Everyone has told you that you need to fill out a business plan, prepare a business plan, review a business plan. What does it all mean? We don't know what's going on half the time in business, but we know that we have to have this business plan that a lot of us can't be bothered doing. Today, we've got Martin Lewis from Orb Services and he's going to be talking about business plans, why they are important and how to get started with business planning.
• What's your break-even point and where do you need to be making money? Cross-reference that against your service offering or your product and your price point and make sure that you've got the capability. There's no point saying I need $20,000 a month when on my own I can only generate $5,000 a month because you're lost from the start. You've got to be able to make sure you can deliver what you need and work on that.
• In the early days of your business, focus on volume more than efficiency. The efficiency can come later, worry about getting the volume of customers that you need. You can improve your profit margin from 20% to 23% later or 7% to 15% later. You can't improve it from 7% to 15% if you're not making any money.
• Keep it simple. Focus on what's near. You want to build from that level. What are the things that you can do now with the resources that you have that will allow you to take a step towards that end goal that you're doing?
• Have some uncomfortable conversations. Don't be afraid to get out and make some phone calls, go to some events, all of that kind of stuff. There's not a person that you would look at in business as successful or walking a path that you would like to walk that hasn't done those things. Get out and get amongst it. Embrace it.
• Celebrate the small victories. Celebrate the progress along the way that is moving you towards that end goal.
How to Prepare a Business Plan
What's the easiest way possible to prepare a business plan?
1. Start With Finances
Marty: I think the first challenge in writing a business plan that people come up against is there is such an abundance of information about it, so it's so easy to get overwhelmed and it's so hard to know what you should focus on—what's going to actually add value. Like most things in life, the best way to write a business plan is to keep it simple, keep it clean and work on what's going well for you.
The first phase is the reference. Where is your business at? If you're in a start-up phase or if you're in a pre-revenue phase, whether you're trying to change the world with your business or you're going to be the next I.T. person or the next consultant, you've got to work on how you are going to get started? How are you going to get out into the market?
The first place that I always recommend for people to start is their finances because that's the thing that brings most people undone. Tell me if I'm wrong there, but you've launched your own business and you're involved in other start-ups. If people don't have money and they're worried about non-revenue generating things before they start generating revenue, they burn through their cash, and all of a sudden, all the great business promise that they had doesn't count for too much.
How to Calculate Risk and Your Finances
I set up Dorks Delivered in 2007. I would say that my risk level is quite low, so when I started it, it was a side hustle. A lot of people start something on the side while they're working somewhere else. For me, it was Education Queensland.
I had to look at what the ongoing expenses were and where they were sitting with the business. For me, I'm always comfortable with 3 to 6 months of rainy day expenses. That's 3 to 6 months of me not earning a single dollar, and that's where I'm comfortable with my financial bubble. I thought if I've stuffed something up and I couldn't crawl out of it in 6 months, shoot me. That was sort of my financial level.
What are your expenses?
I guess it all depends on different businesses, but where's the benchmark? How do you write that into a business plan?
Marty: It comes to your personal preference. More than 90% of the people who run a small business will have less than 20 staff for the course of the life of that business. When we're talking about starting a business, I'm not talking about starting the next Apple. I'm talking about starting a side hustle and going out on your own as a professional in the industry that you've been part of.
The way that I do it is the numbers are going to come down to your living expenses. What is your weekly, fortnightly, monthly, quarterly living cost? What's the security blanket that you need? There's no right or wrong answer, but it's the time frame that you need. How long could you survive if you don't make a dollar?
That’s the number one thing that a lot of people get stuck with during the starting phase. People get so wound up about the product and how good they think it is, and they ask the wrong question. They ask their friends if it is good.
The format that I use for writing a business plan is this: how much does it cost you to live each week? That's going to be different and depend on whether you're a single person sharing a flat with four of your friends or you're married and you've got four kids and a mortgage. How much money do you need to bring in every week for your family or personal expenses? On top of that, add how much money your business needs.
Generally speaking, even a small business is going to need $500 in the early stages and $500 to $1500 a month to operate. That's without spending any kind of money on marketing.
Marty: If it costs you $1,000 a week to live, so that's $4300 a month. It’s always 4.3 weeks in a month, not 4. You need $4300, but let's say you need $4500, plus your business is going to cost you $6,000 a month to survive.
What's your comfort factor? Are you prepared to start your business today? If you run out of money in a month, do you need 6 months or 3 months to go back and get a job?
Generally speaking, I would say you want 6 months of runway if you're going from a zero revenue position. I've seen people do it with less. I've seen people who need more. It really does come down to you as an individual.
What are the expenses that you need as an individual? What are the expenses that the business is going to need and how long do you need? That formula will give you the dollar value that you need to have that security.
'My boss earns a dollar, I earn a dime'
A lot of people start a business not because they're looking for a good investment. It's like when people buy an investment property and don't look into the numbers. They start a business because they can do a better job than where they're working. They're buying a job, not buying a business. 'The boss earns a dollar, and I earn a dime.’
Marty: 'The boss makes so much more money, and I'm getting paid $40 an hour. The bosses charge me out of 100. I can do this.' That's very small-minded thinking.
2. Plan to Thrive, Not to Just Survive
The risks that the boss takes are also quite high, and let's talk about time. You're talking about $6,000 a month to survive. You didn't say to thrive, and that is very important. You didn't say anything about marketing expenses.
When it comes down to running a business, there's the trench work that you do, which is earning the dollarydoos, and then there's the work that just comes about the actual time invoicing, the time doing the reconciliation, the time finding those clients and any other maintenance stuff that you need to be doing, filling out insurance forms every year or whatever it is that people just used to take up their time, and managing staff.
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If you had to say I can work an 80-hour week while I'm working with my boss at the moment, is there some way that you can work out how much time I’m going to spend in the admin world where they aren't billable expenses before you just go out and undercut what your boss is charging by $10 an hour?
Triple Your Survive Level to Become Your Thrive Level
Marty: It is really rookie thinking, but plenty of people have done it and in a lot of cases, some people can't do their job. Maybe their boss is not looking after their people, maybe their boss about looking after their customers, but you are naive at best and stupid at worst if you think that the boss is making a lot of money just because they charge $100 and pay you $40 an hour as a tradesman. That's not the reality of it.
Without a specific business, it's hard to quantify. Coming back to that example that we started with, let's say you need $6,000 a month to live. Generally, double or triple that figure and that will be your comfort point. Let's say that it's $6,000. At $12,000 to $18,000, you're probably pretty comfortable. This comes down to one of the really important pieces around business planning: what is it that you're trying to achieve?
If you’re someone who wants to make $20,000 a year as a side hustle—and I would rather help those looking to do a side hustle in semi-retirement or a job to put their kids through school than help Apple make another half a per cent—there are so many different business plans out there. You just have to know what's good for you.
As a business owner, you're going to need to make $6,000 a month to live. Your comfort point is, let's just say, going to be double that. Do you have the capacity on your own with the price point that you think you're going to go at? Say you're going to charge yourself at $120 an hour or $100 an hour?
That means you're going to bill, not work. Your price point is 6. Say it's 100. You've got to do 60 hours a month at $100 an hour. Do you have 60 hours a month worth of work lined up? The next step on the back of that is the balance between capacity and revenue. Say your thrive point is $12,000. Can you physically work and bill 120 hours a month? You may be able to or you may not be able to.
You can start to stage it out at that point. As you know, business is a constant balance of 'Okay, with the resources that I have now and the price point that I charge, I have a capacity for this.'
If that's $12,000, then you need to keep an eye on the triggers because when you're operating and generating $10,000, the question is, what are you going to do? Are you going to expand that capability and put on another employee so that now you have the capability to make $20,000 a month? Or do you invest in some systems processes, try and refine things so that you can still make $10,000, but you can keep more of that $10,000 or you can profit more out of that?
It's very specific to what you're trying to do. But generally speaking, if a business is starting out, they're going to try and make somewhere between $250 and $2,000 a month. That's a very common target.
As you said, it's all about what is it that you want to do? Is it your 10-year plan to just have it sitting there, putting away in the background, turning over some coin, creating a residual income? Or is the plan to have created a legacy to pass onto your kids and it's going to be a family business that you're running? There's no right or wrong answer.
When I had my first contracted staff member come on board, he was working 10, 20, 30, 50, 80, 100 hours a week. We had work coming at us. It was just going crazy. We went, 'This is fantastic. This is so great.' He's going nuts. I'm going nuts. He's loving how much he's getting paid. I'm getting paid plenty.
And then he had a stroke and then I was well stuffed. I went, 'What am I going to do?' There weren't enough hours in a week for me to do what he was doing and what I was doing. We did lose a couple of clients. We nearly lost the business because we hadn't planned forward for some sort of catastrophic event like that.
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The reason I'm sharing this story is with COVID that's hit, we've got businesses we're working with that had 50 or 60 employees and they've been dropped down to 5 or 6 employees and they’re more profitable now than what they were before. The business owner's back on the tools, and he's enjoying it because he's not doing any of the stuff anymore.
3. Keep It Simple
When it comes down to writing a business plan, how long should it last? Should it be a 12-month thing or should it be reviewed every 6 months?
When do you reassess your business plan and make sure that you are on the right path? How do you make sure you're making achievable micro-goals instead of a big dream?
Trading Time for Money
Marty: There's a couple of pieces in that. I started out helping tradies a lot, and I help a much broader spectrum of that now. What it boils down to is my core clientele seem to be people who have made money out of their professional skillset.
Trading time for money is a big part of their service range and they make a margin on the staffing roster. The core thing that I see across industries is people start out on their own, got 2, 3, 4, 5, 10 staff, and then gone. They go, 'This is just too hard. It's too much headache. I don't spend any time doing what I'm doing. I'm cutting back. It's me and two people.'
And they're significantly happier! Their overheads come down, the stress comes down. These are all things that you've got to be mindful of as you're going through. How do you time it?
Marty: A very common question is how long do you plan for. The crux of this is people get tired of fantasising about what their business will be, which I call the penthouse. They fantasise about that ‘big, hairy, audacious goal.’ This would be the business.
You're fantasising about the penthouse, but you can only build the penthouse when you've got the other 45 levels done. If you're in a position where your penthouse is a good goal, that's great.
Breaking It Down
Marty: But instead of spending time working out what decorations you're going to put in the penthouse, work out how you are going to pull the foundation. Work out how you get from the foundation to level 1, from level 1 to level 2, and so on. Whilst it's good to have that big, hairy, audacious goal or that grand plan for your business, your business plan must guide you to put your time into what's most productive for you now.
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Often, the things that people get tied up in are decisions that don't need to be made until there are extra two staff members and extra 15 clients. Put your time and your resources right now into the next two clients because that’s how you get the next 5 clients, which is how you get the next 15. It's breaking it down.
4. Focus on What’s Near
Marty: To give it a timeframe, have an idea for as far ahead as you can see, and that'll change depending on the time frame and your situation. I've had times in my business where I'm like, ‘If I get to the next financial year, I’ll reassess it then.’ Other times I'm like, 'Oh, I can see this in 10 years being this nice penthouse.'
Think about your business as far away as you can and then bring it back. What are the things that you can do in the next 3 months, 6 months, 12 months? If you want to come a little bit smaller than that, what are the things that you can do in the next month.
What are the things that you can do now that are going to take you towards that penthouse? If you're on level 0, then build level 1. When you’ve built level 1, you can build level 2. When you’ve built level 2, you can build level 3 and so on.
You've got to put 98% of your effort into level 0 to 1. Otherwise, 2 and 3 and 4 and 5 and the penthouse definitely is never going to happen.
You use that penthouse as a great guide for you to shape where you're going, but bring it back to 3, 6, 12 months and what's going to make the impact for you right now.
5. Celebrate Your Progress
I think it's really good because a lot of people look straight to the goal and don't look at the footings. They don't have a look at how big what’s sitting underneath the iceberg that hit the Titanic.
Marty: It's a one-degree change that boils water because 99 degrees is not boiling, but at 100 degrees, it's boiling. It's a one-degree change! People are only focused on that boiling, and anything less than boiling is considered failing. But the movement from 20 degrees to 23 degrees is massive—23 gives you the capacity to go to 25 to 28 to 40. You've got to be able to celebrate the progress along the way, which is moving you towards that end goal, not just the end goal.
Upon the looks of it, whatever the time is that I say something's going to take and then mentally times it by two, that's probably how long it's going to take.
6. The Plan Needs to Adapt
I set a 3-month goal to automate a lot of stuff that happens to the podcast. I thought 3 months should be fine to create a project management piece of software that will show us Day 1 to the day the podcast is aired.
It didn't take 3 months. It took probably six or seven months to get it finished. It didn't take just the hours that I thought I'd be doing in my spare time. It took longer than that. Life gets in the way, things happen, COVID hits, who knows what's going to happen.
One of the things that I thought that definitely encapsulates it is the way that bamboo grows—the first year it sleeps, the second year it starts to creep, the third year it leaps. It just grows ridiculously quickly, but it's not without the seeds, the nurturing, the watering and not seeing any growth for quite some time.
With relationships, you don't just go and ask someone to marry you on the first date. You talk to them and you get to know them. It grows out, and that's the same with clients, your business, your staff.
Marty: I've just upgraded and rolled out a fairly substantial SharePoint set up, an infrastructure for myself as an operating system. I wouldn't call what I do project management so much, but there's a project management element to it. It's how I manage my clients, the relationship that I have with them, the information that I exchange with them, and how I deliver that in a really professional and top-of-the-line way. I've used SharePoint to do that.
I haven't done a project like that that I haven't underestimated by 50. You got to accept that you got to wear some punches.
And the point that you talk about is the plan needs to be able to adapt. You've got to have some element in there for you to be able to adapt when things haven't gone well. Plan for the best, and expect the worst. You've got to be able to work with this stuff that you have.
7. Volume v. Efficiency
Marty: When it comes to software, you've got a budget that you're trying to achieve, you've got a number of hours that you try to do, you've got a way that you deliver your core service. I guarantee you, if you're starting, there will be software off the shelf that will help you deliver that.
One of the easy things that you can get bogged in is refining your product, refining how you do this, and refining all of those things. That won't matter for you nearly as much in the early days as getting more volume. You can refine the efficiency of how you do something once you have volume.
There isn't a software suite in the world that is going to serve absolutely everything that you need to do. So whether it's your CRM, your marketing software, your Monday, your Azana, it doesn't matter. Work with what you've got, especially in the early days.
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If you're somebody listening to this thinking, 'Hey, my boss makes a dollar, I get a dime, I'm going to step out and do this.' You can't afford in the early days to be spending so much time refining your product. You've got to know that you add value to somebody. You've got to know why you add value to somebody. You ought to be able to deliver that at a fair price point. All of those things.
When to Refine Products, Processes, etc.
Marty: The point for you to really refine that and put a polish on it is somewhere between your above break-even and double break-even slash triple break-even. You're in a comfortable place. You've got to get uncomfortable, particularly if you don't have a budget to be doing. We haven't even really touched on marketing and promotions.
If you're starting a business, one thing I can guarantee you is to get comfortable selling yourself because that's going to be part of it. Those relationships take time to build. Two customers become four. Four customers become eight customers. Eight customers become 16. It's hard work, but you've got to be doing that work at the start. Use what you have and accept that it's going to take some time to drive through that.
8. Everyone's Not the Right Fit
You're ready to speak in front of people. Cold calling isn't that bad.
Marty: I am a horrendous salesperson, but you ought to remember that you're not trying to sell something to somebody.
You’re Not Selling Something
Marty: Somebody showed up at our door yesterday and he was trying to sell us a solar system. He was doing stereotypically all the things right. I was listening to my fiance talk to him, and he got her to say yes, that that would be good if we could save that money. And then as soon as she said no to anything, he was just like, but didn't you say you wanted to save that money? $200 a week.
If you're starting your own business, you're not selling something. You're just looking for the same people as you.
We know what you're selling. You're making sure you're making the right connections and everyone's on a different path.
As a consultant, I am fully aware that I'm not a great fit with hundreds of people. I still to this day pick up the phone, introduce myself to people. I do that with much less emotional baggage than I did in the first 3, 6, 12 months of my business.
What changed my opinion on that was the moment that I realised I'm not picking up the phone and acting like that guy who showed up at the door and trying to sell them something. It's not my job to determine whether you see value in what I have. It's my job to put it out there. If you see it and if it fits right but if you say no, we don't have to spend any more time together. I'm just looking for the person who does. That was how I was able to reframe it. That really made a massive difference for me on my sales side in business.
I agree: everyone's not the right fit. If you're the right fit for everyone, you don't fit well with anyone.
Have Some Uncomfortable Conversations
Marty: It all just comes with confidence, and it comes with time. Again, it's one of those things. You can't fast forward that. It's really hard to give that to somebody who's 3 months into business when you're 3, 4, 5 years.
I've been back in Brisbane doing this for 3 years full time. You started this in 2007. You're 14 years in. It's easy to have confidence and belief in what you do when you've done it enough for that belief to be reinforced.
When you're starting out, that belief is fractured and vulnerable, and a bad sales call can shape that. It doesn't mean that it doesn't have to happen, but you're just looking for the right people, you're not looking for everybody.
Who can help with a business plan?
For anyone out there that's listening wondering what we can do to try and get on board here, can they contact you for help?
Marty: Most certainly. I write between two and three business plans every month. It's what I do. It's the fundamental piece of Performance Edge, which is a programme that I run, so if you want to grab a coffee or frothy, head to the Performance Edge page, drop me a line. I'm happy to grab a phone call or grab a beer or coffee. We can talk specifics about it.
Always happy to have a conversation with somebody who's trying to add some value.
Business Planning Basics by Martin Lewis
What is freedom?
What is freedom to you?
Marty: I would say freedom to me is the ability to spend the time doing what I want to do. I would still do what I do. I would be even more specific about who I do it with and I would put time into causes and passions. It's being in control, and to a certain extent, we all can access that early when we take control of our choices.
I think that's bloody good advice.
If you have enjoyed this podcast, make sure to jump across iTunes. Leave us some love. Give us some feedback. Contact Marty Lewis. We're going to have him come into our Facebook group so you can also ask any of the questions there or jump across to his website, and leave him a line.
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