You already have a great idea to startup a new business adventure. But you don’t have the £25,000 needed to rent a shop, buy inventory, and cover other one time costs. Don’t even think about approaching a bank or private investors until you have a thoroughly developed business plan. People with money won’t give you any consideration until you present them with a business plan.
Not only do you need a business plan for investors and banks, a business plan forces you to flush out your ideas. Entrepreneurs have a strong tendency to focus on the strengths of a new business idea and gloss over the weaknesses. A properly written business plan not only makes you confront potential weaknesses, it compels you to look for solutions that ultimately strengthen your entire business.
Getting Into the Business Plan Financials
The entire business plan is critically important but once you get beyond the main idea that has you excited to be setting up shop, the financials are what the money people are going to be the most interested in. Be prepared to account for every pound until you turn a profit and pay off the loan or start making payments to your investors.
There is no set length for how far into the future you need to forecast your finances. However, at a minimum the financial section needs to look out to the point in time that your are making reliable profits. A typical plan looks out five years. The first year breaks the numbers down by month and in some cases by week. Years two and three are usually accounted for by financial quarter. Years four and five are also frequently broken down by quarter but if the business is showing healthy profits, these may be a forecast for the entire year.
What The Business Plan Financials Account For
You must look carefully at your business model to understand where money is coming into the business and where it is going out of the business. At a minimum, you must forecast for sales, cash flow, along with profits and losses. Also, a startup almost always has one time start up expenses. Common start-up costs are signing a building lease, buying inventory, and equipment. You may have a need for specialized equipment that includes an installation cost. Of course, salaries must be included in your financial forecast. All of the money coming into and going out of the business goes into the financial section.
Another important detail for the financial section is accounting for the timing the money will be needed. You may need money for that special piece of equipment that needs to be installed four months before you open the doors to paying customers. If you plan to expand the business in year three, you don’t need expansion funding in the beginning. The money people will want all of this information and more before they will hand over the cash.