small business finance [35ac63ff]

1. Finance Essentials for Small Businesses

Expenses need to be paid
Vendors will often need to be paid before you are paid
Many businesses fail before they have a chance to demonstrate their viablility
Overestimation of cash inflows and underestimation of cash outflows
Carefully and realistically map out your expected cash inflows and outflows for the first six months of business
Cash forecast needed for any financing

Balance expected cash collections and cash payments
Even after the first few months, the sufficient cash inflows and outflows are needed
Managing cash is critical for the well-being, and does not happen by chance
Prepare a cash forecast or budget
Two types costs
- Fixed costs
- Variable costs
Identify all fixed and variable costs
- Only as good as inputs!
Variable relative to what?
- Variable relative to customers?
Answer: how many customers can you realistically expect?
- Scoping out competitions
- Surveying potential customers
- Assessing population growth
Answer: types of variables costs?
Draft up a cash forecast

Developing a system of tracking inflows and outflows, and your obligations to others and their obligations to you
Helps with:
- Accurate information informs better decisions
- Investors and banks need accurate information
- Need to track tax obligations
Record keeping and controls
- Bad information will control to the lack of success
Controls - Procedures to ensure accounting information is accurate and reliable to safeguard your assets and records
- How will you document this?

Account for all the costs, including the costs that will not be actually billed
See if others are willing to evaluate other options
Try to fix the profitability issues before trying
Unmanaged growth will kill companies
- Growth often requires cash, and new businesses often do not have cash
Lessons
- Be careful with inventory
- Use of credit to grow business
- Management focus on keeping expenses down and under control