Blueprint for Success

By Bob Nieman | May 14, 2009

Over the years, Sandie Reed has changed her mind about business plans.

“I used to think business plans weren’t all that important,” said Reed, who owns The Laundry in Fortville, Ind., as well as a real estate venture and a number of other businesses. “But when you’re dealing with multiple businesses, plus trying to get loans secured, it gets hard to put a finger on all of your numbers if you don’t have a business plan.

“When I first started, I used my business plan to secure loans, but now I refer back to it a lot just to see what direction I thought I was going and how close I am to my original projections and what needs to be changed,” she added. “I refer to it a number of times a year. I may not follow it exactly, but at least it helps me stay in line with where I thought I was going to begin with.”

Indeed, the properly written business plan answers two crucial questions: (1) Where am I going and (2) how am I going to get there?

“The business plan is the blueprint for how you think your financial goals are going to be met for at least the first couple of years,” explained Peter Lowin, who has owned and operated Pasadena Laundry in Pasadena, Calif., for the last three years. “If you don’t do one, you’re really being negligent.”

Of course, the second purpose of the business plan deals with the financing end of a business. For this purpose, you need to prove to somebody else (namely, your banker) that you know what you're doing and that you'll be successful. Your investors want to feel comfortable that their loans will eventually be repaid.

"The business plan is a necessity," said Robert Krummer, Jr., chairman of First Business Bank in Los Angeles. "If the person who wants to start a small business can't put a business plan together, he or she is in trouble."

The Pieces to the Puzzle

Here are the crucial questions that every successful business plan must answer:

1. What business are you getting into?

Yes, you want to open a self-service laundry. But you need to educate your potential investor about today's stores, as well as the industry in general. Most banks and other financial lenders likely aren't as familiar with the coin laundry business as you have become. Photographs of modern self-service laundries and some general industry figures should bring everyone up to speed.

2. Who and where are your prospective customers?

Basically, this is the demographic analysis of your marketplace. In this part of the plan, it's important to be extremely specific about where you gleaned this information. Another key to this section of the plan is to not overreach how large of a market area you think you're going to be able to serve.

Answering this second question is a perfect example of why a business plan is not just a sales tool to help you secure financing. Your plan forces you to think hard about your future venture. When gathering information for the demographic section of the plan, you’ll quickly find out whether your desired location can support a laundry or not.

To that end, your first step should be to get in your car and drive around your potential marketplace. Are there a lot of apartments, condominiums and other multi-family housing developments?

At that point, find out what's available in the area in the way of space that could be leased, a building that could be bought or vacant land that you could build on.

Once you’ve determined your location, you can order a demographic study suited to your business. In addition to three radius ranges (typically one-mile, three-mile and five-mile ranges are standard for the average suburban location), you need to supply a zip code and cross streets to order a demographic study.

In addition to demographic studies created by industry distributors and national demographic companies, some cities and towns provide this service to start-up businesses.

The demographic analysis, which typically costs about $150 if ordered through a company that specializes in such reports, is going to provide you with a lot of details about your market’s population, households, income, ethnic profile and so on. Amidst the reams of information you will receive, there are three items that you should pay especially close attention to: (1) the total number of renters, (2) the total number of households, and (3) the number of families in a lower-income range. Of course, the dollar amount that defines "lower income" varies in different parts of the country. For example, while $25,000 per year and lower is a good barometer, keep in mind that in some areas $25,000 may be considered middle class.

Hopefully, the information gathering you do for this section of the business plan is going to reinforce your belief that you're in the right area. If it doesn't, find another area.

3. Why is your marketplace underserved? Who are your competitors?

Who's already out there doing the same kind of business you're doing? Go into your potential competitors’ stores, check visibility from the street, check parking, check the age and condition of equipment, check pricing. And take notes.

This exercise, along with your demographic analysis, should give you the tools to take your qualitative information and transform it into quantitative numbers.

4. Why will you be successful in filling the void in your marketplace? What are you going to do that's going to be better than the laundries that are already out there?

In writing your business plan, you should try to figure out – and convey – why your self-service laundry business will be unique. What makes you different? Why are people going to come to you – other than the fact that you just happen to be the new kid in town?

The more you concentrate on making those distinguishing statements in your plan, the more information you will have about your business down the road. As time goes by, you can refer to that list of distinguishing characteristics to be sure they still apply. Are your attendants still as courteous as they need to be? Is your lighting as good as you said it would be in plan? And so on.

5. How are you going to tell my customers about your laundry business?

What’s your marketing strategy? How much do you plan to spend on advertising? What types of promotions do you have in mind? You lender will certainly have a number of questions regarding how you plan to get the news out about your business to the people you have targeted as customers. Be prepared for these inquiries.

“I didn’t budget enough for advertising,” said Lowin, who also runs a house-cleaning business. “When you’re trying to watch your capital, it’s hard to spend money on advertising. But that’s how you build the business. You have to view advertising as an investment and not just an expense. Don’t ignore advertising for a new laundromat in your business plan.”

“You need to talk about advertising, especially in the first three months,” advised Greg Prugh, who has owned The Missing Sock laundromat in Jackson Hole, Wyo., for two years. “The first year is your ramp-up. The first month we broke even. Those first three to five months are crucial, because the faster you get up and running the more money you will make.”

6. How are you going to operate your business?

This section deals with your specific coin laundry facility. Do you own the property or will you be a tenant? How big is your store going to be? What equipment do you need to put into this store?

At this stage of the game, you don't necessarily have to identify which brand of equipment. But you do need to identify a basic profile – 12 20-pound frontloaders, 18 30-pounders and so on.

Along with that, you need to address the subject of your proposed hours of operation, as well as whether you plan to have your business attended or unattended.

“Do I really want to open up in the morning?” Prugh asked “Do I want to close it at night? Do I want to clean it daily? Is it worth paying someone to offset that? Do I really want to offer a wash-dry-fold service? That’s part of your business plan.”

7. What are you going to do about personnel?

If your store is going to be fully or semi-attended, what's your plan? How much are you going to pay them? How many hours are they going to work?

8. What revenues, expenses and net profits are you expecting during your first few years of operation?

This is the financial pro forma, and it’s obviously a crucial section of your plan.

“You have to have a financial forecast for the first two years,” Lowin said. “You have to have a forecast of what you project your revenues to be and what you project your expenses to be. That’s important.”

Revenues can be tough to determine. However, you should already know what kind of equipment your store will feature from answering Question No. 6. And from your competitive market analysis (Question No. 3), you also have a handle on what your vend pricing needs to be.

Hopefully, because of the demographic analysis (Question No. 2), you have figured out approximately what share of the market you’re going to be able to capture. From this, you ought to be able to project approximately how many pounds of clothing your store will be washing and drying per week.

Therefore, from all of this information, you should be in the ballpark in regard to your revenue.

“We all have a tendency to overproject what our income is going to be – and then believing it,” Reed said. “You can overproject to get your foot in the door and make it look good, but you’ve got to be realistic with what you can and can’t do. If that business plan has no basis to it, it’s a waste of your time.

“I would do a very conservative projection,” she added. “Get to what you really think is going to happen, and then reduce that by 10 percent; it will probably be closer to reality. Of course, if you end up doing better than that, wonderful.”

Operating expenses are a bit easier to figure out, and your distributor can help you by determining your approximate utility costs. Some distributors will be able to break it down for you between your electric bill, your natural gas costs, and your water and sewer fees. Others may just provide you with an overall percentage of what you can expect to pay.

Gas, electricity and water are major expenses. They can make or break you. You’ve got to have a good grasp of that, as well as a way to deal with it, so you don’t have any surprises. You’ve got to make sure you put enough money away per week to be able to meet those costs.

The second major item in this category is your occupancy cost. And the third is typically labor.

But don’t ignore the other, perhaps less-obvious expenses that all store owners are certain to incur.

“I definitely didn’t plan for enough service-, equipment- and facility-related problems,” Lowin admitted. “If you’re a first-time owner, you may think it’s like buying a new car – new cars don’t breakdown, right? They do. And even if your laundry equipment is under warranty, you still have to pay for service. The parts are under warranty, but the service isn’t necessarily covered.

“Therefore, you want to be as conservative as possible when you’re creating your financial projections,” he added. “Or at least create a number of scenarios – including best- and worst-case scenarios.”

Obviously, anyone who is not experienced in writing business plans and dealing with financial analysis should seek the assistance of an accountant or a CPA with this portion of the plan.

9. How much capital will you require?

How much money are you putting up? How much do you expect to borrow? Also, what are you going to do with that capital? How much money is going toward equipment? How much is going toward outfitting the interior of the building?

10. Who are you?

What's your background? What's your business experience? What can you say about yourself that would indicate you will be successful?

No matter how good the rest of your business plan looks, banks will dwell heavily on your personal and business credit history. They want to see whether or not you've paid your bills on time and what kind of personal net worth you have.

Writing Your Business Plan

Many people who are writing business plans want to get to the end – or the executive summary – first. In fact, a lot of people try to do the executive summary before they write the plan. That’s not a good idea.

Instead, work on the "guts" of the plan first. Then use the one- or two-page executive summary to synthesize everything in the plan.

All in all, you're going to invest a substantial amount of your hard-earned money into your laundry business. Therefore, spending as much time as necessary in writing your business plan will pay off in major benefits as you and your business.

Then again, Prugh warned, don’t get too bogged down in the process. “I would stress not creating a 35-page diatribe about all of the market conditions and all of the real estate conditions and all of the people you talked to,” he said. “Here are the numbers. Here are the players. Here is the space and the reasons you like it. Here is the building. This is what it’s going to cost. This is the financing. After all, running a coin laundry isn’t like building software.

“But, at the same time,” he countered, “your plan should include the reasons why you’re doing it. Start with the numbers – the who, what, when, where and why. Why am I doing this? You’re buying yourself a job. Why? You have to ask yourself those hard questions. It’s like a marriage, so you have to ask whether or not you really want to do it.”

Of course, there are always businesspeople who will prefer to have someone else "write" their business plan for them. First of all, no one can write your plan for you. They simply don’t have the needed information. However, there are professionals – CPAs, business consultants, etc. – who can write your business plan with you.

In fact, there are thousands of people out there writing business plans, and they vary widely in quality. A number of business plan writing firms have a network of MBA students on call who will write a plan tailored to our business, and they’re usually less expensive.

When searching for a writer, look for someone who has a general business background and is familiar with such areas as accounting, bookkeeping and marketing. He also should be acquainted with financial statements, business jargon and your local business community. Ask for work samples and, if possible, have your bank loan officer review them to be sure they're acceptable in terms of type and quality. Professionals can prepare a business plan in two to four weeks. Fees range from $2,500 to $5,000 depending on the time it takes to do the research to obtain the necessary financial data, analyze the competition, develop sample marketing plans and so on.

If you choose to write the plan yourself, avoid the "cookbook" approach to writing it. That's a trap that’s very easy to fall into when using one the popular "business plan template" software programs on the market, said Dan McGilvery, who heads the Business Planning Services division of vFinance, an investment banking firm that provides sources and professional help to startup and early stage companies.

"Over the past couple of years, the business plan has become much, much more of a sales document, with the goal of selling the investor rather than just providing information about your company," said McGilvery, who has written hundreds of business plans for clients.

“For the first-timer, if you go into any banking institution and you have a good business plan laid out and you know your market and what you’re talking about, they are going to listen to you a lot more than if you were to walk in the door and say, ‘Hey, I’ve got this idea.’” Reed said. “The business plan is crucial for convincing them you actually know what you’re doing.”

Here are some of his tips for actually writing your business plan, according to entrepreneur.com:

• Use a lot of graphics. "People's attention spans are getting shorter by the day, and investors are accustomed to the high-end graphic tools used in PowerPoint presentations," McGilvery explained, recommending that you sprinkle color graphs and charts, pull quotes, text boxes and other visual aids liberally throughout your plan – "punching" and breaking up the text as much as possible.

• Highlight the plan's executive summary section. "Sometimes we spend as much time writing the executive summary as we do the entire rest of the plan," he said, explaining that most investors will not read beyond a poorly drafted executive summary that doesn't grab them.

• Focus on the section of the plan that describes your market strategy. "Of the many factors that will determine your chances of success, your marketing strategy is very high on the list. It's also one of the weakest components of most plans."

• Eliminate the risk factors section altogether. "Investors will conduct a very thorough risk assessment on their own – the only exception would be if there are risks that the investor would not normally uncover in their due diligence."

• Make sure the pro forma financial information in the plan is tailored to your business.

• Fine-tune and polish your management's resumes. Also, be sure to include information about any professional advisors you may work with. "When investors see a respectable law firm or accounting firm name, it enhances your credibility," McGilvery explained.

• Don’t be greedy. Years ago, you would ask for the entire amount up front. Today, you're much better off asking for perhaps one-third of the total at a time. Investors want to see you producing a revenue stream with the smallest possible investment.

• Check your spelling. Typos in your business plan are the kiss of death.

Once you're done with your plan, not only should you have your accountant review it but you might want to take it to a bank that you really don't think you're going to have any luck with. This way, if you get turned down, as you suspect you might, you can ask them to tell you what it was they saw in my your that was not appealing to them.

“Talk to as many people as possible,” Lowin suggested. “There are different SBA resources, not just for financing, but for advice. Talk with anybody who has business experience, as well as people who don’t necessarily have much experience.

“For example, I talked with my father a lot about my business plan. He reviewed it and had a lot of input. So I recommend networking with as many people as possible.”

Learning from your mistakes is a great tactic for fixing any flaws in your business plan up front and early on.

Avoid These Common Pitfalls

According to bplans.com, there are a few other mistakes that many novice business plan writers make:

• Vagueness. Leave out the vague, meaningless business phrases ("being the best") because they are simply hype. Remember that the objective of a plan is its results, and for results, you need tracking and follow up. You need specific dates, management responsibilities, budgets and milestones.

• A one-size-fits-all approach. Tailor your plan to its real business purpose. Business plans can be different things. They are often just sales documents to sell an idea for a new business. They can also be detailed action plans, financial plans, marketing plans, and even personnel plans. They can be used to start a business, or run an existing business better.

• Lack of focus. Strategy is focus. A priority list with three or four items is focused. A priority list with 20 items is certainly not strategic, and rarely effective. The more items on the list, the less importance of each.

• Neglecting cash flow. The best advice Laughlin could give someone creating a business plan is to pay special attention to the cash flow – to identify every source that the money’s going to come from. "Business owners need to think about every possible expenditure," he added. "The bottom line is cash flow. They’ve really got to nail down the cash flow."

However, the biggest threat to your business plan is simply putting it off. Are you waiting until you think you'll have enough time to write one? The busier you get, the more you need to sit down and take the necessary time to properly plan.

“Running a business without a business plan is like sailing a ship without a rudder,” said Lowin, who took nine months to write the plan for Pasadena Laundry. “Even if your plan is totally off, at least you have a plan. At least you’ve thought about it. And, if things don’t go as planned, at you know what the original plan was and you know where you diverted from that plan.

“Even is your ship’s rudder is a bad one, at least it’s a rudder. You need one.”