Hello and welcome to another episode of always up to date. I’m Denise and this is yai and we are co-owners of always bookkeeping. Uh, how’s it going? [inaudible] good. Um, it’s starting to get a little cold up there, but yeah, the weekend is supposed to be so warm, like warmer than our summer. Yeah. So hopefully that happened. I don’t trust the weather. No. So yeah, that’s like three days away. Um, so today we are going to be talking about the benefits of business planning and this is actually part one. We have, um, a couple of videos for this, but, um, so our quote today is from Abraham Lincoln, who was the former president of the United States. Uh, and he said, give me six hours to chop down a tree and I will spend the first four shop sharpening the ax. Um, and our statistic today is from Palo Alto. And so business owners who complete a business plan are 50% more likely to grow their business.
Um, so, you know, clients come to us your way and they have an idea of what they want their business to be, but they don’t have a business plan or their business plan is really weak. Um, and so they don’t really know what direction they want their business to go. Uh, so this is why we’re going to talk about the business, the benefits of making a business plan. Yeah, for sure. So one, um, one question that we always get is, should I focus on creating a perfect financial and cashflow projection? Yeah. So lots of business owners think that that’s where they need to start is creating a perfect financial and cashflow projection. But really that’s probably the, one of, one of the best things to outsource to an accountant. An accountant can do it for you and they can do it correctly. Um, so many times we have clients that come in and they’ve done a, a cash flow projection and it’s wrong with Edmonton Bookkeeping.
Um, so unless you have a, um, a qualified accountant to do it, you’re probably gonna be wrong. So I would say don’t focus on that on the, um, financial and cashflow projections. Find somebody, an accountant, a CPA that can do that for you. Yeah, for sure. And especially for small business owners. I, I feel like we’ve focused on, uh, these projections on a very optimistic kind of approach when we do, when we do the projections, because you always look at it as if you’re going to reach capacity within a year and the numbers are really, um, uh, really, really optimistic. And, um, sometimes if you, if it’s, it’s, if you’re using it, you know, to get it back long, then it’s great for a bank to see that numbered getting. But if you’re really using the business plan, you know, to guide you on your business, then you want to be able to be, uh, as realistic and as, uh, conservative as you can be.
Because at the end of the day, if you have limited resources, this is going to identify which months are going to be your lower cash flow months and how, you know, to, how will you be able to fund payroll and, um, other items that needs to be paid during those months that you need cashflow for. Yep. Yeah. So why should a business owner focus their time on identifying the items that make their business unique? Yeah. So as a business owner, you should focus on, um, identifying items that make your business unique because you’re the one that knows your business. You’re the one that knows where you want to take the business for amazing Edmonton Bookkeeping. Um, you know, you want to find things that are unique to your business. There may be a hundred different people that do the same thing that you do, but there’s something unique about you and about your business and you’re the one that’s going to be able to figure that out for sure.
And also, um, I know a lot of businesses owners, we’ll try and get all, you know, the lower cost, lower of costs, um, or the lowest cost in the market, the best product, you know, the best customer service. You want to touch on all of those. Um, well that’s great. I think your differentiation will start to be better if you focus on three and be the best at it, you have the a better chance of, um, knowing what your customers are and being able to know what those customers needs are so that you will be able to supply, uh, their necessity. That’s right. And that’s what’s going to sustain your business in the long run. Yep. Yeah, exactly. Um, what should a mission statement include? So, um, so once you’ve been identified what’s unique about you, um, you wanna make a mission statement. Um, your mission statement is going to include what you want people to know about you, what’s gonna make you make it kind of stand out with Edmonton Bookkeeping.
And a mission statement should be just short. It should be something that, um, you or your employees, the people around you can say it, they don’t have to question it. You know, we get people that come in quite often and they’ll, they’ll have a mission statement and it’s like a paragraph long and nobody knows it. They don’t even know it. So, well I haven’t written down, you know, I can read it to you. Um, you know, you want it to be short and to the point so people know what it is to, um, to be able to do it for, for always bookkeeping. Um, our mission statement is always up to date, always ready to make business decisions. Um, so you don’t tell us kind of who we are and, and what we want people to know about us. Very short and to the point, um, you know, once we hiring employees, they’ll be able to learn it to know.
And so, um, I think it’s easier for people to kind of get on board when they know what your mission statement is and what you’re about. Yeah, absolutely. And also your mission state mentioned solve the problem that you identified. I mean, we’re all, we’re all in business to solve a problem. Right? That’s right. Your customers are looking solution for, for solutions for us. So that’s right. Yeah. Um, what should a mission statement not include? Yeah. So you don’t want to, um, including your mission statement. Um, the first of all the industry standards that we know, that’s what you do. If you’re a plumber, we know that you’re fixing plumbing, you know, sort of thing. You don’t need to put that in. Um, you don’t need to, again, put everything that you want to accomplish as your business for top Edmonton Bookkeeping. Again, we want it short and to the point, kind of encompassing everything that your business is about.
Um, again, like I said before, we don’t want paragraphs and, um, things that people are going to start reading and just, yeah, whatever. I know they’re just gonna get tired of reading it and not get to the end of it. And like, while it’s well written, it could be seen in a different corporation too. So you’ve got to be able to, you know, distinguish yourself from your competitor if you’re just going to put the general idea of what you do in the divisions. That’s right. Yeah. Um, how many revenue groups should my business have? Yeah, so that’s a good question. The revenue groups, um, we recommend that a business have no more than three. Um, sometimes there’s, there’s circumstances where you have to have more than three. You might not have as many as three. Maybe there’s just one that you, you do, that’s okay too.
Um, but we suggest not going more than three. Um, do I need to be precise in establishing categories? Um, and you don’t need to be precise in establishing categories, especially if you’re a brand new business. Um, you’re not gonna have enough data points to figure that out. Um, you know, if you have a specific item like, um, onion rings, for example, you know, as a, as a restaurant owner, you don’t need to know how many, uh, or how much it costs you to, to, uh, prepare an order of onion rings. You know, you get into a position where you’re having to figure out, um, you know, how much oil you used for onion rings and how much oil you use for French fries. And it’s just, it gets too complicated. So you just kind of want a general idea of, of what you’ve sold and how much it is with Edmonton Bookkeeping.
Um, what are direct costs for each revenue group? So the direct costs for each revenue group, um, are the costs that vary based on how many units are produced and how many customers are served. So that’s how you get your direct costs to your direct cause should move when your revenue moves, right? For example, if you have a, um, if you’re, if, uh, let’s go back to the plumbing example. If you have the plumbing example, you will have materials that you will use. Um, if you have a certain, um, item that you use every time you do a service call, then that’s one of your direct costs. Or do you even leave for labor itself, for your labor wouldn’t be your direct cost. Because every time there’s a service call you’re like, your labor costs will increase. Right? So that’s what you wanna um, that’s what you want to figure out what items are necessary to perform the job.
That’s right. Yeah. Yeah. And you should see that on your income statement when your revenue is going up, your cost of goods or your cost of the services should go up. Um, when your income goes down, you should see the cost of goods going down. It’s kind of how you can judge that because that’s how you get your margin. That’s right. How much your uh, you have charge to recover those costs. Right. Profit on it. That’s great. Um, alright, I think I lost my place there. Denise. How do I get the average revenue per transaction? Okay, so to get the average revenue per transaction, um, you want to divide the gross revenue for the revenue group in the prior year by the number of turns out transactions in that group for the year. So that’s basically how you get the average revenue per transaction. So divide the gross revenue for the revenue group in the prior year.
By the number of transactions in that revenue revenue group for the year. So, uh, for example, again on the plumbing, uh, that we have, um, you will look at all the directly did the gross revenue or the revenue amount at the end of the year from last year. And then think of how many service calls you did that year and divided by that number. That means that’s how much you, um, you earn per service call that you have on average, right? Yeah. Um, how do I get the average direct cost per transaction? So to get the average direct cost per transaction, you want to divide the direct costs for the revenue group in the prior year by the number of transactions in that revenue group for the prior year. So again, the same, same basic idea, but you’re dividing the direct costs for the revenue group. And the, um, I remember the main purpose of doing this exercise is to find out how much you’re, um, how much revenue, direct costs and gross profit you’re getting per on a per unit basis as opposed to, you know, like permanent theorial or something even more detailed.
Um, as a small business owner where we want to be able to just know, um, a figure that’s relevant to us to decision to be able to make the right decision. Yeah, yeah, exactly. Um, what is this or what if this is my first year and I don’t have any prior year data? Yeah, good question. Um, so the last two questions we talked about the prior year, if you’re just starting out and you have no data to work with, um, what you want to do is you want to start with the average transaction cost, add the desired profit per transaction and that was going to get you the average revenue per transaction. So then you want to compare that to the industry average, an estimate, a desired pricing structure. So does that make sense? You start with the average transaction cost, add the desired profit per transaction to get a proposed average revenue per transaction with out Edmonton Bookkeeping.
And then you compare to the industry average an estimate, a desired pricing structure. So for example, um, on the plumbing, again, let’s say you have no data points to, to look at it. Um, and really on your, on your average service call, you would have to pay somebody for two hours. Let’s say she’s getting paid a $20 Brower and they, they put, uh, they will be doing the work for about two hours on average and it gives you 40. And so that’s your direct costs. And then if you have, uh, if you have your desired profit, which let’s say, um, I want it to be, um, I want to have, uh, I want my cost to be a third of my profit or my gross margin, right? So you, you take that $40 and then you multiply that by three. So you want, you want to be able to charge $120 it to be able for you to afford, um, the $40 direct costs that use Edmonton Bookkeeping.
And still have the two thirds as your gross profit margin. Right? Yeah. Um, how do I get the average gross profit per transaction? Yeah. So to get the gross average profit per transaction, you want to subtract the average direct costs from the average revenue per transaction. So just as you always said, like when he was talking about the plumbing, um, you know, if you take that you charge 120 for a service and it costs you 40, then you’ve got that $80 leftover to as your profit. Yeah. So your gross profit margin does is different than your net profit at the end because this is what you earn before you pay your fixed costs. Right? Yeah. So, uh, yeah, that’s how you get your gross profit. Yeah. Yeah. So I think that’s all the questions we have for this part, at least for the business planning portion. Um, I hope you guys stay tuned for the next video. Um, if he, if you have any comments or suggestions, please comment down below and please don’t forget to click like and subscribe for our videos and we’ll see you guys next time.