Financial forecasts for start-up companies

Entrepreneurial brothers and sisters, to the new year, the year-end reckoning time again!
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Please pull a wrench, calculate whether this year is earned or lost. Earned a happy heart for a good year, next year to continue efforts, the loss of the also don't sad, dry simply crisp large bowl of wine to eat meat, as the saying wins and turns is a military strategist, not to mention the flow of the wind, next year, the hard work, the coming year will be better!

In fact, the end of the year is not difficult, because everything has happened, the numbers are all in front of you, Gaga minus a few minutes of everything is clear. The hardest part of starting a business is predicting the future, especially for startups that don't have a product on the market and don't have enough to make ends meet, how are you doing next year? What happens after the same? Five years and ten years from now?

Unfortunately, many of the early startup CEOs are too lazy to settle accounts, and they say, "The future is hard to predict, and now it doesn't work, it's better to put time and energy into doing business." This sentence seems natural and unrestrained, in fact, there is no confidence in the heart ... Oh, CEO classmate please do not browbeater, if you do not have a clear financial forecasts, like sailing in the vast sea but hands do not have a chart, you do not know the location of their ship, will sail to where. You don't have a decent financial forecast, and there's no institutional investor willing to throw a lot of money into it. In other words, investors test the size of an entrepreneur's ability, in the final analysis is to see whether he/she has the ability to accurately judge the future, "fortune teller" is not permitted.

Financial projections see the fate of a start-up company. However, the start-up companies have no income, and even no products, how to make "financial forecasts"?

Haha, this is ... "This year's income is zero, next year, after billions of dollars, ready to go public"-investors do not know how many such groundless rumors every day. If you are an Internet company, you will occupy 10% of the market in the first year, Occupy 30% of the market in the second year, and Occupy 60% in the third year ... So, with the market share X the total number of Chinese Internet x your product unit Price = Your company's future income, see, income is not predicted it? Hey, that's a big mistake! If financial forecasts are so simple, it would be too easy to start a business.

Well, today we don't come up with the scores, to regaling how to predict the future, do a good job in the financial forecasts of startups, see what the future of the start-up companies are composed of.

The most important financial forecast for startups is its "cash flow," Remember: cash flow!

"Cash flow" means that the company's money to go in and out like running water, water can not be broken, must come in a little more, only so that the company is considered healthy. Of course, before the income of a start-up company comes in, the company must prepare enough money to support the team, always supporting the company to generate sales revenue, generate cash flow inflow, if the money can not survive the day, then the CEO must have the ability to know which day the company's cash flow will be interrupted, he/ She has to find investors before that day, let the investment into the company's account, so as to keep the start-up company, incense constantly.

In a word, "cash flow" is the lifeblood of startups, cash flow holds the power of life and death of start-up companies. A start-up company no matter how good the idea of entrepreneurship, how good the team, if the cash flow broke, no one will die. The CEO of a start-up company must be aware of every figure in his company's cash flow, and understand that the financial projections of startups are not all about the CFO, but your CEO's big deal, so don't try to make the company bigger and find a CFO to deal with the financial projections. The CEO who ignores the importance of cash flow may not live that day at all!

Predicting a start-up's "cash flow" is a soft job that requires CEOs to settle down and do their homework carefully. The following three details will determine whether a start-up company's financial projections (cash flow forecasts) are reasonable, authentic and trustworthy.

1. Basic assumptions of income
The logic for predicting revenue is simple: a the pricing of products/services; B the number of customers. Put the two in the frame of time to see how they grow, which is "income forecasting".

1.1 Product Pricing
Whether your company is a product or a service, you have to have a basic pricing. Let's say you produce a MP3 player, the first step: make the possible pricing by adding the spare parts to your desired profit; the second step: compared with the market's similar products, more inexpensive than the ipod, more expensive than the cottage, the final pricing is not out? If you figure out that the price is lower than your production cost, then your business can't do it, there must be a serious problem.

1.2 Number of clients
When is the first customer in the start-up company? How many customers are there? These are all headaches and confused questions. Calculate the number of customers, we must not use the "market share" such as the percentage, because the start-up companies are small companies, small-scale, to be careful.

Still take a MP3 player company as an example: (A) If you use the distribution method to sell, you may wish to inquire to the Distributor, the mature distributor can not spend platter tell you, he can sell how many of your MP3 player per month; (B) If you use direct marketing, you must consider the launch of advertising. For example, you are in the "consumer video game" magazine advertising, magazine circulation 100,000, general advertising efficiency is 2‰~3‰, so a "consumer video game" magazine may bring you 100000 * 3‰= 300 customers.

1.3 Time frame
With the assumption of product pricing and customer numbers, put them in a time frame, in general, investors will require you to do 3-5 years of forecast.

The financial forecasts of start-up companies are most taboo in terms of "year". Most startups are short-lived and are lucky to live for three years. The financial forecast of the start-up company must use "month" to calculate, conceive October, Full moon, old age, enter money, draw flat, produce profit ... These are the milestones of the start-up company of Precious moments, you do not have to "month" to calculate, in fact, you will ignore the most precious moment in your life, don't regret it.

Once the numbers are fragmented into "monthly" calculations, regardless of income or expenditure forecasts, the numbers will immediately make you feel and grasp the financial projections, such as you need 3 months to design and develop products, plus 3 months of testing, improvement, mass production, and then officially into the market, so, The company's income comes in at the earliest and 7th months-not necessarily, perhaps the distributor still has 90 days to pay, so that the receipt of money may be up to the 10th month, then the 11th month, the income should be increased, and next month, continue to grow ... Monthly forecasts, the relative will be more accurate, because within 30 days can do how many things, how much can be relatively easy to calculate, and if "according to the year" to calculate, often easy to only lip of the blind newspaper figures. Monthly financial forecasts can not only be taken out with investors to discuss the details, convincing, and more importantly, you can use it to control and guide your day-to-day operations, if each month to reach the predicted number, by the end of the year, complete the plan is not alone.

2. Cost
It's so easy to calculate costs, everyone will, here simply mention it.

2.1 Fixed Cost
Include: Staff wages, rent, insurance, employee benefits, office fees.

2.2 Variable Cost
Raw materials, packaging, transportation, direct labor costs.

2.3 Cost of Sales
Advertising, sales, customer service costs.

2.4 Equipment input
Decoration, office furniture, computers, servers, production equipment and so on.

2.5 tax
Like income, costs happen a little bit in the timeframe. If you refine the cost to every month, you will soon find that a lot of costs are not paid at the start of the day, such as you expect to need 30 servers, but they do not need to be all in place on the first day, but with the traffic on your site to increase the number of the purchase, perhaps you will be in the next year, The third year will reach 30 servers, and at that time your company's income may have come in early, so the start-up companies do not need to melt a lot of money, perhaps a few brothers themselves pay together, start-up companies can start!

Another example, advertising spending, not the first day on a sum of hundreds of thousands of, millions of dozen out, advertising fees in your forecast should be "sales costs", the purpose of this money is to generate sales revenue, so each advertising fee to spend, you must have a sales income with the flow into the company, or advertising costs is played water drift. In the actual operation, one months advertising fees hit out, sales revenue has not come in, then next month's advertising spending must immediately stop! Perhaps the nimble CEO will ask: So how to spend on the company's image and brand-building advertising costs should be calculated? Good question, hey, start-up companies do not have that blessing to do what brand advertising, image ads. Startups ads are probably all promotional ads, all have to be tied up with sales revenue, start-up companies advertising if not to make sales revenue straight up, talk about everything else is nonsense.

3. Analysis and adjustment
When you put your monthly revenue forecasts and cost forecasts into the same time frame, there is a wonderful startup chart: Cash Flow!

Pay attention to finding the "break-even point", adding up all the expenses before the break-even point, it's the amount of money you need to prepare for startups--if an investor asks you how much you need, give him that number, no more than a few points, and you don't have to scratch your scalp and say what's ambiguous. Give a 5 million, if there are 2 million.

Check the relationships and ratios between the main data, ensure that the business of the start-up is healthy and reasonable from the financial forecasts and, if necessary, adjust and balance the key ratios between income and cost, and of course the principle of adjustment is to return to your monthly raw data to analyze their accuracy and rationality:

--Gross profit margin. With the extension of time and business expansion, the company's gross profit margin may increase from 10% to 60%, or even higher, this is the vitality of the start-up company.

--Operating profit rate. The company's management costs are relatively fixed, with the income growth, it accounted for the proportion of the total cost of less and less, the operating profit rate will be greatly improved.

--growth rate and scale. With the financial forecast, the annual growth rate of the start-up company is also at a glance, to see when it can meet the standards of gem IPO, to see if your company is attractive to investors and shareholders?

The financial projections of startups are not static, each month should be carefully controlled and monitored, according to the operation of the corresponding adjustment to make it more in line with the reality, more optimization, if the actual situation and forecasts are always far from the difference, to find out the cause, so that the situation quickly improve, or should be decisive to stop, Rethink the future strategy of the start-up company.

Suggest you make two forecasts, one is the "conservative" forecast, in this way you can have the bottom line of the start-up company, even if there are accidents will not be surprised; another forecast is "optimistic", to see if in the ideal situation, you can do better and faster, quickly make the enterprise stronger and bigger, the early creation of the IPO miracle, "Optimistic" forecast will let your entrepreneurial ideal plug wings, give you unlimited work Impact!

......

The key to the financial forecast of a start-up company is to make a realistic assumption about the company's future income. According to the above methods to do the prediction, the VC is not a problem, the most important thing is that the entrepreneur you can no longer fooled yourself! You will never muddle through the Shanyi, waiting for the day of business suddenly good luck, financial forecasts like to give you a pair of eyes, so that you see every day task details, they must step out of every footprint. In short, financial forecasts are first used to oversee your own actions, and the second is for investors to see.

The first time you need to remind entrepreneurs that you have to make sure that the start-up company's account has no less than 6 months of cash reserves. There are two reasons:
1. Start-up companies as long as the account is still rich, there is cash in the continued flow, will not die, hehe;
2. It usually takes 6 months to complete a round of financing, and startups need to have enough cash reserves to keep the company on the day the investor's money comes in.

Or a sentence: cash flow can not be broken, "cash flow" is the pulse of the start-up company!

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Exercises】

1. Do a small experiment, first of all, the beginning of this article "market share" method to do a five-year financial forecasts, and then use the "monthly" method to do a five-year financial forecasts, and then compare the difference between the two, hehe.

2. Find the "break-even point" to see if we can move this point forward. See how many months you can move forward?

3. What if you can't find a "break-even point" in your financial forecasts?

4. If the start-up company's own funds can not support the company to survive to the "break-even point", then the CEO you now or in your own funds spent 6 months before the day must complete your venture capital business plan, specific writing requirements please refer to the Business Plan 21 regulations.

Source: http://blog.163.com/himalayabear@126/blog/static/10594640320100405954445/