By Leonardo Pozzobon, Program Coordinator with EGBI
A business plan is NOT the be-all-end-all magic solution to your business problems; that will lie only in your adequate execution. A business plan is, however, a guide to show the path to profitability, listing your challenges and needs to get there. You may eventually reach roadblocks that you hadn’t anticipated, you may consider things initially that you then discard, and you shouldn’t let this discourage you; remember “Plans are useless, but Planning is everything”. You may eventually find a better opportunity or a better market that makes you change your mind on something, but you will know where you stand initially and where to go.
That being said, let’s think about what goes into a Business Plan. But first, a Business is only a business if you have identified a Problem or Need that you want to solve or address, if you can provide the right Solution for it, and find the right Customer who will have this problem, as long as he or she is willing and able to Pay you in exchange for your solution. The way to find and solve any given problem is unique to that industry, as are the regulations you need to navigate; finding the ideal customer and ideal price is just part of the Marketing and Financial plans. Thus, logically these should be addressed on your “road to success”, or Business Plan:
- Problem / Solution (what you’ll do and how)
- Marketing Plan (who’s your client and how will you find them)
- Finance Plan (how are you making money)
- Operations (how are you making more of your solution)
I want to look at the example of a Childcare Business, which provides a near priceless service to working families: Caring safely for the young while parents work to bring food to the table. What 200 years ago might’ve been a role for the extended family, in this industrialized world young adults move far from home and family. Now in the post pandemic move to more affordable places, it’s even more important to understand the parts of a good business plan to take advantage of new opportunities.
Start by looking at the needs and wants of your customer. Parents will most often want to drop off their children when going to and from work, so your best bet is to be close to home or work, and to find how to best connect with these customer segments. Connecting with your ideal customer is the next step on your marketing strategy, and you should not neglect investing in the most basic items of a standard strategy: maintaining a clean and safe image, being visible and easy to find from the street, and having an updated online presence. When directly doing outreach to parent groups, remember these form spontaneously around whatever platform or system that gets traction, and these vary from town to town. A neighborhood can communicate using Facebook, six blocks away another neighborhood can use Nextdoor, and yet a third one can just use an old school bulletin board. It’s okay to bootstrap your marketing strategy, just as well as it is to have money to spend, just make sure that you spend your money wisely, and research before.
Moving on to the money topic, remember that a business doesn’t go bankrupt if it’s losing more money than what it makes, it goes bankrupt when it runs out of Cash. What does this mean? It means you want to build a war chest large enough to cover your first week, or month, or year, however long it takes you to start making a profit and paying yourself. What does that mean, again? Do a budget, find out what your spending categories are, find out everything you need to spend to open, to stay open, and to serve your customers. Or in CPA lingo: your Start-up Costs, your Fixed Costs, and your Cost Of Goods Sold (COGS). Everything, as usual, will depend on both your investment decisions and the resources available to you; there’s a huge difference in initial investment and monthly costs between purchasing real estate and leasing a place, and your available funding caps one side of what you can and cannot do (your Total Addressable Market caps the other side). So first decide what you have available to invest, what your grand vision of a childcare center looks like for you, and then research all the costs and investments needed to reach your vision with your available resources. That will then become the starting point of your Financial plan.
So up until now, all I’ve talked about is spending, spending, spending, let’s get to making money. Providing the solution to a problem, be it selling a physical product or selling your time and knowledge, will always bring certain costs associated with each unit of product or service that you sell; that is what we call Cost Of Goods Sold. These will define, first, the lowest amount you can charge, and give you some guidance on what price to set for your services. Finally, the # of clients you serve will determine your income, subtract your COGS and you’ll have your estimated Gross Profit. This is what you’ll use to cover your fixed expenses, loan payments, payroll and your final income. So you see how important it is to do a good, realistic estimation on all your expenses, fixed and variable. Overestimate the # of children you can serve, and you won’t cover your costs; underestimate your rent, utilities, or payroll expenses, and you may not have any money left to pay yourself. One underestimation may mean your business is no longer sustainable.
This is a very short description of everything you need to consider when making your Business Plan for a childcare business. If you would like to go deeper on any of these topics, feel free to reach out to Economic Growth Business Incubator (EGBI) for a coaching session.