Control and Feedback

To make your plan work you will need feedback. For example, the year-end profit and loss statement shows whether your business made a profit or loss for the past 12 months.

But you can't wait 12 months for the score. To keep your plan on target you need readings at frequent intervals. A profit and loss statement at the end of each month or at the end of each quarter is one type of frequent feedback. However, the income statement or profit and loss statement (P and L) may be more of a loss than a profit statement if you rely only on it. You must set up management controls which will help you to insure that the right things are being done from day to day and from week to week. In a new business, the record-keeping system should be set up before your business opens. After you're in business is too late. For one thing, you may be too busy to give a record-keeping system the proper attention.

The control system which you set up should give you information about: stock, sales, and disbursement. The simpler the system, the better. Its purpose is to give you current information. You are after facts with emphasis on trouble spots. Outside advisers, such as an accountant, can be helpful.

Stock Control

The purpose of controlling parts and materials inventory is to provide maximum service to your customers and to see that parts and materials are not lost through pilferage, shrinkage, errors, or waste. Your aim should be to achieve a high turnover on your inventory. The fewer dollars you tie up in inventory, the better.

In a business, inventory control helps the owner-manager to offer customers efficient service. The control system should enable you to determine what needs to be ordered on the basis of: (1) what is on hand, (2) what is on order, and (3) what has been used.

In setting up inventory controls, keep in mind that the cost of the inventory is not your only cost. You will also have costs such as the cost of purchasing, the cost of keeping control records, and the cost of receiving and storing your inventory.

Sales

In a small business, sales slips and cash register tapes give the owner-manager feedback at the end of each day. To keep on top of sales, you will need answers to questions such as: How many sales were made? What was the dollar amount? What credit terms were given to customers?

Disbursements

Your manager controls should also give you information about the dollars your company pays out. In checking on your bills, you do not want to know what major items, such as paying bills on time to get the supplier's discount, are being handled according to your policies. Your review system will also give you the opportunity to make judgments on the use of funds. In this manner, you can be on top of emergencies as well as routine situations. Your system should also keep you aware that tax moneys such as payroll income tax deductions, are set aside and paid out at the proper time.

Break-Even Analysis

Break-even analysis is a management control device because the break-even point shows how much you must sell under given conditions in order to just cover your costs with No profit and No loss.

Profit depends on sales volume, selling price, and costs. Break-even analysis helps you to estimate what a change in one or more of these factors will do to your profits. To figure a break-even point, fixed costs, such as rent, must be separated from variable costs, such as the cost of sales and the other items listed under "controllable expenses" on the expense worksheet, of this Guide.

The formula is:

Break-even point (in sales dollars) =

Total fixed costs
_________________________________
...........Total variable costs
1 - ___________________________
........Corresponding sales volume

An example of the formula is: Bill Jackson plans to open a laundry. He estimates his fixed expenses at about $9,000, the first year. He estimates his variable expenses at about $700 for every $1,000 of sales.

Is Your Plan Workable?

Stop when you have worked out your break-even point. Whether the break-even point looks realistic or way off base, it is time to make sure that your plan is workable.

Take time to re-examine your plan before you back it with money. If the plan is not workable better to learn it now than to realize 6 months down the road that you are pouring money into a losing venture.

In reviewing your plan, look at the cost figures you drew up when you broke down your expenses for one year. If any of your cost items are too high or too low, change them. You can write your changes in the white spaces above or below your original entries on that worksheet. When you finish making your adjustments, you will have a Revised projected statement of sales and expenses for 12 months.

With your revised figures work out a revised break-even point. Whether the new break-even point looks good or bad, take one or more precaution. Show your plan to someone who has not been involved in working out the details.

Your banker, or other advisor outside of your business may see weaknesses that failed to appear as you pored over the details of your plan. They may put a finger on strong points which your plan should emphasize.

Say that you are the sort who is starting new small business. You Have given attention to the overall opportunities for success,
and have chosen the new business you want to establish.

What practical issues will you face in starting your business? How Much cash will you require for beginning new small business?
Where can you get it? What kind of business organization will you have? Where should you locate the business? (start business tips
to follow along )

The very first question you want to answer is: Just how much money will I need? However, this question can not be answered until
several other questions are answered and several decisions are made.

To decide how much cash is Required to start a company, enter all Of your prospective income and all of your planned expenses on a
work sheet or kind.

Even though you might feel that This Type of preparation is more than You need to initiate a simple small business it's useful to
begin with this particular approach to direction which puts down figures in black and white. You'll discover exactly the same
approach valuable within an established business.

First, estimate your sales volume. This will depend on the overall Quantity of business in the area, the number and skill of
opponents now sharing that company, and your own capability to compete for the customer's dollar. Obtain assistance in making your
sales quote from wholesalers, trade associations, your banker, and other business-people. A number of business and statistical
publications could be useful in making sales volume quotes.

In reaching your final quote of sales do not be over-enthusiastic. A brand new business generally develops slowly at the start.
Should you overestimate sales you are most likely to invest too much in gear and initial stock, and devote to thicker operating
expenses compared to your real sales volume will warrant. Since you are just beginning you may have no earnings for the first
couple of months. At any rate you can expect your first few weeks to be quite low.

You must also decide what proportion of your earnings will be cash And what percentage will be sold on credit. If you guess that a
particular portion of the sales are going to be on charge then you have to figure whenever you're going to get the money for all
these earnings. One month? Two months? More? Never?

Next, in our guide to beginning new small business, estimate how Much money will be paid out. Bear in mind that in starting a
company you might be purchasing equipment, paying licenses and fees, making deposits on rent, utilities and so on, several months
before you open the doorway. A few of these expenses are easy to estimate. In case you've decided to lease a building (more about
this later) then you understand what your deposits will be and just how much you will have to pay out each month. You are probably
able to get the expense of fees, licenses and utility deposits with a couple of telephone calls.

Other expense figures might take a little more work to get. One way Is to obtain average operating ratios for the kind of company
in which you're interested. Among the resources for such ratios include Dun & Bradstreet, Inc., trade associations, publishers of
trade magazines, specialized accounting firms, industrial companies, and colleges and universities. The typical ratios for your
type of company multiplied by your projected sales volume will serve as bench marks for estimating the several items of expense.
But do not rely solely on this method for estimating each cost item. Verify and modify these quotes through evaluation and
quotations in the particular market area in which you intend to operate.

Don't forget to pay yourself too. You Might Need money to live on if You have to quit your job. If your partner is working and can
encourage the household for some time you may not need to withdraw cash from the company. The longer you can go without taking
money out, the quicker you'll build up a strong cash position. Now that you have estimated your money receipts and expenses, write
down the amount of money you'll put in the company to start. This goes online 1 at the example below. Then add lines 2 and 1 for
your first month to get line 3. Then add up all of the expenses to get 5. Subtract line 5 from line 3 to find line 6. This money
in the end of month 1 then goes to line 1 for the beginning of the following month, etc.

Should you continue this for the Whole year, very soon you will find You have negative amounts or a negative cash flow. About this
time you will also realize that you should be working on this form with a pencil that has a fantastic eraser.

In this overly-simplified case, you see that by the end of June you're minus $200 in cash. Two solutions can be attempted - reduce
your buys at June by $200 or start with $200 more. You might be unable to reduce expenses (they will likely go up as your company
starts). That means you'll have to put in $200 more to begin with. If all you've got is $4000 then the additional $200 you need is
capital you must get from someplace else.

Do not be misled by this simple illustration. Many small businesses Begin with the $200, and try to acquire the $4000 from
someplace else. Since a Major reason for failure in the first phases of a business is Under-capitalization, be very careful on
your preparation at this stage. You can Almost always aim on some unexpected expenses and some delays in anticipated income.

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