"I think I may not be charging enough. Should I raise prices?"
"I think I'm doing better than my competitors. How do I find out?"
"I need to expand. Is now the right time to buy more equipment?"
Robroy Wiley, advisor and financial communicator at SmartPlan financial services.
A business owner can find themselves in any of these three scenarios. The difference between success and failure often depends on the execution, once a decision is made. That success is much more likely if the business owner has a roadmap to follow, also known as a financial business plan.
Here are three benefits that a financial business plan can provide.
First is price. What a business charges for their service or product can say a lot in the market place. For a business owner the decision to raise or lower prices plays into the perception of the value that the consumer places on the product/service.
A financial business plan can give the business owner the groundwork on how much time and cost it takes to produce a product. And can give direction on how to effectively raise or lower prices.
If you watch television shows like The Profit or Restaurant Start Up, often the first questions the investors ask is "How much does it cost to produce?", "How many are being produced?", and "What does the typical monthly or yearly sales volume look like?".
It is not uncommon for business owners on these shows to reply with a tepid answer like "It generally costs around…", "Ballpark? I would guess around…", or something similar.
You don't want to give a tepid response to these questions, you want to know the exact answers. A financial business plan is the tool that helps a business owner answer pricing questions.
Second is competition. Competition can be intense. A financial business plan can provide input on how you stack financially to your competition. Every business has competition, even if it is a new product or service that has not been offered before. A business is competing for consumer dollars.
A financial business plan gives a business owner an analysis on the business financial ratios comparison to competition. Here is an example. The cost to produce the product or the time to implement the service is costing a business 40% of the revenue being brought in. The competition has a similar product or service and it costs them 35% to produce. Would that not be worth knowing? A well done plan can help examine businesses processes and look at better, more efficient ways to produce, market, and sell.
Third is growth. A financial business plan is an instrument that can outline the costs associated with growth. A business owner that has been around the block, knows that growth has its costs. But how does one forecast those costs? What are the estimation in costs to add equipment, staff, or rent/own a larger space?
It is ideal for a business to grow and a pro forma statement within the business plan can give a benchmark on the estimated costs associated with expansion.
Wrapping it up.
A financial business plan can help determine price, understand the competition, and forecast the cost of growth. How can you get one?
Contact Robroy Wiley, advisor and financial communicator at SmartPlan Financial Services. Robroy Wiley and his financial management team work with small business owners to develop custom financial business plans that work.
Robroy Wiley hosts the linkedIn group Business Planning for small businesses and consultants.