The Numbers

The Numbers section is where many readers go first. Lenders turn straight to it. Funders check it to see if their money will make a lasting difference. Leadership looks at it to understand the cost and the risk.

You don’t need to be an accountant to build a credible Numbers section, but you do need to be clear, honest and consistent. This lesson shows you what to include and how to present it.

What the Numbers section includes

A good Numbers section for a community enterprise usually includes five parts.

• Key assumptions. The volumes, prices, costs and growth rates your projections are built on, with the source of each.
• Capital costs and sources of finance. What you need to buy or build, what it costs, and where the money will come from. This is your capital plan from Lesson 5.4.
• Projected income statement. Revenue, costs and profit or loss for each year, usually for three to five years.
• Projected cash flow. Money in and out each month for the first year, then each year after. This shows whether you’ll run short of cash.
• Break-even and key measures. When the enterprise breaks even, and any measures readers will look for, such as how it will repay debt.

Start with your assumptions

Every number in your projections rests on an assumption. How many tonnes will you process? What will you charge per tonne? How much will you sell, and at what price? What will wages, fuel and rent cost?

List your assumptions in one place, and give a source for each: a quote, a letter of interest, a comparable enterprise, published prices or your pilot results. Readers will trust your projections more if they can see where the numbers come from, and it makes your projections easy to update when an assumption changes.

Revenue projections

Build revenue from the bottom up. For each product or service, multiply the expected volume by the expected price. Add gate fees, service fees and other income.

Be realistic about how quickly sales will grow. Most new enterprises take time to reach full capacity. A common approach is to assume you’ll reach a portion of full capacity in year one, more in year two and close to full capacity by year three.

Cost projections

List your costs in two groups, as you did in Lesson 5.2.

• Variable costs, which rise with volume, such as fuel, materials, bags and seasonal labour.
• Fixed costs, which don’t, such as core wages, rent, insurance, permits, maintenance and loan payments.

Don’t forget costs that are easy to overlook: equipment maintenance and replacement, insurance, accounting and legal fees, permit renewals, training, marketing and a contingency.

Cash flow matters most

Profit and cash are not the same thing. An enterprise can be profitable on paper and still run out of cash, because money goes out before it comes in. Equipment must be paid for before it earns anything. Staff must be paid every two weeks, while customers may pay after thirty or sixty days. Grants often pay out after costs are incurred.

A monthly cash flow forecast for the first year shows when cash will be tight and how much working capital you need. It is one of the most useful tools you can build, and lenders will almost always ask for it.

Test your numbers

Your projections are your best estimate, but reality will differ. Test them by building three scenarios.

• Expected. Your best estimate.
• Cautious. What happens if volumes are lower, prices are lower or costs are higher, for example by twenty percent?
• Strong. What happens if things go better than expected?

If the enterprise only works in the strong scenario, it isn’t ready. If it survives the cautious scenario, even if only just, readers will have much more confidence in it.

Common mistakes

Watch for these common mistakes.

• Optimism. Assuming full capacity in the first month, or prices higher than the market will pay.
• Missing costs. Forgetting maintenance, insurance, replacement or professional fees.
• Relying on grants for operations. Grants can help start an enterprise, but the business must cover its ongoing costs.
• Inconsistency. Numbers in the Numbers section that don’t match the Products, Operations or Team sections.
• False precision. Projecting revenue to the dollar five years out. Round numbers are more honest.

Honest limits

Financial projections for a new enterprise are estimates, and readers know it. What they look for is a sensible approach, clear assumptions and an honest view of the risks. Have your numbers reviewed by an accountant or someone who has run a similar business before you share them with lenders or investors.