The thought of crunching numbers got you in a sweat?
You are not alone! Many new entrepreneurs fear budgeting. But budgeting both before start up (forecasting) and afterwards (actual) is a skill that can, and must, be learned for any business venture to be successful.
One way to overcome this fear of financial forecasting is by applying these concepts to your personal household budget.
By using some simple calculations, either with a pencil/paper or an Excel spreadsheet, you can use your existing personal household financial data to learn some budgeting skills. These skills can be handy for not only balancing your household budget, but also in the management of your businesses.
To start, use a simple cash in/cash out system. One column is for all the cash going IN a period, usually a month. The second column will show the actual cash OUT for the same period. The cash IN column must be GREATER than the cash OUT, otherwise you are in a Cash Crunch and will need to find additional sources of money to balance your books.
The same principles are applied to a forecasted cash flow statement for your business.
The major difference from our household example is the number of CASH OUT line items. The additional step required is accounting for our opening cash balance (money in our current bank account at the start of the month), and the closing cash balance (money in our current bank account at the end of the month), after all the expenses have been paid out. This number MUST be a positive number or our business is broke and you will need more money.
There are many formats for forecasted cash flow statements, from the quite simple to the fairly complicated for businesses with many departments.
So before you start to break out in a sweat over the numbers, try using your existing household data as a test case. These are real (actual) numbers. Then once you have gained some confidence in the process, try to work on a forecasting cash flow for your business venture. These skills will help you with the business planning stages as well as the ongoing financial management of your business as you grow. You will be confident in knowing what your financial position is both personally and professionally.
The Halton Region Small Business Centre is here to help. Check out our online resources or consider attending our Steps to Success Series, 2012, which includes a seminar on Understanding Financial Statements. If you have any questions, please call us at 1-866-442-5866, www.haltonsmallbusiness.ca, firstname.lastname@example.org or visit us at 1151 Bronte Road, Oakville. You can also follow us on Twitter @haltonecdev and Facebook at www.facebook.com/HaltonSBEC.