Business Plan for Service Firms
Summary
A business plan can provide the owner-manager or
prospective owner-manager of a small service firm with a
pathway to profit. This publication is designed to help an
owner-manager in drawing up a business plan.
In building a pathway to profit you need to consider the
following questions:
• What business am I in?
• Where is my market?
• Who will buy?
• Who is my competition?
• What is my sales strategy?
• What merchandising methods will I use?
• How much money is needed to operate my firm?
• How will I get the work done?
• What management controls are needed?
• How can they be carried out?
• When would I revise my plan?
• Where can I go for help?
As well as many more.
No one can answer such questions for you. As the
owner-manager you have to answer them and draw up your
business plan.
A Note on Using this Publication
It takes time, energy and patience to draw up a satisfactory
business plan. Use this publication to get your ideas and
some of the supporting facts down on paper. Bear in mind
that anything you leave out of the picture will create an
additional cost, when it crops up later on. If you leave out
or ignore enough items, your business is headed for
disaster.
Also keep in mind, that your final goal is to put your plan
into action. More will be said about this near the end of
this publication.
What's in this for Me?
You may be thinking: Why should I spend my time drawing up a
business plan? What's in it for me? If you've never drawn up
a plan, you are right in wanting to hear about the possible
benefits before you do your work.
A business plan offers at least four benefits. You may find
others as you make and use such a plan. The four are:
1. A plan gives you a path to follow. It makes the future
what you want it to be. A plan with goals and action steps
allows you to guide your business through turbulent economic
seas and into harbours of your choice. The alternative
is drifting into "any old port in a storm."
2. A plan makes it easy to let your banker in on the action.
By reading, or hearing, the details of your plan he will
have real insight into your situation if he is to lend you
money.
3. A plan can be a communications tool when you need to
orient sales personnel, suppliers, and others about your
operations and goals.
4. A plan can help you develop as a manager. It can give you
practice in thinking about competitive conditions,
promotional opportunities, and situations that seem to be
advantageous to your business. Such practice over a period
of time can help increase an owner-manager's ability to make
judgements.
Why Am I in Business?
Many enterprising entrepreneurs are drawn into starting
their own business by the possibilities of making money and
being their own boss. But the long hours, hard work, and
responsibilities of being the boss quickly dispel any
preconceived glamour.
Profit is the reward for satisfying consumer needs. In order
to see profit, however, you must prepared to do the work.
Often a new business will not show profits for its first few
years. This being the case, what are your reasons for
becoming a small business owner?
Every small business owner-manager will have his or her own
individual reasons for being in business. For some,
satisfaction comes from serving their community. They take
pride in serving their neighbours and giving them quality
work which they stand behind. For others, their business
offers them a chance to contribute to their employees'
financial security.
There are as many rewards and reasons for being in business
as there are business owners. Why are you in business?
What Business Am I in?
In making your business plan, the first question to consider
is: What business am I really in? At the first reading, this
question may seem silly. "If there is one thing I know," you
say to yourself, "it is what business I'm in." But hold on.
Some owner-managers go broke and others waste their savings
because they are confused about the business they are in.
The changeover of barbershops from cutting hair to styling
hair is one example of thinking about what business you're
really in.
Consider this example also. Joe Riley (fictitious name) had
a small radio and television store. He thought of his
business as a retail store though he also serviced and
repaired anything he sold. As his suburb grew, appliance
stores emerged and cut heavily into his sales. However,
there was an increased call for quality repair work.
When Mr. Riley considered his situation, he decided that he
was in the repair business. As a result of thinking about
what business he was really in, he built up his repair
business and has a contract to take care of the servicing
and repair business for one of the appliance stores.
Decide what business you are in and write your answer in the
following spaces. To help you decide, think of the answers
to questions such as:
• What inventory of parts and materials must you keep on
hand?
• What services do you offer?
• What services do people ask for that you do not offer?
• What is it you are trying to do better, more of, or
differently from your competitors?
Marketing
When you have decided what business you're in, you have made
your first marketing decision. Now you are ready for other
important considerations. Successful marketing starts with
the owner-manager. You have to know your services and the
needs of your customers. The narrative and work blocks that
follow are designed to help you work out a marketing plan
for your business. The blocks are divided into three
sections:
• Section One—Determining the Sales Potential
• Section Two—Attracting Customers
• Section Three—Selling to Customers
Section One—Determining the Sales Potential
In the service business, your sales potential will depend on
the area you serve. This is, how many customers in this area
will need your services? Will your customers be industrial,
commercial, consumer, or all of these.
When picking a site to locate your business, consider the
nature of your service. If you pick up and deliver, you will
want a site where the travel time will be low and you may
later install a radio dispatch system. Or, if the customer
must come to your place of business, the site must be
conveniently located and easy to find.
You must pick the site that offers the best possibilities of
being profitable. The following questions will help you
think through this problem.
In selecting an area to serve, consider the following:
• population and its growth potential;
• income, age, occupation of population;
• number of competitive services in and around your proposed
location;
• local ordinances and zoning regulations;
• type of trading area (commercial, industrial, residential,
seasonal).
For additional help in choosing an area, you might try the
local chamber of commerce and the manufacturer and
distributor of any equipment and supplies you will be using.
You will want to consider the next list of questions in
picking the specific site for your business.
• Will the customer come to your place of business?
• How much space do you need?
• Will you want to expand later on?
• Do you need any special features required in lighting,
heating, ventilation?
• Is parking available?
• Is public transportation available?
• Is the location conducive to drop-in customers?
• Will you pick up and deliver?
• Will travel time be excessive?
• Will you prorate travel time to service call?
• Would a location close to an expressway or main artery cut
down on travel time?
• If you chose a remote location, will savings in rent
offset the inconvenience?
• If you chose a remote location, will you have to pay as
much as you save in rent for advertising to make your
service known?
• If you chose a remote location, will the customer be able
to readily locate your business?
• Will the supply of labour be adequate and the necessary
skills available?
• What are the zoning regulations of the area?
• Will there be adequate fire and police protection?
• Will crime insurance be needed and be available at a
reasonable rate?
• I plan to locate in _________________________ because
• Is the area in which you plan to locate supported by a
strong economic base? For example, are nearby industries
working full time? Or part time? Did any industries go out
of business in the past several months? Are new industries
scheduled to open in the next several months?
• Write your opinion of the area's economic base and your
reason for that opinion here.
• Will you build?
• What are the terms of the loan or mortgage?
• Will you rent?
• What are the terms of the lease?
• Is the building attractive?
• Is the building in good repair?
• Will it need remodelling?
• What will be the cost of the remodelling
• What services does the landlord provide?
• What is the competition in the area you have picked?
• What is the number of firms that handle your service?
• Does the area appear to be saturated?
• How many of these firms look prosperous?
• Do they have any apparent advantages over you?
• How many look as though they are barely getting by?
• How many similar services went out of business in this
area last year?
• Can you find out why they failed?
• How many new services opened up in the last year?
• How much do your competitors charge for your service?
• Which firm or firms in the area will be your biggest
competition?
• List the reasons for your opinion here.
Section Two—Attracting Customers
When you have a location in mind, you should work through
another aspect of marketing. How will you attract customers
to your business? How will you pull customers away from your
competition?
It is in working with this aspect of marketing that many
small service firms find competitive advantages. The ideas
which they develop are as good, and often better, than those
which large companies develop with hired brains. The
workblocks that follow are designed to help you think
about image, pricing, customer service policies, and
advertising.
Image
Whether you like it or not, your service business is going
to have an image. The way people think of your firm will be
influenced by the way you conduct your business. If people
come to your place of business for your service, the
cleanliness of the floors, the manner in which they are
treated, and the quality of your work will help form your
image. If you take your service to the customer, the conduct
of your employees will influence your image. Pleasant,
prompt, and courteous service before and after the sale will
help make satisfied customers your best form of
advertising.
Thus, you can control your image. Whatever image you seek to
develop, it should be concrete enough to promote in your
advertising. For example, "service with a smile" is an often
used image.
Write out what image you want customers to have of your
business.
Pricing
In setting prices for your service, there are four main
elements you must consider:
• materials and supplies;
• labour and operating expenses;
• planned profit;
• competition.
Further along in this publication you will have the
opportunity to figure out the specifics of materials,
supplies, labour, and operating expenses.
From there you may want the assistance of your accountant in
developing a price structure that will not only be fair to
the customer, but also fair to yourself. This means that not
only must you cover all expenses but also allow enough
margin to pay yourself a salary.
One other thing to consider. Will you offer credit?______
Most businesses use a credit card system. These credit costs
have to come from somewhere. Plan for them. If you use a
credit card system, what will it cost you?__________. Can
you add to your prices to absorb this cost? Some trade
associations have a schedule for service charges. It would
be a good idea to check with the trade association for your
line of business. Their figures will make a good yardstick
to make sure your prices are competitive.
And, of course, your prices must be competitive. You've
already found out your competitors' prices. Keep these in
mind when you are working with your accountant. If you will
not be able to make an adequate return, now is the time to
find out.
Customer Service Policies
Customers expect certain services or conveniences, for
example, parking. These services may be free to the
customer, but not to you. If you do provide parking, you
either pay for your own lot or pick up part of the cost of a
lot which you share with other businesses. Since these
conveniences will be an expense, plan for them. List the
services that your competitors provide customers. Now list
the services that you will provide your customers. Service
Estimated Cost
Advertising
Once you have an image, price range, and customer
services, you are ready to tell prospective customers why
they should use your services.
When the money you can spend on advertising is limited, it
is vital that your advertising be on target. Before you can
think about how much money you can afford for advertising,
take time to determine what jobs you want advertising to do
for your business. The work blanks that follow should be
helpful to your thinking.
• The strong points about my service business are ...
• My service is different from my competition in the
following ways...
• My advertising should tell customers and prospective
customers the following facts about my business and
services...
When you have these facts in mind, you now need to determine
who you are going to tell it to. Your advertising needs to
be aimed at a target audience, which are those people who
are most likely to use your services. In the space below,
describe your customers in terms of age, sex, occupation,
and whatever else is necessary depending on the nature of
your business. This is your customer profile. For example,
an auto repair business may have a customer profile of "male
and female automobile owners, 18 years old and above". Thus,
for this repair business, anyone over 18 who owns a car is
likely to need its service. The customer profile for my
business is
Now you are ready to think about the
form of your advertising and its cost. You are looking for
the most effective means to tell your story to those most
likely to use your service. Ask the local media (newspapers,
radio and television, and printers of direct mail pieces)
for information
about the services and the results they offer for your
money. How you spend your money is your decision, but don't
fall into the trap that snares many advertisers.
As one consultant describes this pitfall: "It is amazing the
way many managers consider themselves experts on advertising
copy and media selection without any experience in these
areas."
The following blanks should be useful in determining what
advertising is needed to sell your strong points to
prospective customers.
Form of
Advertising Size of
Audience Frequency
of Use Cost of
X a Single Estimated
= Cost
__________ __________ __________ $__________ $__________
__________ __________ __________ $__________ $__________
Total $_________
Once you have a figure on what your advertising for the next
12 months will cost, compare it industry averages. Since
advertising expense is one of the operating ratios (expenses
as a percentage of sales) which trade associations and other
organizations gather, finding this information may be easier
than you think. If your estimated cost for advertising is
substantially higher than the industry average, you may want
to take a look at your costs. Determining how much to spend
on advertising comes down to the question, "how much can I
afford to spend and still do the job that needs to be
done?".
Section Three—Selling To Customers
To complete your work on marketing, you need to think about
what you want to happen after you get a customer. Your goal
is to provide your service, satisfy customers, and put money
into the cash register.
One-time customers can't do the job. You need repeat
customers to build a profitable annual sales volume. When
someone returns for your service, it is probably because he
was satisfied by his previous experience. Positive word of
mouth spread by satisfied customers is the best (not to
mention least expensive) form of advertising.
If you have already decided to work on a strictly cash
basis, you may want to rethink your decision. Many people
like to buy on credit. Often a credit card, or other system
of payment (i.e. debit) is needed to attract and hold
customers.
Fixtures and Equipment
No matter whether or not customers will come to your place
of business, there will be certain equipment and furniture
you will need in your place of business which will allow you
to perform your services. List that equipment and its cost
to you.
Parts and Materials
You will probably need some kind of parts or materials to
provide your service. List them and their cost to you.
Before you make any supply arrangements examine the
supplier's obsolescence policy. This can be a vital factor
in service parts purchasing. You should also look at the
supplier's warranty policy.
Now that you have determined the parts and materials you
will need, you should think about the type of stock control
system you will need. A stock control system should enable
you to determine what needs to be ordered on the basis of
what is on hand, what's on order and what is being used.
Some trade associations and suppliers provide systems to
members and customers.
When you have decided on a system for stock control,
estimate its cost. My system for stock control will cost me
$__________ for the first year.
Overhead
List the overhead items that will be needed. Examples are:
rent, utilities, office help, insurance, interest,
telephone, postage, accountant, payroll taxes, and licenses
or other local taxes. If you plan to hire others to help you
manage, their salaries should be listed as overhead.
Getting the Work Done
An important step in setting up your business is to find and
hire capable employees. Then you must train them to work
together to get the job done. Obviously, organization is
needed if your business is to produce what you expect it to
produce, namely profits.
Organization is essential because you as the owner-manager
cannot do all the work. As your organization grows, you have
to delegate work, responsibility and authority. A helpful
tool in getting this done is the organization chart. It
shows at a glance who is responsible for the major
activities of a business. An organization chart for a small
service business will reflect the fact that the
owner-manager does most of the managing.
An additional aid is determining both what needs to be done
and who will do it. List each activity that is involved in
your business. Next to the activity, indicate who will do
it. You many do this by name or some other designation such
as "worker #1". Remember that a name may appear more
than once.
Put Your Plan into Dollars
At this point, take some time to think about what your
business plan means in terms of dollars. This section is
designed to help you put your plan into dollars.
The first question concerns the source of dollars. After
your initial capital investment, the major source of money
is the sale of your services. What dollar volume of business
do you expect to do in the next 12 months?
Expenses
In connection with your annual dollar volume of business,
you need to think about expenses. If, for example you plan
to do $100,000 in business, what will it cost you to do this
amount of servicing? And even more important, what will be
left over as profit at the end of the year? Never
lose sight of the fact that profit is your pay. Even if you
pay yourself a salary for living expenses, your business
must make a profit if it is to continue year after year and
pay back the money you invested in it.
Start-up Costs
If you are starting a new business, list the following
estimated start-up costs:
Fixtures and equipment $
Starting inventory $
Office supplies $
Decorating and remodelling $
Installation of equipment $
Deposits for utilities $
Legal and professional fees $
Licenses and permits $
Advertising for the opening $
Operating cash $
Other expenses $
Total $
Whether you have the funds (savings) or borrow them, your
new business will have to pay back these start-up costs.
Keep this fact in mind as you work on the "Expenses"
section, and on other financial aspects of your plan.
Break Down Your Expenses
Your quick estimate of expenses provides a starting point.
The next step is to break down your expenses so they can be
handled over the next 12 months.
Matching Money and Expenses
A budget helps you to see the dollar amount of your expenses
each month. Then from month to month the question is:
Will sales bring in enough money to pay the firm's bills on
time? The answer is "maybe not" or "I hope so" unless the
owner-manager prepares for the peaks and valleys that are in
many service operations.
A cash forecast is a management tool which can eliminate
much of the anxiety that can plague you if your business
goes through lean months.
Is Additional Money Needed
Suppose at this point you have determined that your business
plan needs more money than can be generated by sales. What
do you do? What you do depends on the situation. For
example, the need may be for bank credit to tide your
business over during the lean months. This loan can be
repaid during the fat sales months when expenses are far
less than sales. Adequate working capital is necessary for
success and survival. Whether an owner-manager seeks to
borrow money for only a month or so or on a long term basis,
the lender needs to know whether or not the store's
financial position is strong or weak. Your lender will ask
to see a current balance sheet.
Even if you don't need to borrow, have your accountant draw
up a balance sheet of your firm's financial condition.
Moreover, if you don't need to borrow money, you may want to
show your plan to the bank that handles your store's
checking account. It is never too early to build good
relations with your banker, to show that you are a manager
who knows where you want to go rather than a store owner who
hopes to make a success.
Control and Feedback
To make your plan work you will need feedback. For example,
the year end profit and loss statement shows whether your
business made a profit or loss for the past 12 months.
But you can't wait 12 months for the score. To keep your
plan on target you need readings at frequent intervals. A
profit and loss statement at the end of each month or at the
end of each quarter is one type of frequent feedback.
However, the income statement or profit and loss statement
(P and L) may be more of a loss than a profit statement if
you rely only on it. You must set up management controls
which will help you to ensure that the right things are
being done from day to day and from week to week. In a new
business, the record-keeping system should be set up before
your business opens. After you're in business is too late.
For one thing, you may be too busy to give a record-keeping
system the proper attention.
The control system that you set up should give you
information about: stock, sales, and distributions. The
simpler the system, the better. Its purpose is to give you
current information. You are after facts with emphasis on
trouble spots. Outside advisors, such as an accountant, can
be helpful.
Stock Control
The purpose of controlling parts and materials inventory is
to provide maximum service to your customers and to see that
parts and materials are not lost through pilferage,
shrinkage, errors, or waste. Your aim should be to achieve a
high turnover on your inventory. The fewer dollars you tie
up in inventory, the better.
In small business, inventory control helps the owner-manager
to offer customers efficient service. The control system
should enable you to determine what needs to be ordered on
the basis of what's on hand, what's on order and what has
been used.
In setting up inventory controls, keep in mind that the cost
of the inventory is not your only cost. You will also have
costs such as the cost of purchasing, the cost of keeping
control records, and the cost of receiving and storing your
inventory.
Sales
In a small business, sales slips and cash register tapes
give the owner-manager feedback at the end of each day. To
keep on top of sales, you will need answers to questions
such as: How any sales were made? What was the dollar
amount? What credit terms were given to customers?
Disbursements
Your management controls should also give you information
about the dollars your company pays out. In checking on your
bills, you do not want to be penny-wise and pound foolish.
You need to know what major items, such as paying bills on
time to get the supplier's discount, are being
handled according to your policies. Your review system
should also give you the opportunity to make judgements on
the use of funds. In this manner, you can be on top of
emergencies as well as routine situations.
Your system should also keep you aware that tax monies such
as payroll income tax deductions, are set aside and paid out
at the proper time.
Break-even Analysis
Break-even analysis is a management control device because
the break-even point shows how much you must sell under
given conditions in order to just cover your costs with no
profit and no loss.
Profit depends on sales volume, selling price, and costs.
Break-even analysis helps you to estimate what a change in
one or more of these factors will do to your profits. To
figure a break-even point, fixed costs, such as rent, must
be separated form variable costs, such as the cost of sales
and other items listed under controllable expenses on the
expense worksheet. The formula is:
Break-even point
(in sales dollars) = Total fixed costs
1 - Total variable costs
Corresponding sales volume
An example of the formula is: Bill Jackson plans to open a
laundry. Heestimates his fixed expenses at about $9 000 the
first year. He estimates his variable expenses at about $700
for every $1 000 of sales.
Break-even point = $9 000
1 - 700
1 000 = $9 000
1 - .70 = $9 000
.3 = $30 000
Is your Plan Workable?
Stop when you have worked out your break-even point.
Whether the break-even point looks realistic or way off
base, it is time to make sure that your plan is workable.
Take time to re-examine your plan before you back it with
money. If the plan is not workable better to learn it now
than to realize 6 months down the road that you are pouring
money into a losing venture.
In reviewing your plan, look at the cost figures you drew up
when you broke down your expenses for one year. If any of
your cost items are too high or too low, change them. You
can write your changes in the spaces above or below your
original entries on that worksheet. When you finish
making your adjustments, you will have a revised projected
statement of sales and expenses for 12 months.
With your revised figures work out a revised break-even
point. Whether the new break-even points look good or bad,
take one or more precautions. Show your plan to someone who
has not been involved in working out the details. Your
banker or other advisor outside of your business may see
weaknesses that fail to appear as you pored over the details
of your plan. They may
put a finger on strong points which your plan should
emphasize.
Put your Plan into Action
When your plan is as near on target as possible, you are
ready to put it into action. Keep in mind that action is the
difference between a plan and a dream. If a plan is not
acted upon, it is of no more value than a pleasant dream
that evaporates over the breakfast coffee.
A successful owner-manager does not stop after he has
gathered information and drawn up a plan, as you have done
in working through this publication. He begins to use
his plan.
At this point, look back over your plan. Look for things
that must be done to put your plan into action. What needs
to be done will depend on your situation. For example, if
your business plan calls for an increase in sales, one
action to be done will be providing funds for this
expansion.
Have you more money to put into this business? Do you borrow
from friends and relatives? From your bank? From your
suppliers by arranging liberal commercial credit terms? If
you are starting a new business, one action step may be to
get a loan for fixtures, employee salaries, and other
expenses. Another action step will be to find and hire
capable employees.
Keeping your Plan Up-To-Date
One you put your plan into action, look out for changes.
They can cripple the best made business plan if the
owner-manager lets them. Stay on top of changing conditions
and adjust your business plan accordingly.
Sometimes the change is within your company. For example,
several of your employees quit their jobs. Sometimes the
change is with customers. For example, their desires and
tastes shift. Sometimes the change is technological as when
new raw materials are put on the market introducing the need
for new processes and procedures.
In order to adjust your plan to account for such changes, an
owner-manager must:
• be alert to the changes that come in your company, line of
business, market and customers;
• check your plan against these changes;
• determine what revisions, if any, are needed in your plan.
The method you use to keep your plan current so that your
business can weather the forces of the market place is up to
you.
Read the trade papers and magazines for your line of
business. Another suggestion concerns your time. Set some
time - two hours, three hours, whatever is necessary—to
review your plan periodically. Once each month, or every
other month, go over your plan to see whether it needs
adjusting. If revisions are needed, make them and put them
into action.
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