Having just completed the first six months of the calendar year or the last six months of your fiscal year, it’s a good time to drag out your business plan to check your progress, see if you are meeting goals. Pay particular attention to the financial aspects.
If you have already started operating your business, you have a good idea about start-up expenses. Now you need to revisit the projected operating expenses from your original plan or draft plan. Are the expenses you previously listed the ones you will actually incur?
As you have learned, even the smallest business has up-front costs, which I recently mentioned. Now you must factor these start-up costs into an estimate of how much money you will actually need to keep your business operating efficiently.
To figure out where you stand, you will need to understand every item on your start-up budget, learn how to develop an operating budget and learn how to read and understand a cash flow analysis.
A budget is nothing more than an itemized list of expenses, with income figured out for a set period of time, usually six months to a year. You may have a household budget and a business budget is similar.
Your start-up budget should list all of the expenses you incurred, including any licenses or permits you needed to get started, the cost of equipment you purchased, insurance fees, estimates of what supplies are needed, salaries you expect to pay, rent, if any, and professional fees.
Your operating budget should reflect the expenses you expect when you will actually be open for business and should cover your actual projected expenses and anticipated income.
Typical expenses would be rent, insurance, wages, including all payroll expenses, utilities, taxes, maintenance, promotional supplies and other items specific to your business.
A cash flow analysis will help you to project when your business will receive money and when and how those funds will be spent to pay bills.
From the cash flow analysis you will be able to judge when the business will have money and when more will be needed. Quite often now you will hear on the news that a certain company will report that they have only three weeks (or months) of money left and the report will usually say also that the company has laid off employees to make its cash last longer. They have gotten this information from their cash flow analysis.
With a new business and a limited number of expenses you can keep your cash flow analysis simple.
To be on the safe side, be conservative in your estimates. Your cash flow projections should be detailed, month-by-month, for at least one year.
Your public library and the Internet will have many books and samples of budgets and cash flow reports for you to look at.
Getting your business finances in order can take up a considerable amount of your valuable start-up time, time that could be spent marketing your product or service to the public; but it’s worth the effort.
Article – Copyright 2001 Stanley I. Mason. Syndicated by Paradigm News, Inc.
