Small Business Q&A
I am setting up a new business — a healthy coffee / bookstore. I have some cash on hand and plan to apply for grants for the rest. Here’s my problem. I am writing my business plan and pretty much can do it all except the financial portion. I am lost as to how to establish how much I will need and project it pro-forma monthly for the first year, and quarterly for the second, yearly third. I am lost with finances.
I understand your frustration. It’s tough to project unknowns. But it’s a must if you are seeking financing. The people who are investing money in your business want to be assured they will get the return on their investment.
You should already have the complete detail on your target market and have defined how you will market and grow your business going forward. Now you need to take that data and associated assumptions and turn them into financial statements.
Simply put, what you want to do here is define projected sales (S), expenses (E) and profits (P) — S minus E equals P. You also want to compute those numbers based on increases in sales (driven from the marketing portion of your plan). You can determine projected sales by identifying how many customers will buy what you are selling on a given day and multiply that by days of the month to get a monthly forecast. As you increase your marketing, you can forecast that you’ll have X% of an increase in sales and add those to your forecast. You should have a pretty good handle on what your monthly expenses will be — things like rent, phone, electricity, supplies, etc.
Another important financial you’ll need to include are your cash flow statements. Cash flow means cash coming into and out of your business. Cash flowing in would be sales. Cash flowing out would be expenses. As much as we like to think that we’ll always have more cash coming in than going out, that’s not always the reality. But it’s one of the most critical financial metrics. Sufficient cash flow will help you be successful.
Take a deep breath before you begin and proceed in a methodical fashion. Before you know it you’ll have your projections complete. And if you’re still stuck, the best thing you can do is talk with a CPA.