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This week we have been working on numbers galore!  First we worked on an expense budget for 2010.  Yesterday, we worked on a sales plan in which we determined our break-even sales and our targeted sales.  What I love about this exercise is that you can play all sorts of “what-if” games:

• What if I cut that ad that didn’t make any money for me last year?
• What if I want to make $10 million in 2010?
• What if I only want to do 5 weddings next year?  How much should I charge?
• What if I cut my labor cost by hiring someone to do assembly?

The possibilities are endless!  Seeeeeeee… geeking out with numbers is FUN!

Now, let’s get into planning what you are going to do with this money you earn next year.

Understanding cashflow…

This week we’ve gone over two ways that cash flows out of your business:

• Expenses (these are overhead and administrative expenses)
• Costs (these are the costs of producing a wedding; they directly tie to your product or service)

The other way that cash flows out of your business is by purchasing assets.  (WO!  Michelle is getting into the accounting terminology now… stay with me folks.)

What is an asset?

An asset is anything that provides a future benefit to your business.  These assets enable you to provide your good or service.  Here are some examples of assets and how they provide this benefit:

• Computer – you’ll use this for 3-10 years in operating your business
• Camera – as a wedding photographer, you will use this 2-10 years to provide your services
• Vases – depending on the value (let’s assume this is an expensive fancy vase) you will use this for a number of years as a wedding florist in producing centerpieces
• Inventory – as an invitation designer, you’ll have paper stocked for customer’s needs to produce the invites

An asset is not an expense.  An expense is something that expends itself in a short period of time.  It doesn’t provide much long-term benefit and it is usually of smaller value.  For example, office supplies are expenses.  Advertising, while beneficial to your business, has a short life cycle and is an expense.

How to plan for asset purchases…

Yesterday, we built the sales plan that set your target sales amount.  Let’s say that you want to make $100,000 in 2010 and you determined that in order to do this you will need to do 30 weddings.  And, you chose promotional activities to make those 30 weddings a reality.  GREAT!  You are all set!  You now have $100,000 earned in 2010.  What do you want to do with that money?  Here are a few thoughts:

• Apply the entire amount to your personal expenses, mortgage, credit cards, and savings accounts – voila!  Great choice.
• Reinvest some of it back into the business by purchasing a new camera lens.  Great choice, too!
• Invest in the purchase of a new computer; yours freezes every time you open firefox.  Another great choice!
• Take on a new vendor and purchase inventory for the echo boom, set to peak in weddings in ~2012.  Again, great choice!
• Grab the money and head for the border… never looking back… a choice of which I envy.

Build this into your plan…

The last step in building your financial plan for 2010 will be to decide how you want to spend your money.  This can be a difficult decision when faced with satisfying your personal needs and your business needs.  I want you to consider yourself before your business.  I see too many small business owners who don’t take a cut of their profits before pouring it into the business.  Take care of yourself first.  Then, satisfy your business.  If you do want to do both, you may need to boost that earning number a bit so that you can invest in yourself AND your business.  Make a PLAN for all of this.  Decide how you are going to build your finances for 2010 and you’ll be on the way to creating a sustainable business.

We hope you enjoyed this series!

Here’s to a prosperous New Year for you and your business!

I’m going to walk you step-by-step through how to build a sales plan:

1.     The Basics

First, let’s talk about some of the terminology that is used in a sales plan, and give you some definitions so you have background knowledge before you build your plan:

• Break-Even Sales
  This is the minimum amount of sales you have to do for you to recover your business expenses.  For example, if you have $50,000 in annual business expenses, you would have to do $50,000 in sales to break-even.
• Targeted Sales
  This is the amount of sales you’d like to do in order to make a reasonable living.  I like to build a plan where you define the income you WANT to make and determine how you are going to get there.
• Average Sale Per Wedding
  This is essentially the average price that you charge for one wedding.  We’re certain that you have a range, so come up with the average for this exercise.  We are sticklers for understanding how to price appropriately and what can happen when you price incorrectly, so make sure you take this into account and incorporate our strategies into your numbers.
• Average Cost of Sales Per Wedding
  These are all of the costs that go into producing one wedding.  These are costs that directly affect the ability to produce the wedding; they do not include any overhead or administrative costs.  If you are an invitation designer, they would be your materials, the cost of assembly, and the cost of printing.  If you are a photographer, they would include the film, books, prints, labor cost associated with shooting and editing the wedding.  If you are a planner, this would include the labor costs associated with producing the wedding.
• Annual Expenses
  This is what we worked on yesterday, in our expense budget post.  These are all of your administrative and overhead expenses.  See here for the template on building this.

2.     Determining Your Sales for 2010

Now that you understand the above terms, you can input these numbers into a sales plan worksheet.  If you’d like a template where you can simply plug in the data from Step #1 above and have the opportunity to play with your numbers, we created an easy-peasy download you can use.  Sales formulas are already set-up in Excel and will auto-calculate for you. Or, you can of course create your own spreadsheet and play with the numbers that way.  Here is our Sales Plan template download available for $10… click on the image to purchase:

3.     How the template works

The template essentially has you work backwards to determine how many weddings you have to do reach your break-even sales amount and your targeted sales amount.  We call it “easy-peasy” because you don’t have to do any math.  You simply plug in the numbers we discussed in Step #1 and the template will auto-calculate the numbers for you!  It’s a great tool because you can play around with the numbers until you are comfortable with a) your pricing, b) your costs, c) how many weddings you want to work.

At the bottom of the template you are asked to define your “promotional activities”.  Once you have a sales number that you are comfortable with, you’ll have to figure out, “how am I going to make this happen?”  You’ll build a list of everything you do to promote your business and determine how many weddings you will aim to achieve with that promotional activity. Examples of promotional activities include advertising in an online publication, attending networking events, etc.

You’ll probably find that you’ll play with the numbers quite a bit – there is not an exact science or formula we can give you to follow as you build your plan since each business is so unique with their pricing and expenses…however, we can tell you that the more time you spend setting sales goals and understanding expenses, the more likely you are to be profitable and sustain your business.

With that,  voila!  A sales plan is born!

If you’d like more detailed information about the Sales Planning process, we go into these exercises in much greater detail at The Simple Plan workshop… we’re hoping to see you there!

We’d love your feedback on this!  Please post a comment as to how the template is working for you!