The importance of a business plan cannot be overemphasized in any business. They are just as important to a micro-business although they don’t need to be nearly as formal. If you are seeking venture capital or financing you’re likely to need a business plan of 50-100 pages. For a micro-business, you shouldn’t need more than 5.

A business plan precisely defines your business and identifies your goals. The basic components include a current and projected balance sheet, an income statement, and a cash flow analysis. It helps you allocate resources properly, handle unforeseen complications, and make good business decisions.

Many entrepreneurs drag their feet when it comes to preparing a written document. They argue that their marketplace changes too fast for a business plan to be useful or that they just don’t have enough time. But just as a builder won’t begin construction without a blueprint, eager business owners shouldn’t rush into new ventures without a business plan.

Before you begin writing your business plan, consider four core questions:

• What service or product does your business provide and what needs does it fill?

• Who are the potential customers for your product or service and why will they purchase it from you?

• How will you reach your potential customers?

• Where will you get the financial resources to start your business?

What goes in a business plan? The body can be divided into four distinct sections:

• Description of the business

• Marketing

• Finances

• Management

Addenda should include an executive summary, supporting documents, and financial projections.

A business plan is a tool with three basic purposes: communication, management, and planning. As a communication tool, it is used to attract investment capital, secure loans, convince workers to hire on, and assist in attracting strategic business partners which are typically not goals of micro-businesses.

As a management tool, the business plan helps you track, monitor and evaluate your progress. The business plan is a living document that you will modify as you gain knowledge and experience. By using your business plan to establish timelines and milestones, you can gauge your progress and compare your projections to actual accomplishments. It can also let you know when when it’s time to shut down a particular venture. Each of your micro-businesses should have a business plan. That way you can compare the time and money you’re putting into each so that when you begin to get squeezed on on or the other you can shut down the worst performer.

As a planning tool, the business plan guides you through the various phases of your business. A thoughtful plan will help identify roadblocks and obstacles so that you can avoid them and establish alternatives. This is particularly important for micro-businesses that are run by more than one person. Having clearly defined roles in critical in these situations.

The SBA has a pretty good section on its website that discusses business plans in greater detail. Just remember that their target audience is small businesses that are looking for financing. Micros just need a short outline to keep everything defined.

I have heard it said that in the early days of our country 95% of the male population was self-employed. I can’t find any independent validation of that number but if you consider that most people were farmers, artisans or merchants and that almost anything in the Colonial period would be what we have defined as either a small, micro, or submicro business I’m inclined to believe that it’s close to the truth. It wasn’t until the Industrial Revolution that big business and it’s attendant wage slave mentality took hold.  I can’t help but think that getting back to numbers that look more like that would make the US a better place. Not that I think everybody should be a subsistence farmer but there are a lot of people doing essentially pointless “work” at their jobs that could be running micros to make the world a better place.

That said,  Small Business Trends recently posted 5 Key Microbusiness Trends for 2009 that’s well worth a read. It contains some excellent insight on micro trends for the coming year.

I was going to write a post about tools that you should have at your disposal when starting your new venture but discovered that Lifehacker had beat me to it while I was looking for a way to put tasks on my Blackberry and sync them to my PC without using Outlook. (Still haven’t figured that one out, I’ll let you know when I do.)

I agree with most of what was presented. Godaddy can be, ummm, strident in their marketing but it doesn’t bother me that much. I’ve never used DreamHost but it looks like they’ve got a pretty good deal running through 4/25/2009 and I like that they’re concerned about the environment. If you’re planning one sticking with just one domain for the forseeable future almost all the hosting companies have a deal that includes domain registration. Just make sure you can take it with you when you leave. There’s nothing worse than building up your brand and finding out that you’ve got to abandon it if you want to change hosting companies.

The simple fact is this is going to be easier for some people than others. To run a successful Micro-business empire you must have a constant stream of potential new ventures. Keep in mind that all successful businesses (micro or macro) must do one thing: Satisfy a need or want. This can’t be stressed enough. It doesn’t matter if you sell the cheapest snow removal equipment and have the best customer service if you are located in Jamaica. Nobody will buy it (except maybe your mother).

Below are some strategies to help you come up with new business concepts. You don’t have to do them all but the more you use the more ideas you’ll come up with.

• Keep up with demographic changes - Demographics changes offer new opportunities. For instance, one of the biggest demographic changes in the US is the aging of the Baby Boomers. What new products and services are they likely to need in the coming years?
• Study Problems - Can something be done better, or faster, or cheaper? What can you do to make the world a better or safer or more fun place?
• Engage in People Watching - This has been a hobby of mine since I was a teenager I love to go to the Mall or the airport or downtown and watch people. They’re fascinating. Use the opportunity to recognize emerging trends or identify un-met needs.
• READ - Trade journals, magazines, newspapers, local business journals. All of these sources will help give you ideas about emerging trends. Maybe there’s a concept in another area that could be applied to your location. Keep an eye on non-fiction best-sellers for trends that can be exploited. If you had spotted the protein diet trend this there a micro-business that you could have come up with?
• Surf the Web - Hang out in forums of subjects that interest you. Is there something that somebody else is doing in a different location that is applicable to yours? Trends and fads usually start on one coast or another and work their way in.

Now you’ve got all these ideas swirling around in your head what do you do with them? I keep paper and a pen near me wherever I got so I can write things down as they occur to me. On occasion, I have been know to call myself on my cell phone to leave a message so I can remember it later.

Millionaire’s Micro-business Brainstorm Hour

I set aside an hour each day (at the same time every day because that’s what works for me) called Brainstorm Hour. During that time, I collect all the scraps of paper and write down every idea I’ve had in the last day in one place so I can start to organize them. During Brainstorm Hour, nothing else goes on — no phone calls, no laundry, no worrying about anything except concept generation. All these thoughts and ideas are put on the Future Ventures List that way when I need (or want) to start a new micro-business all the ideas are already there.

Email has become a fact of life. Many people prefer it to the telephone. It allows you to maximize the use of your time and in today’s world that is a good thing. Personally, I think it’s over-rated for some kinds of conversations. Email is very good for conversations that are of the customer service type, ie. “Do you carry roses?” “Yes, we do.” Email would not be so good for conversations that require a lot of explanation such as the initial phase of a custom house design. After the plans had been more or less finalized email would again be a useful tool for communicating.

If you’re going to use email as a part of your business strategy – and you should – an AOL address is not going to provide the sort of professional appearance you want for your business. I recommend you register a domain and set up one or more email accounts using that. In the old days it was trickier to do something like that than it is now. Now it’s so easy there’s absolutely no reason for anybody not to have a personalized email address.

I’m not going to go into a bunch of detail about how email works. I’ll assume you already know that (if not there’s an excellent tutorial here.

I use GoDaddy because 1) they’re cheaper than just about anybody else and 2) I’ve never had a problem with them. Fortunately if you don’t want to set up a website at the very beginning (but I recommend you do as soon as possible) or yours is a micro-business that doesn’t require a website (I’m not sure what that might be) GoDaddy also has email hosting plans that are as little as $10 a year. So for about $20 a year you can trade in that AOL address in for an email address that’s every bit as professional sounding as ibm.com

I’ll have a post about email marketing in the coming weeks and I suggest you read that before you venture into that arena. Some people who are perfectly fine with pulling 20 pieces of junk mail out of their mailbox and tossing them in the trash become absolute crusaders when they get spam (an internet term for unsolicited commercial email). You can lose your email account, have your isp account cut off, and even in some instances go to jail for sending out spam. Know the territory.

Ok, part-time “work” is not really what we’re all about here but many of the points Marci Alboher makes in her post on Shine apply to the micro world. It’s all about time management and finding things you love.

Over at The Simple Dollar,  Trent posted a list of 50 businesses you can start on your own. He doesn’t call them micros but that’s ok that’s what they are. Look through the list and run with it….

If the last few months have taught us anything it’s that we can’t rely on Corporate America to take care of us. Gone are the days when you spent your life working for one company. Now you’re a commodity and if the bean counters think you can be replaced with a cheaper alternative you’re gone. J. Paul Getty had eight rules for accumulating wealth that are as useful and relevant today as they were in his time. Here they are

• Rule No. 1: To acquire wealth today, you must be in your own business.

  You may think that the corporate executive with a $100,000 salary is better off than small shop owner, but the executive will be hard-pressed to double his income and taxes will eat up most of any increase. The simplest peanut vendor has unlimited opportunity to expand his business and his income, and even salesmen, who in most cases are able to write their own paychecks, can control his sale increases himself.

• Rule No. 2. You must have a working knowledge of the businesswhen you start and continue to increase your knowledge of it as you go along.

  If you don’t know what you’re doing when you start, your mistakes will be costly and often unnecessary, and you won’t be able to keep up with the technological explosions in any field. Start smart and stay that way.

• Rule No. 3. You must save money in your personal life and in your business venture as well.

  Discipline is the key to saving money. You must develop the will power to deny yourself immediate gratification or the temptation to gamble on the quick buck. Resources will be needed for expansion and should be guarded carefully.

• Rule No. 4. You must take risks, both with your own money or with borrowed money.

  Risk-taking is essential to business growth. Nelson Bunker Hunt is admired for his guts in trying to corner the silver market, not scorned for losing money on this deal. Some of the richest men have staked their entire fortunes and lost, several times over, before the risk-taking paid off. Back those risks with good judgment, experience, commitment, and the right support. Seek advice on risks from the wealthy who still take risks, not friends who dare nothing more than a football bet.

• Rule No. 5. You must not only learn to live with tension, you must seek it out.

  Thrive on stress! If it means getting physically fit, having a psychiatric overall or losing 50 pounds before you can handle it, do it. Once you can learn to thrive on stress, you will not only enjoy it, you will seek it out willingly and enthusiastically and wonder how you could live any other way. Men of means look at making money as a game which they love to play. Consider it serious business and you will suffer far more stress than you need or want. Keep your perspective or your stress level will rocket beyond your control.

• Rule No. 6. Build wealth as a by-product of your business success.

  If wealth is your only object in business, you will probably fail. Wealth is only a benefit of the game. If you win, the money will be there. If you lose, and you will from time to time if you play long and hard enough, it must have been fun or it was not worth it.

• Rule No. 7. Patience.

  This is the greatest business asset. Wait for the right time to make your moves. Let your business grow naturally, not by pressing your luck.

• Rules No. 8. Diversify at the top.

  Once you’ve made it, you’ll understand that any business is limited in the challenges it offers. You’ll want and need other games to play, so you’ll look for other ventures to hold your interest.

A micro is just like any other small business except for three things:

• Time Commitment
• Initial Investment
• Potential Profit

A micro should not require a huge time commitment — if it does then it’s just an unprofitable small business. Your goal should be to turn a profit of $50 an hour as an on-going concern. This doesn’t apply to start-up. When you’re first getting organized you’re likely to spend some chunks of time determining suppliers and so forth but once you have everything in place and you’re in the actual “production phase” if you’re not making $50 an hour in a venture then it’s a candidate to get replaced. Remember, you’re trading your life away here — Don’t do it cheaply.

A micro shouldn’t require a huge initial investment. By huge I mean anything over $1,000. It if takes more than this it’s either a poorly performing small business or a badly thought out micro. There is almost always a way to trade time for money. For most of us when we are starting out we have more time than money so it make sense to maximize our use of money.

A micro will have limited profit potential. Why is this a good thing? It means that there will be little if any competition. People, in general, are taught to think linearly (Don’t color outside the lines, remember?). People don’t start businesses in which the potential income is only $10,000 a year because nobody can live on that, right? The concept of operating in multiple industries is not new. Conglomerates have been doing it for years — look at the product line for Berkshire Hathaway sometime. Do any of those businesses have anything in common other than they make a lot of money? That’s what we’re trying to do — on a much smaller scale. Just like J Paul Getty’s Rule #8: Diversify at the top. What happens if you mess up and generate a ton of profit and wind up with a small business instead of a micro? I guess that’s OK too. At that point you either find somebody to run you small business or you drop your micro and run it yourself. I expect you can figure out for yourself what I think you should do.

Let take an example of a small-business: Bill opens a print shop. He uses $30,000 to buy equipment, rent space and make sure he has cash to cover his startup period. He works 50 hours a week and at the end of the first year has paid himself a $20,000 salary and turned a profit of $40,000. Thus his income for the year is $60,000.

Then a micro empire: Bob starts a craft business that requires a $200 investment in supplies, a PC repair business that costs $500 to get off the ground, a business stocking information racks around the city that costs $600 for the racks, and (because he loves chocolate chip cookies) a baking service that makes and delivers chocolate chip cookies to hotels which he spent $40 on. Total investment: $1,340. The craft business requires about 16 hours a week as does the PC repair, the info racks take about 3 hrs a week to stock and the baking takes about 5 hrs for baking and delivery. So Bob is spending 40 hrs a week on his businesses. The Craft business makes about $20,000 profit, PC repair about the same, info racks about 10,000 and the cookie business about 10,000. His net income for the year is $60,000, but he’s spent less time working and has risked less of his own capital.

In the first example, Bill’s Return on Investment (ROI) is 200% (not too shabby!) and his effective wage was $24/hr assuming he took 2 weeks off. Bob’s ROI was 4477% (even better!) and his effective wage $30/hr assuming he took 2 weeks off. Which would you rather do?

In our example, what happens when the cost of paper goes up and Bill’s profit drops to $30,000? He keeps going and hopes that things will get better. When the cost of flour goes up and Bob is only making $5,000 on the cookie business, he can, if he wants, walk away and start another business to make up for it.

The beauty of a micro is that you can start and run as many or as few as you want. Of course, the examples have been overly simplified to make a point but don’t let that fool you — Micros can, and should, be a lucrative source of income.