How You Should Analyze Your Start-Up Business
You have an idea for a new business. You wonder if it has the potential to be successful. If you are like many people, you will think about it for a while, and then let the idea dissolve into the background. Everybody will agree that starting a new company is hard work. But even analyzing a new business idea to determine if it is feasible can be daunting. A business idea becomes feasible only when many dozens of conditions are met. To name just a few:
Each of the above requires a detailed analysis. This is of course a two-edged sword: if you spend too much time analyzing the situation, you will never start your company; if you spend too little time analyzing, you will incur far too much risk. The right answer is somewhere between the two extremes.
The founder of our company, Al Davis, has started many successful companies. One of the first tasks he undertakes after he thinks a company might be viable is the construction of a financial plan. Creating such a plan requires documentation of many assumptions. Although the primary goal of documenting assumptions looks at first glance like the creation of the financial plan, the secondary benefits are just as important. After all, the questions that need to be answered to create values for the assumptions are the most fundamental questions about your business's goals and strategies.
What are these assumptions that need to be made? They include:
As you make “best guesses” for each of these assumptions, you will start to understand your business better, and you will be able to assess whether it has any possibility of becoming a financial success.
How Does Offtoa Analyze Your Start-Up Business?
Once you enter values for all your business assumptions, Offtoa will create all your financial statements and some additional financial reports. Offtoa then performs a complete analysis of all these financial reports:
Offtoa performs an analysis of these reports looking for the same properties that many investors look for; these are properties that in many cases foretell a poor financial outcome for the company; in other cases, they indicate a low probability that any investors will invest. The primary reason for surfacing these issues is to find solutions early and to prevent problems. The primary reason for using a tool like Offtoa to find these issues is so you can either:
Whenever Offtoa finds a potential problem, it highlights the symptom for you on the financial report, and offers a list of suggested solutions, each of which describes exactly which assumptions you need to change to fix the problem. However, don't just “fix” the problem by blindly selecting one of the suggestions. That will result in you having a set of financial statements that look good but have no basis in reality. Instead, make changes to assumptions that you believe are feasible and then change your business strategy to reflect the new plan. If none of the suggestions are feasible in your mind, then perhaps you don't have a viable company .