Once you’ve determined your sales potential, the next step is to draw up your projected financial statements. This will help you evaluate your future business’s profitability and your financing needs.
Determine your start-up costs and how much financing you’ll need
- First draw up a list of everything you’ll need to run your business along with the cost of each item.
- Then add the amount of working capital you’ll need to operate your business.
- Now subtract the amount you have to invest, or your financial contribution to the project. Entrepreneurs must be ready to invest in their business right from the beginning and over the first few years.
- Now you’ll have an approximate idea of what your financing need will be.
Produce your projected financial statements
- Opening balance sheet and 2-year forecasted balance sheet: Financial statements that show your company’s financial standing on a given date, indicating company assets and liabilities and owners’ equity.
- Profit and loss statement: Allows you to determine company profits or operating losses and to establish the relationship between sales and sales expenses for the fiscal year. Lets you know if company is profitable or not.
- Two-year projected cash flow budget: Allows you to predict monthly cash inflows and outflows to take appropriated measures and determine operating line of credit needs.
- Break-even analysis: The break-even point is reached when company sales are enough to cover the company’s fixed costs and variable expenses. From this point on, sales become a source of profit.
Find out more
For help writing up a business plan, establishing project costs and project funding, understanding the various types of financing and preparing your request for financing, see Finance your business.