Your business has to make sense on paper


I have a friend who wants to start a pizzeria. He came to me a few days ago to structure a business plan. We took everything into account including the food cost, advertising and taxes. His plan was to open the shop with a friend so that he wouldn’t have to do all the work himself. And wouldn’t have to hire too many employees. After running the math we found out that it’s not profitable to have more than one owner. In this post I’ll explain exactly why.

his biggest issue is time

Even if he was to sell 100 pies a night after paying all his expenses off, taxes and salaries. He’s only going to make around $3,000 a month.  He has a point when he says that people are also going to be buying drinks, desserts and toppings on their pizzas.  All those things will end up in earning bigger profit. But you can’t count on them, the advertising campaign is focused on selling as many Pizza pies as he possibly can. And I would rather plan small and make it big then plan big and fail.

when you create your business plan

Always go for the worst case scenario.  In his case our worst case scenario was one pizza per order. That means that we’re taking into account that each delivery person only takes one pizza to one location and comes back.  And we’re taking into account that takes him about 20 to 25 minutes to do so.  So that means that in order to sell 100 pies a night he needs about five delivery people.

When you plan for the worst case scenario you’re ready for pretty much anything.  I mean what’s the worst that can happen you make more profit than you thought?  I’m sure you can deal with that.

where most people fail

It’s exciting to start a new business and more times than not the new business owners are over-optimistic when they structure their business plan. When it comes down to it, the plan doesn’t deliver half as much is they thought causing them to struggle and make stupid mistakes. Ultimately close their business.

Conclusion

Whether you’re planning for brick and mortar store or an online business. Always take into account the worst case scenario. Make sure that no matter what you’re covering your basic expenses, so that when your business fluctuates and it will. Even the bad months will allow you to live with a basic degree of self respect. Allowing you to pay your rent, buy groceries etc.

Remember nobody’s ever going to take care of you as well as you’re going to take care of yourself. So make sure you have all your bases covered and if your plan for some reason doesn’t make sense on paper, don’t dare implement it.  Because if it doesn’t make sense on paper it sure as hell not going to make sense in real life.

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