by Bruce Lubatkin
Don’t have a business plan? You’re not alone. Yet a business financial plan—also called a profit and loss statement (P&L) or simply a budget—is a crucial tool for small business owners. If used vigilantly, it will help you monitor and improve your studio’s financial health.
Why do I need a business plan? How do I use it?
- A business plan is a road map for your year. It sets a financial course of action. Map out a year’s activities in advance, so you don’t feel like you’re always on the treadmill, and decide what you’re willing to spend on them. Take open house, for example: what marketing concepts worked or didn’t last year? What new ideas could you try, and how much should you spend? Asking these questions in advance allows you to run your business with a sense of discipline, instead of your business running you.
- A business plan lets you project cash flow. advertisingIf you collect tuition and fees in certain months, and need to spread that cash out over additional months, then projecting cash flow is essential. Do this within your plan using monthly P&Ls. Estimate cash inflow (tuition, fees) and spending (rent, utilities, payroll, recital costs, costumes, competition fees, etc.) month by month; then subtract spending from revenue to get that month’s profit or loss. With this information, you’ll see your profit clearly, and you can adjust spending to ensure that by June you’ll have enough cash on hand for summer expenses, maintenance, and a small reserve.
- A business plan shows how you’re doing. Has there been a cost overrun?Did a revenue-generating activity achieve its goal?Your plan allows you to evaluate your results and whether you’re on track to achieve your financial goals for the year.
OK, I want a business plan. How do I get started?
Here are the basic steps, whether you use a simple Excel spreadsheet or accounting software such as QuickBooks.
- Set a 12-month timeframe that starts with your studio year.
- Determine your total expenses and revenue from the prior 12 months. If you or your accountant uses QuickBooks, you can easily export this information into Excel.
- Use last year’s expenses as a baseline, then adjust. For example, if last year’s rent was $60,000 and you expect a five percent increase, estimate this year’s rent as $63,000. Increase or decrease variable expenses (advertising, for example) based on growth goals and how much you want or need to spend.
- Estimate this year’s revenue. Consider current enrollment, set a reasonable growth estimate, then make a projection. Figure in planned tuition/fee increases.
- Divide the year into 12 P&Ls. Break down your projected revenues and expenses month by month. Put one-time expenses (such as printing recital tickets) in the month they occur. Divide annual costs that apply to every month (such as insurance) by 12.
- Review your plan often. Don’t throw your plan in the drawer until next year. Each month, compare projections to actual revenues and expenses. If the figures differ, determine why and what actions to take to hit your financial goals.
Your business plan will show you how to run your studio efficiently and identify areas where you can reduce or increase expenses. But it only works if you have one. If you don’t, start the process today.
Bruce Lubatkin CFP®, owner of Lubatkin Financial Group in Fort Lee, New Jersey, has more than 30 years’ experience in accounting and corporate finance. He enjoys helping his clients identify and achieve their financial goals.