The cost structure part of your business plan is critical. This is what tells the investors if your business is worth it. Read ahead to learn a few powerful ways to make yours just right!
Understand your industry. You should start with research to understand when there are market lulls and bursts for your product. Let’s say, for example, you are involved in greeting cards, similarly to Greeto. The greeting card industry tends to experience booms during holidays, when people are more in need of cards, and experiences lulls during the spring and summer, when there are not as many holidays or universally special occasions. This is going to be essential in order to set your projections for a 1-5 year sales forecast.
Start with a graph. Look at where your industry's booms and lulls, and based on that figure out a reasonable number of units/ services you can sell during these times. It’s all about trends. If you are consistent with your numbers in creating an appropriate annual trend, your business plan becomes increasingly clearer and simpler to interpret – but more importantly, it becomes trustworthy.
“It is all about trends! If you are consistent with your numbers, your business plan ... becomes trustworthy.”
Ditch the jargon. Lots of people tend of overuse jargon in their business plans. Reason being is that they think it’ll make them sound smart, and trustworthy in the eyes of a potential investor. To be completely honest, using excessive jargon is simply going to be confusing for both you and the person that you are presenting the plan to. Just make it easier on yourself and try to not overuse industry-specific terms. A good template can be this blogpost itself. Use the same level of vocabulary I am using right now (but obviously in a far more formal tone).
Be specific. I cannot stress this enough but please be specific about where the money is coming from and any external costs such as production, shipping, printing, etc. This will be essential to include since it keeps all of your numbers 100 realistic and reliable.
“You can't expect to be a millionaire within hours.”
Undershoot instead of overshoot. Of course, it is important to be confident in your plans and solid on your understanding, but when it comes to sales forecasts, it is definitely safer to undershoot rather than overshoot. If you overshoot, you are likely to get questions and doubt from your investors about how you plan to achieve such high numbers in just the first few years. Remember: Start-ups are slow in the beginning. You can’t expect to be a millionaire within hours, so make sure to account for the lack of resource that a start-up generally has.
I hope these tips were helpful for beginning your cost structures. A strong start will guarantee you a strong finish!