Making Money Without the right finances a great idea does not make a great business idea. Without a much-needed cash injection and the figures well thought out, your passion for your new concept will disappear just as fast as your credit rating. In a competitive environment, turnover is vanity, profit is sanity and cash is KING!

Come on, let’s get started.

Yesterday & today

Look at your competitors in the market and work out how you can compete against them.

Find your competitive advantage 1 Don’t try and be cheaper than everyone else, and don’t

expect your customers to mind if your product is worth it.

Compete on quality, not price 2

Be clear on why you’re different than your competitors. Find a niche and be the best at what you do.

Be different. Be the best. 3 Today we find out if your idea is financially

sustainable or not, and breakdown the maths.

Today: understanding finances 4

Pricing too high without a good reason, and not adjusting it when launched is a recipe for disaster.

Wrong Pricing

With no focus or clear messaging about what you offer, how are customers going to know what you do?

No Focus or simple message Many start-ups have

no idea how they will attract customers, just hoping customers will find them magically.

No Marketing

Your initial plan goes out of the window as soon as something unexpected happens. Be flexible and test what you do often.

No Flexibility

Once you’ve worked out your start-up costs you should double them to give you a safe margin.

Not enough start-up capital You need passion to

drive an idea forward – faith that everything will be alright. Without it, you’ll give up on the first hurdle.

No Passion

Why do most startups fail? Lots of start-ups fail or never get off the starting block – and for good reasons. Start-ups are the most diverse, flexible and

challenging kind of businesses to run. But if you plan well and learn as you grow, you can do something amazing.

Cash is king A company needs cash to survive. Money in the bank can be spent – money ‘due to arrive soon’ can’t do anything. It’s important to look after

your cash situation to make sure you’ve always got money in the bank. A company that can’t pay it’s bills is dead in the water.

Cashflow can cripple If you don’t have enough cash in the bank and your creditors demand their money, it’s game over, even if on the face of it you’re running a 'profitable' business.

Without cash in the bank, a company can’t do anything. Money owed to you is one thing, but money in the bank is something you can use to get the things you need. If you don’t have money in the bank, you can’t do day to day tasks.

There are two types of cost you need to know: fixed & variable

Calculating your costs

Rent payments for premises are paid monthly no matter what you sell.

Rent You’ll need to pay the government certain taxes if incorporated. Talk to an accountant about this.

Business fees You may also need insurance, especially travel insurance if travelling, public liability if dealing with the public, etc.

Insurance

You’ll need to pay monthly for any staff, employees or contractors you work with.

Staff pay If you’ve taken out any loans, you’ll need to repay them in monthly amounts.

Loan repayments Do you need any equipment like computers or machinery to start?

Equipment

Fixed costs are constant no matter how many products you make Every business has fixed costs and variable costs. Fixed costs are those costs you incur which do not increase (or decrease) from you selling one more unit of your product or service. They’re costs that you always pay no matter how much you sell.

Variable costs are costs directly linked to making a product Variable costs or direct costs are those that increase if you sell one more unit of your product or service. They are usually calculated per

item that you produce, and the can help you work out how much you should be charging per product.

Material Costs

Manufacturing costs

Packaging & Shipping costs

Total ‘landed’ cost

$5 $10 $2 $17/t-shirt + + =

Goods manufacturers Freelancers Restaurants

Professional Services

more

fixed costs

more

variable costs

Different kinds of businesses have different kinds of cost Different types of companies will have different kinds of cost. Restaurants and manufacturers will have a large percentage of variable

costs (ingredients, raw materials, etc.). Office spaces and consultants have large overheads (rent, wages, etc.) instead.

To find the right price, look at your costs and your competitors

Pricing your product

If manufacturing products, usually you double your landed cost You need to make enough money per product you sell to cover all of your costs, plus your own time and effort, plus a profit that you can use

to expand and grow. A good rule of thumb is to take your total product cost and double it to find the price you should sell at.

Landed cost

Your mark-up

Sell to customers for

$17 $17 $34/t-shirt + =

× 2

Try pricing yourself similar to competitors Look at your competitors – where does your price sit amongst them? You want to be in the same kind of area as your competitors – perhaps a little

more expensive if anything! Avoid positioning yourself as cheaper than other brands. You aren’t a discount brand, so price accordingly.

$18 $39 $45 $34 $22

Like it or not, because of the economies of scale, bigger competitors can always afford to be cheaper than you.

bigger competitors will beat you 1

If you don’t charge enough for your products, you won’t have money in the bank. Without money, you can’t expand.

future growth becomes less sustainable 2

Customers will assume that it’s of inferior quality or that it’s defective if the price is too low.

It Devalues your products/services 3

More reasons why you shouldn’t be cheaper Following on from yesterday’s points about being cheaper as a competitive advantage, from a financial point of view it’s a really bad idea to compete on price only and come into the market cheaper than your competition. You should price as high as you can get away with in order to give yourself a cushion against mistakes – you can always reduce the price later.

If a customer sees the price of your products/services rise, they are likely to be put off by that and not purchase.

Hard to raise prices later 4

How much do you need to sell in order to breakeven?

Is your business financially viable?

Breaking even is when your costs and revenues are equal A good test of how financially viable a company is, is to calculate how many things you need to sell in order to reach your Break Even Point

(BEP). Your BEP is reached when your total costs and your total revenues equal each other – selling more will result in a profit.

Total fixed costs

Your Profit per item

Number of items to sell in order to break even

$20,000 $17 1176 t-shirts ÷ =

$

Ask yourself, can I Really sell

That many?

That’s 1176 t-shirts

per year

98 t-shirts per month

24 ½ t-shirts

per week

The next step is to ask yourself if you can really sell that many products or services. In order to help you visualise it, try to think of it in terms of a day or a week,

a t-shirt sold every

1½ hours

5 t-shirts per day

What’s your Plan to sell

that many?

Can you

raise your prices?

Think: would people

really pay that?

Can you

lower your costs?

Now Go back to your figures & tweak them until you’re happy Your numbers will start off quite vague – that’s fine. As you research your costs and pricing more, go back and plug

in your new and improved, more accurate numbers. But do make sure you do look at the financials early on!

If you think you

can’t sell that many

If you think you

can sell that many

how do you access the money to start your business?

Raising money and starting your business

Remember, keep it

small & simple At the start

Always start by thinking about the simplest possible way to start your

business. You don’t need a shop, you can use a market stall – in fact why

don’t you start on eBay?

More on

monday

Fund yourself The best way to support your business is to fund yourself, little by little.

A ‘Start-up Loan’ is a low interest loan which is usually government backed and comes with a free business mentor.

Start-up loan

The most low risk loan you can get. It could be just enough to prove your business idea will work!

Funds from friends & family

A crowd funding website like Kickstarter.com can be great at getting projects off the ground. Hard to succeed, but worth it if you do.

Crowdfunding e.g. Kickstarter

Investors will give you money in exchange for a portion of your business, called ‘equity’. Worth getting a ‘proof of concept’ before applying.

‘Equity’ investors

You’ll need a full business plan in order to get this funding. It’s hard to get and may leave you in a lot of debt!

Traditional bank loans

Different types of finance available, from best to worst The first thing that comes to mind when thinking of business finance is usually the traditional routes – bank loan or investor.

The truth is there are many ways to fund your business idea including some new and less riskier ways.

Crowdfunding is funding for an upcoming project from the public in exchange for small gifts when the project launches.

Crowdfunding websites like indiegogo.com and kickstarter.com are the most popular crowdfunding websites. Simply set a budget and pick which ‘gifts’ you’ll be giving in exchange for investment and you’ll get a campaign page with a time limit in

which to raise the money.

This is what a crowdfunding

campaign looks like

they offer gifts like these

In return for investment

Who would want to go to a cat café? Maybe 1 in 10 people? But

that’s all you need to get a

successful crowdfunding campaign

off the ground. Remember, find

your early adopters.

The cat café, london 1

Crowdfunding in action Many new businesses come from crowdfunding websites. And no wonder - if you’re successful in your funding

campaign, you’ll have money ready for investment and an instant customer base to tap into.

Who would want to go to a cat café? Maybe 1 in 10 people? But

that’s all you need to get a

successful crowdfunding campaign

off the ground. Remember, find

your early adopters.

The cat café, london 1

Crowdfunding in action Many new businesses come from crowdfunding websites. And no wonder - if you’re successful in your funding

campaign, you’ll have money ready for investment and an instant customer base to tap into.

Be creative and make a great crowdfunding pitch – but that

doesn’t necessarily mean you need

expensive camera equipment.

It could be as simple as you talking

into a camera.

“Give us your money” 2

The funding campaigns that are the most successful are the ones

with the best ideas behind them – people can really buy into your

idea and fund it into reality.

All you need is a good idea to get funding

It’s rare to access money with so little strings attached. You don’t need to give away equity to be crowd funded and there are no

costly loan repayments to consider.

Get money in advance for zero equity & no repayments

If you’re manufacturing a new product, try offering the first products off the

production line in exchange for investment. In this way, you can sell your products

before you’ve even made them!

Sell your products before you’ve even made them!

Why is crowdfunding changing the business world? Crowdfunding is changing the world of business. You used to have to go to investors and banks if you wanted to raise capital –

but not any more. You can talk directly to the customers that care about what you’re doing and pursuade them to invest.

Let’s talk about cashflow forecasting

Managing your start-up finances

This is what a cashflow

forecast looks like

Inbound: ECI Charity Shop Sales Jan-14 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 2012 TotalShop Sales 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 72000

Total Per Month 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 72000

Outbound: ECI Charity Shop Costs Jan-14 Feb-12 Mar-12 Apr-12 May-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 2012 TotalShop Fit out Costs 10000 0 0 0 0 0 0 0 0 0 0 0 10000

Total 10000 0 0 0 0 0 0 0 0 0 0 0 #VALUE!

ECI Charity Shop Admin CostsUK Wages 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 17000.04Office Space Rent/Service Charge/Insurance 0 0 0 0 0 0 0 0 0 0 0 0 0Office Space Business Rates 0 0 0 0 0 0 0 0 0 0 0 0 0Company Insurance 500 0 0 0 0 0 0 0 0 0 0 0 500Electricity 0 0 0 0 0 0 0 0 0 0 0 0BT Broadband/Phone 0 0 0 0 0 0 0 0 0 0 0 0 0Health and Safety 500 0 0 0 0 0 0 0 0 0 0 0 500Orange Phone 0 0 0 0 0 0 0 0 0 0 0 0 0Skype 0 0 0 0 0 0 0 0 0 0 0 0 0Solicitor 0 0 0 0 0 0 0 0 0 0 0 0 0Computers 0 0 0 0 0 0 0 0 0 0 0 0 0Ipad 0 0 0 0 0 0 0 0 0 0 0 0 0H&S & Fire Extinguisher 0 0 0 0 0 0 0 0 0 0 0 0 0MARKETING/SALESWufoo Form 0 0 0 0 0 0 0 0 0 0 0 0 0Web Hosting 0 0 0 0 0 0 0 0 0Website Development Costs 0 0 0 0 0 0 0 0 0 0 0 0 0Marketing 0 0 0 0 0 0 0 0 0 0 0 0 0Total 2416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 18000.04

Total.Cash.Outflow 12416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67 1416.67Total.Cash.Inflow 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000 6000Net.Cash.Inflow :6416.67 4583.33 4583.33 4583.33 4583.33 4583.33 4583.33 4583.33 4583.33 4583.33 4583.33 4583.33Opening.Bank.Balance 0 :6416.67 :1833.34 2749.99 7333.32 11916.65 16499.98 21083.31 25666.64 30249.97 34833.3 39416.63Closing.Bank.Balance :6416.67 :1833.34 2749.99 7333.32 11916.65 16499.98 21083.31 25666.64 30249.97 34833.3 39416.63 43999.96

Things to takeaway

Even if you’re making a profit, if you temporarily find yourself in the red and you can’t pay anyone, you’re in trouble.

Cashflow can cripple your business 1 Don’t make the mistake of getting too far before you’ve

really looked at the finances to make sure your idea works on paper.

Look at the finances early on 2

When calculating your costs and prices, start vague at first and make assumptions. As you go, refine your figures and make them more accurate.

Start vague, refine as you go 3 Make sure if you’re ever in a position of asking for

money or support that you know your costs & prices when asked.

When it matters, Know your figures 4

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Making money Done!