Welcome to the CORE FOUR

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Recap from Marketing Planning
What one thing must your business have in order
to be a business?
Customers!
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But wait, theres more
What OTHER thing must your business have in order
to be a business?
Money!
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Cash Flow Planning
The results of your cash flow plan will help
determine if your business idea is
Feasible can you get it to be a
business? Viable can it stay in
business? Desirable will it meet the owners
personal financial goals?
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What is Cash Flow?
Cash is the fuel for a business!
Cash flow is a phrase used to describe the
movement of cash in and out of a business. Cash
flow specifically addresses Timing when cash
moves in and out Amounts how much cash moves in
and out Sources where cash comes from Uses
where cash goes Relationships the relationships
of business activity to producing or using cash
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Cash Flow Planning

• Your cash flow plan will help you answer the
  following questions
• How much money do you need to start the business?
• What are the sources and uses of that start-up
  money?
• How much money do you need to make monthly to
  cover the bills?
• How much money do you need to make monthly to pay
  yourself a salary?
• How many customers do you need every month in
  order to provide you with enough money to cover
  the bills and your salary?
• How much money do you need to save during the
  busy times to cover the expenses during the
  slower times?

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Separate your Financial Goals

• Business Needs

• Owner Needs

Sources Investment Loans Revenue Uses Equipment Supplies inventory Overhead expenses Owners draw
Sources Salary from jobs Child support Self-employment income Uses Rent Car payment Groceries Utilities
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Projecting Startup Cash
Startup cash is money that must be spent in order
to become a business. Activity Work with a
partner to brainstorm USES of start-up cash on
your Sources and Uses of Cash
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Cash Wants
vs. Needs
People have WANTS, Businesses have NEEDS
Bootstrapping keeping startup costs low and
staging the risk of the business start
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Projecting Operating Cash
There are two types of Operating Cash Cash for
Goods and Services Cash for Operations
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Projecting Operating Cash
Operating cash is money that must be spent in
order to keep the business going
month-to-month. Activity Work with a partner to
brainstorm USES of operating cash on your Sources
and Uses of Cash
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Cash for Goods or Services
Cash for Goods or Services (or COGS) are DIRECT
expenses for you to produce your product or
deliver your service.
Name the COGS McDonalds incurs to deliver this
Big Mac extra value meal to you.
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Projecting Cash for Goods or Services
We usually start projecting cash for goods or
services (COGS) by determining what it costs us
to make one UNIT of whatever it is we sell.
What is your unit of sale? What does it cost you
to produce it (if a product) or
deliver it (if a service)?
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Projecting Cash for Operations
Cash for Operations are INDIRECT expenses
(overhead) that are necessary to keep the
business going EVEN IF THERE ARENT ANY SALES.
Some are fixed (the same every month). Some are
variable month-to-month. Some occur only once or
twice annually. Dont forget owners salary!
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Sources of Cash
In small groups, brainstorm the various sources
of cash for your Start-up Expenses and your
Operating Expenses. Are they different?
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Projecting Sales
Your main source of operating cash is your SALES,
so part of your financial planning must include
projecting your sales revenue.
The amount of sales revenue you have depends on 2
things. What are they?
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Projecting Sales
Your main source of operating cash is your SALES,
so part of your financial planning must include
projecting your sales revenue.
The amount of sales revenue you have each month
depends on 2 things. What are they?
1. What price you charge per unit 2. How many
units you sell each month
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Projecting Sales
How much can you sell each month?

• What seems reasonable?
• What is your capacity?
• What has been the experience of other similar
  start-up businesses in the area?
• What volume do established businesses in the
  area have?
• What are the industry standards?
• Whats your potential market size? What percent
  of it do you expect to capture?

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Projecting Sales
What prices should you charge?

• What are customers willing to pay?
• What do competitors charge? How does what you
  offer compare to what they offer?
• How price sensitive is the customer?
• What image are you going for high-end or
  discount?
• What are your direct costs?

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Preview
Why are we doing all this?

• Determining your cost structure and doing the
  market research into price and demand will allow
  you to complete your CASH FLOW PROJECTIONS and
  BREAKEVEN ANALYSIS,to answer questions such as
  the following
• Can I make enough revenue every month to cover
  my expenses without running out of money?
• How much cushion do I need to start with to
  cover cash flow shortfalls in the initial months
  of business?
• How many customers do I need to have every
  month?
• When can I afford to spend money on certain
  items and when can I not?

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Preview Cash flow projection
How many units can I sell a month? (I think 20
a month is reasonable) What do I
charge the customer for a unit? (They are 40
each) How much does it cost me to produce a
unit? (It costs 20 for each one) What are my
monthly operating expenses? (I have 500 a month
in overhead expenses) Is it enough? No
Projected revenue 800 (20 X
40) Projected COGS 400 (20 X
20) Projected Overhead 500 Projected
Profit / Loss -100 (800 - 400 - 500)
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Preview Breakeven analysis
Breakeven analysis calculates how many units you
need to sell every month to reach break-even (no
profit, but no loss).
Example Pie Bakery Outcome of cost analysis and
pricing research Price per pie 9.50 Cost to
produce a pie 3.00 Annual operating costs
(including owners salary) 34,000
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Preview Breakeven analysis
1. Calculate gross profit margin per pie (GPM
(Price cost) / Price) 100 2. Calculate
annual breakeven sales volume (Annual costs /
GPM) 3. Determine how many pies they need to
sell per year (Annual sales / price per pie) 4.
Determine how many pies they need to sell per
week (Annual pies / 52 weeks) 5. Determine how
many pies they need to sell per day (Weekly pies
/ 5 working days)
1. GPM 68 (or 0.68) 2. Annual breakeven
sales volume 50,000 3. Annual pies sold
5,264 4. Weekly pies sold 102 5. Daily pies
sold 21
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Preview Sensitivity Analysis

• Sensitivity Analysis is asking questions
• Can we really sell 21 pies per day?
• Can we really make 21 pies per day?
• What if there is a pie glut in the marketplace
  and the selling price of pies drops to 6?
• What if we dont sell 21 pies per day?
  What can we do?
• What if we decide that making 21 pies, 5 days per
  week, 52 weeks per year doesnt sound like a good
  time?
• What if what ifwhat if?

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Homework

• Practice using the cash flow worksheets.
• Identify your Cost of Goods (Services) Sold
• What are your startup costs? List all the costs
  for your product or service.

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Planning Your Business

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