When I was writing my business plan this summer for my new store, I included a start-up budget and first year pro forma projections plus five year projected P & Ls. I researched the prices for equipment, supplies and inventory. I padded various line items (such as travel, legal and professional services) with extra expenditures to account for unforeseen costs. I acquired rate sheets for publications and online venues where I wanted to advertise and correlated all the monthly promotional expenses with the marketing plan. Not knowing what sales would be like, I based my estimates on previous experiences I’d had with similar types of businesses (online, niche market, limited advertising), and then rounded down, creating what seemed to be a conservative estimate of initial sales.
But the first month sales were lower than what I thought was my low expectation. So what did I do wrong?
One glaring answer is that I didn’t consult other business owners to inquire about their actual beginning sales. I relied on information from established businesses and thought it was a simple matter of rounding down. What I failed to take into account is that a business that’s been running for 5 to 10 years has a steady, predictable, stable base of customers.
If you’re beginning to write a business plan or are just opening your small business, knowing financially what to expect in the first months and being prepared for it may mean the difference between making it or breaking it.
To be sure that you have enough money to get through the start-up phase, talk to other people about their first days. Find people in non-competing, but similar style businesses and ask them for the nitty gritty details. If I could go back and start over, here are some questions I would ask others:
What were your first weeks and months like after you launched your business?
On average, how many sales did you have in your first week? First month?
How quickly did sales grow? What was the change like from month-to-month?
How long does it take to build sales? How fast will it happen? How slow will sales be?
Was there a point when sales took off? When and why?
Were there any economic, political or other events that affected sales for your business?
If you were me, what would you estimate sales to be for the first 6 months?
And by the way, feel free to answer any and all of these questions for me now! Your comments are always welcome.
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