Expenses: Business Plan Part Four
Alright, so we filled out the gross sales, we filled out where all the income comes from. Now, we get to move on to the expenses. Now, here's something else that's really exciting. Whenever we calculated our salary using that 0.35 number, the 35%, here's something really cool. If you don't spend 40% of every dollar operating your business, you can add that to your salary section and that's super cool. So if you're really careful with your expenses, you don't have to bring in as many dollars to pay yourself the same amount. So, yay, there's good news! (laughs) Okay, so here's how this works. That's the next section, part four. We're gonna change over, and we're gonna start filling out our expense budget. And here's the thing, I don't know if you guys have ever done this before. I am a firm believer in cash whenever it comes to my personal spending. I've found that if I have cash in my purse and I use that instead of a credit card or a debit card, that I spend far less money. Period. Bec...
ause when I see those dollars disappearing out of my purse, I'm like, oh my gosh, I only have 20 dollars left, maybe I don't need that after all. Whereas when I just swipe that card, it just keeps going and going and going. Well, your business is exactly the same way. If you watch these numbers like a hawk, and you calculate them on wine Wednesdays, remember that? If you calculate all of your expenses regularly and you know where those dollars are going, you will find that you keep more way of those in your pocket. So this is where you can really change the numbers of your business. So I've included the recommendations from the Professional Photographers of America benchmark survey, as to how to calculate these numbers based on averages that are out there. So these are just safe, happy numbers, again. If you have specific numbers that you know about your business, use your personal numbers. If you don't know what it is, use the numbers that I've included here. And you can customize anything, it's your business. You can change it however you want. So if one of these categories doesn't fit your business, change it. This is for you. Remember, the more you spend on your business, the less you get to keep for yourself. So let's figure out how to put all this together. So... We've started out at the top with the gross sales and figuring out how much we're gonna pay ourselves. We already did that number. So I want you to write that number in the 2017 budgeted expenditure, that is your goal that you're gonna pay yourself. You calculated it in part two. And then for comparison's sake, write down what you paid yourself this year. If you don't know it, go calculate it. If you have a brand new business, you get to write a zero in there and that's okay. Hopefully, if you've had a business, you don't write a zero in there. So anything that you pay yourself above that zero is a success, right? (laughs) But it's really to compare where you are to where you wanna be, and then look and see what actually happened. Because watching those patterns tells you if you're on the right track or not. So... Write down in that 2017 budgeted expenditure, it's in the middle column, what that salary is. And you've already calculated the gross dollars that you need to bring into your business, the gross sales, you've got that number. And that's what you're gonna use to calculate your budget for the year. So to figure out how much you can spend creating your products this year, you're gonna take that gross sales amount, in the example, it was $145,000 dollars, I think was the total gross sales, you're gonna take whatever that number is that you wrote down for your gross sales and you're gonna multiply it by a percentage. The recommended percentage is 25% to make your product. So take whatever that gross sales number is, multiply it by 0.25, and that tells you how much money you have to spend to make your products. Imagine how helpful that is when you start looking at what you're gonna offer that wow product. It'll tell you what you can purchase, what you can afford to buy. Okay? So that now you figured out your budget for all the products that you're gonna make for the whole year, yay! The next thing is employees. If you have employees, you have about four to 9% to spend on that. If you don't have employees, guess what? You get to write zero in there and all that money gets diverted to your salary. Yay! Okay? So that's a percentage that you can direct right to you. The next one is building expenses. If you rent a retail space, this is only for retail business owners, if you do that, the recommendation is to spend between three and 11% on that. If you don't have a retail location, guess what? All that gets diverted to you, that goes in your salary, yay! Okay. Marketing expenses. This can be the black hole of a business, or it can be nothing and it totally depends on how you wanna operate things. So, the rule of thumb for marketing is 15% for a growing business, 10% for a stable business, and 5% for a well-established business, okay? Now, I have never spent 10% on marketing, ever, except that one year I placed the $5,000 dollar ad. So... I would challenge you to go out, build relationships, they're very economical. It just takes blood, sweat, and tears. Especially if you're just starting your business, be in your community, build those relationships, reach out to people that you know, keep reaching out, build your business that way. Think about social media, use that as an opportunity. So I would caution you not to invest too many dollars on marketing, but at the same time, you have to market like crazy. That's not permission not to market, it just is a challenge to market smart. So... We're on the marketing expenses. Take what you plan to invest, or your gross sales, multiply it by a percentage, maybe stick with 5%, 0.05 would be the number you multiply by, put that in there and stick to that budget. Because as a business owner, you probably know you get inundated with calls all the time, hey, we have this great opportunity for you to reach an incredible client base, if you only spend $700 dollars to place this ad. Usually when people call you, it's not good for you, it's good for them. (laughs) So that's your marketing budget, gross sales times 0.5, 0.1, or 0.15. I'm sorry, 0.05. 0.1 and 0.15. Okay. Now, administrative expenses. This is our last general expense category. This is our last piece of our general expense budget. It should be between 12 and 17%. I would say if you're brand new and you don't know what it is, pick 0.15. You'll split the difference and then you'll know next year how much you spend as a business owner on general expenses. And then the capital expenses. (laughs) Let's catch up. So we've talked about employees, we've talked about rent, building overhead. And then we've talked about marketing, websites, print ads, printed materials, social media is a very inexpensive way to market, postage, sending out post cards, printed things, all of that, I think it's a little bit of an obsolete idea for marketing. And then sometimes what we do for marketing is just take people out to dinner and connect with them. So we also have a meals and entertainment in our marketing budget. Not for our meals and entertainment, but for the people that we wanna build relationships with. Okay, so the administrative costs, just as a reminder, these are office expenses, paper, printer ink, not to make photographs but to make invoices and things like that, postage for bills and things like that, props and camera cost, telephone, internet. Those are your administrative things. Now when I say camera cost, I saw some eyebrows raise, that's not the purchase of a camera, that's like to send it in to get it repaired or maintained for the year, or little incidental things. So those are your administrative expenses, that's what we're talking about in that category. Okay, so... The last one is capital expenditures, all the goodies. Now I can tell you if you can afford that camera or not. Here's how you know. Take that total sales, multiply it by either 0.4 or 0.9, 0.04 or 0.09, or somewhere in between four to 9%. If you're new, you're probably gonna need more equipment. If you're established, you probably need less equipment. And that's what you can afford this year to buy. Now if you really need something, like you don't have a camera, it's really hard to be a photographer without a camera. If you really need to have that camera, buy it if you need it, but know that it comes out of your salary. That's the trade off, okay? So... That's your budget for capital expenditures, software, cameras, computers, all of it. Got it written down? Challenge you to stick to it. And then when you add all of those up, that's your total budget for the year on spending. Then you track this every month like we talked about in the business basics earlier, see how you're doing with what you thought you would do, and then your business will tell you what you can and can't do as it comes to spending.