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Edmonton Accountant | Chasing Down Formulas

Hi, thanks for tuning in for another episode of ask Spurl CPA today what we’re talking about his business plan template components. So the components of the business plan. And I have denise with me here again. So, uh, Denisa courses, the first employee here. So how long has it been there? A Nice, almost seven years. Almost seven years. Seven years. So that’s a long time. So we’re finally starting to remember how to pronounce his last name correctly now. So it’s Metra spur. All right, we got it right. Okay, we were just joking. We’re going to assign each other numbers but we’ll, Edmonton Accountant work on the last thing. So, um, and the, uh, the quote that we, you know, comes to mind again, if you, if you fail to plan, you are planning to fail a bedroom Franklin quote and you know, the statistic is always, you know, businesses who do business bands are 50 percent more likely to grow their revenue.

Um, and you know, once they recognize that the business plan is important, you know, what are the components of that business plan? Um, so we want to avoid that story where the visitor comes in and they’re failing to grow their business or they ran out of cash. Um, so denise, what do you think is important to ask you, what questions do these business owners be asking when it comes to the components of the business plan? So what software do you use for the business planning process? So we used the supper club live plan it really, it’s a web based software so it’s really good for collaborating. Edmonton Accountant, then it lets the business owner be able to take it home with them, you know, put their vision for the company in there and then come back and we can discuss it once they’ve kind of brainstormed into the piece of software.

So. So why do you use that software and what did you use previously? Well, you remember we used to have those word documents in the excel documents and we update them. I’m really, I think the big difference between some of the business planning software that you can get now is you can update them a little better. So when you’re using the, uh, the word documents or excel documents, updating them can be a little bit of a pain, especially the excel you’re chasing down formulas and, or the farmer that those broken. You can spend a lot of time when people just want to make simple updates to it were the programs that you don’t have the formulas locked in, Edmonton Accountant so a little more efficient. So why do you start with an executive summary? Well, so we have to remember, like the executive summary is, is it, is just that it’s a summary of the most important things.

And so if you don’t start with that, especially if you’re looking for financing, the bank might read anything else other than that executive summary. There’ll be decision makers along the way who will only read the executive summary and you know, so it’s good to get every, the most important stuff out first. And you know, also keep the business owners focus on them when they revisit. Sometimes they’ll only read their executives when they come back to it. So. Okay, so, so what are the most important parts of the executive summary You start with? Uh, I’ve really started to, you know, this might be a little more recent, Edmonton Accountant we’ve been prioritizing the mission statement, what is the business, you know, what’s the problem in the marketplace and what’s our mission to solve it. And then moving on down from there, we’re starting to look, you know, what is the widget?

So what is the product or service that we’re selling, what’s the average transaction cost, and you know, what, you know, what’s the average transaction revenue, what’s the average gross costs of that and what’s the gross margin. So, um, that’s where we’re starting. Great. So next to use a company overview section and what’s included in that, the company already sections, you know, really a boat who owns the company, you know, when it was incorporated, who was the banker, who do you get insurance from? It, it’s, it’s really probably designed more so for external parties. So if you’re looking for financing, they’re gonna want know, you know, who owns it and when it was incorporated, Edmonton Accountant, when the year end is, so it’s, it’s really a, uh, a section that’s useful for third parties mostly.

Uh, so next you have the products section. How does this differ from the products and margins in the executive summary?

Yeah, yeah, great question. So we start exactly where we left off in the executive summary. So we start with what’s the average revenue per transaction? What are the direct costs on that transaction? What’s the gross margin on that transaction? But we grew up in the executive summary, a basically an average, so we’re looking at, you know, the average a service price. So you go through the restaurant example, you know, they might come in and order the steak and steak and lobster and wine or they might order an order of onion rings. So we have the average there, uh, in the executive summary where is in the, Edmonton Accountant, the products section where we’re drilling down a little deeper and try to examine what are the ranges of those transactions, what are the smaller transactions and what are the larger transactions, you know, what’s involved in, in, in, in the menu, if you will. Okay.

Uh, so then you have the market and risk analysis. So why is it important to identify risks?

A lot of times business owners, they actually know intuitively what the risks are in their business. They know what, you know, what questions keep them up at night. And Edmonton Accountant, it’s important to not sweep things under the carpet. It’s important to actually get them out in the open and identify what your strategies are to mitigate it, you know, whether that be a human resource risk or a supply chain risk, you know, let’s get it out in the open and let’s identify solutions. Um, you know, that, that, uh, we can deploy to minimize those risks rather than, you just hope they don’t occur, right?

Yeah. So then you have a sales and marketing plan a. So what are you trying to quantify here?

So a lot of business owners, they come with some, they come with some decent marketing initiatives at time. Like they’ll, they’ll have thought out, Edmonton Accountant how we want to market the business, but they’re usually missing, you know, the, how they’re going to have the quantification of those marketing plans. So if they’re going to drop flyers, many flyers, if they’re going to networking events, how many networking events and flicker to spend on Google ad words, how much they’re gonna spend. Um, so it’s really, we’re looking at you and not just looking at what the marketing initiatives are, but how many and how much of each of those marketing initiatives here. Hmm, cool.

Uh, so then you have an operation strategy included in which includes milestones. Yeah. Edmonton Accountant, so what are the purposes of the milestones?

So the milestones are really going to drive the projection. So Edmonton Accountant if we don’t tie dates to these milestones, we can’t get back to your projections, you know, for example, when do we think the build out of the storefront, it’s going to be completed, you know, we’re looking at launching a website. When is that going to be launched, you know, for looking at hiring a new key person. When is that person going to come on staff? We have to assign dates to these key milestones in order to get, you know, accurate projections.

Uh, so next you have a staff and key supplier section. What is one of the components of this section that is fairly unique to your planning process

calendar. So we actually put the, the time blocking of the business owner. We’ve gone back and we’ve done the time blocking video before, right? But we actually put this rate in the business plan because we actually can’t give accurate projections for a small business unless we know, you know, when the business owner is going to work on these tasks, you know, the contractor who wants to go from 250,000 to 500,000, you know, he has marketing initiatives, but when is he actually going to do twice as many estimates? When is he going to do twice as many jobs? Site visits. Edmonton Accountant We have to understand that that actually fits into a calendar or else our projections are nothing more than guesswork if we don’t understand that the main key person in the business, it’s really significant.

Uh, so the next or the projections, how long are the projections that you do?

Yeah, we’re usually not going longer than two years. So we’re kind of looking, you know, a two or three years is, is all, is as far out that we’re going to go with the first year being the year that we’re in right now. Um, and the reason is because, you know, when you’re trying to project five years or 10 years for a small business, it’s just too long. It’s too speculative. It’s not a good use of time, too many variables. They’re going to change, you know, even when we’re not coca cola, we’re not Walmart, you know, do he knows five year projections, Edmonton Accountant they’re just speculation. So two, three years is really as far as you need to do for, for a small business.

So when projecting the income statement, balance sheet and cash flow components, do you protect project them monthly or annually?

You always go. We always go monthly. Um, and the reason is, is especially in, in new businesses or were, Edmonton Accountant casual is tight in a business that cashflow is going to be huge. And, you know, we want to make sure that even though it makes sense that you’re end a lot of initiatives, you know, they’re, they start off slow, you have to put the capital upfront and do an advertising initiative and before the customers come through the door later in the year. So if we do that manually, it could look, the math would work, but when you start breaking down monthly, you can run out of cash and that can be, you know, that’s the second reason why businesses go out of business. They run out of cash. So you want to do those projections monthly, uh, because you know, a lot can change throughout the year and you don’t want to get into a situation where your plan actually has you running out of cash halfway through the year and not know it because you did the calculations on an annual basis.

So in your experience, what happens when you project some financial statements? Some. Sorry, some financial statement components monthly and some components annually. Yeah. The, Edmonton Accountant, what can tend to happen is people recognize that that cashflow needs to be done monthly. Sometimes they have enough intuition to know that that needs to be done monthly, but then there are a little bit scared away by projecting a balance sheet monthly and what they end up doing is making a projection that actually doesn’t make any mathematical sense. So in order to project cash flow monthly, you should have projected the income statement and balance sheet and cash flow month because all three of those documents are going to tie it together and the reconcile together and that’s your double check to make sure your calculations are incorrect. So usually why they don’t want to project the balance sheet is because they actually truly don’t know how to do a cash flow statement.

Cash flow statements can be challenging even for a, you know, rookie designated accountants will often get them wrong. So, um, you know, they can be a little bit complex, right? So, Edmonton Accountant, it’s usually they, they know their balance sheet is wrong and they’re not certain on it. And you know, ultimately it means the cashflow is wrong. You should have that certainty to know it’s income statement, balance sheet, cash flow, the all tied together. They’re all reconciled together, that’s how you know it’s right and you want to make sure that that cash flow statement is nailed down and the only way to nail it down is to actually do the balance sheet that reconciles with that cash flow. Right, so I think that’s what we have for two for today. As always, if you have any questions, feel free to leave a comment below and we’d be happy to address any topics you like in, in upcoming videos. Thanks very much.