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Step 3: Your Business Model & Knowing Your Numbers (Financial Forecast)
Welcome to week three of our series on "Building a Business That Gets Funded." So far, we've covered the importance of setting clear objectives and utilizing the PCS Framework to define the problem, understand your customer, and craft your solution. Now, it’s time to dive into a critical component that can make or break your funding efforts: Your Business Model & Financial Forecast.
A strong business model and accurate financial forecast are essential to demonstrate to investors how your business will operate and generate revenue. These elements are not just about presenting numbers—they tell the story of how your business will succeed.
1. Your Business Model
Your business model outlines how your company creates, delivers, and captures value. It's the blueprint for how your business operates. Here are some key components to consider:
Revenue Streams: How will your business make money? Will it be through product sales, subscriptions, services, or something else? Define all your potential revenue sources.
Cost Structure: What are the key costs involved in running your business? Include fixed and variable costs, such as rent, salaries, production costs, and marketing expenses.
Value Proposition: What unique value does your product or service offer to customers? Why should they choose your solution over competitors?
Customer Segments: Who are your target customers, and how do you plan to reach them? Detail the different customer segments you aim to serve.
Channels: How will you deliver your product or service to customers? This could include online platforms, physical stores, partnerships, or direct sales.
Key Activities and Resources: What are the most important activities your business must undertake to operate effectively? What key resources are required to support these activities?
2. Knowing Your Numbers (Financial Forecast)
Once your business model is clearly defined, the next step is to create a financial forecast. This is where you project your income, expenses, and overall financial performance. Investors want to see that you understand your numbers and have a realistic plan for profitability.
Revenue Projections: Estimate your sales for the next 1, 3, and 5 years. Be realistic and base these projections on your market research, sales strategy, and business model.
Expense Forecast: List all expected costs, including operational, marketing, production, and administrative expenses. Ensure you account for both fixed and variable costs.
Profit & Loss Statement: This summary shows your revenue, costs, and expenses during a specific period. It helps illustrate whether your business is profitable or not.
Cash Flow Forecast: Outline how cash will move in and out of your business. This forecast helps you plan for times when cash might be tight and shows investors you’re prepared to manage your finances effectively.
Break-Even Analysis: Determine the point at which your revenue equals your costs. This analysis helps you understand when your business will start making a profit.
Wrapping Up
Your business model and financial forecast are more than just paperwork—they're the backbone of your funding strategy. They show investors how you plan to make money and how you'll manage your finances to achieve long-term success.
Next week, we'll wrap up our series by discussing Step 4: Crafting a Compelling Pitch & Building Investor Relationships. Stay tuned, and as always, know that The Velocity Small Business Ecosystem is here to support you every step of the way.
Let’s continue building something great together.
Click below to download the Your Business Model & Knowing Your Numbers Template:
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