I’ve said it before and I’ll say it again (with thanks to the inimitable J. Woden): ‘Failure to prepare is preparing to fail.’ For most things in life you need a plan – you wouldn’t drive your car somewhere new without a road directory, so avoid heading into uncharted financial territory without a business plan.

When I decided to open my first salon I was flat broke, in debt and had nothing but a great business idea. The bank turned down my first loan application and, because my parents were far from wealthy, my father approached his boss for a loan on my behalf. It was then, at the age of 20, that I learned the importance of a structured business plan. My father’s boss made me put my idea down on paper. At the time I thought this was lame but, as it turned out, he did me the biggest favour of all time.

To succeed in stating a salon, you need a PLAN. It’s your blueprint, a step-by-step guide to fully understanding everything it takes to put your business together, track its growth and ensure its survival. Many stylist’s and therapist’s devote too much time to thinking about (and discussing) their amazing salon or spa concept, while too few bother with the formality of a business plan.

And a plan is absolutely vital if you’re seeking finance. No lender (repeat: NO lender) will give you money without evidence that you’ve done the research and know what you’re doing – and that’s a carefully constructed, well-written business plan. Lenders will interpret your hair salon management skills first with a good solid understanding of your business plan and other current salon management topics such as having good salon management software and so on.

I would never go into business without one. It doesn’t make sense to stare risk in the eye without a plan of action. It helps you set goals, determine the turnover necessary to make a profit, better understand financial systems and procedures, assess your marketing needs and establish operational strategies that get you where you want to go.

At times, putting a business plan together can be the most annoying and frustrating activity you’ve ever undertaken. It will stretch your imagination and test your commitment and motivation. I’ll warn you in advance, if you don’t feel fed up and frustrated at some stage of the process, then you’re not going about it properly. If and when it happens, say to yourself: ‘It’s dangerous when things always go the way I want, because then I’m not being challenged.’ The upside is, you’ll have to take an objective look at your business concept, assess its (and your) strengths and weaknesses and recognise the challenges you’re likely to face in the future and might otherwise have overlooked!

Tip bit:
Don’t employ someone to write your beauty salon plan’ it’s your vision, nobody knows it better than you, and preparing your plan will be a valuable learning experience. This is not the time to be lazy. By all means ask a coach or mentor to assist you, but only if they have the necessary experience.

Tweet This Post

In this continuing series of articles on how to write a business plan or Information Memorandum to raise capital, Part 7 discusses the business plan content specifically ‘Basis of Operation’.

Basis of Operation

This section of the business plan describes the facilities, location, space requirements, equipment and labour necessary to produce the company’s product or service. Again, the reader is not likely to be an expert in your field of activity, so it should be written with the layman in mind. Highlight features of the operation which yield an advantage over competitors.

Clearly, operational requirements vary from business to business. Although some of the following points may not be relevant to your venture they will provide a general guide:-

1. Location

Describe the present or planned location of the business, explaining the rationale for choosing that site and outlining both positive and negative features relating to:-

* Labour availability

* Level of wage rates

* Proximity of customers and suppliers

* Ease of distribution

* Availability of grants (should be of secondary importance and viewed as a bonus!)

2. Facilities

Details of current facilities and future requirements should be provided e.g. plant and office space, machinery, specialist tooling and other equipment. Future needs should be ascertained on the basis of the expansion of capacities necessary to meet the sales growth projected. Lease/buy options should be considered for both equipment and space and details of future capital expenditure should be given.

3. Manufacturing Plans

The manufacturing process involved in producing the company’s products should be explained, together with the policy with regard to sub-contracting, i.e. make or buy decisions. It may be useful to present a production plan showing cost-volume details at various turnover levels, breaking down costs between raw materials, direct labour, factory overheads and purchased components. Stockholding at various turnover levels needs outlining as does stock control, production control and quality control. The latter is particularly important to minimize service problems and customer dissatisfaction. Purchasing should be explained, indicating purchase control procedures, to ensure efficient buying. In all cases detailed analyses should be

relegated to an appendix.

4. Labour Force

Discuss whether the local labour force has the necessary skills in sufficient quantity and quality (high productivity, low absenteeism) to manufacture the product or supply the service of the company. If skills are inadequate outline the training that will be given and the cost.

The content of Business Plans will be further covered in subsequent articles by Len McDowall.

© Len McDowall, Integral Capital Group 23rd October, 2007

www.integralcapital.com.au

Tweet This Post

In this continuing series of articles on how to write a Business Plan or Information Memorandum to raise capital, Part 5 discusses business plan content specifically ‘Market & Market Strategy’.

Market and Market Strategy

This is another important section of the business plan as it sets the scene for the rest of the plan by estimating total available market size and the share the venture’s product or service has a substantial market in. Preferably the target or established market is in a growing industry that can achieve sales despite existing or likely future competition. This section of the business plan provides the basis of projected turnover which will determine the dimensions of the venture and will influence the amount of finance sought.

Owing to its importance, this section should be prepared first, with time and care being spent collecting market data regarding overall size and growth rates, and presenting facts, figures and their source wherever possible. Concentrate on the market segments which specifically relate to the products or services offered rather than more general analysis, as prospects and trends directly applicable to your business may not be representative of the market as a whole. Extracts from relevant surveys where available or statistics which you have gathered should be appended to the report as supporting information. In situations where either a market is being entered for the first time or a new market is being created, actual experience cannot be used for comparison. Here it is even more critical to undertake relevant research to comfort the venture capitalist regarding the reasonableness of sales projections.

The ‘Market’ section needs to address the following:-

1. Customers

• Who are the existing or anticipated customers for the product or service?

• What is the basis of their purchase decision: price, quality, services, personal contacts or some combination of factors?

• Indicate potential customers who have expressed an interest in purchasing the product or service and why.

• Similarly, indicate potential customers who have shown little or no interest in purchasing and explain why.

• Explain how negative customer responses will be overcome.

• Consider what customers expect in the way of price, quality and service.

2. Market Size and Trends

• What is the total size of the current market for the product or service offered? Indicate the source of the estimates.

• Is the market, expanding, contracting or static? (Discussions with customers, distributors, dealers, agents and sales representatives may prove useful in determining both market size and trends).

• If the intention is to sell regionally, a regional breakdown should be given.

• Indicate the major factors affecting market growth (economic, industrial, political, climatic, population shifts).

• Seasonality and how the effects on the business can be minimized.

3. Competition

• Make a realistic assessment of the strengths and weaknesses of competitive products or services and name the companies which supply them.

• Compare competing products or services on the basis of price, quality, performance, service, warranties and other relevant features.

• Indicate the current advantages and disadvantages of competing products or services and say why they are not fully meeting customer needs.

• Highlight your three or four principal competitors and explain why customers buy from them. Indicate why the venture will be able to compete favorably and take market share from them, and what responses this will provoke from them.

4. Estimated Market Share

• Summarize the features of the product or service which will enable it to be sold in the face of existing and potential competition.

• Highlight customers who have made or are prepared to make purchase commitments and indicate future major customers and why they will become so.

• Based on this customer intent and the assessments made so far in points 1, 2 and 3 above, estimate what share of the market the company is aiming to achieve in the next three years. The anticipated growth of the company’s sales and its estimated market share should be related to the growth of the industry, customers and strengths and weaknesses of competition.

5. Market Strategy

Explain how you intend to achieve sales targets. This should cover overall marketing strategy, pricing distribution, after-sales service and advertising, detailing what is to be done, how it will be done and by whom.

6. Overall Marketing Strategy

This should be developed from market research and analysis and outline the general marketing philosophy and strategy to be adopted.

• Which customers will be targeted for sales efforts, initially and thereafter.

• How customers will be identified and contacted.

• Where the company intends to be positioned versus the competition (i.e. by way of price, quality, response, etc).

• Whether sales will be generated regionally, nationally or internationally, and the timetable involved in graduating from one to another.

7. Pricing

This is a critical aspect as the ‘price must be right’ to allow market penetration, sustain market position and generate profits. If products or services are superior to competitors, investors will be surprised if the price is below theirs. Two things should be remembered here:

i. Costs always tend to exceed expectations (“Murphy’s Law”) and

ii. Price cuts are more acceptable than price hikes.

Since both of these imply pressure on gross margins it is important to demonstrate that the pricing policy adopted will generate net profits after all direct and indirect costs, allowing for possible future price competition.

8. Sales Strategy

How will sales be achieved and by whom?

• Will the company use its own sales force, sales agents, distributors, OEMs (original equipment manufacturers)?

• What incentives will be given to stimulate maximum sales efforts by internal sales people and by third parties?

• What is the longer term intention with regard to an own sales force?

• How are distributors/dealers attracted and chosen and what are the terms of trade?

9. After Sales Service

If the intention is to offer a product which will require services and warranties, indicate the importance of these in the customer’s purchasing decision and how the commitments will be met. Detail any service charges to be rendered and compare your after-sales service with that provided by competitors.

10. Advertising and Promotion

Describe the approach that will be adopted to generate sales leads by creating customer awareness, i.e. exhibitions, trade magazine advertising, direct mail, promotional literature, advertising agencies, etc. A schedule of the costs should be presented in an appendix.

The content of Business Plans will be further covered in subsequent articles by Len McDowall.

© Len McDowall, Integral Capital Group 22nd October, 2007

www.integralcapital.com.au

Tweet This Post