Starting to Hear the Music

So even though someone might steal our idea, my extroversion is winning out. I’m going to let my readers (and anyone who googles the right keywords) know what our business plan is for: We’re investigating starting a local niche music store.

Our working name (we have to have something as a placeholder, right) is MusicStorm™.

There are some proprietary ideas that I’ll try to keep out of the blog (proprietary means that we’ve deluded ourselves into thinking that they’re original at least to the Peoria area). The business plan is not filling out as quickly as I’d like. We’ve gotten some work done, of course, but if I’m going to have something close to a final draft by end of Saturday, we’re WAY behind.

So let’s talk about business plans. The early stage of development is to consider how to bring customer value by some market research. Yup. Market research. Marketing. My “favorite.”

So we checked out the competition here in Peoria and evaluated what was good and bad, and we’re doing some broad research on music purchase spending.

And then: revenue projections. I’ve always hated this part of budgeting. It’s a lot like this: Here’s a bunch of seemingly random information. Now predict the future. Tell me how many people will come and buy products so that you can make a spending budget. Now imagine doing that with six items that are designed to be placeholders for averages (think entering “beverages” as a placeholder for everything from bottled water to an iced latte). Predicting sales quantities for small items isn’t something I’ve had to do before and I don’t want to overproject (better to think small on first year revenue before losing your shirt).

Once you’ve got that done then it’s all about figuring out what your expenses will be. Some will be fixed (like rent) and some variable (like cost of soda that you sell). You can see more on fixed vs. variable costs in a previous post here.

But revenue and expenses are not the end result you need. Nope…that’s a failure waiting to happen.

Why?

Because it’s not lack of revenue, or even profit, that kills most small business ventures. It’s running out of cash right as you’re starting to turn a profit (or even just before).

So expense and revenues need to be considered then on a cash flow basis, including the amount of cash to get opened (enough inventory, fixtures and furniture, etc.). So once I have my budget I need to prepare a cash flow projection and then figure out my break-even point on sales, and then a startup capital estimate that figures in the negative cash flows from the first months. One thing you can say for sure is that the cash in the checking account, no matter what your profit percentage is, can’t go to zero or below. You can make negative profit, for quite some time even (we call that a “loss” but you knew that), but you can’t spend negative cash.

That’s the process in a nutshell. If it sounds easy, think about it a little longer. If it sounds fun, give me a call…I could use some help. If it sounds nearly impossible you’re probably close to understanding how I’m feeling today with 8 days left to “git ‘er done’ and looking at nothing close to finished work. Yup…that’s my Saturday this weekend. If I didn’t have our annual board meeting next week I’d be stressed but it would look very doable. Right now I’m trying not to panic. No large friendly letters about it.

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