
1.6A MONEY TALKS
1.6B MONEY MATTERS





1.6C FINANCIAL MODELLING PER PRODUCT

1.6D BREAKING EVEN
Eg. LET THEM EAT CAKE business. Our Pastry-chef-turned-founder, Pam, needs to understand what it will cost her to get a cupcake into the hands of the customer. Break it down.
- Cost of ingredients per cupcake.
- Retail price point per cupcake. (She will have to undergo market research as per Module 1.4 and sample as many competitors as possible – their business model, their price point, their location, their quality, and their cupcakes too!)
- Where is Pam selling the cupcakes? Online, wholesale locally, wholesale nationally, in store. What do these logistics cost per cupcake?
- Is Pam providing a delivery or pick up service?
- Pam needs to hire a freelance Marketing Manager for five hours per week. How many cupcakes does she need to sell before she can pay these fees?
- What’s the break even point per cupcake?
- Can Pam continue tweaking until the model provides a profit? If not, she might be best to shut up shop before even opening.
- If Pam has to wake up at 3am to make enough cupcakes to cover her costs, and she LIVES for making cupcakes, then go Pam. However, if she doesn’t want to wake up at 3am, then Pam needs to remodel the business, or find an entirely new business idea.
1.6E THE NITTY GRITTY
In your financial modelling, there is a critical piece of information that is often overlooked: How will your debtors/clients pay?
- What are your terms of payment? Cash? 7 days, 30 days or 120 days?
- Are you sure they will pay in a timely manner?
- Without considering this, you may discover a significant hole in your cash on a month-to-month basis. How will you survive this?
- What terms can your business sustain and are those terms acceptable to your clients?
- Understand how your competitors are paid, and find out their terms of payment. A mystery shop will do the trick.
1.6F SALES CHANNELS AND GROWTH STRATEGY
SUMMARY

- Be open and honest about your relationship with money.
- Financial modelling is critical to the success of your new business.
- Understand your breakeven point.
- Know your competitors, and their price points.
- Evaluate your sales channels and create a growth strategy.
- If you think you aren’t money-minded, you can change your mind!
- This modelling should be an ongoing working document throughout the life of your business and is not solely relevant to new business.
- Remodelling should be done regularly, and is fun to do.