Finances before the business has started

Lesson Details:

Video Transcription: In this video I'll try to quickly go over some of the financials because in this was the beginning and will cover the financials a little more deeply when we see that after two years what happened so revenue streams was it was very simple selling a 1995 product in the 1495 brush to clean the grout and the LTV lifetime customer value there were a few plans in place to improve average purchase prices and lifetime customer value like selling a package for example two bottles of the grout cleaner for 3995 and then the brush came for free that was a way to get customers to spend more immediately and then the idea was that long term this was the best cleaning solution and when the first bottle ran out or the second bottle right now customers would come back and get more of the same product because in fact this was the best thing that was available for this task there was no other comparative product there was only a way to go down in quality now I'm gonna quickly cover the cash flow statement for prior to starting the expenses were very few a little bit of legal fees and website and website creation creating the packaging and labeling design product creation with the chemical company that was the bulk of the expense and then buying up some initial inventory so you see total expenses you know for a new company this is not insignificant you'll say well of course it's insignificant to startups Toninho million dollars or things like this but for a person to put up their own money not knowing what's going to happen this is not insignificant so you know there were some expenses it's not it wasn't easy so it started with a big loss and there was no revenue to offset that loss it was all lost stress pressure all the all our friends that we know well that we encounter when we start our businesses the income statement just business hasn't started we'll cover that later when we covered the business plan two years later a little bit about the profit on the $20 sale it just takes $5 to produce the bottle so the $15 gross that operating profit is a little smaller because we have to take an account into other costs that go into it.

So the actual profit is a little smaller but still relatively significant per sale and that's what we came up with very very simple math like this is not complicated because we only are really selling even though we're also selling the brush here the finances are only for the grout bottle but really it's just one grout bottle there's not a lot going on it's very minimal and a lot of it is estimate too because who knows at this point how much website maintenance there will be how much other expenses there will be some things are really up in the air these are largely approximations but what's clear is that a sale of a bottle makes a reasonable amount of money it's not paintings it's not 25 cents it's you know almost 10 dollars give or take couple dollars still pretty good just have to sell the bottle that's really the key here that's apparent so the margin is there we have a healthy margin even if you decrease it a little bit it's still not terrible it's fine what you'll find is we have some pro forma revenue forecasting and revenue forecasting for a business that has not started is notoriously faulty I mean when you start a business you can make a billion dollars or you can make no dollars it's hard to tell what we ended up basing our projections on were online tools like the Google Keyword tool that tells us demand and the jungle Scout tool that tells us Amazon demand as opposed to the Google Keyword tool tells us Google demand and we saw what the search was on jungle scout we saw what the Google tool was giving us and it's kind of similar to the calculations we did when we calculated the market size and what we decided was that in the first year or so we'll probably be able to do somewhat well on Amazon somewhat well on Google and we saw that if we were to dominate on Amazon and do ok on Google within a year of execution then we make 26 thousand dollars a month almost so those are pro forma revenue projection and it's healthy enough like this was a good goal and the last thing you can see is the balance sheet is very bare there's almost nothing like there's no equity there's no liabilities there's very very minimal things I mean there's like a little bit of fixed assets of inventory there's a little bit of like intangible assets and intellectual property but nothing really that makes or breaks a big difference.

So the finances here are nearly negligible but you'll see two years later this really changes we'll see that later in the course for now this actually ends the business plan for when the businesses before the business has started we've identified how we're gonna promote and we've got our initial inventory and we've got a good product if you think about the three sentence business plan essentially in the three sentence business plan we could have covered all the major most important things here how we're gonna promote what's the product how we're gonna make money we could have covered all this these details in a three sentence business plan if we just focused on only the most important things these are just elaborations it's kind of like what Einstein says if you can't explain it to a six-year-old you don't understand it yourself that's the famous quote by Einstein and this is the kind of the case of the three centers business planners yeah you really can't explain the entire business maybe not every detail in the business but the details are not that important typically as long as you've got your major strategies right but once you've got your major strategies right it's not the plan it's the execution of the plan that's gonna actually get you to the results and in the next videos what we're gonna talk about is what happened later what were the challenges what were the successes where were the fails and you see that it's actually all about the execution the planning is a deal we identified all the ideal strategies now it's time to do the work so in the next video that's what we're going to cover.