Finding the Key (Numbers) to Success: Critical Numbers for a Competitive Business Plan (Part II)
December 20, 2013
In my previous blog post, I discussed three key components in a competitive business plan. The increasing interest in Big Data and the popularity of Nate Silver style quantitative analysis both present strong evidence that objective data and hard numbers will make a stronger case for your business. This post can get you started; keep reading to learn about critical financial numbers that can add value to your business plan and where to find these values.
In part I of this blog series, I mentioned taking advantage of Balance Sheets to document your financials. If you’re not comfortable creating a balance sheet for your new business, here are some other ways you can find your business’s financial numbers.
1) Start by adding up the cost of starting your business and create a list of start-up costs, the initial investment in these costs, and your expected investment over the course of the year. These costs might include:
Business start up fees (for instance, payments made to the state to establish your business)
Marketing and advertising costs
Business plans that include financials make a much stronger case for an investor, but as a recent startup it may not make sense to spend time creating financial statements before the end of the first fiscal year. Until you reach the end of your first fiscal year in business, consider using other relevant information to take the place of the missing financials, such as the list of start up costs. Your business plan will be considered more competitive by including these numbers since it provides detailed information about the financial health of your business, which is an important consideration for any type of funding.
2) A simple Break-Even Analysis can be another great tool for a start up. Break-even analyses show when your business will be able to cover all its expenses and begin to make a profit. You can refer to the startup costs that you listed in your balance sheet to determine how much sales revenue is needed to pay for ongoing business expenses. Other critical numbers to consider are:
How many units of sales will you need to cover costs?
How much money will you make for each unit you sell? (remember to deduct the cost of making the unit from the price)
If you can answer these questions, then you can also calculate how many units you need to sell in order to break even. For example, if manufacturing a line of handbags costs $10,000 per month and on average you make $20 for each bag you sell, then you will need to sell 500 bags to break even (Note: $10,000/$20 = 500).
Check out the rest of this post on SCORE’s Small Business Blog: http://blog.score.org/2013/jennifer-shin/finding-the-key-numbers-to-success-critical-numbers-for-a-competitive-business-plan-part-ii/