©2001 kauffman center for entrepreneurial leadershipplanning and growing a business venture™ ™...

©2001 Kauffman Center for Entrepreneurial Leadership PLANNING AND GROWING A BUSINESS VENTURE™™

Developing Financial statements

• 3 years monthly

• Develop complete chart of accounts

• Research cost for each account

• Project best case/worst/break-even case scenarios

• Conservative should be the rule when making assumptions.

21.1 © 2004 Ewing Marion Kauffman Foundation


Forecasting: sales

• Forecast sales volume (avoid straight line estimating)

• Relate to production and inventory needed

• The cost of goods sold expense can be determined either

by directly computing the variable cost of producing a unit

times the number of units sold or by using an industry

standard percentage of sales.

• Define minimum cash needs to cope with changes



Forecasting: Operating and capital budget

• Make a list of potential start-up costs

• Recognize difference between ongoing expense (see figure 10.2) and one-time start-up cost.

• Acknowledge the need to change insurance, warehousing, trade shows related expenses.

• Weigh leasing equipment vs. purchase

• Consider inventory on consignment



Start-Up Costs

• What type of signage will be required?

• Are there any applicable city codes?

• What types of supplies will be needed (such as cleaning, office, shipping)?

• What type of training is necessary before opening for business?

• What types of government business licenses will be required?



Start-Up Costs

• Where will the business be located?

• What size will it be?

• What does the office or retail space look like?

• What type of walls and fixtures does it have?

• What type of equipment will be needed? Computers? Furniture? Carpet? Copy machine? Shelving?

• How much opening inventory will the business need? How will it be paid for?

• What types of deposits will be needed for telephone, utilities, rent (first and last month)?



Pro Forma Cash Flow

• Different from profit– Profit is the result of subtracting expenses

from sales, whereas cash flow results from the difference between actual cash receipts and cash payments.

– Only cash in- out-lays and only when actual payments are received or made

– Two methods:• Indirect: change the profit equation• Direct: from scratch


Pro Forma Balance Sheet

• Assets

• Liabilities

• Owner equity


Pro Forma Sources and applications of funds

• Sources: personal funds, loans, investor monies, operations

• Add depreciation

• Applications of funds: assets, retire long-term liabilities, reduce owner or stockholders’ equity, and pay dividends.

• Sources – Applications = working capital


Software

©2001 kauffman center for entrepreneurial leadershipplanning and growing a business venture™ ™...

Documents