point in time. It summarizes all the financial data about your business, breaking it into three
The assets of the business are tangible objects that have some sort of financial value and
that are owned by the company. A liability is a debt that is owed. Equity is the net differ-
ence when the liabilities are subtracted from the total assets. Normally, your business will
create and execute a balance sheet once per year, usually at tax time.
After reviewing and analyzing each of these three (accurate) statements, you can then le-
gitimately assess and review your financial plan. These documents will tell you without a
shadow of a doubt whether you have a viable business enterprise or a doomed venture that
never has a chance to get off the ground. In all respects, you'll be looking for positive num-
bers rather than negative ones to give you a quick glimpse at the future.
What if your statements come out negative and show financial destruction? It's up to you
to decide, but I would cut expenses. I ran into this very problem and rather than give up, I
cut expenses. Maybe you don't need a new desk. Cut it. Maybe you can't take a salary for
the first couple of months. Cut it. Maybe there's a cheaper vendor that can help you reduce
your inventory costs? Find it.
There's also another way to offset the negative numbers. Sell more. The more sales you
have, the more positive things will be. I've said it before and I'll say it again, and this is
especially true in the beginning: “Fight for every sale.” This doesn't mean that you need to
subject your customers to a high-pressure sales game. “Fight for every sale” means that you
need to do your best, go above and beyond, and make sure the customer is happy. Make
more money and the negatives dwindle. Make enough money and your financial problem
will be nonexistent.
Sample Cash-Flow Projection
TWeLve-moNTh CASh fLoW NeWCo, LLC
pre-Startup Jan-13 feb-13 mar-13 Apr-13 eST
Cash on Hand (beginning of month) 5,500 2,141 562 3,513
Cash sales 0 5,000 10,000 15,000 20,000
Collections fm CR accounts 0 0 0 0 0