End Goal: Have the Financial Portion of Business Plan Fully Developed #

Startup Costs: #

What do you need on day one to get everything started?  In our Concept Development you should have outlined all the things you need to accomplish your tasks and in the feasibility study you outlined your Cost of Goods Sold, now you need to take that information to build out startup costs.  Don’t skimp here.  Really think about everything you need.

• Office Equipment including Computers, Desk, Printer, phones, paper, pens, etc.
• Equipment, Sorting Tables, Machinery, Etc.
• Advertising Budget, Business Cards, brochures, ad space, google ads, marketing campaigns
• Uniforms or safety equipment.  Any specialized gear necessary
• Insurance, Good space to mention Commercial auto policies
• Legal Fees if necessary, business set up, partnership agreements, operating agreements etc.
• Licenses, any necessary licenses you need to pay for.

Monthly Cash Burn: #

How much do you need for all your monthly expenses.  This is called Fixed Expenses.

• Rent
• Utilities
• Administrative Fees
• Payroll

Revenue Potential: #

In the feasibility study you determined a good price that you can charge for your product and in the market research phase you determined the potential size of your customer pool.  You have also thought about time in several places.  Given what you know, how much revenue could you really expect to earn?  

• Maximum Revenue Potential – If you maximize your time and maximize your production capabilities, what kind of revenue could you generate?  Don’t think too far ahead here, just using your start up costs and what you have available to you now.  Scale and increasing revenue will come later.  This is a good place to start for now
• Time to Maximum – Think conservatively. Right now you are at zero, you want to get to maximum.  How long will it take you?  How long does it take to let people know about you and convince them to buy your product?  How many clients or customers can you get each month, week, or day?  
• Monthly Revenue Potential – Starting at zero and increasing up to your maximum revenue over a timeline you should build.  Average out your revenue build over this time.  What will you make in month 1, 2, 3, 4, etc.

Proforma: #

Now that you have your start up costs, monthly cash burn and revenue potential you can build a proforma.  Build this out month by month.  In Month 0, you have your startup costs.  Every month after will include all the fixed expenses from the cash burn.  you will then enter your Revenue Potential over time that you calculated before.  you will also include your Cost of Goods Sold to match along with our revenue potential.   As our revenue goes up, so should our Cost of Goods Sold.  Finally you need to add any variable expenses.  Variable expenses are costs that go up along with revenue.  Cost of Goods Sold is given as a variable cost but good to think about payroll, additional admin costs, etc. that may go up.

Breakeven Point: #

This is the all important number for startup businesses.  You should be able to identify it from your proforma.  Very few businesses are making money right away, so you need to know how long it will take you to get to breakeven.  Breakeven is when the business is finally profitable.  It is also defined as when gross profit overcomes monthly cash burn. Remember these two equations

Revenue – Cost of Goods Sold = Gross Profit

Gross Profit –  (Fixed Costs + Variable Costs) = Profit.  

In the beginning your profit will be negative but once you get to a positive value, that is when the company is breaking even.

 
Personal Budget: #

Getting the business profitable is the first step, but you have your own personal bills outside the business.  It is a good time to make a personal budget.  What are your fixed costs?  Rent, utilities, car payment, mortgage, food, clothes, and children costs are just a few considerations.  Just because the business makes money doesn’t mean you are making ends meet.  So, be sure to think about what it really means to get to profitability. If your business makes enough to cover your personal budget you have yourself a successful business.