How to build the numbers behind a business plan

Six steps in order, each feeding the next, so the figures agree with each other.

The individual calculators each answer one question. This joins them, so your break-even uses the same prices as your pricing and your funding requirement reflects your actual cash flow.

The sequence, and why it is this order

1. Startup costs. What it takes to open, including the losses before break-even.
2. Pricing. What you charge, from real costs and a target margin.
3. Break-even. The volume that covers costs — which depends on the price from step two.
4. Sales forecast. Whether that volume is achievable, and by when.
5. Cash flow. When money actually moves, which is where profitable plans fail.
6. Funding requirement. The lowest point of the cash flow, which is the number you need.

Working out of order produces a plan whose parts disagree — a common reason a plan reads plausibly and does not survive contact with a lender's questions.

Expect to go round more than once

The first pass usually shows break-even needs more volume than the forecast supports. That is the plan working: it has told you something before you spent money. Adjust price, cost or ambition and go round again.

Test the pessimistic case

Run the plan with revenue at half your forecast and costs a fifth higher. If it survives, it is robust. If it fails, you now know exactly how much margin for error you have — which is the single most useful output of the exercise.

What a plan is for

Not to predict the future accurately; it will not. It is to find out whether the business can work at all, what it depends on, and how much money you need before you find out. The assumptions matter more than the totals, which is why they should be written down where a reader can challenge them.

Frequently asked questions

What order should I work in?

Startup costs, pricing, break-even, sales forecast, cash flow, then funding. Each step depends on the one before, and working out of order produces figures that disagree with each other.

How accurate does a plan need to be?

The forecasts will be wrong; the assumptions are what matter. Write them down explicitly so they can be challenged and revised as you learn.

What is the most important number?

The lowest point of the cash flow forecast. That is what you must fund, and it is usually larger and earlier than people expect.