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Dear BAM Mentor,
I am aware of the tendency to be a bit idealistic when working through the Financials section of a Business Plan. As I start thinking about the numbers, what are the hard questions I need to ask myself – or invite others to ask?
~ Crunching the Numbers
There always seem to be two extremes when it comes to the issue of financials in business planning. The first is what I term “magical thinking” and says, essentially, “Since I believe that God is leading in this business it is sure to succeed. Why waste time on financial plans?” The second and opposite says, “My business plan needs to look like something for a Harvard MBA project so I will be perfect on the numbers.” Both, as most extremes, are wrong.
I can fill volumes with stories of businesses that God “led” people to start that failed miserably. I can also point to businesses that either failed or failed to start in spite of incredibly deep and thorough financial analysis. However, I think we can resolve this dilemma based on some words that Jesus spoke related to discipleship:
For which of you, desiring to build a tower, does not first sit down and count the cost, whether he has enough to complete it? Otherwise, when he has laid a foundation and is not able to finish, all who see it begin to mock him, saying, ‘This man began to build and was not able to finish.’ – Luke 14:28-30, ESV
The point of this passage is to make sure of some basics before you launch into following Him and, by way of extension, before you launch into business. Loosely translated, it would be something like, “Don’t launch without thinking and don’t overthink launching.” In business planning, I’d suggest the following critical questions.
1. How much money do I need to start and do I have it? START UP CAPITAL
2. How long will this money need to sustain me and my business before the business starts generating its own money? BURN RATE
3. Where will the needed money come from? SOURCES OF CAPITAL
4. Is there more money where that came from? ADDITIONAL FUNDING SOURCES
5. What will I do if things don’t go as I plan? SCENARIO PLANNING
6. How much can I sell? SALES PROJECTIONS
7. What will I charge for what I sell? PRICE POINTS
8. How much will it cost me to produce/deliver what I sell? COSTS OF GOODS/SERVICES SOLD
9. Is there enough left over to make this all work? PROFIT
10. What happens if I fail? EXIT STRATEGY
You can answer these questions on an Excel spreadsheet or a napkin. It really doesn’t matter. The issue is whether or not you’ve asked and answered these ‘Basic 10’ questions.
Read another Response on this topic:
The financial section of a business plan – this is where the rubber hits the road! Unless the BAMer pays attention to the finances, the business will not be around for very long, and any missional impact will be cut short.
Whether you are a business person looking to raise capital for a growing business, or a new entrepreneur looking for start-up funds, you will need to to work on your figures. You can be as enthusiastic as you like about all the potential opportunities and impacts, but unless this enthusiasm translates into numbers, based on some valid assumptions, you will be walking on very thin ice.
Over the last 10 years I have been constantly astounded by the lack of financial acumen in the BAM movement. One major challenge I’ve found in working with BAMers is getting a valid set of financial statements. This lack of acumen isn’t necessarily intentional in many cases but it certainly is prevalent. I think this is largely down to two reasons: [Read More…]
Mike Baer was one of the early leaders in the modern Business as Mission movement. He started his career as a pastor and church planter. After 15 years in the pastorate Mike was led into business where he gradually began to discover the potential for believers in business to bless their communities, evangelize the lost and spread the Kingdom of God, especially among the unreached. Today, Mike is the Chief People Officer of EmployBridge, a $3.2 billion employment company based in the US. He has written 3 books on BAM: Business as Mission, Kingdom Worker, and Gospel Entrepreneur. Mike is a regular contributor to the Third Path Blog. Today Mike and his wife reside in the mountains of North Carolina where they enjoy their 5 grandchildren.
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