You may not have the need for a complete financial forecast, but it’s just a shame to run a business without managing a simple sales forecast, expense budget, and — if and only if you’re planning a startup — an estimate of startup costs. These are all relatively simple estimates, with relatively simple math, that anybody who is smart enough to run a business can handle.
After all, a lot of the real value of the plan-as-you-go business plan is the tracking, following up, seeing what was different between what actually happened and what was planned. That’s much more likely to happen if you have numbers, like sales and expenses, that you can track.
Furthermore, you really should also be aware of the very important cash traps that can kill your business even if it’s growing and profitable. These traps are avoidable.
So in this section what I want is to get you into the basic numbers that can run your business. There is so much benefit from tracking the difference between sales forecasts and actual sales; this is where you really get into planning process and managing your business better.
Don’t worry, this isn’t (yet) a full-blown financial forecast. Don’t call your local accountant or management consultant. The math is simple, and although the educated guessing isn’t, you can do it, and you are uniquely qualified. Here’s what we’re going to look at:
- A sales forecast. How to do it, why to do it, what to look for, how much to do.
- Your spending budget. You need to know — and track changes in — the money flowing out of your business. This is related to burn rate, fixed and variable costs, and milestones. It’s real management. This ought to include just a few of the most important parts of spending:
- costs of sales
- a simple expense budget
- starting costs (this is only if you’re planning a startup. If so, you have expenses that will get deducted from future income, and you’ll have assets that you’ll have to buy. You want to have a good idea of what it takes to get started, before you get halfway there.)
- Cash flow traps. Just so you know, we’re going to leave the full-blown financial forecast, with its standard formats, and balances, and accrual accounting and definitions and all, for the following chapter about dressing the plan as needed. But we can’t pretend we have you in good shape with numbers if we aren’t anticipating the cash-flow traps that can kill even profitable and growing businesses.
Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.
