The One Thing You Can't Skip When Planning a Business

Most entrepreneurs enjoy the process of building out a great idea, and can tell me how they will make and market their idea, but few of them have created the financial model detailing the revenue streams and expenses. The modeling process illuminates whether the business will be scalable and sustainable. Therefore, it is the single most important aspect of business planning.

Here are some questions that I use to get the financial modeling process started:

Marketing

• How will you reach new customer prospects? (i.e. advertising, PR, social media, etc.)
• How many prospects can you reasonably expect to reach on a monthly basis?
• What will it cost to get prospects? (i.e. advertising, PR, etc.)

Sales

• What is the process of converting prospects to paying customers? (i.e. salespeople, reps, affiliates, etc.)
• How many customers can you reasonably expect to convert on a monthly basis?
• What will it cost to convert customers? (i.e. sales commission, affiliate fees, etc.)

Revenue

• What are your revenue streams? (i.e. subscriptions, advertising, product sales)
• What is your pricing structure for each revenue stream? (i.e. what will the consumer price be?)
• What is a reasonable conversion rate for each product? For example, if we're talking about online product sales, what percentage of site visitors will purchase? You need to estimate a conversion rate for each revenue stream.

Costs

• Startup Costs - what are the costs involved in launching the company? (i.e. brand identity, website development, content development, etc.

• Variable Costs- what are the costs involved in producing each product you sell?  

• Fixed Costs - what are your monthly fixed costs (i.e. office space, web hosting, salaries, etc.)

Are you thinking about starting a business? Start by building out your financial model - get help if you need it! Any investment you make in this one aspect of business planning is well worth it in the long term.