Financial and profitability calculations
Use a cash flow statement to evaluate your start-up company’s need for start-up capital and a profitability calculation to assess its profitability. Include these calculations in your company’s business plan. The calculations and business plan are often a requirement for applying for external funding.
Draw up a cash flow statement in connection with a business plan. The calculation will indicate how much start-up capital you need at the start-up phase of your company and where you will get the money you need.
Use your calculation to determine how much expenses are caused by start-up investments, such as machines and equipment. Reserve enough working capital for wages and salaries as well as other running costs to cover the expenses of 2–3 months. Also take into account profit distribution as well as loan payments and extraordinary charges in your calculation.
Use the calculation for finding out where you will get the money needed for covering the expenses. You can finance the start-up investments and working capital with either equity capital or liabilities, or both. You can often use the income obtained from your business operations for loan payments and profit distribution as you might not have to pay these at the very beginning of your business activities.
If you apply for external financing, be prepared to present a cash flow statement. For help in preparing the statement, contact your accountant or the business development company from your region.
A profitability statement indicates how much your company should sell with a particular price at a certain time to make its operations profitable.
Start preparing the calculation with the profit your company is aiming for. Determine the profit based on having enough money for living expenses.
Calculate the costs after this. Your company will have to pay rents, wages and other fixed costs even if there are no sales. In turn, variable costs, such as manufacturing costs, grow in relation with sales.
The sum of the goal profit and costs indicates how much your company’s sales should be. For example, the calculation indicates how many hours of work are needed for getting the required amount of income. You will notice in time if your business is at risk of becoming unprofitable.
If you apply for external financing, prepare to present a profitability statement. For help in preparing the statement, contact your accountant or the business development company from your region.