Financial Projections for Entrepreneurs

Welcome to Financial Projections for Entrepreneurs!  More than a course, this will be an interactive workshop with the goal of having participants create their own financial projections for their future/current businesses.  We will do this by having participants follow our example in the lectures and simultaneously fill out their numbers on the provided Excel document.   

Once you downloaded the Excel sheet, open the file and go to the 'Basic Info' sheet. In this sheet, we will fill out the basic information of your dream business.

You will be asked to enter:

- Business name (or description)

- Launch date

- Capital needed (self funding/loans)

- # of employees, wage/salaries, hours of work per week

- Benefits as a % of wage/salary

- Merchant services numbers

- Spoilage/Loss %

Don't worry about getting these correct, you can always come back and change them.

Here are some questions and suggestions to think about as you are finishing up your Basic Business Information sheet:

Are you giving yourself enough time for the launch of your business?

Are you under/over shooting the capital you need to start this business?

As the owner, how much income do you NEED? WANT?

Do you have an idea of how many staff members you will need? If many, can you start with less and ramp up?

If you are not offering benefits, how likely are you to retain your employees?

For merchant services, ask a similar businesses to share the rough percentage of customers that use card vs. cash.

As far as spoilage/loss, you can always count on it! No business runs at 100% efficiency.

In this lecture we will be going over indirect operating expenses.  We'll start by first defining "indirect operating" and then comparing/contrasting them with "direct operating" expenses.  Then we will go through a list of over 60 different expenses in detail.  This will allow participants to decide whether these expenses will apply to their businesses or not. 

Here are some questions and suggestions to think about as you are finishing up your Indirect Operating Expenses sheet:

What expenses do you NEED to operate the business? Which ones do you WANT?

Remember, these indirect expenses are recurring expenses that are NOT tied to the actual product or service that you are selling.

Don't split an expense that happens yearly, quarterly, etc. into a monthly expense. We want to make sure that we are capturing the timing of payments correctly.

If your business is a retail business, then a lot of the operational expenses on this sheet will most likely apply to your business. If your business is consulting, freelancer, independent contractor, etc., then your operational expenses might be very low as many of the expenses would not apply.

A good rule of thumb is to over-estimate an expense if you don't truly know it.

This lecture begins a new sheet that will provide a summary of all the "MONTHLY indirect operating" expenses and a calendar-like table to enter all the "NON-MONTHLY indirect operating" expenses.

This lecture focuses around the startup expenses and the owner's draw.   

Here are some questions and suggestions to think about as you are finishing up your Indirect Operating (continued) and Startup Expenses sheet:

As you entered non-monthly expenses, did you take into account that some of these will happen at prelaunch and again during the year?

Some of the non-monthly expenses can be scheduled to meet your cash flow. Others you'll have to prepare for.

As far as startup expenses, give yourself time to think about EVERYTHING that you need. Sometimes we rush into a business and don't prepare adequately to then later fall short financially.

As a rule of thumb, round your numbers up. It is a good practice as it will make you better prepare for unexpected expenses.

When it comes to the owner's draw, make sure you don't suffocate the business early on. Reinvesting back into the company is a common used practice in young businesses. That said, it is all up to you!

We shift gears now to talk about "direct" operating expenses.   We will describe the importance of picking the UNIT(s) of product(s)/service(s) that we will use to measure our financial projections.  Then we will break down the units to calculate our cost for the product/service.

In this second part, we will show you how to use a second UNIT (you can use just 1 or up to 4 with your projections).  This will be followed by projecting the sales of both units in our example in order to AT LEAST achieve a break-even point (when revenue and expenses zero out) for the business. 

Here are some questions and suggestions to think about as you are finishing up your Direct Operating Expenses & Sales sheet:

It is harder to conceptualize the units for SERVICES compared to a PRODUCT. If you are a consultant, freelancer, etc. think of your units as an hour of your time or the minimum hours that someone could hire you for (aka a project).

Do the units per month in order to break-even surprise you?

What did you base your sales projections on?

In this final lecture, we will analyze the financial statements by first giving a brief description of the Income Statement and then diving deep into the Cashflow Statement.  Using the Cashflow Statement, we will show you the versatility of the Financial Projections by going back to previous sheets and changing prices, expenses, and sales to see how these affect our desired outcomes.

Here are some questions and suggestions to think about as you are finishing up your Financial Statements sheet:

As you look at your cash flow statement, focus on the bottom line. What is the trend?

What is your one year goal? 5 year? 10 year?