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Your business plan - getting started

In our last post we talked about the power of the business plan and committing it to paper. This week we'll share a few quick pointers to help you get started with your planning:

1. Start thinking - you need to try and set time aside for this frequently. Thinking is your job in the business!

2. Get the team together - you don't have all the ideas but you can bring all the ideas to the table.

3. Brainstorm ideas - anything goes, then work through the list and pinpoint the most important ones to focus on.

4. Follow a business planning guide to make sure you cover all the relevant points - you can ask us about this or locate a comprehensive, practical book on the subject.

5. Set goals - you need to keep striving ahead and you need something by which to monitor business performance. If you don't reach your goals, find out why and get the business back on course.

6. Start writing - by committing your plans and goals to paper, you have set the course ahead. It's harder to deviate from a written plan than if the thoughts are a jumble in your head.

7. Make an action plan - give people tasks to have completed by an agreed time.

8. Review monthly, or regularly enough to monitor any deviations from the proposed course. It's fine if you choose to change tack later on but keep charting the course ahead and identify goals to work towards.

Please contact us if you would like help with any aspect of your business planning.

Some business owners have planned such a clear path for the future, they wonder why others are so hung up about writing a business plan.

After all they have it all in their head – their vision, objectives and goals – so isn't that enough?

The short answer is NO, it isn't enough. Even if you're so busy with your work, rigidly following that path for the future, you've still got to write a business plan.

In fact writing the business plan is one of the first things you need to do – before you set-up in business.

So, why is it so important? Let's look at some important reasons.

Good Thinking
One of the essential ingredients that goes into the planning process is good, critical thinking. Before you write anything you've got to think through what you intend to do in your business and how you intend to do it. If you're just sitting down to write your plan after several years in business, you need to think about what you are doing currently and what you intend to do.

We can help provide a list of all the things you need to cover in your business plan, or you can find helpful books in the library. For example, you'll need to include information on industry and market analysis, customers, environmental factors, financials, competition, marketing, advertising, as well as plans for sales, distribution and staff development. And that's just the short list.
Writing a business plan is a big task, but because the plan encompasses everything about your business operations, it's a vital document. Operate without one and you may start taking some wrong turns along your pathway.

On the other hand, by committing all this thinking to paper you are setting a well-mapped course for the future of your business.

Monitor the Deviations
Once you have your plan in place you now have a tool to help you compare current performance against what you wrote in the plan.

Follow-up is important with your business plan. You haven't written it just to throw it into the filing cabinet and forget about it. You do need to check in with your business plan regularly, maybe monthly, to make sure your business is still on course to reach your planned goals.

Securing a Loan
Banks and financiers love business plans. If you apply for financial support they will want to know you have a business plan and are operating to it.

A plan shows them you are serious about your business. It also states that you have planned your future direction and how this will be achieved, and, importantly, that you know how the loan is going to be repaid.

A properly-prepared loan application with supporting documentation is likely to be much more successful than a verbal or badly-prepared one.

Involve the Team
Several heads are better than one when writing, or updating, your business plan. You might be leading your organisation and have a vision about where it's going, but your employees probably have a wealth of great ideas. Don't overlook them. Your job is to bring the ideas to the table and give people an opportunity to discuss them.

Involving the team can often result in more effective implementation as they own the ideas and are more willing to implement the plan. The teamwork approach can also spark a lift in morale.

As well, the business planning process focuses the team on big issues, such as looking at future developments for the company or enhancing services to customers. By reviewing the "big picture", you are making decisions based on analysis of the business in its entirety, rather than a piece-meal approach of decision-making forced by crises. 

"…there are oodles of studies showing that businesses that write business plans have a much better chance of being lean, mean and successful, generating higher sales, more profit and better growth." Small Business For Dummies. Veechi Curtis

For more information and assistance with your business planning contact us today.

Cost of Sale and Overheads Explained

Cost of sale and overheads affect your profit.  Understanding how they inter-relate and keeping track of them can really have an impact on your business success.

Cost of Sale
Cost of sale (also known as Cost of Goods Sold or CoGS) is how much it costs you to make a sale. 

In a business which sells products, CoGS is based on the price paid for the product, plus any costs necessary to put the merchandise into inventory and make it ready for sale, including shipping and handling.  You can even break it down to calculate the cost of sale of individual units.

The basic formula is CoS = Opening Inventory + Purchases + Carriage In – Closing Inventory.

It varies, depending on what kind of business you have.  Manufacturers determine the cost of sale as the sum of the direct costs of material and labour incurred in producing a product.  A business that provides services would calculate cost of sales by looking at the amount of money that goes into providing a service.  In this kind of business it's important to have a system to track the time the team spend directly involved with delivering the service. 

Overheads are general business expenses.  They can't be tracked directly to sales.  Overheads are what it costs you to open your doors every morning.

Seeing Profit
When you're looking at your profit and loss statement, it can be a challenge to see how all the factors inter-relate.

When you look at income from sales, you won't be able to see what your profit is until you've factored in costs.  After you've made deductions for items such as customer discounts and returns, and taken away the cost of sales you can see your gross profit.  When you look at gross profit, then deduct all your overheads, you'll see your net profit and get a better idea of how your business is really doing.

Your net profit is the proverbial bottom line.  It's important to also remember that tax is based on your net profit – the profit you keep will be your net profit after tax.

The important thing to understand is that every dollar you can save from your cost of sale increases your gross profit.  Every dollar you save from your overheads increases your net profit.  If you can't shave anything off your costs, you might need to think about whether you can increase your prices.  Increasing prices without sacrificing sales is the ultimate aim, however adding value to your products should always be considered to maintain or increase sales.

If you would like more assistance analysing and understanding your business cost of sale and overheads, please contact us for an appointment. 

Bolster Your Bottom Line

For new businesses in that critical early period, cashflow is a vital part of staying afloat to establish and grow the business.  Established businesses also know the importance of cashflow to help you keep everything running while you grow the business.  If you can't reach your targets for income, reining in your costs can help give you a little extra head room to manage cashflow while you're planning your next move.

Cost control can contribute to business success or failure but it can be hard to get a handle on it as your business costs can work on a number of levels.  It can be a challenge to pinpoint hidden costs or where your established ways of doing things cost you more money than they should.

It's more than just keeping an eye on outgoings (though that's important).  It's about looking at each aspect of your business and all your business systems (or the gaps where there should be business systems) to see if poor practice is driving costs up unnecessarily.

It can be helpful to break it down a little.  You can look at it in terms of cost centres such as power or office supplies.  Or you can look at what those costs do for your business.  It can help to analyse costs in terms of cost of sale and overheads.

Every dollar you can pull back from your costs can go straight onto your bottom line.  Contact us if you'd like to review your costs and your systems to keep costs under control.  Whether your sales are booming or busting, you want to make sure that while you're focused on revenue, your costs aren't ballooning and you're still delivering on your bottom line.

With online shopping on the rise, so is credit card fraud. Fraudsters can sometimes illegally access customer card data through computers used to process transactions and unsecured data.

Credit card fraud is a serious risk to your business and your customers. Be aware of the risks to avoid damaging your business' reputation and bottom line.

Some helpful tips to avoid credit card fraud:

Make sure your anti-virus software is up to date.

Make sure you have effective passwords. Use passwords with letters and numbers and both upper and lower cases - passwords that cannot be easily guessed. And change them on a regular basis.

Dispose of customer card information.  If you have permission to retain this then make sure information is password protected. Hard copies of information should be locked up. Shred any such information when no longer required.

Limit staff access to this area of your business. It is important that your computer, associated equipment (eg servers) and website passwords are protected from unauthorised users.

Make sure your website online payment system is secure. Use secure online payment gateways such as DPS and payment express. This takes much of the hassle out of online payments and is safest for your customers.

When it comes to online shopping, your customers will appreciate the extra mile you go to provide a trustworthy and secure website. Advertise the systems you have implemented to shelter them from credit card fraud.

Most banks are very proactive when it comes to credit card fraud. If you have concerns about your credit card systems then have a look online at your bank's safety recommendations.

Sales discounts and discount reserves

Does your business regularly offer sale or cash discounts to customers who pay early on their invoices for goods and services? If so, it's a good idea to set aside a reserve fund to cover these sales discounts, The amount of this discount reserve should be based on your estimate of the likely total figure for discounts that will be taken.

As customers actually take the discounts, credit the accounts receivable account for the amount of the discount and debit the sales discount reserve. This way the discount is clearly in the same period as the associated invoices, so it is easier to account for all aspects of the sale transaction.

Networking: what's your elevator pitch?

Do you look forward to networking events or would you rather tidy your sock drawer?  For some people networking is a lot of fun while for others it's an ordeal.  Yet it's a given that networking helps you put your business out there and keeps you in touch with leads and new ideas.

So... you've responded to the email from your local Chamber of Commerce inviting you to their next after 5 business networking event.  The room is crowded and buzzing.  You have a glass in your hand, a smile on your face and 30 seconds before the gaze of the person you're speaking with starts to drift. 

One thing that can help is being confident you can say what makes your business special.  This is sometimes called the 'elevator pitch', because you should be able to deliver it to a hypothetical stranger in a lift between the time the doors close on the ground floor and the time they open again on the top floor ('lift pitch' has somehow never caught on).  You want something short, sparky and persuasive so your listener asks 'tell me more'.  You can use elevator pitches in different situations.  You might use one internally in your business to fire up your team about a new project.  In a networking situation, use it to reach out to a prospective customer or collaborator, so they know what you do and what your business can offer them.

When you know you're going to a networking event, think about what you say when you meet people:

- What's your goal?  Do you want to tell potential customers about your business?  Do you have a great new product or service you want to introduce?

- What do you do?  What's the customer point of view on your business?  How does it make their life easier or better?  If you can lay out some numbers showing the value in what you do, all the better (though don't overdo it)

- Whom do you do it for?  Is there a key market, such as builders or healthcare professionals?  Can you refine this, maybe by specifying the scale of the businesses you serve ('small to medium sized') or characterising them by the challenges they face - 'time-poor small business owners'?

- Why should they care?  What problem can you solve?  Try phrases like 'who are looking for' or 'so they can'.  Focus on how your business helps people and say which people.  For example, 'we develop apps for businesses with roving staff who need easy access to client and financial information'

- What makes you different?  This is your unique selling proposition (USP).  Why are you the better choice?  Does your business offer something truly one of a kind or is your USP a combination of quality, service and/or convenience?

Think about how you say it, as much as what you say.  Say it out loud until it feels natural.  Make sure you feel good about it.  If what you do excites you, chances are others will respond to that. 

The next step?  Listen.  Ask questions.  Don't let your eyes wander, checking for someone more interesting.  That's a first impression you don't want to create.  The elevator pitch is where you can make that important first connection.  After that, you have a chance to deepen the connection and build a relationship as your next phase of networking.

How to Boost Morale Within Your Business

It's that time of year when team morale begins to drop. The colder months tend to lean toward less social interaction and more 'bunking down'. This in turn leads to a general lack of motivation amongst employees. What better time to launch a rocket ship so to speak and organise some exciting boosters for your team?

Recognise special personal events -  Acknowledge birthdays and the length of time spent with the company. Organise a coffee shout or buy a cake and get the whole team together to recognise the occasion.

Communicate  - Encourage conversation and idea sharing amongst team members. Remember that most of our time is spent at work and it's a good way to learn more about each other.

Acknowledge and reward hard work -  Order in pizza for lunch, have Friday after work drinks or simply send around a congratulatory email. As long as you ensure the right people are rewarded and your staff feel valued.

Encourage regular breaks -  Remind employees to stop work for 10 or 15 minutes in the morning and afternoon. Suggest popping outside for fresh air or coffee. It actually improves productivity.

Smile and have fun -  Organise team events away from the office, whether it be a team building exercise or a group lunch. Work can be stressful at times and can lead to burnout. It's important to add an element of light heartedness, as long as it's done in good taste. Employees will prosper from positive energy.

Well-run businesses have excellent systems that produce key information about the business' status. Regular monitoring is important to ensure the business owner or chief executive always has a finger on the pulse of business activity and can be quick to make changes where necessary.

Small businesses are fortunate in being able to respond quickly to fluctuations in the market place. In fact, to be successful, it is imperative they do move without delay to improve a bad situation. It is vital therefore to monitor the following information:

- Daily bank balances
- Daily sales information giving, total sales, sales of individual products and sales made to new customers
- Daily, weekly or monthly gross profit figure achieved (normally only available via a computer system)
- Weekly debtors' aged analysis, showing the amount owing to the firm and the age of those debts
- Labour productivity reports daily or weekly showing the actual time charged to clients or work on productive tasks – how does this compare to budget?
- A weekly statement of financial performance report
- Weekly creditors' aged analysis, showing the amount the business owes and the age of that debt
- Detailed monthly financial statements on all aspects of the business operations including statement of financial performance and statement of financial position, with comparisons to budget and cash flow forecasts
- Annual budgets and annual cash flow forecasts (updated monthly)
- Details of any lost customers showing details of what their annual sales had been and reason (if known) for them leaving the business
- Specific details on sales over a specified amount – who the sale was made to and what was it for.

At Paul Martin Chartered Accountant we can assist you monitor your key business metrics. Contact us today for help with you business systems.

Look at Alternatives Before Discounting

Many small businesses experience difficult periods where they need to generate additional sales in the short term, and many small businesses believe discounting their stock is the best way to move it.

But if you are going through a rough patch, consider the alternatives before resorting to discounting.

Discounting is a very costly form of promotion and comes straight off the bottom line of your business. And, there are no long-term benefits.

Instead consider adding a free product or service, free consultations or vouchers to the sale. This way you are introducing the customer to something they may not have tried before and, if they like it, they may buy it from you in the future.

Ideally your business wants a reputation for having much more going for it than just being a discount barn.

Sit down and think laterally before merely discounting your sale price. Working together with other businesses, for instance, can be beneficial for both parties, especially if they want an inroad into your customer base and will sponsor giveaways. For example, a movie theatre wanting to increase its numbers might give you free tickets to hand out as part of your sales promotions.

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