Start & Run a Bookkeeping Business. Angie Mohr

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СКАЧАТЬ funding over the course of your business for some or all of the following groups of expenses:

      • Start-up costs. Your initial investment in your bookkeeping practice may involve rent deposits, legal and accounting fees, and purchases of equipment such as computers, printers, and telephone systems.

      • Shortfalls of revenue over expenses. You will still need to pay your suppliers and pay the fixed costs of running the business, such as rent, salaries to your employees, and the phone bill, even before you become profitable.

      • War chest. This is simply a fund of money (or short-term investments) set aside for a rainy day or for taking advantage of sudden opportunities.

      • Capital equipment replacement. Eventually, your software and computer hardware will become obsolete and need replacement, as will other equipment you may have invested in.

      • Growth. Expansion of your current operations may mean additional costs related to advertising, payroll, or the purchase price of another bookkeeping practice. You will likely incur these costs before you generate the revenue as a result of the expansion.

      Let’s start by looking at the two major categories of expenses for which you will need adequate financing in the start-up phase of your bookkeeping practice: start-up costs and providing liquidity to the business.

      Start-Up Costs

      As part of your initial business plan, it’s critical that you outline your costs on start-up carefully and ensure that you account for all of the potential costs. You may forget seemingly insignificant things that can add up to a lot of additional cash you weren’t planning to spend. Typical start-up costs for a bookkeeping practice include the following:

      • Supplies. You may not think things such as pens, paper, and file folders are significant, but the initial cost of stocking your office can be high.

      • Rental deposits. You may have to pay a deposit on your rented locations or on any rented office equipment.

      • Capital equipment. You won’t need any kind of specialized machinery to run your bookkeeping practice, but you will need the basics: a computer, printer, photocopier, fax machine, office furniture, and perhaps a vehicle for your business.

      • Insurance premiums. Although you may pay monthly premiums in the future for liability or business insurance, your carrier may require that you pay the first year up front.

      • Professional fees. Chapter 1 discussed the importance of putting together your team of external advisers right from the start. This entails incurring at least legal and accounting fees to set up your business and also to retain advice on planning and strategizing.

      • Renovation costs. If you’re renting office space or converting a room in your house into your office, you may need to redesign and decorate that space. Costs can include paying a design consultant as well as expenses such as carpentry, painting, carpeting, and sound systems.

      • Delay costs. It is always valuable to factor delay costs into your calculations. Start by asking yourself what costs you will still be incurring even if you aren’t able to open your doors on time because of some unforeseen event. If you have hired an employee, for example, you may have to start paying that person when the contract starts, regardless of your delayed opening date.

      Once you have tallied all of your expected start-up expenses, make sure you leave yourself some breathing room. Overestimate your start-up expenses by 5 to 10 percent of your total expected costs to make sure you will survive an initial cost overrun.

      Cash to Provide Liquidity

      Your next most important need for cash once you have covered your start-up expenses is to cover any projected shortfalls of cash before your practice becomes profitable. For example, if you are expecting a shortfall of $450, $295, and $75, respectively, in the first three months, you will need $820 in financing to cover that shortfall.

      Many small-business owners who don’t spend time forecasting their profits end up having to cover the shortfall in inappropriate ways, such as running up balances on credit cards.

      Let’s look at an example of how you would predict your revenues and expenses for your first year of operations. There are several important things to note as you prepare your own cash-flow projection.

      • Keep in mind the difference between cash flows and revenue and expenses. Cash flow refers to the actual inflows and outflows of cash, whereas revenue and expenses (as reported on the income statement) can reflect items where the cash transaction hasn’t yet occurred. For example, if you sell an item today but your customer won’t pay you for 30 days, this will show up on an income statement as a revenue item, but would not show up in a cash-flow report because you haven’t yet received the money. The cash-flow projection deals only with actual inflows and outflows of money. Its purpose is to make sure that you don’t run out of money. For a fuller discussion of cash flows versus income and expenses, you may wish to refer to Financial Management 101, also published by Self-Counsel Press.

      • The “Cash receipts” line reflects your estimate of the actual receipt of accounts receivable, not your revenue projections. For example, you may collect only 15 percent of your revenues in the month of sale, 63 percent the following month, 18 percent in two months, and 4 percent in three months. As you get more historical data for your business, you will be able to understand your revenue collection patterns more clearly. If you are reporting $1,250 in sales for the month of January, your cash-flow report would only show cash receipts of $187.50. Make sure when you are preparing your cash-flow projection that you take into consideration the average length of time it will take to collect your receivables.

      • All cash receipts and cash payments appear on the cash-flow projection, regardless of their source. There can be a line for the purchase of capital equipment. This item would not be recorded on the income statement (it is a balance sheet item), but it is a payment of cash. Any projected purchases such as equipment or inventory should be included in your projection. The same would be true of proceeds from a new loan. If the bank lends you $25,000, it would show as a receipt of cash on the cash-flow report.

      • If the closing cash balance on the cash-flow projection falls below zero at the end of any month, you will have to consider how to finance the shortfall. It is okay to have a net cash outflow in any particular month (as in the month of April in the example) as long as there is a cumulative cash surplus going into the month. This would roughly translate to a positive projected balance in the business bank account, which would be able to absorb any shortfall up to that balance. It is only when the cumulative balance drops below zero (i.e., you have no money in the bank account) that you have to have other financing in place.

      Once you have determined how much financing you will need for your bookkeeping business, it’s time to make sure that your personal finances are in good order before you approach lenders and investors.

      Get Your Personal Finances in Order

      As much as you’d like to separate your business from your personal finances (and it is certainly wise to do so), banks and other lenders will be keenly interested in your personal financial situation, especially if you are starting your bookkeeping business from scratch.

      If you are buying an existing business, the bank will be able to look at historical financial statements СКАЧАТЬ