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.