When a group of entrepreneurs called me a few months ago about editing their business plan, I asked them how much money they wanted to raise. They said $150 million! I truly could not believe my ears. How could a new venture possibly cost that much?
Well, they were planning on purchasing all sorts of heavy equipment to create a renewable energy business and setting up shop in several states. Another potential client needed $1.5 million to pay lobbyists to help effect legislative changes that would make their business more viable and create demand.
Even in a booming economy, these are not reasonable start-up expenses, in my humble opinion.
But in a recession, you really need to consider bootstrapping. Start as small as you can and expand organically, plowing profits back into the business. Capital has dried up. Banks still are not lending; lines of credit are shrinking; friends and family don't have disposable cash to lend or invest; VCs and angels are pickier than ever.
So you need to ask yourself, what is the minimum I need to get started? Write down the expected expenditures on paper or in a financial computer program like Excel. Make yourself a spread sheet. Think of the cash that will need to come in to cover monthly expenses and capital expenditures. Ask yourself if you can go without a salary? Without benefits?
Here are items you need to think of:
Cost of you producing your product:
Raw materials
labor
machinery
warehousing, picking and shipping
Overhead:
office or factory or warehouse space
some office equipment
supplies
communications
IT
legal
accounting
insurance
travel
entertainment
marketing - advertising, pr, promotion, website, branding, graphic design, trade shows, etc.
patents
Depreciation
Interest
Taxes
Capital expenditures and leases
cars
equipment
land
software
The list goes on -- What can you do without? What is essential? Do you need to create samples? Brochures?
Figure it out and write it down.
If you need help, go to the Small Business Administration (www.sba.gov). I also consult or can provide my written guidelines to financial planning. email me at upstartwyn@gmail.com -- I know how to demystify financial projections and using Excel.
www.upstartbusinessplanning.com.
Showing posts with label financial projections. Show all posts
Showing posts with label financial projections. Show all posts
Friday, June 12, 2009
Monday, September 15, 2008
What VCs Look For
I was just reading an article in the Pennsylvania Gazette (the alumni magazine of the University of Pennsylvania) about funding IT grad's entrepreneurial ventures. A couple of Wharton grads decided to start a venture fund focusing on entrepreneurs with Penn connections. They've funded everything from Diapers.com to First Flavor.
The one statement that stood out to me most was this:
“When I’m looking at the financial projections for a company, the one thing I know for certain is that they’re wrong,” says Topche. “Maybe the market changes; maybe a new competitor will appear; maybe there will be a regulatory change. The ability of the management team to adapt to that change in their environment by adjusting their product or doing something different strategically is almost always the determining factor in the success of that company. These are things that you have to get comfortable with before you write a check.”
That's why Venture Capitalists like investing in smart management. While you can write a great plan and have detailed financial projections, you have to be flexible and able to adjust your plan as the market changes or opportunities present themselves.
To read more, visit this link: http://www.upenn.edu/gazette/0908/pro04.html
The one statement that stood out to me most was this:
“When I’m looking at the financial projections for a company, the one thing I know for certain is that they’re wrong,” says Topche. “Maybe the market changes; maybe a new competitor will appear; maybe there will be a regulatory change. The ability of the management team to adapt to that change in their environment by adjusting their product or doing something different strategically is almost always the determining factor in the success of that company. These are things that you have to get comfortable with before you write a check.”
That's why Venture Capitalists like investing in smart management. While you can write a great plan and have detailed financial projections, you have to be flexible and able to adjust your plan as the market changes or opportunities present themselves.
To read more, visit this link: http://www.upenn.edu/gazette/0908/pro04.html
Monday, August 25, 2008
10 Tips for Starting a Business - Tip # 8 - Make Money
It may seem like an obvious notion, but businesses should make money. If you are going to invest your own money, borrow money or ask other people to invest in your business, then you really need to know how you will pay back yourself, your creditors and your investors.
In fact, before you can raise money, you need to be able to explain exactly how you'll make money.
Back in the days of the dot-com boom, it seemed that entrepreneurs only had to explain how they would generate revenue -- or sales. The idea of actually making money -- i.e., a profit was largely ignored. That's why we had the dot-com meltdown and so many businesses went out of business.
But nowadays, you need to know how you'll generate positive cash flow and profit. That takes a financial plan, or more simply, a budget. You need to answer these questions:
How much do you think you'll sell each month?
What will it cost to create what you sell (cost of goods sold)?
What will it cost to sell what you sell (selling and marketing)?
What will your overhead cost (all your fixed costs)?
What's left after you subtract your costs from your sales (Your operating income)?
All that goes into your income statement. When you actually make money, you can substract depreciation, income taxes, amortization and interest expenses to get net income.
To understand your cash flow, you'll have to look at capital expenditures and the cost of producing your inventory, in addition to other cash outflows and inflows. These numbers are key in understanding what it will take to open and operate your business. Cash is king. If you have the cash to pay the bills, you'll be O.K..
Your assets (your cash and what you own) and your liabilities (what you owe) and your owner's equity (the difference between your liabilities and assets) are all on your balance sheet. Bankers care about balance sheets.
To learn more, visit www.sba.gov. That's the website for the Small Business Administration. They have lots of great information about financial planning and budgeting. Or contact me at upstartwyn@gmail.com.
In fact, before you can raise money, you need to be able to explain exactly how you'll make money.
Back in the days of the dot-com boom, it seemed that entrepreneurs only had to explain how they would generate revenue -- or sales. The idea of actually making money -- i.e., a profit was largely ignored. That's why we had the dot-com meltdown and so many businesses went out of business.
But nowadays, you need to know how you'll generate positive cash flow and profit. That takes a financial plan, or more simply, a budget. You need to answer these questions:
How much do you think you'll sell each month?
What will it cost to create what you sell (cost of goods sold)?
What will it cost to sell what you sell (selling and marketing)?
What will your overhead cost (all your fixed costs)?
What's left after you subtract your costs from your sales (Your operating income)?
All that goes into your income statement. When you actually make money, you can substract depreciation, income taxes, amortization and interest expenses to get net income.
To understand your cash flow, you'll have to look at capital expenditures and the cost of producing your inventory, in addition to other cash outflows and inflows. These numbers are key in understanding what it will take to open and operate your business. Cash is king. If you have the cash to pay the bills, you'll be O.K..
Your assets (your cash and what you own) and your liabilities (what you owe) and your owner's equity (the difference between your liabilities and assets) are all on your balance sheet. Bankers care about balance sheets.
To learn more, visit www.sba.gov. That's the website for the Small Business Administration. They have lots of great information about financial planning and budgeting. Or contact me at upstartwyn@gmail.com.
Sunday, December 10, 2006
Watch Your Numbers
This week an entrepreneur showed me a one-page summary he had sent to an Angel investing group. "Why did they turn me down?" he asked.
After I quick glance, it was obvious. His EBITDA was higher than his Revenues. I told him. I also told him that was impossible.
"Do you know what EBITDA is?" I asked. "Oh, sure," He could rattle off what the acronym means, "Earnings Before Interest Taxes Depreciation and Amortization."
But how many entrepreneurs know what that really means or why it's important? EBITDA is another name for Operating Profits. It's essentially a proxy for your cash flow from operations. That's why it's so important to investors. That's why it should be important to you -- the business owner.
For investors (and for savvy business owners), the numbers tell the story of your business. You need to spend the most time figuring out your costs and your revenue assumptions. If you can't, then you need professional help.
The SBA Web site has free help. SCORE has free help. Or you can hire a professional to help you. (like me -- www.upstartbusinessplanning.com)
After I quick glance, it was obvious. His EBITDA was higher than his Revenues. I told him. I also told him that was impossible.
"Do you know what EBITDA is?" I asked. "Oh, sure," He could rattle off what the acronym means, "Earnings Before Interest Taxes Depreciation and Amortization."
But how many entrepreneurs know what that really means or why it's important? EBITDA is another name for Operating Profits. It's essentially a proxy for your cash flow from operations. That's why it's so important to investors. That's why it should be important to you -- the business owner.
For investors (and for savvy business owners), the numbers tell the story of your business. You need to spend the most time figuring out your costs and your revenue assumptions. If you can't, then you need professional help.
The SBA Web site has free help. SCORE has free help. Or you can hire a professional to help you. (like me -- www.upstartbusinessplanning.com)
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