Projections – Part Road Map for Growth, Part Hail Mary Prayer

I was asked to write my first column about projections. Ah, that wonderful little exercise in optimism. Quick intro as I’m a bit new to the networking scene here in Charmcity: My name is Jonathan Rivlin and I’m a CPA with 14 years experience. I’m also the co-founder and COO of Bandhappy, LLC.
As a CPA, I can tell you that projected financial statements have all sorts of rules and requirements and disclosures – none of which was taught to me in college. I approached my first projected financial statement as green as anyone because a potential investor wanted to know what his money would be worth in 2 years if he cut us a check.
A lot of ink has been spilled on the subject of projections. I recommend reading “Reality Check” by Guy Kawasaki. So what can I add to the lexicon of knowledge on this subject that guru Guy hasn’t already enlightened us with?
Projections are more art than science. Duh. Sometimes, when spending a particularly dreary all-nighter hasseling over formulae and growth curves, it seemed like I could better spend my time filling in those little bubbles on the Mega Millions game play slips at the Royal Farms. And yet, this document is so critical to our success as entrepreneurs.
As with all of the documents a startup company needs, the executive summary, business plan, power point, etc – the process is what matters. A good investor will focus more on your assumptions then your EBIDA in year 5. A bad investor will want to know what you’re spending on pencils in month #40.
So here is some advice that I learned, the hard way. And remember, I actually have a financial background. For those of you with technology, marketing – basically non-financial backgrounds – don’t feel bad if this is overwhelming. I had a learning curve too. I’m still fighting to move up on that curve!

1. Read this book “The Social Network Business Plan” by David Silver. My first projected financial statement was based on some of Silver’s templates offered up in this book. As stated above, you should also check out “Reality Check” by Guy Kawasaki.
2. Spend a lot of time visualizing how your customers will interact with your business. Note I said customer – the one actually paying your company; which in many cases is different than the “user”. Ask yourself what will make these customers buy your product/service? How much will they pay for it? Will they come back often? How many sales can you realistically make in the first 12 months, the first 6 months, the first 90 days?
3. Research how much it will cost you to produce your product or service.
4. Research how much it will cost you to deliver/publish/distribute your product or service.
5. Research how much it will cost you to find AND CONVERT your target customers to your product or service.
6. Be tenacious on getting this information. Call up competitors and patronize them – know your enemy. Do surveys of your customers and find out if they want your product and how much they will pay for it. But be aware that surveys have limitations; better still is to run an Alpha or Pilot test program and have real dollars move through real hands.
7. Always assume that vendors will be 20-40% higher and 50-100% later than their proposal.
8. Keep your administrative overhead as low as possible. You don’t need a fancy office, desk, or Aeron chair. Until you have cash flow coming in – you will not purchase any frivolous things. And when there is no cash flow, EVERYTHING is frivolous.
9. Stick with traditional, conservative accounting. Don’t play games with the numbers. You’re only fooling yourself. People sometimes lie, but numbers never lie. If you run the numbers and you don’t like what you see, changing the numbers is not going to fix the holes in your business model. Every company I’ve ever read about that played accounting games ended up going bust in a big nasty way – think Enron.
10. Don’t start from the top down; “All we have to do is capture just 5% of the market and we’re going to be set!” Think bottom up: how many sales can you make in 30 days, 90 days, 6 months, a year? What do you need to spend to make those sales? When will the cash come in? Forget about Net Operating Income – you just want positive cashflow.

A lot of people say to me, “Oh, you’re a CPA, I could never do that, I’m so bad with numbers.” The dirty truth is that I’m not that good with numbers either – that’s what Excel is for. Just think of it like this: the projections are just another way of expressing your business. A painter paints, a poet writes, a musician plays. Their creations are expressions of what they are passionate about. Your job is to take your passion and describe it with the language of accounting.
Finally, remember that projections are a living document. They will change as your business evolves.