Starting a New Business Part 4 - Financial Projections

Finances where to start?  There is no point in jumping in looking for grants and loans and equity you first need to figure out the business projections.  So there is no getting away from producing projected profit and loss accounts, projected cash flow statements and projected balance sheets.   This can be a daunting step but if you keep your information simple your projections can be reached with a bit of work on your part and support from an accountant. 

Let's see if we can break this down into simple parts to get you started 

remember look at this month by month forward for at least two years.

Projected Profit and Loss Accounts

1. List all of your possible overheads, examples:
• Advertising
• Insurance
• Rent
• Wages and PRSI
• Phone bills
2. List your projected sales each month on products and services
3. List the cost to the company for the products you are selling

Guess what you now know your Gross Profit = Sales minus Cost of Sales and your Net Profit = Gross Profit minus Overheads - the start to your Projected Profit & Loss Accounts.

Projected Cash Flow

Being profitable does not necessarily mean being liquid. A company can fail because of a shortage of cash, even while profitable.For your company to survive the cash flow is a key component.  Cashflow is basically the movement of cash in and out of your business you will have to remember things like:

1. Bills have to be paid on time
2. You may have to pay your suppliers before you can sell your product
3. You may operate on credit sales where companies take 30 days to pay you
4. Cash sales are good for cash flow
5. Look month by month at receipts (money in )  and payments (money out)

Guess what you now now your Cash flow and can see your closing balance each month.  This can help you decide if you will require an overdraft facility for the initial few month of business.

Projected Balance Sheet

The balance sheet is a snap shot of your companies financial position at the end of its financial year.  It basically summarises the company assets, liabilities and net worth (shareholder equity).  Assets are what a company uses to operate its business, while its liabilities and equity are two sources that support these assets.

Assets = Liabilities + Shareholders' Equity

The balance sheet was the difficult one for me but when you have all your figures a few hours with an accountant can provide you with the necessary data for your business plan.

The Skills Academy can provide you with a mentor to get you started on the right financial track.