How to Make a Financial Business Plan

You decided to start your own business.  This is definitely an exciting decision, but it is also a scary one.  Several questions come to mind:  How will I get more customers?  What will I do about health insurance?  What if I need to hire employees, how will I pay them?  These are very good questions, and possibly the most important one is "How much do I need to make to keep my business going?"

You're going to find a lot of answers to this question out there, but one of the best ones I have found has to do with a daily budget and goals.  This probably the most important way for a small, just starting business to grow and stick around.  It might be easy to say at this point - "I know how to do a daily budget...".  But let't consider it together anyways, I might have missed something in this article, or I might give you an idea you didn't think about.

Where to start?

First we need to consider the goal of your business.  Is it just to get rich?  Is it to support your family? Or maybe you are living the dream of owning your own business.  Now that we have our goal in mind, let's focus on the costs involved in our venture.  What will it cost to open this business?

For our example we will use a car stereo shop.  What are some things we will need, and their cost:

1. A shop (rent $1500/mo)
2. Inventory (initial cost $5,000)
3. Tools (initial cost $500)
4. Electricity/water/trash ($300/mo)
5. Advertising, Grand opening announcement ($500)
6. Liability Insurance ($100/mo)
7. Your Salary ($2000/mo)

So, now that we know what it will cost $9,900 to open our shop we can do one of 2 things:

• Dip into Savings
• Take a Loan

Both of the options have their pro's and con's.  But maybe the biggest con is the amount you will need to take out.  Many opinions state that you should take out a loan big enough to keep your company running for 1 year with no profit.  This means to pretend that you won't break even the first year.  With this opinion, you will need a loan 12x the amount needed to run your business each month, so in other words: $118,800... This is a BIG number.

Let's consider another option, that is unconventional and, in my opinion, more reasonable.  This method is more work, but in the long run less stressful.  You might be asking yourself, how is not taking a large loan to run my business going to be less stressful?  Think of the one thing missing from our "cost" list.  That's right, the loan payment!  On a $118,800 loan at %5 interest you're looking at a payment of $693/mo for 15 years.  What if, instead you took a $20,000 loan?  You could pay that back in 5 years at a much lower payment.  Of course, there is still option 3 - dip into your savings and use the $10 - $20,000 without worrying about paying back a loan in addition to your other monthly expenses.

So, let us use the $20,000 loan option as an example.  I know what you are thinking right now - "That is only enough for me to keep the doors open for 2 months!"  You are right, but if we do things correctly, it will snowball.

The Budget!

Ok, we have our $20,000 loan in hand.  We know our Monthly loan payment, which brings our monthly expenses to $10,250.  Now, looking at this number can be a little scary, so we are going to turn this into a smaller goal.  How much do we need to make per day to meet this goal per month?  How many days will our shop be open?

Starting with our days/hours or business:  Monday - Saturday 9AM - 9PM

Next our daily sales must equal: $427.08

The daily budget is very small!  We will immediately realize that this is not as daunting as we though looking at the $10,250 we need to make each month!  But we need to stay focus, there will be slow days.  There will be some days when, despite our enthusiasm and eagerness to sell, that we do not hit our goal.  What then?!  If we miss the goal, then we will use some of the money we borrowed to bridge the gap.  This will help our remaining $10,000 last longer, then if we were to just use it to pay the next month of bills.

The GOAL!

Just because we only need to make $427 per day doesn't mean that is all we should try to make each day!  Set a reasonable daily goal to start with, and then when you can hit that consistently, raise the goal.  Your starting goal might be $500 per day, so that you can start putting a little money in the bank in case of a slow period.  If you can hit your daily goal for 2 months straight, it might be time to raise it.  But how high?  Let's say you are consistently selling $800 per day, your next goal should be $1000 a day.  Never make your goal something that you know you can reach easily.  Comfort will cause loss of focus!

You may be asking yourself "what is consistently?"  If you are reaching your goal, or going above your goal 4 or 5 out of the 6 days you are open each week, then you are consistently hitting your goal.  If you are only doing it half, or less than half of the time - keep working at it.

Conclusion

Having goals that are just out of reach helps us grow.  This is very true in growing your business, and in starting a business.  If you are thinking about taking the leap, I encourage you to count the costs, and set some goals that force you to stretch to reach them.  You can also save some money by using our ERP.  Most importantly, don't be afraid of doing something unconventional to save yourself from the added heartache of debt if your venture doesn't work out.  And remember, if you fail, pick yourself back up and try again!