Tale of Three Entrepreneurs
Dec 02, 2019 by Roger Scherping
This week I met with three entrepreneurs who Bob and I met through a workshop on business planning that we hosted for SCORE (Service Corp of Retired Executives). All three entrepreneurs are starting or running small businesses. I love working with entrepreneurs and have great respect for their vision, determination and confidence. They told me about their businesses, and I told them how ProjectionSmart could help them understand the numbers of their businesses.
One of the entrepreneurs is buying an existing retail store but changing it to make match his vision. He is in a great spot because it’s a startup, but rather than having to make his best guesses on sales he can use all of the sales and financial history from the current owner to build out his financial model for his new business.
We worked together on ProjectionSmart Startup. He had great insight into exactly what he thought he could sell, including exactly what his prices and costs would be on each product, based largely on what the previous owner did. He put all of that into Startup, and it showed him his expected sales and gross margin for the first two years.
Satisfied with the results he got, especially the gross margin percentage, he then continued in Startup and modeled his overhead costs, startup costs, and financing. His initial assumptions showed that he had enough capital invested to get the business started, so Startup let us continue to see the graphs and reports.
As he reviewed the reports, he was disappointed to see that Startup showed his new business generating a net loss in his first year. Even more disturbing, Startup showed that he was not cash flowing in his second year. You really want to see that your new business concept is going to generate positive cash flow (more cash coming in than going out) within its first 12 to 18 months.
Now what? He needed to give his concept some more thought. The beauty of Startup is that it is completely interactive. He can go back in and change his assumptions and see how the expected financial results change. For example, he knew he has some latitude to negotiate a better price from the current owner, and he can factor that in. He can also go back and adjust his sales assumptions or his overhead assumptions as much as he wants and see the financial impact.
That’s what we tell everyone: Just put your best guesses into Startup the first time through. Then study the results and see if everything makes sense. Do your sales look achievable? Is your gross margin reasonable? Can you reduce your overhead? Is your overhead too high? Can you pay yourself what you want to get out of this business? When do you start generating positive cash flow?
The beauty of ProjectionSmart Startup is that it lets you answer all of these questions about your business before you open the business. That’s far better than opening the business with all of these questions unanswered and finding out too late that the business never had a chance. This entrepreneur told us that he didn’t know how he would have done this sort of analysis without Startup. Startup is giving him the confidence he needs to understand the numbers of his business and move forward with the acquisition.
The other two entrepreneurs owned or were buying into existing businesses, one in medical testing and the other a commercial printer. They came to our workshop because they wanted to understand the numbers of their business, but they didn’t know how to do it.
Sure, there are a lot of spreadsheet templates out there for you to download, but they are all written by financial experts and assume that the user has a strong finance background, too, and is good with spreadsheets. These two entrepreneurs wanted something much simpler that was written in their language and didn’t force them to become accountants to use it.
So we showed them how to model their businesses using ProjectionSmart Growth. We showed them how easy it is to import their financial history directly from QuickBooks Online, and how easy it is to enter a simple budget for the next 12 months. Then we walked through the simple questions that Growth asks. Questions like, Do you plan to purchase any equipment? Or, Do you plan to take any money out of the business?
Once we had gone through that, they saw how Growth would show them where their businesses would be financially in the next 12 months. They saw how they would learn how low their cash balance would get, whether they will generate a positive cash flow, and whether they could afford to make large purchases or pay themselves a distribution.
Like Startup, Growth is also completely interactive. Just change your assumption, and see the results change. Entrepreneurs make better business decisions when they can see the financial impact of their decisions. That’s what Growth is all about.
These entrepreneurs saw why users have called Growth their “crystal ball.” Growth gives them an insight into their company’s financial future that they wouldn’t be able to do any other way.
And the beauty of Growth is that this is an insight you will get every month. Bob likes to say, “Business planning is not something you do once. It’s something you do once a month!” We all get our historical financial statements every month to know where we’ve been, but don’t stop there! Knowing where you’ve been is great, but isn’t it better to also understand where you’re going?
These two entrepreneurs are so excited by what Growth is telling them about their businesses that they will update Growth every month. Every month they’ll get new insights into what the next 12 months look like for their businesses. They’ll anticipate problems long before they happen. They’ll use Growth to understand the financial impact of their business decisions. They will be more successful and more confident business owners!