6 Common Mistakes of a Startup Forecast

//6 Common Mistakes of a Startup Forecast

6 Common Mistakes of a Startup Forecast

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Forecast a bright future for your Startup by avoiding these common forecasting mistakes!

All startups need a financial forecast to demonstrate their feasibility and the strength of their business idea. Startup forecasts are used in business plans to show investors, mentors and bank managers what the profitability of your business is going to look like over the next 3-5 years.

It is an important document which needs to be accurately represent your startup so here are our top 6 mistakes to avoid when you do your startup forecast.

1. Over estimating

Don’t let you ego get in the way when projecting your sales growth. Be realistic and don’t let the possibilities carry you away.

Base your sales projections on as much data as possible. Market research, competitor research and personal experience should all play a large part in your projections for each of your sales lines.

2. Under estimating

Equally, be brave enough to ignore any sceptical voices in your head and don’t under estimate what your sales growth will look like.

In order to produce a financial forecast for your startup that you can rely on, you need to find a balance and be realistic. Underpin all of your projections with facts and data but don’t get too wrapped up in the details of your research. 

It might be worth considering forecasting different scenarios – best case and worst case and discuss them with your mentor or business advisor. This way, you could unpick the data behind each forecast and will you will probably end up with a happy medium.

FINANSCAPES forecasting software offers an unlimited amount of scenarios and a publishing features which allows you to do just this in the click of a few buttons.

3. No plateaux allowance

The phrase growth projections are a little misleading and suggest that there should always be growth, that each month you should be selling more than the previous, but this just isn’t realistic.

As a startup you should be forecasting in plateaux because this is a far more realistic expectation. Initially you will do some promotional activity and sales will increase quickly, but as work picks up and growth starts to happen, there will be less time for promotional work so sales will inevitably plateaux.

There is nothing wrong with this, it is part of your startups journey, as long as it is included in your startup forecast. If it isn’t, you are going to find the correlation between your forecast and reality widen.

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The perfect recipe for small promotions that make a big difference!

Promoting new product is not an easy task. For companies it is very important to have creative and effective marketing strategies, since these are able to attract new customers and make the current ones more loyal to company’s brands. Informing customers about the new product launch and making them try it later are the first steps in creating a respectful brand, and they are equally important as any other parts of product’s campaign. In this article we’re going to review the whole process of promotion and try to explain it in 7 easy steps.

Building the Hype

Step 1: Product Functionality Is the Key

Big hype before the product launch is one of the most useful things that can help its later sales. Is there a better example than Apple, who sold more than 10 million units of the new iPhone 6 on the first weekend of sales. One of the most important things when it comes to creating a big hype is to properly emphasize all advantages of the upcoming product in a way people can understand them. Steve Jobs never spoke about tech details of the Apple gadgets, but about how they’re going to change our everyday lives. This strategy made him one of the best entrepreneurs in the world.

Step 2: Social Media Campaign

Social Promotions

Most entrepreneurs don’t have enough money for prime-time TV commercials. They shouldn’t feel bad about it though, since social networks became the best places for product promotion long time ago. Product needs to be loudly promoted on all available networks, with the use of paid ads and constant look for audience feedbacks. Product launch campaigns on social networks usually present teaser photos of the product or some of its parts, videos of the product or its production process and lots of interesting and educational stories, facts and jokes. Each campaign should have a set of memorable hashtags and lots of retweets and shares made by celebrities or experts from the niche. Company’s community managers can also make contests, and the most successful fans should get presents from the company. Giving the new product as a present to the most loyal fans and sharing it on social networks can be a great marketing strategy. This kind of promotion is one of the most effective if your product is in electronic form, like e-books, software, etc.

4. Unanticipated expenses

There are a plethora of expenses that come with a startup that, until you have done them, you may be completely unaware of.

The purpose of a startup forecast is to help you anticipate these costs and factor them you’re your forecast so they don’t railroad your business.

Some of the common expenses that aren’t forecast include;

* Marketing costs,

* Equipment,

* Professional fees,

* Employer costs (NI, Pension contributions etc.)

* Interest rate increases

* TAX / VAT increases

Some of these unforeseen costs are with your control and others are not so it is difficult to account for all of them. However, it is good to build into your forecast a small surplus to account for any additional costs which could come your way.

5. No cash flow forecast

This bring us nicely onto cash flow forecasts. Cash flow is the available cash within your business and if there is insufficient available funds within your business, things are going to get difficult very quickly.

This is why we suggest you have a separate forecast for your cash flow which will show you, based on your other forecast figures, what you cash flow is going to be a set period in the future.

With this information you will be able to; make better decisions, have confidence that you can afford to do certain things, avoid financial problems before they happen and only proceed with ideas and business ventures that are going to work out financially.

6. Wrong pricing structure

If you don’t do your research and understand the pricing of your market, your forecast will be completely meaningless.

By understanding your price point within your market, you will hopefully price your product correctly so that you are both competitive and appealing to your target segment of your market.

The price you sell your product or service at in your forecast has to be accurate and realistic because it will have a massive impact on your forecast if it is wrong.

Too high a selling price and you won’t achieve the sales you have forecast. However, too low a price and your margins might not be sufficient to make your startup viable.

If you are uncertain what the pricing of your products or service should be, there are a number of things you can do to help:

* Market and competitor research

* Forecast the different pricing scenarios

* Discuss the options with your mentor or business advisor

* Establish your desired level of profit and work backwards

* Consider a discount pricing strategy

For more information about pricing your products, see 5 Key Steps to Optimal Pricing

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By | 2016-11-07T22:12:31+00:00 November 30th, 2015|Categories: Articles|Tags: , , , , , , , |0 Comments

About the Author:

Lynsey is the Marketing Manager at FINANSCAPES; a cloud-based forecasting tool giving you professional, error-free forecasts to reduce the risk of start-ups and increase SME growth rate. Will your business be profitable, or a dead weight? What if you changed your prices - or didn't meet your sales forecast? Better-informed decisions mean a stronger business. No spreadsheets, no calculations, no endless march of next > next > next. Just a simple, intuitive interface wrapping a powerful and flexible financial engine that tells you how the numbers will stack up. FINANSCAPES is the simplest, easiest way to forecast your profitability and cash flow.

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