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ProjectionHub

New ProjectionHub Feature – Calendar Date Picker

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We keep trying to improve for you

Every couple weeks we push new updates to ProjectionHub, and I wanted to let you know about the latest update.

In the past when you had to pick a month or date to add an Asset, Liability, or Investment we asked you for the “month number” which is confusing.

How annoying right?!?  

Well we made it a lot easier, now you can just pick a date with a simple calendar date picker like you see below:

Hope this helps make ProjectionHub just a little bit easier for you.  Thanks!

New ProjectionHub Feature – Multiple Currencies

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We have made a few big updates.

I wanted to let you know about a couple of updates to ProjectionHub.

1.  Currency Support –  We now support multiple currencies (USD, EUR, GBP, INR, AUD, CAD)

2.  Delete Unwanted Business Models – If you added an unwanted business model you can now delete that by going to the business model page and clicking the little red trash can on the right side of each business model.

Here is how to change your currency once logged in:

1.  Click on the company name in the top left corner
2.  Click on Business Info
3.  Change your currency in the Business Currency drop down box.

Here are some images to show you how:

Then change the currency like this:

Hope this helps!

Adam Hoeksema
Co-Founder – ProjectionHub

How to Prepare to Sell your Business

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I often talk to business owners who are hoping to sell their business someday, but are not taking any steps toward creating a business that can be easily sold.  If you want to sell your business it is wise to start preparing years in advance.  Here are a few key tips to help you prepare to sell your business.

  1. Make sure the business can run without you
  2. Get a business valuation
  3. Hire a CPA
  4. Check industry benchmarks

Now let me dig into more detail with some great resources for each of these tips below:

Selling a Business

  1.  Can your business run without you? – It will be incredibly difficult to sell your business if the business relies completely on you personally.  You need to start getting yourself out of the day to day operations so that you can demonstrate that if someone else bought the business, it could still run profitably without you.
  2. Know what your business is worth – I have talked with a lot of business owners that really don’t understand what drives their business value up or down.  A lot of times people think it is simply the value of the assets, or maybe it is based on sales.  Every business is different, and a lot of factors go into placing a value on your business.  If you want to sell someday I suggest that you start using a tool like BizEquity or Equidam to get regular business valuations done.
  3. Get your financial statements in order – you really need to focus on accurate accounting years before you look to sell your business. When a potential buyer is looking to purchase your business they are going to ask for at least the last 3 years of financial statements and they are going to want to know details so that they can understand how they might be able to improve the business or benefit from synergies with another business that they already own.
  4. How do you compare to others in your industry? – Finally, you should know how your operation performs compared to industry benchmarks.  I really like BizStats which will provide industry benchmarks for free for 1oos of industries.  For example here is an example income statement benchmark for a Real Estate Agency.  This shows that a sole proprietorship real estate agency could potentially see a 52% net profit on sales.  If you are only reaching 12%, maybe you need to take a deeper look at what is and is not working with your business.

These are 4 important steps you should take if you want to prepare to sell your business.  Good luck!

Oops! We Didn’t Even Know we were on Product Hunt

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The unforgivable startup sin!

Someone posted ProjectionHub on Product Hunt 10 days ago and we didn’t even realize until today (10 days later).

The Product Hunt audience is the perfect audience for ProjectionHub – we help startups create and share financial projections with potential investors or lenders – so Product Hunt is our exact target audience.  But we totally missed it!

Learn from our Mistakes

So this is basically what happened.  I was just reviewing our Google Analytics traffic and saw this:

Product Hunt Traffic on Google Analytics

So I looked a bit closer at that little bump and noticed the traffic came from Product Hunt.

I thought that seemed strange because we never submitted ProjectionHub to Product Hunt, but sure enough it was there.  So I looked a bit closer and noticed that this kind soul had submitted ProjectionHub to Product Hunt about 10 days earlier.

So in case you are not aware, the way Product Hunt works is that when your product gets submitted it goes to the “Upcoming” page.

So once you are on the Upcoming page you need to start a conversation with the community and encourage genuine feedback.  Product Hunt has an algorithm that helps them determine which products should make it to the Featured Page.

The featured page is where Product Hunt could change the trajectory of your startup.  You could get thousands or tens of thousands of new visits and signups if your product is successful.

Stuck on the Upcoming Page

Unfortunately by the time that I realized that we were on Product Hunt it was too late to really have a chance to be moved to the featured page.

So if this happened to you, what can you do?

Ask for a 2nd Chance

According to the Product Hunt FAQ page you can actually ask for a second chance in the future:

So… here at ProjectionHub we are going to keep our heads down, keep trying to build an awesome product and prepare for our second chance someday, and maybe next time we will hit it big on Product Hunt!

3 Steps to Calculate your Overhead Expenses

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cropped-ProjectionHub-Icon-Avatar.pngAs my day job I manage an SBA loan program where we help small businesses with funding and then business coaching before and after the loan.  I am becoming increasingly convinced of the importance of understanding your breakeven as a small business owner.  To define breakeven, it is basically the point at which your sales match your expenses.  If you sell anything less than your breakeven amount, you are losing money.  I just wrote a more detailed blog post on how to determine if your business is breaking even here, but today I am going to focus on an important component of calculating your breakeven, that is – your overhead costs.

What are Overhead Costs?

First we should define overhead costs so that we are all on the same page.  According to Investopedia:

“Overhead is an accounting term that refers to all ongoing business expenses not including or related to direct labor, direct materials or third-party expenses that are billed directly to customers. Overhead must be paid for on an ongoing basis, regardless of whether a company is doing a high or low volume of business.”

Examples of Overhead Expenses

I think it is helpful to list some examples of expenses that are considered overhead:

  • Rent
  • Telephone/Internet
  • Insurance
  • Utilities
  • Wages and salaries for sales, management, and administrative staff

These are all expenses that will be the same for you each month whether you sell 1 unit or 100 units.

Examples of Expenses that are Not Overhead

I also think it can be helpful to list some expenses that you should not count as overhead such as:

  • Material costs to make your product
  • Labor cost to make your product

These expenses are often considered your Cost of Goods Sold.

How to Calculate Your Overhead Costs

Step 1 – Categorize Every Expense as Overhead or Cost of Goods Sold

This seems pretty straightforward right?  Basically you just need to categorize each expense and ask yourself the following question:

“If I didn’t sell anything next month would I still have this expense?”

If the answer is “Yes” then that expense is probably overhead.

Cost of Goods Sold expenses tend to be tied directly to production of a product or service.  So if you have a manufacturing company then the labor expense for those working on the assembly line would be cost of goods sold because if you didn’t have any orders to produce next month, you would not have the labor expense.

Step 2 – Are some Expenses part Overhead, Part Cost of Goods Sold

In step 1 I bet you will run into some weird situations where you feel like an expense is part overhead and part cost of goods sold.  For example, let’s say you own a plumbing company.  Your plumbers make $15 per hour and they work 8 hours per day.  On the average day you have them doing billable work 6 hours per day, but you still pay them for 8 hours.  There is 2 hours where they are really more of an overhead expense to you, and the 6 billable hours they are more like cost of goods sold.

So you might want to consider breaking out 1 expense into X% overhead and X% cost of goods sold.

Step 3 – Consider all Cash Outflows

Finally, you might have some other cash outflows that are not technically expenses, but for most small businesses should probably be considered when thinking about overhead.  The best example is a Loan Payment.

A loan payment is split between interest and principal.  Technically the principal portion is not an expense, but when you are trying to determine what your monthly overhead costs are, you might as well include the entire loan payment so that you know exactly how much cash you need to bring in to break even.

If you have any specific questions about whether an expense should be counted toward your overhead or not, I would be happy to help. View our projection templates like our manufacturing cash flow template online.  Email me at support@projectionhub.com

Are you Sure Your Business is Breaking Even?

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Sales GraphThere are so many small businesses and startups out there that are struggling to get by each month and they don’t know why.  They don’t know why there never seems to be enough cash in the bank account.  Most of the time there are 2 possible reasons:

  1. You have a cash flow problem.  You are actually profitable, but maybe it takes you 90 days to get paid for your service and you have to pay your staff every 2 weeks, so all of your profit is tied up in that working capital to cover payroll and operating expenses until you get paid.
  2. You are not actually breaking even.  The more I work with small business owners, the more I realize that many don’t understand the concept of breakeven.  They work so hard every day, but they are set up in such a way that it would be impossible to breakeven.

So in this post I want to help you understand how to calculate your breakeven point and help you understand the importance of keeping a close eye on your breakeven.  There are basically two different types of breakeven calculations.  A calculation for a product based business and a slightly different calculation for a service based business.  Below I have an example of both:

Breakeven Calculation for a Service Business

  1. What $ Rate per Hour do you charge for your service = $50
  2. How much do you pay your staff per hour to provide the service = $25
  3. Gross Profit per Billable Hour = $50 – $25 = $25
  4. What is the total of all of your other monthly overhead costs, other than the labor cost for the staff providing the service = $5,000
  5. Number of billable hours needed per month in order to breakeven = $5,000 divided by $25 = 200 hours

Breakeven Calculation for a Product Business

  1. What price do you sell your product per unit = $100
  2. How much does it cost you to produce one unit (include labor and material cost) = $30
  3. Gross profit per unit = $70
  4. What is the total of all of your other monthly overhead costs, other than the cost to produce the product = $10,000
  5. Number of units per month you need to sell to breakeven = $10,000 divided by $70 = 143 units

So why is this so important to know your breakeven?

If you don’t know your breakeven point you might be working below your breakeven point each month without even realizing it.  A great example is a heating and cooling company that I was working with.  The company had 2 technicians that did billable work and 2 office staff.  The problem is that the office staff were just overhead and they got paid $15 per hour.  Then you had the technicians who could bill at a rate of $80 per hour.  The technicians were effectively paid $30 per hour after all salary, benefits and union dues.  The technicians could bill about 6 hours per day, the other 2 hours they were either prepping for a job, traveling etc.  So the 2 techs generated 6 hours x 2 techs x $80 = $960 per day.

But then those techs were basically paid $30 x 8 hours per day x 2 techs = $480 AND the 2 office staff were paid for 8 hours x $15 = $240

$480 + $240 = $720 in staff wages and the company only generated $960 per day.  So that left only $240 per day for all other expenses including rent, utilities, vehicle payments, fuel, supplies, etc.

It just was not enough.  The real problem is that the company should have had 2 or 3 techs per each 1 office staff in order to make the math work.

You need to understand your breakeven or you could be stuck working harder and harder to no avail because you don’t understand the basics of your financial model.

Now take a few minutes and check out our financial projection tool for free – ProjectionHub

4 Steps to Determine How Much Your Business Will Owe in Taxes?

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Percentage of Businesses that are C-CorpsAccording to TaxFoundation.org, 94% of businesses are what are called “pass-through businesses” which means that the business does not pay income taxes itself, it passes through the tax liability to the owners.  So for 94% of the 28 million-ish businesses in the US that are pass-through entities, the owners need to be able to accurately estimate how much they will owe in income taxes due to the profit or loss of the business.

We work with a lot of small business owners who act like tax time is this big surprise, they wonder:

  • Will I get a refund this year?
  • How much am I doing to owe?

The exact dollar amount you will owe in federal income taxes will be nearly impossible to predict perfectly because it is based on 100s of different personal factors like family size, your investments, whether you own or rent a home, your charitable giving, etc, etc.  So the purpose of this post is to help you understand how it works so that you can get much better at estimating how much you will owe in taxes so that it is not a surprise.

There are 4 simple steps to know how much you will own in taxes due to your business income.

Step 1 – Calculate the Net Income of the Business for the Year

Hopefully you have been keeping track of all of your income and expenses for the year with software like Quickbooks, or through  your accountant.  If so, you are in good shape, you will need to access your Profit and Loss (aka Income Statement) report.  At the bottom of the report it gives you your “bottom line” which is your net income for the year.

Step 2 – Determine What Percentage of the Net Income of the Business is “yours”

Next, you only have to pay taxes based on the percentage of ownership that you have in the company.  So if you own 100% of the company you will be responsible for all income taxes; however, if you only own 10% you simply need to take the Total Net Income of the business and multiply by your Percentage of Ownership to determine how much of the net income you are responsible for.

Step 3 – Use the Federal Income Tax Brackets to Calculate What you Owe for the Business Income

Each year the federal government publishes the personal tax brackets which gives you everything you need to know to calculate how much tax is owed per dollar of income.  You can find the tax brackets published here for 2015.  As you can see in the table below, you don’t pay the same percentage of tax on each dollar of income.

2015 Single Tax Bracket for Federal Income Taxes

Step 4 – Remember This all Flows Through to Your Personal Tax Return

So let me do my best to explain how this works.  The table above shows the percentage of tax that you will owe for each various dollar amount in income.  Now remember this is a pass through entity so this is a personal income tax bracket.  When you business makes net income that net income is passed through to the owners.  You may also have other income that plays a role in how much you owe in taxes.  For example, let’s say you also have some dividend and interest income from your investments, and maybe you have some rental income from a residential rental home that you own.  All of this income will be added to your business income, but right now I want to keep things simple and assume that your only income is your business income.

If this is truly your only income then you can simply follow this table and figure out exactly how much you will owe in federal income taxes.

You can find many useful templates to assist you with this on our website

Predict What You Will Owe in Taxes Next Year

Finally, you should now spend some time forecasting what you will owe in taxes next year so that you know how much money to set aside each month for taxes.

Home Health Care Business Income | Learn About Home Health Care Business Profit Possibilities – ProjectionHub

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Home health care business profit possibilities

What Are The Home Health Care Business Profit Possibilities?

$72 Billion with a B.

According to a report by the National Association for Home Care & Hospice the annual spending on home health care was $72 Billion in 2009.  Clearly the industry has only grown since 2009 and looks like it will continue to grow as the “Baby Boomers” look to age in their own home.  So if you are thinking about starting a Home Health Care Business you need to go through the home health care financial projection financial projection process first so that you know exactly what you are getting yourself into.

We have created a home health care financial model that you can use here.

Once you sign up using our home health care financial model there are 5 key steps to walk through to create a set of projections.

Step 1 – Home Health Care Revenue

Revenue projections for an in-home health care company should be relatively straightforward.  You are basically need to know the following:

  • Number of patients
  • Average billable hour rate for services provided
  • Average number of hours provided each month per patient

Multiply all of these together and you will come up with total monthly revenue.

 

Step 2 – Home Health Care Expenses

Home Health Care Cost of Goods Sold

As a home health care business your labor cost of goods sold will be (by far) your largest expense.  You will first have to determine what types of services you are providing.  If you are providing medical services you will need higher cost workers, if you are non medical your staff hourly rate will be much lower, but so will the rate  you can charge your end customers.  In the table below you can get some general idea of the hourly rates for different positions.  Based on a report by USA Today, the average gross margins for home health care businesses is between 30 and 40%.   Notice this is from 2009, it was the most recent data I could find, so rates have likely gone up a bit.

Home health care cost of goods sold

Home Health Care General and Admin Costs

In addition to the staff that are providing the direct services to the patients, you will have wages and salaries for General and Administrative staff.  Below you can see some of the potential positions you may have as well as some compensation figures.

Home health care general and admin costs

You will obviously have other general and admin costs such as insurance, rent, and vehicle maintenance.  I have provided a screenshot below of the general and admin costs that I added to the Expenses page on ProjectionHub:

 Home health care expenses

Step 3 – Home Health Care Assets

Computers/Tablets/Phones 

Your staff may have company computers, tablets or phones that you own and will need to add as an asset.

Vehicles

You might have company vehicles that you own.  If you own them you should include them as an asset.  If you are renting or leasing you should just add the monthly expense in the expenses section of ProjectionHub.

Medical Equipment

If you are providing medical services there may be specific medical equipment that you need to have on hand to provide those services.

Office Furniture

You can also include any office furniture that you might have in the assets section.

Step 4 – Home Health Care Financing

This can be a pretty expensive business to get started.  The main reason you are going to need funding is for ongoing working capital.  Working capital is the money that you use between when you pay staff to provide services and the time that you get paid by Medicare, Medicaid, Health Insurance companies or private pay individuals.  It could be 30 to 60 days between the day your staff provide care for a patient and the day that you get paid.  You will likely need a line of credit to fill this gap.  In the early years it could be really tough to get a line of credit from a bank, so you might just need to start out with an investment from friends and family and a term loan from the bank that is collateralized by equipment, vehicles, or maybe your retirement account.

In this example I have projected a $100,000 personal investment and a $100,000 loan from a bank to help you get started.

Step 5 – Home Health Care Projected Financials

That is it, now you can download your set of home health care financial model projections to share with your potential lender or investor. Here are some projections for an in home health care company that you can use. You can get started with your own in-home healthcare projection cost template and medical office financial projections template.

Contact support@projectionhub.com if you have any questions or pick an excel financial
projection template for one of your projects.

 

Photo by Kampus Production from Pexels

Data Shows Your Financial Projections are Probably 5x Too Optimistic

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Entrepreneurs are optimistic.

As I was chatting with one of my banker friends last week, he made a comment that over the last 10 years he had only seen a couple of financial projections from a business owner that projected that the company would lose money.  He speculated that in reality a majority of those businesses actually lost money at least for a year or two.

He was probably right.

As outlined in this report by the American Enterprise Institute the average person believes that companies earn an average profit margin of 36%.  In reality the average profit margin across 200+ industries is between 6 and 8% as seen in the graph below:

Optimistic Startup Projections

3 Ways to Determine Whether Your Projections are Too Optimistic

So if you have completed a set of projections with our tool – ProjectionHub – now you need to do a reality check and see if your projected profit margins are reasonable. There are 3 key things I think you should do:

Step 1 – Check your Bottom Line

The first thing you need to do is calculate your projected profit margin.  You can do this in ProjectionHub after you create a set of projections then go to the Dashboard and view the Income Statement Report.

You will then be able to find the numbers you need to calculate your profit margin.  Profit Margin = Net Income / Total Sales.  So if you have $100,000 in sales the first year and $15,000 in net income, then your profit margin would be $15,000/$100,000 = 15%

Remember the average profit margin across 200+ industries is only between 6 and 8%.

Step 2 – Check your Growth Rate

Next you should check your monthly sales growth rate.  There is a question on Quora that is helpful here.  The question is aimed at web-based startups, but I think it can be helpful for your business no matter your industry.  The question is “What is a typical user growth rate for a hot web startup the first year?”  The answers are very helpful.  You can see Facebook’s average revenue growth rate per week for 2004 through 2012.  I think your goal should simply be to calculate your growth rate and make sure it is less than Facebook’s growth rate.  There are a lot of startups that create projections that make it look like they will set the world on fire in 3 years.  Facebook was not a billion dollar business overnight and yet it was one of the fastest growing businesses ever, so just do yourself a favor and don’t embarass yourself by projecting a sales growth rate faster than Facebook for your coffee shop, mobile app, or consulting firm.

Step 3 – Compare to Industry Ratios

A great way to determine whether your projections are reasonable is to compare to industry average ratios.  BizStats is a great tool to find this information.  For example, below you can see the average key ratios for a business in the Restaurant Industry.

Average Industry Ratios for a Restaurant

As you can see the average profit margin is 6.33%.  It sounds so easy to open a restaurant and make such a great profit, but that is not the norm.  You can have a nice business with a 6% profit margin, but before you risk your life savings to start a new restaurant, it is important that you know what you are getting yourself into.

If you haven’t created a realistic set of financial projections yet, I encourage you to give our tool (ProjectionHub) a try here and make sure that you go through a reality check to make sure your projections are 5 times too optimistic.

If you have any questions or need any help along the way please don’t hesitate to reach out to me directly – Adam Hoeksema – adam@projectionhub.com

Starting a Photography Business: From Hobby to Profits

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You have 140,000 competitors…

According to the US Bureau of Labor and Statistics, there is likely about 140,000 “professional photographers” in the US.

With that level of competition, if you want to turn your photography hobby into a profitable business, you are going to master the financial side of the business.  Here is an article by ShootDotEdit that would be helpful as a general overview when starting a photography business, and in the article below I am going to walk you through the process of creating financial projections for your new business.  This process will help you get a feel for how many jobs you need in order to breakeven and/or leave your day job.

Step 1 – Sign up for ProjectionHub Photography Financial Model

We have developed a professional service projection template which can be used for your photography businesses

Step 2 – Project Income for the First Year

It seems that most photographers go from hobby to career by taking pictures for friends and family at weddings, engagements, and family photo shoots.  This is how you break into the industry because you need to have a portfolio of your work to show off to potential customers.  In the financial model that we developed we added 3 default revenue line items:

  1. Charge by the Hour – Sales – Here you can project sales for customers that you bill by the hour.  You might not be selling any specific package, rather you are simply charging an hourly rate.  So the question is how much to charge per hour?  This is an excellent article that talks about how much you should bill based on how much you hope to earn in take home pay per year.  As a general rule of thumb you should charge at least 2 times as much per hour as you want to take home for yourself.  So if you want to earn $60,000 per year, you should bill $60 per hour so that you can take home $30 per hour X 40 hours per week X 50 weeks = $60,000.  One reason is because you will obviously have expenses, but you also won’t be able to bill a client for every single hour you work.  Many of your working hours will be non-billable, some suggest that 50% will be non billable.  When you are getting started, don’t price your services too low because it is not sustainable, make sure to bill at a sustainable rate as early on as you can.
  2. Services for Individuals –  This is probably where you will get your start.  By providing packages to friends, family, and acquaintances first you can build a portfolio and improve your skills.  As you think about how to structure and price your different packages I recommend this helpful article – “How to Create Photography Packages that Sell”  As you are projecting your revenue for packages that you sell, you should be able to break it down to the number of billable hours and your rate per hour.
  3. Services for Businesses –  At some point you may expand from services only for individual weddings, family pictures etc, to start serving businesses.  In this situation you may just charge by the hour, or offer packages.

Photography Business Cash Flow Considerations

  1. When you book a job you should probably receive a deposit up front.  This means your revenue projections should consider this unique aspect of cash flow.
  2. Keep in mind that photography can be quite seasonal depending on your market, so you need to plan accordingly.  This is why it is great to receive deposits up front, you can get deposits in the fall and winter for weddings the next spring and summer to even out your cash flow during the slow season.

Assumptions for Expected Revenue Projections

Below I have included the assumptions that you will need to develop for your own specific scenario:

  1. How many weddings do you expect to happen next year in your network of friends and family?  Lets assume 10 and that you will be able to convince 5 to use your services.
  2. Let’s assume you charge $2,000 per wedding and get paid 1/2 up front
  3. How many potential portrait sessions are there in your friends and family network?  Estimate the number of graduations, engagements, new babies, and other events that might be a good excuse for a portrait session.  Let’s assume 40 of these in your extended network and you can close a deal with 12 people (1 per month).
  4. Lets assume you charge $500 per portrait session and get paid at the time of the service.
  5. Finally, let’s assume you secure a couple of freelance corporate projects at $1,000 per project toward the end of the year after you have built up a portfolio.
  6. One nice thing is that you should be able to start booking some weddings for the following year the last few months of the current year which will help your cash flow.

Based on these assumptions you can have a starting place for your revenue forecast

Step 3 – Forecast Expenses

Expenses are a bit easier to project in the first year.  Here are expenses that you should expect:

Photographer Expense Projections

Step 4 – Getting a Loan for a Photography Startup

In addition to these monthly expenses, you will also have several thousand dollars of startup costs to buy a computer, photo editing software such as Picsart to quickly edit images, a camera, and accessories.  You will be able to add these in the “Assets” section of ProjectionHub.  Once you add those startup costs, you will be able to determine how much of a personal investment you will need to make, or how large of a loan you will need.  I added the following startup costs/assets:

  • Computer – $3,000
  • Furniture – $500
  • Camera – $3,000
  • Camera Accessories – $1,500
  • Total = $8,000

Equipment for a Startup Photographer

Then you can add a loan (maybe it is a loan from friends and family) for your startup.  I am assuming you will need about $10,000 in startup funds to make the cash flow work.

Friends and Family Loan for Photography Startup

Step 5 – Transition from your Day Job to your Business

I titled this blog post as a transition from Hobby to Full-time because it will need to be a transition. It is simply a tough business to jump into full time right away.  In this projection I assumed you paid yourself $250 per month for the first 3 months and then increased that by $250 every 3 months for the first year.  You obviously will need to have another source of income in the first year.

We would love for you to try out ProjectionHub to create your own financial projections and please reach out if you have any questions at all – we are here to help – adam@projectionhub.com