Business Planning - What Not To Do: Part 4

Verify Viability.

The only thing worse than not doing any research is not verifying viability.  The tools available for entrepreneurs are many and can sometimes feel complex.  I meet many people developing their business plan and doing their market research without a clue of how to prepare a viability analysis.  I’ve got a very simple system called the Three Tools of Financial Viability^TM.  The tools are available to every business owner or prospective entrepreneur and are fairly simple to use.  The tools consist of an income statement projection, a cash flow report and a break-even analysis.  That’s it.  That’s really all you need to test for financial viability.

The income statement determines how much money you business will make and over what time period.  The cash flow report determines how much cash you’ll need to start and run the business according to your business model.  And the break-even analysis tells you how much business you’ll need to support the level of infrastructure you’re projecting.  Based on the level of business you can ask yourself it that actually makes sense?  In fact, you can use all three tools to determine if your model makes sense.

In the best case scenario, you’ll run the numbers through the Three Tools of Financial Viability^TM and determine if you like the results.  If not, tweak the business model so that you get a different outcome and run the numbers again.  Keep repeating the process until you like the results or determine that the model, at least in its present form, will not work.  If you like the outcome, you can start writing your business plan.

That’s really all there is to it.  Students who go through my business plan class almost always dread the discussion about income statements.  They think the process is way too complicated for non-accountants.  When I tell them that constructing an incomes statement is the easiest part of the whole class, they laugh, nervously.  Once we finish though, they all agree that they can do this too.

For more information about the business planning and start-up process, get my new book,Business Start-up 101, From Great Idea to Profit…Quick!  It’s coming out in September, but you can pre-order your copy now.