Do You Have a Plan to Make Money?

Of course, you have a plan to make money. That’s why you started a business.  Actually, the question runs far deeper than that answer.  You need a “pro forma income statement”.  I know what you’re thinking,

“A pro forma income statement? Wow! Is it Christmas already?”

When running a new or existing business you always have to be thinking about money, particularly where is it coming from, whether it be from investors, profits, loans, or some combination.  To be thinking and getting the money, you always have to be planning.  There are often a number of red flags that frequently appear in business plans that tip off investors or users that you have not done your research, you are just guessing, or you are so enthusiastic about your idea you refuse to face reality.  Some of the most common red flags include the following or similar terms:

• our huge market;
• there is no competition;
• we assume;
• we believe;
• revolutionary idea.

The pro-forma income statement is what you need and what investors read.   When used properly it will help minimize the need for the use of the above disparaged terms or concepts.

By using Startup Connection’s simple forecasting process, you can quickly establish a number of base projections for your business.  These projections will be more realistic, doable, useful, and, best of all, refreshing in the eyes of investors.  Our forecasting process starts with specifics designed to help you early on develop an understanding of some key components of your business.

Specific examples include:

• What are your sales volume goals?
• What is your average selling price?
• What does it cost to produce one unit?
• What are your marketing costs?
• What are your labor and administrative costs?
• What will your profit be?

Simply integrate these estimates into a simple Profit and Loss Statement (P&L).  The P&L allows you to evaluate alternatives, understand what drives sales and profits, and helps develop effective strategies to modify your estimates in order to develop a more viable business.

A number of key relationships to keep in mind when developing your P&L include:

• Sales are projected from multiplying units times price (U x P) which provides a basis for understanding your estimate;
• Your sales must be justified by your marketing expenses;
• You must include administrative and labor costs and;
• Your gross profit must be reasonable. It should be based on deducting the cost of goods from sales.

Bert Shlensky is president of www.startupconnection.net and has developed an experienced team and approach to develop simple hands-on models designed to execute successful startups and grow existing small businesses.