- THE MAGAZINE
All business plans start with goals. Before any calculations or plans can be made regarding your business, you must first decide, in as much detail as possible, where you want your business to take you. Do you want your business to be large or small? Diversified or specialized? Budget- or quality-oriented? These decisions are made in consideration with an analysis of your available market area.
Once you have determined the nature of your business and the size you would like it to be, you must decide how much time to allow for it to reach that size. For example, if your goal is to double your business in five years, then you need to grow your business at a rate of just under 20 percent a year. You can figure out what that is in dollars by taking your current gross income and multiplying it by 20 percent. For example, if your current gross income is $100,000, then you need to increase your gross by $20,000 annually to double your gross income in five years.
Now you have to ask yourself, “How am I going to generate that extra income?” There are three basic ways you can get this growth:
In reality, it will probably be a combination of all three. The exact combination depends on your market, the nature of your business and your overall business philosophy. For purposes of our discussion here let’s say that you plan to raise your prices 10 percent, identify and service 5 percent more clients, and sell 5 percent more in additional services such as upholstery cleaning.
Now you have enough information to begin putting some specifics in your plan. Your marketing efforts should be sufficient to add the 5 percent new business, introduce the new diversification, and replace any clients you might lose due to your price increase or natural attrition. It has been my experience that a 10 percent price increase does not generally result in any loss of satisfied customers. A similar plan and breakdown should be figured out for years two, three, four and five.
Assuming the plan is successful, at some point you will need to add additional equipment and crews. Based on your estimate of the production coming in from one crew at optimum volume, you can figure when you need to bring that second crew on line. I recommend that, when Crew No.1 is at 75 percent to 80 percent capacity, you acquire the new equipment and hire the needed employee. This gives you time to train the new crew, and allows for them to be a little slower than optimum as they learn the ropes.
When Crew No.1 is at capacity and Crew No.2 is at 75 percent to 80 percent capacity, add the third crew, and so on. Don’t wait until everyone is “maxed out” before taking steps to add the next crew. That usually results in a poorly trained crew being thrown into the field before they are ready.
Based on this plan, you can estimate when you will need that next machine or major piece of equipment. You can minimize the financial impact of this purchase by building an equipment fund into your budget wherein you set aside a small amount each month from income to be used toward that major purchase. For example, if your plan shows that you will need to add a truckmount in 18 months, by setting aside $300 per month you will have more than $5,000 for a down payment when the time arrives. In a company with an annual gross income of $100,000, an equipment fund equal to 5 percent of gross sales will accumulate just over $400 each month; in 18 months that will result in a savings of $7,500 toward that equipment purchase.
All it takes to create a good business plan is a goal, a time frame, and a good understanding of your market. This basic structure, and a little time to work through the numbers, can be used to help your plan begin to take shape. The key is to get started. Set aside a block of time each week to work uninterrupted on the business, as opposed to working in the business.
Establishing the plan is important. After all, if you don’t know where you are going, how will you know when you get there?