Get Finances in Order

The first step in planning is to look back at your business’ financial performance for the year. If you have an accounting system already set up and have been keeping it up to date throughout the year, then you’re in good shape. If you haven’t been keeping your accounting system up to date or don’t have one in place, now’s a great time for you to put that infrastructure in place. Start by taking some time to go through your computer and physical files to gather documents related to your business income and expenses over the year. Check for files in your spreadsheets, bank and credit card statements, and receipts. Organize this data and enter it into an accounting system. If you need to, hire a bookkeeper or an accountant to help you get this done. When all your data is in the accounting system, you can run reports to look at your monthly financial statements and drill down into specific areas of your income and expenses.

Review Operating Data

In addition to your financial statements, you have a variety of other data in your business. Think about the processes and systems you use in your day-to-day operations. Through these processes and systems, you collect data that shows how potential customers become aware of your business, how well you are converting potential customers into paying customers, the costs of delivering your products and services, the efficiency and quality of your product and service delivery, your customers’ level of satisfaction, and your ability to retain and build loyalty with your customers. Gathering and reviewing this data will help you understand the performance of your operations and identify ways to optimize them for financial sustainability and positive community impact.

Assess the Business’ Position

The next step is to use the financial and operating data and other information you have about your business to assess your business’ current position. In our case, we use our traditional business analysis packages. On top of this, it is always a good idea for entrepreneurs to do their own SWOT Analysis. A SWOT Analysis is a four-quadrant matrix that allows you to look at your business’ Strengths, Weaknesses, Opportunities, and Threats. Strengths and weaknesses are internal to the business and relate to the organization, resources, systems, processes, and leadership involved in the business’ operations. Opportunities and threats are related to external factors in the economy, politics, regulation, technology, industry, market landscape, and customer demand that are either affecting the business now or have the potential to affect the business in the future. This is a great exercise if you are working as part of a team, as you can engage other team members in providing input on the strategy.

Set Priorities

Entrepreneurs need to create goals. The best form of doing this is with Objectives & Key Results, or OKRs. When used properly, this framework supports the development of organization-wide priorities and outcomes and how they scaffold down to the individual worker level, creating greater alignment between individual actions and the common goals. Again, if you are working as part of a team, this is another opportunity to collaborate on the direction of the business. Start with defining no more than three objectives for the year. Looking at the business’ SWOT analysis, ask the question, “What will further the business’ purpose while leveraging its strengths and improving upon its weaknesses over the next year?” These objectives should be aspirational and meaningful, and be aligned with the business’ mission, vision, and values. Within each objective, set no more than three key results. Ask the questions, “How will we accomplish this objective? How will we measure progress toward this objective?” The key results break down the objective into smaller goals, making it easier to track progress. The most effective key results are those that are specific, measurable, attainable, realistic, and time-bound.

Prepare Project Plans

For each of your OKRs, start preparing high-level project plans that map out the major milestones, timeline, and resources needed to achieve each of the key results. Remember that time is our most valuable resource. When we start executing on our OKRs without project plans, we run the risk of wasting our precious time doing, undoing, and redoing activities. By putting a little thought into project planning, we can typically reduce overall time and increase effectiveness in executing the project. With high-level project plans for each OKR, you can see where the project timelines and resources overlap, identify any contingencies, and determine how to integrate work on the projects into your day-to-day operations.

Create a Budget

The last step is to turn the annual goals and project plans into a budget for the year. This is the monthly forecast of your business’ income, expenses, and cash flow for the upcoming year. Your budget should be based on historical financial performance as well as projected growth, and should reflect the goals and initiatives in your annual strategic plan. For example, if one of your goals is to increase revenue by a certain percentage, then your revenue projection in the budget should increase by that percentage. In addition, your expense projections should reflect the additional marketing and sales activities and costs to deliver the products and services to meet that percentage increase in revenue. Your budget should also include the costs associated with any non-revenue generating initiatives in your strategic plan. For instance, if you are planning on developing a new product or service, you should include the costs associated with that project over its timeline.

Once you have your annual strategic plan and budget for next year, you can measure progress against it on a monthly basis and make adjustments as needed. As you become consistent in implementing an annual strategic planning process and monthly reviews, you’re likely to gain greater precision in your goal setting and projections and increased confidence in your ability to achieve them.

The post Create an Annual Strategic Business Plan first appeared on Five23.

Listen to Your Insecurities

There are countless online articles teaching entrepreneurs how to “fake it until you make it.” This advice suggests you put aside your fears, doubts, and anxieties, and pretend to be confident and successful until you internalize that as your truth. But, confidence and success don’t come from pretending. Burying those insecurities and putting up that front is hard work, and it can cause more stress, isolate you, and prevent you from making sound business decisions. Also, those insecurities are a growth edge and are needed to push you towards what you can be. Instead, listen to your insecurities, identify ways to act on them and make changes, and take little steps to build confidence. The more you practice, the easier it becomes.

Reframe Failure

Because we have so much of ourselves wrapped up in building our businesses, any business failure or setback can feel like a personal failure. Instead of beating yourself up over the setback, try looking at it from a different perspective. Life is a constant process of failing and succeeding. When we learn to walk as babies, we fall down and try again. Starting a business is no different. Consider the setback as a learning opportunity. You’ve now gathered more data on your business and can use that data to make a more informed decision about your next steps.

Ask for Support

Many entrepreneurs have difficulty asking for support. We’ve been led to believe that entrepreneurs are self-reliant. We think asking for help is a sign of weakness. We don’t want to inconvenience other people. We don’t want to be indebted to someone else. Or, we don’t know what to ask. However, reaching out for support can greatly increase the chances of a business’ success. By connecting with and asking for support from family, friends, co-workers, advisors, and other community members, you can reduce stress from the highs and lows, energize new thinking around your business strategy, cultivate partnerships, and find more opportunities to grow your business.

Set Boundaries

The current state of work lends itself to the perception that we need to be available for our business all the time. This is often amplified when we experience low points in sales and are scrambling to find new customers. We might think we need to have a presence on social media all day long. Or, we need to drop everything and attend to every customer request that comes in. We may even take on customers or partners who aren’t aligned with our values. This can produce a lot of anxiety. It can prevent you from doing work necessary to develop your business in a sustainable way. And, the amount of time and energy you are expending can have a negative impact on your loved ones and other parts of your life. As such, it’s essential to set boundaries that guard your time and energy.

Practice Self-Care

In the early stages, your business doesn’t happen without you. And if you aren’t taking care of yourself, it might not happen. Self-care sets you up to handle the demands of growing your business. A daily self-care practice will help you reduce stress levels, and improve clarity, focus, productivity and creativity in your business. In addition to getting enough sleep and proper nutrition, consider creating a self-care plan. Start by identifying the activities that help you maintain your physical, mental, and emotional health. Then, look at how you can work those activities into your schedule. And try to practice consistently so it becomes a routine. Having a life coach is a great addition to many entrepreneurs’ routines and may help yours as well.

Setting yourself up for success is key to becoming a strong entrepreneur, the items listed above will do just that.

The post The Rollercoaster of Starting a Business first appeared on Five23.

As an entrepreneurial person, you probably have no shortage of business ideas. It’s not difficult to come up with potentially great business opportunities. But starting a business is challenging and takes significant energy. If you try to develop multiple ideas at once, you might find yourself stretched thin and struggling to create a thriving business. Let’s sit down and look at what you should ask yourself when choosing an idea to focus on.

Does this idea align with what you value?

It’s helpful to visualize how your business ideas could impact your life. The best entrepreneurs identify the areas of their life that are most important to them, assess how they feel about the time and energy they are currently devoting to each area, and determine if anything needs to change for them to lead an integrated life. You can also use this tool to assess how your business idea might impact the areas of your life that are important to you and whether it could support the life you want to lead.

Is this something you are passionate about doing?

Ask yourself if you really are called to this idea. Is this an idea you can’t not explore? What makes you passionate about this idea? And if this idea is feasible, how do you feel about the prospect of committing a significant amount of your time over the first few years to create a business out of it? When you are truly passionate about an idea, you will be more enthusiastic about going through the processes of testing the idea, planning for growth, and operating your business.

Does this idea meet a real need?

Your perception of the need for this business idea is shaped by your own needs, the experiences you have, and the stories you’ve told yourself about them. As a result, you may bring in your own assumptions, biases, and blind spots about your customers; the needs they have and potential solutions to meet those needs. In order to make sure your idea meets a need, we recommend spending time researching your market by talking with potential customers and observing their behaviors.

Do you have the experience to implement this idea?

Starting a business is a significant challenge on its own. You don’t want to have learned an entirely new industry or gain a bunch of new skills while figuring out how to build a business. You have a greater chance of pulling off the business idea the more you can leverage your background, knowledge, talent, skills, experiences, and network.

The post Finding the Right Business Idea first appeared on Five23.

A Five23 Guest Post by Erik Hayton.

Erik is the CEO of Wedding Nook and a 4x Founder who occasionally writes, speaks and consults in areas of entrepreneurship and business development.

How to beat the odds; an honest look at entrepreneurship

If you spend as much time online as I do, you’ve undoubtedly experienced those hilariously-titled entrepreneurship articles clogging up your feed at one time or another. Most of them tell you how to ‘identify your passion’ in order to turn it into a revenue stream, or how to ‘become your own boss’ by following an unbelievably simple set of rules…

Inspiring, aren’t they.

What these articles fail to acknowledge is the cold-hard fact that your odds of making it are just plain terrible. Sorry.

Let’s talk numbers!

In the United States, only 4.1% of people own their own business (source).

If you’re one of them, you know that there’s a 90% chance you’ll crash and burn.

So…10% of 4.1 = 0.41% of us that are capable of making it through the first few years.

Now, 95% of U.S. business owners have at least a bachelor’s degree. That’s not to say that you can’t do it without a degree, but─  statistically ─ you’re worse off. (0.02%)

Surprisingly, only 1% receives venture capital funding. Something you won’t hear on a daily basis. 

If that wasn’t reason enough to think long and hard about a career change: The top 3 reasons people ‘become entrepreneurs’ are Money, Flexibility, and Control.

These reasons are not only terrible – they’re hilarious.

The average entrepreneur makes under $50k per year, works 66 hours per week and wears far too many hats to worry about control. You want money? Learn a trade; Want flexibility? Try yoga; but if you want control, you’re in for a nasty surprise. Your investors, co-founders, employees, contractors, suppliers, etc. they all need something, and you’re the gofer. Nobody has more bosses than an entrepreneur.

With these overwhelming odds against you, why would you even want to try?

Well for many of us, the odds don’t sound too bad. That optimistic little voice inside of us assures us that the upside is well worth the risk. Whether you set out to leave a legacy or chart your own destiny, you’re driven by solving problems or you simply enjoy challenging the status quo. There are many reasons that do make sense, but out of all of them, one stands out. Which brings me to my favorite statistic: 99.7% of all U.S. Businesses are small businesses.

Who knew that entrepreneurs not only hoped to change the world, but that it was actually part of the job description?

The world NEEDS entrepreneurs, and far more of them.

Luckily, there has never been an easier time to start a business. With all of the free resources and code online, you hardly have a reason not to try!

Need someone who knows something you don’t? Clarity, Cofounders Lab, Founder2be

Need an Investor? Angel List, F6S, Kickstarter

Want to now how much your startup is worth or need to secure financing? Five23

Not sure how to market? Growthgeeks, Sumome

Don’t even have an IDEA? Here you go: “101 Business Ideas“

I could go on, but other people have already made lists:

Growth Supply

Freelance Folder

Entrepreneur.com

Justin Mcgill

Changing the World

For those willing to assume the responsibility, ‘changing the world’ can be as simple as observing what’s around you. Maybe you work in finance and see some holes in traditional banking, so you start an online bank that is fairer than the competition (Musk); or maybe you had a bad experience with an airline, so you start your own, right there in the terminal, with a chartered plane (Branson).

By looking at the people who have succeeded more than most, a playbook emerges; “Never stop learning; and use what you know, to improve the things around you.”

Simple, but hardly easy! After all, if it were easy to change the world, we’d be living in far more interesting times. But all of the technology and resources in the world won’t help you if you aren’t willing to do whatever it takes to succeed. In our dopamine addicted, blue-light infected, ‘feelings are more important than facts’ dream world; you’re up against a hell of a lot of distractions and discouragement.

A recent poll of 9,348 entrepreneurs (courtesy of Five23) showed that the average entrepreneur starts 2.1 businesses before succeeding, and spends 11 months on each. That’s almost 24 months of grinding before you even sort of make it. That’s a lot of time without a decent income, family time, friends, facebook or free-time in general!

But if you can keep learning, stay focused and figure out how to persevere more than most. Then eventually your experience and tenacity will click, allowing you to beat the overwhelming odds, and finally be able to call yourself an ‘entrepreneur’; not because it’s a cool buzzword, but because you’ve truly beaten the odds and earned it.

Now go do something productive.

 –  Erik Hayton.

The post How To Beat The Odds (Honestly) first appeared on Five23.

Hockey Stick Projections

If you have a startup or been involved with one in anyway, you have definitely seen these charts. Hockey Stick Charts as they are known in the investment world are simply exponential curves based on projected earnings or revenue of the company. These charts start at a very low and flat point. As time moves down the chart, the price starts to increase. Typically after a few months or years in the chart’s history the price starts to triple or quadruple. Quickly going from $1.5mm in revenue to $5mm, then to $20mm the following year. Once you reach the end of the chart a mere 7 years from where you started, the company’s revenue has reached a whopping $400mm.
While this is the dream and goal of every startup up entrepreneur, it is rarely realized by pre and post revenue companies. A more accurate chart is one that increases at a much more linear rate of a 161% per year. This means that if your startup is bringing in $1mm of revenue today, in all likelihood, you will bring in $2.6mm the following year. This rate of growth has been tried and tested by Five23 and seems to be the most accurate when creating realistic projections. Mind you, for post revenue companies it is vitally important to calculate using your actual growth numbers. Start your calculation using those numbers, then use a weighted value of 161% in your business valuation calculator to find an projected growth rate.
When White-Listing and valuing companies, Five23 only looks at realistic projections based on hard numbers and market data. This ensures a strong business valuation while concreting realistic and obtainable goals for the startup.

Bias Market Data

Market data is key when calculating a business’s valuation. It provides vital information and shows the path the startup will most likely follow throughout its life. These indicators can be quite powerful when used with realistic projections. The problem arises when only a section of the market data is viewed.
We’ve seen it time and time again, whether it be in startup decks, business plans or even pitch panels; entrepreneurs are plagued by bias data. It is great when you see 20% of businesses in your field see an average growth of 300% per year. However what happened to that other 80%? In most cases they go the other way. 50% saw a down year with negative growth and the remaining 30% closed their doors for good. This is the type of data that is essential, yet new companies owners seem to be blind to it. Viewing only a portion of the picture.
It has been said, “Don’t raise your voice, improve your argument”. When entrepreneurs use bias data they are raising their voice. When they show and prove how they are a part of that 20% which saw an increase, they are improving their argument. This should be the goal of every new business, show how you are better than the market and why you will beat it. This will increase your valuation calculation much more than bias market data.

Five23 | Standardizing Valuation Calculations

Human Impact

It has been said that 80% of all investments are made on the team, not the company. We at Five23 have seen this time and time again. Great companies with poor leaders seldom move past a ‘Seed Round’. Yet a new company with spectacular leaders can have a lacking business model and easily see a ‘Series B’ raise and even an acquisition. This happens because the team is bought, not the company.
While being a great and eloquent leader is not an easy thing to learn, it can be done. However we at Five23 feel the most important element in this equation is the ability to see your team’s flaws and how to improve them. Investors want to see roadmaps. This includes a roadmap on how to improve your team. Being triumphant on a personal level when times get tough is a must, although showing how you were triumphant is even more important. Having the ability to handle large amounts of stress effectively and with confidence is key. In many cases new companies over-value their true ability in these matters.
When Five23 calculates a valuation using our business calculator, this human factor plays a part. It can raise or lower your company’s valuation based on a few key factors. Mind you, the value is weighted to ensure a high amount of accuracy.

Unicornism

One of the most detrimental things that can happen to a startup is having a bloated vision of self-worth. While having great self-esteem is a must, having it too high can cause a negative effect. Especially when calculating a valuation. We’ve seen it time and time again. An entrepreneur walks into a meeting stating that the coming is worth ‘X’. The problem is there are no solid figures to back it. They see what other entrepreneurs have been able to do and think they can do the same. We hear it all the time, “We will be the next Google”. And maybe you will be, but odds are the startup will not.
We at Five23 call this Unicornism: the blind belief a startup will become a unicorn. This can happen even to the most realistic entrepreneurs. However the problem arises when this belief is factored into the valuation. This is why having a third party do your valuation is so important. It takes all the emotion out of the equation and focuses on the hard data.

End Goal

All companies raise money for a reason. Either they want to hire more talent or maybe set up a production line. While there are necessary funds required for such ventures. The number should not drive the valuation. Basically, don’t set your valuation at $20mm because you need to raise $5mm and don’t want to give away more than 25% of the company. Startups rarely receive funding this way, sadly it is quite common to do the business valuation calculation in this manner.
By far this is the biggest mistake a company can make when raising capital. That’s why Five23 takes it so seriously. We take into consideration the funding needs of the company to reach its next goal. However never at a cost to the valuation and the ability to raise funds.

The post 5 Reasons for Startup Over Valuations first appeared on Five23.