Money for Startup

Money for Startup…continued

This page is the third and final page in Money for Startup. If you haven’t completed your Sales/Revenue Model Sales Model and your Cost Model Link to create cost model please do those first, otherwise this page won’t make any sense. If you have completed them GREAT!

Having completed your Sales and Revenue Model and your COST Model you can now project your Profits with a good degree of confidence. Here are DK Design’s Sales and Cost Models:

DK Designs Sales Model Money for Startup

DK Design Cost Model Money for Startup

open these links as we discuss creating your businesses profit model and money for startup.

Overview

Profit, Sales minus Costs, is one of the most elusive goals in business. Many businesses generate CASH and DEBT but NEVER turn a profit. My father was in the grocery business for twenty years and I’ll venture to say he NEVER had a single year when he was actually profitable. When you have an unprofitable business you’ll likely always need more money for startup.

Why? It is because in business it’s MUCH easier to spend money than to create sales. I can go to Office Depot right now and buy a phone system, a scanner/copier, a laptop and some new desks for my employees to work at. I can’t go to Office Depot and get four more customers for my Jewelry.

Generally, this ease to spend rather than to produce revenue causes businesses to LOSE money. More than 90% of businesses that are started NEVER MAKE MONEY! NEVER!

Your goal for your business has GOT to be different. Your goal is to MAKE MONEY/PROFIT, period. That’s your goal. So anytime someone says you must buy this or spend that you going to have to learn to say “NO!”

The difference between a business that makes money and one that loses money is that little word “NO!” The more successful you become the more people are going to say you should spend this or buy that. Ignore them and focus on making profit. All the people that will ask you to spend money won’t give you a dime when you lose money. They’ll say “Oh sorry you’re out of business” and be gone in a flash. Believe me, I know because I’ve been there.

Re-analyze Sales and Costs IN TERMS of PROFIT

Now let’s look at DK Designs. Based on our SALES and COST Model, if LK Designs meets their best case sales projections the business will make about $20,000 for their first year of operation. This would be fantastic if it could be accomplished.

Obviously this is bare bones approach to costs for the year, but if we can accomplish what’s on the plan we can make money and have enough cash to fund the following year of operation.

If our sales goals for DK Designs are TOO optimistic, because most of our costs are variable, we should still be able to make money by producing fewer units.

You MUST create a profit model for your business that shows you HOW you can make profit. If your model shows losses and no profit, you need to re-plan your costs (LOWER THEM) until you MAKE MONEY.

If you plan to lose money believe me, you WILL LOSE MONEY!

As I mentioned previously I had a friend whose plan show him losing $400,000 a year and he went forward anyway without re-planning. He lost $600,000 a year had to declare bankruptcy, got disbarred and divorced. He had a mental breakdown and has never been the same since. PLEASE, if your business plan shows a loss, cut your costs and don’t start your business until you create a plan that shows PROFIT.

Change your cost approach if you can

What do I mean when I say re-plan if your business is going to show a loss? Consider my friend who had all of the trouble with his business. He wanted to start an environmental newsletter for major corporations. The subscription price he anticipated was $450 per company, per year. This meant he was only likely to sell 50 subscriptions a year. He refused to sell any advertising in the newsletter so his revenue was capped at $22,500 a year.

BUT, he felt that in order to produce a HIGH caliber newsletter he HAD to spend $400,000 a year on writers and printing, etc. This meant he was going to lose at least $375,000 per year no matter what. He saw this in the plan, but said he didn’t care, because it would work out in the end. He began creating his newsletter. In three years he lost more than a million dollars and failed.

If he had re-planned at the beginning, he might have been able to avoid losing SO MUCH MONEY.

He needed to broaden his audience or sell advertising or cut his costs…even if that wasn’t his dream.

I can give you many examples of people who have done the same thing. They have an IMAGE of their business and they WILL NOT CHANGE IT, NO MATTER WHAT!

They almost ALWAYS fail.

Create your profit plan for your business. If it shows you losing money, CHANGE your business until YOU MAKE MONEY!

Project profits and Cash flow

Once you have a Profit Plan for your business that shows a profit then analyze your cash flow. Compare when you costs occur to when your sales occur. If your costs occur before your sales (which is often the case) then you have a cash flow issue.

One solution to this cash flow problem is getting good terms from your suppliers. Let’s say you could pay for your materials in 90 days rather than 30, this alone may solve your problem. Suppliers always want new customers and if you explain your plan to them they might agree to extend their payment terms.

For other ideas on how to solve cash flow problems and get money for startup CLICK HERE.

Conclusion to money for startup

Once you have created a profit model that shows PROFIT you are ready to START YOUR BUSINESS! Your plan is completed and you should be good to go. Congratulations!