CASH is KING! The lifeblood of any business is its ability to collect cash. We often encounter small businesses that are profitable yet they don’t generate enough free cash to pay the day-to-day expenses AND the owners.
Being able to identify cash resources and anticipate cash expenditures are an important part of running a successful enterprise.
New business owners often underestimate the capital outlay necessary to get their business up and running. Common start-up expenses include:
- Location costs (First & last month’s rent, security deposit, utility deposits)
- Tenant improvements
- Furniture, fixtures, computers, telephone systems, signs
- Initial marketing plan (logo design, website, business cards, etc.)
- Initial inventory of supplies, stationery
- Organizational costs (attorney fees, accounting fees)
- Registration fees & business licenses
Beyond the initial start-up, the items involved in developing a cash flow analysis are:
- Forecasted sales volume, including conversion to cash (timing of collections)
- Cost of product (including shipping) and timing of payment
- Employee cost and related payroll taxes
- Other ongoing monthly expenses
When you’re preparing your forecast, it may seem like the list of costs and expenses is endless. However, it is imperative to make the list as detailed as possible to ensure that you have sufficient funds to make your operation viable and to avoid running out of cash. Remember, one of the primary causes of small business failure is under capitalization.
Insight can assist with preparing a cash flow analysis and help evaluate the completeness of a feasibility study.