Peter Hanley tells you about writing a business plan on a budget. There is no need to spend big bucks just use a pub coaster.
Ok, a bit more than a Pub Coaster but you get my drift. Excel is your friend so lets mix with Excel.
Start at the finish line
You should decide what you want to achieve that is reasonable and can be managed at a push. I would always aim higher than expected as a stretched target just so we don’t get lazy.
Say you want a turnover of a Million bucks a year with a 20% net profit.
Now we know that is $83,333 a month that you need to meet.
Spread your excel sheet over 12 months and allow for high and low periods. For example if you are in retail you know that Xmas and Black Friday are peak times to aim higher. february has 28 days so go low.
By projecting average cost of sales you can arrive at a Gross profit figure. Your T-shirts out of China are costing instore $10 so a 20% cost of sales figure.
Break the total down
If you are selling houses and make a $20k commission you need 4.5 contracts a month, settled sales.
Because you are selling T-Shirts at $50 each you need to move 1666 a month.
When you have a variety of goods, as most do, take an average sales value from last year.
You can break this up any way you wish as long as you understand the break-up.
Ok the top line is done so how are we going to sell all these t.shirts.
- In-store sales by head count
- Online orders
- Government and corporate
- Xmas promotion
Whatever relates to your business broken down into a contribution. Look at last year and see the trend and project forward or reverse.
Then we need to value the cost of each into a
- Staff sales, admin, Manufacturing
- Rent and office overheads
- Bank fees
- Freight etc
It is always a good idea to do a cashflow as well.
Well not just a good idea but a must do. In fact this is actually more important than a budget
You have a similar heading but different timings. You may get paid in 30 days for somethings and Payless for others.
I do a daily cash flow over a year. Using the exact same method. This avoids problems with meeting Wages and Government taxes.
You then copy a template and then compare with last year filling in the daily banking and expenses.
One benefit is that when cash is slow you check your outstanding debtors and get on the phone. As a
Remember the squeaky wheel gets oiled.
You must set a target, something you want to achieve or you will never make changes along the way. Meandering through business life is not an option. You will end up in a place you don’t want to be and it may be too late to return.
Concentrate on the 20%
The 80/20 rule of Pareto applies equally to sales. 80% of sales will come from 20% of certain lines and this is where your concentration should be.
You can even look at the 20% that supply the greatest income overall and focus on this.
The other 80% will rise and fall along the way.
However, if you want to spend marketing funds do it for the best return, not for emotional impact.
Because you love a product your customers will tell you what they love. That is far more important.
Marketing is all about timing
Your budget/Cashflow will show you when to ramp up and when to go on Vacation.
It is almost criminal to get to Black Friday and say along the lines off,” Forgot to do an Advert” Missed opportunities cannot be recovered.
You will also see contributions from sales outlets. This enables you to apply early changes, fixes or replacements.
Perhaps the catalogue bombed for what ever reason. Do you blindly repeat the same mistake or take a fresh approach.
Furthermore staffing levels can be assesed. This applys to both up and down. If you have a big queue at the counter and people are walking you must up staff. Counter sales have been replaced by online sales then move staff or down staff. Your future projections will lead the method and your thinking
If you are not doing Budget planning you are heading for disaster
All large Stock Exchange-listed companies must do projections in turn Over, cash reporting and income.
What is more, they must meet these with a probable 5% tolerance up/down.
In addition, they must inform the market if they see a change coming up in the next Quarter or half year
These are multi-million or even Billion dollar companies. So if it is important to them it is equally important to you.
Using cash flows to seek finance
Should you require short or long term financing through a bank or lender you will need to supply documentary evidence that you can meet the repayments. When your lender can clearly see you are on top of the situation life can be made a lot easier.
In this case, a Cashflow spreadsheet is really your friend
Every business is different so cash planning will change.
It is not possible to draft a Spreadsheet for you as every business is different.
I have only given you a broad outline of what to do the rest is up to your creative juices.
You can get someone else to do this for you but be warned. no one knows your business as you do. I have a full-time bookkeeper that could assemble the template but not with the accuracy I require.
Having been in business for many years both small and very large I have always had an active spreadsheet of a budget and cash flow. It is my bible and gets looked at most days.
As a result, I understand my monthly projections and make changes when I am wrong to right the wrong going forward.
Profit and Loss in small business
There is no need not to have a current Profit and loss in your business. Back in the olden days, we would take a shoebox of papers to the accountant at the end of the year and he would prepare a report over the next three months. Then the report would appear and you would look at in shock. You can not change the last eighteen months, they are gone.
Nowadays we have online accounting so you have a live P& L at your fingertips. Changes can be made to fix problems and ensure you meet a target.
This makes your business life easier and takes a lot of stress out of roller coaster periods of business.
Debtors and Creditor lists can be downloaded and acted on when they need attention. Importantly you don’t have to ask someone to do it for you and wait on their timing.
In conclusion if you want to be in business and be successful planning is the word of the day. Plan your future and work your plan.