Elaine - the financial projection bit is the whole reason for
writing a plan. Any number has underlying suppositions.
There isn’t a fixed percentage that is reasonable without
considering what it takes to produce that increase. For example:
growing at a compounded 8 percent would include expanded advertising,
investment in product for stock, employees at the point that you
can’t do it all yourself, more space and equipment. Whatever you
project has a cost to getting there. If you choose to outsource
manufacturing, you incur the cost of finding the outside provider and
giving up the in-house margins.
Perhaps a better way to do your financials would be to run multiple
projections with different premises. Limit the type of business and
then specify what that type can produce. For example - if you want to
run a production shop, what physical plant and personnel do you need?
How are you marketing the product you produce and what is the cost of
getting the orders? If you project a bricks and mortar jewelry store
operation, what is your percentage of custom and resale merchandise
and your profit in each sector? What is your access to capital? Take
into account multiple economic projections, including the overall
economic market, price of metals, gems and wages. If you are selling
tools and equipment - what is your annual turnover? What is your cost
of owning the merchandise and the cost of disposing (reducing profit)
of stale merchandise? In all cases, include rent, insurance,
equipment, maintenance - all the things we call overhead.
Who is your competition and what is their track record? How will
their success or failure impact your projected business?
In the past, a plan usually included the alternative of not
investing capital in the business, rather what can that capital yield
in the market and evaluating the risks of doing either one. While
today’s cost of borrowing is low, the barrier to borrowing is high.
What is the surety that you can provide to the financing institution?
In plain words - can you really borrow enough money in the market
given your credit rating and past history to make the plan work?
I’d find some examples of who is running the kind of business that
you forecast in your plan and using real life numbers to check your
projections.
All of these questions are why you write a business plan, even
though you are doing it for the experience. Hopefully the plan will
help you focus on better planning for your enterprise going forward.
Prior to joining the jewelry business, I was responsible for mergers
and acquisitions at a major company. We did lots of plans. Every
single one of them helped us understand what it would take to make a
success. Sometimes the answer was that it was too hard or the risks
were unacceptable. In every case, the business plan detail drove the
decision.
Judy