Managing the Finances

Now we are going to discuss the third element of your business plan — the finances.
How much will it cost to start and operate the particular business you have in mind? There are three types of costs that you will need to address in your business plan:

• Cost of goods – the cost to produce or purchase the products you sell
• Operating expenses – the ongoing cost to keep your business open, including rent, utilities, phone, office supplies, loan payments, etc.
• Start-up cost – the amount of capital necessary to produce or purchase enough inventory to get the business started, plus set up the business and operate it until income from sales begins to cover all the expenses

One of the primary reasons for business failure is lack of financial planning. So when you begin to write these sections of your business plan, it is important to think of every potential expense and develop accurate estimates of all three types of business costs.

Most business plans also include cash flow projections for the first 12-24 months, showing how income from sales will offset the expenses and how much profit you expect to be making as the venture grows. Even if you have a great idea for a business, you will go “bust” if you run out of money to pay the bills. So cash flow projections are vital. This is true for all businesses, whether you are a small sole proprietorship or a large public corporation.

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