New Buisness - Please Help with Business Plan

You would get all of those answers in a 201 accounting course at your local college. That three months will give you a great understanding of the financial end. I concentrated in cost accounting, and that knowledge has been one of the most important aspects of me being able to be self employed in three startup businesses all of my adult life.

I'm not aware, but you may be able to get it from a book. But in class, your professor can help you with your business plan.

As for your specific answers, you will need recipes, output, and fixed and variable costs. Simply put, how much do you have to produce to cover your costs and make a living? Now, can you produce that much in the space you want? This can be a hypothetical space until a real one is found, but the model will give you the right type of space to look for.

Since you said, "shop", this opens up a whole lot of expenses. Employees (and all costs), buildout (no loans available and look at $50K to $100K cash for construction and equipment), and rent. These will be your three big expenses. When you add up everything it will cost for those three and you know your ingredient cost, you can plug in output. This is a simplification. But you will find how much you need to produce which will let you see if the buildout and equipment will handle the output. The that determines employees. This is when you get overwhelmed when you find out just how much work you have to do before you ever get a dime for yourself.

It is definitely not just an estimate. I am doing the same thing right now in order to open my retail store. I am deciding on my menu and how much I will have to sell of these items. I have to know my hours so that I can compute payroll. And I will not be able to bake all by myself and run a store. They will be at two different locations. I already have a commercial kitchen that is debt free. Even under this ideal situation, the plan must be exact or I could end up working for less than I want. If I want to maximize my income, it will take planning.

When I had my real estate license, a friend asked me to sell his building. His daughter had a flower shop in the building that I was also asked to sell. She had about five employees, two vans, and a well-known business around town. Her rent was free. When I looked at her books to determine the value, she had only cleared $7,000.00 in her best year. Unfortunately, I had to inform her that there was nothing to sell. I could not believe that someone would spend six days a week in a very demanding business and not even make enough money to pay for childcare for her two small children, muvh less be away from them for no reason. But I suspect many people do this rather than concede to failure.

Remember that 85% of new businesses fail in the first year and few of that 15% make it the next year. The two biggest reasons for failure are a lack of knowledge and undercapitalization.

I put off opening for two years in order to open debt free. Putting off your plans until you have the knowledge to succeed will be the best thing you can do to insure your success.

wow, that was a fantastic reply! Thank you so much! I have been wondering about taking a class too just to get the basic knowledge. I'm going to be homebased but you can NEVER have enough knowledge.

If accounting and economics basics was taught in high school, we would all be richer. And for small business, 101 is enough.

In college, I concentrated on cost accounting. Coming from a long line of self-employed people, I knew I wanted to take only what would make me money and that wasn't tax. Leave that for full time experts.

Cost concentrates on a simple thing that needs your constant attention. You can't just wing it and the pennies add up to lower your income and profit.

Economics helps with start-up and expansion in terms of capital investment, or potential return on your money.

It also helps in forcasting. When my home almost doubled in value over about two years, it was obvious that the market was being manipulated and that it would fall. I sold but my husband kept building and didn't listen to me. He is a physician who is also a land developer. Well guess what... he started a townhouse project when he should have just waited. The values on those units are 1/4 what he projected.

There is a recession right now. Taking a few classes and waiting will make you money. You will learn just how to bring your business up in the healing economy and have plenty of warning and know just what to do WHEN this happens again.

I see our area economy getting better, but I'm letting it fix while I have no expenses and I'm getting known in the community. All fixtures and equipment are paid for and stored for a shop. But I feel it just isn't the time yet. I think late summer/early fall. My area has actually been healthy during this recession, but why not start in the best of conditions?

Some classes and careful planning plus saving money will keep you out of that 85% that fail.

Hi CP09,

I am currently in a very similar stage of my research, so I completely understand. I didn't want to just make up how much I might sell or go with what I hoped to be true, so I started looking into market research. What I found is that there are a couple of methods to gather some of the data. First look at your neighborhood demographics and find out the population, income level, etc. You can use sites like city-data.com and your local chamber of commerce to get basic statistics. Then you need to find out how frequently people in your community might be willing to buy from you. For that you can conduct a market survey and ask. I'm learning that there are some tricks to this in that you have to make sure you ask the questions in an way and order that does not introduce bias and give you false data, but you can hire a market researcher to just help write the survey for a reasonable price. You can also go to similar bakeries in similar neighborhoods and count traffic and ask questions. You can go to bakeries in grocery stores during different times of the day and week, count the traffic, and watch what people put in their shopping carts. Ask the staff what their best sellers are. Ask the staff how many custom cakes they make a week. They may or may not answer, but it doesn't hurt to ask. I've started a blog about my research and process -- if it helps, check it out at buildingnataliesbakehouse.wordpress.com.

Also, I agree with scp1127 about figuring out how much you have to make to cover your expenses and make a living. I'm working on that side of things too. But once I know how much I need to make/sell, the market research will hopefully give me some idea on whether that is actually possible or not.

HTH and Good Luck!
Natalie

What city do you live in? I would recommand contacting your SBA in your area and see if there are classes offered. Also check to see if you city has a business library. They sometime offer classes. Next check with the local collages to see if they have a business program for woman. The one that was near me was free and they offered free mentoring. I don't want this to come across the wrong way but look in the ethnic communities in your city they sometimes offer free business classes. I was able to take a corse for $60!!! They accepted a certain number of people with a lower income bc they needed it for state funding. But then they accepted like 20% of students that had a higher income. You can also ask your SBA if they know of any free programs like this. The one I took walked us through the process of writing a business plan. They offered a full course of work from a college in a about 8 weeks. It was a wonderful experiance. They even when through the financial section of the business plan. At the end of the class I had a business plan and I knew a lot more about running a business.

CP09, those are really good questions. They have been weighing on my mind for my own business plan.

Scp1127, I've tabulated my projected expenses, and I've started a revenues projection showing what product combination I would have to sell and in what quantities to cover my expenses. I can do the math on that part, but where I have a disconnect is the actual feasibility of selling those volumes. I don't feel like looking at the other businesses in town is necessarily the best comparison, since my product offering would be different from what is already being offered at those businesses. Any advice? Thanks for sharing your experience!

If you have a novel product you may want to consider putting together surveys and conducting your own market research events to try to get some more quantitative data around demand. If you don't have market research experience I recommend getting help from someone who does, since it is surprisingly difficult to design surveys that actually give you constructive feedback, not to mention connecting with your target audience in the first place.

Garcia, that is a good question.

Take the example of the OP. I don't know where she is located, but equal revenue every day of the week is not always realistic. Some days will be slow, others busier. Will the average still be $3000.00? She needs to know that. And does that number include a salary for her and profit? From her wording, it does not. That is quite a bit of risk with no projected income or profit.

I'm actually working on the same thing right now. I have been planning a store for about six months and will probably not open until after school starts. In order to forcast, you need to determine opening foot traffic to the location and have a plan to attract the desired (or actually needed) amount. You can start by determining if your location is located where you will get traffic from other stores or are you a destination business... one where they will have to seek you out. Do you have a clientele from an ongoing business or is this a startup? In my case, I'm working on building a clientele with my commercial kitchen before I go retail so that those numbers will be more realistic. A comprehensive marketing plan is a must if the local walking traffic isn't enough.

But in high traffic areas, the rent is reflective of that built-in clientele. So both ways work.

Before and after you open, there are detailed formulas that can help determine growth. Obviously you must have a desirable product at the fair market price or nothing will work. But if the product and price is right, it comes down to closing ratios, lifetime value of a customer, cost of each person in the door, and cost of each customer who makes a purchase. The marketing plan comes in here to get x number of people in the door, x actually purchasing, retention of customers, and value of the average customer over time.

Notice I have referred several times to the "cost" of a customer... what each person through the door actually costs in money out of your pocket. Take the example of the OP. Her operating expenses are $3000.00/wk. If she gets 500 people in the door, each costs her $6.00. If out of that 500 people, only half purchase, those that purchase have to cover the cost of avg. $12.00 each. This does not include a salary for the owner or profit. This is only covering expenses. Now what if the next week only 250 people come in? Each person through the door costs her $12.00 and now each paying customer at 50% closing ratio must spend at least $24.00 average in order to just meet expenses. Next week there is a 3 foot snow storm and only 50 people come in all week, and all 50 purchase. They must purchase an average of $60.00 each because that is how much it cost her that week to see those 50 people.

Is there enough reserve capital to handle road or sidewalk construction, a parade, a detour, a storm? This will all greatly affect those above calculations.

Now let's assume this is a cupcake store. Closing ratios are probably going to be more like 80%. Let's pretend a cupcake is $3.00 and the average sale is 3 cupcakes. 418 people must come in and 334 must buy. The cost of each person through the door is $7.17.

Let's assume this is a custom cake store and the owner has a clientele that pays an average $250 per cake. In this scenario, you may get many inquiries, but you must close 12 per week just to break even.

In every one of these cases, a drop of even one sale puts the owner in the negative. Cumulative negative weeks will result in significant losses. The owner must have a reserve to cover these losses plus any income needed, as this is to be expected in the first two years.

If you know this information, you can determine what you need to increase your business and keep it on a steady growth pattern during those critical first two years with your marketing plan. It involves increasing total traffic and steadily increasing closing ratios. Next come increasing the average sale. After some time has passed, you can start looking at lifetime value of a customer (repeat business numbers). An increase in value will also increase the bottom line.

Lots to think about. But anyone looking at investing serious money in a storefront needs to know all of this forecasting in real, attainable numbers and know how to work these numbers. This is why 85% of businesses fail... lack of knowledge and lack of sufficient capital after the initial investment to keep it going.