Home Business Plans
Planning a Small Business in Writing Can Lead to Success
A written plan for a home business does not need to be scary, and is not only useful if you're trying to borrow money. Even a short plan can lead to greater success.
The IRS holds that the difference between a hobby and a business is, as a rule of thumb, whether or not you take it seriously. One of the best ways to have the Internal Revenue Service and others, including yourself, believe that you’re actually running a business at home is to have a written business plan. Planning for your home business will force you to think through how seriously you want to take it, and how much money you really think you can earn while working at home for yourself.
Many business owners avoid writing a business plan, believing that they’re only necessary when you want to find a lender or investor. Home business owners are even more likely to avoid writing a plan for the business. In truth, these business owners have it backwards: the reason investors and lenders require a written business plan is so they can find out how seriously the business owner takes his or her business. Any business will be more successful with a plan, and a home business, with its lower overhead, is sure to thrive if it is planned out on paper. Luckier still is the future home business owner who uses a written home business plan to prevent a quick business failure.
Parts of a Business Plan
A business plan doesn’t have to be intimidating. If you run a home business, some parts of a typical business plan can be very short. Planning your home business may seem like a tremendous waste of time, but business owners who plan things out find they save time in the long run. Put another way, if you fail to plan, you plan to fail!
A home business plan has a few basic elements, as laid out by Tiffany and Peterson in Business Plans for Dummies, 2nd edition (For Dummies, 2004): the executive summary, company description, marketing plan, operational plan, financial history, and financial plan. None of these needs to be difficult for the home business owner to write.
- Executive Summary
- This is the first part of your home business plan, but should really be written last. In a few paragraphs it sketches out what the business does, how it does it, and where it hopes to go in the future. It should be written last because other areas of the business plan must be written first in order to be summarized.
- Company Description
- The company description for a home business plan doesn’t have to be fancy. If you lay out what you’re selling or doing for money, even in a general way, that’s often enough for a home business. Make sure you lay out how your business is organized - most home businesses are not incorporated, but if you are the specifics should be laid out here.
- Marketing Plan
- This is where it gets scary for a home business, but it doesn’t have to. You’re not trying to impress anyone, you’re just trying to lay out in words what you are already doing. How do you sell your items or services? Is it word-of-mouth? Do you operate entirely online? Do you advertise at all? Who is your competition?
- Operational Plan
- The operational plan is the nuts and bolts of your business. Once you get a sale, how to you fulfill it? How much of your home do you devote to your business? Are there any legal requirements you need to follow? Do you have any employees yet? How do you maintain quality? Do you extend credit to your clients?
- Financial History
- If you’re taking your home business seriously or want to, you’re using some kind of bookkeeping software. The bookkeeping software will be able to generate reports like profit and loss statements and balance sheets. However, the computer axiom "garbage in, garbage out" applies here - the more fastidious you are with your bookkeeping, the more meaningful those reports will be.
- Financial Plan
- This section is where you will put down your predictions about how you will do in the future. There is a lot of guesswork involved, and not every guess will be correct. The better you understand the rest of the small business planning process, the more accurate your predictions will be.
Making a Hobby Into a Business
Writing your business plan should be enough to convince the IRS that you have a home business, rather than a hobby. It will also make it clear to you that you are serious about being a small business owner. Once you complete all the business plan elements and are ready for the final touches, review some tutorials on executive summaries to make your plan perfect. No matter your reason for writing your plan, the executive summary will define your business vision.
