Many business professionals discuss the importance of developing a written Business Plan. I agree that the development of this document is of real value - both for learning to communicate key aspects of the business idea and to demonstrate to both internal and external parties that there is a market for the product or service and that the basic concept has merit.
With that said, I believe that all entrepreneurial ideas need to have their roots in how the business will actually make a profit. The way this can be determined (at least on paper) is to focus on building a Financial Model from the very outset.
If the initial co-founders have the ability to build a solid financial model themselves, they should invest the time and energy to do so. If hiring an outside party with financial acumen is necessary, then that needs to be done. It is one of the very best initial investments a young business needs to consider.
Further, the financial model needs to evolve. NetGain's financial model is the core tool for our management team to understand our cash flow and the fiscal health of our business. It has been our barometer in projecting when key financial milestones, such as operational profitability and then free-cash flow status, would be achieved. It is these metrics that are essential in understanding, forecasting and planning the growth of any company.
There are many great ideas. Not all of them will make money. A well conceived, thoroughly developed financial plan with best estimate data points (for both income and expenses) will help all entrepreneurial teams understand their own opportunity to succeed.
