From the Ground Up
According to Forbes, each month 500,000 new businesses are started, that's six million people a year that go through the hard work of getting a business started. Stephanie (not her real name) called me because her dream was on hold until she provided her prospective landlord a financial statement. Oh yes, the dreaded financial statement complete with arcane vocabulary and counterintuitive rules. It can stop entrepreneurs in their tracks, and it's why she called me for help.
This is a common problem. Elizabeth Wasserman provided an excellent overview of how to approach this in her Inc. article https://www.inc.com/guides/business-plan-financial-section.html. Ms. Wasserman recommends starting with revenues, and I agree. Sales are the holy grail for all businesses, and most business owners have a clear idea of how much business they will do. Stephanie was no exception; she confidently told me her first-year revenue figure and waited for me to write it down. My experience made me hesitate to take that number at face value. While Stephanie saw her landlord's requirement as a hurdle; I know it is a useful tool that encourages examination of business assumptions. I believe that a financial projection built from the ground up can prevent avoid costly mistakes.
The value of an Income Statement is not in the total numbers, but in the individual entries that sum up to the final figure. Stephanie had thought through a lot of those details but didn't know how to translate them into dollars and cents. Together we built her financials. I captured her monthly sales expectations for lashes, hair weaves, waxing, and other items, ultimately resulting in an annual revenue figure for all her major product and service categories. This was a slow process, but the end product allows exploration and experimentation. In the course of our work, Stephanie realized that she would need far more new customers to reach her sales target and she adjusted her marketing plans. Getting into the details allowed her to modify her sales plan to recognize slow Tuesdays and busier Saturdays and she changed her employees' schedules.
Entrepreneurs need big visions and bold concepts, but success lies in details. Grinding through spread sheets forces attention into the details that will make or break a new business. While Stephanie needed help to build her spread sheet and her financial statements, she dove into the gritty details to learn more about how her company would operate. I provided the help, she provided the vision, and her landlord was happy.