The Financial Plan
1. Determine your financial requirements. Prepare a forecast that outlines all your capital requirements. There are three: fixed capital, working capital and pre-operating capital.
Fixed capital includes cost of land and building or lease deposits on them; cost of improving the land or renovating the building; furniture, furnishings and fixtures; and machinery and equipment. These are usually one-time expenses, and will generally last the lifetime of the business.
Working capital is the reserve money you need to run the business until it becomes self-supporting. This may take from one to six months or even longer. You need working capital to purchase your raw materials, compensate your workers, and pay for transportation, telephone, electricity and water bills.
Pre-operating capital includes money you spend to register your business, acquire licenses for franchises, or pay a consultant or lawyer. This is money that you spend before your business begins to operate.
Be sure that no significant item is overlooked. Be realistic and do not underestimate your requirements. Provide for contingencies and a margin of safety to avoid cost overruns later.
2. Prepare a budget. The budget should include marketing, production and general and administrative expenses. Marketing, which provides the revenues of the business, requires expenses in selling and distribution, storage, discounts, advertising and promotion. Production cost includes cost of materials and components, labor, and manufacturing overhead. General and administrative expenses include salaries of administrative staff as well as legal and accounting costs. Projections should be prepared every month during the first year of operations and every quarter for the second and third years.At this point, you are ready to implement your plan. It is time to raise funds, register your business, find a suitable location, purchase equipment and supplies, hire and train people, and start operating. In other words, from here on, you put what you have written into action.
The Financial Plan
Fixed capital includes cost of land and building or lease deposits on them; cost of improving the land or renovating the building; furniture, furnishings and fixtures; and machinery and equipment. These are usually one-time expenses, and will generally last the lifetime of the business.
Working capital is the reserve money you need to run the business until it becomes self-supporting. This may take from one to six months or even longer. You need working capital to purchase your raw materials, compensate your workers, and pay for transportation, telephone, electricity and water bills.
Pre-operating capital includes money you spend to register your business, acquire licenses for franchises, or pay a consultant or lawyer. This is money that you spend before your business begins to operate.
Be sure that no significant item is overlooked. Be realistic and do not underestimate your requirements. Provide for contingencies and a margin of safety to avoid cost overruns later.
2. Prepare a budget. The budget should include marketing, production and general and administrative expenses. Marketing, which provides the revenues of the business, requires expenses in selling and distribution, storage, discounts, advertising and promotion. Production cost includes cost of materials and components, labor, and manufacturing overhead. General and administrative expenses include salaries of administrative staff as well as legal and accounting costs. Projections should be prepared every month during the first year of operations and every quarter for the second and third years.At this point, you are ready to implement your plan. It is time to raise funds, register your business, find a suitable location, purchase equipment and supplies, hire and train people, and start operating. In other words, from here on, you put what you have written into action.
The Financial Plan
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