Business Plan Executive Summary Gross Margins | Edmonton CPA
Yeah, that’s the other flip side of it. And you’re saying, well, okay, I have unlimited time. I have an unlimited budget in some paired of paranormal university. If that was the key. Well, here’s the other problem with planning off of every item on the menu as, as a small business, you don’t have enough data points.
Yeah, I can see why because it’s mad.
Hi, thanks for joining us for another episode of ask spurl CPA. Today we’re talking about the business plan, executive summary, gross margin subsection. So here Edmonton CPA’s, burl and associates, we’re talking about the business plan, executive summary, gross margin. I’ve coal here with me again and call. You’ve helped us, you know, assemble a couple of those gross margin sections on the business plan, helping them simplify that, right? Yup. So that’s a, that’s a bit of a uh, a process to go through. Edmonton CPA, one of the questions that, you know, the quote that we have here, you know, the, the, the famous Benjamin Franklin quote on planning, if you fail the plan, by default, you are planning to fail. So if you fail the plan, by default, you are planning to fail. I, you know, Paulo Alto as shown this, you know, they, they’ve done the research and they surveyed the business owners regarding business plan and they found that business owners who complete a business plan are 50% more likely to grow their business.
And the story that we have here is, you know, business plans, they’re looking for financing, they’re looking for improve the profitability of their business, but they don’t understand the profitability of their business on the most basic per transaction basis. And they need to understand the profit of the building of their business on a per transaction basis. So cool. What are the questions that these business owners should be asking? Well first they should be asking what is the executive summary of a business plan? So the executive summary is the first section of the business plan. It has the most pertinent information summarized in one section and it’s, you know, often the, the, the only part that some investors are bakers that it might be the only thing they actually ever read of it. So it better be on point. And also as a business owner, if you have the most pertinent information in the executive summary, it makes it easy to refer to it during the year when things are busy, you don’t have to go through the whole document.
You know sometimes you won’t have time to go through the whole document, but you might have time to go through the the most important stuff right at the beginning. That’s the stuff in the executive summary, that business plan and it’s the first section we’ll plan. What is the difference between gross revenue, net income and gross margin? Yeah, so we have gross revenue. That’s what you charge your customer before any expenses at all or pay. These are the of the revenue that you earned before any expensive. That is gross revenue. Net income is what we mean after all of the expenses, both the direct expenses and the overhead expenses, and then we get to gross margin where we take the revenue and just the direct cost of sales. So if you’re, you know, you’re a contractor, it’s just the cost of the sub trades and the materials.
On the job, you know, you’re a doctor, it’s just the, you know, the, the costs of the associate doctors. So before any of the overhead expenses in there and you have the rent and the, uh, the administrative staff and the insurance and the accountant and all of those other overhead type expenses. What do we make after we pay? Just those direct costs of the sales would choose you very. We as you have more of them, if we, if we saw more and less than, than if we sell less, where’s the overhead expenses tend to be a little bit more stagnant. So do you have a gross margin analysis and the executive summary? The hundred percent. I think it’s so fundamental to the profitability of the business to understanding where you’re taking the business. If you want to grow the business, you have to grow the business on a per transaction basis.
You know, that sort of gross margin analysis and going, you know, even a step further on a per transaction basis. What does that gross margin analysis look like? A belongs in the executive summary. It’s, it’s, it’s uh, you know, at the top of the list of what’s important. Do you do a gross margin on every price point or do you average similar items? So I don’t believe in doing a gross margin on, uh, every single price point of view. You could have a medical doctor and they can build a client for, you know, 20 bucks and they can build a client for 20,000. I’m not going to do a gross margin analysis on, I mean, you know, every item on the menu sorta speak. Um, you know, we’re going to aggregate similar types of transactions and do planning on that. I, I find it a little more reliable.
How many items are transaction types? Do you normally consider the planet ultimately boil most businesses down to no more than three. Uh, types of transaction types. Edmonton CPA, you could do more. Like I said, people have different pricing. You know, they got a small job that looks like this and a big job. It looks like that and medium all the way up the line. And they have, you know, different products, services, items on the menu. Um, but let’s certain grouping similar items. Like for example, if you’re a contractor, this is what your project work looks like. Every time you will bid a job on average, it’s about this. Um, and you know, then you’d have your service calls. When you send out a service technician, um, it’s, you know, you’re charging this much an hour. They’re build, if you try to group those two together can be a little bit confusing and often there’s different profit margins on them.
Um, but you, you can generally boil transaction types into one stream and all normally go to, Edmonton CPA, you know, um, no more than three usually. Is it efficient to consider more than three transaction types in the plan? I don’t think so. I think it’s good to be a lot of unnecessary data crunching. So I think you’re, you’re gonna spend a lot of time and potentially money and energy trying to really get, you know, what is my small, was my small, what does my, with an Edmonton CPA, of small as my medium, somewhat medium and just have all these different revenue streams coming in and you have to do the calculation to get the historical value and then you have to do more calculations on each one of those streams and they get the, the aggregate value. It’s costly. I don’t think it’s efficient. Uh, even if costs was an unlimited factor, remember you only have 168 hours in a week.
Is that what you want to, I’m planning on it. I don’t know if it’s the best benefit of the business plan. Do small businesses have enough data points to consider it more transaction types? That’s the other flip side of it. And you say, well, okay, I have unlimited time. I have unlimited budget in some paranormal university if that was the key. But here’s the other problem with planning off of every item on the menu as, as a small business, you don’t have enough data points. Let me explain is if you, with an Edmonton CPA, if you’re Mcdonald’s and you want to know how much you’re ordering on French fries, you’re selling millions of orders of French fries every year. If you’re a small restaurant and you want to figure out how much you’re making out on onion rings, even if you, you know, got the, the, uh, the, the price points for the oil and separate it from the other oil that’s used from the other products and you drove yourself nuts and getting that, you don’t have enough data points that those number of onion rings are going to be sold next year.
You only have one restaurant. He only sold so many orders of under it. There’s no guarantee that, you know, because the sample size isn’t big enough there. No guarantee that sample size will repeat in the future. Edmonton CPA, but you know, if you knew something more relevant, like how much you make, every time someone comes and sits, a party comes in or a person comes and sits down at your table, that’s a really powerful number. But knowing how much you make an onion rings, it’s a costly number to get to any of you. We know it. It probably doesn’t have a lot of predictive value for most small businesses because there’s not a lot of data points. What would be the gross mark? What would the gross margin analysis look like in a tradesman? His business plan? Yeah, so a lot of tradesmen, we read a lot of with an Edmonton CPA, a trades guys here and a lot of times they have project work.
They have work that they go out, they do an estimate for, and maybe that estimate, sometimes it’s 1000 bucks and sometimes they do an estimate and it’s $250,000 to do a renovation. But at the end of the day they’re going to get an average in that project work that typed in the niche that they’re going for based on their skill set. Do you know who they are, what their credentials are there, start digging to get to an average transaction size. Edmonton CPA, and then there from that transaction sizes are going to have the, the price that they charge on that project work. They’re going to have their costs and the costs are generally going to be the sub trades, the material costs and the costs of the, the self perform work or the labor costs. You know, the actual guys that they have that they employ that are working on the site, not the ones that are working in the office.
Um, and then you’re going to have your gross margin on that. So my average transact, my average project size is this. I spend this much to actually produce it. And this is what’s leftover before I pay any overhead expenses. And then a trades guy, it might be, you know, highly relevant. Like I said, they usually have projects and not service work unless sometimes the margins are drastically different from the projects and, and service work. So we might have, you know, project work as revenue stream one and service work as revenue stream to Edmonton CPA, and that’s what their gross margin analysis is going to look like for a trades guy. Okay. With an Edmonton CPA, what would the gross margin analysis look like in a doctor’s business partner? It can be really simple and doctor, even though doctors have merely in procedures, they went to school forever and what they can do at the end of the day, every time a patient walks into the door, they get to an average of, you know, this is what it is.
It’s amazing when you go back to year to year to year, that average is very, very similar and very, very predictive. But like I said, how many procedures of this type, they didn’t one year as nothing to do that do that, you know, they’ll, they’ll do that type of procedure in the next year. It often has a low predictive value, but their average transaction size tends to be really predictive of what’s going to happen in the future. And it’s a very powerful number. So they might just have, you know, what is the cost for an average patient visit? You know, what do they pay the associate doctor, uh, what’s their cut of that revenue stream and what’s leftover after that? That’s usually, uh, what it looks like. How does this average transaction size help to determine a marketing budget? There is the key. This average transaction size is so powerful if you have the number of what you make on under ring.
So are you going to go run ads for people to come by onion rings in your restaurant? No. You’re gonna go run ads on how to bring people into the restaurant and how to put butts in the chairs. Right? And if you know how much you make, every time you put someone into that chair after they, you know, they pay their bill and you pay the food costs and you get the meal up to now you know what, you can actually afford to pay to get someone to come into your restaurant. If you’re a contractor, if you want the phone to ring for a service call, if you know on average how much that service call is, and you know what, you’re going to have to pay the guy to go do it and what’s left over, you know, how much you can spend to make that phone ring again.
Um, but if you try to do that on a, you know, every pricing level and every item on the menu, you’re actually not going to have enough. You won’t, you’ll have the wrong type of data to actually determine how much you can expand to acquire one more customer. And that’s usually, you know, a number that want to get to. So I think that’s what we have here today on the business plan executive summary, a gross margin part of the executive summary. with an Edmonton CPA, as always, you know, we look forward to seeing any comments below so we can respond back to you guys. And, uh, you know, you use your comments to guide us on what feature videos to do. And as always, please hit the and subscribe button so we can continue to deliver you tips on how to beat the odds at business. Thanks very much.