Also, if you haven't downloaded the "handouts," get them here.
In this installment we'll look at your finances a bit.
Note, please, that a business plan is not simply a financial plan. A business plan states the goals for the organization and gives some idea of how they will be achieved.
We're going to start with the finances so you can at least know where you are before you decide where you're going.
Let's start by looking at the pdf document labeled "Financials 2008." This is a very basic spreadsheet. It includes the following simple categories:
- Labor Break Fix
- Managed Services
- COG Products
- COG Mngd Svc
- Payroll - Total
- Sales - Marketing
- Computer Colo
- Employee Expenses
- Office Supplies
- - - - -
This is a very common list of categories for a small business consultant. There may be lots of other categories, such as tools, books, or memberships. I have combined all that little stuff (less than 1% of expenses each) into the "Other" category.
In your QuickBooks (or PeachTree or MS Small Business Financials, etc.), run a standard profit and loss report for each month of 2008. You can fill in these categories very quickly. Drop "other" income into the the Misc category and other expenses into the Other category.
Notes on Keeping Track of Categories
It is really worth a few hundred dollars to sit down with an Accountant or Bookkeeper to make sure your QuickBooks (or whatever) is set up right.
The right categories for what you bring in and what you spend is very important.
When you make sales, you need to use the correct categories so that you can collect the right data. Don't use too many items or too few. We use the following:
- Other stuff
- Labor - Hourly
- Labor - Managed Service
If you use the right set of categories when you make sales, you'll be able to get the right data when you run reports. If you don't use an appropriate set of categories, your reports won't be as useful. You'll have to dig a little deeper.
Start setting up and using these categories right away. Ask your accountant for assistance, if you need it.
A couple of minor notes:
- COGS refers to Cost of Goods Sold. In come calculations, you will see REVENUE - COGS = GROSS PROFIT.
- At the bottom we have a YTD -- year to date -- total. This is the running total all months to this point.
- If you don't have your servers in a colocation facility, then you don't need the computer colo category.
- If you have questions about other elements of the spreadsheet, please email me.
- - - - -
If you do not have this information in QuickBooks, or whatever you use, then you may have some trouble. You could have a much more elaborate set of categories (as we do), but you really shouldn't have any fewer than we have listed here.
Adjust the Excel spreadsheet a little for now. I don't recommend making major changes at this time unless you have another major category for income or expenses.
Now, go ahead and fill in the categories for each month of 2008. You should have complete numbers for January through September. If you put purchases on visa cards, you won't have everything for October. And, of course, November and December are just projections at this point.
Note the two far-right columns: percent of expenses/income and average per month. The most useful is the average per month. That's a pretty good idea of the "base" you can expect.
Note: this is all very preliminary. But we're going to do a very rough draft of next year's numbers.
On the 2009 Financials spreadsheet, start with some very realistic guesses about what you can expect in January for income and expenses. From there, you can fill in each month with a little increase or decrease, depending on what you think will happen. Note: If you make big changes, be sure to make some notes about why you think those changes will take place.
I would hope that any accountant or other advisor would ask you about any significant changes.
Sometimes there is a tendency to add a bit each month, assuming that revenue will climb gradually throughout the year. Be careful, if you don't do a reality check, you'll find yourself projecting 20% growth with no real good reason. Look at this year's real numbers. They are your best guess about next year's real numbers.
If you make a few big sales, will you also drop a few clients, or hire an additional staff member.
At this point, play with the numbers and fill in something for 2009. We'll return to this.
Next Up: Goal-Setting
Here's your homework for next time: Carry a notepad with you for the next few days. Write down your thoughts about you business. These include, your mission statement, why you're in business, and what you want to do next year.
Warning: This is where most people get stuck.
You don't have to come up with anything profound. You can use a pencil, so it's easy to change your goals. But fiddle with ideas. There are no commitments at this point. Just notes.
We'll look at goals next time.