5.2.3 Profit-and-loss estimate
Task 35: Review the cash flow forecast
Review the cash flow forecast that you completed for your own business idea earlier in this section.
- Conduct a ‘what if’ exercise on your cash-flow projection by varying key variables.
If you were able to identify points of concern or uncertainty, vary these above and below your estimates; if you have no particular concerns, vary your sales volumes downward by 20 per cent and note the effects, then increase your main costs by 20 per cent and note the effects.
- Revise your cash-flow forecast 20 per cent downwards to reflect a more pessimistic outlook and recast it in the form of an 18 month profit-and-loss projection, making sure that you account for all transactions when the credits and debts are likely to be incurred rather than when the cash goes in or out.
- Using your profit-and-loss projection, estimate your capital requirements for the first 18 months post-launch.
Take some time to practise ‘what if’ calculations on the cash-flow and profit-and-loss spreadsheets. Familiarity with this process is essential to your success in the pre-start and launch phases. You might also want to look at some solutions of your own. If you haven’t already done so you may find it advantageous to invest in a simple spreadsheet package.
Keeping accurate monthly accounts not only helps you know the health of your business but is also essential when trying to raise finance and build confidence in the capability of your business.
The accounts do not have to be complicated for a small business start up. Some businesses devise their own spreadsheet; some buy a simple spreadsheet from their accountant, which can link to an invoicing system, although many start with a simple manual procedure. Sometimes, after completing simple accounts for a few months, you realise that there are other things that would be useful to collect as well.
If completing the profit-and-loss statement for Catterline is more than you want to do at this stage, then try working out what the lines could be for Gwyneth’s food business.
Task 36: Profit-and-loss
Complete the table in Profit and loss recording [Tip: hold Ctrl and click a link to open it in a new tab. (Hide tip)] , indicating what information you think Gwyneth should collect/measure on a regular monthly basis as she starts her business.
Discussion
This is what we thought – we have probably missed some as experience running the business is the best way to work out what you need. Setting up simple routines at the start will be a great help as you get bigger and busier.
| Income | Expenditure |
| Sales from each market and food fair | Ingredients |
| Direct sales at company premises | Packaging materials |
| Corporate sales | Slippage and spoiled products |
| Free samples and trial size versions | Insurance – using car for business purposes |
| Car purchase and operating costs | |
| Catering and preparation equipment | |
| Increased household bills due to production | |
| Stationery | |
| Marketing and promotion costs | |
| Bank charges | |
| Accountants fees and insurance |