Transcript Chart Your Course to Business Success

April 17, 2012
Advisors On Target
Chart Your Course to
Business Success
On Target Business Intensive: Session 4
1
Implementation Steps so far
• Session 1
• Create a working draft of your Mission Statement
• Create a working draft of your 1 and 5 year Vision
• Answer the 10 questions on the handout
• Session 2
• Review your own financial statements and chart of accounts with
what you learned in Session 2
• Session 3
• Create a budget for 2012
• If you already have a budget, review and revise as needed
• Use the cashflow projection model (at the bottom of the budget
tool)
2
Homework continued
• Session 4
• Determine your breakeven point for your 2012 budget
• Annual
• For the month of May 2012
• Additional activities
• Values Exercise
• Business Diagnostic Assessment
3
Questions about
Budget Process?
4
Recap:How to Use your Budget
• Incorporate Budget into QuickBooks
• Monitor Monthly & YTD Progress
• Know what key numbers you need to hit
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Income
Profit Margins
Hours/Personnel
Leads
• Make management decisions to achieve plan
• Identify Action Steps for upcoming month
Break Even
Why Every Business Owner Needs to Know It
6
BEST PRACTICE GUIDE :
Breakeven Sales
Overhead Expenses*
Breakeven Sales =
__________________________
Gross Profit Margin
Calculate by week, month, or year to manage
your business effectively and keep a positive
bottom line
*Include Variable Costs, Overhead Costs and “Other
Costs” if critical to business survival
Annual Budget Example
Revenue
$500,000
Direct Costs
($275,000)
55%
Gross Profit
$225,000
45%
Variable Expenses
($25,000)
5%
Overhead Expenses
($150,000)
30%
Net Operating Profit
$50,000
10%
Annual Break-Even Revenue
Variable Expenses
Overhead Expenses
Total Overhead
Expenses
Divided by GP%
Break-Even Revenue
$25,000
+ $150,000
$175,000
45%
$388,889
Monthly Budget Example
Revenue
$48,000
Direct Costs
($26,400)
Gross Profit
$21,600
Variable Expenses
($2,400)
Overhead Expenses ($14,400)
Net Operating Profit
$4,800
55%
45%
5%
30%
10%
Monthly Budget Break-Even
Variable Expenses
$2,400
Overhead Expenses
$14,400
Total
$16,800
Divided by GP%
Break-Even Revenue
45%
$37,333
Calculating Break-Even Hours
• Monthly Budget $48,000
• Based on 6 painters @ 160 hours each
• Total Budget Hours 960
• Projected Sales Price per hour $50 (including
materials)
• If Break-Even Revenue is $37,333
• Break-Even Hours are 747 for month
• (approx 174 hours per week)
What about other expenses?
• Take into account other expenses that don’t hit the Profit and
Loss
• Owner Draws/Loans to Shareholders
• Loan Payments
• Credit Card Payments not included in monthly operating
expenses
Changed Break-Even
Variable Expenses
Overhead Expenses
Vehicle Loan
Total
$2,400
$14,400
$750
$17,550
Divided by GP%
Break-Even Revenue
Break-Even Hours are now 780 for the month
45%
$39,000
What if your GP% decreases?
Variable Expenses
Overhead Expenses
Vehicle Loan
Total
$2,400
$14,400
$750
$17,550
Divided by GP%
Break-Even Revenue
Break-Even just increased by almost $5,000!
40%
$43,875
Using Break-Even Analysis to
Add Infrastructure
How much more revenue do you need for new overhead to
at least pay for itself?
Adding a new overhead position
Sales Salary
Payroll Tax/WC
Benefits
Vehicle Expense
Cell Phone
Total
Divided by GP%
Break-Even
$40,000
$5,200
$3,900
$6,000
$600
$55,700
45%
$123,778
Knowledge is power
• Knowing your numbers and learning how even small but
timely changes affect your profitability increase your
opportunities for success in any economy.
Marketing Your
Business
Marketing
• Marketing is a key component of your business plan and
achieving the results you are aiming for
• A Market Analysis shows your understanding of the market,
your customers and your competitors.
• A Marketing Plan to present the strategies to develop the
leads for achieving the sales forecasts you are projecting.
Steps to a marketing plan
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Define your market
Analyze your market and industry
Identify your marketing and sales strategies
Describe your advertising and promotional activities
Your marketing plan is a key component of your business plan
Market Research – Why do it?
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Obtain data about your geographic market
Obtain data about your customers and potential customers
Obtain data about your competitors
Ensure you are on the right track with your marketing efforts
How to do Market Research
• Primary – Do your own research
• Identify competitors via Yellow Pages or online
• Conduct surveys
• Do focus group interviews
• Secondary – Use other people’s research
• Published Information: Industry profiles, trade journals,
newspapers, magazines, census data etc.
• Sources: Trade Associations, Vendors, Chamber of
Commerce
Document your research
• Show statistics, numbers,
and sources.
• Your marketing plan will
become the basis, for
your sales projection.
Market Analysis - Economics
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Facts about your industry
Total size of your market and Percentage share you have
Current demand in target market
Growth history
Trends in target market — growth trends, trends in consumer
preferences, and trends in product development
• Growth potential and opportunity for a business of your size
• Barriers to entry for new competitors
• Other factors that can affect your business
• Change in technology
• Government regulations
• Changing economy
• Change in your industry
Products and Services
• Features - Tangible
• What does your product/service do?
• What is special about it?
• Benefits - Emotional
• What does it do for your customer
• After sale services
• Warranty, service contract, support, follow-up
• What is your Unique Core Differentiator???
• What is really different about you and what does that mean for
your customer
• Try to think of things that your competitors can’t or don’t say
Who are your Customers?
• Identify your customers
• Characteristics
• Geographic Location
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More than one customer group?
Are there intermediaries?
Identify most important groups
Construct demographic profiles for each
Demographic Profile Consumers
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Age
Gender
Location
Income level
Social class/occupation
Education
Other
• Home Value, etc.
Demographic Profile –
Business Customers
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Industry (or niche)
Location
Size of firm
Quality/technology/price preferences
Other
Competitors
• Who are your competitors?
• Products/services
• Companies
• List your major competitors
• Do they compete in all areas of your business or just for
specific customers or services?
• What are key competitive factors?
• Analyze your strengths and weaknesses
What is your niche?
• Your unique corner of the
market
Marketing Strategy
• Promotion
• How do you get the word out?
• Advertising
• Media
• Frequency
• Effectiveness
• Other Marketing Methods
• Networking
• Home Shows
• Website/Online/Social Media
• Customer Communication Plan
• Marketing and Advertising Budget
• Pricing Strategy
Distribution Channels
• How do you sell your products or services?
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Retail
Direct (mail order, internet)
Wholesale
Your own sales force
Agents
Independent reps
• Has your marketing strategy proven effective?
• Do you need to make any changes or additions to
current strategies?
Location
• Here in the Marketing Plan section, analyze your
location as it affects your customers.
• If customers come to your place of business:
• Is it convenient? Parking? Interior spaces? Not out of
the way?
• Is it consistent with your image?
• Is it what customers want and expect?
• Where is the competition located? Is it better for
you to be near them (like car dealers or fast-food
restaurants) or distant (like convenience food
stores)?
Sales Forecast
• Provide a month by month sales forecast for the next year
based on
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Historical Sales
Market Research
Seasonal Flow
Growth Assumptions
• Consider providing two forecasts
• Best case
• Worst case
Implementation Steps
• Session 4
• Determine your breakeven point for your 2012 budget
• Annual
• For the month of May 2012
• Define Target Market
• Do a Competition Analysis