THE BUSINESS PLAN - THE FINANCIAL MANAGEMENT PLAN 

     Sound financial management is one of the best ways for your business to remain profitable  and solvent. How well you manage the finances of your business is the cornerstone of  every successful business venture. Each year thousands of potentially successful  businesses fail because of poor financial management. As a business owner, you will need  to identify and implement policies that will lead to and ensure that you will meet your  financial obligations. 

     To effectively manage your finances, plan a sound, realistic budget by determining the  actual amount of money needed to open your business (start-up costs) and the amount  needed to keep it open (operating costs). The first step to building a sound financial plan is  to devise a start-up budget. Your start-up budget will usually include such one-time-only  costs as major equipment, utility deposits, down payments, etc. 

     The start-up budget should allow for these expenses. 

     Start-up Budget 

          personnel (costs prior to opening) 
          legal/professional fees 
          occupancy 
          licenses/permits 
          equipment 
          insurance 
          supplies 
          advertising/promotions 
          salaries/wages 
          accounting 
          income 
          utilities 
          payroll expenses 

     An operating budget is prepared when you are actually ready to open for business. The  operating budget will reflect your priorities in terms of how your spend your money, the  expenses you will incur and how you will meet those expenses (income). Your operating  budget also should include money to cover the first three to six months of operation. It  should allow for the following expenses. 

     Operating Budget 

          personnel 
          insurance 
          rent 
          depreciation 
          loan payments 
          advertising/promotions 
          legal/accounting 
          miscellaneous expenses 
          supplies 
          payroll expenses 
          salaries/wages 
          utilities 
          dues/subscriptions/fees 
          taxes 
          repairs/maintenance 

     The financial section of your business plan should include any loan applications you've  filed, a capital equipment and supply list, balance sheet, breakeven analysis, pro-forma  income projections (profit and loss statement) and pro-forma cash flow. The income  statement and cash flow projections should include a three-year summary, detail by month  for the first year, and detail by quarter for the second and third years. 

     The accounting system and the inventory control system that you will be using is generally  addressed in this section of the business plan also. If a franchise, the franchisor may  stipulate in the franchise contract the type of accounting and inventory systems you may  use. If this is the case, he or she should have a system already intact and you will be  required to adopt this system. Whether you develop the accounting and inventory systems  yourself, have an outside financial advisor develop the systems or the franchisor provides  these systems, you will need to acquire a thorough understanding of each segment and  how it operates. Your financial advisor can assist you in developing this section of your  business plan. 

     The following questions should help you determine the amount of start-up capital you will  need to purchase and open a franchise. 
          How much money do you have? 
          How much money will you need to purchase the franchise? 
          How much money will you need for start-up? 
          How much money will you need to stay in business? 

     Other questions that you will need to consider are: 
          What type of accounting system will your use? Is it a single entry or dual entry  system? 
          What will your sales goals and profit goals for the coming year be? If a franchise, will  the franchisor set your sales and profit goals? Or, will he or she expect you to reach  and retain a certain sales level and profit margin? 
          What financial projections will you need to include in your business plan? 
          What kind of inventory control system will you use? 

     Your plan should include an explanation of all projections. Unless you are thoroughly  familiar with financial statements, get help in preparing your cash flow and income  statements and your balance sheet. Your aim is not to become a financial wizard, but to  understand the financial tools well enough to gain their benefits. Your accountant or  financial advisor can help you accomplish this goal. 

     Sample balance sheets, income projections (profit and loss statements) and cash flow  statements are included in Appendix 2, Financial Management. For a detailed explanation  of these and other more complex financial concepts, contact your local SBA Office. Look  under the U.S. Government section of the local telephone directory.