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ProjectionHub

Archives for March 2014

ProjectionHub Partners with LegallyLink to Help Startups Create Financial Projections

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New Partnership

ProjectionHub is now partnering with LegallyLink to make it easier for startups to get off the ground.  The ProjectionHub financial projection software will now be made available to LegallyLink customers.  LegallyLink customers will now be able to complete standard financial projections along with the legal forms required to open a business, register a trademark, apply for 501(c)(3) status and much more.

Adam Hoeksema, Co-Founder of ProjectionHub said, “LegallyLink is an exciting new company that can really simplify the process of opening your startup.  As an entrepreneur you want to spend your time and money on customer and product development, not legal forms and high priced law firms.  LegallyLink is the right solution for startups, and I am excited to partner with them.”

About ProjectionHub

ProjectionHub is a web application that helps entrepreneurs create financial projections without Excel.  With over 5,000 users to date, ProjectionHub is helping entrepreneurs focus on their business, not complex financial modeling.

The Sneaky Way to Determine Market Size for your Startup

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I was talking to an experienced entrepreneur the other day about how to determine the market size of your startup, and he blew my mind with a sneaky, but effective approach to determining your market size.  So when there is no good source that can tell you exactly what the market size is for your product or service here is a sneaky approach that can provide great first hand data.

Let’s say you want to start a dog boarding business in your city.  Here is what you could do to determine market size:

1.  Call your Competitors as a Potential Customer – First, call the other dog boarders in the city and act as if you are an interested potential customer.

2.  Ask For a Quote –  Then ask for pricing information.  You might ask the nightly rate, and whether they give discounts if you board over a certain number of days.

3.  In Astonishment About the Great Price, Ask for Volume –  When they tell you a price, no matter what the price is, react in astonishment and say something like, “WOW!  That is great!  At that price you must be boarding hundreds of pets each week!  How many pets do you have on an average night?”  Then just let them know you will call back later to book your pet.

4.  Repeat – Now call your next competitor and do the same thing until you have contacted every boarder in your service area.

5.  Analyze – With price and volume information in hand you can get an idea of the total market for your service, you can also determine which competitor has the most market share.  Lastly, you can take the average sales for your competitors and assume you will have the average, and then determine whether that is enough to breakeven.  If your overhead requires you to have 50% of the market to breakeven, you may want  to reconsider whether the market is actually big enough for your business to make sense.

I am not a proponent of lying or cheating, but I also think accurate market data will make a world of difference in your startup, so if you are feeling sneaky, go for it!

 

3 Steps to Creating Believable Financial Projections

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If you are looking to start or finance a business, financial projections are a must.  The problem is that most entrepreneurs are experts in something other than financial modeling.  The thought of a 25 tab Excel template makes you break into a cold sweat.  Although financial projections may sound intimidating, the basics can really be broken down into 3 steps:

1.  Gather Data – The first step is to gather as much data as possible.  For example, you need to make sure that you know exactly how long it takes you to produce your product or service.  You might need to actually produce a unit or perform the service a few times and time yourself.  Why?  Well if you think it is going to take you 15 minutes to produce your product and you use that to build your financial projections, your business could be ruined when it actually takes 20 minutes to produce the product.  5 minutes might not sound like much, but when you start producing hundreds or thousands of units, those 5 minutes per unit will really start to add up.  You really need to make sure you get your cost of goods sold right in your projections.

2.  Make Sound Assumptions – Your projections should be based on assumptions.  You can’t just pull numbers out of thin air.  So as you build your projections, pretend you are back in school and cite your sources.  If you are assuming that you can sell your product for $50 per unit, you could validate that by citing your competitors pricing.  Or if you assume you will be able to rent an office for $6 per square foot, you should validate that by checking in with a local realtor and cite that source in your projections.

3.  Build from the Bottom Up – One common mistake when creating sales projections is to go from the top down.  For example, you might assume that you can just go out and get 1% of the market, and just build your sales projections based on that.  Instead you should build from the bottom up.  For example you know that you can make 25 sales calls per day, 5 will result in a meeting, and 2 will turn into customers that will continue to buy your service for an average of 24 months.  This sort of bottom up projection is much more powerful and more believable when presenting to lenders and investors.  

If you follow these 3 general steps and use a common Excel template or ProjectionHub, our financial projection software, you will be well on your way to creating a realistic set of financial projections.  If you have any questions at all do not hesitate to reach out to me at adam@projectionhub.com

About the Author:  Adam Hoeksema is the Co-Founder of ProjectionHub which is a web application that helps entrepreneurs create financial projections without the need to have a PhD in spreadsheet modeling.