cob,
Everyone's business plan will be somewhat different for a machine shop because of specialization, in other words what your shop is offering, that others do not offer and that is in demand.
Simplistically, this is how I plan. Let's say that I want to earn $3000/month take home, I need to have a gross salary of approximately $3750/month at the 20% income tax level.
So, if I have a business that is able to yield 10 per cent profit per month, you will need to be able to bill and collect $37500 per month just to cover your salary. So, for a year that means at least $450,000.
Now realistically in business from the time you deliver your goods and bill to the time you get paid is generally in the 60 to 90 day range, with today's economy that is probably a bit low. Also, the assumption is that you will get paid for what you bill....another big if.
Do you see how the cash flow analysis works.....for the first 60 or 90 days you have expenses, but no cash flow.....
We haven't even considered your building rental, utilities and advertising which we could roughly say is 1/2 your salary, now you need to gross 50 percent more for a total of $675,000.
Now, let's say you were able to get a loan SBA or other....say you needed 6 months of operational expenses $225,000 plus money for equipment rentals....say a VMC which cost you $3000 per month after a down payment of $10,000.
So, just to cover the VMC's expenses you need to bill an additional $360,000 at your 10% profit level.
Okay, now let's amortize your $225,000 + 10,000 for 12 years at something like 7% which may or may not be doable....your payment for this is $2416 and change and at the 10% profit you need to bill and collect an additional $289,920 to service the loan.
So, let's see we are now at $1,324,920 as the amount of annual business we must bill and collect to pay your salary and cover your expenses and service the loan.
Now where most busineses fail is that they use the loan for the 6 months of operational expenses without generating the amount of business to sustain themselves and 12 to 18 months later they are out of business.
So, in a business plan you have to show what your projected sales will be each month and how they will increase every month to the level where you can cover all your expenses, pay back your loan (creditors) and save enough money for next month's operational expenses.
Hopefully, I didn't mess up the numbers....a couple of glasses of wine.....
Hope that helps.
Paul  |