We have mentionned LaFraise on this blog before. Patrice, the founder, has just reached the 100KE of revenues / month. Congrats! And including himself, there are only 3 people in his little company. It gave me the urge to modelize his business real quick
in the attached Excel file. (not yet: I'll publish it after you get a chance to play with this model)
These are very very rough numbers just to see the dynamics of his business. Try to figure out how I did it, or where I’m totally wrong in this. I did a 5 year very simple plan. T-shirts are sold through a web site. The store is only for visiting the goods (like the recent Wired store in NYC)
- I assumed he started by selling 10 T-shirts a day, so 200/month.
- I added a growth rate of 20% per month, with a deceleration of 5%/month. He stills grows at about 1%/month at month 60.
- I used French VAT of 19,6%
- price point is 19 euros/T-shirt. He never changes this pricing
Cost of good sold: (all excluding tax)
- I assumed he buys his white T-shirts at 5 euros /piece. If he starts ordering more than 5000/month, he gets a 20% discount
- stickers for logos are 3 euros a piece. no discount here.
- shipping are 2 french stamps of 0,53 euros. beware: no VAT on shipping in this country
- packaging and marketing material of 1 euro per parcel
- bank fees of 2,5% for payment by credit card
- I assumed that he needs a sales clerk for every 1000 orders / month.
- Salary per clerck is 1500 euros/month. I forgot to give them a raise in my model.
- Salary overhead at 50%
- I assumed the only other expense are web servers. They cost 300 euros each per month, and he needs onr for every 3000 orders (redundancy, etc.)
General & Administration:
- I assume rent of 1500 euros per month (all included: electriity, internet, etc.). It starts on month 6.
- he gets a 1000 euro bill for decoration when he moves in
- he has a launch party when he moves in, and one every year at Xmas. I assumed month 1 = january.
- monthly expenses (including accounting, etc.) are set at 1500 euros.
- I assumed he buys a truck for 15.000 euros on month 1. (shipping, delivery, etc.). Amotized over 4 years.
- I assumed he buys a print / hot press (whatever the name) to stick stickers onto the T-shirts for 5000 euros on month 1. Amotized over 5 years.
- I assumed he starts paying VAT only when the balance gets positive. 30 days delay
- Cash in by credit card is 0 day delay
- Cash out for rent, web servers, salaries + expenses, expenses, decoration, parties, shipping and bank fees occur at 0 day delay
- T-shirts, stickers, packaging get 30 days
- capex gets 60 days
It took me about 40 min to compute the whole thing. So my question to you all is what is the required capital this business owner would need to bootstrap his business ? (in other words, the minimum point of sum of free cash flow) ?
I simplified the model: no sales season, no season variation (Patrice confirms this), no discount on volume for some people, not taking into account the price he pays for designers submitting visuals, etc.
I know this post might sound weird to you, but I gave a 1h30 lecture the other day on the HEC Campus to PhD graduates studying entrepreneurship. And this is exactly the case I used on the white board to illustrate the rule #1 for entrepreneurs: CASH IS KING. Then comes market demand (or market PAIN).
Let me know whether this exercise is useful to you.