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Continuing with my series on standard business plan financials, startups need to project starting costs.
Ideally, you know the business you want to start, you are already familiar with the industry, so you can do a useful estimate for most of the startup costs from your own experience.
If you don’t have enough firsthand knowledge, then you should be talking to people who do.
Also, Live Plan has its own guided way of helping you figure out what assets you need, how much they cost, and how you are going to finance starting costs, to set up your balance.
And the Live Plan cash flow estimator will help you decide how much cash you need, so you don’t have to follow the spreadsheet method here (below).
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The service requires full cookie support in order to view the website.You can estimate them both in two simple lists: I’ve used a bicycle store as an example in several posts that are part of this series of standard business plan financials.Here’s a visual in spreadsheet form, of sample starting costs for a hypothetical bicycle store.The launch in this case is early January, so the expenses for October through December are startup expenses.I prefer the separate lists, because I like the way the two lists create an estimate of starting costs. If you’re a Live Plan user, the Live Plan interface assumes this method and has a more intuitive interface than the spreadsheet version I’m showing in this post.Just as an example, the total spending with the estimates shown here, the theoretical “year’s worth of spending,” is 2,000 (which you don’t see on the illustration, by the way, but take my word for it). If Magda sticks to those old formulas, she can’t start the business.She is able to raise enough money, between loans and her savings, to put ,000 into the starting cash balance. Then she launches and continues to have her monthly reviews, and watch the performance of all key indicators very carefully.The best way is to do a Projected Cash Flow while leaving the supposed starting cash balance at zero, which shows how much (at least in theory, according to assumptions) the startup really needs in cash to support the business as it grows, before it reaches a monthly cash flow break-even point.Magda did that to determine the ,000 needed as starting cash for her restaurant.Note how, in the illustration here, the lowest point in cash is slightly less than ,000: That low point comes, theoretically, in the third month of the business, March. Obviously that’s just an educated guess, but it’s based on assumptions for sales forecast, expense budget, and important cash flow factors including sales on account and purchasing inventory.So it’s better than a stab in the dark, or some rule of thumb.