If you are entering the wilds of entrepreneurship for the first time and starting your own business, finances are an essential part of your business plan. If you have the necessary savings, you have solved a large part of the problem. In several articles in a row, we will look at the basic steps that will help you navigate and make the right decision for you.
Continuation
FINANCE PLAN
The financial plan is a preliminary forecast in which the possible income and expenses of the future activity play a major role. The main feathers on which you should have information in concrete figures are"
– the sources of funding (we have already talked about what they can be);
– repayment plan if the financing is with credit;
– projected revenues;
– anticipated expenses of any nature, divided by type;
- cash flow forecast - this is the monthly flow of money based on estimated income and expenses.
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Plan the finances of your future activity in tabular form (you can use Excel tables for this purpose. You need this plan to have an overall view of one of the main parts of your business. This way you will also be aware of what profits you can expect and for what period. This of course also depends a lot on the type of business. If you have decided to engage in fruit production and trading and you are just planting the trees, your first income will come after 3 to 5 years, when the trees bear fruit and there is no guarantee that you will immediately turn a profit.
Don't confuse revenue with profit. It often takes time to generate enough revenue to eventually start making a profit. Data from the financial plan should match those in the general business plan. If you have even small inconsistencies, it can easily be noticed and turn off potential investors. Try to prepare three variants of a financial plan:
– pessimistic, where you present the worst development option;
- realistic - this lan will show some average values and development options;
– optimistic – here we will predict the greatest possible profit;
More important than projected profit, however, is a good cash flow forecast: when and how much money will come in and out. Since some of the costs will be permanent, you must be able to cover them in a timely manner. It is necessary that either the income has the same consistency as time and amount, or if the income comes less frequently in time, then it must be in a larger amount to cover the period in which there will be no income. It is also important to know that if you change the volume of production of the goods or offer more services per unit of time, this will only change the variable costs (for raw materials, wages, etc.) Fixed costs such as rent, interest, electricity, etc. .n. remain the same even if the volume of production in some months is zero.
Critical point. This is the amount of product (goods or services) that needs to be realized/sold in order for the income to cover the expenses. Or to put it in jargon – to break even. With the following formula you can easily predict where your critical point will be:
Q = F/ R – V
Legend:
R – the revenue from the sale of a unit of production
F – fixed costs
V – variable costs per unit of production
Q – the critical point of sales volume
Example: Company A produces commodity B, which is sold at BGN 2 per kilogram. Fixed costs are BGN 3,000 per month. Variables on average are 70% of the selling price (BGN 0.70 per kilogram). In such a case, the critical point or minimum sales will be:
R = BGN 2
F = BGN 3,000.
V = BGN 1.40/kg. (70 % from BGN 2)
Q = 3000 l./ BGN 2 – BGN 1.40/kg = 3000/ 0.60 = 5000 kg
5000 kg is the critical volume of sales with the parameters thus set. In this zone, the company records neither profit nor loss.
IDENTIFICATION OF INVESTORS
The main question here is how do you get someone to trust you with their money? To begin with, you need preparation and a good business plan and an interesting and convincing presentation of the same. A potential investor should familiarize himself with your ideas in detail, he will probably want to. And be sure that not every person is immediately ready to give their money to a stranger. Most potential investors and partners need time to think.
Your investor can be an individual with whom you will become a partner (one or more) or a company. The first step in the search can be the social network. If you don't have a Linkedin profile, create one. It is a network for business contacts with about 150 branches of business from over 200 countries. The main difference with other social networks is that LinkedIn is aimed at connecting professionals from different industries. Next, make a list of all local stakeholders – these are those individuals or legal entities that could potentially be interested in your business and decide to invest in it. Show them how they can benefit from their investment with you and what their return will be. Look for other entrepreneurs in local chamber of commerce structures with businesses similar to yours. This way, at the very least, you will create contacts that can be of use to you at some point in the future, even if these individuals do not invest in your venture. Publicize what you're about to launch. Inform friends and relatives even. Because you never know where a good opportunity will pop up.
And something very important: investments do not have to be only in the form of money. The future partner can provide you with their equipment (for example, restaurant equipment), land, premises, etc. Investors can be more than one and provide you with different sizes and types of investments.
© 2023 Iliana Dechkova