In This Chapter

There’s an old saying: if you fail to plan, you plan to fail. I agree with that philosophy. However, I admit that there have been many times when I, to use another popular expression, shot first and aimed later. Which approach works better? I have a lot of experience with failure, and fortunately with success, too, and I can confidently report that you’ll have a much better chance of getting from A to B if you have good plan.

Your plan should provide you with a basic road map for what you want to achieve: the successful launch of a profitable web-based business. And like any trip, you’ll need to make some initial preparations for the journey.

Say you want to go on a weekend skiing vacation to Mount Treblaunt, Quebec. (A trip I’m actually planning with my family as I write this.) I suppose you could just jump in your car and start driving in that direction. That would certainly be adventurous. But you would probably make a lot of wrong turns along the way, get lost a few times, run out of gas in more ways than one, spend too much on meals and lodging, and take a lot longer to finally get your butt onto a ski lift than you thought!

However, if you planned ahead by mapping out your route in advance, booking a nice lodge room at a discount, making sure you packed all the gear you need, and identifying a couple of nice rest stops along the way, your chances of arriving on time and having a great family skiing experience would increase dramatically.

Now think of that analogy in terms of your web-based business. Do you really want to stumble around, get lost, waste cash and resources, and risk not getting your business up and running profitably? Of course not. So although you may have an entrepreneurial spirit—and if you do I applaud you for it—don’t rush into building a business online without a plan. A solid action plan for your business really does make the difference between success and failure.

Want to create an effective business plan quickly? Here is a technique I use to help me accomplish just about anything in my business, whether it’s creating a new course or launching a completely new web-based venture. It quickly helps you identify what you need and how you’re going to accomplish it.

You’ll need a few sheets of paper or a notepad. You can also do this on your computer using a spreadsheet program like Microsoft Excel or Google Docs.

Take a sheet of paper and turn it sideways. Draw two lines from top to bottom so that there are three columns. Ideally, the first two columns on the left should be the widest. At the very top of the page write down your goal. For example:

Now title each column as follows:

On the left column, brainstorm all the things you suspect you need to get done in order to launch your web-based business. That may include such things as finding a good affordable web designer, learning how to accept payments online, researching the costs of getting your knitting patterns professionally drawn, coming up with a name for your business, determining how many hours per week you’re able to devote to your business, and so forth.

You will probably have a long list of things that need to get done, some that will be more of a priority than the rest.

Using your best judgment, put a star next to the 10 most important items on the list. Then, in the middle column, write down how you are going to get those items done.

For example, if you have “Learn how to accept payments online” in your left column, then you might write “Study Chapter 12 in The Complete Idiot’s Guide to Starting a Web-Based Business” in the middle column.

Finally, in the right column, under When?, make a commitment. Decide right now when you can realistically complete that action step. Be careful here. If your schedule is packed to the rafters over the next three days, then you might not have time to read the chapter until this weekend. That’s fine. Simply write down “Saturday by 3 P.M.” in the column. That’s realistic, but still ambitious.

Then move on to the other nine items you have identified as priorities.

There are two main benefits to this type of business plan. First, it’s very easy to create. Unlike a formal document that you might have to show your banker, this type of business plan can be changed and updated on the fly. In fact, I always have one on the go. Secondly, it moves you forward by describing exactly what you need to do to get to the next step in your business and when. That clarity alone is motivating.

Try this system for planning your web-based business. It works.

Okay. You can’t wear comfy slacks and a sweater to every party. Sometimes the occasion calls for a fancy suit.

The same holds true for business plans. The system I described previously is for your own use. It tells you what you need to do, how you’re going to do it, and when. However, there may be circumstances when you need to create a more traditional business plan to show to a potential partner, investor, or lender.

The topic of formal business plans is covered in detail in The Complete Idiot’s Guide to Business Plans (Alpha, 2005), a terrific book.

However, let me give you a quick overview here.

A formal business plan is often used by others to make decisions about your business. You’ll have a tough time convincing an investor to back you without one! Here are the basic elements:

A typical business plan is divided into sections for each of the above categories and can be dozens of pages in length. If it will be shown to others, make sure it is written clearly and that all the information is easy to find. You might want to hire a freelance editor to polish it for you. Presentation counts, too. Take it over to Kinko’s or some other quick print shop to get it printed and bound. If you’re asking an individual or organization for money, it’s worth a few bucks to make your business plan look good.

One of the toughest tasks in planning your web-based business is figuring out what you need and how much everything is going to cost.

Doing business online is certainly a lot less expensive than opening a retail store or other type of brick-and-mortar business. However, don’t buy into the hype about getting a website up for just a few dollars and making your first million before the end of the month. Like any business, there are start-up and ongoing costs that you need to plan for. And if you don’t, you might be in for an unpleasant surprise when the bills come in!

Most business owners watch sales and revenues carefully and celebrate when they have a good month. And so they should! But I can’t emphasize enough how important is it to pay at least as much attention, if not more so, to your costs. Expenses like transaction fees, monthly services, subscriptions, freelance fees, virtual assistant hourly fees, and so forth can creep up on you. If you don’t plan your costs carefully, you might find that although your website is generating healthy sales, your profits—sales minus expenses—are low.

If you’re starting from scratch, you’re going to have to go shopping! There are many things you’ll need to buy to get your web-based business off the launching pad. Here is a list of the basics:

Keep in mind that these are just the basic expenses of getting your business registered, your website up and running, and other things and services you need in place. There may be other expenses, too, depending on the kind of business you’re starting. For example, if you intend to sell your own products you’ll need to budget for an initial inventory.

And don’t forget what may be the biggest start-up expense of them all: you. How will you support yourself until your web-based business starts earning a decent income? Will you rely on your “day job” and work on your business in your spare time? Will you live off your savings or spouse’s income? You need to give this some thought because, as I mentioned earlier, it may be weeks or even months before you start seeing your business bank account growing. Experts say that, at a minimum, you should have enough savings, or the equivalent from other sources, to meet your personal income needs for at least six months.

Does everything sound expensive? I’ve tried to be as realistic as possible with the start-up estimates. The good news is, there are many low-cost, and even free, versions of almost everything on the previous list. GoDaddy has free web building software and pre-designed website templates. You can make low-cost long-distance calls using Skype. PayPal offers a free shopping cart that you can use on your website. Don’t you love the Internet?! (Appendix B features a long list of free, and almost free, online tools and resources. Check them out.)

So shop around. Take advantage of the free stuff. And when that’s not possible, get the best deals you can.

Some final advice when estimating start-up costs. In the popular wilderness survival TV series Survivorman, the host suggests that you gather as much firewood as you think you need to get you through the night. Then double it. That’s what I suggest you do when getting your start-up cash together. Add up the amount of money you think you’ll need to get your web-based business off the ground. Then double it.

Business owners—myself included—almost always underestimate expenses.

So far we’ve talked about the things you need to buy and pay for to get your web-based business off the ground. But aside from money, there is something else you’ll be spending a lot of: your time.

For example, if you intend to generate revenues for your website through advertising, then you’re going to have to explore affiliate programs (see Chapter 6). You’ll have to create a shortlist of programs you want to get involved in, study how each one works and how much commission they pay, sign up, learn how to use the banner ads and affiliate links provided, and much more. That takes time—time that you need to budget for.

Like start-up costs, the many things you need to do in your business during this phase are probably going to take you a lot longer than you expected. So budget your time accordingly. And be realistic. I can understand the bravado of saying, “I’m going to work on my business every weekday evening for three hours and all day Saturday.” But be honest. Can you really?

You’ll create a much better plan for your business if you’re realistic about the time you can spend on it.

How much income can your web-based business generate in the first quarter after start-up? The second quarter? The first year? You’ll have to have at least some estimation of revenues in order to stay financially healthy. And if you intend on getting a business loan, investment, or grant, then forecasting sales and revenue is a must.

How do you do that?

First understand that there’s a huge difference between forecasting and goals. Is your goal to earn $100,000 in income in your first year of business? Go for it! If you fall short by even 20 percent, you’ll still be doing great. But a forecast has to be realistic. You, and perhaps others, will be making important decisions around what your forecasted revenues are, so you’ll need to be as conservative as possible.

When creating a forecast, think of the most pessimistic person you know—and then pretend you’re that guy or gal! Question every assumption you make. Be ruthlessly realistic. Then, when you come up with how much money you expect to bring in once your web-based business gets going, lower that estimate by 25 percent.

It’s far better to underestimate sales and revenues. That way, when you look at your figures each month, you’ll have far more happy surprises than disappointments.

The logical place to start when determining how much revenue you can expect to generate is to take a closer look at your target market: your potential customers. How much of a demand is there for the types of products, services, and information your website will feature? Obviously, the more potential customers there are actively looking for what your website offers, the more clicks and sales you can expect to get.

Unfortunately, calculating market potential does take some guesswork. However, here is a simple strategy that will get you started:

The result will give you an idea of how many people are actively searching for what your website offers and are therefore potential customers.

Now this isn’t an exact science by any means. But this technique does give you a fairly good idea of the market size. For example, if your site is going to sell knitting supplies, then you’ll be happy to know there are more than 54,000 searches for that keyword phrase—knitting supplies—done on search engines each month. That’s a lot of people looking for what you sell!

However, if you discover that few people are searching for what you sell, or the kind of information that your site will feature, then you might need to rethink your business idea.

Once you have an idea of the size of your market, and the number of competing websites there are, you can begin the process of estimating how much in sales and other revenues you can realistically generate.

At this point, you have to make a number of educated guesses. Be realistic. There may be 54,000 searches per month done on search engines for knitting supplies. But you can’t expect them all to find out about your website. At best, you might be able to reach 10 percent.

Then there’s the competition. Other websites that sell knitting supplies, perhaps some that are very established and well known to the target audience, will get their share of the sales.

And how many visitors to your new site can you reasonably expect to convert into paying customers? Before you make an optimistic estimate, keep in mind that Amazon.com reportedly turns about 12 percent of visitors into buyers.

If I’m sounding a little pessimistic, it’s only because I want you to be as realistic as possible with your revenue projections. It’s far better to make more money than you thought you would than less.

Requirements vary from state to state and in other jurisdictions around the globe but, in most cases, you are required to register your business. This typically involves filling out a registration form that provides such details as the business name, type of business, owner (that’s you), address, and other information. Once your business is registered, you are given a registration number and can operate legally.

A business registration fee is typically $50 to $100. My business registration costs $79 and is good for five years.

Don’t skip this step. It’s very difficult to run an unregistered business, and in many cases it may be illegal to do so. You may not even be able to open a business account at your bank without your business registration number.

Once your business is registered, you need to decide which legal form your business will take. There are basically three types:

A sole proprietorship is, by far, the most common legal form for small web-based business owners. It’s simple to set up. You don’t need an accountant or a lawyer to help you. In fact, in most cases, all that’s required is for you to register your business.

When you are a sole proprietor, you’re essentially a self-employed individual. In other words, you are the business. The income from the business belongs to you, as well as the debt.

A partnership is a more complex legal form for a business because it involves at least one other person who has a say in how the business is run. Legally, you can still set up your business as a sole proprietorship, with both you and your partner listed as the proprietors. But you may also need to draw up a partnership agreement.

Say you and an illustrator plan to launch a web-based knitting patterns business. The plan is that you will take care of business operations and marketing while the illustrator will design and produce the knitting patterns. You both agree to hold off from drawing a salary for six months to give the business time to become profitable. Then, you’ll each receive 25 percent of the monthly net income.

Sounds like a reasonable partnership plan. Get it in writing. I suggest you get a lawyer to help you work through such contingencies as: What happens if one partner wants to quit? What happens if the business is sold? What happens if one partner doesn’t fulfill his or her responsibilities to the business? Can one partner buy the other partner out? Having these questions answered in advance in a partnership agreement will make your business run more smoothly by avoiding unpleasant disagreements.

The third type of business is an incorporated entity, sometimes also referred to as a statutory business entity. This type of legal form turns your business into a corporation, which, under law, is considered a separate entity from you.

The main advantage of your business being a corporation, rather than a sole proprietorship, is that your personal assets—such as your house and savings—are protected, to a degree, from any liabilities your business might incur. For example, if your business were successfully sued, you might lose your business assets but not your house.

But there are disadvantages, too. You’ll need a lawyer to set up a corporation, and the total costs can run as high as $2,500. Then there’s the paperwork. A corporation is usually required to maintain more records than a sole proprietorship, and submit separate tax returns. The fees are higher, too. In my jurisdiction, in addition to business registration, a corporation must pay a $50-per-month fee.

Depending on where you’re located, there may be several options for incorporating your business. In the United States, for example, business owners can take advantage of a simpler type of business structure called a limited liability company (LLC), which, as the term implies, provides some protection against personal liability to the business owner or partners.

For more information on this topic, I suggest The Complete Idiot’s Guide to Starting Your Own Business, Fifth Edition (Alpha, 2007).

The Least You Need to Know