How do I put together projections for a startup?
I was talking to an angel investor about my new startup and he suggested I put together some financial projections, between 3-5 years out. I started trying to map it out and it is harder than I expected. I am having trouble finding data on comparable companies since they are all private companies. Where should I start in trying to come up with reasonable projections?
If you mention what your product is, I could answer this better. You can project 2 ways one based on percentage penetration of your total market ssize in revenues, the other based on number of units you expect to sell based on demand. The first is a top down approach and requires you to get total sales figures or estimated ones based on number of users. The other is estimated based on how you expect to pent rate and grow your customer base.
Hello Anisia , You have to plan your startup in order to move with simple calculation , your equilprium point , which shows you when to gain ,at what point you can make profit , which means total sales minus total cost -net profit plus minus 10% or within the range - It will direct you How to move , you can make it quarterly to revise your sales record , taking into considration figures of sales & total cost .
Read about nature of code! and fractals and Mendel
You can avail our services. we will do it on a payment of fees.
First, don't waste your time on a 3-5 year projection.
Second, don't use "everybody will buy it" as a projection.
Third, research market size, not comparable companies
Fourth, once you discover the potential market size; then you'll have a data base to really begin number crunching
Fifth, who is your customer,,,will your product solve their situation,,,can you put your product in from of them,,,will they purchase at a price that allows your company to sustain itself
Lots of good answers here! Regarding a resource to lookup private company revenues I recommend Melissa Data https://www.melissadata.com/lookups/business.asp. Now the revenues may be wildly off due to the way they collect the data through public records, but what you can definitely find is the NAICS codes for the companies like the one you are creating. I would then request a complete list of companies using the NAICS codes that match your target. Research those companies thoroughly and you should be able to get an idea of market pricing.
Regardless of whether you are a service or a product, investors are going to focus on some key metrics that you can apply to almost any scenario.
1. CCA - cost of customer acquisition - what is going to cost you to acquire customers?
2. ACL - average customer lifetime - how long will your customers be with you?
3. CLV - customer lifetime value - how much money are going to make on a customer based on their ACL?
4. GM - gross margin - what will you earn based on revenue minus fixed costs?
5. CM - contribution margin - what will you earn based on revenue minus fixed and variable costs?
When you understand your costs and customer acquisition schedule make sure you are priced right to achieve a good margin for your industry which can vary greatly. i.e. a food consumer packaged good may have a GM of 35% where a SaaS company could be 75%. Good Luck and let me know if you have any further questions.
Presently I am following the approach proposed by Zafar and Bud Phelps below. I just want to add one point about hypothesis, and one about support:
When you do your sales projections, start by making a month-by month table of promotional activities. Make a hypothesis of ROI. For example, each contact I meet will generate an average of 0.25 sales by referencing me to a client, or a clicks and conversions rate for ads, etc.
Once you know your sales projection, make a hypothesis on how and in what time frame you turn sales in revenue (ex: a sold service will be delivered over time, billed x days average after delivery, and paid x days after billed.
Revenues can come from different products and services, so I made one spreadsheet for each. You can have those same types of hypotheses for your expenses. Those hypotheses become useful Key performance indicators (KPIs), you can either adjust your projections if you find you can't meet them, or beef up your performance, or both.
I think it is important to assess hypotheses every month and generate monthly cash flow projections, because it lets you know if you're going to be short and need a line of credit.
I have a special software provided by a local organization; unfortunately, it is in French : http://www.sajeenaffaires.org/en/previsio-software.php.
However, you can quite easily make excel spreadsheets for everything: promotions, sales, startup costs, investments, financing, etc., even hours of work for HR needs and personal planning. Excel allows you to factor in your hypotheses. Also, although I have not tried it, a trial period of a good accounting software might allow you to generate your projections. I think some have a projections or budget feature.
Lots of good answers below. So all I will add is to make sure you give yourself a buffer as there will most certainly be unforeseen costs that pop up. I hate to admit this, but payroll taxes caught me by surprise as well as a few other nick nack things that all add up. So whatever numbers you come up with, allow a few thousand dollar buffer on your monthly expenses as this saved my you know what when all these other expenses blind sided me.
Honestly, empty projections based on mathematics are a waste of time. Understand the development curve of your product(s) and your sales channel, when to widen a range, when to add in another export market, estimate when will a technology curve allow you to make a product development leap, when to increase marketing spend, when to increase staff to address these new aspirations. The investor is looking to explore your vision. The first three years of forecasting will evidence your understanding of the business, the costs and can be sanity checked. Years 4-5 are blue sky thinking.
Go to BeResource.com and start off with a basic business plan.... Tis business plan outline was done by Montgomery County Community College in Blue Bell, Montgomery County PA