Describes how to generate a business plan and cashflow forecast in support of application for small business finance

1. FINANCING NEW BUSINESS
Cashflow Forecast and Business Plan
Terence Westgate
2021

2. FINANCING NEW BUSINESS
You are planning to start a business
You want to borrow the money to get started
Your potential lender will want to see your
Cashflow forecast and
Business Plan
The object of this presentation is to demonstrate how to produce
these documents to support an application for a loan
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3. FINANCING NEW BUSINESS – Cashflow Forecast
The cashflow forecast shows a potential lender your estimates of
the money you need to set up and keep the business running until
it is earning enough to be self-supporting.
The cashflow forecast also shows your estimates of what money
you expect to receive and when from the sales of the business’s
goods and services
From these numbers the potential lender will see how much money
needs to be borrowed and how and when the loan can be repaid
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4. FINANCING NEW BUSINESS – Cashflow Forecast
A cashflow forecast is a table of expected receipts and payments
by time period for the foreseeable future
Example of a simple cashflow forecast
PERIOD 1 2 3 4 5 6
PAYMENTS 100 120 125
RECEIPTS 120 119 250
PERIOD BALANCE 20 -1 125
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5. FINANCING NEW BUSINESS – Cashflow Forecast
To make this cashflow forecast more useful let’s add in the running
balance – or forecast bank balance
PERIOD 1 2 3 4 5 6
PAYMENTS 100 120 125
RECEIPTS 120 119 250
PERIOD BALANCE 20 -1 125
BALANCE BROUGHT
FORWARD 0 20 19
BALANCE CARRIED
FORWARD (BANK) 20 19 144
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6. FINANCING NEW BUSINESS – Cashflow Forecast
What are the payments for?
Where is the money coming from – the receipts?
A basic breakdown of business finance components
Payments - Capital
Payments - Overheads
Payments - Consumables
Receipts - Sales
Receipts - Capital inputs
These are explained in the following five slides describing the first
five worksheets in the cashflow forecast spreadsheet
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7. Capital Expenditures
Overhead payments
Payments for consumables
Sales receipts
Receipts of capital
CASHFLOW
FORECAST
FINANCING NEW BUSINESS – Cashflow Forecast

8. FINANCING NEW BUSINESS – Cashflow Forecast
Worksheet 1 Capital
Payments for capital items
These are items for use, not to be sold to customers in the course of
the business’s trade
For example:
Buildings, vehicles, equipment, computers, furniture etc.
We can also include loan repayments
Let us label this worksheet CAPEX
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9. FINANCING NEW BUSINESS – Cashflow Forecast
Worksheet 2 Overheads
Overheads are amounts paid regularly to keep the business
running day to day and which are not affected by the volume of
sales
For example:
Electricity, office expenses, rent payments, business rates etc.
And do not omit the entrepreneur’s salary!
Let us label this worksheet OHEADS
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10. FINANCING NEW BUSINESS – Cashflow Forecast
Worksheet 3 Consumables
Consumables are items bought to be sold
The amounts will very according to the volume of business
Consumables include materials, wages of productive workers, and if
the business is a service company, the costs of staff whose time is
being sold by the business.
Note, we must include payments for the cost of items bought to be
sold but not yet consumed – for example inventory or scrap
Let us label this worksheet COC
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11. FINANCING NEW BUSINESS – Cashflow Forecast
Worksheet 4 Sales receipts
Cash received from customers in respect of invoices issued by the
business for goods and services provided
Label this worksheet SALESREC
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12. FINANCING NEW BUSINESS – Cashflow Forecast
Worksheet 5 Cash received to purchase items of capital
Cash received to purchase items of capital including working
capital
This money may be raised through loans or in some cases by
selling part of the business
Worksheet label CAPIN
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13. FINANCING NEW BUSINESS – Cashflow Forecast
Totals of these 5 worksheets period by period are carried forward
to a sixth worksheet which calculates the cashflow forecast label
this worksheet CFF
CASHFLOW FORECAST PERIOD 1 2 3 4 5 6
1 CAPITAL EXPENDITURE PAYMENTS
2 OVERHEAD PAYMENTS
3 PRODUCTION COST PAYMENTS
TOTAL PAYMENTS
4 SALES RECEIPTS
5 RECEIPTS OF CAPITAL
TOTAL RECEIPTS
6 PERIOD BALANCE
7 BALANCE BROUGHT FORWARD
8 BALANCE CARRIED FORWARD
Row 6 is the difference between TOTAL RECEIPTS & TOTAL PAYMENTS
Row 7 is the amount in row 8 of the preceding column
Row 8 is the sum of rows 6 & 7 in the same column. It is the cashflow
forecast - the forecast bank balance for the period
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14. FINANCING NEW BUSINESS – Cashflow Forecast
To help understanding – here is a numerical example
Worksheet 1 Payments for items of capital
Carry the totals through to worksheet 6
CAPEX MONTH 1 2 3 4 5 6
Amount Amount Amount Amount Amount Amount
Items of Capital Expenditure
Premises lease 127,000.00
Vehicle 12,000.00
Fixtures and fittings 2,500.00 3,500.00
Computer 760.00 1,000.00
TOTALS 130,260.00 16,500.00 0.00 0.00 0.00 0.00
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15. FINANCING NEW BUSINESS – Cashflow Forecast
Worksheet 2 Payments for overhead expenses
Carry the totals through to worksheet 6
OHEADS
MONTH 1 2 3 4 5 6
Amount Amount Amount Amount Amount Amount
Items of Overhead
Expenditures
Power 150.00 150.00 150.00 150.00 150.00 150.00
Water 48.00 48.00 48.00 48.00 48.00 48.00
Secretary salary 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00 2,000.00
Insurance 150.00 150.00 150.00 150.00 150.00 150.00
Entrepreneur's salary 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00
TOTALS 4,848.00 4,848.00 4,848.00 4,848.00 4,848.00 4,848.00

16. FINANCING NEW BUSINESS – Cashflow Forecast
Worksheet 3 Payments for consumables to be sold
Carry the totals through to worksheet 6
COC
MONTH 1 2 3 4 5 6
Amount Amount Amount Amount Amount Amount
Payments for consumables
Materials 1,200.00 850.00 1,500.00 2,500.00 3,500.00 3,500.00
Labour 1,100.00 2,500.00 2,500.00 2,500.00 2,500.00 2,500.00
Delivery Charges 450.00 380.00 490.00 530.00 600.00 650.00
TOTALS 2,750.00 3,730.00 4,490.00 5,530.00 6,600.00 6,650.00

17. FINANCING NEW BUSINESS – Cashflow Forecast
Worksheet 4 Receipts from invoiced sales
Carry the totals through to worksheet 6
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SALESREC
MONTH 1 2 3 4 5 6
Receipts from Sales Invoices
0 1900 2500 4000 5500 6500
TOTALS 0 1900 2500 4000 5500 6500

18. FINANCING NEW BUSINESS – Cashflow Forecast
Worksheet 5 Cash received from initial capital and bank loan
Carry the totals through to worksheet 6
CAPIN
MONTH 1 2 3 4 5 6
Receipts of capital injections
Start up capital from owner 50,000.00
Bank loans 120,000.00 10,000.00
Loan from owner
TOTALS 170,000.00 0.00 0.00 10,000.00 0.00 0.00
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19. FINANCING NEW BUSINESS – Cashflow Forecast
Worksheet 6 Cashflow forecast
Comprised of the totals from worksheets 1 – 5
• Row 7 is the amount in row 8 of the preceding column
• Row 8 is the sum of rows 6 & 7 in the same column. It is the
cashflow forecast - the forecast bank balance for the period
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CFF MONTH 1 2 3 4 5 6
CASHFLOW FORECAST
CAPITAL EXPENDITURE
PAYMENTS 130,260 16,500 0 0 0 0
OVERHEAD PAYMENTS 4,848 4,848 4,848 4,848 4,848 4,848
PRODUCTION COST PAYMENTS 2,750 3,730 4,490 5,530 6,600 6,650
TOTAL PAYMENTS 137,858 25,078 9,338 10,378 11,448 11,498
SALES RECEIPTS 0 1,900 2,500 4,000 5,500 6,500
RECEIPTS OF CAPITAL 170,000 0 0 10,000 0 0
TOTAL RECEIPTS 170,000 1,900 2,500 14,000 5,500 6,500
PERIOD BALANCE 32,142 -23,178 -6,838 3,622 -5,948 -4,998
BALANCE BROUGHT FORWARD 0 32,142 8,964 2,126 5,748 -200
BALANCE CARRIED FORWARD 32,142 8,964 2,126 5,748 -200 -5,198

20. FINANCING NEW BUSINESS – Cashflow Forecast
Notes on the Cashflow Forecast – 1
The purposes of the cashflow forecast
1 To show a potential lender that the business is viable
2 To provide the basis for cash budgeting in the future
Accuracy
A cashflow forecast is very unlikely to be 100% accurate and
allowances must be made
Contingences
Allowances should be made for unexpected demands for cash.
Allow a 25% reserve
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21. FINANCING NEW BUSINESS – Cashflow Forecast
Notes on the Cashflow Forecast - 2
Overheads vs Costs of Consumables (COC)
Overhead costs are relatively unaffected by the volume of sales
and production expenditures.
There will be areas of uncertainty as to which category some
expenditures may belong
The main point is that both are outgoing payments.
What is bought to be sold or to contribute the expenses of
producing and delivering goods and services will generally fall under
the heading of COC, the volume of which will vary according to the
volume of sales.
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22. FINANCING NEW BUSINESS – Cashflow Forecast
Notes on the Cashflow Forecast – 3
Interest charges should be factored in as overhead expenses
Allowances should be factored in for income taxes
VAT payments and receipts should be accounted for separately
from all other expenditures and receipts
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23. FINANCING NEW BUSINESS – The Business Plan
A business plan is a paper that the entrepreneur writes for the
potential lender which sets out clearly –
* Who will run the business – profiles of the managers and
operatives
* What the business intends to sell to its customers
* How the business intends to produce and deliver its products or
services
* Who are the intended customers
* How has the business identified its potential customers
* What the business needs to do to set up – contracts, staff,
insurance, premises, equipment, materials etc.
* How long will it take to get started and running
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24. FINANCING NEW BUSINESS – The Business Plan
The BUSINESS PLAN should state –
What goods and services the business is going to sell
How the business’s goods and services will be produced and
delivered
When these activities are planned to take place
Who are the expected customers for the business’s goods and
services
How was the market researched
Who will be the owners, managers and operators of the business
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25. FINANCING NEW BUSINESS – The Business Plan
Structure of a business plan
Executive summary
Cashflow forecast
Products and services
Sales and marketing
Personnel
Premises
Planned 12 months activities
Appendices
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26. FINANCING NEW BUSINESS – The Business Plan
Executive summary
The executive summary of a business plan should be no more than
2 pages long, including the cashflow forecast – i.e. worksheet 6 of
the cashflow forecast model
It should contain brief summaries of the planned
Products and services
Sales and marketing
Personnel
Premises
The next 12 months activities
There should be enough information to allow the proposed lender to
decide whether or not to pursue the loan application and read the
full business plan
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27. FINANCING NEW BUSINESS – The Business Plan
Products
What products is the business planning to deliver to its customers?
Will the business make or buy the products?
How will it source them?
How will continuity of supply be ensured?
What will they cost – to make? – to buy?
How will they be provided to customers – delivery or collection?
How long will it take to go into full production?
How will quality control be managed?
Is there insurance cover available?
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28. FINANCING NEW BUSINESS – The Business Plan
Services
What services is the business planning to deliver to its customers?
How will the services be sourced and provided to customers?
How will continuity of supply be ensured?
What will they cost to provide?
How will quality control be managed?
Is there insurance cover available?
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29. FINANCING NEW BUSINESS – The Business Plan
Sales and marketing
Who will be the customers?
Is there an existing market for this business’s products & services?
How has this been ascertained – market researched?
How will the business’s goods and services be sold?
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30. FINANCING NEW BUSINESS – The Business Plan
Who will run the business?
This is probably the most vital component of the business plan for it
states who the lender is being asked to risk its money with.
Provide concise and accurate profiles of the managers and
operatives.
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31. End of presentation
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