It’s all good and well to have a great business idea, but you’ve got to be realistic about the financial viability of the business moving forward.
If done correctly, forecasting quantifies the ‘what ifs’ and break evens within your business plan, according to Janna Fikh, principal of Fletcher Tax Accountants.
Forecasts can be created from existing data within your industry niche and some assumptions about the unknown without spending a dollar, she explains.
“A lot of business ideas are easily able to be tested without an accountant at the onset. You can set up a forecast model in minutes using Excel, which most people have on their PC or laptop.
This fortunately or unfortunately culls a lot of business ideas out. If results prove favourable, it’s advisable to then see an accountant to check your forecast and perhaps fill in the missing gaps and test your forecast, she says.
You can download a free business template and checklist at Business Victoria.
There’s no point investing all your time and energy into something if there’s no market for it.
Make sure you consider why people will want what you’re offering and if they’ll buy it or use it; and if they’ll keep using it, Eric Gregory of Brisbane’s Gregory Business Coaching suggests.
Starting and growing a business are very different journeys to reaching a point of stable revenue and profits, so understanding what those steps look like before setting off as well as being prepared for multiple adjustments along the way will help, he says.
“Many business models, especially those dependent on large growth and volume, require plenty of capital to get things running before they create profit. Some startups underestimate what that actually looks like in financial terms, and if they can’t bridge that gap, their idea may be good, but it will be dependent on capital, so clarity on how the business model generates revenue and how that impacts the business as it grows is important,” Gregory says.
Consider a number of funding strategies for your business during the planning phase, recommends Capstone Hill Search chief executive Jeremy Wrench, who has watched many succeed and fail over the years.
“It’s about making sure you do your homework on costs, and don’t expect to make savings in the first year of operations, as it may be your most expensive year.
“Also, think about both upfront and ongoing costs. Calculate the funding you’ll require to see you break even, then add 50%, or more.”
Once you know how much you’ll need to get started, the next big question is how, he says.
And while self-financing as much as possible is the best option, aside from the fact that external funding is time consuming, difficult to achieve and often expensive, the ultimate return will be directly related to how you source your funding, he says.
“Friends and family may well be a good and accessible option, but are they suitable equity partners, or are you better suited to agreeing to a loan arrangement? Consider what makes sense for your business and situation before jumping at the first dollars offered.”
