Franchise Advice
the £20,000 for the start-up costs, this is simply a car crash waiting to happen. Sales in the first few months are likely to be much lower than the last few months of the year because it will probably take some time for the business to become established. The overheads (salaries and rent, etc.) will probably be consistently high from the first month. This means that for the first part of the year the business will be making a loss and will need some additional cash to sustain it through into the profitable months in the second part of the year. This additional cash is what we refer to as working capital.
Now the question is how much will you actually need? The only way of working this out accurately is to produce a comprehensive set of financial projections incorporating a monthly profit and loss account, a monthly cashflow forecast (a crystal ball image of your bank account showing how much money you will need to do it) and an end-of-year projected balance sheet (a list of your business assets and liabilities, showing what your business will actually look like in the future in terms of what it owes and what it owns). This is quite a complicated but necessary process and deserves some
care and attention because it is crucial to the success of your business. Do ask for help from your accountant, franchisor or business consultant and remember the old saying: turnover is vanity, profit is sanity and cash is reality. n
CHRIS ROBERTS
is a director of Franchise Finance, which runs various financial training courses and prepares business plans and financial projections for franchisees and franchisors with a 95 per cent success record in raising funds for their clients. See www.
franchisefinance.co.uk for further details.
July/August 2014 |
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