Business Plan - Number Crunching by fvp12618


									                               What is a business plan? (PART III)                                               adapted from Yvonne Phelps

    why we crunch numbers                                   55 The main goals of finance for your business are to
                                                               control, monitor, and report the financial health of
   Financial statements for your company serve as a
                                                               your business. Existing companies have collected
   report card for how profitably your business is
                                                               hard data for internal management and investor
   performing. For the purposes of writing a
                                                               review. When you start your company, you will
 5 business plan, you need to master business
                                                            60 not have much, if any, actual financial
   finances to achieve three main goals:
                                                               information to report, so you will need to project
    Demonstrate that your idea has profit                     (estimate) your expected financial results. Most
        potential                                              lenders and investors will want to look at either
    Set concrete financial goals                              actual or projected data for a three-year period.
10  Chart your future financial course
                                                            65 Here is the essential financial data you will need
   Financial reports provide a great deal of                   to collect or project:
   information you need to manage your business,               Expected sales volume: To calculate this, you
   including your overall financial position, the              need to multiply your expected sales (what you
   profit you are earning on your products and                 anticipate the demand for your product or service
15 services, and the cash you have available to spend       70 will be) with your price point.
   or invest.                                                  Start-up costs: These are the initial, one-time
   One of your major goals for your business is to             expenses you will incur setting up your business.
   turn a profit. In order to make a profit, you must          They may include deposits, office equipment,
   have an accounting system in place to track all of          machinery, logo design, etc.
20 your revenue and expenses. The purpose of an             75 Fixed costs: Your fixed costs remain the same
   accounting system is to record all financial                regardless of the amount of product you
   transactions, including the revenue you earn from           manufacture. Rent and insurance premiums are
   sales, the bills you need to pay, and the profit that       good examples of fixed costs.
   results from your sales. Your accounting does not           Variable costs: Your variable costs are directly
25 need to be complicated, but it must be accurate          80 related to the amount of production. Examples
   and reliable.                                               include the labor, materials, and delivery costs
                                                               involved in manufacturing your product.
   Your accounting records reflect your company's
   financial position and track ongoing changes to               projecting your numbers
   your financial position. This gives you a way to            In order to project financial information, you will
30 evaluate how you are performing overall and lets         85 need to accurately estimate both your sales and
   you compare your current results with prior                 your costs. Of course, there is no way to predict
   results.                                                    precisely how many sales you will make, but you
   Accounting records also provide valuable                    can achieve a reasonable estimate by looking at
   information for monitoring and controlling your             the market in general, and your competitors in
35 costs. Controlling costs is one of the essential         90 particular. You can also base your assessment on
   steps toward generating a profit.                           the primary research you've conducted (such as
                                                               focus groups and surveys) to predict what
   If you use your business plan to obtain financing,          percentage of your potential customer base will
   potential investors will look closely at the                purchase your product or service.
   financial projections you include. The financial
40 information you provide will serve as the basis of       95 There are basically three ways to calculate your
   investors' analyses of your business' long-term             costs: The first and most accurate way is what we
   prospects for profitability and success.                    can call the direct approach. This means gathering
                                                               hard data on each and every cost to manufacture
    the financial information you need                         your product or provide your service, such as
   Many entrepreneurs are energetic, passionate,           100 vendor price lists, payroll, and overhead
45 creative individuals who cringe at the thought of           expenses. If you want a solid estimate for labor,
   having to understand business finance. If you               you might call an employment agency to find the
   don't have an M.B.A., don't panic! For the                  pay range for various positions you must fill. It is
   purposes of a business plan, you don't need to be           a good idea to have at least three different
   a financial wizard, but you will benefit                105 estimates for each cost, both to find the lowest
50 tremendously from a basic understanding of how              price, and to have a backup on hand if your
   to structure your financial records. A good                 cheapest supplier falls through. One good
   accountant and accounting system are great tools            resource to find competitive pricing for goods on
   you can use to help you maximize your financing             the Internet is
   position. Now let's look at the basics.

    14baf202-16ec-48cc-b733-c719e44a5c40.doc page - 1 -
                               What is a business plan? (PART III)                                             adapted from Yvonne Phelps

110 The next approach we can call the comparative                 QUESTIONS TO ANSWER IN CLASS:
    approach. If you don't have the time to gather
                                                                  1) Which is more important, turning a profit or
    specific quotes for each component cost, you can
                                                                     the ecology?
    base your estimates on the costs for a similar
    product. For example, if you are planning to sell       135 2) What fixed costs do students have?
115 bath oil, bath salts, and bar soap, you may
                                                                  3) What will your costs as a student be in the
    research the cost of producing bath oil in detail
                                                                     future and how do you calculate them?
    and use those costs comparatively for the other
    two product lines.                                            4) What variable costs do students have?
    The third approach -- by far the least scientific             5) What start up costs do students have?
120 and the most problematic -- is to simply
    "guesstimate" your costs. While this is the least       140 6) Write two (2) questions of your own for
                                                                   others to answer in class:
    desirable approach, at times it is pragmatic,
    especially when looking at component costs                        A. ________________________________
    whose prices are volatile, such as lumber or
125 petroleum products. For some minor costs, like
    secondary office supplies, you may find it more                       ________________________________
    time-efficient to offer a reasonable, informed
    guess than to track down the price of every roll of     145
    Scotch tape.                                                          ________________________________
                                                                      B. ________________________________

                                                            150           ________________________________

                                                                  7) List five (5) words you didn’t know and
                                                                     their meaning:
                                                            155       A. ___________________ ____________


                                                                      B. ___________________ ____________


                                                            165           ________________________________

                                                                      C. ___________________ ____________


      14baf202-16ec-48cc-b733-c719e44a5c40.doc page - 2 -
                               What is a business plan? (PART III)                                              adapted from Yvonne Phelps

                                                                  T/F      ________________________________
         D. ___________________ ____________
175           ________________________________              215

         E. ___________________ ____________                      9) Write two (2) more Multiple Choice
                                                            220      statements based on the article:
                                                                  Scotch tape is:
                                                                  A. an important office supply.
                                                                  B. used for backup of computer files.
                                                                  C. sticky.
                                                            225 D. more useful than duct tape.
185 8) List phrases where you don’t know the
       meaning although you know the words:
             ________________________________
190           ________________________________              230
                                                                  A. ___________________
             ________________________________                    B. ___________________
195                                                         235 C. ___________________
              ________________________________                    D. ___________________

200                                                         240
      Write two (2) more True / False statements                           ________________________________
             based on the article:

      T/F     A guesstimate is never appropriate.
                                                            245 A. ___________________
      T/F     ________________________________
                                                                  B. ___________________
                                                                  C. ___________________
                                                                  D. ___________________

210           ________________________________

      14baf202-16ec-48cc-b733-c719e44a5c40.doc page - 3 -

To top