No business is profitable from the moment it opens its doors; to believe as much would be unrealistic at best. Planning for survival when it comes to cash flow refers to the planning involved for cash needs during the start up process, as well as during the first few months of business. Before you can make an estimate of the cash needs of your new business, you must determine a figure that will enable your business to survive during the first few months of operation. Potential small business owners should think about doing a one- to three-year plan for family survival, at the very minimum. The inability to generate a positive cash flow is one of the main reasons that many small businesses fail. It’s important to have a general figure in mind as a goal for the amount of money you want to earn in a specific time period; this will help determine whether your new business is capable of actually generating that much income.
Preparing a family budget is the first step in cash flow survival planning. This budget should be a schedule that shows where you spent your money in the last twelve months. The best tactic is to use a monthly schedule, because expenses and income can vary greatly from month to month. There are some months that require an influx of additional cash, while other months can require much less cash; it all depends on the circumstances. Make sure to include all expenses incurred on a monthly basis; this can be any type of expense, from the monthly home mortgage payments to medical bills to school tuition for children. To be more efficient with your use of your time, note any expenses that could be reduced or eliminated if need be.
An excel worksheet is the easiest way to work out your monthly budget schedules. Usually, one of the wage-earners in a couple will leave his or her employment in order to pursue their entrepreneurial dream, while the other spouse maintains their job in order to keep the family solvent and have a financial safety net.
When you go through your monthly analysis you will naturally find some months where you are short of cash, and some months where you have extra cash.
On the months that you are short, if this is due to an unexpected bill, perhaps for a vacation or for car repairs, exclude this amount when trying to determine your cash flow needs when starting a new business. Instead, set aside an emergency fund to handle those types of unexpected expenses.
If the extra bill is one that is expected at regular intervals, budget this money into your cash flow survival analysis.
If the extra bill is a luxury, consider you priorities; if this luxury is something that you indulge in regularly and feel that it is absolutely necessary to have, add that into your budget. If the luxury is something unexpected and irregular, exclude it from your budget.
Make sure to include an annual total to get a big picture analysis of the year along with the monthly analysis.
Return to your monthly budget schedule and make changes that reflect the opening of the new business. For example, one of the wage-earners would have a zero wage. Now compute the amount of money that you need to live.
Consider how long you would be willing to take a loss in your new business.
Consider how much income you would like to make with your new business; know your goal.
Posted in 
Tags: 