SECTION 3 - FINANCIAL PROJECTIONS

INFORMATION

In the previous section, you covered the vision of your business - the products you will sell, your customers, how you stack up against your competition, the equipment you need, your marketing plan, and so on. Now you can determine how much money you will need to get the business off the ground, and keep it going.

Determining your financial needs involves these areas:

  • Use & Source of Funds - how much money you need, and where you will get it from.
  • Owner's Drawings - calculation of your personal living expenses, and the amount you plan to take out of the business.
  • Sales Forecast: Assumptions - what you base your sales forecasts on.
  • Cash Flow Projection - a 12 month estimate of sales and cash into your business.
  • Financing - information needed to get any loans/investments you require to start the business.

Each of these is covered in detail in this section.

Start-Up Costs & Capital (Use and Source of Funds)

INFORMATION

This section outlines the money that you will need for the first 3 months to start your new business or expand your existing business, along with where the money will be coming from. The first part (what you need) is the Use of Funds, while the second part (where it comes from) is the Source of Funds. Your Use of Funds and Source of Funds will have matching totals.

Step 27 Use of Funds

INFORMATION

This section should cover whatever you need to start or expand your business, including items you already have. Let's assume your business requires $10,000 in equipment to operate, and you already have $3,000. You would show the full picture ($10,000) in the appropriate section of the Use of Funds, NOT just the part that you don't have yet ($7,000)

The Use of Funds is a summary showing the amount needed in each area. While it shows the complete picture, it is not necessary to put every single item on the sheet - only major items should be listed individually. If you have an itemized list, feel free to attach it to the plan as an Appendix.

-The Use of Funds covers the following categories:

  • Capital Items - major pieces of equipment you need to start or to expand.
  • Inventory
  • Other costs - advertising/marketing, business licenses, accounting/ bookkeeping fees and other costs related to start-up or expansion.
  • Renovations
  • Operating line - similar to a line of credit, these are funds you need to carry you through slow periods and provide a "buffer" for your operation.

BP ACTION

-Complete the provided Use of Funds chart, complete only those categories that apply to your business.

-List the items you are contributing to the business separately from those you will have to buy.

-Using the same example you would show $3,000 in owned equipment and $7,000 in equipment to be purchased/leased, rather than a $10,000 total.

Step 28 Source of Funds

INFORMATION

-Once you know what your needs are, you need to determine where the money will come from.

-List the cash and assets that you are contributing to the start-up or expansion.

-Show the full amount of any leases, bank loans, investments by partners or other investors etc.

BP ACTION

-Complete the provided Source of Funds chart, complete only those categories that apply to your business.

-Complete the provided Totals chart.

-Note: Starting Cash Balance for Month 1 cannot be a negative number.

STEP 29 Personal Requirements

INFORMATION

-In this section, you calculate the funds you need to meet your personal living expenses. The numbers generated in this section will become part of your projected cash flow.

-The amount in this section is the LEAST you can take from the business.

-The least you can plan to take from the business for each month is the sum of the Minimum Monthly Owner's Draw Required, and any periodic expenses that will be due in that month.

-You can take more than this, but you cannot take less.

-For example, your minimum monthly living expenses may be $1,900. You could not take less out of the business to live on, though you certainly could choose to take more (example: $2,500 per month).

BP ACTION

-Write a brief paragraph commenting on your personal requirements in relation to your completed Owner's Drawings

-In your Financials document complete only the green boxes in the Owner's Drawing document

-There are two types of expenses you must complete - monthly and periodic, list both types on the chart provided.

-Also list any other sources of income for you, such as spousal income.

-Print and Appendix the Owner's Drawing

STEP 30 Sales Forecast

INFORMATION

Sales forecasts must be supported to be credible. If your projections are based on your many years experience in the field, say so. In the case of an existing business, past sales figures may also be used, but if the forecast varies substantially, or if the business is new to you additional support is beneficial. However, the more information you can provide to show how you came up with your sales forecast, the more accurate (and meaningful) they will be.

The assumptions should consider any major areas that can affect your business. For example, a retail store should consider the effects of Christmas on their November and December sales.

Factors could include things like:

  • Seasonal conditions - weather, Christmas, etc.
  • Economic conditions - logging down-time, housing constructions, etc.
  • Customers - the number of customers you expect to be working with on a daily, weekly, or monthly basis.
  • Marketing - the type of marketing or promotion you will be doing during this time, and the number of hours you plan to devote to it.

BP ACTION

-Insert a paragraph describing the methods you used to project your sales forecast. Also discuss what may cause fluctuations in the forecasts.

-First, in your Financials document complete the Products and Services file, follow instructions 1, 2 and 3, remember to enter information only in green areas, this information is formulated to appear in your Sales Forecast.

-Second, in your Financials document complete the Sales Forecast for Year 1 file, follow the instructions in the comments boxes and, remember to enter information only in the green areas, your totals will be calculated

-Use caution not to delete any cell formulas

-Print and Appendix the Sales Forecast for Year 1

STEP 31 Cash Flow Projection

INFORMATION

-The key to remember in preparing a cash flow is that you are not trying to determine a profit or loss yet - you are trying to predict the timing of cash in or out of your bank account.

Cash In

-The sales forecasts you did are formulated to carry forward to your Cash In. It will estimate cash into your business. It will demonstrate any credit terms you may provide

-If you agree to payment in 30 days, a sale in January will show up as cash to you in February, under the line "Accounts Receivable".

Cash Out

-Several categories of expenses are listed and each has a comment box to guide you.

-If you have costs of goods sold for your business the costs from your sales forecast is formulated to carry forward to your Cost of Goods Sold line.

-Don't spread costs evenly over the year. For example, if insurance costs $1,200 per year and is payable in May, put the whole $1,200 in that month. Do not put in $100 each month.

-Review the expenses you enter to be sure you have remembered everything. Items discussed in the business plan nearly always result in some sort of cash flow.

BP ACTION

-Write a brief paragraph summarizing your projected cash flow based on the results of completing your cash flow projections. Describe any changes in patterns your cash in and out flows demonstrate (example: start of business, peak selling seasons, low activities during vacation times etc.)

-In the Financial document complete the Cash Flow Projection, follow the directions in the comments boxes, enter information only in the green areas, your totals will automatically be calculated.

-You can add other expenses or change those that do not apply.


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