Financial Forecasting Basics
Scott Robinson (00:00:01):
Uh, as most of you know, we are livelihood Northwest. Our mission is to foster business, sustainability and growth, or historically underserved entrepreneurs within our local communities. We provide exceptional business development, support services to promote lifelong learning, empowerment, and positive economic impact. Uh, focusing in on today, today’s topic, um, entrepreneurs see the future. They have an idea in their mind of what’s going to happen. And being able to translate that future into financial numbers can help you successfully successfully plan and create that future. So today we will have a role play sample conversation between a business owner and a business advisor during the conversation, we’ll actually build a financial forecast. So I want to thank Liz, another business advisor here at livelihood. She is going to play the role of the business owner, and I will play the role of the, um, um, uh, business advisor and be involved with creating the forecast. Um, note, this is a pretend conversation. It’s a simplified conversation. We’re not trying to answer all the business questions or all the details that each business, uh, might have more of the focus is to get enough of a sense or a flavor of how some of the components work and then string all the steps together. So we can get a somewhat of a complete picture. So please have a little patience around, um, the fact that we may not cover every expense or every issue that you might be confronting in your business. Each business’s unique. And we recognize that there are still some commonalities that, um, flow through, uh, most businesses. And that’s what we’re trying to focus on today, uh, addressing the big issues. So we have a scenario here where the business owner needs a forecast and is meeting with a business advisor. The business profile is Lizzie teas, cupcakes and party room business is looking to create a three-year forecast.
Scott Robinson (00:02:23):
Um, and to note we’re, uh, keeping it simple. We’re focusing on keeping things, uh, less complicated. Uh, later you can add complexity, but in the spirit of keeping things calm, uh, less complicated, we are going to, uh, assume a cash based perspective. Uh, the business is an LLC and filing taxes as an LLC. So we don’t need to worry about taxes at the business level. And, uh, we also have the assumption that the business has been up and going for, um, about a year. And, uh, that’s the background, that’s the context. Um, and with that, I’m going to, uh, invite Liz to join, uh, me and, uh, let’s get into the roleplaying mode. So Liz and I are sitting at a, um, I’d like to say coffee shop, but perhaps, uh, in today’s environment, we can assume it’s a zoom call. We’re sharing a screen with each other and we’re sitting down to work on, uh, the financial forecast, Liz, how are you doing today?
Liz Feldman (00:03:31):
Hi, got, uh, my, okay. I’m excited to see what a financial forecast for my, my business will look like.
Scott Robinson (00:03:41):
Great. I’ll just mention that, uh, I like to work in Excel, um, which is a software that I’m familiar with. Um, all of the work that we’re going to do today, uh, is also possible to do in a different software. Uh, Google sheets is quite popular and it’s free and it’s online. So, um, just wanted to note that today we’ll be working in Excel and, uh, confirm, can you see the Excel sheet
Liz Feldman (00:04:11):
I can for my screen, it may be a little small humane.
Scott Robinson (00:04:18):
Yeah. Great. Thanks for that reminder. I will make it a little bit bigger and keep giving you that feedback, because I want you to be able to see it just like I want everybody else to be able to see it. So as we’re starting to warm up this conversation, um, one thing I know, um, is in building a forecast, there’s, there’s often a few, uh, elements that I’ve encountered, um, um, that I like to do. Um, I like to create a sheet or a page, um, for a table of contents. Um, and this will maybe serve as a little bit of an outline for what we’re going to talk about today. So, um, I’m a very quick typer. And so here is a table of contents. So, uh, in this sense, this contents each will represent a sheet in this workbook. And, um, I like to have a page where we can write down questions that we may encounter, and this will be a place where we can, um, note key questions or, uh, items that we’re not clear about out.
Scott Robinson (00:05:29):
We can record it, not forget it, but not let us ourselves get distracted from the work in progress we’re trying to make on our financial model today. So if we have a question reminding me and we can go write it down on the questions page, um, something else I think is really helpful is to have a page where I can write notes or we can start to put in some, some basic formulas. So I’m going to create a page here. I’m going to call it notes. And, um, we’ll refer to this as we go along. Um, maybe another thing, obviously at the end of the day, we want to help some numbers come together. I understand we want to make a three-year forecast. So, um, I’m going to have a page where we can put our, um, our, um, financials, um, in the final analysis.
Scott Robinson (00:06:28):
And, uh, this is pretty common. I use this for a lot of businesses. I have the months across the top. Uh, I have a place for some key metrics that we might want to consider. Um, I’ve also made it so that we can, at the end of the day, look at the three years, I’m assuming it’s 20, 21, 2022, 2023 calendar years. Um, and we’ll be working with us more later, but this is something that’s all blank. We don’t have any, um, specifics yet, and that’ll come out of our conversation that we have in the next few minutes. Um, and then the last thing I wanted to do was start a glossary. I know that, uh, some of the terms here are, um, going to be new or less familiar to us. So, um, I think it’d be worthwhile in particular because we are going to refer to this, uh, presentation, um, for some of our friends and our other businesses associates.
Scott Robinson (00:07:29):
So it might be great to start a glossary if, uh, whenever, uh, we encounter a term, you think it might be unclear or is less familiar, feel free to call it out and we’ll take time and just noted over here. Uh, let me give an example of what I’m thinking about, uh, the word sales, um, sometimes as used folks call it revenue, and sometimes I’ve seen, uh, particularly in QuickBooks, but they like to call it, uh, income. And, uh, in other places in European countries, they often refer to it as turnover. So, um, hopefully folks, you have a loose idea of what sales means, but I just wanted to mention that there are all these words that, uh, often mean the same thing. Another example is, um, a financial model is often similar to a forecast, uh, which can also be a financial plan. Um, and forgive me if I interchange these words in certain circumstances, but I’m just giving us a little grounding and permission to say that, Hey, really these words mean the same thing, especially for today’s conversation. That sound okay, Liz.
Liz Feldman (00:08:49):
Sure. Yeah. Sometimes I get confused cause some people use the word sales and some people use the word revenue and I’m not always sure if we’re talking about the same thing, so
Scott Robinson (00:08:58):
Yes. Yeah. And honestly I have found people at all levels of business that are also confused by those things. So it’s a quite common and I think it’s good to be extra clear what we mean when those words come up, because even the most experienced professionals often will use them interchangeably and perhaps incorrectly interchangeably. So now we have a little sense of these different areas, um, that we’re going to use on our spreadsheet. And, um, let’s, um, let’s get into it a little bit. Um, Liz, can you tell me a little bit about your business?
Liz Feldman (00:09:47):
Sure. Yeah. So, uh, Lindsay teas is, uh, um, we sell cupcakes, we have a cupcake business, we sell them individually and, um, by the dozen and, um, uh, different flavors, uh, but homemade high quality products. Um, and then we also have a party room and, uh, we, we host parties usually on weekends because most of the parties are for kids and most parents don’t want their kids eating cupcakes at 8:00 PM before they go to bed.
Scott Robinson (00:10:36):
I’m familiar with that. Yes. That makes sense. Um, so as you’re describing the business, I took the Liberty of writing a few notes here on the page. These are topics that we’ll come back to, uh, make the screen bigger. Um, but keep going. How many staff do you have there or are you open all days of the week? Just, just high-level. What are your thoughts?
Liz Feldman (00:11:02):
Um, well, let’s see. Staff-wise um, I have one full-time employee, uh, she’s there we’re open six days a week closed on Mondays. Uh, so she’s, she’s the one who opens and bakes every morning. And then I come in about mid-afternoon and I, um, she probably comes in at nine. We open at 11, we close at eight. I come in around three, three 30, she leaves at three 30. Um, so we bake every morning before we open. We say we sell day old to, I guess, but, um, we don’t often have that many, um, me, which parts do you want me to tell you how this was my dream? What are you interested in for the financial model?
Scott Robinson (00:12:03):
That’s great. No, I appreciate it. Um, as you were talking, I took some notes, um, and, um, I heard cupcakes and I heard, um, party rooms, space rental. Um, is that kind of the two core areas where you get your income or get your sales from?
Liz Feldman (00:12:24):
Yeah, currently that’s, that’s where the sales come from and we sell cupcakes both individually and by the dozen, um, individually, it looks like you want the price there. Huh? So, um, two 99.
Scott Robinson (00:12:38):
Oh, thanks. Before we go there. I appreciate that. So, um, I wanted to dimension that let’s dive in on the sales. If you don’t mind that way, I can start to quantify this a little bit more and in order to get sales, um, it really boils down to a core concept of what is the price for your unit? What is the price of the thing that you sell and then how many do you sell? Um, so if we could, could we start by focusing in, on price a little bit, and then later we’ll come back to the units that you sell?
Liz Feldman (00:13:16):
Sure. Yeah. Yeah. Um, they sell one cupcake for two 99. Uh, so a dozen for $30, which kind of ends up being about two 50 each. Okay.
Scott Robinson (00:13:35):
Right. $30 for a dozen. So I can do a little bit of math here, obviously two 99 for one unit as two 99 each, but yes. So do you think you sell a lot of singles or the majority in the dozen, um, category?
Liz Feldman (00:13:55):
No. It’s been more around does the doesn’t they, they hold up pretty well and or people buy them for gatherings or parties.
Scott Robinson (00:14:04):
Right. Great. That makes sense. So for now, do you think it would be okay if we just, um, work and assume the, uh, average price is the $2 and 50 cents? We can come back and adjust it, but, um, would that be okay for you for now? Great. Well, what about the space rental? Um, how does that work or what do you, again, we’re focusing on price. So what do you, what do you charge for, um, for that space?
Liz Feldman (00:14:35):
Well, we charge $75 per hour and folks usually probably rent for either two or three hours.
Scott Robinson (00:14:47):
Okay. Um, would that be okay to assume two and half is the average duration of the rental. Okay. And again, if you, um, get more data, uh, later we can, um, adjust that. Um, that’s one of those things where if you have the information, uh, and we can get more specific, that could be helpful. But, uh, then it looks like if, uh, if it’s $75 an hour and we average a two and a half hour rental over a period of time, it should generate about 287, $288 per rental. Does that sound reasonable?
Liz Feldman (00:15:34):
Yes. Like 287 or 197.
Scott Robinson (00:15:40):
I’m sorry. 187. I mean, some, sometimes it’ll be one 50 and sometimes there’ll be two 25, but the middle of that ends up being one 87. Yep. Great, great. So this information ties very nicely to what we were looking at as the price. Um, and what I’d like to do next is, um, could we go into thinking a little bit about the cost of the sales? Um, what I like to try to do is understand things, um, on a unit level. So if I know what one cupcake will be in terms of revenue, then, um, maybe I can work on, we can work on together. What will the cost of the sales B, which is based on, um, the cost of one unit times, the number of units you end up selling? So each cupcake has ingredients. Those ingredients together will have a cost. If we can figure out the cost of one cupcake, then we can, um, look at how many cupcakes you might sell and that will contribute to the cost of that sale.
Liz Feldman (00:17:00):
Hey, Scott, I wonder, um, because I’ve heard people use cost of goods a lot and you’re using cost of sales. I wonder if this should go in the glossary. And I think for these intents and purposes, it’s, it’s the same. Um, but I thought it was worth checking.
Scott Robinson (00:17:20):
Absolutely. Um, and sometimes, um, people will call it cogs for short cost of goods sold. Um, I have defaulted to the concept or the language of cost of sales, because if you, um, don’t have a product, which is usually defined as like good, uh, goods, equal products, in your case, you also have the space rental room rental, and there’s not a product that’s being sold there. So, you know, trying to be, um, flexible that cost of sales can also be cost of goods. And these are words that are interchangeable in my mind. So, yeah, absolutely. Thanks for calling that out. And it’s good for other folks to hear and be aware of that as well.
Liz Feldman (00:18:21):
Scott Robinson (00:18:23):
Um, let’s talk about buying ingredients for cupcakes.
Liz Feldman (00:18:32):
Sure. I can, I can just like tell you the ingredients I put in my cupcakes, which probably nobody else should copy because, um, uh, other than it, Lucy teas is this may not work as the ingredient list nor do I know if they will find this pricing out there. Um, for Lizzie T’s cupcakes, uh, there’s flowers and, uh, there’s some sugar and eggs and frosting. I pre-made my frosty and I’ve already gotten figured out what that cost is on average. Um, and then there’s, um, yeah, somehow we don’t even need butter in my cupcakes, you know, like four ingredients,
Scott Robinson (00:19:19):
A simplified list of ingredients for our conversation today. Um, um, also perhaps reflect some my cooking skills and abilities, nevertheless, um, flour, sugar, eggs frosting. Great. Um, most of the time when I get cupcakes, I know they come in a little bit of a container or a wrapper. Is that something that you use as well, or,
Liz Feldman (00:19:46):
Yeah. Yeah. There’s a, well, in the sense of when you, when you bake it. Yeah, there’s a, there’s like a little wrapper on the bottom fancy name for it. I forget, even though I work with them every day and then we actually went for selling, we put them in a box and we have different size boxes. Um, but in general, there’s, there’s a box for the sale as well. That’s correct.
Scott Robinson (00:20:18):
Can we talk about how much flour you may need? Um, I’m, you know, I recognize flour. What they sell it by the pound or something like that. Is that how you buy your cupcakes?
Liz Feldman (00:20:33):
Oh yeah. I mean a pound of flour costs, um, about 35 cents.
Scott Robinson (00:20:42):
Great. And I’m sure with a pound of flour, you can make more than one unless you’re selling giant cupcakes. So how many cupcakes can you get from a founder flower? All right. Um, so as you can see here that at, um, the, the, the cost is about 35 cents per pound, and if that will make 40 cupcakes, then the approximate cost for a flower for one cupcake ends up being about a penny. Well, that’s, that’s pretty good. Um, how about sugar? Do you buy that by the founder?
Liz Feldman (00:21:28):
I mean, I know that a pound of sugar is about 70 cents. I buy it by like 20 or 50 pounds at a time, but I found of sugar ends up being 70 cents.
Scott Robinson (00:21:39):
Great, great. And how many cupcakes can you, uh, generate or get from, uh, that pound of sugar?
Liz Feldman (00:21:47):
About 32. It’s pretty amazing ratio there. A sugar to flour in those cupcakes. That’s why they’re so good.
Scott Robinson (00:21:58):
[inaudible] I can see that I’m starting to see what your, a secret ingredient is, uh, eggs. How does that, uh, usually I’m familiar with buying them by the dozen. Is that how you think about it as well?
Liz Feldman (00:22:11):
Yeah. W when I buy by the dozen it’s, uh, three 50, $3 and 50 cents, it doesn’t
Scott Robinson (00:22:21):
Try to buy
Liz Feldman (00:22:22):
In bulk, but that’s, that’s still ends up being about the same price. I get high quality eggs.
Scott Robinson (00:22:28):
Great. And what does, uh, how many, uh, cupcakes can you make from that
Liz Feldman (00:22:35):
Get 64, about 64, somewhere between 60 to 68. So I’d say 64.
Scott Robinson (00:22:42):
Okay. Excellent. All right. Uh, frosting, I don’t use a lot of frosting don’t you?
Liz Feldman (00:22:50):
Well, I make a lot of frosting because I’m like in my cupcakes get different pressings. Um, so if you were, I, I figured this out on the side, a pint of frostings about two 99 for ingredients, but I make, I make a lot of frosting. That’s part of why people love my stuff is so sugary on the bottom and it’s sugary on the top. And sometimes we’re all addicted to sugar.
Scott Robinson (00:23:18):
Yes. And about how many cupcakes can you make from, from that frosting?
Liz Feldman (00:23:23):
Scott Robinson (00:23:25):
All right. All right. Uh, and the rappers, how do you buy those?
Liz Feldman (00:23:33):
Um, well, they come in sleeves and the sleeves are about, uh, nine 95 per sleeve
Scott Robinson (00:23:43):
And is okay. Good. Yeah. I’m in the best for my cupcakes, indeed. So, uh, the box, that must be something that you have especially made or is as, you know, meets your needs.
Liz Feldman (00:24:03):
Yeah, yeah. Yeah. So the boxes and they’re different size boxes, but if you’re, if we’re, and they, they have slightly different prices for the size, but if it was one cupcake, those boxes are $9 for 50.
Scott Robinson (00:24:20):
So you would get 50 co moxa and, uh, CAUTI $9. Okay. All right. And I recognize that if you’re selling a dozen, then maybe 12 cupcakes can go in the box. But if we start off with a conservative, we’re going to assume each purchase. Each cupcake gets its own box. Um, and then, uh, hopefully the fi the actual numbers will come in better than that. So now we getting a little bit of a sense of every time you sell a cupcake. Now we have a little bit of a sense of what the cost is, her cupcake, I’m going to change. Those costs her cupcakes about 46 cents. Now I know that doesn’t take in labor costs, which is something that we have to bear in mind, but from what I hear, you have a physician that kind of, that person comes in at work certain hours. So, um, maybe we’ll take care of wages and salaries a little bit later, and we’ll focus here on the cost of the cupcake materials.
Liz Feldman (00:25:33):
Yeah, that makes sense to me, my Baker does other things as well. So it would be kind of hard to only allocate their time.
Scott Robinson (00:25:44):
And then, um, let’s talk about the space rental, the party room. Do you have extra costs based on that event? I heard you said you come in the afternoon and you, you tend to be there in the evenings. So do you end up having, um, you pay somebody to come in and take care of that, or is that something that you usually do, uh, while you’re there?
Liz Feldman (00:26:12):
So I’m, I’m moving toward, um, and hopefully having enough money for this, um, hiring somebody else to come in because the, you can always come in and you can buy cupcakes. We’ve kind of actually rearranged since COVID. So, um, you can always come in and buy cupcakes, but now we have this walled off area, both inside and outside where the party can be. And so to manage support the party space, um, I have someone else come in about a half hour before, make sure the area is clean and ready, they’re there and able to support during the party. And then they clean up for a half hour after. Um, and that all is happening while whoever is, is, um, up at the front, uh, selling the cupcakes. Sometimes I’m actually the one who manages the party and then somebody else is doing what my job or what the other employee’s job would have been. But, um, yeah, so there’s, there’s another role there and I do have an extra cost for the parties.
Scott Robinson (00:27:21):
Okay. So let’s think about that. Um, so it’s about, we said the event was about two and a half hours on average, and then, um, there’s an hour of a cleanup. So is it fair to think that on average, the commitment is the sum of these two guys, three and a half. Okay. And that person, if you were to bring somebody in to, to, to help you with it, um, how much do they, um, uh, get paid?
Liz Feldman (00:28:00):
Uh, they’re employee and I pay them, I really try to pay them well, because I know how hard it is. Uh, they get paid $18 an hour.
Scott Robinson (00:28:10):
Okay. 18 per hour. And, um, just to be sure, that’s, that’s their hourly rate. Right. So, um, there are taxes, payroll taxes and things on top of that, right? Yes. Great. Um, I’m not sure exactly what those are, but for now, let’s assume, uh, 15% in, um, in, uh, payroll taxes. So the company costs, uh, comes to be about 20, $21 an hour. And if they’re going to be working, um, for an average of three and a half hours per event at 2020 $1 an hour, it comes to about $72 of additional labor for, uh, each space rental party. Unless you’re the one doing the work, then maybe you don’t have to call somebody. And for now, let’s for now let’s plan on, on this, um, on this work needing to be done. So I appreciate you, uh, going through this with me, um, we have focused on the single unit, um, both the rental and also the cupcakes. Now let’s talk a little bit about the quantity because, um, and that change
Scott Robinson (00:29:42):
Maybe by the day, by the day of the week. Um, does it make sense to talk about these units sales in, in terms of a week we could highlight weekend days versus weekdays if those are different?
Liz Feldman (00:29:59):
Yeah. There’s, there’s definitely a difference, you know, sometimes on the week, day, um, it’s real slow, but other times it’s, it’s higher overall weekdays are slower than weekends. People seem to want to celebrate a little bit more on a weekend. Yeah. I liked that idea, like week looking at it on a weekly average, but kind of separating out, um, weekdays and weekends. That makes sense to me.
Scott Robinson (00:30:28):
Okay. So we’re going to talk about a weekend Bay and, uh, you know, midweek, if you will day and let’s talk about, um, you know, unit sales, um, during the weekend, um, for, for each day, do you have a sense of how many cupcakes you sell?
Liz Feldman (00:30:54):
Yep. Per day. I mean, it’s still also varies quite a bit, um, because some, and it also varies, you know, by season, but if we were just going to look overall at the whole year, it’s probably about 150 per day on a weekend, you know, with some seasons being real high and some not being as high, but that’s yeah. And then the week days also changes by season. Um, probably, but it’s less, it’s like, Oh, it’s like two-thirds of the other has probably maybe a hundred, uh, per day.
Scott Robinson (00:31:41):
We can start there and change it. Um, as we get more information. So if, if a hundred feels okay for now, let’s start with that
Liz Feldman (00:31:52):
Four days during the week.
Scott Robinson (00:31:53):
Thanks. I was just going to double-check, let’s make that four days. So the weekend days we have Saturday and Sunday, so that’s why there’s two of them. And so over a whole weekend, we might have 300 cupcakes sold and then open four days during the week, 100 per day. So through the whole kind of work week, mid week, um, you might get about 400 units of sales. Does that sound right to you?
Liz Feldman (00:32:27):
Yeah. Especially if we look at how much money that actually would be, that would be helpful because I know what the sales are too, but that sounds about right. Um, just operationally how much we, we bake you bake more than that. Of course. But, um, it sounds about right.
Scott Robinson (00:32:43):
Okay. So let me look at this, the total, um, across one week, let’s, uh, these two together and that’s about 700 in a week. And, um, a year we have, uh, 52 weeks, um, are you open all 52 weeks? Is that what we should plan?
Liz Feldman (00:33:08):
Uh, when I was saying those averages, I was thinking about it as if we’re open 52 weeks a year. You know, we have some days that we’re closed, but yeah, overall I’d say, let’s it call it 52.
Scott Robinson (00:33:21):
Yeah. Initially I was thinking maybe Christmas, new years, it might be closed and have lower sales, but then I also know that those are party times. So maybe you get a couple of larger orders during that time a year for a parties and celebrations. So yeah, if we do an average week of 700 times the 52 weeks, then that’s looking at about 36,000 cupcakes in a year. That sounds delicious. Um, awesome. Let’s talk about your other major revenue source, the space rentals. Um, does it make sense to talk about that in terms of weekends and weekdays as well?
Liz Feldman (00:34:11):
Yeah. Yeah. Sure.
Scott Robinson (00:34:15):
So on a weekend, does it tend to get more use or less use?
Liz Feldman (00:34:20):
Yeah, I mean, really, so weekends are definitely just more popular year round, um, start there. Um,
Scott Robinson (00:34:35):
Liz Feldman (00:34:38):
Since it was only, I’d say max, sometimes we, we do have like two parties per day on the weekend, so that’d be four. Um, I really like it to be in the coming year. I’m trying to get up to three per day on average, so that we’d be up to six. Um, so maybe let’s see. Maybe we can call it six because that’s really my goal for this year on weekends. Um,
Scott Robinson (00:35:06):
So hopefully three on Saturday, three on Sunday. Okay.
Liz Feldman (00:35:13):
And then, uh, weekdays are actually were super popular in the summer, not super popular in the winter, but if you were to average it all out, it’s, I mean, it’s really busy in the summer, uh, but kind of dead in the winter. So it’s probably about three per week on the weekdays on you, like take it the whole year.
Scott Robinson (00:35:39):
Okay. So we are looking at an average of nine per week and again, being opened in 52 weeks, that would give us, um, about 468 events throughout the whole year. Uh, you know, that that’s a lot and, um, that’s wonderful that it’s that popular and you’re able to, to use that space so well.
Liz Feldman (00:36:02):
Yeah. We’ve been able to make it really COVID friendly. And so I, I think, um, having, uh, like a place to go and especially in the summer when people could be outside, if they wanted that worked really well. And we’ll, we’ll see going forward since we’re going to have some heaters, we’re going to buy a couple extra things so that we can really make this year round a possibility. Okay.
Scott Robinson (00:36:28):
So this is an important, um, part of the conversation. Um, we have reviewed sales, we’ve talked about price and quantity and the quantity of units sold also gives us the quantity that is relevant to the cost of the sales. We talked about the costs that go into a cupcake and, um, and of the, uh, help for the rental. So we’re ready to talk about, um, gross profit, um, if it’s okay with you, um, could we start to build out our forecast and start to reflect some of these numbers in that?
Liz Feldman (00:37:07):
Oh yeah. I can’t wait to see how you’re going to make these numbers into something useful. I’m super excited.
Scott Robinson (00:37:12):
Great. Um, I have taken the Liberty of starting and you might’ve seen that earlier. This is just a template, um, which has our month’s in it. Um, sometimes we put an actual start month. If you’re a startup, you might think about it as being month, one month, two. So those would become months of activity after, uh, everything’s ready for a launch. Um, in your case, um, you are up and going and we do have a bit of a history, so we don’t need to focus on pre launch activity. For example, if you were going to start a restaurant, you might build a building and put in the kitchen and all the equipment, which would take time. Um, and some businesses start very low and ramp up, but today are focused and with your, with your business, we’re really just trying to capture where you’re at and move forward. So, um, I think, uh, part of our conversation was focusing on the cupcakes that were sold per week. So let me bring that information over. Um, and we were saying,
Liz Feldman (00:38:27):
Got it. Would you mind making this view a little, a little bigger on that other page, the financial model page, my eyes sight I’m in the, in the moment for almost ready for some new glasses here.
Scott Robinson (00:38:40):
No worries. Is this, does this work for you? Is that good enough? Thank you. Perfect. So, um, there’s a little bit of construction going on here and I’ll be flipping back and forth, um, to some of the other screens, but we, we were saying where we were going to average eight, excuse me, 700 cupcakes per week, um, here. So I’m going to start by assuming that’s going to be the same, uh, over the three years. So you can see for every month, sorry, that’s just for one week. Um, and we know that, um, on average there’s 4.3 weeks in a month. So, um, actually let me do that somewhere else. I’m just going to keep this as our weekly estimate of cupcakes, cause that was the same number on the other page. So we’ll keep this and we will, um, show what these are, uh, also on the total.
Scott Robinson (00:39:54):
Um, I’m just doing a little bit of math here so we can have a sense. And so we can see it on a monthly basis and also an annual, um, I’ll just note that I like to make my financial forecast on a monthly basis. Um, I think that has value because to a business owner or a management team, I think it’s easier to translate financial goals and objectives to the individual tasks and work that has to be done to make it happen. Um, the way I’ve created this, you can see if you’re familiar with Excel, but I can hide the months like I just did. And we can see the total annual numbers and annual numbers are really important for conversation, maybe a conversation with a banker or, um, staff or a business advisor like me, because we can understand things on a bigger scale. We know you can’t make changes from month to month so easily, but it helps point to the longterm where you want to go with a big business. Um, and if we can break the long-term plan down into monthly, that I think allows us to connect the financial plan with the action and the steps that have to happen. Um, there people have different preferences and style and I support multiple different perspectives, but for now I just want to a little context of why
Scott Robinson (00:41:34):
I’m I like the monthly. Um, so here we have the weekly sale average number we brought it in and, uh, I think the sales price is something that’s good to look at as well. Uh, going back to the notes page, we started with the assumption of $2 and 50 cents. So let’s for the moment, carry that over and assume that for the whole time period as well. So now we can see $2 50 cents, um, is our average cupcake price through all these months and on the full year where I just did a simple average over the year, so we could see what we were looking at. Um, okay. And then the simple math is, um, the number of cupcakes we sell per week times the price and how many, uh, weeks or in a month, 4.3. So now we have a sense of what our revenue is for cupcakes by month. You may not have followed all of the math there, Liz, but does this make sense? Um, the steps,
Liz Feldman (00:42:45):
Yeah, it does. And I mean, I could see if we were going to really get into this for some other purposes that we’ve, we might really change that 700, you know, and make it higher in my good months and lower in the expected low months. But I, I know that on some level right now, we’re really doing this to C Thompson total sum, total revenue for the year. Um, that makes sense.
Scott Robinson (00:43:11):
Great. And, and I appreciate you mentioning the changes throughout the year. Um, and yes, bear with me for a moment. We’ll, we’ll, we’ll make it all come together. Um, and we actually can go in here and change it. Um, if you have an event, we can actually make these manual adjustments to capture the changes or to say, what if, uh, what if we double our sales? What if these other scenarios happen? So right now I’m just trying to build a structure and then later we can make changes to it. Um, so let’s bring in the, the rental revenue. Um, we were saying that the space rental was 187 each event. On average, there were nine, um, average rentals per week, and then we have 4.3 weeks and a month. So there we go. That’s what the one month point of view is for the space rental. And, um, let me run that out over our three years. And, uh, that’s what we have. So 14, 15,000 of monthly income, does that seem like the right level for where you want it to be? I know last year was a little bit below that you mentioned earlier
Liz Feldman (00:44:45):
That that seems good for, uh, 20, 21. Um, when we’re ready, I definitely know I’m going to increase prices and I’m going to try to have some higher goals of units sold in 2022 and 2023, but that’s, that seems accurate for, uh, next year.
Scott Robinson (00:45:07):
So now, uh, I’m going to take the number of cupcakes I’m going, um, per week times the 4.3 weeks in an average month. And let’s go look at the cost per cupcake. That was 46 cents. So now we have some costs, the cost to make these cupcakes, and I’ll spread that out over the whole time period, again, as you noticed, all of the monthly, uh, ingredient costs are the same. We know costs change over time, uh, and we can make those adjustments later, but for now, this is, uh, I think representing the cost to make, uh, about 700 cupcakes a week. That makes sense.
Liz Feldman (00:45:54):
Yeah, those are some real nice cost goods. Yeah. It’s going to be a lot of people out there who are going to want to have a cupcake business when they see these types of costs of goods.
Scott Robinson (00:46:04):
Absolutely. And the world will be a happier place for that. No doubt. So let’s do the same for the events. Um, we were talking about nine events a week on average, um, times the 4.3 weeks in a month, and we have an average, um, labor costs of this 72 45. Um, so that’s what that cost is. And here I’ve linked it, um, to show each month. So that’s, uh, what we’re looking at here.
Liz Feldman (00:46:42):
Yeah. And I, I think it’s worth, I noticed that what you’re doing is you’re putting that equal sign in the box, Scott, and then you’re going and clicking on other boxes. And that’s how you get those numbers to show up. I only learned how to do that recently. So if folks are wondering how you are getting all these great numbers from other pages that equal sign really does a lot, and there’s lasting things that Google to Google to help you know, how to do these types of formulas.
Scott Robinson (00:47:13):
Yes. And there’s great YouTube videos on how to do that. Um, my I’ve had some experience with Excel and Google sheets. Uh, the short concept is you have to say the word equal and then you’ll link it somewhere else. It says, let this cell equal what value is somewhere else? And then I can do some map to it times three or whatever to adjust it. Okay. We’ve made great progress. We’re down to gross profit. Uh, it’s 11 o’clock. So we still have some more time. Um, I do want to move through the rest of it to help people see the rest, um, the financial plan. So let me go back to the notes page and calibrate where we are we’ve, um, discussed and brought in sales forecast numbers, cost of sales, gross profit. And now let’s move down to this thing that’s, uh, often called, uh, operating expenses.
Scott Robinson (00:48:09):
And the concept behind operating expenses are, um, the expenses, the costs that a business has, that don’t really change based on what your sale or, um, sometimes they’re six costs a month, a month. Um, sometimes I don’t like using the word fixed because it might suggest they never change. We know that as you bake more cupcakes, maybe the electricity costs or the gas costs go up. So they’re not absolutely fixed, but in comparison, these, um, these, uh, operating costs tend to move much more slowly. So, um, Liz, can you share with me some of your, uh, operating costs or some of your other costs that we haven’t talked about yet?
Liz Feldman (00:49:02):
Um, well we already, we already talked about the wages piece, so I don’t know if you want to talk about that again. Should we just talk about going to like rent and stuff like that?
Scott Robinson (00:49:13):
Yeah. We’ll, we’ll footnote wages and come back to that and I think there’s more to it, but let’s go into the others rent. Yeah.
Liz Feldman (00:49:20):
Yeah. So I pay rent and triple net and it’s about 2000 a month and, uh, utilities are about 200 a month. I pay my insurance. I actually pay my insurance once per year, but if you average it out, it’s a hundred per month. Um, sometimes I have some bank fees, uh, you know, I really have to switch from one of those big banks to the little banks that don’t charge bank fees, but I pay about $25 a month, local banks that don’t charge. I know my business advisor keeps telling me I’m going to do it at some point. Um, uh, it’s credit card fees. I don’t know if they go here, um, or up in cost to goods, but it’s about, uh, about 3% of sales. And, uh, I mean these days actually with COVID, I only accept credit card payments, so no, no cash. I’m willing to pay the extra percentage, um, internet and websites about 150, uh, advertising, you know, sometimes I do stuff sometimes I don’t, but I try to budget a hundred dollars a month. Great. Uh, professional. So bookkeeping, CPA, and legal. So I do, um, pay a bookkeeper monthly and I only pay my CPA once a year. Um, let me think about this. So
Scott Robinson (00:51:12):
You can tell me what you pay and I’ll, I’ll figure it out.
Liz Feldman (00:51:15):
Okay. Um, I pay $400 a month for bookkeeping. Um, and then about $500 to my CPA.
Scott Robinson (00:51:35):
Is that each month or is that a year? Okay.
Liz Feldman (00:51:39):
And then, um, you know, I like to give myself a budget of a thousand dollars for legal, um, cause really that’s just four hours of their time and there’s usually something that comes up. So,
Scott Robinson (00:51:54):
And that’s a once, once a year as well, once a year. Great. Okay. Well, let’s have some fun with the math here. Um, let’s say we do 500 for the CPA to do the taxes plus a thousand and that’s once a year. So then we can kind of estimate we divide by 12 so that you can put a little money aside each month in case, um, the bill comes at a different time and so on a monthly basis, um, it looks like that comes out to me about $525 a month.
Liz Feldman (00:52:32):
Yeah. Probably wouldn’t come out
Scott Robinson (00:52:36):
Great other common expenses or some maintenance repair, even if it doesn’t happen, then it’s good to budget for this.
Liz Feldman (00:52:43):
Yeah. You never know, but I figure it’s going to be about 1200 a year.
Scott Robinson (00:52:49):
Yeah. Okay. So we can do it 1200 divided by 12 and lo and behold, it’s a hundred dollars a month.
Liz Feldman (00:52:56):
And um, I mean cleaning, especially with COVID, it’s probably been about 150 a month cleaning supplies. Uh, and then, you know, it’s the office supplies and the printer and all that. It’s a little varied, but about 50 bucks a month.
Scott Robinson (00:53:14):
Okay. I have something in the plan
Liz Feldman (00:53:17):
Somehow I have no licenses to pay. It’s amazing legal in Oregon without licenses.
Scott Robinson (00:53:24):
Amazing. Absolutely. Well, this is where we’re going to limit our discussion of operating expenses for the benefit of our audience, because there are probably many, many more things that you could spend money on, but I think folks are getting the, getting a handle on a monthly costs and we needed to put something aside for these things. Um, maybe no comeback, uh, wages. Um, um, I know you have somebody coming in for an event, um, and you also mentioned somebody else opens in the morning and starts the baking. So I think we should, we should understand that position. And I also want to get a sense of how do you get paid? Um, do you take a salary which is an option or do you look at the profits and take something out of the profits, which we often call owners draw?
Liz Feldman (00:54:22):
Yeah, so, um, for myself, um, I take an owner’s draw and this past year has been pretty shaky, but 2021, um, I have a deal with my partner. If I can bring home about $2,000 a month, that’ll go toward some of our necessities and, um, you know, they’re willing to support me in, um, getting my dream off the ground. So I feel incredibly lucky for that. Um, as far as, yeah, I hear hope to make more than that going forward. Um, maybe, maybe let’s just build it in at 3000 the next year and 4,000 by, uh, 20, 23, that’s still feels really low. Um, but I’d like to see how those numbers work and if I can pay myself more, I would love to, uh, but I understand there’s a lot going on, uh, as far as pain my employee. Um, so we already said this, I pay them $18 an hour, 40 hours a week. They’re full-time and that’s the one who opens in the morning and work six days a week. Right?
Scott Robinson (00:56:01):
Oops. So working in my formatting here hours, and, um, this is then weekly. So if their total costs, which we figured out earlier, um, the 18 plus the payroll, um, taxes and wages, um, bring it up to about dollars and 70 cents, 40 hours a week, um, on a weekly basis, um, it is about $828. And then I’m sticking with the weeks in a month. Um, 4.3 is what we’re going to be looking at for that person’s wages. So we have currently planned on extra time and hours for another person to come in the evenings. Um, I think it’s fine to leave this, uh, costs in the budget to recognize in case somebody else is going to do that. Um, and then we can have your, your, your Baker also be there, uh, in the plan and the budget, um, as part of regular wages.
Liz Feldman (00:57:16):
Yeah. If, I mean this space rental person currently only works when there’s events. So that would really make like sense in cost of goods versus my Baker’s there every day. And you know, the more I think about this, can we go back and let’s, let’s start with higher owner’s draws and if we have to lower them, we can. But, um, I, I do think I’ll have to stay at 2000 for, uh, 2021, but let’s look at four and then six just to see, cause that’s that’s, that would be nicer. Yeah,
Scott Robinson (00:57:49):
That’s great. And, and that’s, that’s the beauty of the financial plan. The model is that we can make some of these changes and see what the impact is. Uh, uh, we can play around with numbers until we’re committed to a final set. Um, so now we, we’ve kind of looked at things on a one month basis, um, um, here. So let’s try to bring those over into the bigger plan. Um, and so the wages here, I’m just going to write in a Baker so that we know that it’s, um, primarily that person, um, let’s go to the notes and we said, that’s the number for now? Uh, we can think about in the future, maybe they’re going to get a raise or have some changes there. Um, and the rent two thousands, um, that is the current plan. And that’s locked in for a period of time, right?
Liz Feldman (00:58:50):
Yeah. It’s, it’ll have a 3% raise per year, but, um, yeah, it’s, I’m in a contract, so it will, it’s already agreed. The next three years is actually a five-year contract.
Scott Robinson (00:59:02):
Okay. Um, Nope. Nope. Okay. This one keep going here. And I noticed obviously the credit cards aren’t coming in quite right, but that’s intentional. We’re going to go make that be, what did we say? 3% and it’s 3% times, um, all your revenue now being sold, like credit card, you said. So that will be 3% of whatever the revenue is. Um, I’m just scanning through these numbers here. We’ve got, uh, wages, rent, utilities, insurance, and a short list of operating expenses. But I think it’s good for our example today. Um, at Leeds, a slight positive return, uh, income from the operation. We haven’t yet factored in your compensation. Let’s take care of that, uh, when we get to cash flows. Um, but in the meantime, let’s see what happens when we take this one month perspective out, uh, over time and I’m gonna paste in these formulas. Okay. Um, so knowing that we aren’t yet finished, uh, we see revenue of 14,000 minus about 4,000, which is ten five costs of about seven four, which leaves some small profit afterwards of about 3000. And I’m just scanning to see if the math looks good across the 36 months. And it does. And let’s jump to the full year perspective. Um, yes, at least the math is consistent. Um, the structure is here, which is a good starting place.
Scott Robinson (01:01:23):
Let’s jump down now. Do you feel good with how far we’ve gotten so far? Liz? We don’t have your compensation in here, but does this feel approximately what you were thinking?
Liz Feldman (01:01:34):
Uh, I do except you put the word income again in row 37 and wouldn’t that be like net income because otherwise it gets now I’m confused.
Scott Robinson (01:01:44):
Yes. Um, it, it has this, one of those, I called it income here in our, on our notes page. Um, I’m going to go to glossary. That’s where it is a little confusing QuickBooks called sales income sometimes. And that bottom income, um, that I have is sometimes called income. Sometimes that’s called bottom line. Sometimes it’s called net income. Sometimes it’s called, uh, operating income. It has a little bit dependent on whether a business has taxes. We don’t have taxes, but I think it’s good. I will clarify, let’s call that. Um, let’s call that net income, um, because that is incest in essence, the end of the income statement, the bottom line profitability of the business, not factoring in the, uh, the draw there.
Liz Feldman (01:02:44):
I think I’ve even seen it called like net profit or when it’s negative net loss, that bind is, feels like people talk about it in a lot of ways can be confusing.
Scott Robinson (01:02:59):
Yep. And of course, net profit makes sense. Only when you’re a bank making money. It becomes net loss if you’re losing money. Um, but you’re, you’re right. This is where, uh, that name, that label, uh, appears at the bottom of the income statement, uh, forecast. Um, I know the font gets smaller if I zoom out, so I not do that right now, but let’s get down to cash flows. I’m trying to keep an eye on time for folks. Um, I have not seen a all overwhelming list of questions so we can keep going. Um, the cashflow is important because, um, the cashflow is a place where we can start to accumulate the results that happen month to month to month. So you can imagine that one month results, um, show up here, you can make a profit, you can have a loss and each month on the income statement, you get to restart from zero. Again, you got to start over. The cashflow is both going to tell you if you have cash in the bank, but also as a place where we start to capture the events that happened before and link them together to the things that we’re planning to happen in the future. So a good place to start on a cashflow statement is, can you share with me how much money you have, how much money do you have in the bank? And it’s literally what is the final cash number on your bank statement?
Liz Feldman (01:04:39):
Well, when we actually get to the end of this year, uh, this year has been pretty tough. So even though the holidays are usually a good time, I’m only expecting maybe 2,500 in January 1st in my bank account.
Scott Robinson (01:04:57):
Okay. That’s all right. So I’m going to put that here in beginning cash. So beginning January, which is the end of December 2,500 as well, we’re thinking, and we need, we need a place to start. Uh, so that’s probably a good, uh, a good
Scott Robinson (01:05:18):
Guests to start with because our financial model above was cash based. In theory, the sales less, the money paid for the inventory, less the bills paid for, um, operating expenses. Um, it should generate about $3,176 of cash. And so then we can bring that down here to this line net income. So hopefully in the month of January, you’ll generate that 3000, almost 200 of extra cash. And that gets to come in here. Now you mentioned owner’s draw earlier. Um, that’s taking money out of the bank, so I’m going to link it over our notes. Here are notes where $2,000, um, in the month of, of, uh, January next year. But, um, this is not money coming in. It’s money going out, so we need to make it a negative. So that’s money going out. Um, you also mentioned that you wanted to look at, um, increasing that. So that was going to go to 4,000 in 2022. So that’s what we have 20, 22. Sometimes I like to color cells, um, a different color. So remind myself that it changed. Um, so I can make that a yellow. And then in 2023, we wanted that to change again. So let’s make that the 6,000 that we were looking at, you know, whoops, going to be 6,000 a month.
Scott Robinson (01:07:09):
Okay. There we go. That’s that plan. Um, do you have plans to buy any equipment that’s sometimes called capital expenditure? Uh, this is equipment that you might buy once and you expect to use it year after year. So it it’s, it’s, it’s not like a rapper that you buy now and you send out the door with your product, but this is capital expenditures or long live equipment lasts for multiple years. Do you have any plans or needs on that front?
Liz Feldman (01:07:45):
Yeah, well, I do actually want to get some tables and chairs. Uh, probably, maybe it shouldn’t be that expensive to just some updates. And I think I have a good deal, maybe $500, um, the big expense that needs to happen in the next two years, but may need to happen anytime sooner. And I’m not sure yet is I need, um, a new oven. It’ll be about $10,000. Um, so definitely we’ll need it in two years, but I may need it sooner.
Scott Robinson (01:08:21):
Okay. Um, good. Um, so let’s look at how that might happen. Um, now we’re getting into a bit of the planning side of things, which I’m really glad that we’re, we’re able to do that. Um, let’s go look at our forecast and before we layer in these, the spending, um, let’s think about, um, how our numbers look. Um, so we have a plan for profit each month. Uh, I recognize it’s early and it might change, but we have some starting cash bring in some profit, pay the owner draw, and it looks like as I scan through 2021, the cash position should grow. Um, that’s, that’s a good sign. So that would suggest that we can afford based on the business plan and the owner’s draw we can afford, um, um, we’re being profitable where we’re ending up with more money in the bank after we paid all these bills. So let’s talk about the table and chairs. When might you, uh, want to make that purchase?
Liz Feldman (01:09:45):
You know, I, I had really wanted to make that like first thing in the new year, but I’m nervous because my numbers are so low and I, you know, I’ve heard these things about like, you want at least some number of months of operating expenses of cash in your bank. And I’m, I’m so tight right now that, um, I don’t know. Yeah. But as soon as I can, I think I’d like to purchase those tables and chairs.
Scott Robinson (01:10:16):
Okay. Well, I’ve heard the rule of thumb and it depends on your business and it depends on your risk tolerance and it depends on if you have money outside of the business. So there are a lot of factors going into, what’s a safe amount, a good amount of cash to have. So I don’t want to presume that we know what’s right for you. That would be a longer conversation. Um, but I haven’t heard a rule of thumb at least three months of being able to pay bills. Um, in which case to figure out the three month number, we would be looking at three months of your operating expenses. That’s almost what adding those up as 22,000 and we’d want three months of these bills. Um, that’s another 12,600, so that’s a pretty high, you know, it’s a pretty high barrier. That’s a 22,000 plus 12,000. So altogether about 34,000 in cash. Um, so that’s the conventional wisdom that I’ve heard, um, six months for individuals, but potentially less for a business depending on what the business’s position is. So do you want to put something in for now for a conversation or
Liz Feldman (01:11:39):
I just gotta get the tables and chairs are only 500. It’s just not going to make a big difference. Let’s let’s put them in March.
Scott Robinson (01:11:46):
Yeah. Great, lovely. Okay. So if all goes, well, we can afford those in March. Um, what I, what I want to do is make sure when we increase the owner draw on the second year, I want to be sure we can afford that. And honestly, I’m a little concerned because we see the business is only going to be generating. Now, this was based on our initial assumptions. The business will only generate about 3,200 a month. And if we’re taking out money more than that, eventually the bank account will be drained and beginning lower. So I would say based on that plan, the business cannot support indefinitely 4,000 a month of owner’s draw in year two.
Liz Feldman (01:12:44):
Well that’s, um, let’s build in my, my proposed price and quantity changes for 2022 and see if that’ll do it. And if not, I can, I can lower the owners, dry understand that that’s what’s, um, gets lowered.
Scott Robinson (01:13:03):
So now we get to go back and look at our initial assumptions to, uh, we were looking at in 2021, maybe I’ll call that 2021. The plan was for 700 cupcakes a week. Um, and I do think you can do more than that in the future.
Liz Feldman (01:13:24):
I mean, there are a lot of things up in the air, but let’s, let’s just take it like if I could average 10 more cupcakes per day of on those six days per week. Like, let’s look at that. I think that seems super conservative.
Scott Robinson (01:13:41):
Yeah. So that’s, um, we’re saying, um, you’re open six days a week and each day you’ll be able to sell an extra 10. Uh, so that gets the 760. Do we want to, um, talk about maybe a year beyond that? Will you top out at 760 in 20, 22 or going to grow beyond that? Yeah, I
Liz Feldman (01:14:12):
Mean, I, it, with the same number of bait, like with my same employees, I can definitely handle maybe another five per day. Um, the following year, let’s see what that looks like. I hope that business just booms, but I don’t know what’s going to happen.
Scott Robinson (01:14:28):
Right. Right. You know, another way to think about things is that, um, and this interesting for the forecast, if the company is able to achieve different financials, then you can increase your compensation. Right. So let’s keep playing this through. Um, we talked about an extra 10 cupcakes a day, so that was 700, but now we’re able to go to seven 60 and, uh, let’s see what it may do that for the year. And then we talked about it going to seven 90 the year after that, which I think I put below it seven 90. Yes. Um, okay. So let’s look at, um, let’s look at the second year 22 and, uh, let’s see what the bottom line is. So we see an increased problem December to January where the extra sales went up $500 a month in revenue. I know that the 3,700 is less than the 4,000 of owner’s draw. You want to take, so I know that the cash is going to decline over the year. So what else can we do to help increase the profitability or the, the revenue? You said you wanted to look at sale price?
Liz Feldman (01:16:11):
Yeah, I do want to look at so price. I, I am pretty sure that, um, in, uh, what is it, 2021, it’ll go up to three 25. I don’t want to go too high, too fast. And I think the following year it’ll be three 50 a Cubs.
Scott Robinson (01:16:29):
Exactly. All right, good for you. I think that’s really a tactic that a lot of business owners don’t fully understand or appreciate their ability to raise prices. And I like to say that if people love your product, um, if they’re willing to pay for it, then you should raise prices because, uh, especially if the business owner is struggling. So now with these new prices, uh, 20, 22, three 25, let’s come over here. 2022 can link that over to our notes, three 25,
Scott Robinson (01:17:14):
Spread that for this year and the following year, we were going to raise it another time to three 50, um, boom, three 50. And I’m just going to take a quick peek and see if this is showing up on the annual numbers. Yep. We can see two 50 for the first year three 25, three 50. We can see our quantity is increasing. Uh, good. And let’s see, um, month to month because that’s really where the rubber hits the road. Can you use that expression now in our second year, 2022, our monthly cash base net income is over 6,000. So that should adequately cover the 4,000 of owner’s draw. We’re looking at, and we also a year later plan to increase the owner’s garage to 6,000. And I can compare that cash based net income for the business is more than the 6,000. So that’s that’s good.
Liz Feldman (01:18:27):
Hey, Scott, can, can I interrupt? Sorry to be. So, um, I’m just realizing a 75 cent jump might be really large. I, I do really like those numbers, but I might, maybe we have to, it has to be $3 and then three 50. I might’ve gotten,
Scott Robinson (01:18:44):
That’s why I like doing what we did because we can make these changes pretty quickly. I just changed it to $3. Let’s go to the forecast. Here’s our $3 showing up. Good. And, uh, let’s go look at our monthly profit is, um, over 4,000, sorry. That’s gross. Profits are, let me go down to the bottom here. It is our net income for the business jumps to 5,000 now, which will cover the 4,000 draw that you wanted or were thinking about. And I’m looking at the next year. If we have another price increase and a jump in sales, then the 7,000 of cash generated from the business should cover this draw. What I do want to say is that where that money coming out, the money left in the business is, um, it’s growing, it’s growing pretty slowly. Um, I remember you talked about an oven and when could you afford an oven? And if everything went according to plan, you can see wouldn’t until mid 20,
Scott Robinson (01:20:08):
21, it would bring your cash position way down. So we might want to think about how long can we go without buying that oven, or if we can get a loan to finance the purchase of that, or maybe an equipment lease, those are some different options of bringing that equipment in, um, before maybe you have all the cash to buy it.
Liz Feldman (01:20:34):
Yeah. W would you mind, um, just looking at, I really would like to never have less than 10,000 in the bank again, once I get through the beginning of next year it’s so makes me so nervous about paying payroll. Um, what if we look at, um, April of 20, 22, can you put that of in, in the negative 10,000 there?
Scott Robinson (01:20:59):
Yeah. Yeah. That’s funny. It would be the first time over. Yep.
Liz Feldman (01:21:07):
And I would be willing. So, I mean, so it’s, it’d be 11,000 and I would be willing to, um, I mean, I, I feel really fortunate that I have some support. What if we change that, that year to I’ll just take 3000 home per month, just may to see what my 20, 22, yeah. Let’s just make that three and see if that, and as long as my oven doesn’t break, um, this year that would work. Um, if my oven breaks this year, which that you just don’t know when it’s going to die. Um, I think that I would need to get alone.
Scott Robinson (01:21:56):
Yep. So I want to be cognizant of our time, I’m going to step out of our advising role here. Um, I feel like we’ve, we’ve, we’ve completed a forecast. Um, I don’t know. I don’t want to pretend like it’s the final, it’s perfect. It’s got every component in it. Um, but I feel like we’ve completed a foundational forecast. And with that, perhaps I’d like to pause and ask if there are questions from the group, um, Chris questions from the audience. Um, I hope we didn’t lose anybody with, uh, too much going into the details or switching screens, but, um, I really appreciate the dialogue we were having there, Liz, because now we started to show how we could use a forecast to help make decisions and help illuminate, um, important factors, um, um, about how to make things work. Uh, we were adjusting when we would buy the oven, potentially we were talking about, uh, adjusting the owner’s draw. We talked about changing prices. Um, but that’s now, uh, refining, uh, enhancing the base forecast. Um, so with that, I would like to pause and see if there’s any questions from the audience.
Liz Feldman (01:23:25):
Yeah. And I’d like to make a comment too while the audience may be, so thank you, Scott. But I was going to ask was for you to go over to this three year and scroll up to the top. Yes. Um,
Scott Robinson (01:23:37):
And I’m going to zoom out for a moment, so you can get a sense of the whole thing and then I’ll come back in so you can see the details.
Liz Feldman (01:23:47):
Okay. So, um, you know, for folks who were just wanting like the sales forecast, it’s really those, um, it all got organized in a [inaudible] queue, um, uh, Rose nine through 12, right? So that’s one way it would just be the top piece of this. Um, and then obviously we didn’t get into actually adjusting the rent. Like we didn’t get into adjusting, operating expenses over time, but you could do it exactly how we were doing it. And you could just put changes in, um, to really make this whole thing, um, a working page. So, um, for those folks who may have a goal of yearly, uh, revenue changes, the key of what we did here was basing it on actual prices and actual sales versus just saying 10% increase of a revenue, but not knowing how we got there. There’s lots of ways to do this. This is just one, one way. Um, but it’s a useful way. And it’s quick to look at different changes. So I will also, uh, stop chatting in case there are questions, especially if you have a business that you’re like, I didn’t see where this would go, or I don’t know where you would put this, or I don’t know how I would break down my sales, any of those things,
Scott Robinson (01:25:35):
Absolutely happy to start to tailor or customize it. Uh, there was a question, will you, um, get a copy of the spreadsheet and yes, we’re more than happy to send this to you. Um, and I’ll try to make a version that’s in Google sheets as well. Um, so that you can, um, use that software if that works for you by no means, is this meant to be the best, uh, spreadsheet, uh,
Scott Robinson (01:26:04):
Or forecast. It was more a sample of what could be done in a relatively short amount of time. Um, maybe I’ll give another minute or two. Uh, let’s see if anybody else has a question, it’s a great time to get some, uh, free insight, uh, into, or for us to answer a question about your business.
Liz Feldman (01:26:32):
If people are thinking, um, maybe we want to show, it looks like Brian, um, had a question and I was wondering if we would want to show, like where does the loan go or have a conversation about where do grants maybe go? Um, but I know that can also depend, so there, there’s definitely some pieces. If you were going to use this yourself, like, um, if you know, you’re going to pay your, even though we didn’t have business licenses in November, it is often more useful to put it in November than break it out over the whole year for when you’re using it for decision-making purposes. Um, when you’re using it to get the full sum, it depends what you’re going for, how detailed you want to be in how you break out those months.
Scott Robinson (01:27:33):
Absolutely. Liz, um, you know, we can change things to accommodate that perspective. Um, and we can just put in exact dollars for exact months. Um, I often do that for some types of expenses and then other expenses I’ll make, um, more formulaic, like we were looking at so that we can ask the, what if questions, what if we raise price? What if we change units? Um, um, Brian also made a great comment. That’s a good start. It’s a great start. One other thing is that one can add is a look at the difference between the fixed cost and the variable costs. Um, that’s, I think particularly important when you start to look at wages, um, that might change, uh, increase or decrease depending on the amount of units or product that you sell here. We try to show a little bit of that, um, by looking at the labor costs for the event, um, we didn’t really factor it into the cupcakes.
Scott Robinson (01:28:44):
Um, but that is a really a really good analysis tool to understand your business and to understand where costs will grow, uh, particularly when sales grow and where costs will decline when you have lower volume of sales. Um, more analysis can be done from these core numbers that are coming in here. Um, absolutely. And I just wanted to show very briefly how we can, uh, make, uh, specific cashflow estimates when we have big bills coming in, we can add in more rows for the business license, um, uh, and other costs of each that your business might have. Um, so I don’t see any more questions coming in. I suggest we pause the recording or, or turn off the recording. Thank you all for joining us. And, um, say for the benefit of the recording, we look forward to our next event.