Some people say that you must create a formal business plan before starting your business. That’s debatable, and frankly I disagree … unless you’re trying to raise money for your startup (to raise money, yes, you will need a formal business plan document).
In either case, if you’re thinking of starting a business, you will need to think through “in advance” as many details as you can. If you’re not asking anybody for support, you can skip the formal business plan and just answer all the who, what, when, where, why, how questions that you can think of. Unlike a business plan, the actual format or layout of your answers to the questions is irrelevant.
So, whether you’re putting a formal business plan document together, or an informal list of your answers, here are the key preliminary questions that you’ll need to answer:
You and Your Key People
- Who are you? What is your background? What’s your education and work experience, and how does that compliment your new business?
- Are you a risk-taker? Are you willing to risk everything for the business? Or, are you more of a rule follower who likes structure? Can you deal with constant change and chaos?
- Do you have the physical health and strength to withstand the rigors of starting/running a business?
- What is your family situation like? Will you have time to start/run the business?
- Who are your key employees? What are their backgrounds?
- Are there investors in the business? If so, what are their backgrounds and their relationships to you?
- Who is going to do what, and why? What will you do (e.g., will you be the sales arm of the business)? If you have a partner, what will your partner do (e.g., would your partner be better at running the inside operation)?
- What is your business mission?
- Why are you starting this business in the first place? What are your personal reasons? What’s your driving motivation? What are you passionate about? What do you hope to get out of this business? What are you willing to sacrifice in order to make this business work?
- What kind of business are you thinking of starting? Will you be content “running” this type of business after it’s up and running (e.g., can you see yourself as a coffee-shop owner for the next ten years)?
- Why are you going to do what you’re going to do? Do you like doing it? Is there a need? Are you broke and unemployed? Do you hate your job? If you have a job, will you quit it and do this full time?
- What are your personal and business financial goals? What if you don’t reach your financial goals … ever? Will you still be satisfied running the business?
- When are you going to do this? After the first of the year? After you quit your job? After you get married? After you get someone to give you an investment? After you find a partner? What things need to happen or be completed before you start?
- Who are your customers or potential customers? (It’s a good thing if you can specifically pinpoint who you’re targeting to be your customers.) What niche markets do they serve? Where are they located? What is their business-size? What’s their business like? How specific can you be in describing them?
- What motivates your customers?
- Who are your customers’ customers? (You’ll understand your customers a lot better if you understand who their customers are.)
- Do you think your customers will be repeat customers, steady customers, or just one-time customers?
- Where will your growth come from?
- What do you think your customer fall-off rate will be (e.g., for every ten new customers I gain, I estimate that I’ll lose two existing customers)?
- How will you retain customers? What are your plans for retaining customers?
- Will you have employees? Who will hire, fire, and manage?
- How will you find employees?
- How will you pay your employees? Who will do their payroll and payroll taxes?
- How are you going to track your employees’ time and attendance?
- What employment forms will you need to deal with?
- What employee data will you need to keep in their employee file?
- What will your employees do?
- What employee benefits are you going to offer (if any), and what are they going to cost you?
Accounting, Legal, Insurance, Administration
- What type of business entity will you set up (i.e., LLC, S-Corp, C-Corp, Partnership, Sole Proprietorship)?
- Do you have a lawyer who will help you set up the corporate structure? What will that cost?
- What taxes will you be responsible for?
- Who is going to do your accounting? Will you use an outside accountant? If so, who? If you’re going to do it yourself, what accounting software are you going to use? Are you going to use cash-basis accounting or accrual accounting?
- How will you track all of your day-to-day transactions? Will you use a cash-basis accounting software to keep a record of every money transaction into and out of your business? Or, will you create spreadsheets to track everything?
- Who will control the checkbook (or checkbook software) and be responsible for paying your bills (you? your partner?)?
- What bank will you use?
- What address will you use for your checking account, on your checks, and on your invoices? Will you use a street address or a P.O. box? Will you use a bank “lock box”?
- What printed forms will you need (e.g., invoices, receipts, business cards)?
- What business insurance do you intend to buy? What insurance do you think you need? Who are you going to buy insurance from? How much will it cost?
- Do you need a customer contract or service agreement? What will you guarantee or not guarantee? What will your customer contract or service agreement look like? Who will write it? What will that cost?
- What hours will you be open for business? When will you be closed (e.g., in the evening, on weekends, on holidays)?
- Who will order supplies? What supplies do you need? Who are your suppliers? Are there any supplies that you absolutely rely on, and do you have a backup supplier?
Supply and Demand
- What does the supply and demand scenario look like?
- What’s a realistic “market area” for you to attempt to penetrate (e.g., will you sell your product/service locally, regionally, statewide, etc.)?
- How much demand is there for your product/service (e.g., large demand, sporadic demand)? How many units are presently being sold per month, per year?
- What is the current supply of your product/service in the marketplace (i.e., will you have a lot of competitors)?
- What makes you think that there is enough demand and too little supply for your product/service, enabling you to sustain your business for the long-haul?
- What is your product or service?
- Is your product a commodity-type product or a specialty-type product? For example, gasoline is a commodity. It’s all the same and the only thing that matters is the price. Whoever sells the cheapest gas wins. A restaurant is a specialty-type product. People may be willing to pay higher prices and wait in line for better quality.
- How are you going to provide the service or produce the product? What tools or supplies do you need? What utilities do you need (e.g., electric, gas, water)?
- When can your product be offered or not offered? Is there any seasonality to your product or service? If so, what are you going to do during the times that your product/service cannot be offered?
- How long will it take you to get your product ready for market? Are there any components or pieces that are not readily available that could delay your ability to launch your product?
- How are you going to price your product?
- Who are your competitors?
- What do they charge for their products/services?
- What are the differences between your products and your competitors’ products?
- What makes you think that you’ll be better than your competitors?
- What are all of your costs for everything? Machinery? Inventory? Labor? Rent? Shipping?
- What processes will you use (i.e., techniques to produce your product or service; any automated or specialty machinery needed to produce your product; any industry quality standards that you need to be following, like ISO 9000)?
- What special tools, tooling, or supplies will you need? How much will those tools or supplies cost?
- Will you be dealing with any hazardous materials that will require special OSHA considerations? (After blowing up a laundromat, I’m a little sensitive to that one.)
- Name every piece of technology you think you’ll use in your business (e.g., computers, backups, Internet, your business website, virus protection software, phone systems, point of sale systems, credit card processing hardware and software, smartphone, Google Adwords, etc.).
- Who is going to help you with your technology?
- How much will each of those areas of technology cost? (Itemize every piece of technology, its one-time cost, and its monthly cost.)
- How much money do you need? Will you have enough money to pay your personal expenses AND the business expenses?
- How much cash flow will you personally need to stay alive and have a roof over your head?
- How much cash flow will the business need in order to keep the business doors open?
- How much will you have to pay in salaries … and to whom?
- How much will you have to pay in professional fees (e.g., attorneys, accountants, contractors)?
- How long will you have to fund the business before it starts to make a profit?
- How much money do you have? … or how much money can you get? If you have to borrow money, how much will you need to borrow?
- Who might you attempt to borrow from (name them)? Will you borrow from family members? How confident are you that they will lend to you? What if borrowing from them changes your personal relationship with them? What if you can’t repay them?
- Will you have to take out a bank loan? How certain are you that a bank will lend to you?
- How will you gain customers?
- How will you do your marketing and advertising? Where will you advertise?
- How much will you spend on marketing and advertising?
- Who will do your marketing and advertising?
- What results do you expect to see from your marketing and advertising efforts? How will you track the results (i.e., what mode of advertising gave the best results)?
- What do you predict will be your cost to acquire a customer (e.g,. cost-per-customer acquisition)?
- How are you going to sell your product or service?
- Have you ever done sales yourself? Cold calling? Door-to-door sales?
- Will you do the sales yourself? If so, how will you do this considering all of your other duties?
- Will you have a sales staff? If so, how many sales people?
- Do you think other people besides you could sell your product or service? Why do you think that?
- Will you train inexperienced salespeople to be salespeople, or will you hire experienced salespeople?
- How will you compensate your sales staff (e.g., salary plus commission)? If so, what salary will you pay, and what does the commission structure look like?
- What will be your sales territory — local, regional, national, global?
- Where will you operate? A storefront? Out of your house? Out of a basement? How much will it cost you?
Yes, the list of questions is long, but this is just the beginning. Please comment with additional questions that should be on this list. (Maybe we can break some kind of record for The World’s Longest List!)