Grout business plan financials - Learn Online

Grout business 2-year business plan financials

Lesson Details:
March 03, 2020

Video Transcription: In this video, I wanna dive deeper with you into the finances of the grout business and what I'm going to give you is a snapshot of one month of a cash flow statement for this business now cash flow statements are often made month by month by month I don't want to give away all the financial information of this business it's not good for them and it isn't that helpful for you what is helpful for you is a one month snapshot so we're gonna take a very simple one month snapshot and if you once you understand the one month you can extrapolate this to many months the months doesn't matter because most of these items they're they repeat throughout the months as the numbers are a little different but what I want to bring your attention to is that we have it so many expenses that destroy profit because our revenue as you can see we have two major sources of revenue selling from the website which is still very underwhelming and selling from Amazon, okay so it's a hundred and seventeen thousand dollars which equates to way over a million dollars in revenue per year and its might seem fantastic but there are so many expenses the creating the inventory alone is like twenty-five thousand dollars.

Now the storage warehouse is getting expanded it's gonna be more expensive than that but even so there is a cost to that it's not a big cost website maintenance there are some costs that are not big costs but staff salaries this actually can be a bigger number because this is staff this is excluding the founder paying themselves if the founder paid themselves probably it would be another let's say eight thousand dollars even if it's modest right or seven thousand dollars and it was further way cut into the profits because the total costs are over eighty thousand dollars so there's only like thirty seven thousand dollars roughly remaining which is still fantastic don't get me wrong it's still fantastic but it's it's not one hundred seventeen two different worlds now so you see we have to take into account things like taxes Amazon Commission's maybe extra marketing costs because say that when something I mentioned earlier like hiring extra people for SEO what that's gonna balloon the salaries if the founder wants to get paid more that's gonna balloon the salaries right so this number could be as much as 20,000 or more you hire different freelancers more so marketing for additional new product lines or applying to the brick-and-mortar stores that might have additional cost like needing to buy more inventory upfront or bigger warehouse or those brick-and-mortar stores might require extra money to be put away in giving away the product samples or different kind of marketing so what can happen very quickly is that the expenses might actually outrun the revenue in some months.

Even though the revenue is so big this is a cash intensive business you need to constantly buy more inventory constantly grow so it's actually not as simple as it seems and that's really what I what I wanted to bring your attention is that there's always problems that like you know most people never get close to this type of revenue a month but even so there's so many issues and now that you understand this which is really an interesting thing about this business in my opinion let's go over the income statement a little bit it's very similar to the cash flow statement we'll just skip over it there's very few differences we have the gross profit might seem great it's just not including expenses but if we include expenses and as I showed you expenses can be way bigger really quickly like if the founder wants to get paid more and so on and so on this number can really go down or if taxes change or if taxes are more this profit can really go down the margin is still relatively healthy in your case whatever your business's you have a certain margin that is expected for your industry so just make sure you stay around that and the forecasting well this company is really hard to forecast for because if you get accepted to a big brick-and-mortar store that might quadruple your sales overnight but as far as Amazon is probably it always feels like we're tapping out of Amazon potential and then Amazon just doubles the sales that it brings so who knows it's it's it has been so unpredictable using the tools hasn't been predictable as you recall the jungle Scout tool predicted like a maximum of like twenty two thousand dollars or twenty five thousand dollars a month revenue with that just was an error and with the new products I think it's safe to assume that the new products as they go up the rankings you can expect a certain revenue growth month over month for those just like we had for the original product but beyond that once those reach potential the sales might plateau until this product gets accepted to brick-and-mortar stores and then the sales my spike again but then they might plateau again so it's not even at this point I probably scaled down the revenue projections to something more reasonable than twenty five percent month-over-month and and even change the deadline for this and say over the next maybe like a hundred percent growth over the next twelve months so it's something he's more manageable to shoot for and still very aggressive now the balance sheet of this company is nothing complicated there are some assets like inventory like cash little things like that but this is not a complicated business it's all about buying up inventory selling the inventory buying up my inventory selling the inventory so that's the business so I kept the balance sheet section relatively light and that really concludes our look at the business plan of the for this company two years and into its maturity after a relative amount of success in you seems so it's a difficult business so much more to manage turnaround in products it does take a real toll I'll give you a real example there was one month for this company where they made a lot of sales on Amazon more than they expected and they ran out of inventory and so their Amazon inventory number went to zero and when that happens Amazon stops showing your product on Amazon because you have it says you have zero inventory nothing to sell they ran out of products so they had to buy up more products get the product shipped it took like an extra week or two weeks or even maybe three depending on how you count and that was like a big loss because they were not selling the products at that point you see so sometimes managing products at this scale represents real technical challenges in actually delivering the product getting the inventory in house set shipping it out all those things the scale of those challenges really grow it might seem like oh it's easy they know how to do it but even though they know how to do it they can still make mistakes it's still a small company so there's a lot of challenges like that on a day to day basis a lot of things to keep track of and maintain so it's still not easy there's still so much work to go but at least I hope that this example showed you exactly it's a real company this is exactly what happens it's got challenges it's got problems made so many mistakes made some things right and in the end it was it took a great product deep knowledge of the product tremendous persistence and eventually with tremendous persistence a perfection and high quality of execution of some strategies and that high quality of execution led to the successes those are the takeaways.

Course content