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They were willing to invest all this money to do that and they actually got the number to do it, which I think is completely outrageous to spend your time on doing that. Yeah, I can see why with the I can be you and cause it’s not. Hi, thanks for tuning in for another episode of ask Sperl CPA. Today as the Edmonton business consultant, we’re talking about business plans, products, services and margin. So again, at the end of business consult we’re talking about business plan products, services and margins. Tyson, uh, how are you doing? Good. Yeah, sure. Good Monday morning. Right on. So have you seen some of these business plan, product services and margins? Yeah, a few now. Yeah. Did one recently, do you, have you seen how, you know, we tend to make them maybe simpler than a lot of other people that are planning on too many variables and you really need to simplify the variables. Yeah, you want to break it down to the simplest way cause it makes you understand it and it makes the business owner understand that this is the best place for all Edmonton Business Consultant!

Right on. Yeah. So the quote that we have here today, the Benjamin Franklin quote, when it comes to to planning any type of planning, in this case business planning, it says if you fail to plan, you are planning to fail. If you fail the plan, you are planning to fail. And Paulo Alto has told us that business owners who complete a business plan, even a bad business plan, are 50% more likely to grow their revenue. Did business owners that don’t complete the plan. And of course, you know, revenue growth is one of the most, is the most challenging thing about running a business normally. And the story that we have here are, you know, business plans normally attempt to make projections on too many variables and this added unnecessary complexity. It just increases the amount of mistakes that are made on the financial projections, making it more likely that this business owner is going to run out of cash, which is problem number two of a, of a business. So, you know, we really have to work to simplify that. And so Tyson, what are the questions that these business owners should be asking?

Oh, the first one is how many revenue streams or price points do you normally project on? Um, so I tend to use three or fewer. I’m using like one to three and a lot of times when business owners come in they think like, oh one to three, how are you ever going to get it on one to three? But the more variables that you have on the plan, the more you know things, the items on the menu that you’re trying to project up, the more likely you are to make mistakes. Okay. Do you arrive at these revenue streams by grouping similar products and services? Yeah, I mean you, you, you can group these similar products or services in all it. Let’s take a, a doctor for example. Doctor has, you know, maybe a thousand things that they can build the patient for. You know, stuff from a simple checkup at $20 a visit to, you know, a really comprehensive treatment plan that’s $20,000 and know blows their mind. Do you want top Edmonton Business Consultant? When I tell them that, we’re going to boil that down into one number patient visits. And we have that average every time a patient walks in the door on average, we build them this. Sometimes it’s 20 bucks, sometimes it’s $20,000, but the average time someone walks through the door is this. And that’s what we do. We group those, those products and services together that have the same margins, that same percentage of margin. You know, some things might need to be different. For example, if you have a service, a component of your business, we’ll group all those services together, but sometimes you have an inventory component of your business.

Those margins will be different. So we’ll group all the inventory items together and we’ll just look through the business and normally group everything into no more than three revenue streams, uh, for simplistic and reliable planning. Okay. Why should small businesses not make projections for every item on the menu? Um, there’s a couple of reasons it will intrinsically make the projections, uh, less reliable. So let’s take a business. I always use the restaurant business for this one cause I think it’s people not easy for people to understand. And imagine if that small restaurant wants to figure out their exact margin all and projections on onion rings, they’d have to go through the trouble of figuring, you know, how much grease they use for the onion rings versus the French fries, how many onions they use for the onion rings versus the garnish for the steak. Um, you know, it’s very time intensive tasks for the average restaurant to go through that.

And let’s just say they were willing to invest all this money to do that and they actually got the number could do it, which I think is completely outrageous to spend your time on doing that if you’re a small restaurant business. But let’s just say they did do it as a small business. They don’t have enough data points for that number to be reliable. Be sure to work with these guys now if you need proper Edmonton Business Consultant! You know, they’re not a NW, they’re not selling millions of orders of onion rings every year. So there’s no guarantee that that, you know, um, you know, 487 orders that they sold last year is going to be sold again next year. It’s a, there’s too much of a degree of chance when you don’t have that main data points. So, you know, planning off of every item on the menu sort of speak increases dramatically the costs and time that you’re going to have to spend on the planning and projection process. Grab that cell and dial 780-665-4949 as soon as you can or just go to get top today!

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And B, even if you go through that cost, there’s a limit on, you know, the reliability of that information because we don’t have enough data points as small businesses. You start by describing the revenue stream. Yeah. So the first thing, cause you’re gonna remember we put this thing in the executive summary. So let’s kill two birds with one stone. You know, let’s describe exactly what we’re doing. What is that product or service that we’re delivering? Um, you know, before we even talking about price, let’s just put it right in there. Give a, you know, a succinct, clear description on exactly what you’re doing. Revenue Stream number one, revenue stream number two, revenue stream number one. You know, we’re providing, uh, um, we’re providing, uh, dermatological services and you know, dermatological base exams. Uh, let’s start with that. And then revenue stream number two, we’re providing dermatological products. Um, so we’ll start right off with that. Please call us now if you need top Edmonton Business Consultant today!

Helene, do you then describe the direct costs? Yeah. So once we get the [inaudible], we describe that revenue stream, the, then we’re going to describe the actual amount of the revenue transaction. So that average price per transaction is what we’re going to do. So we describe the product or service that we’re doing. We give a actual, you know, average of dollar figure per transaction. Then we’re going to get into the cost. You know, what, what are the things that we have to do in order to provide this services? You know, we have to, uh, we go back to the dermatologist example. We have to hire a locum doctor and associate doctor who gets x percentage of the billings or for the products that we’re selling. You know, we actually have to buy the products from a third party suppliers. And, and so the next part, the less logical part is actually describing the direct costs of the costs that very directly with providing that revenue then do you identify the average direct cost per transaction? Yeah, that’s the next logical step. So the first thing is we describe what we’re doing. We describe the product or service, we give the average transaction price that we’re gonna charge the customer. Then we describe the costs that are involved. One of the things that we have to buy in order to provide that product or service. And then we’ll describe, then we’ll give an amount on a per transaction basis for those direct costs. Um, that’s the next logical

Neil step in the equation. Right? Once you have those things, do you then calculate the gross margin per transaction? Yeah. Then we get that gross margin per transaction. That’s different than your, you know, we’re at this point, we’re not talking about the gross margin per year. We’re not talking about the percentage per year. We’re talking about, you know, the business on its most granule level. Um, what is that gross margin per transactions. They’ll think about the restaurant every time someone walks into the restaurant for every visit, uh, of a, of a patron to the restaurant. How much do we make on that visit? How much on average do we charge them? How much does it cost us to prepare the food and how much do we have leftover after those direct costs of preparing and buying food? [inaudible] why do you have to identify the amount per month for transactions that take a long time? Yeah. This, this can be the challenge. You know, the, the restaurant example or even the dermatologist example is relatively simple because the transactions, you know, they’re, they, they happen in one day. You know, every transaction is on one month. Um, but ultimately, you know, we’re doing this in the context of a business plan and ultimately we want to end up with monthly cashflow, monthly income, steam and, and monthly balance sheet projections. And if we have transactions that take longer than a, now all of a sudden we have to find a different way to deal with this or else we’re going to have an impossible task when it comes to doing the projections. So what we want to think about is that average amount per month on a project. So let’s say you’re a general contractor and your average, uh, you know, project size is, um, I’m going to say it’s, you know, $600,000. Please be sure to give us a call now to get top Edmonton Business Consultant today!

Okay, that’s a, that’s a big one. Let’s go smaller. Let’s say it’s your average project size is $100,000 and on average every project lasts for months. Um, rather than trying to plan on the project size, cause then we have different projects starting in different months and finishing in different months. And that’s really gonna, you know, throw off the projections. Let’s look at for every active project we’re billing on average $25,000 a month. We have that project that’s $100,000, uh, in total price and it’s, you know, it takes four months. So it’s $25,000 a month for four months. And if we identify that, you know, on a per monthly basis, we’re going to save yourself a lot of headache when it comes to then trying to make projections on that type of business. Okay. Why is he average gross margin per revenue stream per transaction? So powerful are our Edmonton Business Consultant! Call now!

So if we can get that, you know, average gross margin per transaction, it is an extremely powerful number because this third is to tell us how much we can spend to get another customer. Um, you know, whereas if we just know the aggregate gross margins, we don’t know how much we can spend to get one more customer. You know, if we can spend $100 to make the phone ring, is it worth it? In some businesses, you can’t spend $100 to make the phone ring, but in some businesses you can spend $10,000 to make the phone ring and that’s okay. Um, so you really have to know what the gross margin is per transaction, cause it’s going to guide you in determining, you know, how much you can spend it, you know, to get more work. So I think that’s what we have here today. As always pleased with the Lichen subscribe button so we can continue to deliver you tips on how to beat the odds at business. And as always, we look forward to read any comments that you have below so we can respond back and use your input, uh, to develop future videos. Be sure to check out as soon as you can and also please call 780-665-4949 as you can today! Thanks very much.