Last week I put forth the idea of hiring an outsourced CFO even before you open your doors to business. Recently I consulted a lady planning to start a new business in the next few months. She had already spent about $10,000 of her own money on equipment and was looking for additional funding to pay for the remainder of the start-up costs. She had a rough start on a business plan, but had not yet done a financial projection.
Immediately I could tell that she was going through the process completely backwards. Before spending your own, hard earned money, I think it is important to know if your idea has a chance of working. I advised her, first to conduct more in-depth marketing research. We needed to know the exact size of her market. From that number we could project the amount of sales she might land. I next advised her to gather more detailed information regarding the costs of services and products she planned to sell. This data would allow us to formulate a cost structure.
Finally, I said that we need to put all this information together in a financial projection format. If we did our research homework well, the projection will tell us not only the amount of profit she might earn, but the amount of money she needed to raise to get the business off the ground and then sustain it until volume is sufficiently high.
Without this kind of support and advice, the client would likely have gone ahead without any of this information. Chances are the business would have been under capitalized, would have struggled and eventually failed. Now, she has a sporting chance.
