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The Journeyman Series: Part 1 – Planning and Preparation

Written by Eastwood & Co on .

Embarking on the business journey is like setting off on an adventurous expedition. Just as you wouldn’t start a journey without a map, a destination, and the necessary supplies, a business needs careful planning and preparation to succeed. Have a watch of Russell’s weekly video below.

Our first article in the Journeyman Series focuses on the foundational aspects that every business owner must address before setting out on a new business venture.

  1. What value will your business create?
  2. How can you make the business profitable?
  3. What margins do you need to set?
  4. Do you understand the right financial metrics to measure success?

These elements are essential in planning the right path forward for your business.

How to Create Value in Your Business

The bedrock of any successful business is the value it creates. Before you begin, it’s important to identify what unique value your business will offer to the market. This involves understanding your target audience, their needs, and how your product or service meets those needs better than your competitors.

First, let’s talk about knowing your audience. Understanding who your customers are and what their pain points might be is key. Who are the people you aim to serve? What challenges or problems do they face that your business can solve? Answering these questions will not only help you tailor your offerings to meet their needs but also ensure that you’re communicating in a way that connects with them.

Next, we need to define your Unique Value Proposition (UVP). This is what sets your business apart from the competition. Think of it as the compelling reason why customers should choose your product or service over others available in the market.

Finally, try engaging with potential customers early. This might involve presenting them with prototypes, or early versions, or simply discussing your ideas to get their reactions and suggestions. Customer feedback can help you validate your ideas, ensuring that there is a genuine demand for your product or service.

By deeply understanding your audience, clearly articulating your unique value proposition, and continuously refining your offerings through customer feedback, you build a solid foundation for creating value in your business. This preparation ensures that you’re not just another player in the market but a distinctive and desirable choice for your target customers.

How Can You Make the Business Profitable

Now that we’ve established the importance of creating value, let’s dive into the next critical aspect: profitability. You might be wondering, how can you make your business profitable? Profitability is the lifeblood of any business, and achieving it requires a thorough understanding of your revenue streams, costs, and pricing strategies.

Start by identifying all the ways your business can generate revenue. Think beyond just selling products or services directly. Are there opportunities for subscription models, licensing, or even partnership deals that can bring in additional income? The more diverse your revenue streams, the more resilient your business will be.

Next, you need to have a clear picture of your cost structure. This includes both fixed costs, like rent and salaries, and variable costs, such as materials and shipping. Knowing these expenses helps you understand how much it costs to operate your business and where you might be able to reduce costs without compromising on quality.

Pricing is another crucial element. It’s not just about covering your costs and making a profit; it’s about finding a price point that reflects the value you provide while remaining competitive in the market. We suggest experimenting with different pricing strategies to see what works best for your business.

Setting the Right Margins

Now let’s dive into setting the right margins. Margins are a key indicator of your business’s financial health, and understanding them helps you make informed decisions.

Let’s break it down. The gross margin is the difference between your sales revenue and the cost of goods sold (COGS). It tells you how much money you’re making from your core activities before accounting for other expenses. A healthy gross margin indicates that your pricing strategy is sound and your production costs are under control.

Then there’s the operating margin, which factors in your operating expenses like rent, utilities, and salaries. This margin gives you a clearer picture of your business’s overall efficiency. A strong operating margin means that your business operations are well-managed, and you’re effectively controlling your overhead costs.

Finally, the net margin is what’s left after all expenses, taxes, and interests have been deducted from your total revenue. This is your bottom line and the ultimate measure of profitability. Keeping a close eye on these margins will help you spot trends, identify areas for improvement, and ensure your business remains profitable.

Knowing the Numbers

Lastly, let’s talk about financial metrics. Your business numbers are your compass in business. They guide your decisions and help you stay on track.

Cash flow is one of the most critical metrics. It’s the movement of money in and out of your business. Positive cash flow means you have more money coming in than going out, which is crucial for covering day-to-day operations and investing in growth.

Another important metric is the break-even point. This is the level of sales at which your total revenue equals your total costs, meaning you’re not making a profit, but you’re not losing money either. Knowing your break-even point helps you set sales targets and pricing strategies.

Forecasting is also vital. By analysing historical data and market trends, you can predict future sales, expenses, and profits. This forward-looking approach allows you to plan strategically, prepare for potential challenges, and seize opportunities as they arise.

By understanding and tracking your numbers, you can measure your business’s performance accurately, make informed decisions, and ensure long-term success.

Setting Off on Your Business Journey

Just as a well-prepared traveller uses a map to navigate their journey, a business owner uses these insights to steer their business towards success. Planning and preparation are the first crucial steps on your business journey. By focusing on creating value, ensuring profitability, setting the right margins, and understanding financial metrics, you are equipping yourself with the knowledge and tools needed for a successful expedition.

At Eastwood & Co, we specialise in guiding business owners through every step of their journey. Join our peer advisory boards and surround yourself with like-minded professionals who can provide support, advice, and motivation. Contact us today to start your journey towards business success.

Special invitation to Auckland business owners.

Join us for a FREE sample board in August.

Calling all Auckland business owners. We’re running some FREE sample boards in August. This is a great opportunity to experience a peer advisory board and learn about the value that can come from the power of collective wisdom. Register today at www.eastwood.co.nz.