Join Jim Stice for an in-depth discussion in this video Cash flow example, part of Finance Essentials for Small Business.
- Let's tie this together in one example.…Let's suppose that I forecast customer demand for my…fast food restaurant over the next three months to be,…in month one 4,000 customers, in month two 4,500 customers,…and in month three 5,000 customers.…Let's also assume that I have $10,000 in the bank right now.…I also estimate my fixed costs to be $16,000 per month,…and my average selling price…and estimated variable costs to be as follows,…I estimate my average selling price…to be $7 per customer in month one,…$7.50 per customer in month two,…and $8 per customer in month three.…
The reason for the lower selling price in month one is to…entice customers to come in and give my business a try.…As word gets out and my business earns its reputation,…I forecast being able to increase…the average selling price per customer.…I also estimate that my variable costs will be…$4.30 per customer for the first two months,…and increase to $4.40 per customer in the third month.…Now you can start to see how my cash will begin to flow,…
- Describe the most common reason small businesses fail.
- Identify two reasons why your business plan needs to budget cash inflows and outflows for the first six months of your business’s operation.
- Write the formula to forecast cash flow for the first four months of your small business.
- Explain the first step you should take if your new small business is not making the profit you anticipated.
- Identify the most important thing to keep in mind if you are considering faster growth for your small business.