Tips for Startups Selling Online

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If you plan to start an online business, you’ve got quite a road ahead of you. Just like any other business, you need to start by creating a business plan that will guide your operations. However, since you’re selling online, this business plan will be tailored to a largely virtual presence. The following list details some of the major topics you should consider when establishing an online business. These topics are in no way a substitute for a fully fleshed out business plan, but they should take up a large amount of your focus.

What is your brand all about?

What are you planning to you sell? If you’re a reseller and your strength is sourcing a niche selection of goods, your strategy is going to be far different from if you were a manufacturing or crafting something yourself.

The type of product that you’re selling will have a significant impact on the websites you incorporate into your overall online selling strategy. So, you need to hammer out your initial product offering before moving on.

Once your initial product offering is set, determine your offering can be differentiated from what already exists online. The entire online marketplace is more vast than most businesses will ever need. That vastness speaks to the number of alternatives buyers have to your products. If you don’t have a solid product that differentiates itself, a higher quality of service that differentiates your brand, or a digital marketing strategy that makes your brand highly visible, it’ll be tough for you to find success online.

Who is in the market for your goods?

Once you’ve established your product offering, you need to start looking around for your market. If possible, you want to determine what social media platforms, marketplaces, blogs, forums, and other websites your market is on.

One way to go about doing this is to identify where your closest competitors have a presence. Since you will have already determined your competitors in the previous step when you were establishing your brand and points of differentiation, you should already have a list of competitors. Use the list that you created to create a competitor analysis that details their online presence. This should give you a substantial amount of information on where your market is and what digital marketing strategies your competitors are employing. We’ll come back to digital marketing strategies in a bit.

Next, you want to get as personally active in the buyer community as possible. Being that you’re starting your business, you likely don’t have the resources to conduct a thorough market analysis or to hire a firm to do one for you. So you need to get into the mind of your buyer as much as possible. That’s where exploring social media platforms, marketplaces, blogs, forms, and other websites related to your product offering comes in. Explore these sites as if you were a consumer.

As your exploring the online marketplaces and related websites, seek answers to the following questions. What social media platforms is your market active on? Which marketplaces have a large similar offering to what you’re trying to sell? Are there marketplaces that have complimentary offering to what you’re trying to sell? Are there any unique social media or marketplace opportunities that your competitors have not yet exploited? All these questions should be explored, answered, and worked into your online selling strategy.

Do you know a web developer?

Though you may be able to create your own website with any of the eCommerce development websites currently available. A good web developer can guide you through selecting the eCommerce development tool that is best suited for you and your business. If you’re lucky, they may have some insight into what social media platforms. And if you’re super lucky, they might know which online marketplaces would be best suited to your product offerings.

So if you can, find a web developer friend, cofounder, or reasonably priced web developer consultant because you need their assistance badly. If you’re hopping into this alone and/or with minimal experience, you’ll want to do a substantial amount of research before purchasing domain names, inventory, equipment, etc.

What mix of online marketplaces and stores will you use?

There are a growing abundance of marketplaces and tools to create your own online stores. Over time, you want to use an optimized combination of these channels that maximizes your profit. For now, study the product offerings and culture of each of these categories to determine what’s the best fit for your business.

The first three sets of websites are all forms of marketplaces. Explore and analyze each one, keeping in mind their product offering, market reach, and ease of use for seller, and ease of use for buyer.

  • General Online Marketplaces – The following marketplaces have the largest variety of offerings and tend to be geared towards non-hand crafted products. Each website has its own look and feel (UI), community, seller benefits and features, and product offering. You’ll want to investigate each to determine which one is the best fit for your company.

Other non-handcrafted-good marketplaces do exist online. But these are the first ones you should consider before moving onto more niche, obscure, smaller reach websites.

  • Bidding marketplaces – If your business lends itself to having customers bid on your products, then you’ll want to consider eBay and eBid. Both websites have bidding and “buy it now” functionality. Through the “buy it now” function, they can function like the other marketplaces. However, having a store on either of these sites change your brand’s image. So, you’ll want to strongly consider your brand’s image before making the leap onto either of these two sites.
  • Handcrafted, artsy marketplaces – These marketplaces are geared towards crafting and designing your own goods. If this is your sphere, you’ll want to shop around to find which sites fits your business’s personality best.

The last two sets of groups are for building your own website. However, not all online sellers will build their own websites. Some will stick to marketplaces. Some will even stick to one marketplace. If you can diversify your revenue streams i.e. successfully sell our products on more than just website, then you should. Marketplaces can ban you, so you prepare backup strategy in the form of other selling channels.

  • Websites with shopping cart capabilities – These websites are geared towards creating a website and have the capability of assisting you in creating your online store.

These lists are in no way exhaustive of the marketplaces and online store creation tools available online. However, these sites are  some of the most used and most talked about ones, so check them out before turning to anything more obscure.


Using this article as a guide, you should be able to outline your brand, product offering, product sourcing, target market, and channels. After that outline is complete, you want to start thinking about your social media presence, cross-platform promotional strategies, and software for managing operations. If you want more information on those topics, check out my upcoming blog posts.

Social Media Goal Setting for Startups & Small Businesses

People sitting around a table with papers, drinks, and laptops strewn aboutSocial media is practically an unavoidable component of new businesses these days. A growing part of the U.S. population looks to the internet to legitimize and research businesses. Having a clean, simple, and consistent message across your website and social media accounts is a necessity for many companies who want to sustain their success in today’s world.

However, not every business should have the same mix of social media accounts and website components. There is a spectrum of variety that businesses need to consider when molding their online presence.

But how do you mold your online presence? You start with goals! Whether you’re a startup or a small business with an existing online presence, your goals should be on the top of your mind any time you interact with your customers through the internet. If not, you’ve just got a social media hobby. It’s not necessarily doing anything for your business.

So what should your goals be? There are 4 potential goals for your business, not all need apply. And they are not mutually exclusive. The four goals are establishing your brand, brand awareness evolution, driving sales and leads, and market research.

1) Establishing Your Brand

The initial establishment of your brand could potentially be incorporated into a couple of the other categories, but I think it is an important enough first step for it to be its own category.

Establishing your brand is particularly important goal for startups and small businesses who are trying to increase their customer base. The goal of establishing your brand is straight forward. The message that needs to be consistently communicated across your website and social media accounts is that you are a business, you exist, and you do x, y, and z. But there is more nuance to it than these three points.

The most important factor behind establishing your brand is forming your culture. You want to have ingrained in your company the basis for your culture (your values, belief, and mission) before you ever seek to expand your brand awareness. Because as soon as your online presence is established, you’ve begun to lose control of your culture. You can’t possibly hope to sustain the culture and brand image that you want if you don’t take the time to establish a culture and a strategy for communicating that culture’s message to the public.

2)  Brand Awareness Evolution

I distinguish brand evolution from brand awareness because the goal of establishment should be tackled all on its own. Having a culture and a strategy to communicate that culture from the start allows you (and any cofounders) to set the tone for your company. During your brand awareness evolution, your company does not have total control over its image and interactions.

Brand awareness evolution is the where a company’s brand and culture begin to be subject to organic brand growth. Theoretically, this starts as soon as a company has an online presence, but that presence doesn’t usually experience significant growth until it has established itself. That is why the first goal is so important. The initial establishment sets in motion the evolution of a brand’s image whether it wills it to happen or not. So the initial push to establish a company online, and the precursor to the initial push (culture), need to be painstakingly crafted.

Brand awareness evolution encompasses a variety of online interactions: customer service, content creation, having your content shared and manipulated, creating a community. The evolution of your brand is only as confined as you, your company’s employees, and your company’s stakeholders allow it to be.

At the point of brand awareness evolution, you have the capacity to control certain aspects of the evolution, such as the customer-to-company interactions, the internal content creation, and possibly the creation of ambassadors. So you can drive part of the story of your company, part of the evolution of your company’s culture and brand image.

However, there is much that is out of your hands. You cannot control what customers come into contact with your company and how they react to your services. There is a limit to how much you can control the creation of content about your company (think reviews, mentions, memes, videos, etc.).  You cannot control what people gravitate towards your brand and become de facto ambassadors. All this lack of control is why the initial establishment of culture and your brand’s online image is soo soo sooooooo important.

3) Driving Sales and Leads

Though this can be a goal of your online presence. I believe it should be a long-term goal and not your only goal. Social media does not lend itself to driving immediate sales. No one is cruising social media looking for your business. Rather, people are on social media establishing their identities, connecting with their friends, connecting with people and organizations with common values, entertaining themselves, and sometimes informing themselves. Shama Hyder does a great job of exploring people’s motives for using social media platforms in her book Zen of Social Media Marketing. I highly recommend the book if struggle to understand why people use social media platforms and how business can fit into the social media ecosystem.

Based on the reasons that people use social media marketing, it doesn’t seem like simply pushing your products on a social media platform would work, does it? (And that does not work!) That’s why driving sales and leads has to be a long-term strategy. Do you want people to think of your brand, when they need your brand, and due to their previous interactions with your brand on social media? Then you need to find a less intrusive way of marketing to them than simply posting promotions and advertisements featuring your products!

Jay Baer’s book YouTility does a great job of listing examples of businesses who have successfully re-imagined their marketing tactics to succeed in the social age. Businesses discussed in this book employ a tactic of creating value for their target market. They create value based on their understanding of their markets needs. These businesses educate, entertain, listen to, and cater to all the needs of their market that they understand. AND! those businesses strive to understand more about their customers every day. These are type of tactics that drive people from social media to your website or your store front. This is the type of marketing you need to master.

4) Market Research

The last potential goal of being on social media is conducting market research. Social media can lend itself well to this activity, particularly once your business is established and undergoing its brand awareness evolution. It’s at this point that you can harness the world-flattening power of the internet to better understand your market and develop a better product offering.

First off, you can analyze your social media following to better understand your market. Many small startups have to launch without the privilege of having in-depth market research to guide their actions. However, once they have a social media presence and following, they no longer have the excuse of not having reasonably-priced access to market research. As a startup on social media, your market will be actively defining itself. All you have to do is reach out and collect the information. Then, that information can be used to refine advertising strategies. Better yet, social media can be used to reshape product offerings.

If your company gets a large amount of complaints on social media, or even just a large amount of feedback via social media, you should be addressing them in two ways. First, you should be addressing the issue with the customer to rectify the problem and show that customer and the rest of the internet that you’re not asleep at the wheel. And second, you should be using customer complaints as a gateway to conversations that will steer the development of your products.

If you’re not getting complaints, you can still start a conversation about what your customers value. Hell, you have a direct connection to your Facebook and Twitter followers, why not ask them what they want? This is where the process of co-creation comes in. It is bleeding-edge marketing, and it is something that even small businesses are capable of. You just have to be willing to start the conversation and experiment.


These four goals are what should drive your business’s actions on social media. I challenge you to look at your company’s social media actions and see what if any goals are driving them.

How to Culture for Startups

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As a startup founder, your mind is constantly spinning. There’s so many facets to starting a sustainable business, even groups of founders are susceptible to neglecting the important parts of starting a business. So often, intangible components of business, like culture, are swept aside in favor of focusing on more “profitable” things.

But culture should be one of the earliest components that a business considers and creates. Culture affects every aspect of your company and heavily impacts the long-term sustainability, so stop what you’re doing and think about culture for a second.

What is Culture

Culture, to me, is the collective the values and beliefs of a company and how those values and beliefs manifest themselves in the activities of a company over time. Culture is in every interaction that your employees have with customers, other employees, suppliers, partners, and other stakeholders. And culture is constantly evolving.

Culture changes in response to what your employees experience in their work lives, what employees experience in their personal lives, what customers experience in their lives, what other stakeholders experience in their lives, and what’s going on in the world. All of these experiences and the values and behaviors that they yield can and are brought into contact with your company. They can and will affect your culture. And that culture pervades your business.

What it Effects

So what does culture have an impact on? How might you observe its effects as a startup? Well, let’s think about some of the important tasks you’ll go about as a startup.

Let’s start with your product or service. Let’s say you’re starting a restaurant. You need to determine what type of cuisine you want to offer. The ingredients for your dishes will have to be sourced from somewhere. Once you have the ingredients and the dishes, you’ll have to determine how you want to serve your customers. Are you full-service, fast-casual, fast food? Where do you want to locate? What people are you trying to serve in the place you’re trying to locate?

These are just a few product offering considerations, and we already have a ton of questions to answer. Culture plays a part in answering all these questions initially, and it will affect your company’s answers to these questions as time goes on. What your company as a group of people values and believes about the world strongly affects what products you choose to serve, who you choose to serve them to, and how you choose to serve them. And we’re still talking about one aspect of your company (the product offering).

As start to think about other important startup tasks like hiring personnel, acquiring financing, and creating a marketing strategy, we can see that culture is still just as present. Culture will affect how you hire and who you hire. Culture will affect how you source money. Culture will affect how you market. Culture will exist wherever you turn in your small business, so you need to establish it. However, that does not have to be a bad thing.

By focusing on your business’s culture from the beginning, you (as a founder or group of founders) have the ability to steer the beliefs and behaviors of your company. Culture can be a powerful tool if used appropriately, so that’s why you need to start creating it now.

How to Create It

So now that you’ve refocused on culture. How do you go about creating it? Well, it starts with you. It starts with the founders and cofounders of the company. And it will evolve or devolve over time as you allow it to. So you need to figure out, not just what it is, but how to sustain it.

To figure out what it is, you need to think about your values and beliefs and how they relate to a product offering and company that are just now starting to take shape. You need to figure out how your values and beliefs will relate to the community that you’re trying to serve and work with. If you don’t, it will be apparent. There will be a disconnect between your company and the customer’s you’re serving because you’ve never bothered to understand them. This will make it difficult for you to grow and even retain your customers and business partners because your lack of an understanding of their beliefs and values will be apparent. And another company will properly serve them in no time.

There’s a theme surrounding the steps to creating culture and throughout this entire article: people. The people that you surround yourself will drive the direction of your business. And while that may seem obvious and cliché, it is true. And more importantly, it is rarely kept in mind.

The ways that we pick the people that are involved in our business are often lacking. Either we’re rushed or indifferent. But we don’t think through how every stakeholder (customers, employees, suppliers, etc.) could impact our business. That apathy can cost a business its ability to drive its own culture. And that loss of control will be disastrous.

Take the time now, at the start of your business, and start establishing a culture. Of all the tasks you could be undertaking, that one will have the highest return on investment.


Culture is a part of every business, no matter the product or service. If you don’t believe me, I challenge you to come up with a business where culture and the process of building is irrelevant. If you do believe me, message me anyway. I’d love to hear your thoughts on your company’s culture or on any company’s culture that you like to discuss.

Financial Projection Scavenger Hunt for Startups

If you’re trying to start a new business, chances are you’re going to need some financing. And whether you look to friends & family, a bank, or an investor for that financing, you’ll need a business plan to verify the feasibility of your idea. An important part of that plan are the financial projections.

Creating financial projections will force you to hunt down a ton of information. In searching for the info, you’ll be forced to think about your proposed venture in many new and humbling ways. But if you go through the process right, you’ll come out the other end with a better understanding of what your business model is.

Startup Sources and Uses

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The best starting point for a startup is a sources and uses statement. Making this will force you to come face to face with everything you don’t know about the costs of starting a business. Some general but important uses considerations can be found in the following list:

  • Borrowing fees
  • Build-out
  • Furniture, fixtures, and equipment
  • Insurance
  • Initial inventory purchases
  • Initial supplies (cleaning, maintenance, and/or office)
  • Licensing fees (type of entity, state, local)
  • Property improvements
  • Signage
  • Startup legal fees
  • Startup marketing expenses (advertising, market research, promotions, etc.)
  • Telephone, internet, and TV setup fees
  • Utility hookups

Work your way through this list and determine which expenses apply to your business. Once you know which expenses apply to your startup, start estimating the costs yourself or looking for resources that can help you estimate the cost. If you get stuck trying to estimate any of these costs, message me and let me know about your issue.

Once you come up with your total startup uses, you need to figure out how to finance your uses. At this point, you need to decide (if you haven’t already) if you want to self-finance, borrow from a bank, get a cash infusion from friends and family, bring on an investor, or use a combination of financing strategies. Each of these strategies will impact your financial projections differently, so you need to have a financing strategy in mind before you proceed.

Projected Income Statement: Expenses

Once you’ve completed a sources and uses statement, you need to think about the costs of operating your business on a monthly basis. Many startups will have thought through product, raw material and/or personnel costs because those things are hard to ignore when coming up with a business venture. However, what about EVERYTHING ELSE? The following list is a group of general business expenses that I consult when working with startups. Some of them are initially overlooked, which can lead to significant under-estimation of monthly operating expenses.

  • Accounting
  • Amortization
  • Auto Expenses
  • Depreciation
  • Dues and Subscriptions
  • Independent Contractor
  • Employee Benefits
  • Equipment
  • Insurance
  • Legal Services
  • Licenses & Permits
  • Marketing
  • Meals and Entertainment
  • Merchant Account Fees
  • Office Expenses
  • Payroll
  • Payroll Taxes
  • Professional Fees
  • Rent
  • Repairs and Maintenance
  • Supplies
  • Taxes
  • Telephone & Internet
  • Travel
  • Utilities
  • Website Expense

Many of these expenses can be condensed down into line items that encompass more than just one thing. For example, a “Sales, General, and Administrative” expense could encompass at least a third of the items on this list. However, what’s important at this stage is that you consider each these items. Considering them one-by-one will help you to (1) not underestimate your operating expenses and (2) consider the entirety of your operations.

Projected Income Statement: Revenue

Now, how much money are you going to make? How do you even estimate that for a new business? You can’t just say you’ll be profitable expect a banker or investor to believe it. So what do you do?

I would recommend trying the following strategies in the specified order:

  • Get data from local government entities – At the Nevada SBDC, we pull regional data on comparable businesses for our clients as frequently as possible. The more localized the data, the better. If you can get data on what local comparable businesses are earning on a yearly basis, you have the best basis for your projections. This is hard to come by, but it’s worth searching the web, reaching out to your local SBDC, or looking for government entities that provide this information to see if you can find anything.
  • Get data from national government organizations (Census Bureau, FRED, BEA, etc.) – The Census Bureau’s economic censuses and consumer expenditures surveys can yield some worthwhile information. The FRED and BEA can give you some insight into national and regional economic trends should be factored into your revenue projections.
  • Source information from comparable business in similar cities – Come up with a list of cities that are comparable to yours. In doing so, keep in mind population and cultural norms. Then, see if there are businesses in those cities that are similar to what you’re trying to start. In some instances, you can come up with multiple cities and multiple businesses in each one. If you’re transparent about your intentions and make it clear that you are not a potential competitor, some business owners and managers are will talk with you about the number of customers they see on a daily or monthly basis. What type of customers they see in their businesses and how they market to them. And much more. Some of this can be used in projecting your revenue. Some of it can even help you to craft your operations and your marketing strategy.

Cash Flow

Once you’re done creating an income statement, you may need to create an additional cash flow statement if your business will have any of the following:

  • Deferred payment options for its customers (leading to significant amount of A/R)
  • Deferred payment options from its suppliers (leading to significant amount of A/R)
  • Planned purchases of expensive assets

A couple other items that may relate to your startup and would show up on a cash flow statement are owner distributions and the principal portion of debt payments. These items are not technically expenses, so they do not show up on an income statement. However, they are cash outflows, so it’s important that to account for their impact on your cash position.

You can and should put these items on a cash flow statement, if you create a cash flow statement. However, for simple startups, you could create a hybrid income statement/cash flow statement that adjusts for simple cash flow items below the net income. This hybrid method saves you from having to make another nominally-different statement while enabling you to project your cash position over time.

Analyses, Assumptions, and Review

Once you’ve created your first draft of projections, there’s a few more steps you should take before moving on to other parts of your business plan. I recommend that you (1) create breakeven and sensitivity analyses, (2) create a projection assumptions document, and (3) review your projections with a qualified business professional. For further details on these three final steps, check out my last blog.


If you hit a wall when trying to create your projections, send me a message. I’m happy to offer some suggestions and to give you the financial projection template that I use. Lastly, let me know your thoughts on my projection method in the comments. I’m always looking for ways to streamline the projection process for startups.

Creating Financial Projections for an Existing Small Business – Part V: Analyses & Assumptions

Graph of a breakeven point
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Once you’re done creating a sources and uses statement, projected income and cash flow statements, and a balance sheet, you would think you’re done creating your financial projections. However, there are a few more steps you should take before submitting your projections to your target audience. You should consider creating breakeven analysis and sensitivity analysis worksheets. After those analyses are complete, you should draft your projection assumptions and review your projections with an outside source.

Breakeven Analysis

First off, a breakeven analysis is not going to work for every business. If you own a service businesses or a business without significant amounts of variable cost, a breakeven analysis might not be right for you. However, if you’re in an industry where cost of goods sold is a major focus, or if you have labor or any other expenses that are directly proportional to your revenue, a breakeven analysis could be quite useful.

In the second part of my series on creating a financial projection template, I discussed the basics of a breakeven analysis that yields the number of units needed to break even. You can then multiply the breakeven units by an average unit price to find breakeven revenue. However, there’s another method you can use to more quickly find the breakeven revenue. Using the following formula, you can determine your breakeven revenue without an extra step:

Breakeven revenue formula shown: BE equals FC over 1 minus VC


  • BE is your breakeven revenue
  • FC is your fixed costs for a particular period
  • VC is your variable cost percentage

Pay particular attention to the fixed costs and the variable costs within this formula. Your fixed costs should be the sum of your non-variable costs for whatever period you specify.

To come up with this FC in the context of your financial projections, you want to sum your operating expenses that were not estimated as a percent of revenue. Leave out or subtract out items such as cost of goods sold, credit card processing fees, supplies, or any other expenses if you used their common sized historical averages to project them.

To come up with the variable cost, you want to add up the percentages that you used to project percentage-based expenses like cost of goods sold, credit card processing fees, supplies, etc.

Plug the resulting FC and VC figures that you come up with into the above formula to yield a breakeven revenue figure. Ideally, you’ll represent this whole process on a worksheet that can be put into the appendix of a business plan for your target audience to review.

Breakeven Analysis Modifications

Some useful modifications to the breakeven method are as follows:

  • Add your loan principal payments into your fixed costs – Since the principal loan payments are not an expense on the income statement, they’re usually excluded. However, some small business owners find it useful to include the principal loan portion of their debt service in their breakeven calculations as it is a cash outflow they want to factor in.
  • Add a profit margin to your variable costs – Some business owners want to include a profit margin in their variable costs to make sure they earn X% profit at the breakeven point. With this adjustment, it’s not really a breakeven point anymore, but this can still be a useful exercise. Just know that you’re now finding the 10%-profit point.
  • Divide the resulting revenue by your product price, average product price, or average transaction to get your breakeven in units
  • Conduct a breakeven analysis on a monthly, quarterly, or yearly basis depending on your needs

Any modifications that you decide to use should be kept in their own worksheets and subsequently placed into the appendix of your business plan.

Sensitivity Analysis

Though you may be confident in your initial projection, it doesn’t hurt to see how your business will fare in different conditions. This is where sensitivity analyses come in. In a sensitivity analysis, you change an independent variable to see how it will affect a specific outcome. In this case, we want to know how net profit will be affected because it plays into your decision of whether to proceed with your business plans.

The independent variables that you want to test are revenue growth and cost of goods sold. Since you’re projecting revenue based upon previous business performance and other historical data, there is no way to know for certain that what you’ve projected will come true. Therefore, you want to vary your revenue to account for other better and worse scenarios to see how your business will do.

Your cost of goods sold has the potential to vary due to changing material costs and/or supplier issues. You need to vary your cost of goods sold to account for a range of percentages that you could reasonably expect to occur. You can vary this cost of goods sold figure for both your projection and your breakeven analysis. Both variances can provide you with useful information.

To keep your original projection and capture your sensitivity analysis projections, I recommend making a copy of your original spreadsheet file and saving each sensitivity analysis as a separate file.

Projection Assumptions

Once you’re done creating all your statements and analyses, it’s time to start drafting your projection assumptions. Hopefully, you’ve read my series on creating a financial projections template. If you have, you will have already created a projection assumptions document where you’ve been documenting your assumptions. If not, it’s not too late.

The key to creating a good projection assumptions is meticulousness. Examine every line item of each projection component and document your estimation methodology. The components you’re examining could include but are not limited to:

  • Sources and uses statement
  • Income statement (a monthly one and a yearly one)
  • Cash flow statement (a monthly one and a yearly one)
  • Balance sheet

In walking through each of these statements, you want to ask yourself “What was the method behind estimating these figures?” If the methodology is obvious by just looking at the figure, then you probably do not need to document it. However, in most cases, you should write something about each figure. By thoroughly documenting your methodology, you make changing and updating the document much easier. You make yourself more credible. And you make it easier for your audience to the logic behind your projections.

Review with an Outside Source

Once you’ve created your financial projections, you should run them by someone else. You can have someone in-house review them for you, maybe another partner or a manager. However, it is a good idea to have a bookkeeper, accountant, or business counselor review your projections too. They will have a different perspective than anyone from your business. And that will be a beneficial perspective to consult before you present your projections to their final audience.


Do you have any questions or comments about my process? Let me know about it in the comments section or send me a message.

Creating Financial Projections for an Existing Small Business – Part IV: Finishing the Statements

The final part of the projection process consists of linking the key statements where necessary and adding in optional statements and analyses as required by your target audience. (If you’re creating financial projections, you should be developing a business plan to accompany it. The audience of the projections and business plan should be one and the same.) I’m going to briefly touch on each of optional steps of the projection process. If you want further details on any of the steps I discuss, feel free to reach out to me.

Yearly Income Statement

When first projecting the revenue and expenses of your income statement, I recommend that you project it on a monthly basis because it will force you to think about seasonality and potential cash flow issues. However, you should still create a yearly projected income statement. This is a useful and convenient way to look at the numbers for both you and your target audience, so you don’t want to leave it out.

Creating the yearly income statement will be simple after you complete the monthly projected income statement. Make sure all the line items from the monthly statement are represented on the yearly statement. Then, link the yearly line items (revenue, cogs, particular expenses) to the yearly totals on the monthly income statement. If you don’t already have monthly totals on the monthly statement, I recommend adding them off to the right of each year, as pictured below.

screen shot of the revenue, cost of goods sold, and expense sections of a projected income statement

Then, you can simply link your yearly projected statement to the totals of each year of the monthly statement. This is a bit simpler than writing a sum formula that refers to another page and less likely to result in human error.

Sources and Uses Statement (Optional)

A sources and uses statement is necessary for a startup, and I would recommend it for most existing businesses. However, it might not be necessary if you have a projected income statement, cash flow statement, balance sheet, and the accompanying assumptions. If you have all those statements, then the information you would represent in a sources and uses statement could theoretically be wholly represented. However, a sources and uses statement puts a great summary of information in one place and thus makes it easier for your audience to understand your need for financing.

Despite the fact that your business is a startup, a sources and uses page can be useful to you. If you’re requesting financing to purchase additional equipment, renovate a space, purchase property, or expend significant amounts of money in any way, a sources and uses statement is the perfect way to represent exactly how you plan to do so.

Balance Sheet (Optional)

In rare cases, some lenders or investors may request a projected balance sheet. Maybe the audience is looking to analyze financial ratios. Maybe your industry focuses heavily on financial ratio benchmarks to maintain efficiency. Whatever the case, you need to create a balance sheet.

Many of the figures that you need on your balance sheet will be pulled from the income statement and cash flow statement. For example, the following items will be pulled directly from those statements:

  • Total cash/total bank accounts
  • Net income
  • Capital contributions
  • Equity distributions

Other items, though not represented on the preceding statements, will relate to them:

  • Accounts receivable
  • Inventory
  • Fixed and other assets
  • Accumulated depreciation and amortization
  • Loans & LOCs
  • Retained Earnings

Want to know more about how these statements relate to the income and cash flow statements you created? Feel free to message me with your questions.

Once you’re ready, check out my last post of this series. I’m going to discuss breakeven analyses, sensitivity analyses, projection assumptions, and the projection review process.

Creating Financial Projections for an Existing Small Business – Part III: Fleshing out the Cash Flow Statement

Cash Flow written in blue marker with a right hand underlining it
Image Credit

If you’ve made it to this blog post, hopefully you’ve check out my other blog posts on compiling your historical financial statements, finding or creating a projection template, and part I and part II of this series. And if you’re here after all those posts, you must be (1) insanely determined to create your own projections (and that’s good!) and (2) in need of a projected cash flow statement. So you likely need to account for some of the following cash flow items:

  • Accounts receivable
  • Accounts payable
  • Large asset purchases
  • Principal payments
  • Owner distributions

So what is the best way to project for each of these items? A large part of your projection should hinge on the information you got from compiling and analyzing your historical financial statements. You can use that information in the following ways.

Accounts Receivable & Days Sales Outstanding

If your customers are allowed to pay over time, you may need to adjust for this in your projections. What you want to know for projecting purposes is the days sales outstanding, which is essentially average time it takes for a customer to pay (or for you to collect) on a transaction. Using the days sales outstanding figure, you want to lag the revenues projected in your income statement to reflect when the cash will actually be collected. Accounting for this lagged collection in your projections is important because it has a significant effect your cash position. And obviously your cash position will be important to your projections target audience (lenders, investors, or yourself) because its determines whether or not you can pay for ongoing operating expenses, pay for proposed debt service, or simply continue to exist and try to turn a profit.

If you have created different revenue streams that have different days sales outstanding figures, you can calculate days sales outstanding figures for each revenue stream and apply them to your projections. This will be a more extensive process, but it may be necessary if you have significantly varying revenue streams that you can reliably project.

Account Receivable & Days Payable Outstanding

If your suppliers allow you to pay them over time, you may have to account for this in your projections. What you want to know here is the days payable outstanding, which is essentially the average time is takes for you to pay off an invoice from one of your suppliers. Using the days payable outstanding, you want to lag your applicable expenses to account for the delayed cash outflow in your projected cash flow statement. Similar to the days sales outstanding, this lag will affect your cash position. However, this adjustment will conversely give you a more favorable cash position (so make sure to keep it conservative).

If you have varying suppliers and varying days payable outstanding figures you may want to separately project the expenses and cash flows arising from each one or each significantly different group.

Asset Purchases

If you are creating financial projections in anticipation of significant growth, you are likely going to need to purchase additional assets in the next few years. If that is the case, then you need to make sure to you are accounting for the cash you need to make these purchases. It may feel like a shot in the dark to project to try and project when you’ll be purchasing assets (and it may well be), but you need to give it your best effort so that you can see how these planned purchases will affect your businesses. Will you have sufficient amounts of cash to offer customers deferred payments, pay your operating expenses, service your debt, and purchase that new piece of equipment? You need to try to project for that reality so that you can adjust your financing requests as needed.

Principal Payments & Owner Distributions

One more consideration for small businesses is adjusting for principal payments and owner distributions. If you are obtaining new financing through debt and/or if you have existing debt, you need to project for the principal payments in your cash flow statement. Only the interest payments will show up in your income statement, so you need to make sure to account for the principal payments here in the cash flow statement.

If you have an existing schedule for owner distributions or are planning to start owner distributions within the period that you’re projecting for, you need to account for the distributions on your cash flow statement. Just like the principal payments, this will not show up on your income statement, so you need to project for it on your cash flow statement. The resulting cash position information will be valuable to you in assessing the feasibility of your growth plans, proposed financing, etc.


These are some of the most important considerations (as I see them) that a small business owner should have in creating accurate projections. Have any disagreements about my methodology? Let me know about it in the comments section down below or through my contact form.

And check out the next part of this series here to learn about how to flesh out a yearly income statement, sources and uses statement, and balance sheet with information that figures that you’ve already estimated.

Creating Financial Projections for an Existing Small Business – Part II: Projecting Expenses

expenses in scrabble tiles on a scrabble tile holder
Image Credit

After you’ve projected your revenue, you’re ready to move on to the next step of creating your financial projections: projecting your expenses. Since some of your expenses will be tied to your revenue, make sure to check out my previous article on projecting revenue before your move on.

Using Common Sizing Figures

In step 3 of my article on compiling your historical financials, I recommend common sizing your historical financials. This process will yield a percentage for each line item which represents a revenue or expense as a proportion of the total revenue for a given period. For example, if your revenue for a year was $100 dollars and your cost of goods sold for that revenue was $30, common sizing that cost of goods sold expense of $30 would yield $30 / $100 = 30%.

So if you average your common sized expenses (using each year as a component of your average), you can derive an average expense percent for your cost of goods sold and each of your expenses. Take the average percentage for each expense and multiply it by your projected monthly revenue to get your expense estimates.

Using Growth Trends

Many of your expenses (insurance, licenses, office expenses, professional fees, rent, utilities, etc.) cannot be accurately projected by using an average percent of revenue figure. For these figures, you want to analyze the average yearly growth trends and project the expense that way. Alternatively, some of these expenses you may simply know by having an understanding of your lease (rent), insurance policy (insurance), local licensing requirements.

Situational Adjustments

Once you’ve projected all of your expenses using your historical financial analysis, you want to make slight adjustments based on your particular situation. If you’re seeking financing, you’re likely seeking it to do something significant such as refinancing debt, acquiring additional equipment, expanding your facilities, creating a new product or service, or starting a new marketing campaign. These initiatives can have a significant impact on your expenses, so make sure to think through their impact over time and make the necessary changes to each year of your projection.

Lastly, make sure that any relevant debt expenses are projected accurately. If you have existing debt, make sure to incorporate the relevant interest expense. If you are planning to take on new debt and keeping old debt, make sure to incorporate the relevant interest expense. And if you are refinancing old debt with new debt, make the appropriate adjustments to your interest expense projections.

Hybrid Income/Cash Flow Statement (Optional)

If your business does not have significant average balances in accounts receivable or accounts payable, then you may be able to get away without a cash flow statement. In this scenario, your income statement would be a cash basis projected income statement, and you could add on a cash flow section down at the bottom to account for non-income statement cash flow items, such as principal debt payments, asset purchases, equity distributions, etc. Format this section as follows:

  • Beginning Cash Position – This equals the cash position from the end of the previous month or year (depending on which statement you’re working on)
  • Net Income – This is the net income from that month/year
  • Depreciation – This is equal to the depreciation expense from that month/year (if applicable)
  • Non-Income-Statement Cash Flows Items – These are the expenses that affect your cash position but do not show up on your income statement such as principal debt service, asset purchases, and equity distributions
  • Ending Cash Position – This equals your beginning cash position plus net income plus depreciation less your non-income-statement cash flow items

If your business has significant average amounts of accounts receivable and accounts payable, you will need to create a projected cash flow statement to accurately model your businesses cash position over time. If your business fits into this category, check out my next blog post on creating projected cash flow statements.

Creating Financial Projections for an Existing Small Business – Part I: Projecting Revenue

If you’re creating financial projections for an existing business, you can use historical financial statements as the basis for your financial projections. As I discussed in a previous blog post, you’ll need to compile and manipulate the historical financial statements to make them useful. However, doing so will significantly simplify the rest of the projection process.

In conjunction with the compilation and analysis of your historical financials, you’ll want to find or create a financial projection template. After completing those two tasks, you’ll be ready to create your financial projections.

The steps that I discuss in my next few blog posts will serve as a guide to creating financial projections for an existing business. Depending on your capabilities and your business’s particular circumstances, you may need to use a more or less sophisticated approach. But these guidelines should serve as a good starting point.

If you still have questions after reading this article, feel free to reach out to me. Alternatively, you could consult a bookkeeper, CPA, or business counselor.

Project your revenue with a combination of internal and external data

First, use the yearly revenue growth trend from your historical financials as the basis for your revenue projection. The simplest methods are either to use your average yearly growth from the preceding years or to use the most recent year’s revenue growth rate. You’ll have to use an understanding of your business to determine which method fits best.

Next, gather data on how your industry is projected to grow. You can get this data by finding a free source online (difficult and unlikely but cheap), purchasing a market report from a reputable source like IBISWorld or (expensive but easy), or working with a free or paid consulting service who has access to relevant data.

Third, gather data on how the national and/or local economy is supposed to grow over the next three years. You can obtain national GDP projections from the Federal Reserve Economic Data (FRED) website or the Congressional Budget Office (CBO) website. For local equivalents, you’ll have to research your state’s local government organizations and find one that provide this type of data.

Now that you have your factors, you want to combine each piece of data into one growth figure by weighting each factor. This will result in your initial growth rate. You may want to increase or decrease this growth rate based on expected revenue growth, but you’ll have to do so at your own discretion. Additionally, you’ll want to adjust the growth rate going into years two and three by evaluating the growth trends from each of your data sources.

Before using growth rate to project your revenue, consider one last adjustment. If you’re creating projections to finance a building expansion, equipment purchase, marketing campaign, or anything that will impact your top line, adjust your growth rate accordingly. I recommend keeping your estimations conservative as you need to justify the increase to a lender or investor. And you likely won’t have anything solid to base the increase on unless you’ve undergone similar financing actions in the past.

Now that you have your final growth rate, apply it to your previous year’s revenue to project next year’s revenue. Apply the same methodology to the following years, but consider adjusting the growth rate to account for (1) your specific market’s trends, (2) economic trends (3) effect of whatever you’re financing on your business’s revenues over time.

Once you have revenue projected for the next three years, you’ll want to make your projections monthly. In step 4 of my article on compiling and analyzing your historical financial statements, you will have calculated the average revenue that your business earns in each month with respect to the total yearly revenue. Apply these percentages to the yearly revenue projections that you just created to yield the monthly revenue projections for your projected income statement.

Now that you have revenue projections, you’re ready to move on to the next step: projecting your COGS and expenses. Check out my next blog on projecting those items tomorrow!

Creating a Financial Projections Template: Part III – Financial Projection Assumptions

Once you’ve found a financial projections template, you’re ready to start projecting, right? Nope.

Many business owners will launch right into creating their financial projections once they’ve found a template. But there is one more thing you can do before starting to make your life 100 times easier: create a financial projection assumptions template. The assumptions can be included in the spreadsheet that you’re creating your projections in, or you can create a word document to supplement the excel spreadsheet, which is what I prefer.

Issues with Not Creating a Projection Assumptions Template

A template for your assumptions is necessary because you won’t remember how you estimated each figure. If and when you want to review your the logic behind your projection, you won’t be able to because their won’t be any record of it.

An even worse possible consequence is disappointing target audience asks for them. What if your prospective investor or lender asks you for projection assumptions? Or what if they just ask you how you came up with a certain figure and you can’t remember? This can be disastrous and result in you losing your credibility.

Another issue with not documenting your assumptions is that it complicates making changes. You may want to make your projections more conservative or more robust. Your target audience may want to suggest changes and see the results. If you haven’t documented your assumptions, it will be difficult to make changes when you need to.

Assumption Template Creation Guidelines

So you need to create an assumptions template. Fortunately, I’ve got some guidelines for you to make creating one easier. You want to make sure that the assumptions cover the core components of your projections that I talked about in my last blog post. Those core components and their individual elements can include but are not limited to the following:

Sources & Uses Statement

For the sources portion of this statement, you want to make sure you’re documenting where any proposed financing is coming from and what the terms of that financing will be. For the uses portion of this statement, you want to write up the details of your FF&E purchases, start-up expenses, property improvements, and working capital needs. Especially if you’re a startup, you should be justifying your need of all of your uses. If you can’t justify the need of these items to yourself, why should anyone lend to or invest in you?

Projected Income Statement

For the revenue projection of your assumptions document, you want to be able to point to a reputable source. Are you an existing business that extrapolated existing revenue trends? Does your startup’s management team have industry knowledge that you’re using to project growth? Are you using industry data on comparable businesses as a basis? Even if you’re SWAGing your revenue growth, you should be transparent about it. You don’t want to misrepresent yourself or be fraudulent in any way.

For the cost of goods sold (if applicable), you’ll want to state how you’re coming up with your estimate. If you’re an existing businesses, you can reliably base their projections off historical financial statements. But if the projected cost of goods figures deviate from the historical averages, you’ll need to justify the deviation from your old figures. If you’re a startup, you’ll ideally draw from industry experience to project your cost of goods sold. If you do not have that experience, try to dig up relevant industry data.

For the remainder of your expenses, you need to use a method similar to how you estimated your cost of goods sold. If you’re an existing business, simply basing your expenses off the historical amounts and explaining any deviations is sufficient. If you’re a startup, you’ll need to hunt around for or think through each of your expenses and document the process (look out for my blog post on how to make projections for a startup).

Cash Flow Statement

A good portion of assumptions about your cash flows should be detailed in the process of creating the projections for your income statement. However, there will be some items that will only show up on your cash flow statement. For example, you’ll want to capture any accounts receivable and accounts payable terms represented on the statement and how you estimated those terms. You’ll want to track any principal payments and equity distributions and how you came up with them. Lastly, you’ll want to make sure you explain any planned equipment purchases.

Balance Sheet

There likely won’t be many assumptions to document here as most of the information on the balance sheet should come from your income and cash flow statements. However, the same principle applies here that applies to the other statements: if you made an assumption to estimate a figure, document it.


If you own or are a part of a small business that you’re making projections for, reach out to me at I’d be happy to help or just to chat about your progress.

If you’ve got any questions about my recommendations feel free to contact me at my email address or leave a comment down below.