Organizing the finances is the last step in the basic
business plan. But for many business plans it’s easy to prepare as much of the
work is already done in first step. Now it is only matter of organizing numbers
and work on the accounts of the business. For organizing the finance in an
appropriate way, the best way is to go through the following questions.
How will I explain the Business Finances?
The standard way is to use the financial statements which
have different purpose but they all lead to increase sales in future but in the
business plan usually we consider three main types:
BALANCE SHEET-It is a statement of the financial position of
a business at a particular point of time. They also include projected balance
sheet which shows where the business will stand financially on opening day, at
the end of the first year, at the end of the second year and at the end of the
third year.
INCOME STATEMENT-it is a statement of a business‘s profit or
loss over a given period of time. It also shows the projected income statement
which includes first three years of business. They will show the year’s
expected sales, costs, expenses, and profit or loss. In all it will show why
the balance sheet has changed every year.
CASH FLOW STATEMENT: it is a statement of cash going into
and out of a business over a given period of time, and how this has affected the
cash balance. It also includes the projected cash flow statements which has
three of these covering the same periods as income statements. By planning when
cash comes in and goes out of your business, you will conclude that you will
always pay bills that are due.
How will I track the Finances?
To have a profitable business plan, you should consider
break-even point before start making profit in your business. However BREAK-EVEN
is the point at which a company starts to make a profit; the point where sales
are sufficient to cover all of the costs and expenses of a company. There is
only one formula to calculate the break –even point. You may include this
valuable tracking tool in your business plan.
FIXED EXPENSES
BREAK –EVEN =
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CONTRIBUTION RATIO
Secondly, you can also track you finance with CREDIT AND
COLLECTIONS in which an entrepreneur assign the collector policy if their
customers are not paying the payments within the time period. It will help to
maintain the credit of the company by messing up the customer’s credit if they
are not paying the money for the service/product. They also include the
information such as the sales of the firm, the amount of assets and debts it
carries, and the speed at which they usually pay its bills. Set limits of
credit for individual customers and stick to these limits, regularly checking
to see who owes you and how much. Your credit and collections policy and how
you enforce it will have a big influence on when money comes into your
business. This is important for you to be able to plan your cash flow.
Lastly, the cash flow as I described in first part of
finance statements. Cash flow helps to maintain the day to day credit of your
business and also helps to avoid bankruptcy. The first task in preparing cash
flow projection is to look at your annual sales forecasts and then break this
down into monthly forecasts. This is a guesswork, part experience, and part
logic. For a new business, the problem of monthly fluctuations is compounded by
the expected pattern of growth. This issue was examined when you prepared your
sales forecasts and then look at the sales by monthly.
Where will I get the money?
This is the last big question in the preparing the business plan.
It shows the sources required to start the business. You can use the following
sources to start your business:
PERSONAL SOURCES- the new business owners contributes
materials and equipment or personal cash, or puts up other personal assets as
COLLATERAL for borrowing money from bank for from funding sources.
LOVE MONEY- this source of seed capital is referred as love
money because it is largely loaned on the basis of relationship as opposed to
the strength of the business plan or the amount of collateral. Interestingly,
the ease of access to love money seems to be culturally related, with some ethnic groups setting a higher priority on family entrepreneurship.
GOVERNMENT PROGRAMS- many millions of dollars are earmarked
each year by the federal and provincial governments to assist small
entrepreneur in one way or another. But politicians and bureaucrats are much
like managers in other large institutions: they need to prove their
accomplishments with statistics. These programs involve the Business
Development Bank of Canada (BDC), Canada Small Business Financing Program (CSBF)
and Human Resources and Skills Development Canada (HRSDC).
CHARTERED BANKS
Basically banks lend money to small entrepreneurs in two
ways:
TERM LOANS: these are loans given with a fixed repayment
period, usually for fixed assets at a fixed interest rate. They are typically
used for things like store fixtures, vehicles, and equipments.
LINES OF CREDIT: these allow a borrower to “overdraft” a cheque
account up to a preset amount. Typically, the borrower pays back a portion of
the outstanding balance each month at a variable interest rate. The amount the
borrower has access to is often a percentage of inventory or account receivable.
INVESTORS
INVESTORS are the wealthy individuals who invest in
independent small business and who are not related to the business owners.
The process of rewriting may be more necessary for the
financial section of the business plan and than any other. Every other planning
decision you make will have some financial implications and the above
information will help you to prepare your financial section of business plan. After
finance most of the work for the basic business plan will be completed.
