1. Business Development Services 1 How much cash will you need? Session 11

2. Business Development Services 2  Complete a cash flow forecast for your first year of business  Calculate how much cash you’ll need at start- up  Determine how much cash you can afford to put into your business  Determine if you will need a loan, and how much you will need Session objectives

3. Business Development Services 3  Prediction of the cash going in and out of a business  Credit terms (yours and your suppliers) affect cash flow  Cash and expenses may not come in or be paid during the month you made the sale, or had the expense What is a cash flow forecast?

4. Business Development Services 4  Projections help you understand the flow of sales (sales cycle) in your business  Gives you a realistic view of how much cash you have on hand  Allows you to forecast if you will need financing at some point. What’s the purpose of a cash flow?

5. Business Development Services 5  Cash flow forecast is a projection (what you think will happen)  Cash flow statement is what actually happened  It’s very important to compare the two, once you are running your business What’s the difference between a cash flow forecast and cash flow statement?

6. Business Development Services 6  Profitability doesn’t tell you about how money is coming in and going out of the business.  This can be VERY dangerous, and is one of the top reasons that businesses fail. The problem with profit…

7. Business Development Services 7  Brian, the business owner  Marcia, the supplier  Jack, the customer Our characters

8. Business Development Services 8  Brian buys his first $100 in supplies from Marcia (supplier). He pays on credit, due in month 2. Month 1 - Event #1

9. Business Development Services 9  Brian repays Marcia $50. He buys $50 more on credit, to be repaid in month 3. Month 2 - Event #2

10. Business Development Services 10  Yay!!  Brian sells $300 worth of dog accessories to Jack.  Jack wants to pay Brian in month 4. Month 2 - Event #3

11. Business Development Services 11  Brian has to pay his insurance. $50. Month 2 – Event #4

12. Business Development Services 12  Marcia (his supplier) wants to be paid back. Month 3 – Event #5

13. Business Development Services 13 What’s Brian’s cash position in month 3?

14. Business Development Services 14  Cash flow shows the cash going in and out of your business  Helps you see how credit terms (yours and your suppliers) affect cash flow  Gives you a realistic view of how much cash you need to have on-hand  Helps you plan for cash needs throughout the year (e.g. seasonal businesses)  Allows you to predict if and when you will need to get a loan Key points about cash flow

15. Business Development Services 15 Maria’s start-up costs Website $ 2,000.00 Business cards (promotion) $ 100.00 Samples (promotion) $ 200.00 Insurance$ 500.00 Memberships $ 250.00 Licenses and permits $ 880.00 Equipment (baking supplies) $ 200.00 Packaging $ 150.00 Ingredients $ 250.00 Office supplies $ 50.00 Professional fees $ 680.00

16. Business Development Services 16  Could she continue her existing job and defer salary a few more months  Can she re-visit at 6 months? She could track her actual sales against projections, and get out if she thinks the business isn’t going to reach the level of sales she needs  She may need to do a “reality check” on the numbers of packages. If it takes 1 hour to do 15 packages, is it realistic for her to have a part- time job and do 370 packages a month? As her sales grow, she may need help. What should Maria do?