Chickadee Business Network

How to Start Your Own Business
Joy of Owning a Business
What kind of Business
Marketing Plan
Operating Plan
Organization Plan
Finance Plan
Present it

Make it Legal
Open your Office
Go Online

Market
Advertise
Follow up

Manage your Time
Manage your Money
Manage your Customers


What will be your costs, prices and break-even point?

Your Financial Plan discloses your current financial condition and details your projected, or pro forma, financial situation and the type and amount of funding you need to get from your current to your projected numbers.

Your total income must be more than your total costs, otherwise, your business will be losing money and eventually fold. Thus the long term requirement for a business is to be profitable, and the owner must track profitability. This gets technical but is logical if you think about it. Now is the time for answers - Will your business idea have a realistic chance of providing you with the income you want?

  Definitions & Equations
Income
Total sales revenue (TR) is the average price (P) times the number of units sold (U). TR=P x U
 
Costs
Variable costs change directly in proportion to the number of units sold. I.e. if you sell twice as many units, you have twice as much variable costs. Most variable costs come from the direct materials and labor required to produce a unit of product.
 
Fixed costs are those that vary very little over a broad range of sales, also called overhead, or operating costs. I.e. you pay rent of $1000/mo - this is a fixed cost.  
The break-even point (BE) is the number of units that must be sold during a given period of time to exactly cover all costs. For evaluating the potential of a business, a convenient period for calculating BE is a year.  

 

 If the variable cost per unit is C, the formula for calculating BE is: break-even point = fixed costs / price - variable cost/unit or BE = F / P - C

 
  Do the Calculations

What are your expenses - or cost for your product/services?

Fixed Costs +
Variable Costs

  

What is your Goal?
How much money do you want to make each month including profit.

Total Cost +
Profit wanted

  

How many do you need to sell?

Total income desired /
Average cost of your product/service

  

How does it look?

The telling story. You have done the research, now let's put it all together and see if your business idea is realistic, and has the probability of earning your the income you want.

 

Step 1 & 2 - Your Business Choice  

 

Does your business choice fit your experience and personality? Will it provide you the kind of rewards you desire? Will it be compatible with your family life?

 
Step 3 - Defining your business  
s there a clear concise business concept?  
Are there real customer needs to be served?  

 

 

Are there clearly identifiable customers? Are there enough of them?

 
Do you have a good idea what influences their purchasing process?  
Step 3 - Marketing Plan  
Can you put together a marketing approach to reach them?  

Have you considered any emerging trends or major changes taking place that could impact your business? Can you deal with any threats to your business?

 
Have you identified both direct and indirect competition? Can you see how your business can compete effectively?  

Do you have an idea how big the total market is? Have you estimated how big your share is likely to be

 

Have you thought out a detailed marketing strategy, including product line, price, quality, service, advertising, and promotion?

 

Step 3 - Operation Plan

 

Have you made sure there will be adequate bookkeeping and accounting help?

 
Have you given adequate thought to the management needs of your business?  

 

If you are going to have employees, have you thought out your personnel policies?

 

  Have you analyzed your production/operations process for effectiveness and efficiency?

 
Step 3 - Feasibility Calculations  
When your market share is expressed as sales per customer, per hour, or per employee, do these figures took realistic?  
Is your likely market share big enough to give you a safe margin above your break-even point?  

 

Have you been conservative in your estimates of sales? Have you avoided understating cost?

 

 

Now that you have the information - it's time to put it all together into a Business Plan - You can use your Business Plan to get a loan, or just to refer to for tracking your progression towards your goals.

Some small business mistakes

Obtaining money to start or expand a business certainly will be satisfying and will create an aura of optimism. But you can only maximize the benefits from any investment if you pay constant attention to all the details over a prolonged time period. It is particularly important to avoid some common mistakes made by many small businesses. Here is a brief checklist of ways to prevent a few common mistakes.

Constantly watch cash flow. Establish a cash budget and monitor it all the time. Track cash flow on a weekly, monthly, and yearly basis.

Be careful whom you extend credit to. Go after accounts that have been outstanding too long, and above all, do not give them more credit before you have been repaid.

Get rid of inventory that does not move. Mark it down until it sells. Otherwise, it just ties up money and space.

Maintain good relationships with suppliers. You may need their good will sometime. If you are going to be late paying them, let them know ahead of time and explain why.

Keep up with your bookkeeping. Without good accounting information you really can't be sure how you are doing.

When your business has grown significantly, you may need to bring in others to help you manage. Learn to recognize when you are getting overextended, and hire the right kind of help. You can't always do everything yourself.

Work at building a good relationship with your banker. That means using the bank for more than just loan requests.

There is lost of free help out there for various organizations, such as the SBA. Learn to use it.

Your accountant should not just be the person who keeps the books, he or she should also be a source of advice. If yours is not, see if you can find another.

If you have chosen a poor location, get out as soon as possible. Some "killer" locations knock off businesses at a rate that would fill a gangster with envy.

The customer may not be king, but sure would not mind being treated that way. Treat the customer right!

Treat your employees right! They are your bridge to customer satisfaction and high productivity.

Try to make your business different. Average businesses mostly get average results, and that average includes many that fail.

Avoid the temptation to buy too much equipment. It ties up your money and ties you down. When bad times come, most business people wish they had the money rather than the equipment.

Watch out for the slick-talking computer salesman. Get an iron clad guarantee before you make a major computer purchase.

Plan your use of time. Time is just like money in business.

 
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