Business and Personal Finance © 2007Chapter 18:
Developing a Financial PlanChapter Summaries- Start-up capital includes money required for the purchase of assets needed to run a business, including inventory, equipment, furnishing, supplies, and utilities, plus start-up costs.
- Start-up costs include legal, professional, and banking fees, licenses, permits, insurance, marketing costs, and remodeling and maintenance costs. Estimates of these start-up costs should be on the high side, as new business owners often underestimate or miss some of these costs.
- Operating capital is the money needed to operate the business for the first few years. Often, revenue generated from the business is not enough to meet these costs in the first few years of business.
- Projected income statements are an estimate of the way in which income amounts will change over the next few months or years. Estimates of fixed expenses and variable expenses are included in the projected income statement. Lending institutions see these statements when you apply for commercial loans.
- Reserve capital is money set aside for unexpected costs or opportunities, similar to an emergency fund.
- The elements of a financial plan include a statement of required start-up capital, a projected 12-month income statement, a projected 12-month statement of cash flows, a projected 3-year income statement, a projected 3-year statement of cash flows, and a projected 3-year balance sheet.
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