Well, here we are. We have finally arrived at that point in the business plan where we get the opportunity to do some math! Wooo Hooo! What? Crunching a few numbers doesn’t float your boat? That rapid heartbeat isn’t from excitement? That lightheaded feeling isn’t based on that adrenalin rush? You’d rather have root canal? Come on … it won’t be that bad. Trust me.
Let’s start with your anticipated monthly expenses. Begin with those expenses that are common for all types of businesses and then add in those special items that are particular to your business model. Your business needs a place to conduct business so what is the going rent in your area for the size space you need? Check online or in the local paper for commercial space and use that as a guide. Now move on to your utilities – electric, heat, water, phone, internet, etc. If you’re not sure, you can use your household expenditures on these items as a baseline and adjust accordingly. Will your business be needing any special equipment – ovens, mixers, computers? If so, add in the monthly payment for these. How about general office expenses such as pens, paper, marketing, insurance, salaries, etc.? Once you’re finished with this you’ll have a good idea of how much money you’ll need to generate on a monthly basis to keep your business humming. Please note that this does NOT include one-time, up front expenditures that you’ll need just to open the doors (e.g. equipment purchases, security deposits, etc.) Bottom line here: keep it lean and mean! Don’t bloat your overhead and your stress level will be low!
Here’s a sample:
Now we take a look at the revenue side! Take a good long look at your product or service. What will you be selling to your customers? If there are similar products or services in your area, how much do their services or products cost? This is not meant as a limitation on your products or services but merely as a guide for what your competition is charging. Using the homebaker model we’ve used before, you may want to charge your customers $8 per loaf of fresh bread. You can anticipate that some customers will ask themselves “Do I really want to spend that much on bread when I can go to the local market and pay $4?” That’s ok because your product is different and unique and some people (not all people) will be willing to pay more for that uniqueness. (We’ll get into the “selling” of your uniqueness in the next installment.) The only advice in pricing your product or service is this: don’t base your price just on the costs to produce your goods; rather, try to price your goods on what they are worth to others. In other words, what is the value your product’s or service’s bring to others.
Once you’ve settled on a price per unit you can now determine how many loaves of bread you need to sell on a monthly basis. If your monthly overhead is $5,000, simply divide that number by the price per unit to determine that you’ll need to sell 625 loaves of bread per month. Now you can go back and make some adjustments to your monthly costs or product pricing as you see fit. You can trim some costs and boost your pricing to make yourself more comfortable with the numbers.
Keep your numbers as realistic as possible and as lean as practical. Your stress level will be lower and your excitement level will be at it’s highest. You’ll be able to focus on doing what you love to do rather than worrying about keeping the lights on!