Chewing on a great business idea but feeling daunted by terms like ‘business plan’ and cash flow forecast’? Nothing to it, just read on …
Business plans and cash flow forecasts are an essential part of starting a company or applying for business funding.
But what are they? Why do banks, loan providers and investors require them? And what should you consider when working on yours?
We put these questions to Elsa Caleb, a business advisor at the Government-backed Start Up Loans Company. Here she explains business plans, cash flow forecasts and shares her expertise to help you ensure your company gets off to the best possible start.
Business plans vs cash flow forecasts
A business plan is one of the most important documents you will encounter when starting your company.
It outlines your goals, targets, business focuses and the idea behind your project, while also giving potential investors and advisors more details of how you intend to achieve those aims.
Your business plan can be as long or short as you like, providing it explains your key business objectives and strategies.
A cash flow forecast is very similar; think of this as your financial business plan. Essentially, your cash flow forecast details your revenue (cash coming in) and your expenditure (cash going out). This takes into account salaries, loan repayments, rent payments, bills and more.
Why are they so important?
Put yourself in the shoes of a loan provider. If that provider is to loan money to you for a business venture, they will need to have a degree of confidence in the success of your business.
If your business plan or cash flow forecast is unrealistic i.e., if you’re expecting to make a million pounds in profit during your first year of trading (you may do), that same provider may have reservations about lending to you.
If you’ve ever watched ‘Dragons’ Den’, you’ll recall Peter Jones or Deborah Meaden regularly grilling individual business hopefuls about their expected profit margins for the second and third years.
When the potential investee does not have this information to hand, alarms start ringing and the Dragons often question the validity of such a business.
The same applies to any lender or investor, not just the Dragons.
Creating a business plan and cash flow forecast
A lot of people think you need a good degree in economics or business studies to create a business plan or cash flow forecast, but that’s not the case.
In recent years, there has been a considerable rise in the number of new start-up businesses that have opened in the UK.
This is partly due to increased accessibility and further education being made available on becoming self-employed. It’s now easier than ever to make the break from full-time employment.
If you’ve no idea what a business plan looks like, or have no prior knowledge about what a cash flow forecast should include. You can find downloadable templates, along with more advice on the Start Up Loans website:
Make your business plan and cash flow forecast personal to your business. These should be a true reflection of your business and predicted finances.
The phrase ‘fail to prepare, prepare to fail’ comes to mind in this instance. It’s vital that you do the number crunching and research before putting pen to paper.
Be realistic with all of your numbers; don’t take a higher personal salary if you can’t afford it. Likewise, don’t lie about your figures because you think it’s what an investor wants to hear.
Remember, a business plan and cash flow forecast is your key to additional business funding and the tools needed to make your start-up dreams a reality, so it’s worth investing as much time as necessary into your proposal.
DISCLAIMER: The articles on our website are not endorsed by, or the opinions of Shout Out UK (SOUK), but exclusively the views of the author.
