Once you’ve developed the framework for your Business Plan, the fruit of that labor comes after putting numbers to the assumptions and seeing if you can make money. After all, as entrepreneurs and small business owners, we go through all of the effort, and take sometimes-significant risks, in order to generate income for ourselves and others. If our plans do not show the potential for income, we need to re-think them.
Our family was fortunate to find a man with a reliable and reasonably-priced tree-cutting business. This is imperative when living among many tall trees within a hurricane-prone geographic area. In prior years, he came with three workers and heavy equipment – wood chipper, trucks, etc. To our surprise, he told us that he was clearing less than twice minimum wage for himself. That appeared to be a lot of investment -- and risk -- on his part for little return.
This year, he came with only one helper. Why? When one of his workers had an on-the-job injury, the owner’s insurance costs went way up. As a result, he could not afford to pay as many workers and had to fire two of the three in order to save his business. He told my husband he wept when he had to let them go.
However, there was a positive result. He is able to keep more money for himself than he did with a bigger business. He has fewer headaches and less paperwork. His actions were difficult, but he is more satisfied with his business now.
Since it is likely that one of your Business Objectives is to generate sales, you need to prove to yourself that sales can be generated to more than cover costs. You also want to know when profit might be available. Will it take you a month? A year? Three years? What is the long-term income potential?
Developing a Financial Plan can tell you if something is out of alignment: sales, costs, or timing. By laying it all out in a clearly defined plan, and analyzing the potential outcome, changes can be made that will make a difference in the long run – and perhaps immediately.
In my mind, it makes no sense to work hard and end up unable to cover reasonable personal expenses – or better. My guess is that you agree.
For your Financial Plan, begin gathering the following:
o Income from selling products and/or services.
o Fixed costs – stay the same over a wide-span of production levels (e.g., rent).
o Variable costs – change based on level of production (e.g., wages, benefits, supplies to produce the product, etc.).
Next week, we will look at specific examples of how we can turn a list of revenue and expenses into a more helpful Financial Plan.
Until we meet again,
The Entrepreneur’s Friend
The Entrepreneur’s Friend® is a registered trademark of Wheaton Consulting Group LLC. Photo credits: All photos were taken by Cynthia Wheaton and owned by Wheaton Consulting Group LLC except as noted. Coffee cup art by Jim Wheaton. Author support: Fellow authors from The Wrinklings and Light of Carolina Christian Writers Group.