Skip to content

Building for the Future: Drafting a Plan

  • by

This post will be quite lengthy and detailed – as will others in this series may be. We are outlining what our plan for our next stage will be, and all that is considered within the plan. There is a lot of nuances being mentioned here, with much of our behind-the-scenes business being exposed publicly. This is the first chapter on this story…

With the new year, work has begun to seek capital for a new home for all that is J&L. As mentioned in the past, the name of the home will be JÖL as it incorporates everything about J&L and more. JÖL was selected for this purpose before we started using it for products and we plan to continue with it.

Capitalizing efforts

Currently I am drafting a business plan to seek that capital. For those not familiar, a business plan is like a proposal, but instead outlining the work to be done and what it will costs you and justifying how you will spend money to make money to get the money to start or grow a business. A slight advantage we have with our business plan is that not all our numbers are projections. Having 10 years of work to look back upon to demonstrate our development. The foundation is already in place, we just need to show how we can take our past results to push towards new levels.

Using all relevant data available I create a model in words, numbers, and graphs on how I can make more revenue through more transactions to not only pay back the capital, but to sustain the business going forward. A lender or investor has a primary focus on getting the return on their investment, but they may also wish to make more money off of you through future investment into your business.

Tapping sources of data

Having records of every transaction ever made. Not just what products were sold, but also our purchasing history matters. Even how we spent the money we earned is just as important to a lender. They want to know how well we are able to manage our money to make sure they can get paid back. If we have wacky spending habits, they may not feel confident that we will be sufficiently profitable. It’s not only knowing the numbers, but being able to tell their story. Being able to speak to why we missed goals/projections and how we recovered can demonstrate how well we know what we are doing. At stages of our growth, spending more than you earn is acceptable if that spending was done to promote future growth.

Having real world data from all our means of selling and showing a progressive increase in regular customers, increases in units sold, and increases in revenue; while also showing how we were able to manage expenses and keep our debt low will tell the abridged version of the story. The full story is where we tell the details in how we do it. What steps have we taken, what kind of culture have we created to be capable of reaching our future goals.

It is not as easy as saying that we will sell more units, or get more customers. They want to know exactly how we will do that. What behaviors we will take to get more customers and how we will sell them more units. Showing what we have done in the past will help support what we say we can do in the future.

We must also show how we have managed our expenses and how we will spend any funding they lend us. Will the things we plan to spend the money on directly lead to increased sales, and increased profits? Do we have a plan that charts a path to our goals in a reasonable amount of time? We have to show that path with milestones: where we need to be in 3 months, 6 months, a year, and even longer. How will we plan to achieve those milestones? Forecasting!

Not talking about the weather here

By knowing past trends I can outline what steps we can take to increase our business each step of the way. There are many factors that need to be noted for reaching each milestone. Not every milestone will have all the same metrics to gauge the growth.

Simply saying that i will have a 25% increase the first quarter, 30% increase the second quarter, and so on, will increase revenue by default. The lender will know that it does not happen that way. First, it is more than revenue that needs to be measured. The first quarter it is very likely that we will spend a lot more money than we bring in. Even if we get more customers and sell more things, the fact is that to support those sales we need to increase our expenses. Not only will we have a sharp increase in rent, but there will be all the new expenses associated with being able to open the doors that first day. Permits, licensing, fixtures, layout, paint…. we may even need to put in a floor or build a wall. During this period, all we will have for revenue is our current online sales. As we get closer to opening the doors, we need to order supplies and raw materials to make more product. Not only because we want and need to sell more products; we need to fill those shelves we just built. This period alone can be 3 months, or even longer.

Like a weather forecast, it will not always be warm and sunny. The lender will want to know when we expect to break even and prove how we will get there. These projections are our forecast. We use our known data and other relevant data for our industry and market to determine a reasonable expectation of our business for each month, week, and even day. Our break even point is where our revenue exceeds our expenses – a positive Net Operating Profit After Taxes, or NOPAT. This could be 3 months into this plan, or it can be a year or more. Realistically, it is likely to be 6 months for us. That means for 6 months we are losing money. That the bills we pay and all other expenses exceed our sales revenue. This is why we will continue to do a couple festivals each year as they are huge means to drive a lot of sales in a short period of time with little immediate expense involved; and with having a store to draw them into to get more is a benefit.

Where we are in the process

At this point in our planning, I am looking at how I will need to spend the money to make money. First step is to build an operating model. This is where I chart how we produce product, merchandise the store, and handle all operations. This tells me where I need to place people and things to function as a business. Who will do what and when, and as we grow who else will do the work. Draft a model work schedule that covers all activities for each day. This helps determine a labor budget as well as fixture and equipment needs. This information must fit the idea of what is needed in a space and how that space needs to be defined.

The next step will factor in how much product I will need to have made before we open, and then determine what I need to purchase in the way of goods and materials to make the items in the quantity I would need. For us, the focus will lean more heavily to those items that are most shelf stable – the items that will not have an expiration date. This is a means to control waste while ensuring we have plenty of product to be shopped while we attract new customers. This step also leads to charting when I should expect customers to shop and what they are most likely to purchase.

Making a budget

As I generate a forecast for revenue, I need to be able to break that down into measurable chunks: by quarter, by month, by week, and by day. It may also help to plan around what time of day I can expect more or less sales. There will even be times that sales are not planned for as time is spent on administrative duties, production, and other maintenance activities. Online sales will not be accounted in this as a separate sales channel as it is likely we will lose some local online sales to in person shopping. We expect a good number of you to come shop in person with us. This is perfectly OK, as there will be other steps taken to grow our online sales outside of this plan. We can’t ignore their existence and a part of our overall business, but this plan is purely about the retail side. The need for the retail side to sustain itself is more important that trying to stimulate growth in both areas at the same time. Once we get into our space, we can then measure our online sales to then create a proper budget for that segment.

Budgets are never perfect. There are numerous variables at play; which is why we need inspect the metrics at different points. If we miss a daily budget goal, we can work to improve the next day and strive to making sure we meet our weekly budget. And, if we miss a weekly target, we have 3 other weeks to push harder to make sure our monthly goals are met. Optimally, we are meeting or exceeding our forecasted budgets 95% of the time.

Whatever the forecasts are, they need to be real and achievable. If we regularly are falling short, we have a problem that can trickle down to causing issues with product integrity (quality) and can delay the break even point. That is why it is important to be as real as possible in creating the budget. It is perfectly acceptable to have days that you are projected to lose money. If I think that is going to happen, I need to plan for it. Let’s say there is a big sporting event happening that will attract would be shoppers away. I can then plan to reduce my labor for the day and potentially adjust business hours if necessary.

It’s magic!

In some ways I need to be a wizard and conjure up the future state of business that marks the goal we intend to achieve. When we intend to meet that goal is also part of this plan. That point where what our revenue exceeds every known expenses. That is the break even point. Realistically I believe this could be done within the first year.

The plan will only be as good as the execution. Every detail must be followed. Any obstacle must be addressed in a timely manner to keep us on course. Licensing can take longer than expected, supplies may be unavailable, anything is possible to cause an issue. We need to have contingency plans along with providing more the adequate timing for things to take place. If the average amount of time it takes to get a license is 60 days, we plan on 90 days.

Word salad with a side of numbers

The plan is a story. It needs to say in words and numbers every aspect of what I wish to do, how I will do it, and show my math on why I believe it can be done. Hiccups and missed opportunities need to be explained without flimsy excuses or passing blame, as well as our successes need to be backed by what we did that led us to the win. As I had learned long ago working with business analytics, it’s not really a win if you have no idea of why. The answers as to why can be as simple: it was a perfect weather day and we were well prepared for the traffic increase that came into our store. Honestly, that exact sentence has been a reason to support a great sales day when I worked in big box retail. It may work for a day or two’s business, but not a month or a year. Those wins come from having a plan that supports a culture within the business to achieve success based upon a realistic view of the business. Where everything you do pushes the machine forward. That culture comes about with a well thought out plan that adapts well to change.

What’s next

This is where I am in this effort. I am telling the story and backing it up with numbers. I can speak to our losses and show how we took steps to curb such losses from happening again. I can speak to why we had the successes we had, from great festival sales to higher web traffic.

In future posts on this subject, I will share more about some of the more detailed steps we are taking. Some concepts around products and services that are being considered. The ups and the downs; the wins and losses. I do not expect this to be quick, easy, and painless. In fact, I expect it to be a quite the opposite.

Leave a Reply