I am Corinne Smith @ Altitude Advisors Ltd and will be writing a financial article each month to help businesses and people in our community. I have been working with businesses for many years and I am a business owner like many of you.
My first article is on creating a simple Business Plan.
Your business plan is the road map that explains your strategy, defines your goals and gives real direction to the everyday running of the company.
So what should you include in your plan? There are 5 key elements to include in your business plan to create a truly robust and meaningful plan:
- Outline your vision – explain WHY you are in business and how you intend to add value for customers.
- Define your goals – what are the 3 big goals you want to achieve over the next 3-5 years? It is a good idea to make them measurable so you can see how you are tracking. Hold yourself to account.
- How are you going to achieve these goals? What are the actions to make this happen, define 2-3 actions per goal?
- What are the resources you need to achieve goals? For example, people, plant & equipment, stock, office equipment, funds. Make a budget to achieve your goals and be realistic.
- Forecast sales and cashflow by defining the profit you want, then calculate the volume of sales needed to deliver that profit. Give a clear breakdown of the cash inflows and outflows needed to achieve positive cashflow.
To work out your breakeven or sales target, the formula is:
Fixed costs /Gross Margin = Estimated Sales
For example, Suzy has a café business and she wanted to know what sales she needed to make to breakeven. She had fixed costs of $100,000, and her gross profit margin is 30%. Using the formula above the required sales are $333,333 to breakeven.
The calculation would be $100,000 / 0.3 = $333,333 sales to breakeven.
If she were aiming to make $50,000 net profit & your fixed overheads are $100,000 and your gross profit margin is 30%, her sales target would be $500,000
The calculation would be $50,000 + $100,000 / 0.3 = $500,000 sales.
Set key milestones and give the business some concrete deadlines for meeting the goals, sales, and revenues that you have projected.
Lastly, I would say measure and celebrate your successes. It is important to also look back and see how far you have come. Share your wins with your team and family & friends or learn by your mistakes, even more importantly.
Have fun creating your plan, it will stand your business in good stead.