Blueprint For Success
A seasoned carpenter shared this secret to success: “You must begin — and begin, again.” He went on to explain, “A primary principle of successful construction is to begin with the end in mind.”
For the dreamers among us, the question is: “Where do I begin?”
The purpose of this presentation is to provide the parameters for an analysis of an idea to determine its possibility of actionable success. As with any legitimate construction project, we build it on paper, first.
This is our blueprint.
The concept of beginning here is novel for a Business Plan. Yet, this number will keep our attitude right and provide the Retained Earnings for business expansion.
Unless adequate funds are available for startup, the early years will include a Banker for a partner. The goal is to buy them out quickly to retain their share of profits, which are paid by our business as Interest.
Self-employment, Federal income, and State income taxes must be paid timely. Because of severe penalties (plus interest) for non-compliance, governmental entities are terrible sources of financing.
This is the delivery system for providing value. It is everything from the storefront brick-and-mortar (or online presence) to all other fixed (indirect) expenses. It is the price we pay to have a Company.
Depending on the type of business, labor can be a component of fixed Overhead (Clerical) or a facet of variable Direct Costs (Carpenters). Slight changes in Gross Wages can substantially improve Net Income.
Each project and customer will want and need something different. The flexibility to deliver “Wow!” requires additional variable (direct) expenditures. For construction projects, this includes Materials.
All of the above is accomplished by understanding the finite number of units available for distribution. For service enterprises, this will be a reservoir of Hours; for a products company, this will be the capacity of the Shop; and, for an inventory business, this will be the Items.
Net Income = (Owner + Banker) / (100% – Tax Rate)
Value to Customers = Net Income + Overhead + Labor
Sales Price = Value to Customers + Direct Costs
Owner Compensation: $100,000 ~ [For the Family, after taxes]
Debt Service: $40,000 ~ [Loans of $200,000, with 5 Year maturity]
Tax Rate: 30% ~ [S/E 15.3%, FD 10%, ST 4.7%]
Overhead: $120,000 ~ [Ads, Insurance, Rent, Utilities, Etc.]
Labor: $19,200 ~ [Employee]
(Owner $100,000 + Banker $40,000) / (100% – 30% Tax Rate)
Is the same as: $140,000 / .70 = $200,000 Net Income
$200,000 Net Income + $144,000 Overhead and Labor = $344,000 Value
For those providing Services to the marketplace, the final step is to divide Productive Units into the Customer Value. Full-time employment is 2,000 hours per year. Entrepreneurs will work much more than that — with only a percentage actually billable to Customers.
If our startup Enterprise team can be 86% productive (after allowance for duties of internal and external management) each Employee has an annual reservoir of 1,720 billable hours.
$344,000 Value to Customers / 1,720 Hours = $200 per Hour: Price for Value
Other Productive Units:
Those providing Products for sale will factor in the Direct Costs of Inventory. In fact, they will consider the number of Productive Units (meals, if a restaurant; suits, if a boutique; cows, if a ranch) and establish their Pricing, accordingly. If pricing is competitive or set by external forces, then, they manage the Quantity.
The thought processes, above, are only the beginning of building something special for YOU and your Family. Once you fully grasp how to set a Fair Price — one which is good for the Customer and YOU — you’re ready to move on.
Although we’ve learned how to calculate a rate based on the Productive Unit of an hour, never Bill a Customer by the hour. Rather, always negotiate a Price for the Value of what you will provide — whether Product or Service.
As a result, you will use the targets relative to Money to measure progress in terms of larger portions of Time. In other words, are you on track by the Day, by the Week, and by the Month? Then, guaranteed, you will have what you want — in that Cookie Jar sitting on the mantle above your fireplace, when you check it during the week between Christmas and New Year’s.
Because you will be contracting to provide Value for a Price, a quick way to do a bid, or test the validity of a Proposal, is to use the Quick Formula. Direct Labor x 3 = Customer Pays for Value of Time (plus Materials). Per above, $19,200 + $100,000 = $119,200 x 3 = $357,600 vs. $344,000 (Life is grand!)
Now, step apart from the crowd and consider the most important variable of all:
What can I — with my unique gifts — do to serve the needs of another, satisfy their wants, and create value for the entire Marketplace?
The rest of the story from our successful builder, quoted at the beginning of this article, “Find something you love to do and do a lot of it.”
If we are able and willing to tap into that passion and grasp the foundational principles of a Blueprint, we are simply minutes away from a Better Business Plan — and a new beginning!