7. Risk and your Financial Plan
KEY POINTS
- Anticipate and shift risk around to work for your advantage.
- Hone in on the big risks and don't over-analyse the small ones.
- Risk can be a source of business advantage.
THINK RISK
Risk is a four letter word that, like many four letter words, can be used in despair and in joy! Successful people in this space are great at anticipating and shifting risk around. They also think differently about it and often don’t analyse the micro risks too much, as they figure they can juggle these. They rather hone in on the big ones and then get creative about how they can shift them, or work with them to their advantage.
An example of a tried and true strategy is shifting the financial risk of marketing to someone else for a benefit they might also get. In the same vein, by increasing the project often, you can decrease the risk. While that sounds bizarre, it might open up partnerships or different dynamics. Risk can be a source of business advantage when you think about it in a different light.
THE FINANCIAL PLAN
This is the important stage – where we set the budget for our new product.
There are 4 important sections to your Budget.
1. The Revenue or Sales you hope to achieve. (The Selling price per item or SP). Now you may be saying, how do I know what I am going to sell? This is where you need to start to make an educated assessment of your market and the potential based upon a number of aspects of the market place. The current state of the economy… are we in a recession? Or is the market place buoyant? How is the current economic climate going to impact upon your potential sales?
2. Cost of Goods sold. This is the variable cost of each unit of production or the VC. This is where we consider the cost inputs of getting the product ready for market. If we are looking at a packet of muesli for example we would need to include in our input costs all of the ingredients of the muesli, then the cost of the packaging and finally the cost of the labour to produce the product.
3. Business Costs. These are the costs which all businesses incur in the course of running the business. Some of these costs are accounting costs, bank charges, wages and salaries (not related to producing the product), telephone charges, selling costs, insurance costs, motor vehicle costs and so on. Each business will have different types of costs as each business is different from the next.
4. The Net profit. This is the difference between the Revenues received from sales and all of the combined costs. The formula is: Sales - COGS - Business Expenses = Net Profit/Loss
THE FINANCIAL PLAN STEPS
- What is the demand for your product/service – develop an upper and lower market demand.
- Understand Cost of Goods component of your sales revenue – i.e. what is the cost of the goods sold – what % does that cost represent?
- What is it going to cost to run your business? What will your wages, advertising, phone costs, stationery costs be. In other words, make a list of all the expenses you consider will be necessary to carry on the business
Create your financial plan using the three steps above.
Feel free to use this SAMPLE PROFIT STATEMENT as a template.
YOUR FINAL TASK: 2-MINUTE BUSINESS PROPOSAL
You can do this webcam style, with you talking to a camera or use motion graphics, animation, or PowerPoint. It's totally up to you! Just remember to cover the following things:
1. IDEA.
State in one simple sentence what makes your idea or service desirable, unique and of value to customers
2. STRATEGIC PLAN & VISION
Describe how you will compete with similar products in the market, what your particular strengths are and how you will build on these strengths and address your weaknesses.
3. BRANDING & IP
Describe how your product’s brand name captures the essence of who you are and what customers want.
4. COMMUNICATING YOUR MESSAGE
What will be the essence of your message to customers?
5. YOUR MARKETING PLAN
How will people get to know about your product? What potential partners will you have in getting the word out?
6. YOUR FINANCIAL PLAN
What is the likely demand for your product or service, what are your overheads, and what is your break even position?
Complete your video or PowerPoint and then send the link to info@flinderspartners.com The two best proposals will receive an iPad from Flinders Partners as well as a scholarship to NVI's Venture Dorm worth $1000. Good luck!