Business plans (Part 2)

Financial situation

No joking matter, if you are starting a business give yourself time to be successful.  Overnight successes do occur but they are few and far between.  Often you will have absolutely no income for the first 12 to 24 months.  Be prepared.

Here is something I have learned from doing my small business, do not spend any money unless:

1) It has a positive impact on sales

2) Reduces cost

3) Is necessary to produce your product

This is the three question I will ask before I spend any money on anything.

Plan for your cash flow, I am not sure what is the standard for other industries however in the food industry it is End of Month + 30 days.  This means that if you sell something in January you won't see a dime until early March (that is if they pay on time).  So as a small business that pays in 7 days or 14 days you have a big gap to when you pay to when you are paid.  Do not be complacent in this area as it will hurt massively when there are large orders placed (imagine a large order making you go broke can't happen right? well it can).

Some articles that tell you to limit your credit terms etc to 30 days are all inaccurate.  A recent article indicated that average payment takes about 53 business days.  If you plan for 60 days and ask at 45 days you might average out, but don't dream too much.  Large companies will pay you when they do, if you are overly aggressive it may backfire; You must remember that you are dealing with a staff of the big company and not the business owner.

General things aside the details you want, when you start you want to work out your costs as much as you can so you need to see these sections in your spread sheet:
1) Fixed costs
2) Utilities
3) Cost of goods sold
4) Cash flow
5) Once off spending

If you haven't gotten married yet, here is your chance grab an accountant and say your vows.
1) Fixed costs?
Fixed costs are things like rentals and leasing costs etc...  They always happen and they cost the same and you cannot avoid them.

2) Utilities?
Your electricity, phone, gas, recycling bin etc etc..

3) Cost of goods sold?
The cost of buying goods to make your product.

4) Cash flow (taking into account payment terms)?
Money in your bank.  If you have no orders for the next 2 months and you get hit with one big order what happens to all your cash?

5) Once off spending?
Things you only buy once.

Once you have sat down to work out your costs you have a much better chance at working out how much to sell your product and how many of your product you have to sell.

If anything you need to put a lot of effort into for your business it is the financial side.  Take the time to do it properly, don't risk the venture because of guesstimates.

Marketing and selling your goods

Just because you think your product / goods is great does not mean that consumers feel the same.  It is a big effort to get people to get familiar enough to buy your product.  There are many many ways to do this and there are thick books on this subject I have summarized it into 5 main steps:

1) Market research - not just the product; include the name of the product; the feel of the product and the whole image of the product.  So you need to explore what consumers think about your product.

2) Differentiate your product, if you make a meat pie why should people buy your product rather than another brand?  Constantly build on the image that you have decided to move on; Tag lines that are easy to remember really helps you here.

3) What price can your product sell for?  also consider what price you have to sell it to make a profit. You can ask for any price you like, however you might not get any sales if your price does not match the expectations.

4) Finding your market - your aim is to convince consumers that your product is worthy to be purchased for the price that you ask for.  Look for your market or make it easy for your market to find you.

5) Set an objective calculable goal based on a dollar amount, and set a time limit.  For example (this is not a real figure by the way) I will push brand Jumplings for the next 8 months at the end of the 8 months the sales figure will be $40,000 / month.  After establishing this work out if you can achieve it (time wise or production wise) if you cannot find out what you need to do to achieve it.

Conclusion
In the 4 page business plan here are the important pages:

1) Establish your industry and establish your role.

2) Decide why you are in business, lay out your principles as an employer and a person be sure to stay true to them.

3) Spend days doing a spreadsheet that will tell you your costs and your break even point or marry an accountant.

4) Find your market and find out how to find a market, investigate the best way to sell your product.

Wishing all of you that are working on a business success and hopefully I have given enough information for you to activate your business and engage your customers.