Financial Forecasting – E-Commerce Example

Case Description

After their third child turned 5, Beat und Karin decided that they had found a niche in offering high quality organic food and sustainable products for toddlers. With a wide range of products and relatively fast delivery, they would target the needs of babies up to 1 years of age in a first phase while exploring the option to meet the changing demands as their initial target group grew older. Karin was working as an IT-consultant and had already developed the e-commerce platform prototype while Beat, a procurement officer for a mid-sized Swiss industrial company, had developed a multipronged sourcing strategy with local, national, regional and intercontinental aspects. Cheaper products were sourced from Asia while more customized products were purchased from more flexible local suppliers. They had spent some money on focus groups to determine the initial product mix but the demand situation was still the largest unknown factor. They would have to hire some people to actively market the product over social media and develop alternative distribution channels to rapidly gain critical scale.

Based on population data, birth rates and their own experience, Beat and Karin estimated that they could achieve revenues in excess of 10m CHF in the Swiss market with an attractive niche offering. And that would only be the start of the journey into different geographic markets and child age groups. They expected that they would need 3-4 years to reach these sales levels, with an option to expand the offering if the business model proved to be successful. As parts of the e-commerce function could be outsourced efficiently, Karin only planned to hire one additional IT specialist every year and Beat wanted to hire 4 people in purchasing and procurement to ensure product quality, a key value proposition, as soon as possible. After 1 year of operation, they wanted to hire 2 people to manage all administrative tasks internally and 1 person to manage marketing through social media and other channels. They would use an external agency to develop marketing material and the online graphics design.

One of the main concerns in setting up the company was the timely delivery to customers and the required inventory levels to be able to meet those requirements. The couple estimated that food and commodity staple products would have to be delivered next day while more special and rare products could be delivered within a week. With a product mix of 1/3 quick delivery products and 2/3 specialized products, they expected that inventory levels would be manageable. That would save them from the inventory level induced cash shortage that Beat had heard many other e-commerce startups had suffered from. To minimize cash requirements further, they could unfortunately not offer purchasing on invoice. If needed, they would look into the costs and benefits of a payment service provider. Furthermore, the gradual ramp-up in operations into different age groups and geographies would give them time to refine their offering over time. It was time to depart from their current employers and start their new business.

How to use the case

Download the example spreadsheet in “Attachments” below to see how the case is represented as a financial forecast. Then. for a quick overview of how the financial forecast has been built, watch this film:

Note: The example sheet is built in version 4.00 of the tool and may contain some bugs that have since been fixed. You can download the latest blank version of the spreadsheet and get more instructions for the tool by going to the Financial Forecasting Template learning nugget.