https://vbcourse.knowledgematters.com/assignment/startReading/132049 Business Plan Math Some say that writing a business plan is not for the faint of heart. Isn’t it enough just to have a good idea? The short answer is probably not, especially if you’re looking to get outside funding for your business in the form of loans or venture capital. Potential investors want to be sure that the money they’re investing in your business will give them their desired return on investment. https://vbcourse.knowledgematters.com/assignment/startReading/132049

How much money do you need to get started? That means doing some math. You’ll need to create a solid financial model—a 3–5 year forecast of your income and expenses, profits and losses, and so on. This financial model must be as realistic as possible because investors see hundreds, if not thousands, of business plans a year, and they’re adept at spotting inflated numbers. With a sound financial model, potential investors will be much more likely to invest money in your business, thus helping it grow. It’s important to get as accurate an assessment of your startup costs as you can. Then you can create a budget, which is a listing of your expected monthly expenses. Essentially, you need to think through all of the things that will cost you money to get your business off the ground. Many of these are one-time costs (as opposed to recurring costs like rent or insurance). https://vbcourse.knowledgematters.com/assignment/startReading/132049

How much money do you need to get started? One-time costs include, but aren’t limited to: License fees: What licenses do you need to start your business? Down payment on your lease: If you’re renting office space, do you need a down payment? Website design: Will you need a professional-looking site with shopping capabilities and multiple pages?  Furniture: Assuming you’ll buy furniture, what desks, chairs, tables, etc. do you need? Signage: Will your business have a sign out front? What type? How many other signs will you need? Computer equipment: How many laptops, servers, monitors, etc. will you need? These are your initial expenses. Start a spreadsheet and include each cost on a separate line, then use the sum function to add them up. https://vbcourse.knowledgematters.com/assignment/startReading/132049

How much money do you need to get started? You then need to consider your ongoing monthly expenses. These include but aren’t limited to: Salaries (if you need to hire right away): How many employees will you need to hire? And what will you pay them? Employee benefits: Will your employees receive medical, dental, or life insurance? Advertising: Will you take out TV, radio, or newspaper ads to promote your business? Will you use pay-per-click online advertising? Materials (if you’re making products): What raw materials do you need to buy? Insurance: How much will business insurance cost? Lease payment: How much will you pay each month for your lease? Taxes: What local, state, and federal taxes will you need to pay? Loan payback (if you plan to plan to borrow money): How much, including interest, will you need to pay back on your small business loan? Utilities: What will the costs be for water, electricity, heat, etc.? Be sure to add all your direct costs, indirect costs, and fixed costs. Direct costs include labor and materials costs. Indirect costs include utilities and rent. Fixed costs include equipment. https://vbcourse.knowledgematters.com/assignment/startReading/132049

How much money do you need to get started? Plug these numbers into your spreadsheet and then total them. Be conservative with your numbers; you don’t want to run out of funds in the middle of launching your business, when you’re just ramping up your sales and may not have a lot of revenue coming in to start. Note: This is a good place to identify the expenses that are truly essential to starting up your business. If you find yourself budgeting in a luxurious office break room, you should rethink your plan. The idea is to operate as a lean startup, which means you don’t want to spend any money that isn’t absolutely necessary at each point in time, including excess inventory. Remember that any money you spend on your startup needs to come out of your pocket or in the form of an interest-bearing loan, which you’ll need to pay back. https://vbcourse.knowledgematters.com/assignment/startReading/132049

How much money do you need to get started? Now you can calculate your startup costs—the amount of money you’ll need to start up your business and then run it for six months with no income. We can express it through a simple formula: initial expenses + [6 X (monthly expenses)] = startup costs In other words, to start and run your business for the first six months, you need to add your startup expenses to a month’s worth of operating expenses times six. For example, if your initial expenses are $15,000 and the business will cost $4,000 in monthly expenses, your startup costs would be: 15,000 + [6 X (4,000)] [or 24,000] = $39,000 Use the formula function of your spreadsheet to calculate this number. Using a formula will help you update your startup costs if you make changes to your initial expenses and/or monthly expenses. https://vbcourse.knowledgematters.com/assignment/startReading/132049

How will you price your product or service? This is a difficult question to answer. In one sense, the answer is easy: You need to charge more than it costs you to buy or produce the product or service. But while this is true, it’s just the beginning of the answer. Pricing your products or services correctly is vital. Pricing can be tricky, however, especially if you’re providing a service as opposed to a physical product. There are several methods for pricing: Cost-plus pricing: Here you add up fixed costs, direct costs, and indirect costs, then add your desired markup. Competitors’ pricing: In this scenario, the amount you charge is largely determined by what your competitors are charging. Value-based pricing: This form of pricing looks at your products or services from your customers’ perspective. Sometimes whether a product is considered cheap or premium comes down to how it’s marketed and how much perceived value it has in the eyes of prospective customers. Product pricing is important because it will partially determine how many units of your product or service you sell, which in turn helps determine how much revenue you’ll generate with your startup. https://vbcourse.knowledgematters.com/assignment/startReading/132049

https://vbcourse.knowledgematters.com/assignment/startReading/132049 How many sales will you have, and what is the average amount of each sale? At some point in the life of your startup business, you’ll need to start generating revenue. As we noted above, revenue is the amount of money your business brings in through the sales of products and/or services. It’s the lifeblood of any successful business. And you can’t have revenue without customers. As you think through your business plan, you’ll need to find ways to quantify how much the average customer will spend plus how many purchases you’ll have per month. You can do this now that you’ve thought through how to price your products and services. https://vbcourse.knowledgematters.com/assignment/startReading/132049

(number of sales) X (average customer sale) = monthly revenue How many sales will you have, and what is the average amount of each sale? Your monthly sales revenue can be expressed in a simple formula: (number of sales) X (average customer sale) = monthly revenue So if you have 400 sales per month and each sale averages $50, your monthly revenue can be estimated at 400 x 50 = $20,000 Thus you’re estimating in your business plan that you’ll generate $20,000 in monthly sales revenue. https://vbcourse.knowledgematters.com/assignment/startReading/132049

How much money will your business earn every month? Of course, all of the numbers in your business plan, however meticulously crafted, are estimates and projections. In order to determine your estimated gross profit per month, you need to subtract your costs from your sales. That can be expressed in the following formula: total monthly sales – total monthly costs = monthly gross profit If you made $20,000 in sales and had $15,000 in total costs, your monthly gross profit would be: $20,000 – $15,000 = $5,000 Note that this is your gross profit, meaning it’s the actual dollars you put in your pocket before taxes, meaning that your net profit will be less than your gross profit. The net profit is the actual dollars you put in your pocket after taxes. https://vbcourse.knowledgematters.com/assignment/startReading/132049

What is your cumulative breakeven point? A very important estimation that is included in your business plan is the breakeven point. Basically, this is the point at which your business has earned back your initial investment. A parameter that puts this in perspective is called the breakeven volume. The breakeven volume is the volume of product that has to be sold before you break even or begin to show a profit. The breakeven volume occurs at the breakeven point. In order to calculate the breakeven volume, we use the profit equation:                 profit = (price – cost) X (volume – startup costs) Profit is the net profit, price is the average price of your product, cost is the average cost of the product, volume is the number or quantity of products sold, and startup costs are as defined above. Now, at the breakeven point, the profit is $0. Therefore, our equation becomes                 $0 = (price – cost) X (volume – startup costs) Applying some simple algebra, we can rearrange the equation to solve for the breakeven volume.                 volume = startup costs / (price – cost) https://vbcourse.knowledgematters.com/assignment/startReading/132049

https://vbcourse.knowledgematters.com/assignment/startReading/132049 Key Terms Breakeven volume: The cumulative volume at which you begin to make a net profit. Budget: A document outlining your monthly expenses. Direct costs: Costs that include labor and materials. Financial model: A 3–5 year forecast of your income and expenses, profits and losses, and so on. Gross profit: The actual dollars you put in your pocket before taxes, meaning that your net profit will be less than your gross profit. https://vbcourse.knowledgematters.com/assignment/startReading/132049

https://vbcourse.knowledgematters.com/assignment/startReading/132049 Key Terms Growth percentage: The rate at which the business grows or increases revenue from sales. Fixed costs: Costs such as equipment. Indirect costs: Costs such as utilities and rent. Lean startup: A philosophy of starting a company in which you spend only money that is absolutely necessary at each point in time. Net profit: The actual dollars you put in your pocket after taxes, meaning that your net profit will be less than your gross profit. https://vbcourse.knowledgematters.com/assignment/startReading/132049

https://vbcourse.knowledgematters.com/assignment/startReading/132049 Key Terms One-time costs: The nonnegotiable costs involved in starting a business, including license fees. Perceived value: The value attached to your product or services by your potential and actual customers. Recurring costs: Ongoing monthly business costs, like rent or insurance. Revenue: Income from sales of your product or service. Startup costs: The total cost required to start and operate your business for a certain period of time (typically 6 months). https://vbcourse.knowledgematters.com/assignment/startReading/132049