How to estimate your projected revenue and operating profit

When you decide to open a business or expand you must calculate how much money and time it will take to get it up and running. You must calculate your projected revenue and profit. Projected income is an estimate of the financial results you'll see from your business in a future period of time. Before you can begin making profit you must determine what your startup costs will be. Firstly, you need to calculate how much investment will be necessary to get started and then secure those funds. The type of business you open will determine the amount of money you will need to open. I recommend that you have six months worth of money on hand to cover your expenses.

Start Up Expenses

Determine what your start up expenses are. Start up expenses are the costs that are incurred prior to opening. For example, start up expenses may include legal work, logo design, brochures, location and building improvements. Compare start up expenses with your start up assets. This includes your cash, starting inventory and equipment. Obtain start up financing if there is a gap between your start up costs and start up assets. Start up financing includes cash and materials provided by investors, or loans.

Start Up Requirements

Make a list of all your requirements that have to be completed before your business can open. Get quotes on the products and services your business will be need. Add all of these figures together. Calculate the post start up needs.

Fixed Costs

You should include all of the expenses that you'll incur until your business starts supporting itself. There are six key categories: cost of sales, professional fees, technology costs, administrative costs and wages. The cost of sales professional fees and technology fees have already been calculated. Now add the cost of administrative support and wages for up to three months after the opening day of your business. Six months is highly recommended. Once your business begins operating, it should take a significant amount of time until the business is self sustaining. Having enough money to set up an office, take orders, hire employees and cover the basics is a must.

Calculate Projected Revenue

Determine what price you can sell your product or service for. Conservatively estimate how many you can sell per day. It's important that this is your most reasonable assumption. For example, if the sun glass outlet across the street sells 10 sun glasses per day, it would be unreasonable to project sales of 100 sun glasses per day on your side of the street. Determine what the most reasonable scenario is and calculate your sales to be a percentage of that figure. I generally work on approximately 33 percent of the best case scenario.

Start Up and Operating Cost Analysis

Compare these costs to the projected gains from your revenue generation formula, or 33 percent of the best case scenario. If your business can survive and grow from these figures, push ahead. If your figures are not possible, look at your expenses and estimated revenues and start again. This time try to reduce startup and operating costs. You may also find a better location to sell your product or service.

You may think that your time would be better spent selling rather than planning. There are very few investors who will put money into your business if you're unable to provide a set of reasonable forecasts. I recommend that you create two sets of revenue projections so that one is aggressive and the other conservative. This way you'll force yourself to make conservative assumptions and then relax some of these assumptions for your aggressive case. To become big you must think big! Well documented financial forecasts will help your operational and staff planning. This will help make your business a success. The Business Minder is a business consultant operating in ASEAN countries with clients in Singapore, Bali Indonesia and Malaysia.