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Business Planning - Financials

Tackling your cash flow
by

Futurpreneur Canada

on 8 January 2014

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Transcript of Business Planning - Financials

The main components are:
Start-up costs:
describes the money needed to start and what it will be used for.
Sales forecast:
monthly sales predictions and the assumptions to support them.
Cash flow:
month-by-month details on where the money is coming and going.

This crash course focuses on cash flow and sales forecast. Check out our crash course “Financials: getting the most for each start-up dollar” for information on determining start-up costs.
http://www.cybf.ca/cybf_resources/starting-my-business-plan/financials-getting-the-most-for-each-start-up-dollar/

A sales forecast starts by outlining the key assumptions that form the basis of the monthly sales projections.
For example: average sale is $120; slowest months are Dec. & Jan. etc.

This is when two or more people jointly own and are liable for the business.
PARTNERSHIPS
Depending on how much you make you will need to set aside 20-25% of your gross profit (sales – expenses) for taxes.

If you’re collecting a sales tax (think HST or PST) you will need to set aside additional money to pay this back to the government.

Anything that is DIRECTLY used for your business is eligible to claim for taxes. Find out more here:
http://www.cra-arc.gc.ca/tx/bsnss/tpcs/slprtnr/bsnssxpnss

Be patient. Identify what pieces of the financials you will work on and set a deadline for each.

Be realistic. Avoid being overly optimistic with your sales projections. You’ll have a lot going on when you start so take it into account.

Use the Business Plan Writer as a guide for writing your plan. It comes complete with examples!
https://www.cybf.ca/bplan
"The numbers in a Cash Flow are more than just numbers. They help determine your priorities. They tell a story: The story of how you see your business unfolding."
Dominik Loncar
Take our survey and help us get better:
https://cybf.wufoo.eu/forms/survey-financials-cash-flow/

This section ties together your sales & marketing predictions based on market research, with the operational considerations you’ve made.
THINGS TO
CONSIDER
How much will you charge?
Are there seasonal variations?
Are there major marketing initiatives?
Do your sales forecast align with your marketing activities?
Your sales forecast doesn’t have to be exhaustive; it needs to be
specific
.

The explanation of the assumptions is essential in the sales forecast, don’t just include the numbers.
AN
EXAMPLE
$0
– launch of business – extensive networking (at least 3 times a week) Posters placed at 16 strategic sites.
Year One Sales Forecast (including assumptions):
September:
$640
– Eager parents who want their son/daughter in tutoring immediately: 4 students x $40 x 4 weeks. Continue with extensive networking (3 times/week). Attend a local community fundraising event.

…continue until you have accounted for the first 6 – 12 months. For year two you do not need to show your rationale for each month.
October:
For each month you also outline your sales rationale including key marketing activities you are doing in that month.
You need to do this for the first 6-12 months
For example: October is 2nd month in business. Sales of $960; 2 sales a week resulting from contacting 10 new businesses a day; close 4% of leads.

Month-by-month tracking of money going in and money going out of the business.

It should project 2 years into the future (24 months).

Cash flow does NOT necessarily equate to profit.

Cash flow shows you if your business is sustainable.
At some point you will need to start paying yourself if your business is to be sustainable. What month will that be?
It is the centre piece that tells the story of how your business will unfold!

The cumulative cash flow for EACH MONTH cannot be negative (the last row on the cash flow). If it is, you have three options or a combination of them:
Increase sales
Decrease expenses
Injection of cash (loan, line of credit etc).

TIP
Remember: The cash flow is more than just numbers. It translates into actions you need to take and help you determine your priorities.
http://www.cybf.ca/cybf_resources/getting-started/the-cash-flow-basics/
Use the Cash Flow Template:
Cash from sales: In some cases you may make a sale but not get paid until the next month. This has to be reflected on the cash flow.

Injection: money being put into the business from an owner's investment, CYBF loan, or other loan.

Together these equal your
Total Cash Inflow (TCI)
Start with looking at where the money is coming
FROM
EXAMPLE:
Cash Inflow
Injection (i.e. Owner's investment, CYBF loan, other loan)
Sales
April
May
$1000
$2750
$1000
$2500
$1000
$2500
Cash from sales
Total Cash inflow (TCI)
$0
$0
THE
CASH INFLOW
THE
CASH INFLOW
Direct costs: inventory, equipment purchase

Operation Expenses: advertising, paying your cell phone, owner’s salary (this may be limited or zero for the first few months)

Other Expenses: loan repayment, taxes
If you are a sole proprietorship you would typically pay taxes in March or April.

Together these equal you
Total Cash Outflow (TCO)
Next add up all the places where the money is
GOING
THE
CASH OUTFLOW
EXAMPLE:
Cash Outflow
Operating expense (advertising etc.)
Direct costs (inventory)
April
May
$0
$0
$100
$100
$800
$600
Other expenses (loan repayment)
Total Cash outflow (TCO)
$700
$500
THE
CASH OUTFLOW
Now that you know where the money is coming from
(TCI) and where it is going (TCO) you can calculate the
monthly net cash flow
.
MONTHLY
NET CASH FLOW
(TCI-TCO)
Net Cash (TCI-TCO)
April
May
($1000 - $800)
= $200
($2500 - $600)
= $1900
The final step is to add the current net cash to the cash you still had from LAST month to calculate the
cumulative cash flow
at the end of the month.
THE
CASH BALANCE
(TCI-TCO)
April
May
0
$200
Cash from previous month
(0 + $200)
=$200
($200 + $1900)
= $2100
Cumulative cash flow
$200
$1900
Net cash (TCI - TCO)
$800
$600
Total cash outflow (TCO)
$100
$100
Other expenses (loan repayment)
$700
$500
Operating expenses (advertising etc.)
Direct costs (inventory)
Cash outflow
$1000
$2500
Total cash inflow (TCI)
0
0
Injection (investment, CYBF loan)
$1000
$2500
Cash from sales
$1000
$2750
Sales
Cash inflow
Create an income statement to capture your company’s profit.

It looks at your total sales minus ALL expenses.
Unlike a cash flow where you can injection new money into the business, this only looks at sales.

The income statement only needs to be done yearly.
If you’re questioning your overall profitability, consider doing an income statement at the close of each month.
Use the results to re-evaluate your sales forecast, marketing activities, and operations.

CYBF's Business Plan Writer AND Cash flow template
both
automatically create your income statement.

TIP
Congrats, you have made a profit! Unfortunately, not all that money is yours.
Full transcript