Cash – music business plans generally don’t go bust because they don’t make enough profit, they go under because they can’t pay their bills.
Sales and marketing – music business plans can’t earn money without sales but it can be a long process involving prospecting, then managing leads through to sales before finally selling more to existing customers.
Production – if you sell products then you will have to buy stock and sell enough finished product to make a profit. If you sell services, you need to make sure you provide enough to cover your costs.
Here is a look at each of these in more detail.
This is the domain of accountants but rather than give you a scary list of accounting terms, there are some simple concepts you can apply. You need enough cash in the bank to cover your bills, both now and in the short-term future. Keep an eye on how much you have and your liabilities – the money you owe – and make sure the former is larger than the latter.
An extremely simple concept in music business plan, but one that could save you from going under. It’s known as cash management.
Keep an eye on both the number of sales you make and the profit per sale. To calculate the profit you also need to know your costs – so make sure you know how much each product or service costs to manufacture, deliver and service.
Sales and Marketing
Purchasers go through a process from general browsing to an enquiry, then possibly a more in-depth discussion before finally purchasing. Identify how many people are at each stage and how many of them move through the different stages. This is known as the conversion rate.
Knowing the conversion rate means you can see quite clearly where you need to improve and where you need to focus your efforts. For example, if you are excellent at converting leads and enquiries to sales then your key focus needs to be on getting more enquiries, which you might do through advertising.
Alternatively, if it’s the other way around then you know that you need to improve your sales techniques in music business plan.
Make sure you measure the acquisition cost and the amount of money spent on each activity. Cash management will tell you if you can realistically afford an activity or not.
You should know your maximum capacity to avoid over-reaching yourself. If you can’t meet orders you’ll start to lose customers and probably find your costs increase. Besides, you’ll also be too busy to enjoy life.
Also look at returns and complaints levels, so you know whether your standards are increasing or falling. Falling standards ultimately mean less customers.
There are lots of individual things within these categories that you can choose to measure. Select the most appropriate for your business.
Balance Sheet Projections for Music Business Plans
In an introduction to financial projections for a music business plan weed out low or no margin customers, identify new business opportunities and reduce costs. Writing a business plan is not an easy task and financial projections can prove to be an arduous task. Financial statements projections for business plans involve two parts of financial statements. These comprise the income statement and the balance sheet. From these, cash flow projections can be formulated. The free sample template below shows entrepreneurs how to perform balance sheet analysis and projections. Balance sheet projections, together with income statement projections, can be used to come up with the cash flow statement for the company and formulate cash flow projections.
Introduction to the Balance Sheet for Entrepreneurs
The basic principle underlying all accounting principles is:
Assets = Liabilities + Owners’ Equity
These are all presented on the face of the balance sheet. Examples of assets on the balance sheet include cash, accounts receivable, inventories, fixed assets and intangibles. Examples of liabilities on the balance sheet include accounts payable, borrowings, deferred tax liabilities and accruals. Examples of owners’ equity on the balance sheet include retained earnings, paid up capital and share options reserves.
Creating Projections for Assets
Creating pro-forma balance sheets will require the entrepreneur to analyze prior periods’ cash, accounts receivable, inventories, fixed assets and intangibles. Entrepreneurs should first perform balance sheet analysis. Thus, if historically, accounts receivable form 30% of all sales, it is a good starting point for projecting year on year ending accounts receivable balances. Taking into account timing differences, allowances for doubtful debts and bad debt write-offs, an entrepreneur can paint an accurate picture of accounts receivable balances for the next five years.
Care must be taken to project fixed assets which depreciate such as leasehold land, buildings and motor vehicles. Taking into account the depreciation method (entrepreneurs can choose to use the straight line method of depreciation to simplify projections), accumulated depreciation and net book values of fixed assets must be adjusted annually in the projections. Furthermore, capital expenditure in line with the Company’s expansion plans should also feature in the projections.
Creating Projections for Liabilities
Accounts payable can be forecasted by estimating amount of purchases to be made and how long it takes for the company to pay its trade creditors. Accruals can be estimated by using current actual figures and adjusting for timing differences and expected changes in business growth. For example, accrued wages for the next one year can be projected by using the last month’s payroll figures and multiplying by the percentage increase in expected headcount, if any. Similarly, borrowings can be forecasted by adding any unused bank facilities or decreasing for any expected repayments.
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