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Financial Considerations, Start-up Costs, and Income and Balance Sheets

This part of the business plan asks you to consider the costs of doing business, such as salaries, rent, and utilities. After you have identified the costs of doing business, as well as how much revenue that you expect to earn in one year, you will articulate how much you will need to get the business started.

Your research for this week will focus on the following topics and questions:

Expected Revenue: How much will you charge for your product? How many products do you believe that you can sell in one year (or how many customers do you think your business can attract)? Multiply the price that you will charge by the number of products that you hope to sell or the amount you hope each customer will spend. This will give you an estimate of your revenues for one year.

Hint: You will use the amounts you calculate in the costs and revenues questions in this part of the plan in the accounting statements, so be as realistic as you can.

Cost of Doing Business: What are the costs of starting up and doing business? Equipment, supplies, salaries, rent, utilities, and insurance are just some of these expenses. Estimate what it will cost to do business for one year.

Hint: Insert the costs associated with doing business in the table below. The following list below provides some hints as to where you can get this information. Note that these are estimates—just try your best to include accurate costs for the expenses you think will be a part of doing business. At the end of the chart, justify each expense and explain you rationale/cite sources to show accuracy of estimations. Written justification is required.

Expenses Expected Monthly Cost Expected Yearly Cost
Rent
Salaries and Wages
Supplies: Paper, office supplies, printer supplies, cost of goods to sell or cost of raw materials to make product, etc.
Advertising and Other Promotions
Utilities: Heat, Electricity, Etc.
Utilities: Telephone, Internet
Insurance
Other (specify)
Other (specify)

Hints for each expense in the table:

Rent: How many square feet is your place of business? What is the “going rate” per square foot for office space in your community? A real estate agent or a local SBA representative (www.sba.gov) can also be helpful in answering this question.

Salaries and Wages: Refer to the organizational chart. How much will each employee earn? How many hours will each employee be needed on a weekly basis? Once you’ve determined the weekly cost, then expand it to a monthly and a yearly cost.

Supplies: How much will the monthly supplies for doing business? What kinds of general office supplies will you need? Most prices for this information can be found on an office supply site such as www.staples.com. Also, if you are selling products you need to include your estimated amount of products to be purchased monthly. If you are making a product you should estimate the amount of raw materials needed to support your level of production.

Advertising and Other Promotions: Refer to your marketing section. You have described how you wish to reach your customer—now you need to decide how much it will cost. If you’re using television, contact the sales department at a local station. If you’re using newspaper, contact their advertising department. Salespeople are usually happy to answer your questions.

Utilities: These amounts will vary depending on your business and what utilities you will pay. If your business looks like an office, this cost may be similar to what a homeowner pays. However, if your business involves making a product, then the costs will be significant. An SBA representative can be a good resource.

Insurance: This value will be affected by the nature of the business. More equipment will usually mean higher insurance costs. Again, contact an SBA representative for feedback.

Startup Costs: How much money will you need to get your business started?

You will need to discuss the amount that you will need for computers, desks, racks, down payment for office space, etc. Justify your response with explanations of the amount requested. Written justification is required.

Income Statement and Balance Sheet: Create a balance sheet and an income statement for your business.

Use the specific Microsoft Excel templates created for each statement. You’ll find these templates as a link above and also in a file called Business Plan Part 5 Spreadsheets, available in Doc Sharing. These Excel files are handy because they already have the calculations preset—all you have to do is “plug in” the numbers and the calculations are performed automatically. If you make adjustments to the values in the Excel worksheets, you’ll automatically see how changes to expenses, for example, can improve the “bottom line.” Note that the Excel templates also include helpful hints as to where you can get the information you need to complete the balance sheet and income statement.