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ProjectionHub

Get a Business Loan BEFORE you Spend Your Life Savings!

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As my day job I manage an SBA Microloan Program where we help provide loans up to $50,000 to small businesses.  A major mistake that I see happen over and over again is an entrepreneur will fail to create financial projections before jumping in and investing in a new business, they will invest their life savings to get the business started, spend every last penny and then still come up short and in need of a business loan.

A recent example was a hopeful restaurant owner put $70,000 into purchasing and rehabbing a building for his new restaurant, but after spending everything he had, he ended up $30,000 short.  At this point no one could help him.  If he would have come to the bank first and asked for a loan for $100k and said that he had $70k in savings that he was willing to pledge as cash collateral for the loan, the bank would have almost undoubtedly said yes.  They would have taken the whole building as collateral, plus his $70k in cash and slapped an SBA Guarantee on the loan to cover 85% of the loan if it went bad.  In this situation the bank could hardly lose.

Instead, the business owner asked the bank for $30,000 which is a small loan for a traditional bank, they wouldn’t make any interest income on the loan anyway, plus the owner had no savings, and his building was basically worthless at this point because it was all torn up and only halfway complete.

This poor guy had what he needed to start a successful restaurant, but he spent his life savings first.  I urge any potential business owner to spend time creating financial projections before you invest your life savings into a business, this would have saved this particular entrepreneur $70,000.  He would have realized that 70k was not enough to open and would have sought a loan from a bank first before jumping into the business.

The moral of the story is to preserve your cash because it gives your more options.  It is better to keep 70k in cash and borrow $100k than to spend the 70k in cash and try to borrow 30k.  Cash gives you options, so guard it closely!

About the Author:  Adam Hoeksema is the Co-Founder of ProjectionHub which is a web application that helps entrepreneurs create financial projections without Excel.

Should You Get a Patent or Just Go To Market Fast?

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This is an incredibly tough question for an entrepreneur to answer.  If you have an innovative product that customers are clamoring for now, should you start to sell it without a patent?  Or should you just get to market first and try to gain a first mover advantage?

There is no one right answer.

But let me suggest some things to look for that might inform your decision making.

Get a Patent If…

  1. Your product can be useful for a long time – If your product will likely only be trendy or useful for 12 to 24 months, then there is no sense in wasting time on a patent, just sell, sell, sell.
  2. You have the funding to defend it – If you spend every last dollar to get your patent, but have no funds to defend it when someone infringes upon your patent, then what is the point?
  3. There are few other alternatives to solve the same problem – If your solution is just one of many ways to solve the same problem, then a patent may not be useful because a competitor can simply use a different approach to solve the problem.  If your solution is the only good way to solve the particular problem, then a patent would be more valuable
  4. You can afford a good patent attorney – If you can’t afford to do it right, then don’t do it at all.  A poorly written patent is not useful at all.

Again I am not an attorney, so I would ask a respectable attorney as well, but these are some things to think about when you have to make the decision to patent or go to market.

Why are Financial Projections Such a Hard Problem to Solve with Software?

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We have been working to solve the problem of creating realistic financial projections for over 2 years now and I feel like we are on 1st base.  This is such a huge problem, and I am quickly starting to realize why it is so hard to solve with software.

When we started ProjectionHub I thought it was pretty simple.  We would just take an Excel template and recreate it with a software platform.  We did just that, but we are still so far away from solving the problem and here is why:

1.  Every Business Needs a Custom Financial Model – There is no such thing as a 1 size fits all financial model.  We have tried to create a flexible model that can work for any business, and with enough effort, our model could probably work for just about any business model, but that is the problem.  It works OK for everyone, but it doesn’t work GREAT for anyone.

2.  Categorizing Similar Businesses is Hard – When we started ProjectionHub I thought we would just simply categorize each business and then put similar businesses together in the same pile and use that data to make recommendations to future users.  For example, I thought we could put all restaurants together in one pile and then analyze their projections and come up with an average Cost of Goods Sold for a restaurant.  Then, when new restaurants used ProjectionHub we would notify them that their projections are out of line with the average.  Here is the problem – Every restaurant is different.  A fast food restaurant should have a different COGS than a high end cuisine establishment.  So it is actually really hard to determine if 2 businesses are alike and can be put in the same category.

3.  Excel is Still Dominant –  I used to use Excel for all financial projections, and even after I created ProjectionHub I still used Excel in some cases.  It is a bad sign when you don’t use your own product, but the problem was that I needed to create such a customized financial model that Excel seemed easier.  Now we are to the point that I would always use ProjectionHub as the base model, download it to Excel and then customize from there, but it took a long time to get to that point.  Now our challenge is to educate business owners that you can use ProjectionHub as a base model and then customize your projections from there.  It is much simpler than trying to create your projection file from scratch.

We have so much work to do, but the good news is – we have time.  I don’t think any company is going to be able to solve the financial projection problem overnight.  It is a complicated and time consuming process to solve, but we are committed to sticking with it for years to come.

Check out what we have done so far with ProjectionHub

ProjectionHub Releases Major Sales Projection Update

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logo_ProjectionHub2Now Create Sales Projections For Project Based Businesses and Monthly or Annual Membership Businesses with ProjectionHub

Our newest update now makes it easier to create financial projections for dozens of new common businesses.  The changes center around sales projections.  The tool now allows you to structure sales projections by project or by monthly or annual memberships.  This makes creating sales projections much easier for the following businesses:

Membership Businesses

  • Gyms
  • Software as a Service
  • Associations
  • Rental Businesses
  • Tuition Based Businesses
  • Enterprise Software

Project Based Businesses

  • Construction Contractors
  • Subcontractors
  • Web Development Firms
  • Graphic Designers
  • Accounting Firms
  • Law Firms

In addition to this update, we have a couple major updates currently in development.

  1. We are developing custom financial models for SaaS businesses and Mobile App developers.
  2. We are in the planning stages of integrating ProjectionHub with Quickbooks Online

Check out ProjectionHub today and get started on your financial projections.

How to Know When You Need a Line of Credit?

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Every month I talk to several business owners who think they they need an investment or a business loan to help fund their business.  I often ask if what they really need is a line of credit rather than a fixed loan or investment, and they have no idea whether a line of credit would be helpful for their business.  So what signs should you look for in your business that might suggest that a line of credit would be your best option?

1.  You Produce a Product or Provide a Service Before You Receive Payment –

Many business models require that you produce a product or provide a service before you receive payment for the work. This means you may need to buy materials to make the product, you will need to pay employees to provide the service or manufacture the product all before you will get paid from your customer. An example of this might be manufacturing or auto repair. We offer a comprehensive manufacturing financial projections template and auto body shop profit and loss template. For this reason, a line of credit should work well to even out your cash flow cycle and help you sleep at night.

2.  You Provide Payment Terms for Your Customers –

If you allow your customers to pay you 10, 30, or even 60 days after providing your service or delivering your product, you are a good candidate for a line of credit. Again, in this situation you will likely need to borrow funds for those 10, 30, or 60 days, but you don’t need a 72 month loan, and you shouldn’t give up 10% in your company for an investment that you only need for 30 days. A line of credit allows you to pull down funds as you need them and then pay them back once you are paid so you only pay interest on what you actually use.

3.  Gap Between Accounts Payable Terms and Accounts Receivable Terms –

Sometimes business owners are required to pay their suppliers much sooner than their customers pay them. For example, you might need to pay your suppliers for the components to build you product within 10 days after receiving the raw materials, but your customer may not pay you for 45 days after receiving the finished product. This means you could have a 60+ day gap where you are paying others before you get paid which can put a real strain on your cash flow. A line of credit is an excellent option here.

So if these 3 signs sound familiar it might be time to start shopping for a line of credit.  One place to look is Lendio.  We partner with Lendio here at ProjectionHub to help entrepreneurs find the best financing options available for their specific situation.  Lendio is kind of like the match.com of business loans.  They help match you with the best lenders and those lenders will compete for your business so that  you get the best possible deal.

If you have any questions about whether a line of credit makes sense for you, or would like us to review your financial projections, don’t hesitate to reach out at help@projectionhub.com

ProjectionHub Wins Business Plan Competition

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competitors answer questions from judgesWe are honored and humbled to announce that we won the 2014 Taylor University Business Plan Competition.  The $7,000 prize will allow us to continue to innovate and improve ProjectionHub for our users.  Specifically we look forward to integrating ProjectionHub with Quickbooks in the next 6 months.

Below you will find the press release published on PRWeb – Brothers Dominate 2014 Taylor Business Plan Competition with ProjectionHub

Upland, Indiana (PRWEB) May 06, 2014

Returning competitor and Taylor University graduate, Adam Hoeksema, joined forces with brother, Brandon Hoeksema, to claim first place in the ninth annual Taylor Business Plan Competition last Friday. The winning duo progressed to the finals where they impressed a panel of judges with a comprehensive business plan for ProjectionHub. CommSense placed second in the competition; CommSense’s three-member team consisted of two Purdue PhD students, Wesley Allen and Andrew Kovacs, and MBA candidate, Christopher Ochynski. Anderson University MBA candidate, Ashley Ledford, and Anderson graduate, Eric Baker, took third place with The Anderson Brewery.

“It helps business create financial projections using a web interface and then it uses all the input and puts it in a fancy little Excel template,” said sophomore Brandon of ProjectionHub.

Initially, the idea for ProjectionHub was prompted from Adam’s experience working in economic development. “We require a lot of our loan applicants to create projections for their business, and the common way to do this is with Excel templates,” he said. “It’s just not a good way to do it, so we created a web application to allow you to do this online and have made a more powerful and simpler alternative to your Excel template.”

Adam participated in the business plan competition when he was a freshman at Taylor University, but did not place so competition rules allowed him to re-enter. Adam has also competed in the I-69 Collegiate Innovation Challenge, hosted by the Grant County Economic Growth Council. In February, Adam served as a judge for the eighth annual I-69 Challenge.

Larry Belcher, director of undergraduate business program at Taylor, said the competition is designed to promote business in Indiana. The Taylor Business Plan Competition targets businesses, existing or potential, operating within the Taylor University campus area of influence encompassing Grant, Blackford, Delaware, surrounding counties, and the entire state of Indiana.

“It’s an annual competition and it actually started earlier in the fall. We made an announcement for proposals and they sent an executive summary in. Those were reviewed and then cut down to a semifinalist group. Those were then asked to submit a full plan and from those we chose three finalists to actually do a presentation,” Dr. Belcher said.

Belcher said it presents an opportunity for people, primarily from Indiana, to have judges with experience in start-up businesses critique their plans.

“We are presenting the idea of bringing a local brewery to the city of Anderson,” said Ashley Ledford. “We both are very interested in the craft brew industry, both on the business side of things and the brewing side of things. It’s something that the city of Anderson is really pushing for so it’s an attractive business to get into right now.”

While the brewery placed third, the team noted the valuable insight gained from the panel of judges. The competition offers tangible rewards for 1st, 2nd, and 3rd place amounting to $7,000, $3,000 and $2,000 respectively. In addition to cash prizes, the winning entrepreneurs are offered the following forgivable loans from the Grant County Economic Growth Council for the purpose of building upon their investment in Grant County:

  •     First Place: $15,000.00 in forgivable loans
  •     Second Place: $10,000.00 in forgivable loans
  •     Third Place: $7,000.00 in forgivable loans

The long-term objective of the competition is to spur entrepreneurial growth that will generate significant job opportunities for the residents of Indiana. Because the purpose of the competition fits the Growth Council’s mission, Executive Director, Tim Eckerle, says, “By offering forgivable loans to winning investors who choose Grant County as their business location, the Growth Council looks attract and retain startups in Grant County. We continue to support this professional competition which imbues the spirit of entrepreneurship within the community.”

For more information regarding sponsorship, support opportunities and entry, email info(at)grantcounty(dot)com.

Is your Market Big Enough? Or Are you Wasting Your Time?

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One of the first things an entrepreneur should do before investing time and money into a new venture, is to determine whether the market is big enough to support your business. In this blog post I am going to go through an example that will demonstrate how to estimate the size of your market, and how to determine whether it is big enough to allow you to meet your goals as a business owner.  

Market for an Innovative Startup

This process is really back of the napkin type math, but it is so simple that many entrepreneurs simply overlook its necessity.  

For example, let’s say you have a new payment technology that would make it more efficient for consumers to make large one time payments.  Your solution is an alternative to a wire transfer from your local bank which may cost the consumer between $20 and $50 just to wire the funds.  Maybe your solution is much more efficient and you only charge $1 to transfer any amount of funds up to $1 million.  Sounds great right?  Everyone should start to use your product, but now the question is, even if everyone starts to use the product, is the market big enough for you to make a profit?  

 

After a bit of research you find that the average consumer performs a wire transfer once every 5 years.  Most people will never make a wire transfer, and those that do, don’t transfer large sums very often.  Let’s say you find that there are 10 million wire transfers made by consumers each year.  You know that if you advertise you can acquire a customer for every $1 of advertising.  So let’s say you invest a million dollars in development of the system and a million dollars in marketing/advertising.

  • This will allow you to acquire 1,000,000 users.

  • Each user will perform (on average) 1 wire transfer every 5 years.

  • You have 90% gross profit margins per transfer, in other words you make 90 cents per transfer

  • So in year 1 after investing $2 million you will make 200,000 transfer x .90 = $180,000

So is the market big enough in this scenario?  No.  It would take you over 10 years to generate $2 million in gross profit.  The back of the napkin math does not work, so you should not waste your time, energy and money to take on this project.

The purpose of this blog post is not to tell you that wire transfer technology is a bad idea, it is simply to show you the process that you should think through before you start a company.  If all goes as planned, is your market even big enough to allow you to generate a profit someday?  If not, don’t waste your time.

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.