Tips on how to estimate your financial projects for your new or existing business. For more information, check out the rest of this lesson: http://grasshopper.com/academy/financing-your-business/estimating-financial-projections/

1. Grasshopper
Academy
Estimating Financial Projections
Tips on how to estimate your financial
projections for your new or existing business

2. Those who have knowledge, don't predict.
Those who predict, don't have knowledge.
-Lao Tzu, 6th Century BC Chinese Poet

3. Estimating your financial projections is pretty
important…
90% of all startups fail. According to experts at Startup
Genome, it has a lot to do with “premature scaling”. Nathan Furr,
an entrepreneurship professor at Brigham Young University
defines it as:
Source: MarketWatch
“Spending money beyond the essentials on
growing the business (e.g., hiring sales
personnel, expensive marketing, perfecting
the product, leasing offices, etc.) before
nailing the product/market fit.”

4. SO HOW DO YOU CREATE FINANCIAL
PROJECTIONS THAT WILL LEAD TO SUCCESS?

5. By following this roadmap…
1. Choose Your Timeline
2. Organize What You Do Know
4. Make Safety Stops
3. Think Positively (but realistically) on What
You Don’t Know

6. “I always look for projections on what
the business will do in the first year,
second year, third year and fourth
year showing sales, expenses, plots
the bottom line as the business
progresses.”
“Those assumptions have to be
reasonable.”
Choosing your timeline…
— Charles North, President and CEO, Dutchess
County Regional Chamber of Commerce
6 Questions Every Business Plan Should Answer

7. When putting your financials together,
take note of the expenses you do know:
1. Cost of Operations
2. Employee Salaries
Organize what you do know…

8. Organize what you do know… Cost of Operations
Ongoing Expenses
• Rent
• Utilities
• Office Supplies
Startup Costs
• Cost of Goods
• Raw Materials
• New Equipment
& Furniture
Cost of Operations include:

9. “One of the main reasons most small businesses fail is
that they simply run out of cash. Writing a business plan
without basing your forecasts on reality often leads to an
unfortunate, and often unnecessary, business failure.”
“Without the benefit of experience or actual
historical financials, it's easy to overestimate a
new company's revenue and underestimate
costs.”
– Cynthia McCahon, Founder and CEO at Enloop,
Startup Costs: How Much Cash You'll Need
Organize what you do know… Cost of Operations

10. FOR MORE ON BUDGETING AND PUTTING
TOGETHER EXPENSES, REVIEW
BRAINSTORMING YOUR BUSINESS BUDGET

11. If you’re a startup, it’s difficult to
decide whether or not you can pay
employees and whether or not you
should pay yourself.
Organize what you do know… Employee Salaries

12. “I’m a big believer in goals, and if we set goals we have a
tendency to achieve goals. If we don’t set goals we’ll just
drift.”
– Anita Campbell, CEO, Small Business Trends
How to Scale Your Business: From One to Many
“Remember that you’re going to have to force yourself to pay yourself
some money at some point, even if you’re bootstrapping. What that
will do is that’s going to give you the boost, the impetus, to actually
earn more in your business.”
Organize what you do know… Employee Salaries

13. "I find that even when business owners have a plan written
down, they are often a little aggressive in the 12- and 24-
month period. They start out with the best-case scenario, and
they overstate their success.”
– Rod Woodcock, President and Founder, The Alternative Board
Fraser Valley
How to Scale Your Business: From One to Many
“One of the biggest challenges that an
entrepreneur has is bringing it back and making
it realistic."
Think positively – but realistically – on what you
don’t know…

14. Teamwork Research
Channels Product
Think positively – but realistically – on what you
don’t know…
When forecasting revenue, consider
the following points:

15. Who you hire plays a big role in whether or not
you’ll achieve your financial goals.
Think positively – but realistically – on what you
don’t know: Teamwork

16. You can’t make educated financial estimates without doing your
research. Points to research:
– Business Location
– Competition
– Seasonality
– Overall State of the Economy
– Availability of Materials You Need
Think positively – but realistically – on what you
don’t know: Research

17. “If you have a physical location, investing in a great sign outside your location is going to
be very meaningful. The product or service matters—if it’s online or offline that is
ultimately going to determine where to spend your money.
If you have an offline business, advertise offline. If you have an online business it makes
more sense to spend money on Google AdWords. Match up your offer with the channel
where you’re ultimately doing business.”
– David Ciccarelli, CEO, Voices.com
How to Scale Your Business: From One to Many
Think positively – but realistically – on what you
don’t know: Revenue Channels

18. “The math just doesn’t work. There is not enough demand for the product or service at a
price that will produce a profit for the company. This, for example, would include a start-
up trying to compete against Best Buy and its economies of scale.”
– Jay Goltz, The New York Times
Top 10 Reasons Small Businesses Fail
Think positively – but realistically – on what you
don’t know: Product

19. – Edgar R. Fiedler
The Three Rs of Economic Forecasting-Irrational,
Irrelevant and Irreverent ,
June 1977
Make Safety Stops…
“If you have to forecast, forecast
often."

20. Operating Profit Margin = Operating Income
Net Sales
Make Safety Stops… Health Formulas
Gross Profit Margin = Revenue – Cost of Goods Sold
Revenue
Gross profit margin is used to asses a company’s financial health. A poor
margin indicates that a company will most likely not be able to pay
operating expenses.
Operating margin determines how much a company makes
on each sale. The better the operating margin, the
healthier the company is.

21. Make Safety Stops… Update Important Documents
• Cash Flow Statement
• Balance Sheet
• Break-Even Analysis
• Income Statements /
Profit & Loss Statement

22. "Poor accounting. You cannot be in control of a business if you don’t know
what is going on. With bad numbers, or no numbers, a company is flying
blind, and it happens all of the time.
Why?
For one thing, it is a common — and disastrous — misconception that an
outside accounting firm hired primarily to do the taxes will keep watch over
the business. In reality, that is the job of the chief financial officer, one of
the many hats an entrepreneur has to wear until a real one is hired.“
Make Safety Stops…
– Jay Goltz, The New York Times
Top 10 Reasons Small Businesses Fail

23. How do you create financial projections that will lead
to success?
By following this roadmap:
1. Choose your timeline
2. Organize what you do know
3. Think positively (but realistically) on what you don't
4. Make safety stops
Review…

24. Choosing your timeline
– First month
– First year
– First five years
Organize what you do
know
– Cost of Operations
– Employee Salaries
Review…

25. Think positively but
realistically on what you
don’t
– Teamwork
– Research
– Channels
– Product
Make safety stops
– Health Formulas
– Update Important
Documents
Review…

26. The Pros & Cons of Profit Sharing
Next Steps…