Help Calculating Finances for a Business Idea

[Alan Stride]

Hello,

I am attempting to calculate the costs and expected revenue for an idea I have in order to test its viability as a business opportunity. I suppose this would form the feasibility stage of the project where I need to estimate the finances.

I would like to know if anyone could recommend any existing templates (software, google sheets, Excel) that contain formulas to make this process easier? Perhaps someone has pre-made spreadsheets of their own? What would be really useful is an all encompassing template that allows me to see the impact on the finances of making changes to certain variables. For example, if i add an item to fixed costs, how does this have a knock on effect on break-even point, payback period, profit margin etc. Something that will allow me to model different scenarios quickly by manipulating the figures.

I know I could work this out myself on Google sheets or Excel but looking for a ready made working version. Also I’m not confident that I’d produce an accurate working spreadsheet due to limited experience in financing/accounting or spreadsheet formulas.

Any ideas would be greatly appreciated!

Alan

 

[Financial-Modeller]

You will find simple templates if you search online, but you are unlikely to find something that will provide everything that you want, without further customisation.

Sometimes businesses hire somebody to do this kind of work for them.

Then they get exactly what they want, with all the answers to the questions that lawyers, lenders, investors, managers etc will ask them, all provided in the format and/or language that the particular audience will want it to be in.

 

[MBE2017]

I would recommend making your own spreadsheet, BUT, do not fall into the trap of altering figures to get the results you want. Sometimes it just doesn’t make sense to carry on with an idea.

Even before the above, research whether the idea has a market.

 

[Alan Stride]

OK thanks guys. So how would you approach figuring out whether an idea is viable as a business? I'm not talking about the market research for a sec, let's assume that has been and done and you have had the idea validated, got the target market etc. What are the most important figures to calculate in order to give you a clear overview, and to demonstrate to others, that it is possible to make a profit over a certain time frame. For example, I have attempted break-even analysis and pay back period so far. I should say currently attempting...

 

[Stas Lawicki]

It depends on lots of different variables, many you haven't even thought of. Nobody can give you a full list with the info you have provided but do some research and look a common costs and likely costs associated with your product or service delivery.

On income, unless you've done some market research your income figures may as well be from projected annual toothfairy POs. You've got to understand and have a strong idea what your market might pay/spend/order to enable you to work out your cash flow projections.

As per @MBE2017 - it is amazing how you can make the model fit when you have a spreadsheet.

Oh, and on the costs, add a contingency of 10-20%. And get somebody who understands a bit about your chosen industry to cast their eye over it. You are bound to leave some cost items off. On the brightside, you are likely to overestimate others hut rather that than the other...

 

[Ola1]

Either you or an adviser will need to do a lot of research , then assemble that information into a working model.

Suppose you got a template , what figures would you plug into it ?

 

[Alan Stride]

Either you or an adviser will need to do a lot of research , then assemble that information into a working model.

Suppose you got a template , what figures would you plug into it ?

The figures I have spent the most time trying to figure out are Fixed and Variable costs, Expected Revenue, Start Up costs and payback period. I think this would give me an overview to see if it obviously couldn't work as a viable business, or see potential in it. Would you say there are other important figures I need to consider along with these? I know you can get forensic and go in to depth on this but all I really want to know at this stage is whether it makes sense to continue.

Thanks!

 

[MBE2017]

Hard to advise on such a small amount of information. Obviously fixed costs, sales projections, payment terms, office/warehouse costs, depreciation, postage, courier or vehicle costs, fuel, rates, accountancy fees etc. There could be many more.

 

[MOIC]

When it comes to entering figures to see the viability of a new business, I would suggest doing the following:

1. Double your expenses projection.

2. Halve your anticipated income for the first 2 years.

Whilst you may not think this is realistic, it may give you a buffer zone to predicted sales/expenses figures.

Don't forget to add legals, accountants, taxes, VAT, marketing . . . . . . . . . . . . . the list can be endless apart from stock, rent and manpower.

 

[fisicx]

I’d be even more brutal. Begin with the cost of marketing. Then whatever you estimate multiply by 10.

 

[MBE2017]

Agree with My Office in China, personally I add a third to costs and halve expected sales, always been surprisingly accurate over three businesses.

When I started my removal courier service, my bank manager asked how I knew a similar company nearby, thought I was connected to them. It turned out my first three year projections were a near carbon copy of their actual figures from being a start up. I did not know the company personally but it was nice to know my costs seemed accurate if nothing else.

 

[Alan Stride]

I'm getting a strong impression that it's better to be overly cautious rather than overly optimistic here. I'll bear that in mind.

What I've also been wondering is how much attention should be given to profit margin at the early stages of deciding whether a venture is worthwhile? For example, is it best to have an ideal profit margin percentage in mind (basically a target) when analysing the figures? Then if it's no where near, time to move on, or try and cut costs further and see if you can be leaner.

 

[MBE2017]

You should be close to your costs in your business plan, personally I would pay a lot of attention to getting the profit level, but you might be sliding into the trap I mentioned earlier of altering figures to get the answer you want.

The purpose of going through the figures is to calculate expected income and profit levels as best as possible as accurately as possible. No point in cutting your costs if you cannot achieve them, no point in selling at a level that cannot be achieved.

The reason for caution is it is better to decide now, before investing potentially large amounts and losing it all for the sake of a few hours work.

 

[Chris Ashdown]

Buy a couple of "Starting a business" books from your local shops, they will cover most things and some will also have links to cash flow sheets etc

Research is the key to all answers,but a lot can be found by detailed Google search and a few company account searches of related companies who have started in say the last three to four years

Enterprise places exist to give advice to pre startup companies

 

[Alan Stride]

Great stuff. Thank you very much for everyone's help here!