Writing a Financial Plan for a Blockchain Startup

Financial plan

By Jessica Fender

Bitcoin did not just usher in the world of cryptocurrency. It brought with it a new technology – blockchain. At first, this technology was little understood, but over time, enterprising researchers began to see its possibilities in virtually every economic sector. Some say it is the largest disrupter in both business and personal “lives” since the Internet.

The Value Blockchain Technology Delivers

The key value of blockchain technology is that information, data, and transactions of any type that are entered in a block can never be removed or altered. If any modifications or changes are made to an original transaction or data, they will be placed in a new block, again never to be removed or changed in any way.

Consider the benefit of these types of ledgers to both the private sector and to government entities – supply chains, healthcare records, insurance company data and transactions, voting registrations and records, government contracts, results of investigations, and more. The additional beauty is that important and often confidential information is no longer housed on in-house systems that are subject to both breaches and natural/man-made disasters.

Start-Up Entrepreneurs Have Found New Ventures in Blockchain

For the past several years, lots of entrepreneurs have explored niches in which a blockchain distributed ledger technology can provide value. And there are plenty of examples from which to draw – burstIQ in the healthcare field, Propy in the real estate industry, Stellar for inter-country financial transactions, B3i for the insurance industry, and Spring Labs for fraud reduction in banking, financial services, and transactions.

Any entrepreneur who is thinking about a blockchain startup will obviously need a business plan that will attract investors.

The Business Plan for Blockchain Startups

A business plan for a blockchain startup will not differ markedly from those of other startups. While it is certainly developed for internal use, a major purpose of the plan is also to attract investors. Business plans all have certain elements in common:

  • An executive summary of the business concept
  • The goals and objectives – short- and long-term
  • The target market and market analysis
  • Financials – forecasts of revenue, costs and profit, cash flow, and sources of financing

The financial portion of the business plan will be of particular interest to potential investors. They want to see projections based upon solid research and reasonableness. And for this reason, blockchain startups need to provide a strong financial section.

Formulating the Financial Plan

A financial plan is a forecast. And, as such, it is an “educated guess” about all of those elements that normal business accounting includes. But accounting looks at the past. A financial plan looks at the future. That is not to say it is not rooted in data. It is, based upon your research.

Your financial plan serves two purposes. It is first a road map for you as you develop your blockchain software or app, market it, and grow your startup. Second, it is a projection for banks and/or potential investors to determine if you are a good risk, if you can pay back a loan, or if you can forecast enough profits for an exit strategy in the future. 

Here are the steps in formulating a financial plan for a blockchain startup.

1. Do the Research

You have selected a niche for your blockchain app. It is either fully unique or “piggybacks” on other blockchain apps in that same or related niches. You need to look into as many of these existing apps as possible to gauge their financial growth over, at best, three years since launch. This will give you a more realistic forecast for your growth.

2. Develop a Sales Forecast

Based upon your research, develop a forecast for a minimum of three years. This part of the financial plan deals with gross sales but also lists an estimated “cost of goods sold” to determine the estimated gross margin. In the case of a blockchain app, the COGS will be the projected cost of design and development.

3. Craft a Projected Budget

The cost of app development is not the only expense you will face. Even if you work from home, there are costs – utilities, hardware, and software, telecommunications. Much of this may be “fixed.” Then, variable costs will also have to be forecast – marketing, promotion, and taxes, for example. 

If you launched your app at least a year ago, you have modified your forecasts from the initial one and have a more realistic projection for growth. And, if you are now looking for a loan or investors to take that app to the next level, perhaps a major expansion of its elements and functions, having this more realistic picture is a superior benefit.

4. The Cash Flow Statement

Again, if you launched at least a year ago, you will have detailed records that include monthly profit and loss statements. These you will use to project future cash flow. For example, what percentage of invoices are paid within 30, 60, or 90 days? Fortunately, blockchain software or/and app to be downloaded are generally paid for upon making the purchase or entering into a subscription contract. It is paid up-front, at least for a while. Again, if this is an initial launch, all of this will be projected. 

5. Statement of Assets and Liabilities

Fortunately, a blockchain app is far less complicated in this respect than a physical product. There is no inventory. Your main asset is your piece of software. However, any loan principle that you have outstanding is considered an asset until you pay it off. 

6. Determine Your Break-Even Point

Again, this will be a projection if you do not have at least a prior year of financials to provide a more concrete picture. This is the point at which your expenses match your net sales profits. Investors want this forecast so that they can determine if the business will grow sufficiently within a reasonable period. If you can show that your growth will be at least in line with comparable startups at their same point, investors will look upon you favorably.

7. Use a Business Planning Software Package

There are plenty of these available, and they provide two key benefits:

  • They will walk you through the financial portion of your plan, step-by-step so that you do not leave anything out
  • You can automatically generate charts and graphs from your information and projections – banks and investors both prefer visuals to the printed word.
  • Finished, But Not Quite

You are an entrepreneur, not a writer. Your financial section, along with every other part of your plan, must be impeccably composed. Find a good resource for editing or order proof help. Writing services have editors in all fields, including business experts. Beyond that, there are online tools you can use to check your grammar and composition. If there are these types of errors, you will look lazy.

Look on the Bright Side

You have several advantages over other types of startups. First, blockchain is “hot” right now and does attract investors who can be persuaded that your idea is unique and adds to the related business niche. Second, writing the financial portion of your startup business plan is somewhat less complex than those of other sectors that must deal with products, inventory, and such. Do the research, use the right tools and resources, and you will have a financial plan that impresses and makes sense. Last but not least you need to take care of your marketing side of the startup. And because blockchain is a “hot” topic, you should consider a “hot” marketing method, too, like using a specialised crypto ad network, like Coinzilla.

About the Author

Jessica Fender is a copywriter and blogger at TrustedDissertations with a background in marketing and sales. She enjoys sharing her experience with like-minded professionals who aim to provide customers with high-quality services.

The views expressed in this article are those of the authors and do not necessarily reflect the views or policies of The World Financial Review.