Do you know the difference between a startup and an entrepreneur? The first one generates dozens of ideas per hour, gushes with creativity, has a black belt according to the elevator pitch, and knows where the coffee machines in coworkings and business incubators stand. The second is able to implement ideas, organize business processes and count money. An entrepreneur can bring a viable idea to life, just because he has an idea about the return on investment and planning the financial flows of an enterprise. A start-up will not budge even the most brilliant initiative. He will spend all the money on participating in conferences and go to work as a sales representative.
Want to successfully implement an online project? Then you should be an entrepreneur, not a startup. Start by assessing the financial prospects of your idea.
- Financial project planning for dummies: where to start
- How to calculate the balance of an online project
- How to calculate the financial result
- How to estimate cash flow
- What financial indicators should start-up entrepreneur
- How to predict sales
- How to evaluate marketing effectiveness
- How to count the cost of an online project
- Learn to count offhand, until you earned an accountant and financial director
What an entrepreneur should know about financial planning
At large enterprises, there is a planning and economic department and accounting, which are engaged in economic and financial planning, lead marketing and sales plans to sales and set the price for products.
By the way, did you notice that in large companies the accounting and financial and economic department often live a separate life from business? They dictate the conditions of work to sellers and product managers, turning from an auxiliary unit to a main one. Online projects at an early stage of development can not afford such a situation. They should focus on development and sales, not on bureaucracy and conditional adherence to cash discipline.
Until the online project turns into a new Vkontakte or just into a profitable enterprise, an entrepreneur needs nothing to become economists and accountants. He will have to count resources and evaluate financial performance himself.
It’s easy to do if you work independently: buy something in China for 50 rubles, and sell in Moscow for 100. And if you rent an office, pay salaries to employees, create a virtual product, you cannot do simple arithmetic. You will have to learn more difficult things. The information below will allow you to determine the financial prospects of the project and plan commercially successful activities.
Financial project planning for dummies: where to start
Imagine such a situation: a young, talented start-up invented a revolutionary product that could plug Facebook, Microsoft, and Google into a belt right away. The future star of online business is sent to the bank for a loan, which plans to spend on renting an office, paying assistants and equipping a rest room. Well, as in the office of Google, to get used to the comfort.
Thanks to the refined presentation skills in the elevator, the hero interests bankers. To assess the prospects of a business, they ask for a business plan. Usurer sharks do not read the introduction and description, but immediately find three forms: balance, financial result and cash flow forecast. What are these forms and how to make them?
How to calculate the balance of an online project
With the help of the balance you can determine the current moment or predict the cost of an online project. And with the help of the balance sheet you can estimate the capital of the enterprise in retrospect. The balance is convenient to estimate in annual, quarterly and monthly cuts.
The balance includes the following categories of information:
- Information about the assets of the project in monetary terms. Assets - this is all that belongs to the company and has a positive value.
- Information about the liabilities of the project in monetary terms. Liabilities are any obligations of the company.
- Equity Information. Equity is the difference between assets and liabilities in monetary terms.
If you worked in public institutions, then remember that from time to time, accountants go to offices and production facilities and strive to put an inventory number on everything they see. They inventory tables, chairs and flower pots to include in their balance sheet. So, an online project can not afford the luxury of inflating assets.
How to calculate the assets of an online project? Consider only tangible and intangible assets that can be sold as assets. Of course, of course, your favorite office chair, gaming laptop and coffee maker were purchased for 4000, 70 000 and 5000 rubles, respectively. Your accountant may include these figures in the balance sheet and calculate depreciation annually. But you are not an accountant, but an entrepreneur. You need to know the real balance, so consider the present value of the assets.
As soon as you removed the protective cover from the chair and removed the film from the laptop screen, these things received the prefix "used". How much does a used office chair actually cost? Look at the "Molotok.ru", draw conclusions and move on.
What should be included in the assets?
- Cash, including cash and money in bank accounts.
- Production equipment: servers, computers, office equipment.
- Intangible property: site, trademark, patents for inventions. Do not include the value of acquired software in the assets of this balance. You do not have the right to resell it.
- Goods in stock.
Imagine that you are producing a software product and selling a boxed version for 5000 rubles per unit. You have made 1000 program disks and put them in stock. Can I write in the assets of 5 million rubles? Of course not. Want explanations? Then calculate how many discs you need to burn and pack in a cardboard box so that the value of your company on paper exceeds 1 billion rubles. Not so much, right?
Assets are liquid and illiquid. Liquid assets include cash, goods in stock and other assets that can be quickly realized. Illiquid assets include tangible assets that cannot be quickly sold without significant losses. In the case of a web project, illiquid assets can be easily attributed to an office chair and a coffee maker.
Liabilities should include financial obligations of the project:
- Payments for office rent.
- Payments on loans and leasing programs.
- Payments under supply contracts for consumables.
- Obligations for the supply of goods and services in financial terms.
Liabilities are current and long-term. Current can include the obligation to deliver a product or service under the contract. Long-term liabilities include loans and leases, payments for hosting and a domain name, fixed tax deductions.
The equity of the project is the difference between assets and liabilities. Capital can be positive and negative. A positive value indicates the financial health of the project. If the value is negative, you must immediately change the business plan.
To calculate the balance, you can use the table editor. Assets can be written in the left part of the sheet, and liabilities in the right. You can also arrange tables of assets, liabilities and capital from top to bottom. For convenience, you can use the balance sheet template and the standard balance sheet form proposed by the International Finance Corporation (IFC) for small business.
How to calculate the financial result
The calculation of the financial result allows you to determine the amount of income that earned or earns the project. The statement of financial result includes the following information:
- Income data.
- Cost data.
- Difference of income and expenses or financial result of the project.
To calculate the financial result, proceed as follows:
- Record actual or projected revenue from the sale of services or goods. This is a gross project income.
- Subtract from gross income the cost of purchasing or producing goods and services. For example, if you buy shoes in China and sell in Moscow, subtract from the gross income the purchase price of the product from suppliers, including all overhead costs.
- Subtract operating expenses from the remaining amount. These include employee salaries, office rental costs, hosting fees, marketing costs. The resulting figure is the net income or income derived from the main activity of the project.
- If you have income from non-core business, add it to your net income. For example, if you rent a coffee maker to neighbors in a business center, consider payments received as income from non-core activities.
- Subtract other expenses from the amount received. These are expenses that are not related to the production and sale of a product: loan payments, payment for the repair of a coffee maker and an office chair, participation in trainings and seminars.
You calculated the financial result. If you get a positive number, this is a positive financial result or net profit. If you receive a negative number, this is a negative financial result or a net loss. In the first case, the project brings money to the founder, and in the second case, the founder loses money.
For convenience of calculation, use the profit and loss report template or the table prepared by the IFC.
How to estimate cash flow
Calculation of cash flow allows you to assess the financial income and payments of the project for the selected period. This report is sometimes called cash flow or cash flow. It shows how the project manages financial resources and whether it brings cash receipts.
To calculate the cash flow you will need information on receipts and payments for the following activities:
- Operating. This is the main activity of the project, for example, selling advertising for a web project. Also in the operating room includes other activities, such as renting a coffee maker.
- Investment. In the context of an online project we are talking about the purchase of production facilities, the development of the site, investments in the promotion of communities in social networks, etc.
- Financial. Here are taken into account payments on loans and leasing, as well as borrowing.
To generate a cash flow statement, follow these steps:
- Determine the balance of the project at the beginning of the selected period. To do this, sum up the assets indicated in the balance sheet.
- Calculate the amount of money that the project received or plans to receive through operating activities.
- Calculate how much money the project invests.
- Determine how much money the project will spend or attract in the framework of financial activities.
- Calculate the balance of the project at the end of the selected period and determine the amount by which the assets have increased or decreased.
If the cash flow is negative, you need to adjust the business plan.
For convenience of calculations, you can use the approved form of the cash flow statement, as well as use the form proposed by Microsoft.
With the help of data on the balance, financial result and cash flow, you can independently assess the current status and prospects of the online project. For example, you can see that the implementation of your idea will generate negative cash flow and loss. In this case, it is necessary to change the approach to business.
What financial indicators should start-up entrepreneur
Imagine the situation: you bought sneakers in China for 700 rubles, and sold in Russia for 1000 rubles. Three hundred rubles difference - is it income or profit? If you know the exact answer to this question, skip this section. It was created for talented programmers, merchants, designers and other specialists who, because of their enthusiasm for their specialty, inattentively listened to lectures on general economic theory.
A novice entrepreneur who has not yet managed to earn money to pay for the services of a professional economist and accountant, needs to become familiar with the following terms:
- Revenue is the project received cash and other tangible and intangible assets. When your online store sold Chinese sneakers, the project received an income of 1000 rubles. Allocate gross and net income. Gross income is considered all revenues from the main activities of the project. Net income is obtained after deducting all tax deductions from gross income.
- Profit is the difference between income and the cost of producing and selling a product. To sell sneakers for 1000 rubles, your online store has transferred 700 rubles to a Chinese seller. In addition, you spent 250 rubles to pay the site operator, marketing, hosting, domain name and office coffee maker maintenance. The profit from the operation amounted to 50 rubles. Profit is gross and net. To calculate the net profit, it is necessary to deduct from the gross all tax deductions.
- The return on investment or ROI is the percentage of return on investment. Imagine that you invested 150,000 rubles into the project, and the profit for the first year was 12,000 rubles. To calculate ROI, divide the amount of profit by the amount of investment and multiply the resulting number by 100% (12 000/150 000 * 100% = 8%). The higher the return on investment, the more efficient the project.
- The break-even point is an indicator of sales at which the level of income of the project reaches the level of expenses. This indicator is calculated in monetary terms or in product units. For example, if the total cost of a web project is 10 000 rubles per month, and one transaction brings 100 rubles, then to reach the break-even point, you need to conclude 100 transactions per month. One hundred and first transaction will bring profit to the project.
The proposed terms will help you evaluate the financial health of projects.
How to predict sales
To evaluate the effectiveness of an online project, you need to know how many goods and services in monetary terms you will sell. The problem is that sales forecasting is a resource-intensive activity. How, for example, are you going to count how many pairs of Chinese sneakers can you sell in an online store?
You say you need to research the market and determine the demand for a product? Steal and examine competitor sales reports? Leave expensive marketing research and industrial espionage to large corporations. You have no time or money for this.
In order not to waste all the resources in vain, a novice entrepreneur will have to plan sales. The bottom line is this: you have to sell as much as you need to get a planned profit or achieve a planned ROI. Imagine investing 150,000 rubles in a project. What is the annual return on investment you expect?
If you expect ROI 20%, you need to get 30 000 rubles of profit. Now you need to answer one question: how much you need to sell in order to get the desired profit. To do this, follow these steps:
- Determine the price of your product. If you sell non-unique products or services, you will have to analyze the prices of competitors. If you have a unique product, try to form a price by summing up the cost of production and the desired margin.
- Determine the target profit of the project. How much should you earn to achieve your planned ROI?
- Calculate how many units of products you need to sell in order to achieve your targets.
For clarity, you can return to the example with sneakers. The cost of purchasing goods in China and selling in Moscow, including wages and taxes, amounted to 950 rubles. You sell a product for 1000 rubles. Each transaction brings you a net profit in the amount of 50 rubles. Now you can determine the number of sales required to achieve the target ROI: 30,000 / 50 = 600 pairs of sneakers per year. Planned sales in monetary terms is 600 000 rubles.
What if the predicted sales were unrealistic? Change your business plan. You can reduce sales without losing profits in two ways:
- Sell a product at a higher price. If your project implements something unique and high-quality, this way is open for you. If you sell conditional sneakers, which are in every online store, a significant increase in the price will not work.
- Cut costs. You can not save on taxes. Also, do not reduce investment in production and marketing. But the cost of a conditional coffee maker and a secretary can be reduced.
How to evaluate marketing effectiveness
The success of an online project depends on the effectiveness of marketing. Use the following metrics to evaluate it:
- The cost of attracting a client. Чтобы рассчитать этот показатель, разделите общие расходы на маркетинг за выбранный период на количество привлеченных новых клиентов за этот же период.For example, if you spent the year on site development, contextual advertising, the salary of sellers 100,000 rubles, and attracted 100 customers, the cost of attraction is 1,000 rubles.
- Lifetime Value or customer value is the gross income that, on average, a company brings to one customer for the entire period of interaction with the project. To calculate this indicator, use the formula: average income per transaction * average number of transactions per period * duration of customer interaction with the seller. For example, if your clients buy on average 450 rubles per transaction, make two transactions per month and remain your clients for two years, Lifetime Value is 450 * 2 * 24 = 21,600 rubles.
- The ratio of Lifetime Value to the cost of attraction. It is clear that the indicator Lifetime Value must exceed the cost of attracting customers. However, to assess the effectiveness of marketing and the prospects of the project as a whole, it is important to determine the ratio of the client’s value to the cost of attracting it. For online projects, Lifetime Value must exceed the cost of attracting a client five times or more. If the ratio is less than three, consider marketing an online project ineffective.
- The conversion rate of leads in the transaction. This metric shows how many potential customer calls end with real sales. To calculate the ratio, divide the number of sales for the selected period by the number of leads. For example, if you sold five pairs of sneakers with 1000 leads, the figure is 0.005. In other words, only 0.5% of calls end with a deal. Note that the rate of lead conversion varies depending on the market and product. Therefore, evaluate the dynamics of the metric. Its growth indicates an increase in marketing effectiveness.
- ROMI is the return on investment in marketing. To calculate a metric, it is necessary to determine the percentage of the profit gained through the marketing campaign to the cost of the campaign. Imagine that you sell sneakers for 100,000 rubles a month and make a profit of 20,000 rubles. You invest in advertising 4,000 rubles, after which the income rises to 130,000 rubles, and profit up to 30,000 rubles. Advertising brought you an additional profit in the amount of 6000 rubles (30 000 - 20 000 - 4000 = 6000). To calculate ROMI, you need to divide 6000 profits by 4000 investments and multiply by 100%. The return on investment in this example is 150%.
Use the suggested metrics to evaluate the financial performance of marketing.
How to count the cost of an online project
Everything is simple here: you will have to find out the price of the goods and services required to start the project and do arithmetic. For convenience, combine expenses into two groups: one-time investments and current expenses.
You will have to invest one time in:
- Registration of a legal entity or SP.
- Buying computers and other office equipment.
- Purchase of furniture.
- Payment of licensed software.
- Domain registration, CMS purchase, website design development.
Also, you will have to spend money on:
- The remuneration of staff. Are you planning to pay the secretary 50 thousand rubles a month? Do not forget to add to them the amount of tax deductions.
- Office rental and related services.
- Property and liability insurance.
- Purchase of goods and consumables.
- Marketing and advertising.
Please note that the lists contain examples of current and one-time expenses. You should make the complete list of expenses independently.
To calculate the funds required to start a project, sum up one-time expenses and multiply the resulting number by 12. You have determined the amount of funds required to cover fixed costs during the year. Add to it the amount of one-time expenses. You have received the amount of expenses required to start the project.
In this case, the calculation used a conservative approach, within which it is recommended to have a reserve of funds to pay current expenses during the year. You can reduce this figure to six months if you know for sure that the project reaches the break-even point in the first months of work.
Learn to count offhand, until you earned an accountant and financial director
When your company's shares are listed on the LSE or the NYSE, all calculations will be done by professionals. But to evaluate the financial prospects before the launch and in the first months of the project you will have to independently. To do this, you need to understand the basic financial terminology, own the basics of financial planning. No, you do not have to retrain as a financier or learn to prepare financial statements and pay wages. You just have to see if the game is worth the candle, what resources are needed to get started, how much you need to sell in order to earn the planned profit.
Comments and suggestions for the article can be written in the comments. If you have experience in financial planning and launching online projects, your feedback will be especially valuable.