The year was 2006. I was in Orlando, FL at a Tang Soo Do World Championship Tournament. I had been running my studio at a YMCA for the last 2 years and had grown it to over 50 students. I was working on opening a commercial studio and needed a little extra capital. Although I didn’t quit my day job yet (it would be another 2 years before that happened), I now knew that this was on the horizon too.
I decided I would ask my parents for a small loan to help fund my new venture. While in Orlando for the tournament, I had breakfast with my parents and asked them for the loan. It was going to be a tough sell since they had helped me pay for a Bachelor’s and Master’s Degree in Aerospace Engineering from the University of Michigan. I don’t need to tell you how expensive this was. I was now trying to convince them that I wanted to throw all of that away to be a karate studio owner.
Long story short, I was able to convince them to loan me some money and it was all because of my business plan. This 30-page, 5000-word document showed them that I was serious, that I did my homework, and that I had a very good chance of succeeding.
More importantly, my business plan showed me that I had a very good chance of being successful. If there is no other need for a business plan, this singular fact is all the reason you need to create a business plan for your studio. The business plan clarifies your business strategy, helps you decide on a market and location, projects your growth, and charts the course for the future of your business. Running a business without a business plan is like trying to drive somewhere you’ve never been to without directions or a map. You know the general idea of where it is. Will you eventually get there? Maybe. Probably. If you had directions, the likelihood you will get to your destination increases exponentially.
As I started to write this post, I realized it was going to be huge. Therefore, I decided to break it up into 2 separate posts, so readers don’t get too overwhelmed. In this first post, I will go over the first section of my business plan: The Overview of Business Concept. Within this section will be 6 subsections: Market Opportunity, Growth and Financial Objectives, Market Served and Location, Legal Form and Management Team, Initial Financing and Timetable for Establishment, and Exit Strategies.
It should be noted that there are many ways to write a business plan. The method I will be writing about is the one I liked the best. There will be some sections that are unique to how I went about things as well as some sections that you will see in just about every business plan out there.
Overview of Business Concept
In this section, you will describe why people want and need to do martial arts. Specifically, you need to state why your style, system, or teaching methods are desirable to a specific market.
Are you primarily going to teach kids? What ages? Why do kids need your services? Bullying? Obesity?
Are you only going to teach adults? Why will adults come to you? Fitness? Self-defense?
Pre-school age kids? Seniors? Families? All the above?
If you can’t identify why you should be in business, you shouldn’t be in business.
Growth and Financial Objectives
For me, this is the most satisfying part of the business plan. You get to think big and project your success in 1, 5, 10 or more years. You also get to play around with numbers which by itself is satisfying for an old engineering nerd like me.
Spend some time putting together a little excel spreadsheet that estimates your monthly/yearly gross revenue as well as your monthly/yearly expenses. Underestimate your income and overestimate your expenses so you have a conservative analysis (an old engineering trick). An example of my estimated growth projection matrix is below.
Using an excel spreadsheet such as this, you can easily change the input (number of students) to project growth. Set realistic goals for 3, 5, and 10 years. Also include important milestones such as going full time, hiring additional staff, opening a second location, etc.
It is very encouraging and exciting to play around with a table like this to see how well you could be doing financially if everything works out the way you planned it.
Market Served and Location
In this section of your business plan, you will essentially sell people (or yourself) on the location you chose for your studio. There are two parts to this: the market you will serve and the physical location.
To justify your studio’s location, you’ll need to look at demographics. You can use census data for this. Also, many chambers of commerce have demographics on their communities that you can use. You are looking for several factors regarding the community:
Median income – can the community afford the prices you want to charge?
Population growth – is the community growing or declining?
Schools – are the schools in the area good quality?
Overall population – are there enough people in the area to support your business?
Average ages – are there enough people in your target age range?
Number per household – this will tell you how many families are in the area.
Some of these factors will be more important than others and you certainly will not be able to meet you targets in all areas. This exercise is more to just reassure you that your community is worthwhile to pursue having your business in.
For example, say you are looking to open a Brazilian Jiu Jitsu studio that only caters to adults and specifically will be targeting 20-30 year olds who want to compete. If your analysis shows the average age of the community is 65 and the household size is 2, you should relocate as this is a retirement community.
The second part to this subsection is to do an analysis of the actual physical location. Hopefully, prior to signing a lease or buying a property, you browse several different options before committing. This is not the type of thing you want just go with your gut. This analysis will help you determine what location is best for your needs.
First, determine all the factors that are important to you when looking for a space. For me, I used:
Size – I wanted something big enough for martial arts but not huge where I couldn’t fill it early
Visibility – I wanted a space visible to foot traffic, not tucked away in a commerce park
Parking – ideally a parking lot but street parking would suffice
Construction Needed – would I need to put up walls, install floors or could I just throw some mats down and get to classes?
Lease – were the terms what I was looking for? Length, options, concessions, etc.
Price – was the space within my price range?
Location – was the space in a desirable location? Next to a park, school, etc. or next to a dive bar and tattoo parlor?
Once you have all your needs determined, you’ll apply a weighting factor from 1-5. This will apply a numerical value to the more important items. When you visit a space, take notes and ask questions. After your visit, sit down and analyze your notes and give a score of 0-5 to each of the items on your list. You will then multiply your score by its weighting factor and add them all up to get an overall score.
The space with the highest score should be the one you pursue further and try to obtain for your business. Sometimes you’ll have two high scoring spaces to choose from. If this is the case, now is the time to go with your gut.
Legal Form and Management Team
This section will go over the legal form of your business and reasons for choosing it as well as structure of your staffing plans. Will you be operating as an LLC, S Corporation, Sole Proprietorship, or Partnership? Research all the different options and explain the reason you chose the one you did.
You will also go over what your staffing plans are. What are the different positions you will need to fill now, in 3 years, 5 years, etc.? A few examples could be instructor, office manager, assistant instructor(s), cleaning staff, etc. Even if you plan on doing everything yourself, still identify what the different jobs and positions are. This will help you determine who to hire when you grow to the point you can’t do it all yourself.
Initial Financing and Timetable for Establishment
How much money do you need to get your studio up and running? What are the specific milestones along the way to your grand opening? The answers these two questions are included in this section.
To determine your initial financial requirements, make a list of everything you will need to open your doors: training equipment, build out materials, decorations, signage, permits/licenses, etc. Also include several months of rent since you will not be making a profit initially. You can use your projected growth spreadsheet to help determine how long you predict it taking before you make a profit. Be conservative and overestimate costs and needs.
Your timetable for establishment is kind of like a near term schedule. It covers specific milestones over the months from starting your planning to opening the business. Be very specific in this timetable. These are checkpoints that also give you a date to shoot for, keeping you on track and ensuring you don’t miss anything.
Wait a second, I am trying to start a business, not end it. Why do I need an exit strategy? Unfortunately, everything must end at some point. Your studio may live on forever, but one thing is for certain, you won’t be running it forever. Therefore, it is important to come up with several different strategies in case you need to or want to move on. Will you sell it? To whom? Pass it on to your children? Don’t spend a great deal of time on this section but be sure to include a few options. Don’t get specific, just give general strategies.
At this point, you may be feeling a bit overwhelmed. Hopefully you now see why I split this topic into two separate articles. Stay tuned for the next article when I conclude the business plan process. Fair warning, the next article will also be quite overwhelming.