There are countless stories of indie beauty brands launched almost by mistake as a hobby turns into a fledgling company. In those cases, there’s generally no spelled out business plan, but Long thinks that’s a big blunder for ambitious entrepreneurs. He advises founders to prepare a short business plan with financial projections for three years. Long says, “You always want to show enough horizon in a forecast that you aren’t going to lose money.” The first year generally focuses on investment, the second brings a brand to break-even, and the third pushes it into the black. “Projections should be credibly built with industry expertise, be realistic and attainable, and become a roadmap for the company,” says Long. “The reason for a business plan and projections is really for the owner as well as an investor to understand what the expectations are and what’s needed to support the expectations for sales and profitability.”

To guide projections, entrepreneurs can examine revenue estimates of competitors found in trade publication articles, turn to data from research firms such as Neilsen and IRI, solicit information from industry insiders, and engage in approximation themselves. Over the course of a given time period at a beauty retailer, for instance, they can observe how many units of a similar brand’s products are moving and extrapolate judging by that movement. It’s possible to get a sense of sales from online reviews, too. On Amazon, Long notes reviewers scoring a product highly are likely to be repurchasing it regularly (perhaps every three months for a facial serum), and sales calculations can be based on the number of customers credibly giving excellent reviews.

Inherent in the projections is a keen grasp of the environment a brand will exist in. Long emphasizes founders need to drill down on their target consumer and the distribution that makes sense for that consumer. “You have created all of the romance around the brand and the story behind it, but you still need to understand where are you going to sell it,” he says. “Is your consumer shopping on Amazon for beauty or Neiman Marcus for beauty, and does your product align with where your consumer shops?” Long has repeatedly seen brands peg their consumers incorrectly. “Just because you can afford to shop at Neiman Marcus doesn’t mean your consumer can,” he says. “This is where most brands miss the mark. They project themselves on their customer.” Amassing a community of early followers digitally or in a local market and conducting surveys helps founders pinpoint their brand’s customers, what those customers are willing to spend and where they shop.

Long is a fan of beginning a brand online because its efficient and relatively inexpensive. Still, founders must take into account where their brand would be positioned at their dream distribution partner. Long asks, “Do you want to be the most expensive or do you want to go after one brand in particular with ingredients and a promise close to theirs, but be 10% lower than that brand?” Once they’ve gauged their positioning inside their dream distribution partner, brands can do an analysis of competitors they’re going to go up against to validate their projections.

Being aware of  costs is extremely advantageous to forming a healthy brand. Long shares a rule of thumb in the beauty industry is that the cost of goods should be roughly 10% of net sales. “If you are making a $100 skincare item for $10 and a $20 shampoo for $2, you are in a good place,” he says. “That’s the guideline, but most companies are nowhere near that, particularly startups.” A range of 10% to nearly 30% is reasonable, depending on the age of the beauty company and its distribution model. “Cost of goods is so important because, once you’ve decided on the product and the configuration of that product, it’s no longer discretionary,” says Long. “I’m shocked sometimes by what people’s cost of goods are. Part of my job is improving that. It becomes a nonstarter that has to be improved, especially if you are going to sell to retailers wanting 50% to 60% [margins].” Brands have to secure a manufacturer to make their products at the desired costs and minimums. A typical manufacturer “may want 10,000-piece minimums. You could be buying three years’ worth of sales, so you tie up all your money in inventory, and that’s a problem,” says Long. “You have to work with a subcontractor friendly to startups that will take some of the risk.”

Selling expenses or expenses encompassing fulfillment and warehousing, website fees and other routine operational items are another integral expenditure category. They should run from 12% to 17% of net sales. The organization itself eats up a substantial portion of the spending. Long figures overhead and administrative costs at 25% to 31% of net sales. “It’s going to kill you in the first year. Be realistic and prioritize the administrative expenses that are critical,” he says. “You might bring on a Facebook person, but not an accountant if you don’t have Facebook expertise.” Long warns that brands should be careful about their administrative spending and not dole it out willy-nilly without garnering true benefit from it to grow their businesses. He says, “A lot of startups will have created too many positions with people that have little bits of knowledge that, when you add them all up, you could have had one person with broader expertise.”

“Equity is the most valuable asset of a startup, and it should not be given up easily,” stresses Long, cautioning, “Many startups have had to give up more equity because of bad decisions that led to cash starvation.” He outlines three possible funding options for beauty brands getting off the ground. The first involves brand owners’ savings. Long counsels against entrepreneurs putting their entire savings into brands, but they can surely stand to gain greatly if the brand turns out to be hot, and they haven’t diluted their shares. The second is an investor obtaining a minority share and providing funding. “This minority share should have a clause where additional funding will not result in additional equity, certainly not a majority share,” he says. “These types of investors are out there. They just need to be found.”

The third option is an interest-only investor who only takes equity if the brand defaults on loan payments. Long advises the loan should stick to year-one needs. “This gives the startup the chance to get on base and maybe hit a homerun, where the next round of investment is more expensive, and they keep more of their company,” he says. “Most times, what you think you need three years out may actually be less than you thought, and you could have delayed the next round of investment.” Long is a believer in investors that offer value besides money alone. He mentions, for example, a manufacturer that can assist with inventory, financing terms and supply chain management or a retailer that can accelerate revenues through its platform. Long concludes, “A good investor at the right time could be a life-changing benefit to the business and to the entrepreneur.”