We're back again today to continue to talk about Business Plans. Our focus in the last post and for the next few posts is your Financial Plan. If you're reading all of our posts, you'll remember that last week we talked a bit about forecasting sales.
In our last post we linked to a Cash Flow Spreadsheet from the Women's Enterprise Center in British Columbia. We wanted to point out that even though the spreadsheet is from Canada, it is applicable to both American and Canadian companies.
Today we are going to go through putting together your Cash Flow spreadsheet. Once your spreadsheet is completed, you will need to print it out and attach it to your business plan.
Completing your Cash Flow Spreadsheet:
At the top of the spreadsheet, you'll need to fill in your business name and the date. You'll see that the spreadsheet covers a span of one year, plus a start up month. A Cash Flow spreadsheet time span is a fiscal year and not a calendar year. For example, if you expect your first sale in August, your start up month would be July and your first month in business in August. Your business might not need a start up month, but if you're not sure use your start up column for money that you might spend without making a sale that month (ie. graphic design, website, tax id number).
Next, lets look at the section of Cash Inflows (line 6). This part of the spreadsheet is for you to enter in any money you expect to be paid. You'll need to divide this incoming money into several categories, based on time and where the money is coming from.
- Cash receipts (Line 7) is for any money paid within 30 days of the sale. This number will be based on the sales forecasting you completed for the last post.
- Accounts Receivable Collections (Line 8) is for any money that you expect to be paid that month, but was from a sale previous to that month. Some examples might be a consignment account that only pays every 3 months or a wholesale account that you've extended favorable terms too.
- Loan Advances (Line 9 and 10) are any loans you might have receive. In line 9 it mentions WEC (Women's Enterprise Center) for the purpose of your spreadsheet, you can delete that line.
- Owner Investment (Line 11) is any money that you expect to put into the business from your own pocket. For many starting handmade businesses, this might be the only way you fund your business.
- Total Cash Inflows (Line 13) is the total of all the money coming into your business for the month.
After that is the Cash Outflows (line 15). In this section you will want to predict every expense that your business might have in the next year. The sections below help you decide how to classify all your expenses. The better able you are to predict your expenses, the better idea you'll have of what point your sales projections will cover your business expenses. We think these categories are all pretty clear. Questions are welcome in the comments!
Line 45 is the Net Cash Flow. This number is the cash inflows minus the cash outflows. A good month is when the inflows are greater than the outflows! *A little tip here, this line should always be positive, especially if you're going to see a banker for a loan. If it's not, then you will either need to adjust your spreadsheet for more sales, cut your expenses or increase your Loans/Owners Investment.
For our Business Plan we did two years of Cash Flows at a realistic sales level. We also did one where sales were really bad and one where sales were amazing. That way, we'll be prepared for all three scenarios. All three of these Cash Flows were included in our Business Plan. For us, having all these really helped us understand the right size retail store that we needed and if the maximum inventory capacity of our store fell within our realistic or amazing Cash Flows.
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.