In addition to sales forecasts you also need to work out your costs. It is usual to work out a list of start-up costs, i.e. all the things you need to spend money on in order to get into a position to begin trading. It would be usual to calculate this on the same period as your sales forecast, e.g. monthly. The total of this list relates closely to how much money you will need to find to start up. If you do not already have all the money, you may need to consider obtaining funding. You also need to think about how much money it will cost to run the business once it has started. This can very often be the most crucial stage of business start-up, for lots of new businesses find that they haven’t really considered how much income they actually need to cover the bills. Be hard-headed – business-like. If a business doesn’t set up to make money from the beginning, it is then little different from a hobby, and an expensive one at that.

Finally, you need to think about how much money you need to take out of the business each month to pay for your own living costs. Money you take out of the business to live on is usually known as ‘drawings’. Together, the sales forecasts and the costings can then be used to create a cash flow forecast.

Cash Flow Sources of Funding