New Business - Finance question

podperson

I appreciate you think it will be hard to estimate numbers but any place you try for financial backing will want to see some kind of projections. Market research along with looking into figures for similar kind of services (even if you say there may not be anything exactly the same) would be a good place to start.

Pennywise

Hughesy84 wrote: »

In terms of projections however, that’s impossible – as how is it possible to say how many people you think will use the service? I could say 1,000 people in the first 12 months, or I could say 10,000 people in the first month – it really would be guess work. How would the test site work? If it gains lots of interest, and I don’t have the cash – then what happens?

That's the same for every business. No business can ever know how many customers it will have and how much they spend and what they buy. Some businesses are easier than others to make informed guesstimates and some really are just shots in the dark.

Don't confuse projections with a business plan. A business plan isn't ever going to be a proper projection of what will happen. It's a tool to plan how the business will operate. You need it to be able to plan for the various scenarios that may happen. A business plan will include some projections as "what if's".

You need to plan for what happens and how the finances look if you get 1 customer per day, as opposed to 100 customers per day. If either may happen, then your plan has to be flexible enough to allow for it. It's called scalability. You need the infrastructure (websites, premises, staffing, financing, etc) to grow or contract according to customer numbers. In a situation like yours where customer numbers really are hard to estimate, your infrastructure needs to be very flexible and potential backers will want to see proof that you can scale up and scale down according to demand.

That's a completely different scenario from a business where things are more certain - say buying an established shop where customer numbers, what they buy, how much they spend, etc., is already well known, so you know your infrastructure needs with good certainty and don't need so much flexibility for scaling up or down.

Nothing worse than spending £50k on a website/hosting etc that can cope with thousands of visitors per day only to find that only 100 look at your website. Even worse, spending just £100 on a website/hosting that can cope with a few hundred and then you get blitzed by thousands of visitors who continually crash your website. The key is to spend a few hundred pounds on hosting/website at first but make sure that it can be scaled up quickly to cope with larger than expected visitor numbers.

You need to be able to do the same with your financial backers. You need a facility to turn on and off the tap of finances according to how busy you are. And that's exactly the kind of thing that would be highlighted by your business plan!!! I.e. how have you planned for more or less money being needed? Potential backers will want to see this kind of logical thought process within your business plan.

InsideInsurance

A very good post Pennywise!

Pennywise wrote: »

Nothing worse than spending £50k on a website/hosting etc that can cope with thousands of visitors per day only to find that only 100 look at your website. Even worse, spending just £100 on a website/hosting that can cope with a few hundred and then you get blitzed by thousands of visitors who continually crash your website. The key is to spend a few hundred pounds on hosting/website at first but make sure that it can be scaled up quickly to cope with larger than expected visitor numbers.

The above is true though things can be more complex than that as scalability can cost money.... there comes a point in scalability where you get a sudden large jump in costs when you start being able to support single processes being split over multiple servers.

You evidently need to do the analysis to identify the point that you'd require that and then realistically if you will ever hit it. If you will then its a decision to upfront the cost now, big startup costs but long term solution or low cost launch with a more expensive future upgrade, more to pay in total but dont pay for something you many never need.

It can certainly be worth doing good analysis of the market, your niche and potentially even doing a small pilot even if you do something simpler than actually giving live quotes etc. Be realistic about the scalability though. Just because you can get 1 "sale" by spending a tenner on marketing doesnt automatically mean that you get 10,000 sales by spending a hundred thousand.

A former client had done a JV with a guy off the street who came in with a business plan and claimed they'd be selling tens of thousands of units a month and doing hundreds of thousands of systematic quotes all from day one with next to no marketing costs. On the basis of that 50 dedicated servers were leased, big marketing budgets agreed and they made almost no sales and after losing millions it was sold to for a quid to a friend (a few T&Cs involved too)

As a middle man - yes I could do that, and that is another of my options...perhaps as an affiliate scheme or something similar.

The business is very different - its an idea iv had, and something that ISNT done by any other website it seems.

A partnership would sound a potentially good idea be it at the loosest end of a simple lead sale (affiliate) through to a full blooded joint venture. You'd need some advice from someone with consumer credit rules knowledge about what you can and cant do, what permissions you need etc - my knowledge is very light in this area as I am much more an insurance background

Evidently you need to get a strong NDA in place before discussing the ideas with anyone though dont be blind to the fact that an NDA can be circumvented and unless you have a large bank balance to pay for solicitors then its not worth that much.