fbpx

ProjectionHub

How to Know if I Have Enough Cash to Start a Business?

by Leave a Comment

This is a common question that thousands of hopeful entrepreneurs have every day.  You want to start a business.  You are considering leaving your day job, but you just can’t pull the trigger, you just aren’t sure if you have enough saved up to make it work.  You might consider a transition period where you keep your day job, or work part time, and start your business in your spare time.  The key to understanding this question is a robust set of financial projections that provides a realistic outlook for your transition from day job to full time entrepreneur.  Here are 3 key things you need to consider in order to understand if you have enough cash to start a business:

1.  Only 16% of Entrepreneurs Take a Paycheck in Year 1 – Based on some in house data we gathered here at ProjectionHub, we found that only 16% of entrepreneurs were projecting to pay themselves during the first 12 months.  The average owner’s draw for those 16% was as follows for the first 3 years:

  • Year 1 – $2,389 per month

  • Year 2 – $2,670 per month

  • Year 3 – $2,866 per month

So the first question is do your financial projections support you taking a salary from the business during the first year?  If so, is $2,300 enough?  Be sure that you are generating enough positive cash flow to pay yourself.  If not, then you need to plan on keeping your day job.

2.  How Long Will it Take to Receive Payment for Your First Sale – The next, really important question you need to answer is how long will it take you to get paid?  It could take you months to close on your first sale, but once you get the sale you aren’t in the clear yet, it could take another 90 days to get paid for that sale.  Startups don’t typically have a lot of leverage on their terms.  If you sell to a large company, they may take advantage of the fact that you are relatively desperate for the sale, and may not pay for 2 or 3 months.  This can be a death sentence for a startup.  So what is the solution?  Simply plan for it.  Plan to not get paid for months, and stress test your startup.  Can you survive if you don’t get paid for 90 days?  If not, you may not be ready to make the jump into entrepreneurship.

3.  You Can’t Get a Loan for 2 Years – Lastly, as a startup you probably won’t be able to get a loan for at least the first 2 years unless you have a great credit score and some personal assets. (You can check to see which lenders might lend to you at our partner Lendio).  My point is that you can’t rely on getting a loan during the first two years for your financial projections to work.  If you can’t survive at least two years without getting a loan for the business, then you simply aren’t ready to jump into a business full time yet.   

If you are looking to start a business and leave your day job, take some time to create a set of financial projections for free on ProjectionHub, and if you have any questions about making the jump to full time entrepreneurship, please don’t hesitate to reach out to me at adam@projectionhub.com.

ProjectionHub Partners with CDFIs to Help Entrepreneurs Create Financial Projections

by Leave a Comment

ProjectionHub is excited to announce a new opportunity for Community Development Financial Institutions across the country.  Over the last 6 months we have been working with a select few small business lenders to help us develop our financial projection tool – ProjectionHub which is a web app that helps entrepreneurs create financial projections without Excel.  Current partners include:

We are now opening our tool up to all CDFIs who would like to make ProjectionHub available for free to their clients.  To date, over 1,400 entrepreneurs have used ProjectionHub to create a full set of 3 year financial projections which includes:

  • Balance Sheet
  • Income Statement
  • Cash Flow Projection

CDFIs that would like to take the tool for a test drive can use coupon code “demo123” and get started here.

If you think this might be a helpful alternative to the complex and confusing spreadsheet templates that most organizations use to create projections, then simply fill out the form below for your CDFI and we will create a custom coupon code for you and all of your clients to use for free.

Partner With Us

ProjectionHub Partners with Lendio to Help Small Businesses Find the Right Loan

by Leave a Comment

We are really excited to announce a new partnership with Lendio to help ProjectionHub users find the perfect loan to fund the growth of their small business.  So here is how it works:

Step #1 – Users Add a Loan on ProjectionHub

Approximately 36% of ProjectionHub users forecast that they will need a loan at some point within the first 12 months.  So you just need to add a new loan like this:

Step #2 – ProjectionHub Recommends Lendio if it is a Good Fit

Next, ProjectionHub will determine whether or not your projected loan is a good fit for the lenders on Lendio.  If the tool deems that it is a good fit, it will recommend Lendio.

Step #3 – Users Complete Registration Process on Lendio

Finally, you will need to take 5 minutes and fill out a profile on our partner page on Lendio.  Then Lendio will match you with the perfect lender for your business.

This is really exciting for our team as we look to add additional value for our clients.  Please check out the updates, and find your perfect lender today!

5 Interesting Stats About Startups

by Leave a Comment

Approximately 75% of our users at ProjectionHub are startups, so we wanted to take a closer look at our startups and see if we could learn anything that would be helpful for other startups.  Here are 5 interesting stats that we uncovered.

1.  Only 16% of Business Owners are Taking a Paycheck from the Company in the First Year

I thought this was important for future entrepreneurs to know.  If you are going to start a business, you can’t expect to pay yourself during the first year.  If you need a paycheck each month at this point in your life, then you probably shouldn’t risk starting a new business right now.

The average monthly take home for the 16% of business owners who did take a paycheck was as follows:

  • Year 1 – $2,389 per month
  • Year 2 – $2,670 per month
  • Year 3 – $2,866 per month

2.  94% of Startups Are Looking for Funding

I was surprised to see how few people were planning to bootstrap their startup.  A whopping 94% of our users were looking for either a loan, an investment or both.  I doubt this data would hold across all startups, as I am sure that many bootstrapping startups are not creating financial projections, but nevertheless this is an interesting bit of data.

  • 58% of users are seeking investment
  • 36% of users are seeking a loan
  • The average projected investment is $342,000
  • The average projected loan is $153,000 at 8.7% for 64 months

3.  It Takes Service Companies 1 Week Longer to Get Paid Than Product Companies

Cash flow is king for a startup, so it is vitally important to understand how long you will have to wait to get paid by your customers.  Surprisingly our service based startups estimate that it will take 33 days to get paid by their customers, while it will only take 27 days to get paid for the average product based startup.

This is certainly something to keep in mind as you project cash flows for your startup.  How will you survive those 33 days while you are waiting to get paid?

4.  The Average Billable Hour Rate for Service Company Startups is $111 per Hour

This stat is across the entire service industry, so I am not sure how helpful this is on its own, but we also know that the average wage per hour paid to employees of these service companies is $29.50.  That means the average labor cost for a service startup is 27%.  If your labor costs are over 50% now you know that you are way out of line.  You probably need to increase your pricing, or decrease your labor costs.

5.  27% of Startups are Offering Both Products and Services

Finally, I thought it was interesting to note that 27% of startups are offering products and services.  Our data showed that 32% of startups are service only while 41% are product only.

Hopefully these stats can be helpful as you consider jumping into entrepreneurship yourself, or as you launch and grow your own startup.

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 to Determine How Large Your Loan Request Should Be

by Leave a Comment

So your business is growing quickly and you think you are going to need a loan, but you don’t know how much to ask for?  This is a common problem, and there is no simple answer that I can give you.  Rather I can explain the process that I would recommend that you take when you are coming up with a loan request amount.

1.  Create a Sales and Expense Forecast

First you have to develop a set of financial projections (of course, I recommend ProjectionHub).  If you have past financial statements then you can develop your forecast based on the past, but if you are a startup you are going to need to create your projections from scratch.  Just a couple tips:

  • Use as much data as you can find to come up with projections
  • Project from the bottom up
  • Develop realistic assumptions to build your forecast

2.  Analyze Cash Flow Projections

Once you have completed your initial forecast, you can download your projected statement of cash flows and take a close look at your cash balance.  If you downloaded your projections from ProjectionHub, then you are looking for the top line cash balance for each month

As you can see in month 6 you hit a negative cash balance, and then in month seven you hit a low point of negative $15,000 in cash.

3.  How Much Should You Borrow?

So you are projecting a negative cash balance of $15k, you might think it makes sense to request a $15,000 loan.  I disagree.

You need to leave some room for error.  Your potential lender will only want to make a loan if they can see that you have some wiggle room.  Reaching a zero cash balance won’t do it.  My suggestion is that you try to keep at least 1 month of expenses in cash at all times.  So if you spend $12,000 in expenses each month, then I would suggest you keep at least $12k in cash at all times.  So in this example I would suggest a loan request of $27,000.

4.  Where to Get a Business Loan?

So now the only question is where to get a loan.  At ProjectionHub we recently partnered with Lendio to help match our financial projection tool users with the right lender.  Lendio is kind of like eHarmony for business loans.  They ask you a few questions about your business and your loan request and then match you with the perfect lenders for you, and it is free!

You can find your perfect lender now on Lendio.

At the end of the day there is now perfect formula for determining the perfect loan request, but I think building a realistic set of financials, analyzing your cash balance and then leaving yourself at least 1 month of wiggle room will get you really close to what you need.

ProjectionHub Partners with LaunchRock to Help Startups Make Financial Forecasting Easy

by Leave a Comment

The ProjectionHub team is excited to announce a new partnership with LaunchRock.  Our financial projection web application is now included in the LaunchRock App Store, and will be made available at a discount for all LaunchRock users.  

According to CrunchBase, LaunchRock allows users to create a “Launching Soon” landing page in minutes.  Thousands of startup companies use LaunchRock to collect interest, increase sharing, and build an audience for their startup before they officially launch the business.  They help you incentivize and reward your visitors for telling others about your project through email and social networks.

“This is an incredibly important partnership for us” said Adam Hoeksema, Co-Founder of ProjectionHub.  “LaunchRock will allow us to get our application in front of thousands of startup businesses each year.  We hope that our tool will help these startups create more accurate and realistic financial projections as they look to raise capital from friends and family, lenders, and investors.”

ProjectionHub is a web application that helps entrepreneurs create financial projections without the need to have a PhD in spreadsheet modeling.  Users complete their projections online and then download a complete set of up to 3 year financial projections as an Excel file.  

ProjectionHub Introduces Live Chat Feature

by Leave a Comment

ProjectionHub is glad to announce a new Live Chat Feature that will now be available to help entrepreneurs create financial projections for their startup or small business.  ProjectionHub is now the only financial projection software on the market that offers live chat support for customers.  The purpose of ProjectionHub is to make the financial projection process easy, but sometimes users are going to have questions, and an email just won’t do it, so we have introduced a live chat feature that will be available for certain hours each day.

How it Works

Users can ask specific questions about their projections, about what to enter where, how it impacts the financial statements, and what their bankers and/or investors are going to be looking for with their projections.  We will provide links to helpful articles, videos, and answer  your questions until you have a complete set of pro forma financial statements.

We can’t be available via live chat all the time, so we are making ourselves available via email.  If you sign on and we are not available, simply email us at help@projectionhub.com

ProjectionHub Provides 200 College Students with Free Financial Projections

by Leave a Comment

We hit a milestone today at ProjectionHub!  We had our 200th college student sign up to create their financial projections for free using ProjectionHub.

We decided early on that we wanted to provide our tool for free to college students who were creating business plans for class, for business plan competitions, or to actually start a business while in college.  Since we first made the application available for college students about 8 months ago we have had students from the following colleges and universities use our tool:

  1. Stanford
  2. Harvard
  3. MIT
  4. Penn State
  5. Michigan State
  6. Michigan
  7. Northwestern
  8. Columbia
  9. Cornell
  10. Colorado
  11. Butler
  12. Univ of Houston
  13. North Carolina
  14. Georgia
  15. Bowling Green
  16. Wisconsin
  17. NYU
  18. Auburn
  19. UCLA
  20. West Virginia
  21. BYU
  22. Arizona State
  23. Baylor
  24. Toledo
  25. Tulsa
  26. Vanderbilt
  27. Morehead State
  28. Alaska
  29. Bucknell
  30. Villanova

And many more.

We are now looking to build ongoing relationships with colleges and universities to utilize our tool for free in their entrepreneurship classes and for business plan competitions.  If you are interested in working with us, just reach out to me at adam@projectionhub.com and I will get right back with you.

How to Add Custom Expenses to ProjectionHub

by Leave a Comment

If you are using ProjectionHub to create your financial projections and you ran into trouble with the Expenses page because our listing of expenses does not include an expense that you have, I want to show you an easy work around.

Soon we hope to update the application so that you can customize your expenses and add your own expenses right within the application, but for now I am going to show you a temporary way to work around the problem.

Let’s assume that you want to add an expense called “Security” for your security system expenses which costs $30 per month.  Unfortunately we don’t have an expense category called “Security” so for the time being our suggestion is to make one of the other rows your Custom Expense row.  Let’s assume that you don’t have any advertising expenses, so you take the advertising row and enter in the $30 per month for security expenses.

So now after you purchase and download your Excel file you will need to make one final quick change.  You simply need to go to the “Data” tab on your Excel file and change the title of “Advertising Expense” to “Security Expense” and the change will automatically flow through to all of your projected financial statements.  See what I mean below:

You can use this same process for as many of your expenses as you would like.  We know it is not a perfect solution, and we are working on our long term solution, but we hope this helps in the mean time.  Let me know if you have any questions by emailing adam@projectionhub.com

ProjectionHub Stats April 2013

by Leave a Comment

April was a strong month for us at ProjectionHub.  I just wanted to share some basic numbers with you to show some of the progress we have made over the last few months.  First of all, check out the graph below which shows an increasing number of signups for our tool in the month of April:

The month of April saw over 100% growth over the month of March in terms of number of signups with a total of 207 individual users signing up in April.

Startups vs. Existing Businesses

The other stat that we thought was interesting was the number of startups creating financial projections compared to existing businesses. We launched the startup version of our tool in late March, and since that time 76% of users have signed up to create projections for their startup, and only 24% have been for existing businesses.

We figured there would probably be more startups than existing businesses, but we were surprised that over three quarters of users are startups!

We have some exciting partnerships that we expect to announce before the end of May that we believe will take ProjectionHub to the next level.

Please let us know what kind of features you would like to see us add in the coming months.  Either leave a comment on this blog post, or email me at adam@projectionhub.com