How do you create financials for a start up at the idea stage?
I’ve been a part of a lot of start-up businesses and worked with a bunch of inventors and entrepreneurs. I firmly believe in the creation of a business plan for the entrepreneurial idea. Yes, that’s right, a business plan for the idea. And, yes, it’s a lot of work, but it’s the best way I know to force critical thinking about the viability of your idea. It forces you to ask yourself critical questions about all phases of the idea. Sometimes, you will find critical flaws and others, you’ll find new potential.
If entrepreneurs would just go through the pain of creating a business plan for their idea, it will always prevent more pain later, like losing all your money with a half-baked idea. Part of the business plan process is attempting to create a financials section. This is just as key of an exercise as any other part of your business plan. It will help you realize the necessary expenses as well as project your potential and what it will take to get there. But the obvious challenge is always just coming up with those financial projections for a startup business that is still in the idea stage. So how do you do it?
A quick answer is to know that this is always a best guess scenario. Always! But there are some things you can do. First get a financials template and start by putting in things that you know you’ll need to consider like rent; office furniture; insurance; utilities; payroll and such. Again, this should be things that you know you must consider whether you start with them or not. I know that a couple of my startups were with a folding table and a telephone and that was it. It was what is called a “Boot Strap” business. Bare minimums until you sell something. The rest of the financial section is made up with a lot of “what if’s”.
I’ll do at least three financial projection versions;
- My “knock it out of the park, emotional, ego driven” projection
- My “ok calm down big guy, let’s slow down a bit” version, and then,
- My “worst case scenario” version. This one is based on a clear understanding of what my acceptable minimums would be in my first two years. What i would absolutely have to do to even feel comfortable about moving forward with the rest of the work necessary to develop and sell my idea. This is just as important to understand as is the TOTAL SUCCESS, Knock it out of the park version.
These are usually very detailed. It’s the kind of PRE-implementation, Pre commitment work that I always have done in order to try to estimate the potential effort necessary. I believe that for every business failure I have ever witnessed it was because the owner/entrepreneur had UNDER estimated the amount of time; money and effort required. So i always try to do this work and make the extra effort of validation and clarity and understanding so that if nothing else, I know exactly what I’m getting into!
Believe me it can save you a lot of pain or in turn give you a boost in confidence about the viability of your idea that might change the world. If you need help with this call or write me today. This is what I do as a Master Business Coach, and I’m open for business.
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