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Developing financial projections - Q & A

Franklin calls in from Oklahoma to ask the Sloans how to develop the financial projections in the business plan for his laser engraving company.

Rich Sloan: Let's go back to the phone lines.  How about Franklin from Yukon, Oklahoma.  Franklin, are you with us?

Franklin:  Yes, I am.  Hi.

Rich Sloan:  Welcome to the show.

Franklin:  Nice to finally talk to you guys.

Rich Sloan:  Yeah.  Well, what do we have to talk about today?

Franklin:  Well, I'm in the process of starting up a business.  I'm new here in the area.  So I've checked out the angel investors and that's not working.  So I'm trying to get a loan to start up the business with.  And luckily I'm one of the recipients of a free copy of your book.  And it's been a lifesaver.

Rich Sloan:  Oh, good.

Franklin:   And anyway, I was in the process of working on the business plan, and I'm getting it all together but I've kind of hit a roadblock in the area of coming up with projections.

Rich Sloan:  Okay.  Financial projections?

Franklin:  Right.

Rich Sloan:  Yeah.

Franklin:  Because of the fact that it's a new start-up, I don't have any sales history to fall back on.

Rich Sloan:  What field is the business in?

Franklin:   Well, to paint it with a broad brush, it's laser engraving.

Rich Sloan:  Okay.

Jeff Sloan:  Okay.  Now when you say the projections, really when we talk about putting together financial projections for the future, there's really two sides to the equation.  There's the expense side and there's the revenue side.  So it sounds like what you're talking about is when you say sales, you're talking about the revenue side.  Do you have a handle on the expense side?

Franklin:  Correct.  Correct.  I've already worked out everything that I need expense wise and to start up, and I've already worked up expenses for up to four years down the line.

Jeff Sloan:  Okay.

Franklin:   You know, as in advertising and that kind of stuff.

Jeff Sloan:  And this business that you're going to be doing, by the sounds of it, is not unique.  I mean, there are others out there doing this kind of work, right?

Franklin:   Correct.

Jeff Sloan:  Yeah.

Franklin:  The engraving part is not unique at all.  Where the uniqueness comes is in the marketing and the target groups that I'm going to be hitting and stuff like that.

Jeff Sloan:  Do you have experience in this industry?

Franklin:  I have some.  Most of my experience is in visual communications and the area of doing desktop publishing and that kind of stuff.

Jeff Sloan:  Uh-huh.

Franklin:   I'm just kind of jumping into this.

Jeff Sloan:  Well, what you want to do is you want to try to study others who are in this business so that you can get some idea of how many customers they have, what kind of revenues they're earning. There may be a trade association that can help you find information that will be valuable to you.  And if none of that research is available to you or you can't do it, you've gotta use your best judgment.  Now bankers and investors know projections are just that.  They're projections and they don't have to be exact.  They need to be something you can feel confident in.  So that's all you gotta do.