Resources Required to make this work

A key point to remember

You are writing fiction—we know that!

Your job is to convince investors that this fiction deserves a Pulitzer prize!

Your job is to convince an investor that these are reasonable and achievable numbers

But they are still fiction!

A second key point to consider

Writing a business plan will sharply refine these numbers

What you are providing for now is a “back of the napkin” sketch of numbers

The more refined they are, the better. But if you can convince investors that these are reasonable, you’ll be fine.

What resources are required of the investor?

You need three things– Estimate of COGS

– Estimate of fixed expenses

– Estimate to grow

COGS (Cost of Goods Sold)

Maybe you have already identified this– If so, Great!

If not, compare yourself to firms in your industry– Roesch Library can help you here– Look at COGS as a percent of sales, then multiply your sales by that

percent—that creates your COGS.

Use an average COGS, assume as a startup your margin is slightly worse (higher)

– (you don’t have as much buying power as competitors)

Example: If your Industry Average COGS is 60% assume yours will be 65%.

Inventory

You need enough inventory to ensure that you don’t have stock-outs, but too much drains cash!

Using Industry averages, estimate the “inventory turnover” in your industry

Example: Suppose sales are $170k and your COGS is $85k

If Average industry inventory turns are 6 per year, you need two months of inventory on hand

$85/6 ≈ $15k in inventory

Estimate of fixed expensesitems to consider

How many employees, their pay rate times 30% (fringe benefits)

Cost of rent, utilities, phone, computer, internet access, legal and accounting

Can you cut costs?

Sum these and add to your minimum inventory

Estimate to Grow

Simply a multiple of your fixed costs and COGS needs

A good rule of thumb is to assume that fixed assets have to double every times sales double.

What do you need the investor’s money for?

Building inventory? Hiring sales help? Infrastructure? Opening new locations? Working capital

Be sure to let them know!

4. What areas of a start-up require financing?

Start-up infrastructure Start-up operations Working Capital Loan payments Owner’s comp

Types of Start-Up Costs

Space to run your business (office, storefront, manufacturing, warehousing) Office equipment Office supplies Insurance Utilities (electricity, heat, water) Communications (phone, internet, mobile) Maintenance Advertising Labor (all the individuals it will take to run your business) Business licenses Raw materials/packaging materials Legal/Accounting

Some helpful play tools for finance

http://www.bplans.com/contentkit/index.cfm?s=tools&affiliate=sba