From The Blog

“Learn how to sell.  It’s the best investment you will ever make.  Mark Cuban says so.”  This is a quote from Jeff Haden’s article at Inc.com (August 2017) – enjoy the short video interview of Mark Cuban, billionaire investor, NBA team owner.

You need an angle – email me at info@NitaBlack.com #businessstrategist if you would like to discuss.  You need a sales budget.

How to Budget Sales.

One way to get an idea of a reasonable sales budget for a startup is to look at the industry data. Starting with census data, even though it is always dated, will help a start-up know how many companies are out there and average sales. Go to www.census.gov to pull Sales/Receipts by NAICS industry code. Start with the U.S., then the state, and then MSA and/or county to review geographic reports. Look at the total number of companies in each geographic area and calculate average Sales/Receipts per firm.

The industry information tells you how much was sold by your competitors.  It helps clarify the size of your target market, in dollars spent with your competitors by potential customers.  White papers and other research should help you estimate sales – a key line item in your budget.  The Sales Budget helps you set goals for all other line items in your budget.

Choose the information that is most relevant and comparable to the startup. Assume that it will take at least three to five years for a startup to reach the average Sales/Receipts per firm in the industry. Be conservative in your sales estimates. Consider preparing at least three scenarios of most likely, best case, worst case estimates so that appropriate planning can be considered for required capital, labor, and other resources.

Often, cash flow problems arise because of high growth as well as low growth.  Below is an example (see case study) of how the industry data can be used as a basis for the Sales/Receipts budget.

Sales Budget Process – Case Study.

The Market – XYZ Flooring Company is part of the Construction sector 23, doing business as a specialty trade contractor classified as NAICS 238330 and competing in the Memphis, TN MSA. Can you see how this information maps?  We start with the Construction sector, then choose a specific trade within the total sector.  Next, we look at the US data, data by state, data by Metropolitan Statistical Area (MSA), data by city and/or county.  These levels of information usually tell us something that helps us compete for customers.  We choose the most relevant data, based on the company’s mission and vision.

The Sub-Sector – The construction industry sector has three major groups of companies – (1) Construction of Building (236), (2) Heavy and Civil Engineering Construction (237), and (3) Specialty Trade Contractors (238). Specialty Trade Contractors include flooring, as well as poured concrete, structural steel, framing, masonry, glass and glazing, roofing, siding, electrical, plumbing and HVAC, drywall, painting, tile and terrazzo, finish carpentry, site preparation, and other specialty trade contracts.  Within the 238 sub-sector, there were 39 Flooring contractors reporting under NAICS 238330 in the Memphis MSA for 2009, according to the U.S. Census Bureau. These businesses employed 175 workers with an annual average payroll of $6.9 million.

Geographic Region – XYZ Flooring competes for business primarily in the Memphis MSA, although growth is expected through sales in the three states of Tennessee, Arkansas, and Mississippi. 2007 information reports 187 flooring contractor businesses in the state of Tennessee, 67 flooring contractors in the state of Arkansas, and 42 in the state of Mississippi. Average annual sales size per business is reported as $917,000 by Tennessee companies and $652,000 by Arkansas companies.  This lets us know what may be a reasonable sales budget for XYZ Flooring.

Base Budget Plus Future – As a startup XYZ Flooring’s Sales Budget assumes it will take five years to reach the average Sales of approximately $652,000. The first-year sales are $385,000 based on 5 to 6 retail (consumer) orders per month at $2950 average price per order. Approximately one-half of the annual sales are retail resulting in a total retail sales budget of $194,700 annually. The remaining sales budget of roughly $192,500 includes 10 commercial orders a year at $19,250 per order. The company’s budget is based on an 80% pipeline of orders already placed, with 13 retail orders or $38,000 lined up for the first quarter plus $46,200 in pending commercial orders.

Growth Assumptions – Our source of referrals for both retail and commercial customers are well-established and are believed to support the current Sales/Receipts Budget. An annual growth of 10% for the first five years is assumed conservative, based on industry data provided by xxx Flooring Association which indicates recent historical industry sales growth of 12% to 15% per year.

Frequently Asked Questions (FAQs).

As the startup builds a track record each week, each month, each quarter, and each year, budgets should become more reliable. Who knows, a startup may outperform the industry in the first year so using several scenarios will help predict company needs and avoid crisis management.  Below are a few FAQs to help you as a startup.

  1. How do I calculate Breakeven Sales? Breakeven Sales in dollars is equal to Fixed Expenses divided by Gross Profit Margin.
  2. How do I calculate Gross Profit and Gross Profit Margin? Gross Profit in dollars is Revenue less variable Cost of Sales. Gross Profit Margin as a percent is Gross Profit in dollars divided by Revenue.
  3. How do I calculate Net Profit and Net Profit Margin? Net Profit in dollars is Revenue Less Total Expenses. Net Profit Margin as a percent is Net Profit divided by Revenue.
  4. How do I calculate Breakeven Sales plus $100k Profit? Breakeven Sales in dollars plus $100k Profit is equal to Fixed Expenses plus $100k divided by Gross Profit Margin.
  5. What costs are typically included in the line item variable Cost of Sales? Variable Cost of Sales includes materials and labor costs which vary with Revenue. For example, a $10 widget may have $3 in material cost and $3 in labor cost for a total of $6 in variable Cost of Sales per widget.
  6. What is positive Cash Flow? For example, Client ABC orders 100 widgets at $10 each which equals $1000 in Revenue. Client ABC pays Startup Business XYZ on the date of the order. Business XYZ has thirty days to pay Vendor to purchase product and twenty-five days to ship to Client ABC. Positive Cash Flow in this example is $1000 for thirty days until payment by Business XYZ to Vendor is made.  It’s great if you can collect money from your clients first and then pay your vendors and your people later.  That way you have cash in the bank before you actually need to spend it.
  7. What are Fixed Expenses in a Business? These are typically rent, utilities, insurance, office staff, W-2 employees, and other expenses that must be paid each month, quarter, or year, regardless of the level of Revenues in the Business. It is important to hold fixed expenses at a very low level, in the case of most startups.
  8. Why does a Business need research? Research should answer questions that help a Business compete and survive long-term. These are questions like (a) Who am I competing with, (b) Where are my competitors and what do they “look like”, (c) What are my target clients buying, (c) Who can pay for what I sell, (d) How much will they pay, (e) How much are my competitors charging and many other questions.
  9. What is a Sales Plan? Unless clients are begging you for business, typically, you must go find them. You must evaluate who your “best” client is and how to reach them. Where do they live/work, what do they do, why will they do business with you, and how will you reach them? The sales plan includes who you should contact, how often contacts should be made, in what ways should you contact, what actions should be taken over what period, and what goals within what timeframes can be reasonably attained.
  10. Why is a Sales Forecast important? A financial forecast starts with the Sales Forecast. This can be based on industry data, regional demographics, or other information. The goal of a good Sales Forecast is to estimate the financial performance of a Business for the coming day, week, month, quarter, year, or years. It helps set the expense budget for the same period. If actual Sales are significantly less than the Sales Forecast, the management of expenses becomes even more critical for long-term survival of a Business.
  11. Why is a Marketing Plan important? A Marketing Plan has several core components that, when completed by the Business Owner, will clarify how to reach clients that will buy from you. A Marketing Plan includes the estimated cost so that you can budget for these expenses. It is an integral part of the Business Plan, identifying the unique selling proposition of the business, the competitors of the business, and strategies to connect with and/or retain clients so that the Business generates adequate revenue to operate in a profitable and successful manner.

Learning how to sell without a Sales Budget is like learning to water ski with no boat.  Your sales budget will clarify what products and services are sold and which ones drive the most revenue.

For more information on building sales and other business strategies, contact Nita Black at (901)413-1315.  You can also find Nita on Facebook, LinkedIn, and Google+.

Experience success!


NIta Black, CEO/Business Strategist
www.NitaBlack.com

“We provide business tools to help clients monetize their ideas.”

Visualizing Your Dream

I love posting things on the wall to organize my work day.  What about you?  What about birthday stickers and different emoji posts on Facebook and in texts?  But when it comes to visualizing my dream business, what I want when I grow up, I can get stuck.  All words and no pics – makes for “no fun” these days.

Back in the day, I decided to attend a class called “Operation Jumpstart”.  The materials were provided by the Kauffman Foundation which is a well-respected resource for tons of research and business tips/materials.  The course was offered by a local non-profit and the cost was nominal.  The biggest commitment I had to make was the time to attend 36 hours of class time over a 12-week period and complete assigned homework.  Yikes!  Little did I know that I would feel like I was in grade school again.  A story board (think emoji board, in today’s world)?  Are you crazy?  What is this going to do for me as a “seasoned” business strategist?  I do not have time for this, nor did I ever like to draw.

After the initial rebellion, I proceeded to quickly put together the bare necessities to complete the board as assigned.  When the next class was held, I was ready to turn mine in and be done.  Over-achiever maybe?  I was surprised to learn that no one else in the class had the understanding that this was homework, so the assignment was repeated and due date was extended to the following week.  Oh, well, I am ahead of the game – but wait?

As I looked at what I had done, it became more obvious to me that I had not thought through many of the underlying components of the story board.  If I was going to spend my time doing this, I needed to do it right – do you agree?

The five major sections on the story board were (1) the Entrepreneur (that’s me/you), (2) the Customer, (3) the Products/Services, (4) the Money, and (5) the Future.  On the original board, I had pulled clip art to quickly fill in the “blanks”, so to speak, so that the story board would cover the five major sections e.g. homework would be completed with elements as required – and not much work on my part.  The purpose of the story board was to tell the story of your business, the who, what, where, and how.  Much to my surprise, I found the story board very helpful in forcing me to continue to clarify what I wanted to do, who my customers would be, where I would get the money to do what I wanted to do, and what the future might look like.  More importantly, what exactly was I going to sell?

I know this is risky (maybe too transparent for some readers), but below is my original story board.  Although roughly organized, this is where I started with my story – addressing the five important sections. Below is my storyboard.  I am no artist and you can say or think whatever you wish…can you say “cheesy?”

For example, let’s start with the Entrepreneur – that’s me.  See the lady in the black dress with a briefcase and flying over tall buildings like Wonder Woman?  Well this is me!  Don’t ask me why, but I just liked this image and thought it was appropriate.  Sometimes I really do want to fly over tall buildings, but think better of it later.  The rest of the images reflect the visualization of my dream at that time in my life.

The more I looked at the story board, the more work I saw that I needed to do.  Too, too busy, and so many things I wanted to do.  And the title – I put that up there last and then changed it a couple of times.    You will see on the flip side of the story board, the title changed again.  I guess this is part of the evolution of any plan – figuring things out, and not being afraid of changing if it is not the best fit at that time.  The story board should evolve into a visual component of the business plan, like it or not!

On the flip side of the vision board (above), you can see the Future in the top left-hand corner with a “Sold – for Value” sign.  This means that the vision was to grow the heck out of this business to create value thru revenue and earnings so that it could then be sold – maybe to a major banking system that needed fee income and more commercial loan customers.  Sounds out there, to some of you, but I believed this could happen.

The Entrepreneur, that’s me, and my picture are on the bottom left of the story board with the phrase “The Collaborator”.  This is the branding – collaborator – that is still important to me today.

The story board (today we might call it an Emoji Board or Info-gram?) made things more visible to me – several ideas were formed that previously I did not have.  Even though I’m not an artist, I was glad that I took the time to complete the board – even if it was a not-so-favorite class assignment.  Of course, when I look at it next month, there may be more work to do.

Oh, well, this is entrepreneurship…I love it.

For more information on Visualizing Your Dream and other business strategies, contact Nita Black at Info@NitaBlack.com or go to her website at www.NitaBlack.com.  You can also find Nita on Facebook, LinkedIn, and Google+.

Experience success!


NIta Black, CEO/Business Strategist
www.NitaBlack.com

“We provide business tools to help clients monetize their ideas.”

Nita Black - Business Strategist

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