Every year, approximately 400,000 new businesses come into existence in the US. While some of those companies have a significant amount of startup capital, not everyone starts out with massive sums of money in the bank.
Often, people assume that you need millions of dollars to create a billion-dollar organization. However, many incredibly successful businesses came from humble beginnings. Online resources can help keep startup costs low, particularly for service-oriented companies or those who focus on digital goods.
However, low startup costs do not guarantee success. Approximately 50 percent of new businesses shut their doors within five years, and a full 66 percent don’t see their tenth year anniversary. Often, this happens when company owners underestimate their expenses in the beginning. Since they don’t plan accurately for the amount of money that is heading out of the door, they ultimately don’t survive.
While this may make it seem that many businesses are doomed from the beginning, that isn’t necessarily the case. By having a solid financial plan in place, you can achieve success, turning a small startup into a million- or billion-dollar company.
How to Craft the Ultimate Financial Plan
When you start or expand a business, you are making an investment. It takes time, energy, and money to get a company off the ground, add new branches, or increase your service offerings.
If you want to be successful, you need a solid strategic financial plan. Often, this entails crafting business proposals and having accurate cost and revenue projections. Otherwise, you’ll be operating with inaccurate or overly optimistic numbers, increasing your odds of failure.
To create a strong strategic plan, you need to consider a variety of points. Not only will you need to define your business objectives, outline your products and services, and create financial goals, you must also create accurate cost projections.
Defining Business Objectives
When many people start or expand companies, their primary goal is to be successful. However, this is too ambiguous to be a functional objective. Instead, you need to drill down deeper and genuinely outline what you hope to achieve.
You can begin by considering where you would like the company to be in five years. For example, is there a specific revenue target? Do you have a certain number of additional locations in mind? Are you hoping to expand your product or service offerings?
Once you have an idea of where you’d like to be, you can start identifying objectives. Ideally, you’ll want to take your five-year goal and break it down into smaller ones. Annual or quarterly objectives are ideal, as they can help you not just stay on target but to experience mini-wins along your journey.
The idea is to come up with a destination and then find the relevant milestones in the broader goal. This makes a big undertaking feel more manageable and ensures you truly examine what it takes to reach your objectives.
Outlining Your Products and Services
If you are starting a business, you either intend to offer products or services. Before you begin forming a company, you need to clearly outline what you will make available at the beginning and which options will be additions down the road.
Ideally, you want to start with a core product or service line that provides customers with obvious value. Don’t spread yourself to thin by trying to offer a large array of products and services. Instead, concentrate on a small segment of what you want to provide and strive to perfect it.
The idea is to build a reputation as a respectable company with reliable products or services. As customers begin to rely on you, they will be more open to additional offerings. If you try to add too many from the beginning, the quality may suffer, harming your chances of success.
Instead, maintain a quality-over-quantity mindset, ensuring that what you sell meets or exceeds customer expectations at all times.
Handling the Financial Side
Business finance is a complicated topic. Often, new business owners underestimate the complexity and overlook certain costs simply due to a lack of experience.
Before you begin, you need to focus on how much the company will cost, not what it could make. Outline all of your expenses, including physical office, retail, or warehouse space, utilities, computing resources, shipping costs, licenses, insurance, marketing, and any other item or service that results in money heading out the door.
Additionally, you need to consider what you need to earn to survive. Your business may be providing you with your only source of income, so understanding how much you need is a necessary step.
Cumulatively, all of these costs are your overhead, and that is what you need to be ready to spend as you start your business.
Once you have those figures, it’s time to work on projections. These are estimates of what your business will bring in as revenue. These aren’t figures you can pull from the sky. Instead, you’ll need to complete a substantial amount of research.
For example, market research may allow you to estimate demand for your product or service. Additionally, you may discover what price point the market will support, allowing you to set your prices in the right zone.
After Project Completion
Once you complete the projections, you need to see if what you could bring in compensates for what you have to spend, especially if you don’t have a large sum in the bank when you start your business. If the answer is “yes,” then you may have a workable plan. If the answer is “no,” then you need to reevaluate your entire approach to see if you can lower your overhead, create a more viable product or service, or simply save up more money before you open your doors.
Alternatively, you may need to explore funding options to help you get your business off the ground. For example, you might require a small business loan or need to connect with a venture capitalist who supports your idea. You may want to crowdfund your concept first, allowing you to bring in money through pledges to make it easier to get started.
Most companies are not profitable from the beginning, so you need to be ready to support your business financially until the numbers start balancing out.
By reviewing the information above, you can create a functional financial plan for your business. While that doesn’t mean there isn’t still risk, you’ll at least have a solid picture of where you are, where you want to be, and what it will take to reach your goals.
Would you use the financial plan above? If so, let us know in the comments below.
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