Structural and analytical management method (continued)
So, we said that at the start of a business, while the revenue side is still not too large, current expenses usually exceed 20% and can reach 1/3. But by no means no more! Then, as revenue increases, the share of current expenses decreases and in some cases it can be 10%, which I have met in my practice, but very rarely. Most often, a stable business has a structural value of current expenses of 12.5-15%. And we settled on the fact that in this situation, there is very little left for development, with the desired share? of this wallet at 20%, we can afford only about 7% or 1/15 of the created value.
This, of course, is not enough. With this wallet size, we will return our investment 10-15 years. And this is the prerogative of large business and large investment projects. In a small business, the invested funds must pay off in no more than three years. Otherwise, the project should be recognized as ineffective and abandoned. A lot of entrepreneurial undertakings fell apart precisely because of neglect of this requirement (payback period). So what can you do to make the project pay off in a short period of time if there are not enough funds in your wallet?
That’s right, you need to borrow from some other wallet. It happens in life. Smart and far-sighted entrepreneurs borrow from their own wallet, voluntarily thus refusing their income (profit). Then, having paid back the investments or having returned all the loans, the entrepreneur returns to himself the debt accumulated by his own business (sometimes he “forgives” this debt, but this is his right). It’s worse (and this happens most often in life) when an entrepreneur begins to “cut” other wallets, squeezing wage payments to employees, playing with taxes and saving on current but necessary expenses.
At the start, the structural and analytical management method and the “Rule of Five Wallets” help us to foresee (calculate) possible development scenarios and, choosing the most effective and convenient one for us, start the process of creating a business or abandon the project. How to do it? Let’s look at real examples – it’s good that in my practice there are a great many of them. And the first project that we will consider and calculate today is a chicken farm.
I note right away that any business plan, any calculations are very short-lived documents that require constant review and recounting. Everything in our life changes every day, and this also needs to be remembered when planning a business. But our rule allows us not to be afraid of these changes, but rather to use them skillfully.
So, after analyzing the current macro-situation (sanctions, support for the domestic agricultural producer, etc.) and monitoring the local market, we found the following: some consumers are not satisfied with the quality of eggs produced in large industrial factories, and is ready to buy eggs twice as much as in stores, but provided that it will be a really high-quality product. Having studied what is called the “theme”, we decided to create a small farm for the production of chicken eggs. Starting numbers known to us:
the minimum retail price of this product is 100 rubles. for a dozen;
The wholesale price at which specialized stores are ready to purchase products is 70 rubles. for a dozen;
the daily need of the stores is several thousand eggs, but they are ready to cooperate with us in the delivery of 800 pcs. in a day;
for the production of 800 pcs. eggs need 1000 laying hens;
to organize a farm of this volume, investments of 1 million rubles are needed;
For the functioning of this farm, two workers with a salary of 20,000 rubles are enough. per month.
We begin to count. The first thing we need to determine for ourselves is the necessary (suitable for us) size of the Development Wallet, from which we will return the invested funds. We say to ourselves that we are “entering” the project if the minimum annual amount of “return” is at least 400,000 rubles. Second, we know the estimated income: 1000 laying hens with a standard egg production of 80% give us 80 dozen eggs a day, that is, 80 dozens x 70 rubles. x 365 days = 2 044 thousand rubles. in year. (170 000 rubles per month).
Now it is necessary to determine whether our project has value (value not produced by us). Yes, in our project there is something that we will buy constantly and in large volumes – this is feed. For one layer per day, 100-120 grams of feed mixture is needed at a price of 8 rubles. per kilogram. That is, just a month we need 3-3.6 tons of feed mixture. Applying the maximum rule, we calculate the need for feed costs: 4 tons of 10 rubles. per kilogram will cost 40 thousand rubles, which is more than 20% of gross revenue (cost!).
As a result, the value created by us is 130 thousand rubles. per month (1,560 thousand rubles per year). We look at the fullness of wallets. We can spend no more than half on salary – 65 thousand rubles, and the minimum need for our two employees…