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Are you thinking about starting something new? Well, if you are, you want to know just how much it’s going to cost you. And that’s what I want to talk about today.
I happen to have two clients that are starting new things. One is a start-up, and the other is a 100-year-old business that’s opening a new location, and I’m doing similar work for both of these companies, which is creating a financial forecast.
What you want to do to create a financial forecast is lay out month by month what your expenses are going to be, and some of your expenses may not start right away. So for example, the company with the new location, the construction loan isn’t going to start having to be paid off until six months into the project when the construction is done. So you want to lay out the timing of all your expenses month by month.
And also as you’re planning this, make sure that you separate out your wants from your needs because you may find you don’t have enough working capital to get everything you could possibly want very, very common.
Second, I want you to estimate your income, but you really need to be conservative here. I know it’s tempting to say I’m going to sell a zillion dollars of this service or that product. And yes, I want you to be confident, but for this purpose, I want you to be conservative and make sure to ramp it up slowly. You’re not going to be at 100% capacity the day you open your door. Finally, I want you to include any financing costs. If you are taking out loans, include the loan payback as well as well as the loan interest.
Then you’re going to sum every column up and look at your cash flow for each individual month, and hopefully, pretty soon into your project, depending on the size of the project, you will become profitable.
The last piece that I want you to do is sum that bottom line to show your cumulative cash flow. So January will be January. February is January plus February, and March is January February plus March. What this tells you is going to tell you your cash needs and how much working capital you are going to need to fund this project until it gets profitable.
I realize this is a little bit hard to understand verbally, so if you want a template describing this, leave me a comment with your email address or DM me, and I’ll be happy to share my template with you. This is Judi Otton with GrowthCast, and I’ll be back next week with a new Fiscal Fitness Tip of the Week.