Malla Haridat is Founder/CEO of New Designs For Life, a company that specializes in helping individuals and organizations innovate, enter new markets, create new products and services. She spoke to DHNY to share some tips for aspiring business owners.

DHNY: Why do you need a business plan?
Malla Haridat: I’ve met many entrepreneurs during the initial stages of their business who neglected to develop a business plan. Most lament and regret their decision. 

A business plan provides two basic functions:
A. It tells you if you should start the business and why
B). It provides a plan for short, mid, and long term goals of the business. 

Many start-up entrepreneurs develop a great idea based on a moment of inspiration. I define it as “entrepreneurial seizure” They’ve developed a product that a few friends and family rave about. Or they provide a service that a few customers love.
But they often don’t take the time to test if it’s a viable business. Can you get 10 customers to buy from you? How about 100? What happens when you need to provide that product or service for 1000 customers? Can you maintain the same level of service that you did for the first? How are you going to convince them to continue buying once a competitor enters the picture who produces the same thing cheaper, faster and better?
Without addressing these and other questions, you start your business without a clear strategy. And that’s going to cost you money and time in the long run.

DHNY: What should a business plan have and who should work on it with the aspiring business owner?
MH: There are three main parts to a business plan:
1. Operations – your legal, insurance, human resources and daily processes
2. Marketing plan – who are you selling to and how are they going to learn about your business
3. Finances – your expenses and income

I often challenge the aspiring business owners to take a draft version to three tough critics – mentors who are currently working in their selected industry, bankers or venture capitalists who have viewed hundreds of plans, and/or someone else who can deliver honest feedback. While there is always a danger of someone “stealing” your idea, the risk generally outweighs the danger. You need feedback and critical analysis of the ideas you’ve outlined. If you create the plan in a vacuum, you won’t know until you’ve made a critical and costly error. So do your due diligence and get the feedback first.

DHNY: How does one create a budget for a business that hasn’t made any money yet?
MH: Before you sit down to start planning the budget, assess your personal comfort level with finances. Many aspiring business owners are not comfortable dealing with their own personal finances. They haven’t balanced their checkbook in months. They have high personal debt or limited savings. Or they haven’t done their homework and developed a financial plan for their future retirement, college or other large purchases.

If you fall into this category, take a few months to assess your personal financial situation.

The next step will be enrolling in a basic accounting or bookkeeping class – if you lack this background. There is a reason why the CFO is in the C suite of major corporations – they have an acute understanding of the numbers of a company which is the lifeblood. Even if you know you are going to outsource this function, take the time in the beginning and learn the basics. You need to be able to read the statements and analyze them for yourself.

If you have already passed this step, start doing your homework. Get sample financial spreadsheets online. Talk with vendors, suppliers, consultants and others in your industry.

A best practice that I recommend in my classes is to write the numbers for the first draft in pencil. While it’s easier to enter them in a spreadsheet, you lose the opportunity to see the edits and changes you made. You need to know why you changed a particular number.

When you are first starting out, it’s going to take some time to get the numbers correct. It’s often very frustrating to make these estimations as it seems you are pulling numbers out of thin air. Regardless of how much time you spend, you need to give yourself some room for a margin of error. So get comfortable with some uncertainty but don’t neglect to start the process of planning.

DHNY: How do you avoid going bankrupt? Should you finance it the business or your idea with credit cards?
MH: Starting a business is a risk. There is no way to escape this fact. But you can lessen the risk with a few steps:
1. Determine what your personal expenses are, I’ve watched many start-up entrepreneurs fail in their businesses because they were poor money managers of their own personal finances. Before you decide to take the leap and start a business, make sure your own financial house is in order. What does your personal debt look like? How much do you have in savings? Do you anticipate any large expenses in the near future? Do you have retirement savings? If you are in the red in these areas, I recommend you start the business on a part time basis and make some hard choices in your personal finances to rectify any past mistakes.
2. Save twice the amount of money that you think you need to start the business. If you calculate three months of personal expenses and six months of business expenses, save six months and twelve months respectively. Yes, it’s going to take you a longer time to start. But it will limit the amount of time you have to pace the floors in the start-up phase worrying about payroll or other obligations. You have to factor that many customers are not going to buy from you as quickly as you need them to meet your monthly targets and need to build this cushion.
3. Better yet, keep your day job and test out your business on the side. While it’s not optimal (and can cause havoc on your personal life!), you need to test the idea, build a solid base of clients, and start while you maintain a separate cash flow stream. It’s tough but the discipline and sacrifices can pay off to determine if your idea is profitable.

There are many other options to consider so talk with others who have been in business and mentors in your industry.

DHNY: What types of loans can you get when starting a business?
MH: It depends. If you haven’t done your homework and written the plan, don’t start asking for money to finance it. You don’t know where you will need to spend it. Often, start-up business owners are looking to spend it in the wrong places like getting a fancy office or expensive branding packages. While those elements are important, you need to spend the start-up money in areas that are going to GENERATE money for you.

Now depending on the type of business and your long term goals you can look at several options. Many large cities and economic development programs have loan programs for businesses. They are going to require you to go through training programs and counseling. However, they are often the best places to start looking for start-up financing. Do your research online and speak to local community resources for ideas.

You can also use the “friends and family” plan. We are familiar with this model’s success when raising money for school or civic events. So it is viable to consider when starting your business. Just remember you are going to need to face Aunt Sally at Thanksgiving dinner or Uncle Joe at the family picnic. So be sure this is a business that is going to be able to pay its debts on time if you use this option.

There are also a host of organizations and associations who provide business financing depending on the type of business and your personal demographics. I recommend that you research online as well as share with your networks to identify sources.

DHNY: What is the best way to market new business?
MH: Become an expert at marketing. The trick with running a successful business is you have to be an expert at two things – your product or service and the business itself. Even an experienced marketing expert can run into roadblocks if they don’t take a global approach and invest the time and resources in this area.

There is no one best way to market your business. I recommend business owners gain a mastery of their customers. Understand their buying and spending habits. Where they congregate. How they spend money. While you might be enthralled with creating the product or providing the service, you’ll need to spend time learning everything you can about your customers and the target market you serve so you will know how to best market and publicize your message.

Start by developing a marketing plan and a marketing strategy that includes testing outcomes to determine the best way to move forward. As a small business owner, you have limited resources and a finite amount of time. So develop a plan to focus your attention for the maximum impact.

DHNY: When should you start networking?
MH: I hope you didn’t wait until you hung up the sign to start networking! Networking needs to be a way of life for entrepreneurs. You need to tell everyone in your immediate circle and everyone in their immediate circle about your business.