Chart Your Course to Business SuccessOn Target Business Intensive: Session 4

April

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• 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

Implementation Steps so far

• Session 4• Determine your breakeven point for your 2012 budget

• Annual• For the month of May 2012

• Additional activities• Values Exercise• Business Diagnostic Assessment

Homework continued

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

• Income• Profit Margins• Hours/Personnel• Leads

• Make management decisions to achieve plan• Identify Action Steps for upcoming month

Break EvenWhy 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 $25,000

Overhead Expenses + $150,000

Total Overhead Expenses $175,000

Divided by GP% 45%

Break-Even Revenue $388,889

Monthly Budget Example

Revenue $48,000

Direct Costs ($26,400) 55%

Gross Profit $21,600 45%

Variable Expenses ($2,400) 5%

Overhead Expenses ($14,400) 30%

Net Operating Profit $4,800 10%

Monthly Budget Break-Even

Variable Expenses $2,400

Overhead Expenses $14,400

Total $16,800

Divided by GP% 45%

Break-Even Revenue $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 $2,400

Overhead Expenses $14,400

Vehicle Loan $750

Total $17,550

Divided by GP% 45%

Break-Even Revenue $39,000

Break-Even Hours are now 780 for the month

What if your GP% decreases?

Variable Expenses $2,400

Overhead Expenses $14,400

Vehicle Loan $750

Total $17,550

Divided by GP% 40%

Break-Even Revenue $43,875

Break-Even just increased by almost $5,000!

Using Break-Even Analysis to Add InfrastructureHow much more revenue do you need for new overhead to at least pay for itself?

Adding a new overhead positionSales Salary $40,000

Payroll Tax/WC $5,200

Benefits $3,900

Vehicle Expense $6,000

Cell Phone $600

Total $55,700

Divided by GP% 45%

Break-Even $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• 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? • 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

• 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

• More than one customer group?• Are there intermediaries? • Identify most important groups • Construct demographic profiles for each

Demographic Profile - Consumers• Age• Gender• Location• Income level• Social class/occupation• Education• Other

• Home Value, etc.

Demographic Profile – Business Customers• 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?• 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• 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