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Getting Started on your Business Plan – Part Four

Towards the end of last year we published an article on the importance of a Business Plan for SME start-ups, followed by some advice on how to get started when it comes to writing an effective business plan.  We came up with a great template to be used in a Business Plan and promised to break this down into sections to give readers comprehensive advice on each individual part of the overall plan.   Basically, a business plan template can be divided into four sections:

1.      The Project Idea

2.      The People

3.      The Market

4.      The Money

Today we’re going to take a look at the last section, perhaps the one you find most important and most interesting – The Money.

Costing and Pricing

The first step in deciding how much to charge for your product or services is to work out how much each one costs you to make and deliver.  The final price you charge your customers must be higher than this and include enough extra to cover the costs of running your business (for example, overheads such as bills, rent, petrol, etc.) and your essential personal costs taken from your persona survival budget. 

The difference between the cost of an item and the price of the item is its profit margin.

Sales Forecast

A sales forecast will show how many sales you aim to achieve in your first year of trading and how much money that would mean you receive.  It can be very difficult to know what a realistic number of sales might be so you’d do better to plan for the worst case by being pessimistic with this forecast.

For many types of business, the number of sales achieved will be affected by external factors beyond your control such as holidays, seasons, the weather, etc.  Think carefully about whether you expect sales to be different in some months (or at certain times of the year) and show this clearly in your sales predictions. 

A cost forecast shows how much money you will spend on products/services if you achieve the number of sales expected in your sales forecast.

Operating Costs

This is where you figure out how much money will be needed to keep your business running on a monthly basis.  These costs will include:

·         Equipment and materials

·         Stock

·         Employee costs

·         Rent, rates and utility bills (including telephone bills)

·         Marketing costs

·         Legal and professional fees

·         Loan repayments and interest

·         IT equipment

·         Insurance

·         Vehicle and travel costs

All of the data should be entered into a cash flow forecast – the expectation of the flow of money coming into (cash in) and going out of (cash out) your business every month.  This will allow you to work out how much cash will be available in your business month by month.

You’ll also need to take into consideration your living expenses and work out how much money you need to take out of the business in order to live.  You can do this by detailing your monthly minimum expenditure (include stuff like rent, phone, energy bills and family expenses) and any other income or state benefits you receive.  This is your personal survival budget – your wage or your personal drawings.