In This Episode
Does your business have a plan to make money on purpose? This might seem like a strange question, but in our several decades of working with and advising small business owners we have found that the vast majority don’t have this plan in place. We refer to it as a Profit Plan. Chances are you may have heard it called a budget. No one like to be put on a budget, but we all like to make profits! So what does your Profit Plan look like?
The first step in pulling together your Profit Plan is to pick a goal for your sales and profits for the year. This should be a starting point that gets you excited where you would be happy if at the end of the year your business achieved that plan. So pick somewhere to start. For example, let’s say your goal for sales is $1 million and $200K in profit. Believe it or not most businesses don’t have a sales and profit goal for the year. Now we need to start filing in some of those details.
Below are three areas to help you focus and start pulling together your Profit Plan to make money on purpose:
- Sales: the first place to start with your Profit Plan is to forecast your sales. This may also be called revenue or income. If you’ve been in business for a little while the sales forecast typically becomes a little clearer. If your business is brand new, this can be really tough to forecast. If you’ve been in business for a while look at your historical sales. Start with breaking up your sales into either different Products & Services or break it out by the Target Markets you serve. A simple example would be if you have a t-shirt printing company and you sell to both individuals as well as businesses. You could start tracking and forecasting sales based on those different types of customers. If you don’t have any historical customers then you will want to focus on your backlog of work, any quotes you have outstanding and the marketing activities you’d like to focus on to generate leads for your business. The goal here is to provide as much visibility as possible on the initial sales goal (e.g. the $1 million example given above).
- Expenses: this is typically the easier part of the plan. One of the first keys with expenses is breaking them into one of two categories: i) Cost of Goods Sold (COGS), and ii) Selling General & Administrative (SG&A). To keep it simple, think about COGS being the “variable” costs that fluctuate up and down with your sales. The two biggest component as of COGS are Labor and Material. So if you print t-shirts then the more t-shirt sales you have the more Labor and Material expense you will have as well. SG&A will be more of those “fixed” costs and will include things like rent, insurance, and utilities which typically don’t vary much with your sales level and are instead typically pretty steady over time.
- Annual vs. Monthly: you will want to start with forecasting out your annual sales and expenses and then eventually move those into monthly buckets. Be sure you are showing a profit for the full year. Keep in mind there might be certain months during the year where your business loses money. That’s OK as long as you’re planing to make money for the full year.
It’s never too late to start pulling together your Profit Plan for the year. Keep in mind that pulling together your Profit Plan isn’t a game of perfect and chances are the Profit Plan won’t be right. The purpose isn’t to be right but to get your best thinking for how your business is going to perform this year and highlight areas where you can influence that plan and make it a reality.
People, Companies and Resources We Mentioned in the Show
- MVP’s 7 Keys to Success (https://maximumvp.com/7-keys-to-success/)