This question was in my e-mail (I’m protecting the identity and leaving out
some of the details):

I’m fairly confident on the business strategy I’ve written, but I am not very well-trained in the financial P & L planning side. I can create a sales plan, but below the margin line seems a little fuzzy although I get the big picture. I just started to work with an advisor through SCORE, and he has advised that I take a class at a local state college that is offered for this type of learning rather than for college credit. He also advised that I invest in a software program like QuickBooks.

This is probably a loaded question for you as I know you are selling your business planning tool, but I wondered if you could address the difference in the tools, and give me any advice.

I’m going to take a shot at this because I don’t have the time to wait for the class, although I am going to look into it. Our first trade show will be at the end of October, so we are on the go now and I’ll have to have some type of plan prior to that.

I don’t need it to gain capital, just to have a handle on the company planning and results.

My answer:

  1. Business planning and bookkeeping are separate issues. Bookkeeping is recording every transaction that takes place, with amount, category and so on. Business planning is looking ahead and (among other things) projecting future cash flow based on assumptions about future sales, costs, expenses and so forth. People sometimes confuse the two because the financial standards are related, and the projected financials look a lot like accounting reports. For more on this, Planning is Not Accounting.
  2. You do need bookkeeping no matter what; but you don’t necessarily have to do it yourself. You can’t manage your business without knowing exactly where the money came from and where it’s gone and what you owe. You can’t run a business without dealing with taxes, and that also requires keeping the books. And, for that matter, if you have the money and choose to spend it to avoid keeping the books (and you wouldn’t be the first, I assure you) you can hire a bookkeeper by the hour instead. Just remember that the bookkeeping has to be done. QuickBooks, since you asked, is for the bookkeeping, not the planning, and not the financial analysis. QuickBooks has a great reputation. It is the market leader in bookkeeping software (which most people call accounting software, or small-business accounting, but it’s actually bookkeeping). It does have competition, of course. And for bookkeeping software, in my opinion, you should use whichever one is easiest and works best with your bank, for importing data from the bank’s records.
  3. Business planning isn’t as hard as you think. You don’t have to understand finance to succeed in business. Just managing your own cash flow is enough. For an initial business plan, aside from the strategy, specific steps and sales forecast that you already know, the estimates you’ll need include startup costs and expense budgets. These are lists, on spreadsheets. You can find explanations. You can do this. And the effort is worth it. It’s not that hard, and with just working it through, you’ll be able to see how profit and loss come together from sales and expenses, what the balance sheet is, and how cash flow brings profit/loss and balance sheet together.  And you can find people who know this to join you, or, if you have the money, pay them.

What really matters is cash flow, not sophisticated finance.

(Image credit: Dmitriy Shironosov/Shutterstock)

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Tim BerryTim Berry
Tim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry.