Textbook Reference: Entrepreneurship, 8th edition by R.H. Hisrich, M.P. Peters and D.A. Shepherd, Mc Graw Hill Irwin, Copyright 2010. Chapter 10: The Financial Plan Operating & Capital Budgets Complete a sales budget. Then focus on the operating costs. List of fixed expenses; 1. Rent 2. Utilities 3. Salaries 4. Advertising 5. Depreciation 6. Insurance Capital Budgets are intended to provide a basis for evaluating expenditures that will impact the business for more than one. Examples; 1. New Equipment. 2. Vehicles. 3. Computers. 4. A new facility. 5. It should also consider the cost of purchasing v. leasing. 6. Enlist the advice of an accountant in planning long term expense. Pro Forma Income Statements Projected net profit calculated from projected revenue minus projected costs and expenses. The Marketing Plan provides an estimate of sales. First, calculate sales monthly. Understand that sales are higher some months due to market needs. Project all the operating expenses for each of the months during the first year understanding that they change during different times of the year. Salaries and wages should reflect the number needed at different phases of the start up during the first year. Remember there are two months a year with three payrolls. Increase selling expenses as revenues increase. Forecast years 2 & 3 next. Some items will remain stable and others will fluctuate with the market. For internet companies most expenses will be consumed by equipment. Revenues will be delayed until the site is found. Pro Forma Cash Flow Cash flow is not profit! Profit is the result of subtracting expenses from revenue. Cash flows only when actual payments are received or made. Sales are not cash flow until payment is receiving. Cash payments to reduce debt does not constitute a business expense but does reduce cash. Profitable firms fail due to lack of cash. The entrepreneur must make monthly estimation of cash as well as sales so you know if you have enough to meet your obligations.
Pro Forma Balance Sheet Summarizes the projected assets, liabilities and net worth of the new venture. Assets are items owned or available to be used in the venture operations. Liabilities are money owed to creditors. Owner Equity is the amount the owners have invested and/or retained from the venture operation. Breakeven Analysis Volume of sales where the venture neither makes a profit nor incurs a loss. Software packages are essential in all money matters.
