Cash Flow and Working Capital

Without cash to pay your bills you will not be in business very long. There are many businesses that are profitable but often times are actually forced to shut down due to the lack of capital.

How much is needed to operate your business, will depend on your business plan. During the beginning stages of your business you will really not know how much income will be coming in, nor will you know how much your expenses will be on a monthly basis. You will have to make projections based on your best judgment (guess). In general, plan on keeping about three months worth of cash available.

To help you determine how much capital you will need to start your  Furniture business, chart the following:

• List all of the start-up costs you will need, this will help you determine your initial cash outlays. Keep in mind that you need to stay within your budget. You may have to do some creative managing, but with a well thought out business plan you can do it. As you formulate your business plan, always ask yourself about each and every item you consider for start-up. Will it be necessary, and how much return will I receive for the investment required?

• Next, total all your projected expenses you will need to pay during the first month. Then add one to five percent of that amount to cover for unanticipated expenses.

The sum of the above items will give you the total expenses for your first months operation. Now the tricky part. You are going to be pumped up and all excited about your new venture and chances are you will be over optimistic as to how much income your new business will generate in your first month. So try and be as objective as you possibly can concerning your first months sales estimate. After you have arrived at a good guess, reduce it by twenty-five percent.

The purpose of developing a cash flow statement is to warn you in advance when cash is going to be short. This will give you sufficient time to either cut expenses or create more sales. At first you will have to work from estimates, but as the months progress you will need to use your businesses history and adjust to your trend. A good ongoing procedure is to estimate your sales and expenses each week, this will help motivate you to keep on top of your business so that you can better meet your profit objectives.

Just as you limit your personal expenses and credit requirements, you must also do the same with your business. Be conservative, do everything you possibly can to get sales with the minimum expenses feasible.