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Use Your Sales Forecast and Expense Budget to Define your Startup

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Use Your Sales Forecast and Expense Budget to Define your Startup

By Tim Berry, Guest Blogger
Published: January 29, 2014

I’ve been working on a new startup with some long-time friends and just discovered – again, for the umpteenth time – how the interaction between words, concepts, and numbers often demands the concrete logic of core business plan numbers.

Specifically, a sales forecast and an expense budget can do wonders for early start-up discussions. Putting specific numbers to things forces definitions and decisions. For the record, our new plan isn’t a restaurant; it’s a high-tech web-based offering. But it’s still confidential. So I’m using examples here from a business everybody can understand: a restaurant business.

1. The Sales Forecast Defines the Offering

I just saw it again but I’ve seen it before many times. The co-founders get together and share ideas. If it were a restaurant, it would be about things we could do for breakfast, lunch, drinks, dinner; it would be about price points, cuisines, menus, reservations and so on. And these general discussions become specific when you get to the forecast. They have to get specific about units and prices. That forces founders to focus in on realistic plans we can actually execute.

Not that we’d define every menu option – absolutely not. But a good forecast has to summarize at least on average revenue and average cost per meal, and that leads to defining whether meals are breakfasts, lunches, dinners or drinks, etc. The numbers move the general ideas forward.

2. An Expense Budget Defines Tasks and People

We need to focus practically on what and when we can afford to spend. For a restaurant, we’d need to start paying two or three people and we need to pay contractors for remodeling the location, developing the branding, doing menus, and people to start developing the kitchen and such. All of that takes deciding on priorities.

The way we do that, in practical terms, is to look at our expense budget. We develop it together step by step: From the first to the twelfth month, how much do we need to pay out, and to whom? We all have different ideas on this, so when we get together, the actual expense budget—which we can all see and agree on—helpfully steers us back to the plan.

Conclusion: Numbers Define Concepts

Particularly when the startup founders—such as in our case—all have a lot of experience, love the topic area and are full of ideas, it’s really hard to make progress moving from brainstorming to execution. My experience with the sales forecast and expense budget reminds me, once again, how much I like planning as a vital part of the process of starting a business.

About the Author:

Tim Berry

Guest Blogger

Founder and Chairman of Palo Alto Software and bplans.com, on twitter as Timberry, blogging at timberry.bplans.com. His collected posts are at blog.timberry.com. Stanford MBA. Married 44 years, father of 5. Author of business plan software Business Plan Pro and www.liveplan.com and books including The Plan As You Go Business Plan, published by Entrepreneur Press, 2008.

Comments:

Once you have a business idea and have tested its feasibility, the first thing you need to do is make your business plan. This is effectively a projected profit and loss statement and a balance sheet which helps to understand the proposed business and where it is headed in terms of numbers. It lays down working capital requirements, capex requirements, technical requirements,manpower requirement and their respective cost. It also projects the gestation period and the expected revenue. You need to monitor and amend your business plan every half-year especially if it is a start-up.
Are there any informative reads on this topic either online or paper books? Sometimes having a check-off list is all you need.
Well as Facebook App Developer at Cygnis Media, I am pretty much understand pros and cons of the sales and expense for any startup. Well reporting and management is a key for this.

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