LEARNING & INNOVATION (May 26, 2003)
Moje Ramos-Aquino
Karl Albrecht, in his book “The Northbound Train,” defines a vision statement as “an image of what the people of the enterprise aspire for it to be or become.” He notes that the key word is image. “It must be something that you can describe and that people can see in their mind’s eye. It is a mental picture of the enterprise, operating in an environment, performing to some criterion of excellence, and appreciated for what it contributes.”
These are some compelling and powerful vision statements that I gathered.
Ogilvy & Mather: To be the agency most valued by those who most value brands.
Boehringer Ingelheim: Value through innovation.
Rockwell Land, Inc.: To create quality living.
PriceSmart: To become part of our members’ quality of life.
Philippine Association of Secretaries: To inspire and equip all office professionals to attain excellence.
International Rice Research Institute: To improve the well-being of present and future generations of rice farmers and consumers, particularly those with low incomes.
Wal-Mart: We exist to provide value to our customers.
Walt Disney: To bring happiness to millions.
Johnson & Johnson: To alleviate pain and disease.
Foundation for the Rotary Soup Kitchen, Food Bank and Training Center, Inc: To make a difference in the lives of people towards self-responsibility and caring for each other.
Note that these vision statements are not simply “wordsmithing.” They create an inner sense definitely distinct from the daily routine chores of the people in these organizations. Their vision allows them to be truly alive and contributing to something bigger and nobler than their current business environment, not just for profit or salary.
The vision is “inspiring,”not vague wordy platitudes or simplistic statement of the obvious.
Consider this vision: To be able to unite in love dedicated and devoted men and women in business, in the profession and in other human endeavors to help implement and carry out the goals, projects and programs of (name of organization deleted) of feeding the hungry, of bringing hope, of reclaiming values, restoring dignity and self-image, and in lifting the spirits of the needy in this part of the world by teaching them to help themselves…and the rich to help the poor, fulfilling the adage that: if you give a man fish, he will eat for a day; if you teach him to fish, he will eat the rest of his life, thereby promoting international understanding, goodwill and cooperation, to the glory of God and service to mankind.
Hingal! Ano daw?
So what makes a vision statement meaningful and motivational? Mr. Albrecht summarizes them into three components.
1. A focused concept—something beyond platitudes; a value creation premise that people can actually picture as existing.
2. A sense of noble purpose—something that is really worth doing; something that can create value, make a contribution, make the world a better place in some way, and win people’s commitment.
3. A plausible chance of success—something that people can realistically believe to be possible and, if not perfectly attainable, at least plausible to strive for.
To add to that a vision is long-term. It is not a plan, it is the purpose for your plans. A vision endures and captures the mind, body and soul of the people affected by it and gives them a bigger reason for everything that they will think about, do, say and feel about your business.
Moreover, there are important principles to follow when you go into a visioning process.
1. Visioning must engage the emotions and must create a tension within the people crafting them. Visioning is not an exercise of the mind or a word game. It must reflect what they care and feels strongly about most.
2. The vision is created by the very people affected by it and who will, eventually, make it happen. It is not solely a management responsibility and cascaded down the line. Every stakeholder in the organization, directly or indirectly, must contribute to the creation of the vision. It must enable them to explore their potentials and focus on the future while rooted in reality. A vision is not wishful thinking or an escape mechanism. It is a desired reality; an answer to the question, “what do you want to be?”
3. All stakeholders must get involved and take an active role in crafting the vision from the first to the final step of the visioning process and its implementation; from planning, gathering, discussion and analysis of issues of your business ambitions to the finalization of the vision statement. Of course, you cannot bring everybody around the table. A carefully selected core group representing all stakeholders spanning all levels of your organization could do the task after all views and feelings are expressed.
4. The vision must be stated in the language that expresses the emotions of the people who will live it. It is best to state your vision in Filipino if your employees are Filipinos. The native language would better unleash the proper emotions and move them toward the vision. Who needs an English-perfect vision that nobody understands anyway? Likewise, who would commit to their heart a 100-words vision statement?Kahit pa siya nakaukit sa bato o nakasulat sa magandang papel at nakalagay sa isang magarang kuwadro.
5. Implement. Implement. Implement. There is a need to narrow down the vision and focus on how to implement. A vision is a compass, an indicator of direction and makes people understand the value of what they are doing. Protect it from becoming a cliché or from gathering dust in the filing cabinet.
6. The next steps are to determine the Mission, Values, Goals and Performance Measures.
World Peace. A world without a vision will soon perish. Create your own picture of the preferred future you seek to create, your image of a world at peace.
(Ms. Moje Ramos-Aquino is president of Paradigms & Paradoxes Corp, a facilitator of visioning process. She awaits your feedback at moje@mydestiny.net.)
Monday, May 26, 2003
Monday, May 19, 2003
Creating successful business through strategic thinking
NOTE. This article first came out in The Manila Times - Business Times Section, and also at the website: http://www.manilatimes.net/national/2003/may/19/business/20030519bus16.html
The results of your break-even analysis and your market research give you a good picture of where you are now. You have also articulated what you personally want as an entrepreneur–money, power, use of talents, creativity, be your own boss. You have screened your business idea. Now you need to define what you want your business to be. To do this, you need to go through a strategic thinking process. It is the first phase of your business planning.
Scientist and inventor Alan Kay says: “The best way to predict the future is to invent it.” Create the future of the business that you want first in your mind. Explore, clarify and define that unknown.
The next question is where do you want to go? A number of business start out very well planned and capitalized, then, “bahala na.” Just do what needs to be done. Just follow the “business plan.”
In your personal assessment questionnaire last week, in question #12, you probably chose “employees” as “the real key to business success. This is one reason you need to plan strategically. Roy Spence Jr., founder and president of GSD&M and a speaker at RealTime Miami, says, “if you don’t have audacious goals, your people will be status quo, instead of status go.”
In business you do not become successful by accident. For a business to succeed in the environment and in the social, political and economic climate today and in the near future, everyone in the organization, owners and employees alike, needs to use their leadership, make bold decisions, act innovatively and seize opportunities.
There is an increasing need to define the enterprise clearly in terms of meaning, purpose and values. Meaning is your “vision” or the significance you attach to your endeavor. It is the star to which everyone and everything else in your business are hitched. It is your possible dream, burning desire, passion, clear focus for success. It is akin to the flame at the Olympics.
Purpose is what you are supposed to do, why you have an enterprise. It defines your uniqueness as a business organization. It sets you apart from the others in your business genre. It is directed toward the path of your vision. It is the reason Olympic athletes train painstakingly, develop new techniques and strategies and compete as if their very life depends on it.
Values are the chosen beliefs and philosophies that guide you, your employees and your network of suppliers, customers and others in doing business together. Values guide you in making decisions, conducting business with your suppliers, serving your customers, your interaction with your employees and among themselves, in the way you treat the environment; in dealing with government institutions and regulatory bodies and many other situations and people. Your firm values are what makes you cool and collected during your moments of truth.
The collective values of all persons involved in your business make up your organizational value system.
Your organizational meaning or vision, purpose or mission and values system defines the climate and culture of your business environment and could make and energize or break and waste your business.
You need to answer three basic questions to enable you to define your vision, mission and values: Where do we want to be? Where are we? How can we get there?
Where do we want to be? It is similar to the question often asked of us when we were growing up: “What do you want to be when you grow up?” It is thinking about the future, not random thoughts but specific future issues.
Strategic thinking is deciding on your actions now. It is making choices today so that you can influence what they become in the future. It is defining your basic business–core competencies, products and services, markets–thinking about how you will conduct your business.
Strategic thinking and planning involves you and all the stakeholders in your enterprise. They need to participate directly or indirectly. In this our Journey in Entrepreneurship, we shall guide you in identifying and defining your organizational vision, mission, values and goals.
World Peace. V. Cayanan, our reader in Japan, urges us to be like birds and leave behind what we don’t need to carry–grudges, sadness, pain, tears and regrets–and fly light. Life is beautiful and meaningful!
Moje Ramos-Aquino is president of Paradigms and Paradoxes Corp. and assists small and medium companies in their human resource and organization development efforts. She could be reached at moje@mydestiny.net.
The results of your break-even analysis and your market research give you a good picture of where you are now. You have also articulated what you personally want as an entrepreneur–money, power, use of talents, creativity, be your own boss. You have screened your business idea. Now you need to define what you want your business to be. To do this, you need to go through a strategic thinking process. It is the first phase of your business planning.
Scientist and inventor Alan Kay says: “The best way to predict the future is to invent it.” Create the future of the business that you want first in your mind. Explore, clarify and define that unknown.
The next question is where do you want to go? A number of business start out very well planned and capitalized, then, “bahala na.” Just do what needs to be done. Just follow the “business plan.”
In your personal assessment questionnaire last week, in question #12, you probably chose “employees” as “the real key to business success. This is one reason you need to plan strategically. Roy Spence Jr., founder and president of GSD&M and a speaker at RealTime Miami, says, “if you don’t have audacious goals, your people will be status quo, instead of status go.”
In business you do not become successful by accident. For a business to succeed in the environment and in the social, political and economic climate today and in the near future, everyone in the organization, owners and employees alike, needs to use their leadership, make bold decisions, act innovatively and seize opportunities.
There is an increasing need to define the enterprise clearly in terms of meaning, purpose and values. Meaning is your “vision” or the significance you attach to your endeavor. It is the star to which everyone and everything else in your business are hitched. It is your possible dream, burning desire, passion, clear focus for success. It is akin to the flame at the Olympics.
Purpose is what you are supposed to do, why you have an enterprise. It defines your uniqueness as a business organization. It sets you apart from the others in your business genre. It is directed toward the path of your vision. It is the reason Olympic athletes train painstakingly, develop new techniques and strategies and compete as if their very life depends on it.
Values are the chosen beliefs and philosophies that guide you, your employees and your network of suppliers, customers and others in doing business together. Values guide you in making decisions, conducting business with your suppliers, serving your customers, your interaction with your employees and among themselves, in the way you treat the environment; in dealing with government institutions and regulatory bodies and many other situations and people. Your firm values are what makes you cool and collected during your moments of truth.
The collective values of all persons involved in your business make up your organizational value system.
Your organizational meaning or vision, purpose or mission and values system defines the climate and culture of your business environment and could make and energize or break and waste your business.
You need to answer three basic questions to enable you to define your vision, mission and values: Where do we want to be? Where are we? How can we get there?
Where do we want to be? It is similar to the question often asked of us when we were growing up: “What do you want to be when you grow up?” It is thinking about the future, not random thoughts but specific future issues.
Strategic thinking is deciding on your actions now. It is making choices today so that you can influence what they become in the future. It is defining your basic business–core competencies, products and services, markets–thinking about how you will conduct your business.
Strategic thinking and planning involves you and all the stakeholders in your enterprise. They need to participate directly or indirectly. In this our Journey in Entrepreneurship, we shall guide you in identifying and defining your organizational vision, mission, values and goals.
World Peace. V. Cayanan, our reader in Japan, urges us to be like birds and leave behind what we don’t need to carry–grudges, sadness, pain, tears and regrets–and fly light. Life is beautiful and meaningful!
Moje Ramos-Aquino is president of Paradigms and Paradoxes Corp. and assists small and medium companies in their human resource and organization development efforts. She could be reached at moje@mydestiny.net.
Monday, May 12, 2003
Simple guide to determine entrepreneurial skills
NOTE. This article first came out in The Manila Times - Business Times Section, and also at the website: http://www.manilatimes.net/national/2003/may/12/business/20030512bus17.html
In your journey on entrepreneurship, please take time to do this self-assessment exercise. Simply check your best answer for each question. Sum up your point score at the end and determine your entrepreneurial success quotient. This quiz is adapted from the Small Business Success Magazine of the USA Small Business Administration.
1. What is the key to business success:
a. business knowledge
b. market awareness
c. hands on management
2. If a relative ever asks me for advice about starting a business, I will tell him to:
a. work for someone else in the field first
b. learn about budgeting
c. write a business plan
3. Which is the largest potential trouble spot?
a. too fast growth
b. too much growth
c. too little growth
4. I trust: (select as many as possible)
a. myself
b. my customers
c. my key employees
5. I am unhappy when my employees are:
a. unhappy
b. resigning
c. abrupt with customers
6. My customers are: (select as many as possible)
a. worth listening to
b. demanding
c. always right
7. Rank these in order of importance for marketing success:
a. word-of-mouth
b. location
c. signs
8. When it comes to money, I am:
a. careful
b. shrewd
c. hardnosed
9. Financially my company:
a. knows exactly where it is all the time
b. is making better profits this year than last
c. has a good line of credit
10. In hiring people:
a. I look for the best person, and am willing to pay
b. I take far too long
c. personality is more important than experience
11. With my employees:
a. to whatever extent possible I tailor assignments to personalities
b. I encourage them to talk to me about the business
c. I try to work alongside them whenever possible
12. The real key to business success is:
a. employees
b. knowing the fundamentals of business
c. hard work and perseverance
13. Competition is:
a. a constant threat
b. everywhere
c. cunning
14. The best competitive advantage is:
a. understanding what the market wants
b. confidence
c. experience
15. I keep:
a. in touch with my customers
b. careful financial records
c. in touch with my employees
16. My dream is:
a. to take a vacation
b. to grow the business until someone else can run it
c. to work until I drop
17. I think business plans are:
a. essential-wouldn’t do business without them
b. useful and informative
c. something I can do with my accountant
18. What makes a terrific entrepreneur:
a. consumer orientation
b. creativity
c. discipline
19. What does a business need most:
a. market research
b. a solid business plan
c. money
20. What is essential to marketing:
a. customer awareness
b. market research
c. testing
Quiz Results: a = 5; b = 4; c = 3.
Interpretation:
90-100 You will probably be a successful entrepreneur whose operations reflect tried and true business practices.
75-89 Your business is probably headed for long-term success, but success will come sooner if you sharpen your awareness of solid business skills and techniques.
60-74 Never forget that savvy competition is always looking for ways to take the lead even while you are enjoying customer loyalty and repeat business. Don’t let comfort lull you into false security. Be creatively assertive.
0-59 You may well have the right product, but to sell it successfully, you need to increase your market awareness and improve your operating philosophy. Keep persevering.
WORLD PEACE. Let us contribute to world peace by living with sincerity, honesty and sincerity. If what you feel is what you do, that’s sincerity. If what you think is what you do, that’s honesty. If what you say is what you do, that’s integrity.
ASTD 2003 International Conference and Exposition. May 18-22 in San Diego, California, under the auspices of the American Society for Training and Development. For brochures, please call Paradigms & Paradoxes Consultants (Grace, 715-9332) or Philscan Travel (Thelma or Che, 843-1252).
(Ms. Moje Ramos-Aquino is president of Paradigms & Paradoxes Corp., a human resources and organization development programs provider. Send your feedback via moje@mydestiny.net.)
In your journey on entrepreneurship, please take time to do this self-assessment exercise. Simply check your best answer for each question. Sum up your point score at the end and determine your entrepreneurial success quotient. This quiz is adapted from the Small Business Success Magazine of the USA Small Business Administration.
1. What is the key to business success:
a. business knowledge
b. market awareness
c. hands on management
2. If a relative ever asks me for advice about starting a business, I will tell him to:
a. work for someone else in the field first
b. learn about budgeting
c. write a business plan
3. Which is the largest potential trouble spot?
a. too fast growth
b. too much growth
c. too little growth
4. I trust: (select as many as possible)
a. myself
b. my customers
c. my key employees
5. I am unhappy when my employees are:
a. unhappy
b. resigning
c. abrupt with customers
6. My customers are: (select as many as possible)
a. worth listening to
b. demanding
c. always right
7. Rank these in order of importance for marketing success:
a. word-of-mouth
b. location
c. signs
8. When it comes to money, I am:
a. careful
b. shrewd
c. hardnosed
9. Financially my company:
a. knows exactly where it is all the time
b. is making better profits this year than last
c. has a good line of credit
10. In hiring people:
a. I look for the best person, and am willing to pay
b. I take far too long
c. personality is more important than experience
11. With my employees:
a. to whatever extent possible I tailor assignments to personalities
b. I encourage them to talk to me about the business
c. I try to work alongside them whenever possible
12. The real key to business success is:
a. employees
b. knowing the fundamentals of business
c. hard work and perseverance
13. Competition is:
a. a constant threat
b. everywhere
c. cunning
14. The best competitive advantage is:
a. understanding what the market wants
b. confidence
c. experience
15. I keep:
a. in touch with my customers
b. careful financial records
c. in touch with my employees
16. My dream is:
a. to take a vacation
b. to grow the business until someone else can run it
c. to work until I drop
17. I think business plans are:
a. essential-wouldn’t do business without them
b. useful and informative
c. something I can do with my accountant
18. What makes a terrific entrepreneur:
a. consumer orientation
b. creativity
c. discipline
19. What does a business need most:
a. market research
b. a solid business plan
c. money
20. What is essential to marketing:
a. customer awareness
b. market research
c. testing
Quiz Results: a = 5; b = 4; c = 3.
Interpretation:
90-100 You will probably be a successful entrepreneur whose operations reflect tried and true business practices.
75-89 Your business is probably headed for long-term success, but success will come sooner if you sharpen your awareness of solid business skills and techniques.
60-74 Never forget that savvy competition is always looking for ways to take the lead even while you are enjoying customer loyalty and repeat business. Don’t let comfort lull you into false security. Be creatively assertive.
0-59 You may well have the right product, but to sell it successfully, you need to increase your market awareness and improve your operating philosophy. Keep persevering.
WORLD PEACE. Let us contribute to world peace by living with sincerity, honesty and sincerity. If what you feel is what you do, that’s sincerity. If what you think is what you do, that’s honesty. If what you say is what you do, that’s integrity.
ASTD 2003 International Conference and Exposition. May 18-22 in San Diego, California, under the auspices of the American Society for Training and Development. For brochures, please call Paradigms & Paradoxes Consultants (Grace, 715-9332) or Philscan Travel (Thelma or Che, 843-1252).
(Ms. Moje Ramos-Aquino is president of Paradigms & Paradoxes Corp., a human resources and organization development programs provider. Send your feedback via moje@mydestiny.net.)
Monday, May 5, 2003
Forecasting your success through break-even analysis
NOTE. This article first came out in The Manila Times - Business Times Section, and also at the website: http://www.manilatimes.net/national/2003/may/05/business/20030505bus16.html
You don’t need to consult the mirror on the wall or the crystal ball or the Tarot cards or the lines on your palms or the dwende in your house to know if you will succeed in your chosen business. You yourself can know the profitability of your business idea.
A “break-even analysis,” among other financial projections, is your tool to calculate the financial soundness of your idea. To help you make that final decision to go or not go, you need to prepare a break-even forecast in your initial business planning process. This analysis will tell you if your idea will lead you to your dream of financial independence or will direct you to the poorhouse.
Your break-even analysis will give you a picture of how much revenue you’ll need to make to pay for your expenses and realize a profit. You achieve break-even point when your projected sales revenue equals or barely exceeds your anticipated costs of doing business. When, in your calculation, you easily surpass your break-even point, your idea is a sure winner!
Otherwise, you might need to create different scenarios and determine where you can generate more revenues and lower your costs in order to be viable. Some ways to make your projected revenues exceed your break-even point are:
• Save rent by conducting your business in your home.
• Save rent by leasing a smaller place or subletting a portion of your place.
• Find sources of quality supplies and materials at the least cost.
• Rent, don’t buy immediately. Capex requires big capital.
• Do with the least number of employees.
• Find the most cost-efficient processes and technology. Some Internet websites offer softwares for free.
• Find a niche. Don’t do or sell a lot of products or services at the same time.
• Do creative and inexpensive publicity and promotions.
• As a last resort, sell your product or service at a higher price.
Although a break-even analysis is mostly educated guesses about your revenues and expenses, be as realistic as you can be and get a good feel of the market and reasonable cost estimates. To prepare this initial analysis of your business idea, calculate and estimate your:
• Fixed costs or overhead. These are your regular expenses and they don’t vary much over time. These include rent, insurance, utilities and other set expenses that you will incur whether or not you generate any sales. If you are in the pastries business, these will be what you will spend for rent, electricity or gas, oven, salary for your helper, etc. One tip is to add 10 percent into your break-even analysis to cover miscellaneous expenses that you can’t predict now.
• Sales Revenue. This represents your total receipts from forecasted sales activities each month or year. To be valid, project your sales revenue based on your forecast on the volume of business you really expect, not on how much you need to make a good profit.
• Direct costs. This is what you pay to provide your product or service. This includes costs of materials and supplies that directly go into the making of your product. For example, if you are in the pastries business, this will be what you spend to buy flour, sugar, nuts, cream, etc., that go into each “Food for the Gods” you produce.
• Average gross profit for each sale. This is the money left from each sales after paying the direct costs of a sale.
• Average gross profit percentage. This will tell you how much each peso of sales income is gross profit. To calculate, divide your average gross profit figure by the average selling price. For example, if you make a gross profit of P100 on pastries that you sell for an average of P300 a box of 24 Food for the Gods, your gross profit percentage is 33.33 percent (P100 divided by P300).
• Break-even point. To get this, divide your estimated annual fixed costs by your gross profit percentage to determine the amount of sales revenue you’ll need to generate just to break-even. For example, if your fixed costs are P5,000 a month and your expected profit margin is 33.33 percent or .3333, your break-even point is P15,001.50. Meaning, you must make about P15,000 every month just to pay for your fixed and direct costs. This break-even number does not include any profit, or even your own salary.
So now you are convinced that you have a winner in your hand, consider yourself blessed. If after tweaking your numbers here and there you still get a negative result, don’t even think of moving on in that direction. Scrap your business idea while your capital is still intact. A break-even analysis is a great screening tool for your business idea. To start putting real money in your business venture, you need to do more complicated analysis.
These are some financial projections that you need to include in your business plan to round out your business’ financial picture.
• Profit-and-loss forecast. This is a month-by-month projection of your business’ net profit from operations.
• Cash flow projection. This shows how much actual cash you’ll have, month by month, to meet your expenses.
• A start-up cost estimate. This is the total of all the expenses you’ll incur before your business opens.
If you intend to stay in business for the long haul, remove some obvious financial risks and start on the right foot, you still need to make a complete profit-and-loss forecast and cash flow projection. A break-even forecast simply tell you whether it’s worth drafting a business plan for your idea or you’re better off spending your money on a vacation in Iraq now that it is free of weapons of mass destruction.
Consider also some non-financial matters, e.g., pastry lovers prefer freshly-baked products. If you cannot sell immediately, what is the effective shelf-life of your products? Who and what is the size of your market? What about competition?
Some wise words from James Waldroop, Cofounder of Waldroop Butler Associates: “The enemy of a good decision is fear–fear of failure, fear of humiliation, fear of making a mistake.”
WORLD PEACE. Contribute to world peace by wanting and enjoying what you have. Never mind what your neighbors have.
ASTD 2003. For those wanting to get special delegation rate to the American Society for Training and Development International Conference and Exposition in San Diego, California, this May 18 to 22, simply write Delegation Code of the registration form. You can download the brochure on http://www1.astd.org/astd2003/download_brochure.aspx. For hard copy, please call Malou Amante (715-9332) or Philscan (Thelma and Che, 843-1252).
Moje Ramos-Aquino is president of Paradigms and Paradoxes consultants and assists small and medium companies in their human resource and organization development efforts. She could be reached at moje@mydestiny.net.
You don’t need to consult the mirror on the wall or the crystal ball or the Tarot cards or the lines on your palms or the dwende in your house to know if you will succeed in your chosen business. You yourself can know the profitability of your business idea.
A “break-even analysis,” among other financial projections, is your tool to calculate the financial soundness of your idea. To help you make that final decision to go or not go, you need to prepare a break-even forecast in your initial business planning process. This analysis will tell you if your idea will lead you to your dream of financial independence or will direct you to the poorhouse.
Your break-even analysis will give you a picture of how much revenue you’ll need to make to pay for your expenses and realize a profit. You achieve break-even point when your projected sales revenue equals or barely exceeds your anticipated costs of doing business. When, in your calculation, you easily surpass your break-even point, your idea is a sure winner!
Otherwise, you might need to create different scenarios and determine where you can generate more revenues and lower your costs in order to be viable. Some ways to make your projected revenues exceed your break-even point are:
• Save rent by conducting your business in your home.
• Save rent by leasing a smaller place or subletting a portion of your place.
• Find sources of quality supplies and materials at the least cost.
• Rent, don’t buy immediately. Capex requires big capital.
• Do with the least number of employees.
• Find the most cost-efficient processes and technology. Some Internet websites offer softwares for free.
• Find a niche. Don’t do or sell a lot of products or services at the same time.
• Do creative and inexpensive publicity and promotions.
• As a last resort, sell your product or service at a higher price.
Although a break-even analysis is mostly educated guesses about your revenues and expenses, be as realistic as you can be and get a good feel of the market and reasonable cost estimates. To prepare this initial analysis of your business idea, calculate and estimate your:
• Fixed costs or overhead. These are your regular expenses and they don’t vary much over time. These include rent, insurance, utilities and other set expenses that you will incur whether or not you generate any sales. If you are in the pastries business, these will be what you will spend for rent, electricity or gas, oven, salary for your helper, etc. One tip is to add 10 percent into your break-even analysis to cover miscellaneous expenses that you can’t predict now.
• Sales Revenue. This represents your total receipts from forecasted sales activities each month or year. To be valid, project your sales revenue based on your forecast on the volume of business you really expect, not on how much you need to make a good profit.
• Direct costs. This is what you pay to provide your product or service. This includes costs of materials and supplies that directly go into the making of your product. For example, if you are in the pastries business, this will be what you spend to buy flour, sugar, nuts, cream, etc., that go into each “Food for the Gods” you produce.
• Average gross profit for each sale. This is the money left from each sales after paying the direct costs of a sale.
• Average gross profit percentage. This will tell you how much each peso of sales income is gross profit. To calculate, divide your average gross profit figure by the average selling price. For example, if you make a gross profit of P100 on pastries that you sell for an average of P300 a box of 24 Food for the Gods, your gross profit percentage is 33.33 percent (P100 divided by P300).
• Break-even point. To get this, divide your estimated annual fixed costs by your gross profit percentage to determine the amount of sales revenue you’ll need to generate just to break-even. For example, if your fixed costs are P5,000 a month and your expected profit margin is 33.33 percent or .3333, your break-even point is P15,001.50. Meaning, you must make about P15,000 every month just to pay for your fixed and direct costs. This break-even number does not include any profit, or even your own salary.
So now you are convinced that you have a winner in your hand, consider yourself blessed. If after tweaking your numbers here and there you still get a negative result, don’t even think of moving on in that direction. Scrap your business idea while your capital is still intact. A break-even analysis is a great screening tool for your business idea. To start putting real money in your business venture, you need to do more complicated analysis.
These are some financial projections that you need to include in your business plan to round out your business’ financial picture.
• Profit-and-loss forecast. This is a month-by-month projection of your business’ net profit from operations.
• Cash flow projection. This shows how much actual cash you’ll have, month by month, to meet your expenses.
• A start-up cost estimate. This is the total of all the expenses you’ll incur before your business opens.
If you intend to stay in business for the long haul, remove some obvious financial risks and start on the right foot, you still need to make a complete profit-and-loss forecast and cash flow projection. A break-even forecast simply tell you whether it’s worth drafting a business plan for your idea or you’re better off spending your money on a vacation in Iraq now that it is free of weapons of mass destruction.
Consider also some non-financial matters, e.g., pastry lovers prefer freshly-baked products. If you cannot sell immediately, what is the effective shelf-life of your products? Who and what is the size of your market? What about competition?
Some wise words from James Waldroop, Cofounder of Waldroop Butler Associates: “The enemy of a good decision is fear–fear of failure, fear of humiliation, fear of making a mistake.”
WORLD PEACE. Contribute to world peace by wanting and enjoying what you have. Never mind what your neighbors have.
ASTD 2003. For those wanting to get special delegation rate to the American Society for Training and Development International Conference and Exposition in San Diego, California, this May 18 to 22, simply write Delegation Code of the registration form. You can download the brochure on http://www1.astd.org/astd2003/download_brochure.aspx. For hard copy, please call Malou Amante (715-9332) or Philscan (Thelma and Che, 843-1252).
Moje Ramos-Aquino is president of Paradigms and Paradoxes consultants and assists small and medium companies in their human resource and organization development efforts. She could be reached at moje@mydestiny.net.
Subscribe to:
Posts (Atom)