Planning Cash to Cover Your Shortfall

Print View
Total views: 220

One thing many new business owners fail to take into account is that you will almost never show a profit for the first few months of running your business. It takes time to gain customers, build your reputation, start making consistent sales and turn a profit.

 

In addition to covering your basic start up expenses, you will need to come up with a plan to have funds available to cover your first few months of operating expenses since your fledgling business will likely not be able to support itself during the start up phase.  The amount of money you need to have on hand will vary depending on how much you plan to spend on advertising, supplies, utilities, office supplies, etc.

 

To figure approximately how much money you will need to cover your shortfall in your first few months, you can use the free cashflow worksheet tool available from the Business Owners Toolkit provided by CCH.  The worksheet is in Microsoft Excel format. If you don’t have the software necessary to open the file, you can search in Google for “cashflow worksheet” to find an appropriate worksheet that will work on your system.

 

You can download it here:

 

http://www.toolkit.cch.com/tools/cfbudg_m.asp

 

You will need to estimate both your income and expenses for the first few months that your business operates. Once you do this, you can fill in the worksheet and see an estimate of how much short you will be each month while you are starting out and how much money you will need to have on hand to cover this shortfall. 

 

Estimating your income and expenses is difficult when you are first starting out since you don’t have any past experience to base these numbers off of.  Keep your cashflow worksheet handy as we work through all the steps of getting your business online.  With some of the steps that I outline in this book you will see that there are recurring monthly expenses.  Once you know what these expenses will be for your business you can add them into your cashflow worksheet.

 

You will also need to determine how much you plan to spend on advertising, supplies, and business services each month and add these into your expenses category on your cashflow worksheet.

 

Estimating your income is a bit trickier since you don’t know how much you will be making.  You will need to estimate how much per-item or service profit you will make.  After you know your per-item profit you can estimate how many of each item you think you will sell each month to come up with your estimate of your monthly income.

 

I would advise you to use conservative estimates on your income, and to estimate a low percentage of growth each month.  It is better to err on the side of caution and have too much cash on hand than to find yourself short because you overestimated your initial earning potential.

 

Once you have been selling online for a month or two you can re-evaluate your cashflow worksheet and adjust your estimates to match more closely with the actual growth that you are experiencing.

 

If you have the cash available to cover your initial shortfall, fabulous! If not, you will need to consider other alternatives to getting the necessary money to start your business.

 

Because online businesses usually do not cost a lot to run (your overhead is low since you are working from home) I would advise you to try to come up with the money on your own rather than taking out a loan. Be creative…have a garage sale, sell some old stuff you have lying around the house on Ebay, mow a lawn or two…just do a little extra work on the side and you can have the money saved before you know it.  In my personal opinion, it is better to start out in your business free and clear than to start out in debt.

 

If you absolutely cannot come up with the money on your own, consider taking a personal loan from a friend or family member, or approaching a bank to get a loan.  You need to be aware, however, that getting a loan from a bank is nearly impossible if you do not have immaculate personal credit, a solid business plan, proven business experience and a realistic plan in place to pay back your creditors.