Now that you have worked through and understood your personal household budget you have the necessary skills required to do the same for a business.
A business’s finances must be planned and controlled the same way as your household finances. The difference between your household budget and your business budget will be explained in the following pages.
As in your household budget, the income for your business budget must be estimated for the upcoming months in order to determine if you will have enough cash to pay for all of your planned and unplanned expenses. If you project in advance that your business income will be low in the first few months of operation (as is normal in a new business) then you can make plans for the additional cash required to keep the doors open during this slow time. You will also be able to modify your cash outlays to only those that are necessary and not take on additional expenses until the business income grows and can comfortably handle these expenses.
Your business MUST MAKE A PROFIT eventually in order to stay in business. You should expect to incur losses for the first six months to a year in a new business start-up. By budgeting and planning the cash shortfall you will not be in for any nasty surprises and will know in advance how much cash you will need to put into the business.
One of the most important requirements for the success of your business is sound financial management. Financial records must be kept current with all receipts filed regularly in order to ensure accurate budgeting and proper records for tax purposes.
Many business owners prefer to hire a bookkeeper or accountant to complete their financial statements. In any case, you should understand how to interpret them. In this unit, you will have an opportunity to complete projected financial statements for your business. These documents can be inserted directly into your business plan.
What Will You Learn
Section B divided into the following sections:
- After reviewing this unit, you should be able to:
- Develop a system for maintaining your financial records.
- Prepare a Cash Flow Statement for your business.
- Identify assumptions you made to prepare your Cash Flow Statement.
- Review an Income Statement for the first year of operation, based on projections in Sample Cash Flow Statement.
- Identify assumptions made to prepare the Income Statement.
- Review a Balance Sheet for the business.
- Complete a list of Start-up Costs for your business venture.
- Perform a Break-even Analysis for your business.