Business Plan Projections

Today I got asked this question again for the umpteenth time, "How do they (bankers, funders) expect me to assume numbers in a business plan when I haven't even started yet?" Usually I hear, "what is the deal with this projection thing?" So I decided to blog about it a little today.

Simply put, projected numbers are derived from you and HOW MUCH your business aims to sell MINUS the expenses you will incur from selling it with CONSIDERATION for the pricing offered and quantity sold by your current market FACTORING in what you've investing in your company (i.e. cash, credit line, 401K).

Your calculation may start like this:

I will sell 3 sweaters a week ($15.00 each), 2 pairs of sneakers
($40.00/pair) and 10 t-shirts ($5.00 each) for a total of $175.00 a
week.

Since I am a middleman, I usually purchase my items directly from different
wholesalers, and they charge me $5.00 per sweater, $20.00 per sneaker, and
$2.00 per t-shirt. So my costs per week will be $75.00.

So then, you may start thinking hmmm, I have a $100.00 profit per week right? Wrong!

Other expenses. You will also need to include your startup expenses (what you will need before you can open your doors). This can be in the form of an office, warehouse, storage unit, utilities, legal or permit fees, insurance, equipment, etc. If you anticipate needing help from employees or contractors, you will need to include their monthly payouts. Sales tax and employee tax will need to be included as well.

Loan Payments. After you have projected how much you anticipate getting in loans, you will also have to project your monthly loan payments into your plan. Why? A good lender wants to know how your cash flow looks after he lends you some money also. You can get a projected loan payment based on dollar amount + anticipated rate (which you can obtain easily by calling your bank) and length of loan term by using your Microsoft Excel tools.

Break-Even Analysis. This number will show you how much revenue you need to have in order to cover costs. How much units you need to sell every month or clients you need to sign. This number you want to watch weekly or monthly.

Tip: You want a high gross margin, the higher your margins, the better money you have in your pocket. Plain and simple. So, don't concentrate on sales dollars, concentrate on underlying costs and expenses versus sales. The sample client scenario above for example, should encourage a business owner to aim for more sales by coming up with different strategies OR choose to work from home, with no help and no extra costs.

And don't forget, your projections will have to be as realistic as possible. You can't just throw numbers together. You have to do some research and talk to some people.

About the Author: Cheryl Isaac is the writer of this blog and the Startup Business Consultant & Owner of Isaac Business Services LLC; an agency that offers startup concierge & business planning services for small businesses.