It is important to estimate your revenues and the costs that the business will have. It is not precise initially, but you can use similar businesses, ask for opinions from friends, look for best practices, keep it to the minimum costs. As the sales and marketing model will be developed, there is a direct relationship with the financial model. All costs, plus setup costs, plus other costs and investments will form the necessary starting funds. The pricing levels, discounts, what makes the product or service different needs to be discussed. Setting up pricing, contrary to what people believe, is very difficult. Make it too high, there is no purchase. Make it too low, people consider poor quality or suspicious. Until you can setup your own pricing based on the quality, reputation, uniqueness of your offerings, it will always be neve wracking to some extent. As you setup the pricing, all the discount strategies, volume strategies, geographical participation need to be considered. Regarding costs, keep them to the minimum. Subcontract shared services, keep hiring to the minimum requirements. Ensure any new expense or cost is justified, that is, it will generate some revenue. Remember, in starting a new business, cash is king. And do not forget that sales are not necessarily cash until it is paid – depending on your business, you could have payment terms, and credited into the bank account. Similarly, payments to your vendors are to be negotiated. The difference of receiving terms and payment terms provide an important business leverage, to keep the cash flow positive.
