Your personal business plan, Part 2

One of the reasons I recommend three years as a period for your business plan, is that you can easily break it down in three parts – year one, two and three. This will make it easier to follow, check up on, and – when needed – to make corrections.

A plan is a live animal – it grows and changes and your expertise in living with it and adjusting it implies that after the first three years you are ready for the next three, and so forth.

Having said that it is imperative that the reasons for changes have to be very strong – to change your plan should not become an automatic option. Stay with your well thought-through plan until you and your closest advisor recognize that changes in your surrounding climate make an adjustment to your plan unavoidable. Making a plan requires discipline and staying with it an iron will. Why otherwise bother to have one?


 

Profit from your ceramic business

 

The figure you set for the profit you aim at after three years is highly individual. It is dictated by which part of the ceramic arts business you are in, the cost of your materials used and the pricing of your product. For instance, there is a vast difference between building and developing a ceramic teaching studio and being a potter making one-of-a kind pieces or having a pottery where you produce by pressing or casting and glazing.

Only you are able to and can:

 

On the outlay side:

  1. forecast the costs of your raw materials (clay, glaze etc.)
  2. the cost of renting a facility
  3. other variable costs such as compensation to your employees, costs of utilities, phone and many other expenses
  4. the costs of selling and marketing, and

 

On the income side:

  1. the price you can charge for your products and services and how many units you can sell.

At this point, the need for detailed calculations surfaces. Let me suggest some guidelines in how to get this right.

 

Rule #1:

To determine the above expense and income you need help. Involve your accountant in this exercise or somebody else with experience in management and accounting.  If there is a professional organization in the same field you will be pursuing, check with members and leaders of that organization for advice.  If you know other businesses in the same of similar field, get together with one or more of them and get the benefit from their experiences. Net-working always works.

Try hard not to guess, be open about your plans and get advice from outside sources. You might need several people to help you, each in different areas.  Search for industry statistics, if there is such a thing. Search, listen, learn and then – the most important part, use your own good judgment.

 

Rule #2:

 

When the figures start to take form, involve your accountant (if he is your advisor) and get the figures arranged in the proven groups, so that they can be studied and understood, not only by yourself, but by anybody involved professionally in business and the way its results are evaluated.

 

As an example, you should start with your sales and then work yourself down toward your “bottom line” (there is a reason for the name).

A typical income statement, also named “Profit and Loss” would, in short look like this:

 

Sales and other income

Less: Costs of goods sold (all costs of materials and labor which are part of your products and services)

= Gross profit and the % of Sales and other income your top line

Less: All expenses (such as rent, salaries – including your own – utilities, travel, shows, advertising, marketing costs, etc.)

Subtotal: Profit before depreciation and interest on loans

Less: Depreciation and interest

Net Profit (= the famous Bottom Line).

 

Your accountant will structure it in the above format. Now, also let him structure your Balance Sheet. Give him all the data his will be asking for and don’t be afraid to ask all needed questions until you understand why and what they mean.

Why do I insist on this format? Because it is the traditional and recognized way to show the financial results of your hard work. As a business owner, you simply need to understand it. You don’t have to become an accountant – just understand the final presentation by your accountant – not to put it together. The above “Financial Report” will be of decisive importance in how you run your business. How you work to correct the real figures, quarter after quarter will dictate your actions. The next quarter you will be able to see the result of your decisions.

Do not get intimidated by this formal presentation of your business. Learn the basics of it if you are not already familiar with it. A small business needs the same attention to its Financial Report as a multinational business. You can argue that the attention should even be more intense, since you are looking at YOUR money, YOUR profits and YOUR results of all the work you put into your business.


 

Accounting systems

 

At this point, the question of how you present your figures to you accountant will come up. Your accountant, no doubt, has their own system. Ask him for his advice which system you should use. Just handing him copies of your receipts, invoices and other documents? Perhaps, but remember that he will charge by the hour, so the more organized you prepare your figures, the less it will cost you.

There are many accounting systems on the market. Pick one that is – in your opinion – the simplest for you to work with, and then tell him that how your system presents the figures is how he will get them. Every accountant worth his keep can – if necessary – take your figures, computerized or not, and fit them into his system. Discuss this with him/her at the outset and only accept what fits you and your budget.

 

 

Presenting your plan

 

When you approach the end of your planning for your business, you should construct –with or without help – your planned income statement for the first year (it’s too early to make a quarterly one). Then, depending on how accurately you can look into your future, you forecast your second and your third year’s income, gross profits and expenses and bottom line. Brood over them until you feel you have lived through the future three years already.

Accept the thought that this presentation of your plan probably will be very simple and will be wrong in many respects (sometimes very wrong). However, it’s your plan and you will be the master who can and will adjust it and will try to live with it. Now, you may understand why you need to take a serious look at it each quarter. That quarterly report will be your master of discipline and must be taken very seriously. Waiting to the end of the year is not an option.


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© 2011 by Rolf E. Ericson, Oneonta, New York, publisher. All rights reserved. Photocopying, reproduction , copying, or redistribution of any kind in printed or electronic form is strictly prohibited without written permission from the publisher.