MANAGE YOUR MONEY
This is Part 4 in our 5-part New Business Plan.
You’ve identified a profitable opportunity, perfected your operations, and developed a marketing plan to drive your sales. Now the most important part: managing your money. A fabulous plan can fall apart quickly if you lose control of your finances.
Startup Costs
Begin the process by detailing your startup costs. You detailed a list of supplies and equipment in your Operations; now total the cost of purchasing it all. Be sure to include everything, as buying it later will put you over your budget. You should include the cost of renovations, if you have any.
Now add up the costs that you will incur before opening your business. This will include a wide range of things, such as:
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Wages to hire and train staff
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Rent and utilities to run your business before it opens
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Last month’s rent and security deposits
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Licenses and registrations
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Legal fees required to set up your company
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Other professional fees to prepare your company
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Opening inventories
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Pre-launch marketing costs, such as advertising, public relations, website, etc.
Projected Income Statement
Planning and projections go hand in hand…you can’t do one without the other. Managing your money for the year requires that you forecast your revenues and expenses for the 12 month period. These are my 3 Ps: planning and projecting for profits. You must then track your actual revenues and expenses against your targets, or budget. Variances are the difference between your actual and your budget, and tracking them allows you to adjust your spending over the course of the year.
It will be relatively easy to project your costs because you can control them. Revenues will be more difficult, so you will need to rationalize your educated guesses. Do as much research as can, and forecast conservatively!
Projected Cash Flow
Remember that monthly cash flow is different than monthly revenues and expenses, although they are related! Accounting requires that you recognize your revenue and expenses in the month that they are incurred, not when they are paid. The periods that you collect your cash and pay your bills dictates your cash flow. And why do you track your cash flow? So that you don’t run out of money at a critical time! Bankers and investors are more concerned with your cash flow than they are your income statement, and you should be too. The income statement comes a close second!
Forecasting your cash flow helps you plan your expenditures based on how much money is available, and tells you how much extra money you will need. Cash flow deficits during your first year will determine your operating requirements. The addition of your startup costs and your operating deficit is the amount of money that you will need in the first year of your company.
Projected Balance Sheet
Your first year projections will determine your balance sheet at the end of the first year. Interestingly, bankers are not as concerned with this as they are your cash flow forecast.
Source of Funds
Now that you have determined the amount of money that you will need, you must source your funds. Most investors like to see a debt to equity ratio of 50%, so you will likely be able to borrow $1 for every $2 that you invest.
