Business Owner's Manual

Basic Financial Planning

To determine how much you need for your business, you should begin by calculating: (1) your projected first-year revenues; (2) your start-up costs; and (3) your recurring monthly costs. The difference between your revenue and your costs will inform you about the viability of your business and the financing your business needs to get off the ground. It can also serve as the basis of projections for future years. A business counselor can help you with these calculations. You can find a counselor and other sources of advice by using the Services Directory and looking under "Business Advice and Networking."

 

Projected Sales

Projected sales can be estimated using one or more of the following approaches:

• Compare your business to similar existing companies, taking into account the factors that make your business different. Your research may include data from printed sources, information from industry associations, and discussions with current business owners — if they are willing. A business counselor can also help.
  
  
• Estimate your market share, based on the number of potential customers in the area and the number of competing businesses.
  
  
• Determine the revenue you want for the first year and calculate backward the number of hours you must work (if you bill by the hour) or the number of products you must sell to reach this goal. Then use one of the other approaches to test whether the number is realistic.

 

Start-up Costs

Start-up costs can include the following:

• Capital costs — equipment, fixtures, furniture, remodeling, and decorating
  
  
• Professional fees — attorneys, architects, accountants, consultants
  
  
• Required permits, licenses, and other rights
  
  
• Starting inventory
  
  
• Advertising and promotion associated with start-up
  
  
• Deposits and advance payments — rent, telephone, utilities, security deposit, etc.
  
  
• Cost of living while the business is getting off the ground (count on a significant period of time without any income)
  
  
• Contingencies (budget at least an additional 15 percent)

 

Recurring Monthly Costs

Below are listed some examples of recurring monthly costs.

• Salaries/wages/payroll taxes
  
  
• Rent, utilities, phone, and maintenance
  
  
• Additional inventory purchases
  
  
• Insurance and taxes
  
  
• Postage/supplies
  
  
• Ongoing professional fees
  
  
• Debt service (monthly payment on loans)
  
  
• Contingencies (again, plan for an additional 10 to 15 percent)