Forecasting will play a very important role in any new business. From the time the idea is born, forecasts are being made—will the new business be profitable? When? How much cash will it take to get the concept off the ground? These are typical questions that require some degree of financial forecasting. An astute, thorough projection of the company’s near future is vital to arriving at the correct answers.
Identifying Start-up Costs
The following is a short, non-exhaustive list of expenses typical to new entities:
- Furniture and equipment - Desk, chair, fax, computer hardware, filing cabinets
- Other equipment - Shelving, tools, cash register, signs, fixtures
- Deposits - Leases on equipment, last month’s rent, phone and utility deposits
- Professional fees - Legal and accounting fees, design fees, other consulting fees
- Advertising - Business cards, grand opening, initial advertising campaign
- Office supplies - Invoices, letterhead, pens
- Leasehold improvements - Any additional improvements necessary, not already in the lease
- Inventory - Amount of inventory needed to open business
- Petty Cash - For cash register and small cash transactions
- Licenses - Various licenses required to do business
Creating Projected Financial Statements
The following statements should be created and included in the company business plan:
- Projected balance sheets
- Projected income statements
- Projected statement of cash flows
- Statement of start-up costs
- Notes to financial projections detailing assumptions made
It is easier to start by making projections for a short period of time (two years at the most). Using a shorter time period typically results in a greater degree of accuracy.
