Even if you never plan to pitch a venture capitalist, you should still have a financial plan that can stand up to tough scrutiny.
So you're not pursuing venture funding, you've eschewed angel investors, and you're going to bootstrap. I'm all in favor (after all, that's how I grew my asset management firm, Lexion Capital), but you should still create a detailed business proposal, just as if you were going to pitch to a roomful of the toughest venture capitalists.
You'd never hop in the car for a road trip without first researching the route you'll take to your destination. This is no different: A business proposal will serve as your financial road map throughout the journey to come. Here's the how-to on translating your vision into numbers.
Begin with the end in mind
To chart your course, you need to start with big-picture perspective. What is your ultimate destination? Do you want to prep for a sale, grow, get acquired? It's important to aim for your goals from the get-go. Does any Olympic champion decide to just start training and see where it might take them? No - they were once a child with a big dream, who imagined over and over what it would mean and what it would take to stand on that ultimate podium. Visualizing your business dream as a reality will help guide you as you navigate the smaller steps and stages along the way.
Then, get specific. Identify the benchmarks that you want your company to hit in six months, one year, five years and ten years from now. Quantify what it will take to meet these milestones, and what steps you'll need to have lined up to get there. Remember, those Olympians trained, sought out coaches, and worked daily on the small steps that could bring them to their big goal.
Mind the gas in your tank
Your vision tells you where you're going, but your cash flow will determine if you can make it there. Calculate your start-up costs and one-time expenses. Don't underestimate these, which is a common mistake. If you plan for everything to take twice as long and cost twice as much as you think it will, then you're covered. If you don't, and it does, that's a problem. Document your fixed monthly expenses and estimate your variable ones.
Your sales projections will tell you what income you need to be profitable. To figure out where you break even, create a simple spreadsheet or use resources like those at the Small Business Administration website to track all of your income vs. expenses on a weekly basis.
Look down the road ahead - and expect a few detours
There will be the inevitable bump in the road, likely with its share of unexpected costs. It is important to have a liquid emergency fund of three-to-six months' worth of expenses as a reserve for slower times and unforeseen complications.
For example, I know the founders of an extremely popular dating site. They had more cash reserves in their business than they needed, but wisely did not raise their spending just because they could. What happened circa 2008, when ad sales plunged? Their competitors went under, and they flourished.
The future growth of your business is built on your present success. By bootstrapping, you're effectively scaling your expansion funded by your growth, avoiding the common trap of overexpansion. With a smart map for the journey ahead, you're ready to jump on the road.
Article provided by inc.com © 2013 Mansueto Ventures LLC.
This information is general in nature, is provided for educational purposes only, and should not be interpreted as accounting, financial planning, investment, legal or tax advice or relied on for any decisions you may make. Regions encourages you to consult a professional for advice applicable to your specific situation.