After all the writing you've done over the last few weeks, the next section of our Business Plan Challenge is all math, the Financial Statements. The previous sections of your plan explain the ideas and concepts behind your business, and the Financial Statements will prove that your business idea is viable.
Your business plan will include three financial statements.
1. Cash Flow
2. Income Statement
3. Balance Sheet
Today we are going to start with Cash Flow. As my dad always says, "Cash is king" and it's a good way to measure your business' health. In order to estimate your Cash Flow Statements for your business plan, you will first need gather some information and do some sales forecasting.
Cash Flow Statement
For the Cash Flow Statement, all the money that the business pays or receives is recorded. The money that leaves the business is an expense. For your statements to be accurate, make a list of every expense that your business might have over the next year. Some odd things you might not think of that we included were, traveling to trade shows, insurance, business license, buying trade magazines, office supplies and gas for your car.
To help out, we wanted to find a good spreadsheet to use as a guide as you work on your Cash Flows. The Woman's Enterprise Center in British Columbia has a helpful Cash Flow Spreadsheet that you can download. The spreadsheet breaks your expenses down into categories and will probably make you think of a few more expenses to list. You'll find your expenses on the sheet titled "Cash Flow Year 1", lines 15-34.
After all of your expenses are determined, you will next forecast sales, or the income your business will earn. We'll be honest with you, forecasting sales is really hard. Think of the sales forecasts as goals you'd like to meet for your business. These figures should be realistic and obtainable. They will start slowly and grow over time. Remember, sales are effected by seasonality. The Woman's Enterprise Center worksheet also has a section for forecasting, but its not our favorite. We'll walk you through it instead.
To start with forecasting, list all the products or services you are planning on selling. In our store, we will sell a lot of different things, so instead we picked three big categories and estimated that the majority of our products would fit into these categories with similar selling prices and cost. Estimate how many of each product you will sell per month. Multiply the number of products sold per month by the sales price. That will give you the total sales for that product in that month. Next, add all of the different products for the month together to get your total sales for the month.
We think this needs an example.
I sell these products at the following prices:
- Cinnamon Rolls - $5
- Cupcakes $3
- Tea $2
(how come my examples are always food?)
I estimate in my first month of sales, July, I will sell:
60 Cinnamon rolls
The total sales for each product is:
Number of sales X price = Total sales per month
60 X $5 = $300
10 X $3 = $30
320 X $2 = $640
My total sales for the month:
Cinnamon Rolls + Cupcakes + Tea = $970
If you do that for every month, and then add each month to the next, you'll get your total sales for Year 1! Really Easy!
Estimate both your expenses and sales for at least 2 years.
We want to make sure that everyone has a good understanding of their foretasted expenses, so we're going to stop here for now. Homework for next week - have all your expenses written down and your forecasting completed. When we continue, we'll go through the spreadsheet step by step and talk about what numbers go in which boxes.
If you have any questions from today's post, ask away!
Lili Nedved and Henry Sinha are opening a brick and mortar retail store in Vancouver, Canada. With lots experience staying up late and working on Lili’s handbag business, iglubu, Henry was recently promoted from an Electrical Engineer to Director of Fabric Organization. Lili hopes her Finance degree will give her the edge in the competition for Employee of the Month.