One of the most important steps of starting a business is having a business plan that outlines all aspects of the business. The business plan will need to have a company description, market analysis, mission, and of course, projected financials. Starting a business has never been easier than it is now, with countless of resources and specialized software at your disposal. A business plan may seem like a daunting and intimidating task to overcome when starting a business, but once the process is broken down step by step, it becomes quite easy. Read more for how to write a business plan for your business.
When getting a loan from a bank or individual, the financial projection is a section of the business plan that you do not want to get wrong. It will need to consider the smallest of financial details. Before starting to write a business plan, you will have done some research into the various costs associated with the type of business you are planning on starting. In this example, the business we will be focusing on is an organic grocery store that is located in an area with medium to high-wealth residents.
The first step in starting financial projections is having sales projections that span up to 5 years. Having previous financial information about a similar business can be beneficial as it would give you a base to start with. But since this is a business being started from the ground up, you do not have the luxury of starting with historic financial information. You can start with the projections until you are able to research the breakeven point of the business.
You will need to take into account many different aspects when calculating the projected revenue, such as market conditions, average household income, environment, taxes, logistics, seasons, and inventory levels. It might seem like a daunting task to start financial projections, but you can start with an estimate of the total units sold during a particular period, taking into account seasonal sales such as Thanksgiving, Christmas, and summer for example.
Once the breakeven point is projected, you can now start calculating the cost of goods sold, also known as COGS for short. COGS are everything you sold during a particular period, could be per month or per quarter. Deducting your COGS from your forecasted revenue will give you the gross profit margin of your business. Once the gross profit margin is calculated, you can then calculate all other aspects of the business. Marketing, rent, wages, and utilities. All of these costs are then subtracted from the gross margin.
Finding an appropriate business location and rent estimate for the business might seem like a small task, but it is not as that will be used in the financial projections for the duration of the possible lease. The lease figures and conditions need to be realistic as it is a major part of the breakeven calculation. Not having an estimate or a rough figure for the cost of various aspects of a business can be a red flag for lenders.
The reason this happens is that lenders want to see someone who understands the business they are going to open and most importantly, understands the market they will be doing business in. Although they are only projections and are not actual figures, they still need to be realistic enough that you and the lender get an idea of the total costs associated with opening a grocery store.
Financial statements need to reflect industry averages when using projections. Since the store is dealing with fresh produce and perishables, the store will experience inventory shrinkage. The shrinkage will also need to be factored into the spreadsheets as it is considered a loss to the business and you will need to adjust your prices accordingly. In the case of grocery stores, the national average is about 3% – 4%. Every industry has its average metrics, from retail stores to restaurants and it is up to the business owner to find and take into account metrics such as inventory shrinkage.
Many different types of businesses have different regulations that business owners need to know about and follow. There are many other aspects of opening a grocery store and in the case of a grocery store, food regulations and food safety. You will need to apply to all appropriate government departments to ensure you are following the law.
As a business owner, you will need to research and find all of the applicable laws, regulations, and permits needed to operate any store. Of course, laws and regulations vary from one country to another and you will need to see what is applicable in the city in which you want to do business.
When dealing with any type of inventory, logistics would be a vital aspect that business owners need to take into account. In the case of fresh produce, having deliveries arrive at the location in a timely matter is incredibly important, as the store relies on fresh inventory to keep customers happy. The same is also true with other types of stores. Lack of inventory due to logistical problems means customers are left with little choice in what they can purchase.
No matter how much planning you take into account, there will always be problems and as a business owner, you need to have a plan B for when things go wrong, called a contingency plan. These can be plans for a wide range of problems, from logistical problems to cash flow problems. You will always need to have a backup plan in place no matter how sure you are that there will not be problems. In the case of a grocery store, for example, you will need a plan for what will happen if the produce logistics are late or what will happen if the produce arrives spoiled.
Technology has made it significantly easier to do business when compared to just 10 years ago. Using technology to your advantage is an excellent way to help streamline business activities and make any business run more efficiently. Although the specialized software will have a monthly subscription cost, it will save you a tremendous amount in payroll expenses and would free your time for other business activities.
There are many different aspects that will need to be researched and planned before starting a business. A business plan will need to include all of the information needed for a lender to fully analyze the business, from the financials, assets, markets, and regulations. You will need to you them that not only are you ambitious enough to start a business but that you also know what you are doing. You will need to be knowledgeable in all aspects of the business. Investors and banks are looking for someone knowledgeable, experienced, and qualified enough to be loaned enough capital to start a business.
Due diligence is of the utmost importance, especially when dealing with licenses and regulations pertaining to the business you are looking to open. Not following the correct regulations can delay the opening of your business by weeks while you pay for all of the costs associated with owning a business, but not generating revenue. A business plan should be a guide for you and the lender you are working with, covering all aspects of a business. Read Business Plan is a Life Plan, Quick Start Business Plan 5 Questions to Ask and How to Write a Business Plan Step by Step. Writing a business plan is very important, I know you love your business idea, but please love yourself first, a business plan will show you all the holes in the idea and if the business is a good idea the plans will include how to fill those holes, if it doesn’t then consider if it’s a good idea. Sometimes it takes pre-failing a few business ideas before coming to your ultimate fantastic business idea so be patient. Subscribe for more business, sales and investing posts.
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