Understand Your Numbers!

Mar 18, 2019 by Roger Scherping

One semester I was teaching “Business Plan Development” to a group of students who were considering starting their own businesses. These students wanted to increase their odds of success, so they took the class to learn how to do business planning.

To help them understand the numbers of their business, I had them use ProjectionSmart Startup. I told them, “Just enter your raw data into ProjectionSmart. Don’t worry about it for now. Just enter your best guesses and let ProjectionSmart do the analysis for you.”

So they entered their data on what they planned to sell, their pricing, their overhead, and their startup capital. Then they viewed their results.

This is where it got interesting. These students had no financial background, they weren’t accountants, and they really didn’t believe that they could understand their numbers. But as each of them reviewed their projected results, I could see the wheels beginning to turn in their heads.

“Hmmm, that’s not good,” one student said, as he reviewed his initial results. “I can’t make any money like this.” So I watched silently as he went back to his Sales page and raised his selling price. Then he returned to the results page.

“That’s better, but I can’t make a living like this,” he said, before returning to the sales page and changing his cost of sales. After reviewing the revised results, he still was not happy, so he went to the overhead page and changed his assumptions on his monthly overhead. One adjustment later, he felt confident that he had a business concept that would succeed financially.

This process of thinking through their numbers happened with every student in the class. Some of them confirmed that their business idea made sense financially, others had to continually test their assumptions until they found what worked, and others came to realize that their business concept simply didn’t make sense financially. These latter students abandoned their original business idea and looked for another one, happy that they had learned the sad truth BEFORE they invested in and started a business that was never going to succeed.

ProjectionSmart helped all of these students. Some started their new business with the confidence gained from understanding the numbers of their business, Others benefited from knowing that their original business idea simply wasn’t going to succeed. These students, none of whom had a finance background, benefited from understanding the numbers of their business by using ProjectionSmart.

Return