While most people tend to look upon them as a tool for securing financing, developing financial projections for your ecommerce startup can also serve as a gauge by which you can measure the progress of your undertaking. If you’re hitting or exceeding the targets you’ve set, you’re doing great. If you’re missing them, something needs adjustment somewhere and it’s time to troubleshoot your plan. Maybe you need to raise your prices, cut your costs or completely revamp your model. Either way, with solid projections, you’ll always have a good idea of where you are.
Most experts recommend a three-year projection for an untried startup. The basic elements you’ll need are a sales forecast and an expense budget. From these you can generate an income statement, a cash flow statement and a balance sheet. A supporting document should also be provided to justify the assumptions your projections take into consideration. A break-even point, typically within an 18-month time frame, should be identified as well.
Your sales forecast should be comprised of monthly sales for the first year, after which you can go quarterly. Factors to consider are the number of customers you’ll secure, your costs and how many units of your product will sell—and at what price.
Your expense budget should encompass fixed costs like your enterprise e-commerce software/platform and variable costs like marketing and advertising. While this doesn’t need to be an extremely detailed item-by-item type of document, it should be a close approximation of your planned expenditures.
Once you have a handle on your sales and expenses, you can develop an income statement. This will forecast the amount of money the company will make, based upon projected sales, the cost of goods sold, expenses and capital. Like your sales forecast, this should be considered on a monthly basis for the first year, then it should be each quarter afterward.
Your cash flow statement basically details where the money goes. All income should be listed—along with its sources. Similarly, expenses should also be detailed, with specific listings of where expenditures will be made. This document is also where you will show your projected profit or loss at the end of each reporting period.
Company assets, liabilities and equity will be detailed on the balance sheet, which is usually calibrated to show annual results.
If this is your first go at developing these documents, right about now you’re probably thinking, “Where do I even begin to create estimates for all of that?” And, it’s a fair question. If you have experience in the area, think through what you’ll need to do and assign costs and income where they are relevant.
Similarly, much of this information will become apparent as you flesh out the other aspects of your business plan. If you do these financial projections last, you’ll find much of this ground will have been covered by the time you get here. If you’re still stuck, any accountant who works in your business should be able to at least give you a rough idea of what expect. The Small Business Association’s Service Corps of Retired Executives mentorship program is also a useful resource.
Lastly, keep in mind; if you’re seeking investors, they’re not looking for your numbers to be accurate down to the last dollar. Developing financial projections for your ecommerce startup is more of a way to show you’ve thought through what you need to do and you have produced a sustainable plan to achieve a profitable result.