Planning for Your Specific Type of Business

Understanding the mix of goods and services that your particular business will provide to its customers is vital when planning for the key elements of your business.

Most businesses don't deal exclusively in the provision of goods or in the performance of services. For planning purposes, you must understand the relative mix of those two disparate activities. Issues that might be extremely important to a product-based business, such as inventory, can have vastly less significance for a service provider.

Estimating the relative mix can help you focus your planning activities on the issues that will be most important to creating your business.

• Customers of a service business expect that something will be done for them. Examples of a service business include a car detailing business and a dog-walking service. The customer who pays $99.95 for a full detail expects to get a car back that is clean inside and out.
• Customers of a product-based business expect that they will acquire something. A customer who calls a mail-order house and orders a shirt expects to acquire a shirt. He isn't particularly looking for the firm to perform any services beyond shipping the goods and billing.
• Customers of a business that provides both products and services expect a lot. A homeowner who negotiates with a heating contractor for the installation of a new furnace expects to acquire property and to have services performed. The contractor is expected to dismantle and remove the old furnace and deliver and install the new one. The entire transaction is based on the provision of a package of goods and services.

Planning for a Service-Based Business

A service business is based on the fact that that there are certain things that people will pay to have done for them for various reasons--maybe they don't know how to do these things themselves; maybe they don't have the time; maybe they don't have the special tools; maybe they just don't want to. Whatever the reason, your business exists because other people are unwilling or unable to do what you do. 

The focus of a service business is on results. There are several factors that are of particular importance to a service business. 

Appearance and demeanor. Your appearance and demeanor are critical if you are engaged in personally performing services. The same holds true if you have employees. With a service-based business, you are selling yourself to prospective customers. You are asking them to trust you to do something for them, and there is at least some commitment to an ongoing relationship with the customer. The impact on your plan may be something as simple as planning for the expense of a uniform service or for regular cleaning of service vehicles.

Billing and collections. Another issue service providers face relates to billing and collections. When goods are sold, there is a clear event that triggers the need for payment. For a service provider, the event that should trigger payment might not be so clear. For example, a contractor may feel that he should be paid when he informs the homeowner that the job is complete. The homeowner, however, may feel that he has a right to have the work inspected before tendering payment. 

One way to reduce the possibility of this type of problem is to have a written agreement that outlines payments due as a job proceeds. Another is to plan cash flow requirements realistically, providing for the chance that a certain portion of what you are owed might not be immediately forthcoming.

Acquiring future business. If you personally are responsible for getting new customers and also for providing services to them, it is critical to manage your own time well. Many personal service businesses require the owner to spend substantial time doing presentations, preparing bids or estimates, and doing other sales-related activities to acquire future business. To the extent that your time is spent on these activities, you aren't currently working on your present business.

Planning for a Product-Based Business

The customers of a product-based business usually don't expect the business owner or employees to provide extensive personal services. In general, they want their box of chocolate, premium cup of coffee, windshield wiper blades, or new toy. The person engaging in the transaction with the customer is less important than the property that is involved.

In some cases, your business may be the only source for the product. Some software is available only by mail from the manufacturer. If you want their product, you buy it from them. However, even "unique" products have competitors. At the other extreme are businesses that carry goods that are widely and readily available.A bottle of pop purchased at a convenience store could also have been purchased at the gas station, a vending machine at work, or a deli.

Businesses based on a unique product have different considerations than businesses based on a widely-available product. With a unique product, your competitive advantage is based on the product itself. With a widely-available product, your competitive advantage is based on factors other than the identity of your product. This distinction should be kept in mind when formulating a business plan. Of particular significance is how long you can expect a unique product to remain unchallenged in the market place. If you're having some success, you can bet others will rush to break your temporary "monopoly."

Another factor to be considered is the identity of your customers. Generally, retailers sell to the general public at large, wholesalers sell to retailers, and manufacturers sell to wholesalers, retailers, or to the public directly. It is important to know where your business stands in that hierarchy and who are your customers. 

For example, consider a manufacturer expecting to use established wholesale channels to distribute a new product. Not only must the wholesalers and retailers be convinced to carry the product, the retailers must generate sales sufficient to make the product profitable. Successfully selling to the distributors doesn't ensure successful marketing of the product to the ultimate consumer.

Planning for a Business that Provides Both Goods and Services

A business that provides its customers with both goods and services will probably have a somewhat more complicated business plan than a business that primarily provides either goods or services. There are many logistical considerations relating to managing the interaction between the delivery of goods and the performance of services.

The financial aspects of a mixed goods and services business require careful scrutiny. Pricing is important because it must encompass the wide variety of components that make up the entire package. How do you associate your labor costs with the cost of goods sold? The business planning process gives you an opportunity to examine this and other relationships that can impact the profitability of your business.