Starting a new business is super exciting, but it can also feel overwhelming. If you haven’t given it much thought, I encourage you to check out my blog post on How To Start Your Creative Business With Clarity.
There is so much to do to get everything up and running. Where do you even start? According to the US Small Business Administration, or the SBA, and many other reputable sources, you should start with a business plan.
However, as a Creative Entrepreneur, I’m not so sure this will be necessary for you. There are certain circumstances where a formal business plan is necessary.
But for most of us starting a small business intending to sell our creative wares, a formal business plan will not be necessary.
Instead, focus on using the 5 P’s method for planning a creative business.
What is the difference between a formal business plan and a creative business plan?
Let’s take a closer look at the Formal Business Plan.
What is a Business Plan?
According to Entrepreneur.com’s online encyclopedia, a business plan is “A written document describing the nature of the business, the sales and marketing strategy, and the financial background, and containing a projected profit-and-loss statement.”
A formal business plan is typically written out in nine parts and includes your market analysis, business management organization, and financial projections for the next five years.
This is a pretty daunting document. Especially if you are just planning to sell a few of your artworks or handmade jewelry on the side for some extra income. If you are starting a new creative business and need a little guidance to help you get started, check out my Free downloadable checklist for Starting A Creative Business.
So why would someone go through the extra work and stress to write a formal business plan?
Reasons To Write A Formal Business Plan
There are two primary reasons someone would want to go through the effort to write out a formal business plan:
1. It gives a clear vision for the future of the company that you are starting. A written plan helps give managers and employees a clear path to follow when making business decisions.
This is pretty important if you plan on hiring multiple people right off the bat and if you plan on handing the reins over to managers who will make business decisions without you.
2. It tells banks and lending institutions that you have done your homework. This means that you are a safer bet for business loans and other types of financing because you know exactly what your business should do in the next several years.
Both reasons are good ones. For anyone starting a small business with a lot of overhead or employees, I would say that writing a business plan is a necessary step to getting started.
There are plenty of resources out there that can walk you through how to write a formal business plan. If you have determined that this is the route for you, I recommend you check out the SBA’s guide to writing a business plan.
But as a Creative Entrepreneur, I encourage you to consider putting the idea of a Formal Business Plan aside, and instead try a new, less daunting approach, like I did.
My Experience in Planning A Creative Business
My entrepreneurial journey began about 12 years ago when my husband and I started our local martial arts school. Since then, I have started several other small businesses based on various hobbies and objectives, such as fine art painting.
(You can check out my artwork on my Personal Website Gallery if you are interested in what else I do.)
All the businesses I have started over the years began very small.
I only had one or two employees (myself and my husband, in most cases). We started with only a little capital that was borrowed from family or saved up myself. And, most importantly, we didn’t want to wait to get started.
I didn’t write a formal business plan for any of them because I didn’t need extra funding or a roadmap for employees until years later.
Planning a Business as a Creative Entrepreneur
Most creative small businesses that are like mine will be just fine following the same path that I did.
And if writing out a long detailed document that explains exactly what’s going to happen in your business in the next five years seems like an overwhelming task, then forget the formal business plan.
I have a better way.
Get out a piece of paper and create a more useful “Plan for Your Business”.
Instead of calling this a “Formal Business Plan”, we are going to call this plan for your new journey a Creative Business Plan.
To write this, we will to focus on the 5 basic parts , or 5 P’s, of planning a Creative Business: Purpose, Products, People, Profit, and Procedures.
The 5 P’s of Planning A Creative Business
The first of the 5 P’s for planning your new business is Purpose. You need to fully understand why you are starting a business and what you hope to accomplish with it. There are two important questions that you need to answer in this part of your planning.
1. Why are you starting your business?
Your “Why” is the most important question you should ask yourself.
When you think about why you are starting a business, I encourage you to go deeper than just “to make money” or “to sell my work.” Yes, these are important factors on the surface, but your business’s true purpose needs to delve deep into the heart and soul of what you want to accomplish.
- Does your work communicate a certain message to your buyers that you feel needs to be heard on a larger scale?
- Is there a certain feeling you want to convey to others with your products?
- What is it about getting your work out there into the world that makes you excited and ready to move forward on this path?
Write these reasons down and then pick the ones that resonate with you the most. In those moments when running a business seems exhausting and you are wondering if it was all worth it, your true purpose is what will push you through the self-doubt and hardship.
2. What problems do you want to solve for your customers?
Every successful business focuses on providing value to its customers.
To start a successful business, you will need to think about how you can bring the most value to your customers from the beginning and why they would buy your products.
- If you are selling artwork, perhaps you are providing home decor accents to people who want to spruce up their living spaces.
- If you are selling handmade soap, then maybe you want to provide natural alternatives to the mass-produced brands in the stores.
Once you have pin-pointed the problems that you are going to solve for your customers, write this down as well. Your business purpose is a combination of your personal “why” and the solutions you will provide to a larger problem.
Use both your why and your solutions to write your Purpose Statement, also known as your Mission Statement. Your Purpose Statement is important to remember because it is going to direct every decision you make with your business from this point forward.
The next P in your Creative Business Plan is Products.
In a Formal Business Plan, product descriptions do not show up until halfway through the document or sometimes even later.
However, as a creative entrepreneur, you are likely building your business around a specific product or service that you have been personally working on and perfecting for some time.
That is why I put this section of our plan close to the beginning. There are three main questions you should ask yourself when product planning.
1. What will you sell?
This question should be relatively easy to answer because the answer is based on your creative work.
- If you are an artist, will you sell your artwork, or sell art lessons?
- If you are a photographer, will you sell high-quality prints of photographs, or photo sessions for clients?
- If you are a musician, will you sell music lessons or audio tracks?
Take a few minutes and think about exactly what you make or offer that you can sell to others.
Also, consider which products will be the most fulfilling to produce. You don’t want to commit to selling things in your business that you hate to make, so choose one or two products that bring you joy.
2. In what form will you sell your products?
Your creative wares may come in many different forms. Here are a few examples:
- Artists can sell original artworks or prints of their work or they can license their work to other companies to use on their own products.
- A quilter could sell fully made quilts or patterns for quilting projects or bundles of prepared materials.
- A writer could sell ebooks, freelance writing projects, or printed novels.
You can choose more than one form in which to sell your products.
However, in the beginning, I encourage you to limit yourself to only 3 different types of products to sell so that you can focus on making those products as high-value as possible.
3. How is your product different from others in your industry?
This is where you start to consider what makes you and your brand unique. Consider these questions:
- Do you specialize in a specific medium or focus?
- Do you use premium or organic materials?
- Do you have a different approach than your competitors that creates higher quality products?
- What makes your product or service stand out from all the other similar products that exist in your market?
Once again, make sure you record your answers to these questions, because you will use this information throughout your planning process.
The answers will guide you in how to bring the most value to your customers and how to reach those customers.
They will also come in handy later when you decide you want to expand your product line and you need to consider the qualities you want to remain consistent in your brand.
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The third P in your Creative Business Plan is People.
“People” refers to everyone outside of yourself that will be involved in your business, from manufacturers to your customers. There are 3 important questions to ask yourself when thinking about the people in your business.
1. Who will you need help from to produce and sell your products?
Brainstorm a list of who else you will need to help run your business. Here are some examples:
- Will you need a manufacturer to make the products?
- Will you need an employee or virtual assistant to help you keep track of orders and appointments?
- Who else will you need to consider when thinking about budgets and systems?
This is also a good time to do some research on what help is available in your industry and how much it will cost you.
2. Who will your customers be?
No business can survive without customers.
You will need to sell your products or services to other people or businesses to keep your business running. Ask yourself who will benefit the most from the products you are selling.
This is where figuring out your ideal customer comes in handy.
Your ideal customer, also called a customer avatar, is a detailed description of the imaginary person who would get the absolute maximum amount of value and joy from your products.
If you would like more guidance in this crucial step, head over to my post: 7 Simple Steps To Creating the Right Ideal Customer Profile
Building a customer avatar is an important step, but many people avoid it because they are afraid of losing potential customers. Don’t let yourself be fooled by this notion!
Understanding your Ideal Customer does not exclude other people from buying your products. This profile is simply a tool that gives you a clearer understanding of who your business is serving and what that person needs most.
Even if you are selling something very personal to you such as original artwork, or a fiction book, you still need to do the work to figure out your ideal customer. This one step will make a huge impact on your creative business.
3. How will you reach your ideal customer?
Here is where we build our basic marketing plan. Once you know who your ideal customer is, you can narrow down the best way to reach that person.
There are many marketing avenues out there, but you want to focus on the ones that best serve your ideal customer. Here are some questions to ask yourself:
- Where is your ideal customer already hanging out? In person, and online?
- Where will your ideal customer go to look for products like yours?
- What language does your ideal customer use to describe the problem you are trying to solve for them?
- What products is your ideal customer already using that would go well with your product?
Understanding the answers to these questions will give you a starting point for your marketing plan.
Don’t Skip The Marketing Plan!
Many creative entrepreneurs find the marketing and advertising process uncomfortable. But if you skip it, your customers will never know that you exist.
Marketing is an act of service that helps your customers find the products that they need.
It’s not about bombarding your customers or obnoxiously asking for sales. Good marketing is simply communicating effectively. You want to connect with the people who could benefit from your product the most. This allows them to make an informed decision about what they choose to purchase.
If marketing feels foreign or uncomfortable to you, take a look at my post: 12 Essential Marketing Basics to Grow Your Creative Business
The 4th P to figure out when you are planning a creative business is Profit. And yes, it’s going to require you to do some math.
Every business needs to make a profit in order to stay alive long term.
Profits will also allow you to increase the value of your time and products. But you cannot make a profit if you do not have a financial plan for your business. There are two important things to consider when you are planning for profit.
1. How much will it cost you to produce your products?
This may sound like a simple question, but there are more details to this than you may realize.
You will need to include the following:
- The cost of the materials that you use to make your products
- The cost of the equipment needed
- The cost of operating expenses, such as rent and utilities
- New purchases you will need to make
- Your expected pay per hour of labor
Do not forget about the cost of your time. Your time is your most valuable asset, and you deserve to be compensated.
Divide all the expenses into two categories: start-up or onetime expenses, and recurring or monthly expenses.
Your Start-Up Expenses:
Add together all of your start-up expenses and write that total down in a ledger or somewhere where you can return to it later. This is the money you owe yourself (or your credit card) for starting the business.
Decide how long it will take you to pay that total back to yourself. Six months? A year? Two years?
However many months you plan to take to pay back your start-up costs, divide the total start-up expenses by that number.
If you spend $1200 on start-up and you want to pay that off within 12 months, divide 1200 by 12 and you have $100.
Add that number to your monthly expenses column.
Your Monthly Expenses:
Now, add up your recurring expenses, including your own pay for your time. (Don’t forget to include the monthly charge for paying off your start-up fund.)
Then, add an extra 10-20% for unknown expenses. (They will show up, trust me.)
The total you are left with, equals the amount of money that it will cost you to run your new business every single month.
Your Production Plan:
Now that you know how much your business will cost you, figure out how many products or service hours you can provide to your customers in that month. Will you make 500 bars of soap? Will you teach 50 hours of lessons?
Finally, take the total monthly expenses and divide it by the total number of products you plan to make. The end result of that equation is your production cost per product.
Production Cost Example:
If your monthly expenses come to $1000 per month and you can offer 50 hours worth of music lessons, then those lessons cost you $20 each.
If your expenses come to $1000 per month and you can make 500 bars of soap with that amount of time and materials, then each bar of soap costs you $2 to make.
2. How much will you charge your customers?
Now that you know approximately how much it will cost you to produce each of your products or services, now you can consider how much you will charge your customers.
Remember, your price must be enough to cover your expenses, start paying down those start-up costs, AND make a profit. No profit equals no growth.
Also remember, the sales tax in your area may eat up part of that profit. Many businesses add sales tax to the price when the customer pays for it. If you do this, make sure you set that money aside for tax time.
The Price of Your Products:
Once you have figured out how much you need to charge in order to make a profit, then you can research similar products and see how your price compares to others in your industry.
Note: compare handmade products to other handmade products in your niche, not to those mass-produced and sold in supermarkets. Handmade products serve a different market.
If you find that the price you are asking for is much higher than other similar products in your industry, now is the time to go back and rethink your operating costs.
Is there anywhere that you can save money without compromising the value and integrity of your products?
You may be tempted to cut your pay out of this equation to make the number work. Don’t do this. If you can’t bring in enough revenue to pay yourself, your business will not last.
If you priced your products much lower than average, do some research to find out why that is. Consider ways you could increase the value of your own products.
Could you use better materials, increase the size of your products, or are you maybe not putting a high enough value on your time?
Also, are you leaving room in your profit margin to offer discounts on holidays or for promotions?
The Importance of Your Final Product Price
Once you have figured up how much you will charge your customers, stick to this number. It’s okay to offer discounts occasionally, but your base price should stay consistent.
Many creative entrepreneurs skip this process and then buckle when someone argues with them about the price of their product.
Don’t let this happen to you!
Do the math and research to understand your numbers from the very beginning so you can have confidence in what you charge.
The final P of our creative business plan is Procedures.
Procedures help you keep track of how the business is running and help you increase value and efficiency over time. There are 3 primary questions to consider when planning out the procedures of your new business.
1. What do you need to have in place before you can sell your first product?
Is there anything that you don’t have yet that you will need in order to get your business up and running? This includes equipment, but it also can encompass extra training, software, and time.
If you do not have the time that you will need to focus on the business right now, perhaps you should evaluate your schedule and move things around before you launch.
Or maybe you need to hire an assistant and factor the extra pay into your business expenses.
If you don’t have the training you need to make the product yourself, where can you get the training and how long will it take? Will it make more sense to hire someone else to manufacture the product instead?
The goal of this step is to set yourself up for success from the very beginning.
However, don’t let yourself get so caught up in the “not ready” feeling that you don’t get started at all. It’s okay to start even when you have more to learn or do, as long as you have a plan to get there along the way.
2. How do other businesses bring in revenue from products like yours? What will you do that is the same? What will you do differently?
This step is about doing your market research.
Understanding the industry standards for your niche will help you evaluate your own business’s efficiency and give you an idea of what you can expect in your future. It will also help you figure out a path for success.
Here are some examples of questions you should ask yourself:
- Do other small businesses like yours usually sell their products online or in brick-n-mortar stores?
- What are the benefits of doing it this way?
- Is there a tool or app that other similar businesses often use that can cut down on the time or energy you spend making or selling your product?
- Is it worth investing in this tool in the beginning or is it better to wait until you have an established monthly income?
Doing a bit of research on your niche can save you a lot of time and headache in the long run.
3. What goals will you set for your business? How will you reach them?
If you don’t know where you are going, then how will you know when you get there?
Business goals help you evaluate the success of your business and give you something to strive for. Decide in advance which statistics are most relevant to your industry and important to you as the owner at this stage of your creative business.
Then, set measurable goals for those categories.
Some good categories to consider are:
- number of products sold
- average monthly income
- average quarterly income
- total marketing reach
- number of returning customers every month
- total leads (or potential customers) contacted each week
For more help on setting goals for your creative business, check out this post:
How To Set Achievable Business Goals That Actually Motivate You
Make sure you also set a time limit to reach those goals.
If you find that your goals are too low or too lofty, you can always adjust them later.
Setting goals from the beginning, even when you don’t know if you will reach them, is an essential step for preparing to be successful in your business and it helps you get in the habit of tracking your numbers from the start.
Planning your Creative Business can be much simpler than writing out a formal business plan. A creative business owner can get started on their dream business right away by answering a few simple questions.
Just set aside some time for writing out your Creative Business Plan and use the 5 P’s of planning: Purpose, Products, People, Profits, and Procedures.
Also, keep in mind that you do not have to have all the answers right now. Your Creative Business Plan should be a living document that changes as you and your business grows.
If you are ready to move on to the next step, check out my blog post: Start Your Own Creative Business to get a step-by-step guide to the technical steps of starting your business.