122 | HOW TO WRITE A BUSINESS PLAN
QUiCK PLAN
If you’ve chosen the quick plan
method to prepare a business plan (see
Introduction), you need to read and complete
these sections of Chapter 7:
• “Prepare Your Capital Spending Plan”
• “Prepare Your Cash Flow Forecast”
• “Required Investment for Your Business.”
Introduction
In Chapter 6, you drafted your estimated
Profit and Loss Forecast. While it tells you a
lot about the big financial picture, it leaves
you ignorant of many details. If you overlook
one critical detail, you may go broke, even
though your business seems profitable
viewed from afar.
The crucial detail a business owner must
manage is called “cash flow.” Cash flow is
another term for the money coming into
and going out of your business. Positive
cash flow occurs when the money coming
into your business exceeds the money
flowing out, and negative cash flow is
the opposite. In the day-to-day world of
starting and operating your business, you
will be at least as concerned about short-
term cash flow as you will be about long-
term profitability. After all, you don’t want
your creditors to sue you because you can’t
pay your bills even though your sales are
increasing rapidly. One new business owner
I know even wears a T-shirt that says:
“Happiness is positive cash flow.”
Your Cash Flow Forecast is different
from your Profit and Loss Forecast because
money comes into and flows out of your
business at different times than your
Profit and Loss Forecast shows. A formal
Cash Flow Forecast is required by most
potential backers, who want to know that
you understand and can manage that time
difference.exAmple:
Rita Singh plans to open a small tie-dye
manufacturing business. Since several
of her likely customers are chain stores,
Rita knows that she will have to sell and
ship their orders before the stores pay
her. The stores often can take several
months to pay their bills. Wisely, Rita
carefully prepares a Cash Flow Forecast
to make sure she can afford to sell on
credit.In your Cash Flow Forecast, you’ll refine
any guesses you’ve made about how
much money you need to start or expand
your business. You’ll develop an amount
of money you are comfortable with—an
amount you can explain to prospective
investors. In other words, you need to be
as accurate as you can be in this forecast.
The money you need to start or expand
your business can be separated into two
categories:- Capital investment. This is the cash
you need to spend before you begin
or expand your business.