Some may be used in the earliest stages - simply to determine whether or not your proposed or existing business is feasible or sustainable. Others will be used to provide information that will enable you to attract partners, investors or financing capital, while some will monitor and benchmark your business activities on an ongoing basis.
The structure of your business will determine the variation and format of some of the financial documents that you will utilize. The typical business structures are: sole proprietorship, partnerships or corporations. Additional types of business structures may possibly include new generation co-ops or joint ventures. Critical business decisions need to be made before you invest significant time and capital. It is important to adequately complete market research, hold discussions with possible suppliers and be able to place estimated costs into models that will enable you to more accurately complete feasibility assessments.
The development of your financial documents is an important step in bringing your new start-up business, or new product launch to reality. Once prepared, these financial documents will assist you in attracting investors, satisfying the needs of your lenders, and monitoring your business on an ongoing basis.
Building these documents requires utilizing key assumptions. These key assumptions are the building blocks of information that are collected and used to develop your financial and business plans - and to help make critical decisions based on solid information. Key assumptions are critical to all aspects of the financial forecasts — balance sheets, income statements, cash flow, business plans and so on. They include detailed forecasted sales volumes; cost of sales, general administration expenses, and others.
Tip: It is important to understand that all three financial statements are related and connected indicators of the business' feasibility, risk and profitability. As you prepare your financial documents and business plans, you will need to document and sort the information that is used to create these documents.
A spreadsheet or combination of several spreadsheets is one of the most effective tools for gathering, compiling and managing this information. Tip : Linking your spreadsheets to one another and merging the data together will make it much simpler and faster to update your documents.
It is highly recommended that you discuss your business start-up or expansion idea in advance with your financial coach so they can provide you with guidance in the key assumptions they suggest or recommend.
They may help you develop detailed spreadsheets, and provide supporting comments. Utilize your suppliers and other business contacts as needed to aid you in gathering up-to-date information. Not all assumptions require a detailed breakdown. Your financial professional will aid you in finding the best spreadsheet tools suited to your needs. Every business is unique and therefore each may require additional or specific information to be collected.
What will it cost to get your business off the ground or implement expansion plans? Begin collecting the data. Talk to potential suppliers for initial pricing of supplies and materials. If you require capital, make some early inquiries to determine anticipated borrowing expenses and terms.
As you collect your information, keep a record of the information you gather. This example shows some of the basic information that would commonly be used in a start-up business. Tip: You should use startup cost planning for a start-up company and also when expanding your business or launching a new product line.
Customize the spreadsheet for your own purposes. In addition to tracking the total estimated costs of starting up your business, this particular spreadsheet example also allows you to assign the source s of the capital required. Consider how long it will be before your business will be generating enough revenue to offset expenses. In this example, most of the monthly expenses have been multiplied by 3.
In this case, this ensures the expenses are covered until the business generates sufficient revenue to cover costs. A spreadsheet can easily accommodate additional lines as required.
You may wish to link merge them together to quickly make changes and updates. Missing or underestimating key expenses at this stage could be the difference between success and failure. Tip: You may come across items which require more in-depth data to be gathered or updating. Colour-coding the spreadsheet entries may help you identify those areas.
For example as shown in the example below green areas may be used for items that you are very certain of. Yellow shaded areas require some additional information, while red areas may mean you require more extensive updating or critical information to be gathered. Tip: It is important to have sufficient capital funding for the startup of your business. A startup capital worksheet will help you to calculate how much is needed before you begin to generate income.
Tip: Developing smaller spreadsheets will assist you in recapping the individual costs associated with the project. Remember: It isn't necessary to utilize a spreadsheet in all cases, as long as you are realistic in your assumptions and you can support them when needed.
Similar to startup or expansion costs, you need to investigate and give careful consideration to the development of other key data that would be utilized in the completion of the opening balance sheet, forecasted profit and loss statements and the development of cash flows. One of the first key assumptions that needs to be addressed in the startup of a new business venture, and or expansion, is the source of equity and or debt. This would be the assumption around the contributions to be made to the business by ownership, whether sole proprietor, partners, or shareholders.
You would be advised to develop a spreadsheet that shows the timing and amount of each contribution and the terms in which they are being made. The spreadsheet should show both contributions and the formation of the business and throughout the planning period.
Production costs need to be forecasted. The production cost is determined by your research and accurate determination of the cost of all inputs that make up all your manufacturing costs. These costs should include all material costs, labour, service and manufacturing overhead requirements that are required in the development of your products. Prior to forecasting your sales projections and revenue, you need to calculate a realistic cost for your product s and break the cost down into a per unit basis.
Labour costs associated with production should be addressed here as well. Below is an example of a basic worksheet to calculate product cost. Tip: Once you calculate the input costs on a per unit basis, you can begin the sales and revenue forecasts. Each individual product that you produce would require its own individual calculations for these per unit costs.
Tip: If you manufacture a product, it is advisable that you include not only your material costs in your cost of sales, but all manufacturing costs such as rent only equipment rent utilities and labour - anything that is variable and related to manufacturing your product.
Placing the right selling price on your product or service can be the difference between financial success and failure. In order to price your product or service profitably, you need to take into consideration many factors such as cost of production, your customer, your competitors and how much value the market places on your product.
The cost of production includes both variable and fixed costs. This is a very important step and is the foundation to establishing an accurate price for your product. Do not guess, know your costs and be sure to include all costs. Price is not the same as value. Value is a perception in your customer's mind. If you have a unique product that the customer needs or wants, they will place a higher value on it.
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