How do you start with a good financial prognosis for your company? This is a question often asked by startups, especially when a lender has to be convinced. The answer: start from your Business Model Canvas.
Your BMC and your financial plan are essentially two sides of the same coin. Follow the next simple 6 steps (out of 9) to learn how to start your financial prognosis, with nothing more than your Business Model Canvas (BMC).
1. Value Proposition
As an example, we take a fictitious company cola brand X and let’s call this brand Happy Cola. The value proposition of Happy Cola is: 'Make the world smile!'. How does this proposition affect the financial plan? It implies that Happy Cola wants to have a large customer range ('the world') and likes to be associated with and seen with / during moments of happiness and joy ('smile'). You will see that this has an impact on the costs and revenues you can expect. Based on the value proposition you not only determine the context for the BMC, but also for the financial plan.
Once you have clear the value proposition of your company, you determine which channels you use to bring this value to your customers. Happy Cola's value proposition forces the company to pursue a large customer reach and implies that it wants to be associated with moments of joy. In order to guarantee a wide range of customers, the company therefore decides to focus on sales via supermarkets, events, cinemas, restaurants and other catering establishments as a distribution channel to ensure that its products will be consumed during pleasant, happy
These distribution channels determine which products the company will offer:
1. Liter bottles for the range via supermarkets.
2. Cola taps in order to be able to meet the high level of consumer demand in cinemas,
restaurants and events where the brand stands. Enjoy visibility to strengthen the association with
conviviality. Based on the BMC, we have now defined the products that Happy Cola sells. the next
step now is sales targets!
3. Customer Segments
For your financial plan, it is important to clearly define your customer to know the size of your market and then to make a sales target with that knowledge. Back to the example: Happy Cola has decided to focus mainly on hip adolescents. Because what appears? Happy Cola's market research shows that there is a great need for a new type of cola in the urban agglomeration.
Young people in the urban agglomeration are desperately looking for a new cola brand, as currently only Pepsi and coca cola is sold.
The area currently sells 10 million liters of cola to adolescents and Happy Cola wants to get 10% of that market in the coming year. The company estimates to be able to sell cola in 600,000 liter bottles and also 400 taps, each of which accounts for 1,000 liters of cola per year.
This gives Happy Cola 10% of the market (1 million liters of cola sold) and the following sales targets for the coming year:
1. 600,000 liter bottles of cola
2. 400 cola taps (* 1,000 liters per tap = 400,000 liters of cola)
By making a business model, a turnover forecast can be drawn up. To determine your business model, ask yourself two questions: 1) how do you earn money (renting, leasing, one-off sales, subscription, etc.); and 2) what price do you ask for the products / services you sell? It works as follows for Happy Cola. The company sells liter bottles for € 1 each as a one-off sale via supermarkets. In addition, it offers cola-taps for restaurants, cinemas and event agencies for € 1,200 per year on the basis of a 5-year lease contract.
This means that Happy Cola's sales forecast for next year looks like this:
1. Bottles: € 600,000 (600,000 bottles * € 1 selling price)
2. Taps: € 480,000 (400 taps * € 1,200 rental price)
The bottles of cola are not a more valuable source of income since the bottles are sold as a one-
off sale through the supermarket, while the taps are being let over a period of 5 years and thus
yield longer term. Because of this contract, Happy Cola is reasonably certain that it will earn €
480,000 per annum in the coming 5 years by renting the taps. In order to market the individual
bottles of cola, however, investments must be reinvested every year in sales and marketing. The
tap sales therefore show the advantage of a business model with repeated revenue streams
5. Cost structure
To estimate the costs, ask yourself two more questions:
1) what are the costs that move one-by- one / fluctuate with your sales (the variable costs)
2) what are the costs that you incur, regardless of how much sales you are running (the fixed costs)?
Happy Cola, for example, has to take into account € 0.50 of purchased plastic per bottle. Material costs for the taps (purchased plastic and metal) are € 400 per tap. The more taps and bottles of Happy Cola sell, the more plastic and metal it needs to buy. These costs are therefore variable costs.
Happy Cola also leases a large sales office in the urban agglomeration and pays € 50,000 per year for this. These are fixed costs: whether Happy Cola sells 0, 100,000 or 1,000,000 liters of cola, the rent will have to pay the company anyway.
Happy Cola's costs are as follows:
1. Variable cost bottles: € 300,000 (600,000 bottles * € 0.50 cost price)
2. Variable costs tapered: € 160,000 (400 taps * € 400 cost)
3. Fixed costs (rent): € 50,000
6. All together
There you go! We have just made a global financial forecast for Happy Cola for next year as shown in the table below!