The one-page business plan enables anyone who has been labouring for some time over massive forms and spreadsheets to simplify matters. This simple plan should unclog it all, and should not take more than twenty minutes to complete. You will need to be able to fill in the numbers to establish whether your business is likely to work.
Step 1: How much do I want to earn each year? _________
Step 2: A realistic expenditure per customer/visit/transaction/project is: _____
Step 3: A realistic number of customers/visits/transactions/projects is:
_________ per day
_________ per week
_________ per month
_________ per year
Step 4: How much money will this frequency generate?
£_________ per day
£_________ per week
£_________ per month
£_________ per year
Step 5: Now deduct all costs from the £ per year figure:
Per year total: £_________
Minus costs: £_________
(If your salary is included in these costs, then make sure it equals the figure in Step 1. If it doesn’t, see Step 6.)
Step 6: The figure remaining should equal or exceed the figure in Step 1. If it doesn’t, change something.
Step 1: State how much you want to earn. You might think: “How can I decide when I haven’t done the plan yet?” That’s the whole point. Most business plans are unhelpful because they build an income or profit figure from a set of hypothetical variables. That doesn’t help you to work out whether your business will sustain you.
Step 2: Now take a stab at a realistic cost per customer, visit, transaction, project, or whatever the appropriate description is for your business. For example, if you want to run a coffee shop, you might put in £5 per visit. If you think your customers will only buy one cup of coffee, it might be just £1. If you think they will stay for breakfast, it might be £5. If visitors come in for hours and work on their laptops, it might be £10. Or, if your business is installing boilers, the price might be £2,000 per installation with a £250 mark-up on each sale. The point is that no one would be selling boilers at the same frequency or price as cups of coffee, so work out the parameters that apply to your market and choose an appropriate average price per transaction.
Step 3: The number of customers/visits/transactions/projects will depend on the nature of your business. Look at it by day and then multiply by the number of days in a week, month or year you will be trading. In the case of a coffee shop, the business might sell 20 cups of coffee per hour in an eight-hour day. Assuming a five-day week, allowing four weeks a month, and one month off for holiday, the maths looks like this:
• 160 per day (assuming 20 per hour, and an eight-hour day)
• 800 per week (assuming five days a week)
• 3,200 per month
• 35,200 per year (assuming one month off for holiday)
Every variable is critical. If your pricing is wrong, so is the whole model. If you open for an extra day per week or hour per day, what happens to the figure?
Step 4: Once you have completed step 3, it is a simple matter to multiply your figures by the price per customer, visit, or transaction that you settled on in step 2. In this example, it is:
• £800 per day (assuming £5 per visit)
• £4,000 per week
• £16,000 per month
• £176,000 per year (assuming one month off for holiday)
Step 5: This total income figure is not profit. It is what the business takes in. Now you have to work out what your costs will be, either by:
1. Subtracting from the expenditure per transaction every element of cost needed to fulfill that transaction. What’s left is the margin. If there is nothing left, your pricing is wrong or the business plan is fundamentally flawed. For example, if you have a 20 per cent margin on every coffee shop transaction, then for each one £4 is cost and £1 is margin.
2. Alternatively, look at the entire business over the whole year. Add up everything you will need to pay for. Now subtract that figure from the ‘per year’ figure in step 4.
Step 6: The figure remaining should equal or exceed the figure in step 1. If it exceeds it, you may well have a successful business model. If there is a ridiculously massive profit, check your assumptions and figures again. If it doesn’t equal or exceed your expectation, don’t panic yet, but you will have to change something, possibly expenditure per customer, number of customers, costs, the amount you want to earn each year or all of the above. If, after many attempts, the plan never generates the surplus you want, you may have to conclude that the proposed business isn’t going to work.
This extract is taken from Kevin’s recently published book – What You Need to Know About Starting a Business
Kevin Duncan – business adviser, marketing expert and author