The Saturday Morning Post By Richard, October 12, 2013
A very good morning to my fellow consultants, entrepreneurs, freelancers, new business owners, networkers, start-ups and sales, marketing, and brand professionals.
How much money do I really need ?
The two considerations to calculate this properly, are how much is needed to start our new business and how much is needed to run the business until it is self-sustaining! Consider all of the phases we need to go through to reach a profitable new business startup. So let’s define the list, do a quick cost calculation and a timeline for each. We need to think Excel, I suggest you do this in quarters rather than months, it’s faster and will keep you out of the weeds, later on we will do this in detail, but for now we just need a quick overview.
Project phase – Previously we calculated the cost and the length of time for this project. See Project Checklist for Going Viral ! In Steps to Success. At this point you might want to review your cost worksheet more closely, the first time through our focus was on product.
Startup phase –Identify and cost-out the production, design, logistics, vendors, suppliers and programs. For hard products this can be a huge endeavor. Reaching out to your mentor, or people with expertise in these areas is highly recommended. Figure in sales and distribution startup costs if required. Back of the house professionals and services such as Attorneys, CPA’s, banking, HR and consulting are calculated in this section also. If you are having trouble identifying areas of need and their budget numbers, you should consider talking with an accountant and requesting a chart of accounts for your type of business.
Rollout phase – Properly done can easily have a 20 X impact on your sales the first year! This is the most important time and event of your new business! This key date is determined by a trade show, industry event, or a buying season for this product category. Items to identify in this phase are trade shows, intro promos, events, PR, Advertising and a brand ambassador, (celebrities). There will be a future comprehensive blog in the Steps to Success series on product and company rollouts, it is a big item that most new businesses miss!
Launch phase -Starts with the date of your first sale and ends when your business is in an ongoing positive cash flow mode. Congratulations this is almost an impossible goal to achieve, less than 1% of current startups make it! To determine whether you are generating a positive cash flow I suggest using the cash method of accounting. This easy method is easier to determine whether we have enough cash to stay in business! It is similar to the way we run our household budgets, running everything through our checking account. Theaccrual method of accounting includes depreciation, amortization and other noncash items which is probably the method your CPA will use.
New Business phase –Congratulations founder! Now comes the three big questions you will ask yourself the first thing each day which determines that day’s agenda barring the usual unforeseen catastrophes.
- Do I have enough cash to stay in business for six months?
- Are my sales on target ?
- Are my margins in line or am I making enough money on each sale?
Select your biggest problem and solve it. This is an over simplification which I will expand on in a future blog in the steps to success.
Capitalization – Now Excel your phases into a quarterly time line, list the appropriate cost and total. Armed with this information you have enough basic information to start making a proper decision as to whether you want to move forward with this venture. Also, this is your first work product for a business plan. You have accomplished four challenges, how much money you need, when it is needed, your start date and the scale of your venture.
Additional counsel – If you’re already in business, work with this product category and are familiar with the distribution and markets your calculation is probably 90% accurate. If you are not working in a field of related to this product, distribution or markets, but are in business, I would suggest doubling your calculation. If you’re not in business and have never been involved in this product category, markets or distribution, triple the number! Why? Simply put things take longer than you think which adds costs and over looked items are common problems for the new businesses startups.
For an additional conversation or more information I can be reached at: Richard@bizbuzznyc.com
Good luck and success,