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©2000 Sign Biz Inc.
HOW TO READ
A BUSINESS PLAN, PART 1
INSTRUCTIONS:
Before you begin, print Exhibits A,
B, C and D, for
"Start-Up Company" [Click on
highlighted text to reach Exhibits.]
We
know that a first look at spreadsheets can be
frustrating - and you may be tempted to "go
around" rather than through this process of
learning how to read one. Yet here is the foundation
of your dreams, and the cornerstone of your knowledge
of what makes a financially healthy business. So
persevere, we promise you will learn something
amazing! (Still thinking this is going to be hard?
Here's a helpful hint: Read each section twice :-)
Turn
to Exhibits C and D, and look at the
top items, "Selling Expenses." These
figures are tied to the same monthly and total sales
of both Exhibits A and B. Exhibit A and Exhibit C are
for the very same company. These are just two views
of that company's business plan. As you might have
guessed (see, you are learning!), Exhibits B and D go
together for another company.
In
both companies we have the same sales volume.
The only difference is one company is a traditional
franchise set-up (A+C) and the other is a
non-franchised business (B+D). Expenses are based on
the "modest’ sales scenario, reflecting a
start of $10,000 in month one, and ramping up fairly
aggressively to $25,900 in month six, as shown on
Exhibits A and B.
Every
business will have variations of the following:
A) Average monthly/yearly sales
B) Pace at which sales increase
C) Cost of Sales
D) Overhead
In
the examples we use here, we have assumed 37% direct
cost of sales.
DIRECT
COST OF SALES:
This means all costs incurred to make and
package the product (service). For example, the
Custom Blotter Company has built a business offering
"Custom Desk Blotters" (fictitious-- used
for illustration purposes only!) Each blotter is
created from a piece of artwork or photograph
supplied by a client, including custom reminders and
quotes, and so the direct costs CBC incurs would
include:
Material
Costs: Blotter paper,
binding or mounting supplies, the leather or
vinyl backing, glues, paper for drafts, the
cardboard box used for shipping the product, etc.
For our example we assume 22% of
the selling price.
Direct
Labor Expense:
Graphic artist time (employee or contracted), and
your time spent actually working on or guiding
the project. For our example we assume 11% of
the selling price.
Other
Direct Costs: Charges
for shipping product, printing the final blotter,
and /or outside binding service charges, etc. For
our example we assume 3% of
the selling price.
In
our spreadsheet, therefore, our Total Direct Cost of
Sales is 37% of the product (service) selling price.
Note: Rounding up accounts for small figure
discrepancies.
A product that
sells for $100 would in this case cost us $37 to produce.
This
37% figure does not include our selling
expenses or our overhead,
both of which come into the picture for every
business! Even a "virtual company" on the
web, while not necessarily incurring "rent"
or even clerical overhead, will never- the- less have
utilities (electric, phone / dsl / cable service) as
well as hardware and software maintenance,
web-hosting fees, and other overhead expenses related
to that type of business.
Let's
continue to see how these two additional factors, selling
expenses and overhead
come into play to yield a surprising outcome! Click Here
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