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Entrepreneurs tend to spend too much time looking for money and not enough time making money. This problem stems from the lack of adequate pre-planning given to the initial use of funds. In order to determine what your short and long term capital needs are going to be, you must perform accurate financial projections.

Items to Consider In Your Use of Funds:

  • Immediate Need For Capital (Bills to pay)
  • Research and Development (Estimate, then double)
  • Capital Asset Acquisition (Required equipment, equipment lease, equity, equity placement, etc.)
  • Inventory Floor Planning (Necessary raw materials)
  • Working Capital Requirements (Payroll, payables, etc.)
  • Market Penetration (When will the cash flow begin)

The Cash Flow Model:
The cash flow model is the best tool for determining what your capital needs will be. Don't be overly optimistic or conservative, either one will hurt you. Know what factors will affect your projections to the downside, (sales, costs, price breaks, etc.). Work closely with third parties, financial advisors, accountants, industry consultants, retired executives, etc., to keep from having tunnel vision and missing the big picture. Your cash flow model should be month to month for one year and quarterly for the next four years.

Workbook Main Menu I To Chapter 10

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