The blue print for your business should be your Business Plan as it will give you focus and a path to achieve your overall financial goals. Without one, you run the risk of being too reactive and dare I say, random in the activities you put in place.
Depending on your type of business, Business Plans don’t need to overly complicated but they do need to be tailored for your business, taking into consideration the following factors:
1. Your financial goals
How much do you want your business to earn? Are you happy with earning just the minimum wage or would you like to earn a six-figure or seven-figure income, after expenses? Set yourself a realistic goal for the year.
2. What are your overheads?
Each business will have fixed and variable expenses that need to be covered before you make a profit.
Fixed expenses are those that you incur regardless of turnover such as rent and premises expenses, full-time staff, gas and electricity, insurances, accounting fees,
car and any equipment leases, service agreements, subscriptions/memberships
Variable expenses are those expenses that will fluctuate depending on your turnover or activities you plan. These could include commissions, part-time or casual staff, marketing expenses, stationery and printing etc.
What is your break-even point? i.e. how much revenue do you need to generate in order to cover expenses?
3. What do you need to sell/invoice each month?
Knowing your break-even point and how much you would like to earn each month, you can calculate how much you need to sell/invoice each month to achieve your goals.
Look back over your recent history and calculate your average sale or invoice amount. This will give you direction as to how many items you need to sell or the number of clients you need to invoice each month.
Does your business fluctuate with seasonality?
- Do you sell/service more in winter than summer, or visa versa?
- Does school holidays or public holidays affect your business positively or negatively?
- Are seasonal celebrations good for your business? e.g. Chinese New Year, Easter, Mother’s Day, Father’s Day, Spring Racing Carnival, Christmas etc.
Look back on the past few years and chart your sales by month. Putting this into a graph format is great for the more visual of us and will show you seasonal patterns, year on year.
Also look at your past profitability per month. It may be the case that you run at a loss for several months of the year, then business BOOMS in other months and you make most of your money in key periods throughout the year.
5. Marketing Plan
Having an awareness of all the information above, you can now PROACTIVELY plan activities to minimise your losses in your lean months AND amplify your profits during your boom months.
This could be a combination of:
- Advertising pushes
- Direct marketing to existing customers
- Special promotions or sales
- New product or range introductions
When planning your marketing activities, mix it up and do what is appropriate for the particular time of the year. Don’t fall into the trap of discounting your products or services too often as this devalues your offering over time.
6. Set yourself a budget and write your plan
Based on your historic fixed expenses (see above), you can start to formulate an annual expense budget. Project what your variable expenses may be based on seasonal trends or the marketing activities you have planned. E.g. increased advertising in the lean months, higher payroll expenses in boom months etc. Break this down into months before overlaying what revenue you expect to bring in each month. This will give you a projection of sales, expenses and profits for the year.
Now think about how you’re going to achieve this. What sales and marketing activities are you going to focus on to support your financial plan and projections? Write your plan - either put pen to paper, or fingers to keyboard and document your plan so you can constantly refer to it.
7. Measure your results
Measure your results versus your projections after each month closes. As a business owner, it’s imperative that you always Know Your Numbers. Your accountant or bookkeeper should help prepare your financial statements for
you each month.
If there’s a short-fall or everything didn’t go to plan, how are you going to make this up within the coming months? Which of your forward plans need to be adjusted! This is something to plan during your monthly Planning Days.
If you exceeded your projections, apart from laughing all the way to the bank, do you need to adjust and amplify your plans for the following months? Was this a one-off win due to a promotion or have you created an ongoing momentum? Is there opportunity to increase and adjust your projections and plans for the coming months to increase your overall year’s results?
Your Business Plan is your roadmap to success. Without one, you’ll be lost and left meandering - just like driving into unknown areas without a GPS.