Whether you are planning a new company or an expansion of your existing company, a realistic financial plan is the best way to improve your chances of business success.
Create Your Profit/Loss Spreadsheet
Gather information. If you are working with an existing business, print out or construct your profit and loss report for at least the most recent year, and use this as a basis for your planning. If you are working with a start-up plan, you may want to download one of the templates suggested in the Resources section or buy business planning software.
Make a list of your administrative expenses. This is the easiest category to forecast because it includes rent, utilities, office equipment, legal and accounting expenses, personnel and anything else that goes into running your business. If you have no operating experience, contact commercial leasing agents listed on the signs you will find in front of office buildings and industrial parks. For the most part, you will find them extremely knowledgeable and happy to help you with your plan because you may someday become a customer.
Estimate your cost of providing goods and services. This should include costs of raw materials, manufacturing expense, purchased inventory and any other expense that goes into producing your product for sale. If you are selling services, you will need to figure the cost of materials, uniforms, equipment, training and anything else that is part of the service you provide. Most savvy business owners also add in their advertising and marketing costs. The total represents your Cost of Goods Sold (COGS).
Create your sales forecast. Once you figure the COGS, estimate how many units you will sell in a 12-month period, and then figure how much you need to charge for your product. To find this, add the yearly COGS to your estimated yearly administrative expenses, then divide that sum by the number of units you expect to sell. This gives you a break-even number that you can compare to the prices charged by your competition. Your goal is to produce your product or service inexpensively enough that you will be able to add at least a 20 percent markup, which is your approximate profit margin. It is also your most important reality check, because if you can't make at least 20 percent above your administrative costs plus COGS, you will need to go back and figure out how to cut expenses.
Make a list of the employees you will need. Research pay scales and employee benefits that will apply. You may wish to consider contract workers or part-time employees rather than full-time employees if you are concerned about expenses. Make sure you understand the legal requirements that apply to hiring these classes of workers, because a small oversight can trigger a significant liability that you may not be able to afford.