“How To Start An Embroidery Business” Lesson 3€œHow To Start An Embroidery Business” Lesson 3 ... software yet, you are going to ... This is only for simple text such as a

1 ©Joyce Jagger, THE Embroidery Coach

“How To Start An Embroidery Business”

Lesson 3 Creating Projections For Your Working

Embroidery Business Plan

In our last segment we talked about creating the Basic Pricing Structure For your Embroidery Business and how to time out your production. I showed you how to time out each one of your embroidery processes and keep track of all of those costs. In this lesson we are going to go a little further and actually create some scenarios with different types of jobs to be able to come up with projections that you can use in your Business Plan. We are not going to be putting the Business Plan together for a few more lessons but I want you to get your projections done while you are in the mindset of timing your work. I going to show you how to create your Projections for the embroidery part of your business but the same principal can apply to each service area of your business if you are offering other decorating options. We will then go into the Sales Forecast and finally the Cash Flow Statement. You are not going to be using your Projections or your Sales Forecast or Cash Flow Statement until you create your working business plan but I wanted to you get your projections out of the way as you are learning how to price your embroidery. Keeping both of these lessons together will make it easier for you instead of jumping around. I am going to be giving you a complete Embroidery Business Projections workbook with several spreadsheets in that that you will use to input all of your information into and create your statements. You will notice that the Cost Analysis Spread Sheet is exactly the same one that I gave you in the previous lesson on pricing. Before you start creating your projections using these sheets, make sure that


make a copy of this total workbook and then transfer your own figures that you added to the Cost Analysis Spread Sheet in the previous lesson to the Cost Analysis Spread Sheet in this workbook. This is important! These spreadsheets are all formatted with formulas in them so that your information will automatically update from one form to another. This is something that you can utilize in all areas of your business and will help you in the long haul of not only creating your plan but being able to use them forever as you are continuing to plan and work your business. Before we get into our Projections I want to ask you how you are doing so far in your business planning.

Important Questions Have you created your Specific goals?

Are you clear about what your Breakeven Point is or should be?

Have you completed several different embroidery design timings?

Are you clear on what you need to charge for your basic embroidery designs?

Do you have your Basic Embroidery Pricing Structure completed?

Planning Your Projections When you are creating your Projections, you want them to be as true as possible. This information is going to be the basis of your Sales Forecast. You want a tool that you can actually use, not some pie in the sky forecast just to look good. There are a few things that you need to remember as you are creating your scenarios for your Projections

You will use your Embroidery Monthly Projection Worksheet and your Embroidery machine Scheduler in order to be able to figure more accurately for your projections. If you are new and do not have your machine and software yet, you are going to have to study the average times that are on the Embroidery Machine Scheduler and try to plan our your production from there. It may seem like it is an impossible job at first, but if you just think logically about this, you can do it.

You also want to remember that you are going to have to allow times for your setups and if it is a line of text, it that can take about 5 minutes or 60 minutes depending on your skill level. If you have not started working in your embroidery software yet then you will need to allow at least 30 to 45 minutes


in the very beginning. After you have started using your software and have learned the basics, you can usually figure about 15 to 20 minutes on an average. This is only for simple text such as a line or a name. This will not apply to digitizing. When you are first starting out with your business, you will need to have all of your digitizing done by a professional and maybe even simple setups to get you going quicker, bringing in money by concentrating on the embroidery process only.

Here are some considerations that you must think about before you start creating your projections.

How many hours a day you are actually running your business or plan to run your business.

How many hours a day or minutes per hour your machine is actually producing embroidery. If you are working your business full time, figure your day to be 8 hours. Out of those 8 hours you will need to plan on at least 2.5 hours for your set up time and admin time. That allows you only 5.5 hours of actual production time, so think about this carefully. You want these projections to be as realistic as possible.

How much time do you spend on design creation-you must be realistic in your thinking. If you are a one person operation and you are running your machine and setting up designs also, you must figure out how much of that machine production time you are using up for design creation. If you are a multi-head operation and have machine operators that only operate machines, then you will not need to figure any time for design creation. You will be working with machine production time only.

Figure some long running jobs and some short running jobs. By that I mean some designs with high stitch counts and some with low stitch counts

Figure some jobs as embroidery service only. (you are only supplying the embroidery on customers garments)

Figure some jobs as garment & embroidery combinations.


Work with job quantities that you normally would work with, but plan for large, medium and small jobs. What do I mean by large, medium and small jobs, only you can predict that one. This all depends on how many machine heads you have and what your average job order size is. If you are attempting or planning on going after larger jobs, then include some scenarios for them also, but be realistic as to when the time frame is for your business.

If you are brand new to embroidery, then you are going to have to create scenarios that will be realistic to a new startup. You will not be starting out with large jobs, it will be mostly small jobs or medium sized orders and maybe even single orders until you really get your business off the ground, so to speak. Do not figure any more than 24 pieces to start with. You may have higher volume jobs after you get started, but as a new embroiderer, do not add them into your projections.

If you have a seasonal business, then make sure you allow for this in your Sales Forecast. Some months will be higher when you are in season, and some months will be lower.

Make sure that you are aware of your breakeven point. By that I mean, how many embroideries you need to produce in a day in order to create a breakeven cost for the day. This is extremely important. This daily figure can be seen on your Cost Analysis Spreadsheet.

Keep your embroidery service income separate from your merchandise or Resale income.

Keep each service a separate line item

Add in your design charges. Do not include them in the price of the embroidery.

Add your shipping income to the bottom of each month.

The spreadsheets that I will be giving you tonight are very important for you to use as you are figuring out your Projections. The ones that I have included are:


Cost Analysis Spread Sheet

(Embroidery) Machine Production Schedule

The Basic Price List

Sample Job Projection

45 Min per hour Run Time Sample

Embroidery Monthly Projection Worksheet-One for each month

Other Departments Income Worksheet

Projections

Cash Flow Statement

You must keep these worksheets all together inside of this workbook because they are all linked together. I am going to show you each one of them in the power point and then I am going to go into the software and go through each one.

Top of Cost Analysis Spreadsheet


Bottom of Cost Analysis Spreadsheet

Embroidery Machine Production Scheduler


Embroidery Monthly Projection Worksheet

Top of Sample Job Projection

45 Min per Hour Run Time Sample


Embroidery Monthly Projection Worksheet

Other Department Worksheet

Sales Forecast


Cash Flow Statement

Figuring Your Markups As you are figuring your garment & embroidery job combination orders or scenarios, you need to figure the markup that you want to make on the garment alone. You also need to figure a markup on the embroidery. If you have a large markup on the garment, you can lower your markup on the embroidery if this is necessary to get a job. For a Sales Forecast, you want to make it as conservative as possible, so your markup on your embroidery should be lower. This way you will have a lower figure and it will help you to be more realistic in your expectations. If you are working with a scenario of providing the embroidery alone on a customer’s supplied garment, you will need a markup on the embroidery. I would suggest at least a 50% markup on your embroidery and if it is a retail customer that is supplying their own items, I would mark it up 75%. For you Sales Forecast, use a 75% markup for an average.


In your figuring, your 50% markup would be figured 1.50, your 75% markup would be 1.75 and your 100% markup would be 2. Technically, it is very hard to even breakeven if you are doing embroidery alone. When you are doing contract work people expect that you are to be doing the embroidery at a lower rate, but you simply cannot afford to do this. Example: Cost - times 1.5 equals your markup if it is a 50% markup. Again, I do not advise doing contract work, I just want to mention this! I discovered through lots of experience and working with other embroiderers that it is very hard for a small retail shop to make money doing contract work or providing embroidery on other peoples garments alone. In order to make a profit you need to be selling merchandise and marking that up at least 50%. You must create a balance between your embroidery markup and your merchandise markup. If you are working with a very low embroidery markup then you must add a higher markup to your merchandise. If your customers are saying that they will have to find an embroiderer that works with lower prices, that is OK! That is not your customer! Do not bring your prices down just to get the job, if you are not going to make any money on it. It is not worth it! The business that is doing that will not last long!

Creating Your Sales Forecast Your sales forecast is the part of your business plan that you will use the most. Your business is measured by its growth in sales, and your Sales Forecast is what you will use to create your cash flow statement along with your Cost Analysis to control your expenses, profits and growth. The sales forecast is the first set of numbers you’ll track vs. your actual use. This is the most important set of numbers that you will create. This is true whether you have past sales to start with in your plan or you are starting from the very beginning.

Sales forecasts can be based on three types of information:

1. What customers say about their intentions to continue buying products from you

2. What customers are actually doing in your market 3. What customers have done in the past in your market


The only way that you can accurately create a sales forecast is to send your current customers a survey. The easiest way for you to create your sales forecast is to use the figures that you have from your past sales and add a small percentage for the next year. This will also act as a goal to reach.

Many people will set a goal higher than a Sales Forecast to ensure that they actually reach the figures that they have forecasted.

Going through your past sales records and creating your Embroidery Monthly Worksheet is the easiest way to create a fairly accurate Sales Forecast.

If you are a new embroidery business startup and have no record of sales then you are going to have to start off small and add a small percentage each month. It is easier to do this by creating the job scenarios on your Monthly Worksheets.

The figures from your Embroidery Worksheets and your Other Department worksheets will flow into your Sales Forecast.

The Green numbers on your Worksheets for your Embroidery Revenue will flow into the Embroidery Sales portion of your Sales Forecast.

Your Brown Numbers on your Worksheets for your Garment Revenue will flow into the Resale portion of your Sales Forecast.

The Fuchsia Numbers on your Worksheets will flow into the Purchases in Cost of Goods on your Cash Flow statement.

The Orange Numbers on your Sales Forecast flow into the Shipping on the Cash Flow Statement.

The Red Numbers are signifying the Total Job Revenue. They do not flow anywhere, they are just so that you will be able to pick out your Total Revenue in a hurry.

The Purple Numbers on the Other Department Worksheet will flow into the same named columns on the Sales Forecast. I have not broken down the Resale and the service for the other Departments. You may want to do that. You can make a copy of the Embroidery Worksheets and substitute the names and the figures to reflect the ones for the other Department sales that you may offer.


The Designs portion, taken from the Other Department Worksheet will automatically flow into the Sales Forecast. For the designs, this is the number that you are charging the customer. If you are including your digitizing or design setups with you embroidery, you need to rethink that and start charging for them. You are losing money by offering these for free. You cannot afford to do this!

If you are new to embroidery then you will need to add a design setup fee for each new order. You will need to allow time for that as you are creating your projections. You do not add this design fee on a repeat order, this only applies to the original order where you actually have to create the design or have the design digitized!

The Shipping Income portion of your Sales Forecast will need to be filled in with whatever you are bringing in for sales or plan to bring in. The shipping usually is approximately 7% of your sales however; it may not be for you. It all depends on how much you ship out. This is a figure that you will need to come up with but I calculated the 7% into the Sales Forecast. This is the figure that you charge your customers for shipping. I take the weekly charge and multiply it by 4 for the monthly charge. This total monthly income for Shipping Revenue will flow into the Shipping Revenue portion of the Cash Flow statement. If your figure is higher or lower, you will need to change that on the Sales Forecast.

Your Teal Numbers -Sub Total Revenue on the Sales Forecast will flow into the Sales Revenue of the Cash Flow Statement.

Creating A Cash Flow Statement In creating this Cash Flow statement, I have used averages, but all of the information was taken from the Cost Analysis Spread Sheet. Your Cash Flow Statement has several categories or parts to it.

Sales Revenue

Cost of Goods

Selling Expenses

Operating Expenses

Income before Taxes

Provision for Taxes (Approximately what you will owe in taxes)

Total Income after Taxes

Depreciation Expense


Loan Payments

Total Cash Available At the top is the Total Revenue. You will have 3 lines for this Revenue category.

Sales Revenue

Shipping Revenue

Total Revenue – combination of your Sales and Shipping revenue. Your Sales Revenue and Shipping Revenue will automatically fill in from your Sales Forecast. All of your expenses from your Cost Analysis Spread Sheet will flow into the Expense portion of this sheet. They will not flow automatically from your Cost Analysis Spread Sheet to your Cash Flow Statement; you will need to add the appropriate expense to the section on the statement where it is applicable. You have 3 expense categories.

Cost of Goods – The Purchases will automatically fill in from the purchases on your Embroidery Monthly Projection Worksheet. If you have purchases for the other Department areas of your business, you will need to change this and add all of the purchases figures together and fill in that area. The Manufacturing Supplies should be a percentage of your sales and the Freight will also be a percentage of the cost of your purchases. You can determine this by the invoices from your suppliers. You will also have your Payroll and your Payroll Taxes. If you have a Sales person, their Payroll and Payroll Taxes will be added to the Selling Expense section.

Selling Expense

Operating Expenses Both of these areas will be taken from your Cost Analysis Spreadsheet. You will just match up the costs on the Cost Analysis Spreadsheet to the same Cost lines on the Cash Flow Statement.

Each section will have a total. The very bottom of the Cash Flow Statement will show your available cash each month. You will want to keep a close eye on this to see how realistic this figure is as you are going through it and as you


are using it in your business after you get your working business plan together and start using it!

Formula for the Cash Flow Statement! Sales-Cost of Goods. Total Cost of Goods and deduct total cost from the Total Sales figures. This will give you your Gross Profit. Total of each Expense category will be deducted from the Total Revenue for your Income Before Taxes.

• Sales minus (total of Cost of Goods + total of Selling Expense + total of Operating Expense) = Income Before Taxes

• Deduct Taxes for Income after Taxes • Deduct Loan Payment & Depreciation = Available Cash

Your taxes are figured differently from state to state and country to country so I will not go into that part of the statement. You will need to find out what this figure is from your accountant. You will want your accountant to take a look at your cash flow statement to see if he or she sees anything that is not looking like it should or something that will bring up a red flag.

Your Actual Cash flow is the Month 1 balance. The Month 1 balance is then added to the Month 2 balance and this continues through the entire 12 months period.

If you are creating a business that you will be taking to the bank, you will need to create Projections and Cash Flow Statements for 3 years. Once you get the first year done and start working with it, it will be much easier to add to it to create year 2 & 3, but you must use it and see how accurate it is first before you can actually go into your year 2 and 3 otherwise, it will make no sense and will be a useless tool.

If you are not going to be taking this to the bank, then do not bother with year 2 & 3. I have found that to use it as an accurate tool inside of my business, I start working on my next year’s Projections and Cash Flow starting in November. If you are not on a calendar year, it would be the last couple of months of your fiscal year. This will give you a more accurate tool to be able to use on a monthly basis.

I hope that I have given you enough information to get your Projections and your Cash Flow Statement together.


I know that this lesson is a huge lesson but it is going to pay off in dividends when you get it finished, especially if you are going to be applying for a loan. This is a tool that is going to be extremely helpful in your business. You will want to review it every month to see if you are on track or what you need to do to make changes to get you back on track. This is a tool that most business owners do not even think about but if you want to have a successful and profitable business, it is a must!

In our next lesson, we are going to start talking about marketing. I want to get the marketing part of your business planning done before we actually put your working business plan together; it all goes hand in hand! We will go over:

• Marketing Part 1 • Creating Signature or Elevator Speech • Marketing Materials

You cannot have a good working business plan without knowing your numbers and having your marketing plans in place! Homework!

• Download your Embroidery Business Projections Workbook • Copy it and save it to your hard drive • Copy over your Figures from your last lessons Cost Analysis

Spreadsheet into this new one! • Create your Monthly Projections for 12 months • Check your Sales Forecast to make sure figures are flowing in correctly • Create your Cash Flow Statement!

Joyce Jagger THE Embroidery Coach www.TheEmbroideryCoach.com

http://www.theembroiderycoach.com/

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“How To Start An Embroidery Business” Lesson 3€œHow To Start An Embroidery Business” Lesson 3 ... software yet, you are going to ... This is only for simple text such as a