The Business Plan For Homebased Business (4)

The Financial Plan

The business owner is no different. Your product or service may improve the condition of mankind for generations to come, but, unless you have access to an unlimited bankroll, you will fail if you don't make a profit. If you don't know what's going on in your business, you are not in a very good position to assure its profitability.

Most home based businesses will use the "cash" method of accounting with a system of recordkeeping that may be little more than a carefully annotated checkbook in which is recorded all receipts and all expenditures, backed up by a few forms of original entry (invoices, receipts, cash tickets, etc.) For a Sole Proprietorship, the business form assumed by this Management Aid, the very minimum of recorded information is that required to accurately complete the federal Internal Revenue Service Form 1040, Schedule C. Other business types (partnerships, joint ventures, corporations) have similar requirements but use different tax forms.

If your business is, or will be, larger than just a small supplement to family income, you will need a something more sophisticated. Stationery stores can provide you with several packaged small business accounting systems complete with simple journals and ledgers and detailed instructions in understandable language.

Should you feel that your accounting knowledge is so rudimentary that you will need professional assistance to establish your accounting system, the classified section of your telephone directory can lead you to a number of small business services that offer a complete range of accounting services.

You can buy as much as you need, from a simple "peg-board" system all the way to computerized accounting, tax return service, and monthly profitability consultation. Rates are reasonable for the services rendered and an investigative consultation will usually be free. Look under the heading, "Business Consultants", and make some calls. Be sure to let them know the size of your business so you get to the ones who specialize in home based operations. Many of them are home-based entrepreneurs themselves and know what you will be going through. Let's start by looking at the makeup of the Financial Plan for the business.

The Financial Plan includes the following:

2.Operational Plan -- Profit and Loss Projection -- this is prepared for the first year, broken into twelve individual months. It should become your first year's budget.

3.Source of Funds Schedule -- this shows the source(s) of your funds to capitalize the business and how they will be distributed among your fixed assets and working capital.

4.Pro Forma Balance Sheet -- "Pro forma" refers to the fact that the balance sheet is before the fact, not actual. This form displays assets, liabilities and equity of the business. This will indicate how much investment will be required by the business and how much of it will be used as working capital in its operation.

5.Cash Flow Projection -- this will forecast the flow of cash into and out of your business through the year It helps you plan for staged purchasing, high volume months and slow periods.

Creating the Profit and Loss Projection

On the third line, write "First Year".

Then copy them onto your 13-column sheet. If startup is indefinite, just write "Month #1", "Month #2", etc. Column 13 should be headed "Total Year".

In the wide, unnumbered column on the left of your 13 column sheet, copy the headings from the similar area on Exhibit A. Then follow the example set by Exhibit A and list all of the other components of your income, cost and expense structure. You may add or delete specific lines of expense to suit your business plan. Guard against consolidating too many types of expense under one account lest you lose control of the components. At the same time, don't try to break down expenses so discretely that accounting becomes a nuisance instead of a management tool. Once again, Exhibit A providesample detail for most home based businesses.

Now, in the small column just to the left of the first monthly column, you will want to note which of the items in the left-hand column are to be estimated on a monthly (M) or a yearly (Y) basis. Items such as Sales, Cost of Sales and Variable Expenses will be estimated monthly based on planned volume and seasonal or other estimated fluctuations. Fixed Expenses can usually be estimated on an yearly basis and divided by twelve to arrive at even monthly values. The "M" and "Y" designations will be used later to distinguish between variable and fixed expense.

Depreciation allowances for Fixed Assets such as production equipment, office furniture and machines, vehicles, etc. will be calculated from the Source of Funds Schedule

Source of Funds Schedule

ASSET COST SOURCE OF FUNDS

Cash              $ 2,500 Personal savings
Accounts Receivable 3,000 From profits
Inventory           2,000 Vendor credit
Pickup truck        5,000 Currently owned
Packaging machine  10,000 Installment purchase
Office desk and chair 300 Currently owned
Calculator             75 Personal cash
Electric Typewriter   500 Personal savings

Creating the Pro Forma Balance Sheet

Even though you may plan to stage the purchase of some assets through the year, for the purposes of this pro forma Balance Sheet, assume that all assets will be provided at the startup.

Cash Flow Projection

Outside Sources of Assistance

SCORE and ACE which help small business owners solve their operating problems through a one-on-one relationship. Counseling is not limited to small businesses that have a problem. It is available as well to managers of successful firms who wish to review their objectives and long-range plans for expansion and diversification.

SMALL BUSINESS INSTITUTES (SBIs) which have been organized through SBA on over 500 university and college campuses as another way to help small business. At each SBI, senior and graduate students at schools of business administration, and their faculty advisors, provide on-site management counseling. Students are guided by the faculty advisors and SBA management assistance experts and receive academic credit for their work.

SMALL BUSINESS DEVELOPMENT CENTERS (SBDCs) which draw from resources of local, state and federal government programs, the private sector, and university facilities to provide managerial and technical help, research studies, and other types of specialized assistance of value to small business. These university based centers provide individual counseling and practical training for small business owners.

BUSINESS MANAGEMENT TRAINING programs are co-sponsored by SBA in cooperation with educational institutions, Chambers of Commerce, and trade associations. Courses generally take place in the evening and last from six to eight weeks. In addition, conferences covering such subjects as working capital, business forecasting, and marketing are held for established businesses on a regular basis. SBA conducts, Pre-Business Workshops, dealing with finance, marketing assistance, types of business organizations, and business site selection, for prospective business owners. Clinics that focus on particular problems of small firms in specific industrial categories are held on an as-needed basis.

A Final Word

Once the business opens its doors, you will be inundated by the details, problems, challenges and joys of going it alone. It will be difficult to hold to your course through the rough seas ahead, but don't forget this "chartbook", it will see you through to "Port Profit." It should be a living document, referred to regularly, massaged constantly, and revised to reflect your experience. Begin a planning cycle that expands this first year plan into one that spans three or five years out. Update it at regular intervals.

Set your goals and live by them. Your success is in your hands. Good planning and good execution!