Develop a Business Plan Before You Buy a Website

Develop a Business Plan Before You Buy a Website

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Develop a Business Plan Before You Buy a Website

Reprinted with permission of VotanWeb.com

In recent years, I've written a number of business plans based on ideas I've had for various websites. Most of these ideas were small, but I learned a great deal just writing the plans. I didn't proceed with those websites because either the market or cash flow wouldn't support them. However, the only way for me to know this was by writing the plans.

Completing the initial plan for my current website was time-consuming. I spent about 40 hours over a three-week period researching and writing it. It's a living document, since I revise it every month or two.

Free Web resources, plus word-processing and Excel spreadsheet software, allowed me to create a unique plan. The resources I used included VotanWeb and the Small Business Administration's site. The business-planning software programs that provide templates to insert your information seemed "cookie cutter" and formulaic to me. They didn't seem to offer anything that wasn't free on the Web.

The first half of a business plan is geared towards developing and supporting a business strategy. A website can face serious competition if the business concept is not creative. I critically examined my market, industry, customers and competitors. I reviewed the benefits of my current merchandise and tied them to customer needs. I visited my competitor’s websites to evaluate their strengths and weaknesses and find opportunities they were neglecting.

I asked myself: Is there a niche that allows me to compete less directly against similar websites? Can I use different sales or marketing pitches? Is there a secondary market that can help us grow? Can I position my websites in new ways that offer customers additional benefits?

The Financial Picture

A balance sheet shows a website's net worth and is prepared once annually. In my business plan, I also included a personal balance sheet that showed my personal financial commitment by documenting my own assets and liabilities.

A cash-flow statement shows how much cash will be needed and when and where it will be generated. It examines cash and revenue sources, minus the business's expenses and capital requirements (a cash-flow statement differs from a profit-and-loss statement because it doesn't include when the revenue is collected or expenses paid). I show my cash flow going forward on a 12-month basis. This allows me to see when my cash flow might not be adequate to meet expenses and pull back on spending until it builds up again.

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Second opinions provided me with a sounding board and a reality check. After I completed my financial analyses, I asked friends with financial backgrounds to review them. These included the vice president of finance at my former employer and a certified public accountant. I went to these folks because I trust them and know they could spot things I missed.

Reviewing my plan five months after starting my website shows I underestimated the amount of working capital I needed. I hadn't anticipated how much inventory I'd have to buy each month. I'd assumed I'd sell more items in the inventory that came with the website purchase. However, the older merchandise didn't sell as fast as I had projected, while newer merchandise sold better. This meant I needed to order more merchandise than I originally anticipated, so more cash was going out than I expected. Fortunately, our cash flow supported these needs, but I stayed on top of it to ensure enough was available.

Being flexible is paramount, and a plan should accommodate change. For instance, using the cash for inventory I hadn't anticipated meant I had to delay other purchases planned for the first few months.

I go over my plan mostly to update my cash-flow forecasts but also to review current initiatives and add new ideas. It's interesting how quickly the business plan changes and must be modified. For instance, it's now May and a new website upgrade expected to be in place by the end of March is just now getting put up. I'm constantly updating my plan to accommodate such revisions.

When they look back, experienced businesspeople often say the websites they didn't launch because of pessimistic financial forecasts were more important to their success than the ones they own now. Being an entrepreneur means taking chances, but without a business plan, too many things are left to chance.
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