Financials for Your Online-Business Plan

             Numbers: The Language of Business

One of the biggest challenges you may face as a business owner when writing a business plan is “the numbers.” If you are unfamiliar with the financial side of things, you may shy away from putting together numbers, but it is a lot easier than you may think.

Numbers are just another way of expressing ideas, and for the financial section of your business plan, the idea you are aiming to convey is that you have a realistic and accurate picture of the money you need and how you are going to use it to generate a financial return. The numbers of your business plan are really the bottom line when analyzing your plan, and should include these sections:

1.      Start-Up Funding and Use of Those Funds

2.      Cash Flow Projection and Income Statement

3.      Break-Even Analysis

Many times, your “numbers” will receive more scrutinization than other parts of your business plan, so you should dedicate enough time to fully understand the picture you are painting. This scrutinization will come from people who know more about financial statements and reports than you can dream of knowing, but don't let that worry you.  As long as you have a conservative, workable plan, they will recognize the opportunity you are presenting. In other words, they will be comfortable risking an investment in you, knowing that you have a good strategy to provide income in return.

Furthermore, you don't need to be an expert with spreadsheets in order to compile your business plan financials The following sections will require just basic formulas and simple layouts that anyone can do.

So, let's get started!

             Start-Up Funding and Use of Those Funds

For this part of you plan, consider how much money  you need to start your business. Start-up funding includes one-time expenses that are required to get your business going, plus money required to maintain operations for the short- and long-term, until your business begins generating enough revenue to stand on its own feet. Some things to think about include:

            ·licenses

            ·inventory

            ·software

            ·computer equipment

            ·rent

            ·insurance

            ·salaries

            ·website costs

                        ·design

                        ·development

                        ·marketing

                        ·hosting

            ·shipping and packing materials

            ·office supplies and tools

            ·PR activities

                        ·press releases

                        ·opening events

                        ·other promotions

Compare your business to gardening. If you can imagine potting a new plant at the beginning of spring, there are several awkward weeks when you wonder if it's going to survive. Maybe, when you brought it home from the store, the roots were dry and new ones need to grow. Maybe, because of unseen neglect, it wasn't getting watered, or was left out in the sun too long until you came along and rescued it. At the end of the summer, however, if you've diligently tended to it, you'll be pleased to see that your plant is growing new leaves and sprouting beautiful flowers, and you'll be amazed at its beauty.

Your online business will experience awkward growth as you start, too. You need to give it time to “take root” and flourish. The start up costs you identify are designed to make sure you survive through those awkward first few months when sales haven't picked up yet and you are still building your client base. You need to insure you have enough resources to make it through—many businesses end up folding within a year of starting because not enough planning goes into short- and medium-term business financial needs, so take time now to prepare.

             Cash Flow Statement and Income Projection

Running out of cash is a business owner's worst nightmare. Therefore, you must outline week-by-week, month-by-month, and year-by-year (for the next three years, at least) exactly where the money will be coming from and going to. This information will provide you (and your investors) with peace of mind as you see the big picture unfold. This process can alert you to potential times of concern due to seasonality, and help you adequately prepare for the future.

The way to build this section is to simply imagine day-to-day activities and then portray them in the numbers. In your spreadsheet, you'll need rows for expenses and rows for income, then a row for the net result. Simply walk yourself through a scenario of operations.  What is your forecast sales volume? How many sales do you anticipate per day? Week? Month? What will be the variable expenses related to those sales, in other words, the cost of inventory? What about fixed expenses, such as rent, salaries, taxes, professional fees?  List everything you anticipate will be an income and expense for the upcoming time frame.

As you piece this information together, you'll begin to see times when sales may be low and expenses high, so you may risk cash shortfalls. It's good to think about such things before they happen so you can prepare for them and adjust your plan—that's the primary purpose of writing a business plan, in fact, to prepare you for the unexpected!

             Break-Even Analysis

The aim of your business it to make a profit. How long will it take? When will you be paying back your investors? Consider how much you will need to sell every day to break even in six months? One year? Two years? Three years? Which time frame sounds most reasonable, given market conditions and trends?  As you build your spreadsheet, adjust the numbers accordingly to find a time frame that seems achievable, yet stretches you. Double check this with your Cash Flow Statement and Income Projection to insure your numbers match. More importantly, double check your marketing section of your business plan to insure that you have the right marketing strategy in place to help you meet your goals.

You can read about building a marketing strategy for your business plan in a previous blog from HIT Web Design. Be sure to read “Marketing Your Online Business.” 

             Financial Assumptions

When it comes to analyzing your business plan,  realize that the underlying assumptions supporting the conclusions in your plan are much more important to consider than anything else. When a banker or potential investor reads your plan, they will be searching for those assumptions, and then weighing them against reality and their own experiences as business professionals.

As a result, you must know what the underlying assumptions are behind the sales forecasts and revenue expectations you are listing in your plan. How are those assumptions backed up by the research cataloged in other parts of the plan? Are the sales that you are forecasting consistent with those of other businesses in your industry? What market share of the industry do you plan to win? What does that represent in dollars? What about the information you uncovered about your target market? Is that group's buying trends and product preferences swinging in favor of your business?

             Enthusiasm is Contagious

Be prepared to defend your plan when asked. Don't buckle and wilt if you are questioned about numbers you've listed or statements you've made. Instead, let the enthusiasm for your business show through. You've done the research, after all, and you believe in yourself and what you have to offer, so let it show.

Enthusiasm is contagious, and if your investors don't see it in you, they won't dare invest.

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