I got some interesting advice tonight from a friend who’s started two businesses. He thinks that one of the most important things to have going into a new venture is a rough financial plan. He articulated it this way.

Let’s say you’re starting a one person consulting company. One way to approach the problem is to start backwards from how much money you need to survive in the first year:

Amount you need = (profit/customer) x (# of customers)

Or you can go about it the other way:

# of customers you need = (Amount you need) / (profit/customer)

This is no substitution for the financials section in your business plan but it gives you a quick way of determining how things are going. That way you know ahead of time where you are in relation to your goals. My friend used this calculation when he decided to abort his last project because he realized that the number of customers needed was completely unreasonable in the given time frame. He credits this formula for the extra $50,000 in his pocket.

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