The importance of financial-planning assumptions
Unless you have a lot of startup experience, it can be a little tricky to make down-to-earth financial projections for your new company.
Pragmatic assumptions are important in such a forecast.
When in doubt, start by decreasing your assumptions.
What else can you do as an Internet startup?
Excelling in thought leadership, Ms. Joey Tamer is a Los Angeles-based a strategic consultant to entrepreneurs in technology and digital media, and to experienced consultants in all fields to maximize their practices.
Joey Tamer, www.joeytamer.com
Here are her seven financial-planning suggestions:
- Reduce the rate of adoption of your product/service.
- Increase the rate of attrition of your customers.
- Decrease the rate of conversion of “free” to “premium” customers (if you have that model).
- Decrease the time of the conversion of “free” to “premium” customers (if you have that model).
- Add significant time (double?) to your ideas about the “time to market” of new features and benefits.
- Add significant time to the receipt of subsequent revenue from adoption, conversion and retention of customers, and from their “upsell” to new features, benefits and versions.
- Add 10 to 15 percent (or more) to all costs.
In addition, I’d point out that there are good reasons for you to consider why and how to determine your break-even point and to use a business success checklist to work smarter, not harder.
More startup questions to ponder
An esteemed business professor, Neil Delisanti, recommends that startups use the forecast for follow up and to see how they are doing against it. Don’t wait until end of year, he warns, because that’s too late to make changes.
Now retired, Mr. Delisanti has taught at the University of Puget Sound and The Evergreen State College in Washington state, and successfully counseled 2,000 new or young businesses via the Small Business Development Center in Tacoma.
He agrees that it’s best to subtract or add 10 to 15 percent to or from the expected, which can be easily done in an Excel model.
“It is recommended they build a model forecast utilizing cells with variables that will change the results of the entire sheet with just one cell entry,” he adds. “That way by changing just the price, the net profit changes, or change the price and sales volume and the whole thing changes.”
He’s also an advocate of creating contingency scenarios. He’s the consummate devil’s advocate for anticipating unplanned events such as riots, natural disaster, product pulled from shelves or hardship from construction on your street.
More scenarios for which to plan:
- If you have to stop selling an obsolete product or service
- If you have to increase taxes/license fees/compliance expenses
- If you need to increase labor costs and also reduce expected productivity of labor
- If you face rising costs of resources; petrol/electricity/water/trash collection/etc.
(Note: Both experts are trusted and valued colleagues. Mr. Delisanti and I have worked together for more than 20 years. I know Ms. Tamer well since 2004 via our membership in a professional organization for consultants. )
From the Coach’s Corner, here are more of Ms. Tamer’s related insights:
6 Values for Financial Protection — Debt is the catalyst for all financial woes – for individuals and the aggregate economy in the United States and globally, esteemed associate Joey Tamer astutely reminds us. To illustrate, she asserts the first credit card issued by Bank of America enticed baby boomers into using credit for immoderate purchases. We now know the card as Visa.
Options to Navigate This Marketplace Bedlam — Uncertainties regarding Wall Street, actions by the Federal Reserve, and funding often set off alarm bells. But if you’re looking for capital, there are reasons to hope, according to leading consultant Joey Tamer.
What Should You Divulge When Asking for Investment Capital? — If your startup is the next big thing, but you want venture capital, you can start smiling. Yes, financing has been difficult to obtain in recent years. But entrepreneurs wanting venture capital have reasons for at least a small celebration – the money is starting to flow again after the Great Recession took its toll.
Eight Strategies to Consider Before Starting A Tech Business — So, you’ve got an idea for a tech business, but you’re unsure about your prospects. Do you know what are important strategies to consider before starting a tech business?
What No One Tells You about Raising Investment Capital — Investment capital is available during all economic cycles, according to leading consultant Joey Tamer. Ms. Tamer has proven approaches for raising money. “In good times, risk capital is available from all sources, and they compete and sometimes share hot deals with each other; the practice is termed syndication,” said Ms. Tamer.
“Think small and act small, and we’ll get bigger. Think big and act big, and we’ll get smaller.”
Author Terry Corbell has written innumerable online business-enhancement articles, and is a business-performance consultant and profit professional. Click here to see his management services. For a complimentary chat about your business situation or to schedule him as a speaker, consultant or author, please contact Terry.