A business without a budget

I have been having a running conversation with a person who wants to open up a storefront.  Very good ideas, and he was ready to move fast.  So when I said, “Not to be forward, but what do your budgets show for sales and expenses?”  I was met with silence.  Then a quiet “I don’t have a budget yet”.  Sadly, that is a common response.  And while the business idea may be solid, I really prefer to make mistakes on paper.

Asking about a budget did not shake his confidence in the business.  It actually took a bit more than that.  I shared a customized budget template with him and filled in a few numbers based upon conversations with him.  When he started seeing how much sales he would need to cover cost of goods sold, rent, gas, electric, internet, and that pesky thing called owner draw (that’s your pay by the way!) he started thinking about the volume needed to carry a storefront.  It was only then that he slowed down and started to see the benefits of a solid business plan.

After using this template as a framework to look at his business idea, he backed off from signing a 12 month lease.  And that’s a good thing.  He has not lost sight of his dream, but is now focusing on building up his web sales before investing in the overhead of a storefront.  Now his focus is clearly defining his target market, building up his list of potential customers and finding out not only what they want and need, but how much they are willing to pay.  Those numbers are plugged those numbers into his budget, making an even better plan.

I have often heard that a business plan rarely survives first contact with customers, and I agree wholeheartedly!  But that does not mean that you ignore the basics of finance and sales.  Instead, focus on the needs and wants of your customers as you develop your budgets and business plan at the same time.  A business plan is much more robust when you approach the process by focusing on the customer first.  Take the time to work through the numbers first – whether it is a brand new business, or an expansion of an existing business, it pays to make the mistakes on paper first.

Need help developing a financial framework to look at your business?  Want to see the sample Excel budget that helped him change his path?  Send me an email and I will be happy to share it with you!

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