Chapter 8: Start-Up Concerns &
Financial Projections -Researching
& Preparing Numbers
Learning Objectives:
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Recognize the importance of
numbers and how to keep score
with them
Understand your responsibility in
keeping track of numbers
Determine start-up costs
Discover ways to boot-strap your
business
Focus on pricing as part of overall
strategy
Determine seasonality scenarios
Deal with recessionary pressures
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Develop sales projections and
what-if scenarios
Prepare projected income
statements
Learn that cash is king!
Understand importance of the
balance sheet: assets – liabilities
= net worth/owner’s equity
Determine feasibility and
profitability through break-even
analysis
Explore financial software options
Learn how to use industry
financial ratios and benchmarks
Chart Your Business Future with Numbers
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What will your start-up costs run?
Which months will be strong? Which will be weak?
What are your projected gross sales estimates?
Can you project cash flow?
What bank loans and other credit will be needed?
How many employees will you need? What will they cost?
Can you add people to the team who will bring cash?
What is your burn rate and how long can you survive?
How fast can your business grow? How will it affect cash?
Are you prepared for handling money in the business?
Five Areas to Consider
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Start-up Costs
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Pricing
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Can be minor or major
Bootstrapping is an advantage
Low cost? Premium?
Freemium? Dynamic?
Seasonality Scenarios
Sales Projections
What-if Scenarios
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Income and Cash Flow Statements
Balance Sheet, Break-even Analysis and Financial Ratios
Areas to Consider: A Closer Look
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Start-up Costs and Concerns
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Bootstrapping: Tips to Conserve
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Compete a Worksheet & Prepare for unexpected costs
Get paid up front if you can & ask vendors for trade credit
Lease equipment & run a lean operation with no waste
Work out of your home or ask your landlord to make improvements
Resell what you can & take markdowns on dead goods
Use as little space as possible – it doesn’t have to be attractive if
customers don’t visit your facility
Shop around when borrowing & make your cash earn interest
Add employees slowly and carefully
Open a line of credit & make “conserve cash” youu mantra
Seek Financial Advice and Support
Action Step 38: Attach Price Tags to
Starting Your Business
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Look around and list items you use every day
List expenditures for things you cannot see
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Insurance, Rent, Utilities, Taxes, Legal & Accounting
Write down how much each expense will cost
Use the start-up worksheets as guides to develop
your start up costs
Refine the numbers as you go so you will have an
accurate representation of start-up costs for your
Business Plan
Action Step 39: Preparing for Surprises
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Brainstorm a list of surprises that could cost you
time, money or threaten your survival
Ask business owners about their surprises and how
they handled them
Talk to vendors, suppliers, customers & insurance
brokers
Estimate your total potential extra costs
Decide how you will cover unforeseen expenses
How much money should you set aside for
unexpected events?
Areas to Consider: A Closer Look
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Pricing Your Product or Service
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Price must be acceptable to you and your customers
Don’t make the mistake of charging too little or too much
Markups vary between types of business
Many customers today demand discounts
Common pricing methods:
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Other pricing methods:
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Competitor-Based or Market-Based Pricing
Cost-Plus or Profit-Based Pricing
Industry Norm or Keystone Pricing
Premium Pricing
Penetration Pricing and Price Skimming
Be flexible & expect changes when developing your strategy
Action Step 40: Discovering Costs and
Developing a Fair Price
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Review chapter 5 action steps and revise if needed
Use your answers to help develop your pricing strategy
Gather information from various sources to develop a
list of activities and the costs you will incur
Determine actual expenses involved with each cost
and activity
Price your product using the primary method for your
industry
Consider how you want customers to view your product
Discuss major pricing issues you need to deal with
Complete a break-even analysis
Areas to Consider: A Closer Look
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Seasonality Scenarios
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Economic Cycles
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Most businesses experience seasonal variations
Seasonal forecasting will become easier after a year in
business
Cycles hit specific businesses and the broader economy
Sales Projections and What-if Scenarios
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Sales drive everything else
Every number in your Business Plan should have backup support
Action Step 41: Complete Seasonality
Scenario and a Projected Profit and Loss
(Income) Statement
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Write a seasonality scenario for a typical year in
your business considering obvious forces
Answer the following questions:
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When does your industry collect money – before,
during or after the sale? Long after?
When do you have to pay for inventory?
What are the time lags between paying for inventory
and receiving money for selling that inventory?
Generate monthly numbers for the year and prepare
an income statement including taxes
Income Statements and
Cash Flow Projections
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An income statement demonstrates on paper
when you are going to make a profit
Income statements track revenues and expenses
but do not tell the whole story
A cash-flow projection shows whether you can
pay bills and when you will need a cash infusion
to keep going
Projections include more than just sales
Cash-flow projections are a tool used to help
you control money
10 Critical Cash Flow Rules
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Profits aren’t cash
Cash flow isn’t intuitive
Growth sucks up cash
Business to business sales suck up cash
Inventory sucks up cash
Working capital is your best survival skill
“Receivables” is a four-letter word
Bankers hate surprises
Collections Days, Inventory Turnover & Payment Days
If you’re the exception – hooray for you!
Balance Sheet
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A picture of what your business owns and
owes. Three categories make up a balance
sheet:
 Assets (anything of monetary value your
business owns)  Liabilities (money owed to creditors) =
 Net worth (owner’s equity)
Break-Even Analysis
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If you know your estimated costs (variable and
fixed) and gross sales, you can use a break-even
formula that will tell when you will start making
money
A break-even analysis is particularly useful:
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At start-up time
When you have completed your income and
expense projections, and
When you are considering launching a new
product or service
Leaving a Paper Trail and Software
Applications
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Download Starting A business and Keeping
Records from the IRS
Don’t comingle business and personal accounts
Track expenses and keep receipts
Use a major accounting program to track your
financial activity
Software should include word processing,
spreadsheet, database management, accounting
and bookkeeping and website development
Financial Ratios
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Calculating a few simple ratios will help you with
analysis
Lenders use ratios to determine the risks associated
with lending
Ratios are control tools for maintaining financial
efficiency and staying afloat
Current Ratio: Does the business have enough money
to meet current debts?
Quick Ratio: Do you have cash on hand to pay your
debts?
Return on Investment: Return expressed as a
percentage of investment
Think Points for Success
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It is cheaper and easier to make mistakes on a spreadsheet
before you go into business
When you visit your banker, make sure you know how
much you are going to need in the long run
Projecting your numbers will help you understand and
control the variables of your business
Purchase accounting software on day one
Cash flow is king
Remember Seth Godin’s advice: “The goal, no matter what
you sell, is to be seen as irreplaceable, essential and
priceless. If you are all three, then you have pricing power”
Walk away if the business is not going to work financially