Company)
  • After your name has been successfully reserved, the memorandum and articles of association signed by the shareholders together with the CR6 and CR14 signed by either a director or secretary of the company are submitted to the Registrar of Companies. Each shareholder must sign in their own handwriting and specify the number of shares they have been allocated.
  • The Registrar will then register the PLC and assign to it a registration number. A certificate of Incorporation is also issued. The Registrar will put his seal, his stamp and his signature to the Certificate of Incorporation, Memorandum & Articles of Association and the CR6 & CR14 to signify their authenticity. The PLC is also entered into the Company registry and becomes searchable in the Registrar’s database. This process takes 3 to 6 working days.

In short, one of the first decisions a business owner or practicing professional faces is choosing the best business entity for their organization. This is a crucial decision because it has far-reaching legal and tax consequences. As a result, you must have a vision for your company for the long term as you decide which entity to use.

Vision, Mission & Core Values

Your business core values, vision and mission statements play an important role in business. Primarily, these three define the purpose of the organization and give a clear and effective guide for making decisions while ensuring that all the decisions made are properly aligned with what the organization hopes to achieve. Secondly, they help you to provide your stakeholders with a statement of the company’s purposes, goals and values.

Core Values

Core values are what supports the vision, shape the culture and reflect what the company values. They are the essence of your company’s identity, the principles, beliefs or philosophy of values. Most importantly, your core values educate clients and potential customers about what your company is about and clarifies the identity of the company. Especially in this competitive world, having a set of specific core values that speak to the public is definitely a competitive advantage.

In addition, core values describe what the organization believes in and how it will behave. These values create a compass for the company and its employees. Ultimately, this compass guides decision-making and establishes a standard that actions can be assessed against. They define the held beliefs and principles of the organizational culture.

Following that, core values are enduring , passionate and distinctive core beliefs and they are an essential part of developing your strategy. They are based on enduring tenets, guiding principles, to adhere to no matter what mountain you climb. Your core values are part of your strategic foundation. They are the beliefs that guide the conduct, activities and goals of your organization. They establish why you do what you do and what you stand for.

Next, these are deeply held convictions, priorities and underlying assumptions that influence the attitudes and behaviors of your organization. Strong values account for why some organizations gain a reputation for such strategic traits as leadership, product innovation, and total customer satisfaction. These never change. An organization’s core values can dominate the kind of strategic moves it considers or rejects.

How to develop core values
a) Leadership brainstorming

Firstly, the directors should write a dozen values. These values are supposed to be short, unique, realistic, timeless and in line with mission and vision statements. These are supposed to be written in private without input from the next person. Next, these are shared with everyone and discussed in a meeting, without leaving anything out.

b) Refinement of values

Once sets of values from the leadership have been brainstormed, every director shares his or her set of values with everyone. These are discussed and refined to fewer words. The drafted potential values are made specific and short.

c) Team brainstorming

Once the leadership feels that the potential values drafted are refined enough to open up for discussion, a meeting for all employees should be scheduled. The goal of the meeting is to give everyone a chance to participate, with everyone having an equal voice. Again, during the meeting, drafted core values are clearly explained and suggestions taken. Chances are, you will end up with more than 20 potential company values hence the need for collation and refinement.

d) Collation and refinement

Over the next few days, the directors should refine the shortlisted potential company values.

e) Feedback

Once distributed, the potential values and their meanings are discussed with the entire team, both in person and via email until an outcome is agreed upon. These values and meanings should then be adopted by the company. However, these should be different from any other organizations especially when the entire company was involved in the creation.

f) Adoption

Finally, the agreed company values are adopted by the company to act as the guiding principles of the organization.


A vision statement describes your organization as it would appear in a future successful state. When developing a vision statement, try to answer this question: ‘If the organization were to achieve all of its strategic goals, what would it look like 10 years from now?’ An effective vision statement is inspirational and aspirational. Following that, it creates a mental image of the future state that the organization wishes to achieve. Most importantly, a vision statement should challenge and inspire both your internal and external stakeholders.

How to create a vision statement

a) Identify the goals and aspirations of your business and industry b) Ask yourself the big questions:

  • What ultimate impact do l want my brand to have in my community, industry and world?
  • In what way will my brand ultimately interact with customers and clients?
  • What will the culture of my business look like and how will it play out in employees’ lives?

c) Connect the answers and your aspirations. d) Write your vision using present tense. e) Use clear, concise and jargon-free language.

Mission Statement

A mission statement explains your company’s reason for existence. Primarily, it describes the company, what it does and its overall intention. In addition, the mission statement supports the vision and serves to communicate purpose and direction to employees, customers, vendors and other stakeholders.

How to create a mission statement

a) Define what your business does for its customers e.g. “We make this possible by offering a wide range of well-designed, functional home-furnishing products at prices so low that as many people as possible will be able to afford them”.

b) Define what your business does for its employees e.g. “We have a mission to be the world’s most respected service brand. To do this, we have established a culture that supports our team members, so they can provide exceptional service to our customers.”

c) Define what your business does for its owners e.g. “Warby Parker was founded with a rebellious spirit and a lofty objective: to offer designer eyewear at a revolutionary price, while leading the way for socially-conscious business.”

d) Discuss, polish, review and revise – good mission statements serve multiple functions, define objectives, and live for a long time. At this stage, edit the drafted statement(s) and polish it.

Above all, an exceptional mission statement should be simple, straightforward, articulate and consisting of jargon-free language that is easy to grasp. Also, it should motivate, describe the overall purpose of the organization and should set the tone for priorities. Lastly, your mission statement should include sufficient description of the organizations’ mission.

In conclusion, your company’s mission, vision and core values play a pivotal role in the survival and growth of your business and brand at large. These motivate, inspire and convince you prospect to buy from you other than their competitors. When well designed, they can positively shape people’s perceptions regarding your company.


Positioning has always been an important element of setting up a business. Your success as a business depends on how well you are positioned to be found. Positioning includes various factors, from location, the price of your product or service to the message you use to promote the business, online and offline.

Generally, if your business address is far away from your target audience, especially if you sell offline, prospects may find it difficult to locate you. Conversely, if you choose a city centre location or one which is well-regarded as a business centre, prospects may be more inclined to convert. Hence, knowing the ideal location for your business will save you from colossal investment risks.

Overally, choosing a location for a new business is the most important decision entrepreneurs have to make during the planning phase of launching ventures. Primarily, the location of your business can affect many aspects of how it operates, such as total sales and how costly it is to run. Even home-based businesses and online businesses can be affected by location-dependent rules and regulations.

What to consider when choosing your business location

1. Demographics

When choosing the ideal location of your business, you have to consider your prospects’ age, race, religion, gender, family size, ethnicity, income and education. Demographics can be segmented into several markets to help your business target its ideal consumers more accurately. With this type of segmentation, you can categorize the needs of your consumers. More importantly, ensure that the demographics match your market and achieving your sales will be that much easier.

Also, consider foot traffic. Is your business of such a nature that foot traffic will help sales? If so, you would need to find a location which meets these targets. Again, keep in mind that your staff will probably come from the surrounding area. Are there enough people in these areas to meet your human resource needs and will staff have access to good schools, public transport and good amenities?

2. Transport costs

If your business isn’t a customer facing one, but rather a delivery based one, then location remains important. Delivery of goods costs money and with the rising cost of fuel, you need to make sure you are able to keep your transport costs down. A location which is more central to delivery areas would keep costs down and save valuable time. While it may not mean more money in your pocket, it does mean a lower expenditure and more savings.

3. Competition

A business’s location can affect the competition it faces from businesses that sell similar products and services. For instance, an upscale neighborhood in a major city might have dozens of ethnic food restaurants, while a small town might not have any businesses that sell ethnic food. Starting a business in an area with few direct competitors can increase the likelihood of attracting customers.

Investigate your competitors. Know who they are, how many they are, what they are doing so good as well as their weaknesses. Will they be your competition, and if so, will it be good competition? Being close to your competition is not necessarily a bad thing. You could catch customers looking for competitive pricing, as well as customers trying to find all they need in one area.

4. Security considerations

There are also security considerations to your choice of business address. Again, referring specifically to home based businesses, choosing to list your home address for your business can lead to unsolicited mail to your house or even customers turning up unexpectedly.

5. Accessibility

Location is of utmost importance to businesses that sell goods or services directly to customers. For example, a card shop located in a popular mall is likely to attract more customers than a similar shop located in a run-down part of town. Location can also influence a business’s ability to market itself. A business with a storefront on a busy street is more likely to attract customers with signs and storefront displays than a business that is not in a busy area.

6. Operating Expenses

The location of a business can influence the total cost of operation. Renting a storefront on a popular street or in a highly trafficked mall is likely to be more expensive than opening a store in a small commercial district in a residential area. A business could be better off opening its doors in an area that is cheap, even if it results in fewer total sales.

7. Taxes and Regulations

The location of a business determines local taxes that owners have to pay and the regulations they must follow. Income tax and sales tax rates vary from one area to another, which can have a significant impact on your business’ earnings. Government zoning laws can limit the size and construction specifications of buildings and the use of signs. Local laws can also affect the types of permits and licenses necessary to operate a business.

8. Psychographics

The mindset of your customers or the aura of a particular region is also a factor to consider when choosing a location for your small business. For example; if you cite your business in a region where tribalism thrives, then you are doomed if you are not a member of the tribe. Another example is this; if you are in the pornographic industry, you will be making a grievous mistake to site your business within a region where the inhabitants are highly religious.

9. Distribution channels

If your business doesn’t deal directly with end users or final consumers, then it’s wise to put your distributive channel into consideration when choosing a location for your small business. The more you make it easier for your distributors to access your products, the better for your business.

10. Availability of raw materials

If you intend running a manufacturing or production business, then the nearness or availability of raw materials is a factor you must consider when choosing your business location. If your business is not sited close to these raw materials, then sourcing and transportation will reduce your profit margin.

In conclusion, your business location is directly linked to your business success. Your success as a business depends on how well you are positioned to be found. When you consider the above mentioned factors, your business will make profits and it will save you from investment risks.

Revenue Model

A revenue model is the description of how a business will earn income, produce profits and generate a higher than average return on investment. It identifies which revenue source to pursue, what value to offer, how to price the value and who pays for the value. It is a key component of a company’s business model.

Primarily, it identifies what product or service will be created in order to generate revenues and the ways in which the product or service will be sold. Without a well-defined revenue model, that is, a clear plan of how to generate revenues, your business will be more likely to struggle due to costs which you will not be able to sustain.

By having a clear revenue model, your business can focus on a target audience and fund development plans for a product or service. Also, it enables you to establish marketing plans, begin a line of credit and raise capital.

The type of revenue model that is available to a firm depends, in large part, on the activities the firm performs, and how it charges for those. These models include the production model, manufacturing model, construction model, leasing model, advertising model as well as the commission model to mention but a few.

How to develop a revenue model

a) Determine production and distribution costs

Consider what it will take to create, manufacture, and deliver your product to your customers. For a manufactured product, you will need to think through and quantify your requirements for raw materials, labor, machinery, inventory, and distribution. For a service business, you will need to quantify your service fulfillment costs including staffing, travel costs, response times and performance reporting.

On the other hand, a manufacturing and distribution business has a more significant challenge in accurately estimating production costs. It will be important to develop a thorough production cost model to ensure you have considered all of the major costs. Some of the factors you will need to address to estimate production costs include the following:

i. Production costs – quantify the type, amount, and source of materials, labor, and equipment needed to manufacture your product.

  • Generate a preliminary estimate of costs for materials, labor, and/or equipment needed for your product.
  • Determine whether you will make your product or outsource its production.
  • What are your raw material costs?
  • What are your labor costs?
  • What are your equipment costs?
  • What are your facilities costs?
  • What are your distribution costs?
  • How long will it take to manufacture your product?
  • What is the total unit production cost of your product?
  • If you outsource, who will make your product, how much will it cost, and how long will it take?

ii. Prototype costs -How will you create a prototype or samples to help you secure preorders?

  • How much will it cost to create a prototype or sample products?
b) Determine volume

Volumes can also be determined with the two approaches. The market approach would be to research how many customers there are for your product/service (customer potential). In other words, you need to check how high the demand for your product will be. The company approach is to take into account your production capacity and calculate with a utilization of your capacities. This way your volume is based on a percentage of utilization. Either way, at the end you will need to cross-check with the other approach to verify your volume.

c) Consider revenue model structure
  • Will you collect sales revenue directly from customers in exchange for the service or product?
  • Is your business going to act as an intermediary, helping to bring buyers and sellers together and collecting a fee for the service or a commission on the resulting sale?
  • Will your business be a publisher of content or the creator of an online community that charges for access to the content or community?
  • Are you going to provide content or community for free and collect revenues from advertisers who want to target your readers or users?
  • Will you give permission for your product to be used in exchange for a license fee?
  • Are you going to be a collector of data and charge fees to marketers for access to that information?
  • Will your business use a combination of these revenue models?
d) Determine product price

In order to determine your selling price you can either add your internal (production) expenses plus your planned profit (company-based approach) or you can research the market to see what customers would be willing to pay for your product or service (market-based approach).

The company-based approach is much easier, as your own expenses are known to you whereas on the other hand the market-based approach can take a lot of time and effort researching. Either way, in the end of your calculation you will have to match your result with the other approach. If customers will not be willing to pay a price that you need to turn over to cover all your costs, it does not make any sense for you to offer the product.

Ask yourself the following questions:

  • Will you be developing a new pricing model or your price will be aligned with traditional benchmarks?
  • Will your price be competitive?
  • Will you be selling a premium product, enabling you to charge more than your competitors, or you will undercut the competition?
  • Should you use a simple markup to cover your unit costs?
  • If you are a content provider, what are the prevailing rates for the type of advertising you are selling?
  • If you are a provider of data, what do marketers typically pay for access to similar information?
  • Will your price cover your cost and leave room for a reasonable profit?

Once you can explain the basic revenue model and your pricing, you can estimate how many customers you expect to have, how many sales are you likely make to each one, and how often you will make those sales, daily, weekly, monthly, or annually. Taken together, this information will enable you to project your total revenue.

e) Combine the results

After individually putting together your assumptions and calculating, you need to put together (multiply) volume and price for each period of the forecast time horizon. The result is your revenue. If your model is set up correctly you are now able to budget all your revenues.

f) Conduct sensitivity analysis

Once you have set up your volumes and your price the result is your budget revenue. Subsequently you can and probably should set up a sensitivity analysis in order to show possible deviations in your model. It is an optional feature to your model, but it is highly recommended to build that into your model.

Sometimes expectation will not realize the way that they were anticipated so you will need to adapt your planning. Including a sensitivity analysis simplifies this adaption, as you can foresee what would happen if single factors change in your model within the period of time.

Sensitivity means, setting up different scenarios for your model. It shows for example how revenues would develop when projected volume growth rates are 10% lower per year. Or it can budget how much revenue would be lost if selling prices decrease over the years.

In conclusion, revenue models are central to business success. They identify what product or service will be created in order to generate revenues and the ways in which the product or service will be sold. Without a well-defined revenue model your business will be more likely to struggle. With a clear revenue model, you can fund product development, establish marketing plans, begin a line of credit and raise capital.

Employment Model

An employment model entails the appropriate type of employment that will best suit the nature of your company. Primarily, a good employment model results in organizational effectiveness, lower absenteeism and improved work relationships. As a result, employees will be ready and willing to make a long-term commitment to your company.

It is no secret that employees are equally responsible for the success or failure of your business. They are the face of your company and how well they do their day to day activities has an impact on your business. In fact, qualified employees are an asset while underqualified employees are a liability. Therefore, it is important as an employer, to have an employment model which acts as a guide on the type of people you hire and the time frame they serve in your company.

Types of employees vary from full-time employees, part-time, free lancers, agency to probation employees to mention but a few. You have to be specific about the type of employee you want to hire, their qualifications as well as the period they are going to serve in your company. This is a key factor in any business endeavor.

Types of employees

i. Full-time employees

Full time employees are the most common type of employees. Particularly, they are offered permanent positions with a salary or hourly wage. There is no set minimum number of hours for full-time employees. However, most employers recognize full-time work as 35+ hours per week. Examples of full-time employees include receptionists and all types of managers.

Basically, hours of work are defined as each hour for which an employee is paid or entitled to payment, for the performance of duties for the employer. Also, they are each hour for which an employee is paid, or entitled to payment by the employer for a period of time during which no duties are performed due to vacation, holiday, illness, incapacity (including disability), layoff, jury duty, military duty or leave of absence.

ii. Part-time employees

A part-time worker works fewer contracted hours than a full-time employee. However, they also hold permanent positions. Following that, the number of hours they are scheduled to work per week should be clearly visible within the contract but they may have the option to work overtime, if and when desired.

Benefits of part-time employment include a more flexible schedule for the employee, allowing individuals to fit their work around other commitments, and the opportunity for people to try out new roles without having to give up vast amounts of your time. Most waiters and waitresses are an example of part-time employees.

iii. Fixed-term employees

Fixed-term employees last for a specific amount of time, which has been set and agreed in advance. In some instances, fixed-term employees may not have an exact time-frame, but will instead end when a specific task has been completed or fulfilled.

Depending on the role, and an individual’s performance, fixed-term contracts can sometimes lead to longer term positions. Examples include students on industrial attachment and drivers for a specific event such as weddings.

iv. Temporary employees

Similar to fixed-term, temporary employees are offered a contract that is not expected to become permanent. Usually they would have some form of end date included. However, these may be subject to change. As such, temporary workers may have their contracts extended in line with demand and availability. Temporary teachers are a common example in Zimbabwe.

v. Agency employees

Agency staff have their contracts agreed and managed by a recruitment consultancy or employment agency. They usually work on a temporary basis and the length of their contract depends on demands of the employer as well as their availability. The Valcol Group company offers such services majoring in I.T experts and secretaries.

vi. Freelancers and contractors

When working with freelancers or contracted basis, contracts may vary from position to position. However, individuals working in this way are generally considered self-employed. Contracts may include start and end dates, or the salary may be based on set projects or pieces of work, meaning the contract effectively ends upon delivery.

Freelance and contract workers may also not be entitled to the same rights as more permanent members of staff, although they do get to manage their own schedule and negotiate their own terms. Most graphic designers are freelancers.

vii. Zero hour employees

Zero hour employees are also known as casual employees. These employees specify that an employee works only when required by their employer. The employer is under no obligation to provide a set amount of hours to work.

Similarly, the employee does not have to accept any work that is offered to them. Individuals on a zero hour contract may also seek employment elsewhere. In fact, their contract would not be valid if it prevented them from looking for, or accepting, work from another employer.

viii. Probation

Employers can put their employees on a probation period (also known as a probationary period) to assess if employees are suitable for the role and business. However, the employer decides on the length of the probation period. It can range from a few weeks to a few months at the start of employment.

Specifically, while on probation, employees continue to receive the same entitlements as someone who isn’t in a probation period. If hired on a full-time or part-time basis, an employee on probation is entitled to access their paid leave entitlements such as annual leave and sick leave. Also, if an employee doesn’t pass their probation, they are still entitled to receive notice when employment ends and have their unused accumulated annual leave hours paid out.

How to develop a recruitment strategy

a) Write an effective job description

A good job description includes a job title, a brief summary of what the job entails, a description of your company, and how the candidate can apply. It also details the specific requirements, responsibilities, job duties, and skills required to perform a role. It also includes a list of common day-to-day tasks, equipment or tools used, who the role reports to and overall goals.

Responsibilities and Duties
  • List the essential duties required to carry out this job.
  • List them in order of importance.
  • Use complete sentences.
  • Start sentences with verbs.
  • Use the present tense.
  • Use gender-neutral language.
  • Education level.
  • Experience.
  • Specific skills.
  • Personal characteristics.
  • Certifications.
  • Licenses.
  • Physical abilities.
b) Use the right recruitment tools

There is a wide range of recruitment tools that you can use to publicize your job advertisement and monitor applications while creating exposure for your company. These include job boards, social media, recruitment agencies, your company website as well as advertising through traditional media.

Successful recruitment is a direct reflection of the validity and professionalism of your business. Employing the right people for your business is the most important part of your organization. It is essential to have a good recruitment process to attract the right kind of employees for your business needs. Most importantly, your recruitment process should be cost effective as well as time effective.

A good recruitment process minimizes the time involved in the searching, interviewing, hiring and training. It can streamline these processes and make your search for viable candidates much more efficient. Essentially, it is very important to build a positive image to your customers, peers and competitors.

Again, it is essential to list the skills your new hire will need to fulfill his/her duties. To get better and successful results in your recruitment process, promote specific criteria that are relevant to the job. Always evaluate your candidate’s skills thoroughly for the position that you are hiring for.

Knowledge, skills and ability “KSAs,” this is a great evaluative tool for hiring the right candidate for your business. Although there is no guarantee that your selection will be correct, but you can do all that you can to reduce your risks and maximize your potential to hire the right candidate.

You can find good, qualified, reliable employees for your company if you have a successful hiring process. Make sure to follow an organized recruitment path and you will find candidates that will prove to be great assets to your business.

c) Do an initial screen of applicants

Doing an initial screen of candidates over the telephone will allow you to separate strong candidates from weaker ones and help you to save time during the interview stage. You can also use standardized tests to assess their skills or ask to see their portfolio.

d) Interview the best candidates

Decide whether to ask behavioral interview questions or situational questions during the interviews. Once you have narrowed down your list to the best applicants, invite them to an interview to confirm their skills and qualifications, and ensure they are a great fit for your company culture.

e) Make a job offer

Once you have selected your best candidate, give them a call and make an offer. If they have confirmed, be sure to send them a job offer letter to seal the deal.

f) Make employees sign a contract

Whatever your hiring and employing strategies for a startup are, make sure employees sign an employment agreement. The employment agreement should include:

  • The name and address of the employer
  • The period of time, if limited, for which the employee is engaged;
  • The terms of probation, if any;
  • The terms of any employment code;
  • Particulars of the employee’s remuneration, its manner of calculation and the intervals at which it will be paid;
  • Particulars of the benefits receivable in the event of sickness or pregnancy;
  • Hours of work
  • Particulars of any bonus or incentive production scheme
  • Particulars of vacation leave and vacation pay
  • Particulars of any other benefits provided under the contract of employment.

In conclusion, knowing the best employment for your business will save you a lot of hustles. A proper employment model will help you hire the right people for your company. Also, it will save you a lot of money because you will know the exact type of employee to hire, the period they should work for you as well as the ideal wage to give them.

Marketing Plan

A marketing plan is a roadmap for introducing and delivering your product or service to potential customers. It is a business document outlining your marketing strategy and tactics. Primarily, it is drafted for a specific period of time and covers a variety of marketing-related details such as costs, goals and action steps.

Moreover, unlike your business plan, a marketing plan is not a static document. It needs to change and evolve as your business grows and as new and changing marketing trends develop. Especially in today’s changing world, you need to keep up-to-date on the best ways to reach and engage your market.

Most importantly effective marketing plan serves to help you understand the market that you are targeting and the competition in that space. Also, it helps you understand the impact and the results of your marketing decisions and provide direction for future initiatives. Although marketing plans can vary depending on the industry, type of products or services and the goals you want to achieve, there are certain essential elements that your plan should include.

How to develop a marketing plan

a) Conduct a situation analysis

It is important to conduct a situation analysis to determine the health of your business. This analysis serves as a useful tool for determining your business’ strengths and weaknesses, and any opportunities and threats (SWOT) that can affect its health. The results can be eye-opening to what’s really going on within your business and help determine your business’ strategy within the marketplace. Generally, you have to consider:

  • Product situation – determine your current product. You may want to view this definition in parts such as the core product and any secondary or supporting services or products that you sell. Viewing your products and services separately helps determine how each relates to your core clients’ needs.
  • Competitive situation – analyze your main competitors and determine how they compare to your business such as competitive advantages.
  • Distribution situation – review your distribution situation in terms of how you get your products to market, such as through distributors or other intermediaries.
  • Environmental factors – determine the external and internal environmental factors, which can include economic or sociological factors that impact your business’ performance.
  • Opportunity and issue analysis – conduct a SWOT analysis to determine any strengths, weaknesses, opportunities, and threats that may affect your business and its performance.
b) Outline business objectives

An effective marketing plan will help support the overall business strategies and goals. In order to reach this sort of alignment, you must be clear on what these business objectives are and which aspects of them they can affect.

c) Identify your marketing goals

These goals will tie into the overall business objectives but will only focus on the portions of the business that marketing can influence. For instance, if an overall objective of a company is to increase revenue from repeat business by a certain percentage in the next year, then the related marketing goal might be to get a certain amount of customers to sign up for a rewards program each month.

d) Identify your target market

The concept of target markets is one of the most basic, yet most important aspects of marketing. It is unrealistic to think that you can attract everyone, so you need to identify your ideal customers. What do they like? What don’t they like? How old are they? Where can you find them? Getting specific about your target market and segmenting it into even smaller groups for specific promotions can help you decide where to commit resources and what kinds of tactics and messages to use.

e) Determine your strategies

Strategies are the approaches you want to take to achieve your marketing goals. For instance, if you are trying to get a certain amount of people to sign up for a customer rewards program each month, your strategy may be to introduce new customers to the rewards program with personalized invites that highlight rewards that they may be interested in.

f) Determine your tactics

These are the specific actions you will take to execute the strategies that you set. If you introduce new customers to a rewards program with personalized invites, then one tactic you could use is sending out emails that address each new customer by name and let them know about some specific rewards that they can get, along with a link to easily sign up for the program.

g) Set messaging guidelines

The right messaging can help establish your brand’s position in the market, help it stand out from competitors, demonstrate value to potential customers and reach specific audiences. You can set some general messaging guidelines in your overall plan, then use them as a starting point to craft more specific messages for each campaign and different segments of your target market.

h) Set a budget

You must know what you can spend on your marketing campaigns and how much money your company is willing to put into different types of marketing efforts. It will help you to be focused. In fact, it is not logical to spend a lot of money on a simple campaign. In fact, all campaigns should have allocated budgets determined by the campaign intensity, the medium used as well as the amount of people it is meant to reach.

i) Tracking and Evaluation

This section of your plan should include plans and procedures for tracking each type of marketing activity you are using. Generally, tracking helps monitor the effectiveness of each marketing activity and is especially helpful with your overall program evaluation. If you are not tracking and measuring your efforts then you are not marketing effectively.

After it all, an effective and well written marketing plan:

  • Gives clarity about who your market is – it’s easier to find clients and customers if you know who they are.
  • Helps you craft marketing messages that will generate results – marketing is about knowing what your product or service can do to help a target market – your marketing messages need to speak directly your targeted audience.
  • Provides focus and direction – your choices for marketing are vast including email, social media, advertising, guest blogging and direct mail, publicity. With so many marketing choices, you need a plan for determining the best course of action for your business.
  • Creates alignment – the biggest advantage of a marketing plan is building a bridge between the vision of the organization and the marketing and sales of products and services. Particularly, marketing plans are useful in aligning the vision with the brand and ensuring that what is communicated to potential customers is accurate and meaningful to the core target market.
  • Helps brand building – with a strong research-oriented understanding of the market and alignment across the business in terms of vision and mission, you can build a brand that represents the vision while addressing core needs in the market. Through associating the organization’s competitive advantages with a given need in the marketplace, you can build a brand within a target markets.
  • Mitigates risks – in nearly all contexts, planning is a great tool for avoiding risks. The simplest way to avoid making a mistake is considering all potential options, weighing the opportunity costs and selecting the option with the lowest risk and/or the highest return (the optimal risk/return ratio). Thus, marketing plans enable the research required to consider the risks and returns of various segments, equipping the organization with the knowledge to mitigate risk and capture opportunities.

In conclusion, a marketing plan is a roadmap for making your product or service known to potential customers. It is a business document outlining your marketing strategy and tactics. Primarily, it is drafted for a specific period of time and covers a variety of marketing-related details such as costs, goals and action steps. Thus, every business should an effective and clearly outlined marketing plan.

Budget (Startup Costs)

Have you ever wondered why most startups fail? The most global characteristic of startups is that they are always short on funds, whether it’s for resources, advertising, marketing or even manufacturing their products/services. Specifically, most startups fail because of their failure to draft a budget before they commence trading. With little scope for investment, startups often lack a continuous cash flow.

Primarily, a budget is a plan that outlines your business’ financial and operational goals. It is an approximate estimation of your startup costs. Startup costs are basically expenses incurred before your business starts running. It is an action plan that helps your business allocate resources, evaluate performance and formulate plans. Generally, it enables you to control your cash flow instead of having it control you.

Without a budget, you may not know how your business is performing. Thus, a budget provides an accurate picture of expenditures and revenues and should drive important business decisions such as whether to:

  • Increase marketing
  • Cut expenses
  • Hire staff
  • Purchase equipment
  • Improve efficiencies in other ways

Following that, a comprehensive budget will also be a definite requirement for obtaining business loans from financial institutions or seeking equity funding from investors. Trying to convince investors about something that doesn’t exist is definitely a challenge and trying to make them understand that you are trustworthy and equal to the task is complex.

There is more to raising capital than just simply asking for money. Most investors want to invest in an established business with minimal risk and they want to be sure that they get returns for the risk they took and having a well-structured budget is a step forward. To overcome the challenge of raising capital, you must develop the ability to sell your idea and vision to potential investors.

Business Budget Expenses

Most businesses have fixed costs that are independent of sales revenue, such as:

  • Building or office eases or mortgage costs
  • Loan payments (if using debt financing)
  • Insurance
  • Vehicle leases (or loan payments if the vehicle is purchased)
  • Equipment (machinery, tools, computers, etc.)
  • Payroll (if employees are on salary)
  • Utilities such as landline phone and internet charges

Variable costs increase or decrease according to the level of business activity. Examples include:

  • Contractors’ wages or commissions (for salespeople)
  • Utility costs that increase with activity – for example, electricity, gas, or water usage
  • Raw materials
  • Shipping and delivery costs
  • Advertising(can be fixed or variable)
  • Maintenance and repair of equipment

How to create a business budget

1. Plan for “day one” of your startup business

Begin by determining what your business “day one” will be like, in order to open the doors (or take your website live) and begin accepting customers. Generally, a “day one” start-up budget can be broken down into four categories (depending on your situation, some of the categories may not apply to your business.) The categories are:

  • Facilities costs for your business location – rental or purchase of a store, office, warehouse, etc. If you are working from home, you probably won’t have location costs. Facilities costs include lease security deposits, tenant improvements, and signage.
  • Fixed assets (sometimes called capital expenditures), for furniture, equipment, vehicles needed to set up your location and start your business. These assets include computers and machinery, and anything for your office that is needed to set up your business.
  • Materials and supplies, like office supplies, advertising and promotion materials. You will need an initial supply of these to get started.
  • Other costs, like the initial attorney and accounting set-up fees, licenses and permits, insurance deposits, and fees to set up your business type.
2. Estimate monthly fixed and variable expenses

Gather information on your fixed expenses each month. These are expenses that don’t change and are not dependent on the number of customers you have. Here is a list of the most common monthly fixed expenses:

  • Rent
  • Utilities
  • Phones (business phones and cell phones
  • Credit card processing – monthly fees (transaction fees are variable)
  • Website service fees
  • Equipment Lease Payments
  • Office Supplies
  • Dues/Subscriptions
  • Advertising, Publicity, and Promotion commitments, like social media, online ads
  • Business insurance
  • Professional fees (legal and accounting)
  • Employee Pay/Benefits
  • Misc. Expenses
  • Business Loan Payment

Then add variable expenses. These are expenses that will change with the number of customers you work with every month. These might include: It will be easiest to get a cost per unit sold for the next step.

  • Commissions on sales
  • Production costs
  • Raw materials
  • The wholesale price of goods to be re-sold
  • Packaging and shipping costs.
3. Estimate monthly sales

This is probably the most difficult part of a budget because you don’t know what sales will be for a new company. You might want to do three different sales projections:

  • Best case scenario, in which you show your most optimistic estimate for first-year sales
    Worst case scenario, in which you show your least optimistic scenario, with very little sales during the first six months to a year
  • Likely scenario, somewhere in between. The likely scenario would be the one to show your lender.
    Include a calculation of collections percentage. To be realistic in your budgeting, you must assume that not all sales will be collected. Depending on the type of business you have and the way customers pay, you might have a greater or smaller collections percentage.

Following that, include a collections percentage along with your estimate of sales for each month. For example, if you estimate sales in Month One to be $50,000 and your collection percentage is 85%, show your cash for the month to be $42,500.

Next, calculate the variable costs of sales for each month based on sales for the month. For example, if your estimated sales for a month are 2,500 units and your variable costs are $5.50 per unit, total variable costs for the month would be $13,750.

Lastly, add monthly variable costs to monthly fixed costs to get total monthly costs (expenses). You might want to calculate your break-even point to include with your budget.

4. Create a cash flow statement

Combine total costs with total sales and collections for each month. The monthly totals will look something like this:

  • Monthly sales $50,000
  • Collected $42,500
  • Total fixed costs $26,900
  • Total variable costs $13,750
  • Total cash balance $2,150

The $2,150 represents your total cash balance for the month, not your profit.

By changing your sales figures using the three scenarios above, you can see the result in your cash balance at the end of each month. This cash balance can give you information about your cash needs and how much you might need to borrow for working capital.

In a nutshell, draft your business budget before trading. Your budget will help your business allocate resources, evaluate performance and formulate plans. That way, you will keep you out of debt and it will enable you to allocate resources, evaluate performance and formulate plans accurately.

Do you need a business coach to help you with the designing stage?

Our friendly business consultants can help you come up with an exceptional plan for your business.