Demo: Entering Business Financial Projections on LivePlan

Resources

• Best Business Planning Software: LivePlan 
• Free Accounting Consultation: 1-800 Accountants
• Best LLC Formation Service: Northwest 

In this section, we’ll conduct a step-by-step demonstration on how to effectively input your financial projections into LivePlan. We’ll cover every essential feature, from entering your revenue and cost projections to projecting your cash flow. With this demo, you’ll gain hands-on knowledge on how to utilize LivePlan for your small business’s financial success.

Hey everyone, Will Scheren here from Small Business Startup Guide by TRUiC. If you’ve been following along with us in this small business course, then you know we’ve just finished covering the functionality of the financial planning features on LivePlan.com, and throughout the course, we’ve been doing some planning for an imaginary barbershop that we’re opening up in Bloomington, Illinois. 

In this video, we’re going to be putting some financial projections together for the imaginary barbershop. This video is part of a larger course dedicated to helping small business owners cut through the noise and get to the essentials of starting and operating their business. If that sounds like it would be really useful to you, be sure to like and subscribe. 

At TRUiC our mission is to offer all our resources and information for free – but we support our work by using affiliate links, meaning we earn a commission on many of the amazing deals we’ve negotiated for you. Full transparency, LivePlan.com is one such affiliate partner. Link in description below. 

After getting logged in to LivePlan.com, I’ll fill in the initial business information. We’ll be covering how to name your business later in the course, but I’ll go ahead and put the name that we’re going to select here now, and we’re going to begin the financial projections for this company in January 2023. 

Then I need to ensure that I switch the projection to five years since earlier in the course, we noted that the business has a five-year goal of generating $250,000 a year in profit in less than five years. 

After clicking “Create Company,” to enter financial projections for the imaginary barbershop, I’ll need to click on “Forecast” and then begin adding revenue streams as we discussed earlier in the course. 

The barbershop will have revenue generated from the barber cutting hair with three levels of service. We’ll begin by adding revenue considerations for a standard haircut. We’ll enter this as “Lead Barber Standard Haircut or Fade.” The type of sale this is will be a standard sale, and we’ll want to enter the revenue for this in varying amounts over time. 

The barber plans to dedicate his first two months opening his business, getting his physical shop ready, and setting up his website and marketing streams, so he’ll not have any sales in the first two months. 

Earlier in the course, we establish that the barber has the capacity to sell 15 standard haircuts each day, but he likely won’t sell out of his capacity to cut hair right when he opens, so we’ll plan his sales in his first month after opening to be 50% of his capacity and will gradually fill his ability to reach his capacity each month until he hits his full capacity in December. 

In the second year, the barber will hire another barber to work at the shop, and he estimates that this will reduce his sales for lead barber products by 20% in the first month of the year, as they’ll need to split his walk-in customers with the new barber. He’ll hope to grow his sales of lead barber products back to 100% of his capacity over the next year. Then he plans to remain selling at capacity for the next three years of operating his shop. Finally, we’ll know that the barber plans to price this product at $30. 

He’ll plan to use these sales as a percentage of capacity considerations for each of his lead barber products, so we’ll go ahead and add in this information for the other two products based on the capacity assumptions that we made earlier in the course. 

Next, we’ll add in revenue information for the affiliate barber products. Each of these products will have zero revenue in the first year, as the affiliate barber won’t have been hired yet. The barber will plan to have the affiliate barber begin his first month of the second year, being able to sell at 60% of his capacity and will grow to be hitting full capacity by the end of the first year and continue to sell at full capacity for each of the remaining years of the plan. 

Next, we’ll add revenue considerations for each of the men’s hair products that the barber will carry and sell online. The barber will be able to bring in $1,500 of the four products — three of the products will retail for $20, and the final product will retail for $15. He’ll plan for the acceleration of sales for these products to be slow but believes he can sell all of them in his first year through digital marketing efforts and selling them in his shop. Finally, the barber will need to include revenue tips from his haircuts, and we’ll make this 10% of his lead barber sales. 

After adding all of the expected revenue for the company, we can move on to the direct costs associated with the revenue. As a reminder, a direct cost is a price that can specifically be tied to a good or a service. 

The lead barber service products only have pennies of direct costs associated with them, if any at all, so we don’t need any direct costs for these services. The affiliate barber services that the barber plans to offer at his shop, though, will have direct labor costs associated with them. 

Let’s say that the barbershop owner works it out with the affiliate barber that they’ll receive 70% of any haircuts to add to this cost. After clicking on the “Direct Labor” sub-tab, we’ll click “Add Direct Labor.” Give this direct labor cost a name, confirm it’s a direct labor cost, and select one of the four options that we have for how to enter the cost. 

For what we just outlined, “percentage of a specific revenue stream” would be our best option, so we’ll select one of the affiliate barber revenue streams that we just created. Note that the cost will be about 70% of revenue. After finishing this first affiliate barber cost, we should repeat the process for all of the affiliate barber services. 

Then we’ll need to take a look at the men’s hair products that the shop intends to sell. Let’s assume that the barber is able to acquire these products for half of what he intends to sell them for. To account for this, we’ll click “Add Direct Cost.” Name the cost, note that it should be applied to a direct revenue stream, select one of the men’s products, have the unit cost remain constant, and note how much it costs. And, of course, we’ll need to repeat this process for each of the men’s hair products. 

After adding direct costs and direct labor, we can look into the “Personnel” tab. Here we can see that the labor cost incurred by the affiliate barber we intend to hire and the business’s second year are being accounted for. If we wanted to add another employee to the shop, say an office assistant or a marketing director, we could do that in this tab. But we’ll just stick to the affiliate barber for now. 

As a note, the additional tax and benefit costs incurred by hiring employees to the shop is calculated by the burden rate multiplied by the salaries of the employees. These costs show up in the profit and loss statement as employee-related expenses. 

If you’re following along and planning your own small business as we plan out this barbershop, you may want to check your local tax laws and get an accurate understanding of any of the costs of providing benefits to your employees. But oftentimes, this number is close to 20% of what the business pays their employees, so we’ll leave it at that for now. 

After forecasting your business’s labor cost, LivePlan has you take a look at the other expenses for your business that you’ve not calculated yet. Keep in mind that you’ll want to skip this list of expenses when planning your expenses in LivePlan.com as they’ve already accounted for these expenses and other financial tables. 

When it comes to forecasting expenses, this is best accomplished by thinking about the steps that you’ll take in the business during the forecasted time and adding expense considerations every time you’ll think you’ll incur one. But oftentimes, there are things that you’ll forget to include, so it’s helpful to consult a list of common business expenses, like the one that we looked at in an earlier video in the course, to see if you can come up with any further expenses after planning chronologically. 

To start, most businesses could budget about $1,000 for initial startup-related costs if they plan to file for their LLC status and other related filing costs. Then, since this barbershop will operate in a physical space, they need to account for the rent each month and tend to be in their rented space and will need to pay for an initial build-out of their location. 

The barber has a pretty aggressive growth plan for the first year, so he’ll want to make sure that he creates a marketing budget. We’ll be covering how to set up a marketing budget in-depth in later videos in the course. But for now, you can know that generally, marketing falls between two and 10% of expected revenue and that budgets tend to make up higher percentage of expected revenue in earlier years of formation. 

The barber can spread 10% of his revenue over the first year, with some strategic allocations plan for events or seasonal marketing spends with these initial planning purposes, and can plan to hold that same marketing budget for his second year.

As I was planning out this expense budget, after making some calculations for the marketing budget, I was at a little bit of a loss for what expenses to calculate next, so I consulted the list of common business expense categories and found several small but noteworthy expenses that I thought I should go ahead and include in the budget.

After completing the list of expenses, the barber would need to plan his major asset purchases. The only real assets of note that the barber could consider selling later down the road are his barbershop chairs, so we’ll go ahead and account for purchasing two of these at $900 apiece. 

After calculating the major asset purchases for the barbershop, the barber would need to account for his tax rate in LivePlan.com by searching any taxes that he would need to pay for his local, state, and national governments. 

Next, if the business owner plans to take out money from the business to finance his personal life while he operates the business, he’ll need to account for that in the “Dividends” tab. As a note, if the barber wants to treat himself as an employee of the company and receive any of the health benefits that he’s set up for employees of the company, he would need to account for his salary and the “Personnel” tab on LivePlan.

After making some considerations for any cash disbursements, the barber owner would need to plan his cash flow assumptions. It’s reasonable to assume that the barber would not have any accounts receivable for his products or services, as they would all require to be paid upon delivery of the good or service. He could potentially have accounts payable for his men’s hair care products if he set up with this vendor that he could receive the product before he paid for it. But we’ll just assume that he pays for the orders of these products as he goes. 

Since the barber will be carrying an inventory of the men’s hair products, he’ll need to account for the purchase of this inventory in his cash flow. The cost of the inventory is already being calculated in the “Direct Cost” tab, but he’ll need to note the minimum inventory that he wants to keep on hand and his minimum order quantity to let LivePlan automatically calculate when he’ll need to order more product and pull cash out of his account at those times rather than just pulling it out when the product sells.

And finally, the barber will need to plan out any initial cash investments that he’ll be making in the business and gain an understanding as to whether or not he’ll need financing to get the business started. 

Let’s say that the barber is able to bring $12,000 to the table when the business gets started. We’ll go ahead and note that in LivePlan with an “Add Investment” entry. To know whether he’ll need additional financing at this point, the barber can click on the balance sheet tab at the top of LivePlan and turn on the “month-by-month” detail. Then he could check the cash account. 

If, at any point, the cash were to show as a negative amount, it would mean that the business would need additional financing for at least the amount of the lowest showing negative amount in any given month, and would need to secure the financing before the first month that it showed a negative amount. 

As we can see here, as the business is currently planned, the barber would have a negative cash balance prior to opening the shop in the second month and would have an all-time low balance of a little under $19,000. 

Therefore, we’ll use LivePlan to take out a loan for the amount of $25,000. The barber would have to call banks, credit unions, or someone with whom he has a personal relationship to see if this type of loan would be available. He would need to gain an understanding of what the interest rate on the loan would be, as well as how long you would have to repay the loan. We’ll go ahead and assume that he can get a 5% loan with a five-year term for $25,000. 

After entering the loan into LivePlan, the barber would need to ensure that he can afford the loan by ensuring that he does not show a negative cash balance later in his planning. 

After adding any needed financing in the LivePlan, the software would have everything that it needed to produce three of the most important documents that a business owner would need to ensure that his business plan has a chance at succeeding. These three documents are the profit and loss statement, statement of cash flow, and the balance sheet. 

These three documents can be a bit intimidating to read to anyone who doesn’t know how to read them and doesn’t know what information is critical for them to pull from these documents. So we’ll be covering exactly how to do that in the next video in the course. 

This video is part of a step-by-step course that gives small business owners all of the essential information to start and operate their business. We’ve provided a link for you to get access to all of the free and discounted business tools that we mentioned in the course below this video. 

Be sure to like and subscribe to get more of this content. We’ll see you in the next video, and if you have any questions, let us know.