Startup Brewery – Financial Projection Model

November 6, 2015 by Adam Hoeksema Leave a Comment

According to stats published by CraftBeer.com the craft beer industry has been booming. In 2014 the industry experienced 18% growth in volume of beer sales, selling over 212 million barrels of craft beer in the US alone. With this explosive growth entrepreneurs everywhere are opening new craft breweries. There are some significant startup costs associated with opening a new craft brewery, so startups are looking for capital to open their doors, and undoubtedly those pesky bankers and investors are asking for financial projections.

So my goal with this post is to walk you through the process of creating projections with our new brewery financial projection model. So crack open a craft brew or two and settle in for a fun hour or two of number crunching.

Let me know if you have any questions, please feel free to reach out at adam@projectionhub.com

Our Start Garden Pitch Deck

February 24, 2015 by Adam Hoeksema Leave a Comment

Back in early December ProjectionHub was awarded $5,000 from Start Garden to run an experiment to improve ProjectionHub and then come back on February 26th, 2015 and share the results of our experiment. Start Garden is a unique seed investment fund that believes in sharing the learning and results of experiments from their portfolio companies with the public.

In that spirit, I wanted to share our pitch deck and our learning from our experiments.

ProjectionHub Pitch Deck

Start Garden Pitch Request

Start Garden Experiments

We conducted 2 primary experiments, and learned a couple of key lessons:

1. Conversion Rate is Not Always Related to Price

In October 2014 we changed our pricing structure for ProjectionHub from a 1 time fee to a monthly fee of $5 per month. We knew this was a really low price, but we wanted to see if anyone would subscribe. Many did! In fact, 5.62% of users that signed up between October 1st and December 31st, 2014 subscribed at $5 per month.

As our experiment we decided to double our prices from $5 to $10 per month and see the impact on conversion rates. Between January 1st, 2015 and February 14th, 2015 we actually saw an increase in our conversion rate!

It went up slightly to 5.67%.

We were surprised to learn that the price increase did not negatively impact conversion rates. Preliminary results suggest that the price increase will not negatively impact retention rate either. We wish we would have made the change sooner!

2. Users Want to Get to Know a Product Before Sharing With Others

Our second experiment was changing our process to allows users to invite/share their projections with others. In the past we asked users if they wanted to invite an advisor to be able to view or edit their projections at the beginning of the process. Before the user had a chance to get a feel for the product, we were already asking them to share. We thought that our invitation rate might improve if we added an option at the end of the product to invite other users. We also allowed users to invite several users at once instead of one at a time. Finally, we added user types that included (accountants, investors, lenders, advisors, and others).

We had a 133% increase in our invitation rate! In the past we had 6 users invited per 100 new signups. We increased that to 14 users invited per 100 new signups!

We are excited about what we learned through these 2 experiments and think it dramatically improves the value of our company because it directly increases revenue and increases users invited.

If you are a startup looking for seed funding, Start Garden is an excellent option. You can apply here.

3 Financial Projection Scenarios Every Startup Should Run for 2015

January 2, 2015 by Adam Hoeksema Leave a Comment

Most startups and small businesses don’t bother creating a budget, or forecasting their financial results for the upcoming year, but I think there are a number of reasons why you should spend some time at the beginning of the year and create some forecasts for the year ahead.

Here are just a few ways that financial projections could be helpful for your business in 2015:

Allow you to estimate when you will need additional funding from a lender or investor
Help you know when you will need to hire that extra staff member
Determine at what volume of sales will you need to move to a larger facility
When will you be able to leave your day job and work on your startup full time
What would happen if you lost your largest customer
What would happen if you signed on that new customer
When will you breakeven for the year

These are all questions that you as an entrepreneur should be able to answer (if they apply to your situation). If you can’t answer these questions, then it is time to spend some time using ProjectionHub or another budgeting tool to create at least 3 financial projection scenarios for the 12 months ahead.

1. Most Likely Case

The easiest thing to do is to start with what you did last year. Last year is probably the best predictor of the next 12 months. Or if you grew 5% per month last year, you may just assume that same growth rate continues for the next 12 months. Another great way to project the future is signed contracts for the upcoming year. If you already have contracts signed with customers for the next 12 months, use that as your most likely scenario.

If you are brand new startup, then you are simply going to have to make a bunch of assumptions about your sales and expenses. Do your best to use industry data from a source like BizStats to get an idea of what others in your industry are doing.

2. Best Case

Next, you should dream big and come up with a best case scenario. This should show you your sales projections if everything goes your way over the next 12 months. If you are able to retain current clients, and you are able to secure that new large client, or strike that business development deal. This scenario should still be based on data, and should still be realistic. A good example is if you are a SaaS company and you are currently experiencing a 90% retention rate each month, the best case scenario could assume that you bump that up to 95%.

Another example could be, your website currently converts 25% of visitors to sign up for an account, but you are planning on making some changes to the landing page which you hope will improve that conversion rate to 35%.

3. Worst Case

Finally, it is important to plan for the worst case scenario. This is similar to stress testing at banks. Banks conduct stress tests to determine what would happen if a certain % of their portfolio defaulted. Could they still survive if 10% of loans went bad? 20%? 30%?

Likewise, you should stress test your business so that you know what would happen if:

You lost your largest client
Fuel prices doubled
You lose an important employee
You Google rankings decrease dramatically

By conducting these tests you will be able to better mitigate these risks and avoid the worst case scenario.

So if you haven’t completed financial projections for 2015 yet, spend some time with ProjectionHub now and get this important planning process off your list in the new year.

How to Forecast Revenue for a Startup | Read Our 12 Tips on Revenue Generation for Any Startup – ProjectionHub

November 25, 2014 by Adam Hoeksema Leave a Comment

How to Forecast Revenue for a Startup in 12 Easy Steps

Every startup that needs to create revenue projections will likely go through the same basic process to do so. We’ve created a 12 step guide on how to forecast revenue for a startup below, and we have also created various spreadsheet templates for you to use to create your own sales and revenue generation projections.

Step 1 – Total Addressable Market (TAM) – # of Potential Customers

The first step in forecasting revenue projections for a startup is to estimate the total addressable market. This is the entire global market for your product or service. Here some examples:

If you are starting a coffee shop – your total addressable market would probably be the number of coffee drinkers around the world.
If you are starting a software company that serves businesses – your total addressable market would be the number of businesses around the world.
If you are starting a hair salon – your total addressable market would be the number of people with hair around the world.

Step 2 – Forecasting Growth Rate % of TAM

Once you identify your starting point you might know that your total addressable market is growing by some rate each year. So maybe the number of coffee drinkers is increasing by 3% each year. If you are following along with the Excel template I have created, you will need to estimate a monthly growth rate for the Total Addressable Market.

Step 3 – What % of the Addressable Market Can you Actually Serve

Now step one of startup revenue forecasting begs the question. If I open a salon in Miami, Florida, I can’t actually serve every person in the world. You probably have a 30 mile radius of people that would be considered your “Serviceable Market” – these are the people you can actually serve.

If you are building software for businesses to help them manage employees, then your serviceable market is not all businesses, it is probably all businesses with employees.

Step 4 – What % of the Serviceable Market Will you Target

Next, we need to refine your market even more. If your serviceable market for your coffee shop is a 30 mile radius, maybe your target market is the workers in the office buildings within a 1 mile radius. Obviously there may be other competitors that would take some of the serviceable market, so you need to establish your target market.

If you are a salon, your target market might be women between the ages of 25 and 45 within a 5 mile radius to make the most out of your revenue potential.

Step 5 – What % of the Target Market Can you Convert to Leads

Now that you have narrowed down your market to a select target market, the next step of forecasting revenue is to estimate the number of potential customers in your target market that you can convert into leads. For a business with a website, a lead might be someone that visits the website. If you have a retail location like a salon or a coffee shop a lead might be someone that walks into your store. So you need to estimate the number of people from the target market you can turn into leads.

Step 6 – Can you Improve your Conversion Rate

Now with any of these % rates within this model you might be able to improve your conversion rates, or increase the number of leads that turn into customers etc. So when I am creating a custom financial model I add several lines that say “Growth Rate % of Conversion Rate.” This means that you can increase (or decrease) your conversion rates within the model over time.

Step 7 – What % of Leads will you Convert into Customers

Now this number can vary greatly from business to business. For example, a coffee shop might convert 99% of the leads that walk in the door into paying customers, because a lead probably wouldn’t visit without intending to purchase, but with a web based business, a good conversion rate from website visitor into customer might be 3% to 5%. Depending on your industry, you may need to do some research to get an idea of what you can expect in terms of conversion rates from leads to customers.

Step 8 – Churn Rate – What % of Customers will you Lose Each Month

A crucial part of forecasting revenue is determining what percentage of your new customers won’t ever come back again. For a salon, hopefully customers are happy and they come back on a regular basis for a haircut, but for a coffee shop, maybe a customer was just passing through the area and happened to stop by for coffee, or maybe they hated your coffee. You need to estimate what % of customers won’t come back.

Step 9 – What is the Average $ Amount of a Customer Purchase

The next estimate you need to make is the average purchase of a customer. Many of our financial projection templates help you automatically calculate an average customer ticket like our coffee shop spreadsheet. For example, if someone buys a coffee for a $1 and a muffin for $2.50, the purchase amount should be $3.50.

Step 10 – What is the Growth Rate % of the Average Purchase $ Amount

Again this could increase over time. As a salon, what if you start offering hair coloring services or maybe perms, or some other service that could increase the average purchase amount per customer.

Step 11 – On Average How Many Purchases Per Customer Per Month

Lastly for startup revenue projections, we need to know how many purchases per customer per month on average. If you are a coffee shop and have a lot of “regulars” your average # of purchases per customer per month might be 10. If you are a salon on the other hand and the average customer gets a haircut every 4 months, then your average purchase per customer per month would be .25 purchases.

Step 12 – Total Purchases x Total Average $ per Purchase = Total Revenue Generated

Finally, it is time to bring it all together. You just need take your Total purchases from all customers x the average purchase amount to = your total projected revenue.

Again, this process should work and can be easily adapted for just about any business. If you have any specific questions about how to forecast revenue growth for a startup or business, you can visit our FAQ page for more information or contact us!

Best of luck!

Financial Forecasting Tool Now Supports Over 100 Currencies

July 17, 2014 by Adam Hoeksema Leave a Comment

We are excited to announce that ProjectionHub now supports over 100 currencies. For the last two years our tool only supported the dollar, yet 40% of our website visitors came from countries that use currencies other than the dollar. 60% of users come from the United States and other US Dollar based countries, but now we can fully support the currency of our top 10 countries based on user signups:

United States
United Kingdom
Canada
India
Australia
France
South Africa
Netherlands
Ireland
Germany

We are now able to support any currency that an entrepreneur may need to use as they create financial projections for potential investors and lenders.

Get started with your financial projections today.

ProjectionHub Adds Graphs!

June 5, 2014 by Adam Hoeksema Leave a Comment

We are excited to announce today that we have added graphing capability for our ProjectionHub subscribers. Now subscribers will be able to download an Excel file complete with up to 3 years of monthly balance sheet, profit and loss and cash flow projections along with the following graphs:

ProjectionHub Graphs

Monthly Sales Forecasts
Annual Sales Forecasts
Annual Sales, Gross Margin, Net Profit Summary
Sources and Uses of Funding
Breakeven Analysis
Projected Cash Flow

Graphs will come standard with our normal download file for ProjectionHub Subscribers. Take a look at the new feature and let us know what you think!

Are You Likely to Raise Capital or Not? We Can Predict Your Chances of Success

May 30, 2014 by Adam Hoeksema Leave a Comment

This is our latest and greatest idea!

Co-Founder of ProjectionHub, Brandon Hoeksema, is an artificial intelligence/big data guy, and we came across the thought the other day that we could probably predict your chances of success in raising capital with a high degree of certainty based on your financial projections.

How?

Let me explain. We currently have over 6,500 users who have created financial projections using ProjectionHub, and we are growing fast. These users have projected that they will raise capital through loans or investments in the future, so here is what we plan to do.

Let’s say you project that you will raise $100k in investment in month 6. So 7 months after you create projections on ProjectionHub we are going to email you and ask 2 questions:

1. Did you successfully raise the $100k that you projected you would last month?

2. If not, did you raise any at all and how much?

These 2 questions will allow us to determine what characteristics in a set of financial projections make you most likely to successfully raise capital. Ultimately we think we can predict your chances of success in raising capital and tell you why you are unlikely to raise capital and how to improve your chances.

What do you think? Sound like a doable project? Sound like a powerful tool for entrepreneurs? We think so! This is definitely on our development list for the summer.

Let us know what you think on Twitter.

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

May 15, 2014 by Adam Hoeksema Leave a Comment

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

3 Steps to Creating Believable Financial Projections

March 6, 2014 by Adam Hoeksema Leave a Comment

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.

How Much Does the Average Startup Pay for Furniture?

February 28, 2014 by Adam Hoeksema Leave a Comment

As a startup should you spend precious cash for quality furniture? Or should you find the cheapest thing you can get your hands on? Or somewhere in between?

Startup Furniture Budget

Furniture is probably one of the last things on your mind as an entrepreneur trying to get started, but it can be a major expense, so here is some data to help you plan and budget.

We took a look at 630 startups that had built furniture into their financial projections on ProjectionHub to come up with some average numbers to share with you. Here is what we found:

Average Furniture Expense for Startups – $21,000
Average Useful Life of Furniture – 7.3 years
Average Salvage Value of Furniture After Useful Life – 14% of Original Cost

Key Points

Whether you end up buying furniture at IKEA, Turnstone, or Wal-Mart, it is going to be a significant outlay of cash, but your employees need a place to work.
Furniture should last for quite some time
You aren’t going to be able to sell used/old furniture for anywhere near what you bought it for after it is fully depreciated
I think the key thing to keep in mind here is that furniture is an investment, if you don’t know if your startup will survive through next month, it probably doesn’t make sense to purchase high quality furniture that will last you the next 7 years. On the other hand if you have found a business model that works and you intend to be around for the next 10 years, purchasing quality furniture that can last is probably your best bet.

If you want to see if you can make your startup budget work, use ProjectionHub for free to create up to 3 years of financial projections.