By Jon Smith, Author Of 'Smarter Business Start-ups'
When creating your financial spreadsheet, you really should be looking to prepare for every possible eventuality that you can foresee over the next three years. Even if your business is going to be in an office or a shop and you are looking to run a transactional website as a bit of a sideline, it could be that web sales will be your major route to market in eighteen months’ time.
Create a row for each and every route to market, even if you are projecting sales to be zero for the first year. Include everything like bank interest rates for loans and overdrafts, even if you are self-funding the business at launch – you may have a bank loan in the future and it is much easier to alter the rate of interest and enter an amount that you will be paying every month than it is to create a new spreadsheet.
As well as preparing for all foreseeable eventualities, it is good practice to be as specific as possible with your financial projections. If you are launching a hairdressing salon employing experienced stylists and apprentices, there will be different rates charged to the customers and differences in the cost of sales. Keeping your entire sales figures in one row makes it hard to analyse profits. It is better to create a row for each type of sale. Although the volume of sales through the stylists may be high value, your cost of sales (their salary or commission) is also going to be high.
The apprentices will not charge as much for their work, but equally they will not be paid as highly, meaning more profit for the business – so it might prove better for your bottom line to employ one stylist and three apprentices than the other way around. The more information that you can present on your financial plans, the better you will be able to understand the full picture.
Presenting the data can be done by simply printing off a copy of the spreadsheet – but very few people (apart from maybe an accountant) will be happy with this document.
Once the numbers are in, use the software to create more viewer-friendly versions and excerpts of the data. Graphs help readers ‘picture’ the business and understand the data far more easily than looking at an enormous spreadsheet.
Although the viewer might need to refer back to the source document, your message can be displayed very quickly and accurately with a graph. Likewise, in your business plan you should summarise the data with simple one-line statements of fact or intent, e.g. ‘with 47,000 investment we intend to create a business turning over 390,000 with a net profit of 61,000 within our first twelve months of operations.’
When presenting data it is important to show when cash is actually going in and out of the business. If the rent bill is 12,000 per annum, display the outgoing funds, broken up into payments, as they will occur, not forgetting to account for deposits and legal fees. Managing cash flow will be the key to making your business a success.
Find out what terms your suppliers offer, and always try to negotiate more favourable terms. Suppliers are often wary of new businesses – and rightly so, as so many go out of business leaving big debts unpaid. No matter how good your negotiation skills, some suppliers will demand a year of good relations before allowing more generous terms, or for the value of orders to exceed a certain level. The long-term goal is for your business to be selling products or services to your customers, and receiving the cash, before having to pay your suppliers.
Extract from Smarter Business Start-ups by Jon Smith, published by Infinite Ideas)
Join us on