ChApter 11 | AFTER YOU OPEN—KEEPING ON THE PATH TO SUCCESS | 187
Axiom: You need a flexible continuing
operating plan for your business.
Advice: Make sure you can adapt your
business plan to changing circumstances.Know When You’ve
Succeeded—Or Failed
Success in a small business involves
meeting your objectives, especially the one
that says you have a positive cash flow by
a specific date. Normally it shouldn’t take
long to know whether your business will
meet your objectives.
Many people wait a year or two to
see whether the business will succeed. I
think that’s a mistake. Instead, figure out
how long it should take for your potential
customers to hear about your opening
and then add a month or two. In a retail
business, that’s usually no more than three
to six months, depending on the type of
business and how good a promoter you are.
Put another way, your sales will probably
level out three or four months after you
open. People in service, wholesale, and
small manufacturing businesses may expect
a longer start-up cycle. For example, a
real estate agency normally allows six to
12 months for money to begin coming in.
That’s how long it takes to find clients,
negotiate deals, and generally get known in
the community.
What if your sales are less than you
expected after you have been operatingfour months? Do you triple the advertising
budget and hope that sales will pick up? I
hope not. A more sensible approach is to
make another business plan, adjusted to
the sales you are actually getting. This is
psychologically difficult for many people
to do. It’s all too easy to get hung up on
proving that your original plans were right,
rather than accepting what the numbers
tell you.exAmple:
Pierre, who had never run a business,
bought a failed cafe. He was confident
in his abilities to turn the cafe around,
since he had a degree in hotel manage-
ment and was an accomplished chef.
Pierre projected $30,000 a month in
sales and budgeted accordingly. Actual
sales in that first three months were
$12,000, $18,000, and $16,000. Sales
leveled off at the $14,000-per-month
level for the next several months,
resulting in a first quarter loss of $60,000.
Pierre cut back to where he was only
losing $2, 000 or $3, 000 per month for
the next three months, but stuck to the
idea that he could generate monthly
sales of $30,000. In the meantime, he
sold his house and his wife’s jewelry
to keep up with the bills. Many people
suggested that he make cutbacks so
that he could make a profit on $14,000
per month or, as an alternative, sell the
restaurant. So far, he has refused. If he
doesn’t take in $30,000 a month soon,
he’ll go broke.