Cash Forecast

A budget helps you to see the dollar amount of your expected revenue and expenses each month. Then from month to month the question is: Will sales bring in enough money to pay for the store's bills? The owner-manager must prepare for the financial peaks and valleys of the business cycle. A cash forecast is a management tool that can eliminate much of the anxiety that can plague you if your sales go through lean months. Use the following format.

Is Additional Money Needed? Suppose at this point that your business needs more money than can be generated by present sales. What do you do? If your business has great potential or is in good financial condition, as shown by its balance sheet, you will borrow money (from a bank most likely) to keep the business operating during start-up and slow sales periods. The loan can be repaid during the fat sales months when sales are greater than expenses. Adequate working capital is needed for success and survival; but cash on hand (or the lack of it) is not necessarily an indication that the business is in bad financial shape. A lender will look at your balance sheet to see the business's Net Worth of which cash and cash flow are only a part. The balance sheet statement shows a business's Net Worth (financial position) at a given point in time, say at the close of business at the end of the month or at the end of the year. Free Retail Business Plan How To.

Even if you do not need to borrow money you may want to show your plan and balance sheet to your banker. It is never too early to build good relations and credibility (trust) with your banker. Let your banker know that you are a manager who knows where you want to go rather than someone who merely hopes to succeed.

Control and Feedback

To make your plan work you need feedback. For example, the year-end profit and loss (income) statement shows whether your business made a profit or took a loss for the past twelve months.

Don't wait twelve months for the score. To keep your plan on target you need readings at frequent intervals. An income statement compiled at the end of each month or at the end of each quarter is one type of frequent feedback. Also you must set up management controls that help you insure that the right things are done each day and week. Organization is needed because you as the owner-manager cannot do all the work. You must delegate work, responsibility, and authority. The record keeping systems should be set up before the store opens. After you're in business it is too late.

The control system that you set up should give you information about stock, sales, receipts and disbursement. The simpler the accounting control system, the better. Its purpose is to give you current useful information. You need facts that expose trouble spots. Outside advisers, such as accountants can help.

Stock Control

The purpose of controlling stock is to provide maximum service to your customers. Your aim should be to achieve a high turnover rate on your inventory. The fewer dollars you tie up in stock, the better.

In a store, stock control helps the owner-manager offer customers a balanced assortment and enables you to determine what needs ordering on the basis of (1) what is on hand, (2) what is on order, and (3) what has been sold.

When setting up inventory controls, keep in mind that the cost of the stock is not your only cost. There are inventory costs, such as the cost of purchasing, the cost of keeping stock control records, and the cost of receiving and storing stock.

Sales

In a store, sales slips and cash register tapes give the owner-manager feedback at the end of each day. To keep on top of sales, you need answers to questions, such as: How many sales were made? What was the dollar amount? What were the best selling products? At what price? What credit terms were given to customers?

Receipts

Break out your receipts into receivables (money still owned such as a charge sale) and cash. You know how much credit you have given, how much more you can give, and how much cash you have with which to operate.

Disbursement

Your management controls should also give you information about the dollars your company pays out. In checking on your bills, you do not want to be penny-wise and pound-foolish. You should pay bills on time to take advantage of supplier discounts. Your review systems should also give you the opportunity to make judgments on the use of the funds. In this manner, you can be on top of emergencies as well as routine situations. Your system should also keep you aware that tax monies, such as payroll income tax deductions, must be set aside and paid out at the proper time.

Break-Even Analysis

Break-even analysis is a management control device that approximates how much you must sell in order to cover your costs with no profit and no loss. Profit comes after break-even.

Profit depends on sales volume, selling price, and costs. Break-even analysis helps you to estimate what a change in one or more of these factories will do to your profit. To figure a break-even point, fixed costs (like rent) must be separated from variable costs (like the cost of goods sold).

The break-even formula is:

Sample break-even calculations: Bill Mason plans to open a shoe store and estimates his fixed expenses at about $9,000 the first year. He estimates variable expenses of about $700 for every $1,000 of sales. How much must the store gross to break-even?

Is Your Plan Workable?

Getting the Cash Needed to Starting a New Small Business. Now that You have computed your first capital requirements, where will
you receive the money? The primary source is your personal savings. Subsequently relatives, friends, or other people may be found
who would like to"venture" their savings in your business. Before obtaining too large a share of money from external sources,
remember you ought to have private control of sufficient to assure yourself ownership.

Once you can show that you have closely exercised your financial Requirements and can demonstrate expertise and integrity, a
financing institution might be willing to finance a part of your working requirements. This could possibly be done on a short-term
basis of from 60 days to as much as one year. Any institution that has money to lend is primarily concerned with security. The
safety may be a business asset, but if you are just starting the ideal safety is usually your house or any other private asset.

The second thing the lender will want to see is some sort of Business plan. If you complete a business plan - which includes a
cash flow forecast - the lender will see you have completed some realistic and serious thinking about your business and be more
likely to consider your request.

Become acquainted with your banker. In selecting a banker consider Progressiveness, attitude toward your business, credit services
provided, and the dimensions and management policies of the lender. Is the bank innovative? The physical look of the bank may give
you some indication. When the employees are reasonably young, considering your issues and active in civic affairs that the bank is
very likely to be innovative. The character of the lender's advertising might also be an indicator to its progressiveness.

To succeed the banker Ought to Be interested in Assisting You to Become a better manager, and develop a continuing relationship
which will mean rewarding business for you and the bank through time.

Will the lender give you the type of credit you want? By Way of Example, If seasonal accumulations of inventory become a problem
will the bank make a loan against public or field warehouse receipts? If your capital is tied up in accounts receivable during
your hefty selling year, will the lender take these receivables as security for a loan? Will the lender consider a term loan?

Finally, understand the dimensions and management policies of the lender. Will Your maximum requirements fall nicely within the
lender's"legal limit"? If you intend to do some export company, does it have a foreign exchange department? In the event that you
or your traders sell on installation conditions does the bank have facilities for managing installment paper? How profoundly is
the lender concerned with the growth and prosperity of the local community?

When you deal with your banker, sell your self. Whether or not you Need a bank loan, also make it a practice to stop by your
banker at least once every year. Openly discuss your strategies and difficulties. It's the bank's company to not betray a
confidence. If you require financial aid carefully prepare, in written form, complete information that'll present a thorough
understanding of your entire proposition. Many business-people or prospective business operators ruin their chances of obtaining
financial aid by neglecting to present their proposition correctly.

Trade creditor or gear maker, Companies from which you Buy equipment or product may also furnish capital to you in the form of
extended credit. Producers of store fixtures, cash registers, and industrial machinery frequently have funding plans under which
you might buy on an installment basis and cover from future earnings. You need not pay for the goods at once. If goods are for
resale, then no security other than repossession rights of the unsold goods is involved. But too long a use of charge may prove
expensive. Usually money discounts are offered when a bill is paid within 10, 30, or 60 days. By way of instance, a duration of
sale quoted because"2-10; net 30 days" means a cash discount of 2 percent will be awarded if the bill is paid within 10 days. If
not paid in 10 days, the entire amount is due in 30 days. If you don't take advantage of the money discount, you're paying 2% to
use money for 20 days, or 36 percent per year. This can be high interest. Avoid it.

Among the main causes of failures among companies is Inadequate financing. Should you enter business, remember it is your
obligation to provide, or obtain from others, adequate money to provide a firm foundation for the business.

Sharing Ownership With Other People. Now that you have determined what Business to start and about how much capital will be
required, you may find it necessary to join with a couple of associates to establish the enterprise.

If you lack certain management or technical skills which are of Major value to your preferred company a spouse with these skills
may prove a most satisfactory way to cover the deficiency. If you're extremely skilled in your particular area but lack direction
training and abilities, you might look for a partner using a background in management. If you may want more startup money, then
sharing the ownership of the company is 1 way to get it. Great care should be taken in deciding upon a partner. Personality and
character, as well as ability to render technical or financial assistance, affect the success of a pa333ship.

A partnership can be a mixed blessing. A partner who places in time Or money has got a right to expect a share in conducting the
enterprise.

In a venture the liability for the debts of the firm is Infinite, as it's in a single proprietorship. This means the owners are
Personally responsible for the company's debts, even in excess of the sum that they Have spent in the business. In a corporation
the accountability of the owner is limited To the amount that they pay for their shares of stock. A partnership, such as one
proprietorship, lacks continuity. This means the Company terminates upon the Death of the owner or a spouse, or upon the
withdrawal of a partner.

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