Business Planning For Sole Proprietors
Copyright 2010 by Morris Rosenthal - - contact info
Copyright 2010 by Morris Rosenthal
This flowchart was developed to help me think
about my own business directions and the application of interactive flowcharts
to business planning. It's in the alpha stages of development as a concept,
and I welcome your feedback. Click on the diamond symbols for expanded
explanation of each decision point.
Flowchart Plan For Self Employment In A Small Business
First time in business? Anybody who is planning to start a business for the first time doesn't even know what questions to ask. The main point of this flowchart is to put some of those questions in your head, and to try to bring home why they are so important. Time and time again I've seen friends and acquaintances blow their first shot at becoming self employed because they start off with a one-sided set of priorities. They know from experience that the businesses they liked to deal with as consumers delivered a quality product at a fair price, so they figure that's all there is to it. If everybody in the world had the same experience, financial resources and living expenses, simply trying to imitate the business model of an existing business you admire might in fact get you close. But that business that you admire probably didn't start in the version that you currently see, and unless you're friends with the owner, you're only looking at the surface.
Let's look at a version of an apocryphal example of a successful restaurant. Somebody's Aunt Molly started baking when she was a little girl, and by the time of her marriage, had a reputation as a great cook. Her pies and other baked were as good as cash at the local church and school fundraising bake sales, and her friends always told her she should open a bakery. When her children started school and she had more time, she finally gave in to repeated requests from within the community to do a little catering for special events. After a few years of part-time self employment, with the encouragement of her husband who worked in real estate and came across the perfect space, she opened a small bake shop right off the main street. Although she was only open four mornings a week, she soon had to hire a helpers to work the counter for the growing crowd of regulars and help with catering. She also began selling chowder as a Friday take-out special, and her customers kept pestering her to open a lunch counter. When her youngest child graduated high school and her husband told her about the old Main Street Restaurant going out of business and being sold off at auction, they decided to take a chance on soup and salad shop. They used their 25 anniversary as an excuse to visit similar businesses in a number of cities before opening the doors, and Molly's Main Street was a success from the first day.
Now along comes somebody, perhaps you, planning to start a restaurant business. You eat a Molly's a couple of times, make a note of the tables and chairs, count the employees, ask a few questions about the kitchen, and you're almost ready to go. But just to make sure of success, you buy and read a copy of "Starting Your Own Restaurant Business For Dumb Idiots." How could you possibly miss with such a background? Well, unless you have Molly's years of experience with cooking and business planning, along with her contact in real estate (husband), community connections, personal and financial stability, trying to imitate her business model based on the outcome is like trying to become President of the United States by starting with the acceptance speech at a National Party Convention. Somewhere close to 99% of human beings can handle themselves well enough in a kitchen so they won't starve, but that doesn't mean we're all ready to open a restaurant. It's a hard business.
The point of owning your own business isn't to have somewhere to go in the morning and put in your time, that's what employees do. When you work for yourself, you need to end up with a sustainable profit so you can live, and if necessary, pay employees, rent, etc. You can think up businesses ideas all day long that would make you productive and maybe even happy, but if they don't earn you a profit, they are just hobbies that you'll have to fund with money from somewhere else. So before you start indulging in fantasies about how your product is going to be the best in town, or in the world, and how your customers are going to be the happiest people on earth and elect you mayor, make sure you construct a business model where all of the expenses are accounted for and you come out earning a living. What you'll probably find your first time in business is that you underestimated the expenses, overestimated the profits, and didn't understand the impact of taxes:-)
Sales experience? The most important experience you can have for becoming self employed other than having done it before is to have worked in sales or marketing. While selling for other people is only somewhat related to selling for yourself, it's still incredibly valuable to know from first hand knowledge that everybody isn't a potential customer. Wide-eyed newbies in business often think everybody is a potential customer, that every pedestrian that walks by the store or every car that drives by the sign is just a heartbeat away from buying something. That's not the case at all for most businesses, with the possible exception of some price driven drive-by's like gas stations. And in most cases, when somebody calls your service number, contacts you through your website, or walks into your store, you still have to close the sale.
That's where the difference between selling for yourself and selling for a former employer comes in. I was pretty good at closing sales when I worked for other people, after all, they were paying me for my time and as long as there was a reasonable match, I was gong to represent my employers products as the hot setup. It would be like stealing from the boss to let customers walk out the door without buying. But when I started to work for myself in my own business, I found I was terrified of over promising. I didn't want to sell anybody anything, I wanted them to be aggressive buyers, to want me. That turns out to be a hard way to do business, and it provided a large part of the impetus for me to move into writing and publishing. When the product cost (like a book) is low, and the foot traffic (web traffic in this case) is high enough, I can play the numbers game by giving away large samples and living on the fraction of a percent of visitors who become buyers.
But if you're in a service business, selling your time or expertise, being able to identify potential customers so you don't waste your time and being able to close the sale when there's a near enough match in interests, is vital. If you plan to work a sixty hour week, you aren't going to have sixty billable hours, you'll be lucky if you average twenty billable hours in your first year. You'll spend the other forty hours trying to develop leads, writing quotes and proposals (if the jobs are substantial) or waiting for the phone to ring. If you find yourself waiting for the phone to ring day after day, it's time to start looking for a job, because spending money on advertising and waiting for customers to fall into your lap isn't going to get you anywhere.
Turnkey Franchise? There's a big difference between starting a business from scratch and getting into your first business as a franchisee or through buying a going concern. That difference isn't the back office systems, the stationary, the operating manual or the training, it's the customer base and lead generation. If you purchase a franchise for a nationally known brand, like a fast food restaurant that people like, you don't need to be a great salesman. It's one of the few instances where adequate signage will bring customers to your door, assuming you choose an adequate location. And if you buy an existing business with a steady customer base that wasn't married to the former owner (from whom you will extract a legal non-compete agreement), a good percentage of them should remain your customers if you provide comparable service. Some turnkey business sale agreements, those that start with a "book" of business, base part of the payout to the previous owner on future revenues. That make it less like buying a pig in a poke, and it means if the former owner has agreed to some hours of future consultation, they are more likely to be quality hours.
Another difference between planning for your first business and buying a franchise or existing business is that it practically eliminates the need for market research. You'll still want to do some basic market research to make sure the franchise hasn't lost popularity or cut down on their advertising. In the case of an existing local business, you need to make sure that there hasn't been some fundamental shift in the market that's leading them to sell out, and you can't really take their word for it. You should check whether any similar businesses have just started in the area that may split the pot, and be especially careful about pending competition for retail and service outlets. You don't want to buy a hardware store in a town where they've broken ground for a new Home Depot or Lowes, and there are similar examples throughout the retail and service spectrum of cookie-cutter competitors that will take a significant portion of the market share just by showing up.
Do your own taxes? If it's your first time in business, you haven't filed a Schedule C before, but do you at least to your personal income taxes? If you don't, that's two strikes against you. Strike one is you're either a bad money manager if you are paying somebody else to file your taxes or you have never filed taxes because you've never had a real job. Strike two is that taxes are a major, major component of running a sole proprietorship, if you make a reasonable success of it, somewhere between 40% and 50% of your net income may end up going to pay taxes. You can't make a reasonable estimate of whether or not a business plan has the potential to produce a living for you unless you understand the basics of how taxes work. If you start out in business needing an accountant to do your most basic thinking for you, you may as well just get a job working for the accountant.
I always advise people to do their own business taxes on paper, even if they are paying an accountant or a tax preparer to do the filing as well. Tax professionals can give you tips on how taxes work, but you won't really understand them unless you go through the effort of filling in the required tax forms and seeing how it all fits together. There's nothing to be proud of about having a low tax bill as a sole proprietor. It either means you aren't earning enough to live on, or you're cheating on your taxes. What's important is knowing how those tax dollars are assessed, how the business decisions you make affect your tax bill, both this year and in years to come. One of the dummies mistakes I made in my own business was always taking expenses in the year they were incurred. In my early years in business, when I wasn't earning less than the average sole proprietor, the only tax reduction I was getting for my expenses was the 15.3% I was paying in self employment tax. If I'd depreciated those expenses instead, I would have seen a tax deduction of more than 45% on the later years of five or seven year items. That's thousands of dollars that I simply threw away.
I've written up a summary of how taxes work for sole proprietors, and I encourage you to read through it, even though it won't be as meaningful now as when you file your first business tax return. One positive aspect of paying taxes is that the government actually forces you to sit down and compute your profit and loss, to categorize your expenses, and to consider retirement planning for the sake of a tax deduction. Without the annual paperwork, many small businessmen wouldn't figure out that their business wasn't working until they ran out of credit and the repo men showed up for the office furniture. People who have never been involved in business have this vague notion that accountants keep company books, but they don't realize that the main reason companies keep books at all is because tax law requires it. Public companies keep books for another reason, to provide reporting to the shareholders, and a CPA (Certified Public Accountant) is needed to audit (double check and balance) the books of public corporations every year.
Like people? I'm not kidding. If you aren't a people person, don't go into a people person business. If you can't stand being told what to do, don't go into the service business. One of the major benefits of becoming self employed is that you will presumably pick a business that you want to be in. Don't pick a business in which you wouldn't hire yourself just because you think there's money in it. Planning a new business as a sole proprietor isn't just about balancing the expenses with the profits. If you can start a business you are passionate about, you increase your chances of success by several fold.
So how can you tell if you're a people person? Easy, tell your friends about the business you're thinking about starting, and if they laugh and say it doesn't fit your personality, ask why. After listening to you whine about your regular job for years, your friends should have a pretty good idea of what you don't like. If you don't have any friends to ask, just go with the assumption that you don't like people very much. When I told my friends I was planning to work for myself, they thought it was the first good idea I ever came up with:-)
The ability to get along with your customers and to at least appear to be happy at what you are doing is critical to getting word-of mouth referrals. Word-of-mouth is the secret weapon of the sole proprietor in the battle against the faceless corporation, one of the few advantages you have when going it alone. People realize when they recommend you they are talking about a person, and those recommendations will usually be personal, as opposed to through your business identity. That's not the case when recommending the services of a larger business, where the recommendation is really for their business practice, since nobody can say for sure who will show up to do the work.
Time constraint? So you're confident that whatever your product or service is you can sell it because you've done it before working for others. But remember that those jobs paid you a base salary, and that your initial sales leads were probably generated by your employer. Unless you left your last job with the Rolodex and are planning on selling to your old contacts, it's going to take time to build up a new clientele. Do you have enough money to last through an extended period of no revenue? Remember, your income as a sole proprietor isn't a salary in the traditional sense, it's the money you retain as after tax business profits. If you don't have any sales, you don't have any income. So you'll need to start out with a nice pile of cash in the bank or to continue working at your old job (or any job) to maintain an income while building your new business.
Try to be realistic. The worst case scenario I've heard from many people new to self employment somehow assumes that break-even is easy. They are so focused on getting ahead and doing better financially than they did as employees that they somehow miss the fact that finding any customers, earning any money at all can be hard. The market is always other people, not computer algorithms. Just because you're willing to do "equivalent" work or sell identical products at a lower price than your local competitors doesn't mean you'll get any sales. It's easier to attract some level of business with a retail storefront than it is to find business customers willing to give you a chance based on price alone. Businesses depend on outside contractors for all manner of services, but they are less price sensitive than you might think. What other business owners really want is a reliable service that they don't have to think about, and once such a relationship is established and fits within the business owner's model, it usually takes a failure to deliver to open an opportunity for a new vendor.
Market research? Some really terrific products and services have resulted in bankruptcy for the people offering them because there turned out not to be a market. Market research isn't an armchair exercise where you think about the world and all the wonderful things you can add to it. All you can learn by doing that is what you are in the market for yourself, and until somebody offers it to your with a price tag, there's no saying whether or not you would even be a buyer. The idea of market research is to determine whether or not there is a real market (people willing to pay cash) for a product or a service before you invest in making it your business.
Not surprisingly, the most accurate type of market research is simply looking at the existing market to see whether or not the product or service you want to sell is already earning other people a living. If there's a lot of competition, that's a good thing, it means that there is a market. If there's no competition at all, that's usually a bad thing, because as unique as you think your idea is, it's unlikely that you are the first entrepreneurially minded individual to think of doing it. Other people have likely tried and failed with it already, and the Internet actually allows for a certain amount of forensic research in this area.
Market research is more complicated for new service based businesses than for selling products because the "product" in a service based business includes the reputation of the provider. It's not like having a widget you can demonstrate on street corners or a product that consumers can compare, point by point, with competing products. When you are planning to sell services as a sole proprietor, the thing you are really trying to determine is whether or not there's a market for you, as an individual. You might have has a job as a consultant with a top consulting firm in your previous career, but when you go out on your own, it's like leaving half of yourself behind. Yes, you still have the same skills, but you are no longer the man from the big consulting firm. Not surprisingly, many professionals in the service business, including consultants and lawyers, basically market themselves based on their resume. It's not the work experience that sells them as much as the names of the previous employers, which make their new clients feel they are getting that big national name on the cheap.
For many businesses, research is strictly a shoe leather job. You have to go out and look on shelves, sit in restaurants, put yourself in the shoes of your potential customers and try to see the world through their eyes. Remember that customers have a budget, and you need to offer them a convincing value proposition if you are going to win them away from whatever products or services they are currently using. The greatest innovation in for doing market research in recent years is Google Adwords. Adwords give you access to an incredible amount of data about what goods and services people are searching for, and what other advertisers are willing to pay to show their advertisements to those potential customers. You have to make allowances for certain differences between the products, I don't imagine many people go to Google to search for a gas station, but most businesses do advertise online in large enough numbers to create a representative picture of the bricks-and-mortar world.
Retail, restaurant? The mantra of real estate brokers has always been, location, location, location. If you're going into the retail or restaurant business, opening shop in the right location is a big piece of the puzzle. You may have read newspaper stories about the trend to home businesses, and how some people have been successful selling designer clothes or jewelry working out of their homes, but if you read the small print, it almost always turns out that they started in retail space and moved the business home to cut down on overhead after building a customer list, or they are essentially running a mail order operation with the Internet as the catalog.
Of course, the positive side of scouting and renting the right location is that you should get a chance at some customers without having to become a master salesperson. That doesn't mean you shouldn't do any marketing. The overhead of renting space and buying equipment or inventory for a restaurant or retail space is so high that you probably can't afford to wait for word of mouth to spread your presence in the area. Don't underestimate the value of a big sign that states clearly what you are offering, as opposed to a big sign with a cute name that doesn't tell people what the business is. And don't forget to investigate the signage possibilities before you sign a lease. Most commercial real estate comes with limitations on signage, sometimes due to zoning or town ordinances, and sometimes as a lease requirement for the aesthetic of the rental property.
Speaking of commercial leases, they are a killer, and I wouldn't suggest signing one without having a lawyer explain to you the real consequences of the language. The last thing you want to happen when you launch your new business is for it to become a boat anchor around your neck. A long term lease might leave you in a situation where months after going out of business, you are skipping mortgage payments on your home to keep your commercial landlord from hauling you into court. One of the saddest phenomena in small business is seeing self employed people locked into running their business at a loss because they know that closing the doors will just leave them with a pile of bills they can't pay. It rarely makes sense. If the business isn't going to work for the long term, cut your losses, even if it means paying for an empty space and returning inventory with restocking fees or selling it below cost. At least you can free up your time and hopefully be at work somewhere else earning decent money to address the debts.
Service business? One of the first things you learn in the service business is that it's easier to sell by over promising, but harder to deliver on your word. The two most important things you can do are to show up when you say your are going to show up and to finish work by the time you say it will be finished. When you're just starting out in a service business, it can make sense to intentionally underestimate the number of hours of work will take because you'll likely be sitting on your hands and wishing you had something to do with your time anyway. But you still have to finish by the time you said you'd finish, even if it means going skipping a night's sleep. Think of those early jobs as supermarket loss leaders, something to get the customers in the door, or rather, you into the customers' doors.
Customer expectations are what define success or failure in the service business. If you are running a lawn service and you tell the customer you can make grass grow under their evergreens, even if you give them the nicest looking yard in the neighborhood, if you can't make grass grow under the evergreens, you'll just be another landscaper who fed them a pack of lies. Customers may focus on price when shopping for services, but they focus on results when judging the outcome.
Non-service business that involve manufacturing, farming, fishing, mining, etc, are really knowledge businesses, even more so than consulting or information based businesses. What make those basic industries work is the knowledge of the sole proprietor who's running the show. It's not the kind of knowledge that can be gleaned from books, whether you are manufacturing or working with natural resources, experience is everything. If you have a passion to be producing goods and you don't have any experience, your best bet is to start work somewhere else as an employee to lear the ropes, think of it as a modern apprenticeship.
Vendors, credit? Before you jump into the retail business, you need to line up the vendors and manufacturers whose products you'll be carrying. It's not enough to study their lines or look at their catalogs, you actually have to contact them and find out whether or not it's a realistic proposition. For example, a vendor might grant exclusive rights to retailer by geographic zone and if somebody is already signed up in your area, they simply won't deal with you. Manufacturers of durable goods, appliances, entertainment equipment, tools, may require that you become factory certified in order to sell and support their products. Some manufacturers base their entire marketing strategy on "capturing" retailers, and you may have to commit to moving a give dollar amount of product or risk losing the product line. It's also impossible to start planning your expenses and income unless you know what you'll be paying for the products you'll be selling. Many vendors provide a full line or products for your trade, but they will rarely have aggressive pricing across the entire line. On the other hand, buying a good chunk of your inventory from a single vendor makes it much easier to deal with returns and faulty products. Pricing usually varies with volume, with discounts available for larger orders, including free shipping.
Some gourmet types going into the restaurant business have a fantasy of buying all of their food in the farmers market or purchasing fish down at the docks at 4:00 AM every morning. I think that's because it makes for a popular scene in Hollywood movies. The problem is, not many cooks have the time to spend several hours a morning knocking on melons and picking out cuts of meat. Most restaurants get their food from suppliers, and at most, do a little shopping on the side for featured menu items. In emergencies, restaurants will send a dishwasher running off to the supermarket, it's all the same stuff, it's just that supermarkets charge a lot more the restaurant suppliers.
In both the retail and the restaurant business, a credit line with the supplier is the normal way of doing business. It's not a credit line in the sense of a credit card where they cash in by charging you high interest rates, they really want you to pay your bills when the bills arrive. But they don't insist on cash up front in most cases, if they do, it probably means there's something obvious wrong with your business model. Full line distributors for different retail operations will often offer floor planning, where they help you pick out the items to stock your store and offer longer term credit to give the products to start selling through. Pay careful attention to the terms of floor planning deals, the products are normally returnable only for a fixed period of time, after which you own them, though you may be able to swap them back for distributor credit.
Employees, ordinances? The two biggest employers in the United States are government and the medical industry, both of which would be classified as service providers. The next two largest employers are retail and restaurants, and it's not that surprising when you think about it. Even the smallest shops and eateries usually employ multiple individuals, in part because the nature of the work, and in part because so much overhead expense goes into maintaining the workplace, that it has to be kept open for the maximum number of hours, with sufficient staffing that customers aren't tempted to go elsewhere. There are one person retail shops and little food stands or hot dog carts that can be run as a one man show, but in general, if you're going into these businesses, you also have to be prepared to hire employees.
Employing people isn't something you can do in accordance with your own feelings on the matter. There are many laws governing employment, the most important of which are the tax laws. Your have to make regular payments of social security and medicare tax for your employees and withhold their matching contributions. If you spend the money instead of paying it to the government, you face fines, penalties, and even jail. And the obligation to pay these taxes isn't washed clean by going out of business, the money belongs to the government and they can freeze your bank account or auction off your house to collect. You're also responsible for unemployment tax, workers comp, and there may be health insurance requirement as well. Some employee expenses are only mandated if the workers are full time or if you hire a certain number of workers, but tax obligations start with the very first part timer. Don't try to outsmart the government by making a deal with an employee that you'll pay cash and keep them off the books. If that person decides to rat you out, the agreement you had makes no impression on the government, the law isn't a question of mutual agreement.
Catering often works as a home business if you fly under the radar, but if you do enough work to come to the attention of the local health authorities, you may find yourself paying fines or in zoning troubles. Many business people who start off with self employment drift into becoming employers and only take on their legal responsibilities as they get caught. I'm sure many never do get caught, but getting away with a crime isn't much of a business plan, even if you feel the odds are in your favor. You'll also find that to doing any sort of onsite work for larger companies means having to purchase liability insurance and to meet their guidelines for employees if you are bringing your staff onsite.
Support available? Do you have friends or family who know the business inside out? I'm talking about support from people who are in the business you want to own, and who aren't worried about competition from you because the size of the market or because they just want you to succeed. Since friends and family like that aren't always so easy to come by, the next best thing is a serious Internet based group or discussion list for professionals in the business you are planning. Since Internet groups draw members from all over the country and the world, it's highly unlikely that anybody in the group will see you as direct competition, and even if one or two do, there will be plenty of others willing to help. If you join an Internet discussion group, make sure to spend a couple days reading the previous posts before jumping in and asking a stupid "What's the first thing I have to do" question that's been answered fifty times in the past year.
If you do have support you can turn to, make sure you don't waste it on trivia. Don't ask questions just to save yourself a phone call to a vendor or five minutes of thinking with a calculator, even your brother or your best friend is going to get sick of your questions if you treat them like a search engine. Focus on what's important, like profit margins, taxes and best practices. The idea is that their hard won experience should help you leap ahead and avoid pitfalls. Questions about the amount of time it takes to do things are especially valuable, because in the end, overhead ends up being about the same for most people in similar businesses. Questions about how the cost of advertising and how well it different ad mediums work are critical as well. Without that information about time, your ability to estimate jobs and profits will just be guesswork until you've built up your own business to get a realistic picture.
Expect a living wage? So are your financial predictions based on a model where you are earning as much money as you did in whatever you were doing before you decided to become self employed? When I first started my own business, I was working part time in another job that paid me enough to live on, which may be why my fist business failed for lack of sales effort. But eventually the urge to work for myself became strong enough that I gave up working for other people some 17 years ago, and decided I was going to make a go of it come hell or high water. What mainly came was high water, it took me a couple years to attain self sufficiency, and it wasn't in the business I had planned.
Even if you think you're being super realistic about the amount of business you need to do just to break even, if you triple it, you'll be better off. Clearly this varies like crazy with the type of business, that's one of the problems with trying to do a generic Business Plan Flowchart, but the point is, even pessimists are optimists when it comes to business projections. If you expect to be making a living wage right off, spend the time to do a detailed personal budget to find out what your long term financial requirements really look like. Don't budget based on hypothetical savings from all the changes you're going to make in your life, that doesn't even work for governments. And don't plan on using credit cards to make up the difference, even if credit is available to you. That's just the short road to personal bankruptcy.
Customer base? If you're starting the business with a customer base, either clients from you last or existing business, or because you acquired this new business with a customer list, you're on the fast track to growth planning. I hope to come up with some more interactive business planning material that will ideally work for myself because I'm in the same boat. Building a business around a customer base is only remotely related to building a business from scratch, and as Tom Hanks kept repeating in whatever the movie was, "And that's all I have to say about that." One of the best resources for ongoing business planning is the Small Business Administration.
Note also that there are two types of business plans: the plan you write to try to raise money and the plan you write for yourself. The plan you write to impress investors should follow the basic template everybody uses, with an enthusiastic executive summary where you talk about how your are going to beat the world. But the business plan you write for yourself, the plan this flowchart deals with, should be an honest representation of your strengths and weaknesses, to help guide you into starting and running a profitable business. In other words, the plan to impress investors is about begging for money, the plan for yourself is about making a living.
New concept? Is this a new business either for you or for the marketplace. If it's a radical departure from your past business, only some of your experience will translate. But one of the reasons I own my own publishing business today is that I owed a successful computer service business for several years before, and knew from experience all the things that it's not necessary to blow money on. Don't fall in love with your new concept so much that you end up spending money to promote it to yourself. That may sound funny, but I've seen new businesses waste lots of money on glitz that has nothing to do with selling through to the customer, it's just for internal consumption. A large corporation can afford to play those games to get employees fired up, but it makes no sense at all for self employed people.
Everybody makes mistakes in business, but those of us with experience can at least try to avoid making the same mistakes twice. Business is not a roll of the dice where if you keep at it long enough, you'll be able to roll the combination you're looking for. Some people never learn, and the life cycle for most businesses is measured in years, so even if you have the money and ambition to launch failure after failure, you're only going to get so many shots at it before senility sets in. Even if your last business and your current business are entirely unrelated, look for common threads, like, did you ever find enough customers to justify the overhead, were your prices too low (or too high), did you get into trouble with debt, etc. If you can eliminate one serious failing, that might be enough to make your new business a success. Return to Business Plan Flowchart
Requires capital? If your business plan requires bank financing, angel or venture capital, or a stock offering, you're out of my league. I could venture the opinion that you need to be a great salesman to get investment capital, but it's not always true, sometimes a great idea with a working proof-of-concept model is enough. Raising capital is far more dependent on who you know than what you know, it's amusing to listen to famous capitalists talk about how they pulled themselves up by their bootstraps with never a mention of how the father-in-law introduced them to a group of well-heeled doctors at the golf course, or how their old employer basically pushed them into business pushing them out the door with a contract to work for the original company.
It certainly helps to be passionate about the business. Even if you lack great communications skills, your passion will be visible and help convince potential investors that you aren't some hustler trying to touch them for quick money. All investors are going to expect you to present a business plan that is heavy on market research, because the only way they can possibly get their money back is if a market exists. They are going to want hard numbers here, not your feelings about how your product is going to sweep people off their feet, so if you can't do your own meaningful market research, get help. Even early stage investors want to see a product or technology that is working, as opposed to just an idea and a marketing plan, so if you have connections that will get you into one or two doors, be patient don't waste the opportunity before you've taken your business as far as you can with your own resources. Having invested real money in your business will also help convince people that you're serious and give you a stronger negotiating position if they're interested.
I funded my own business from savings, and whenever I find myself planning for a new business venture, I start with the assumption that I'll have to be self funded. For me, seeking capital from outside sources is the big time. One business concept that I spent significant time on this year would have required six figures and at least a year of running with no profits to get off the ground, and I pushed it off for that reason even though it has more long term potential than anything other realistic business plan I've conceived.
Planning A New Business | Estimating Business Taxes | Schedule C Deductions | Car Expenses | Freelancer and Contractor Payments | Section 179 Depreciation and Form 4562 | Employee Benefits and Pension Costs | Professional Services, Business Taxes and Fees | Hotel and Travel Expenses | Deducting Food and Entertainment | Inventory and Cost of Goods Sold | Sole Proprietor Statistics | Home Office Deductions | Self Employment Tax | The Self Employed Sole Proprietor