Your next job is to forecast how much money you’ll need. You can’t make realistic financial projections in a vacuum; they must be integrated into a thought the plan. As a result, you’ll need to make a number of decisions about how your business will operate and forecasts of financial results. But don’t let this intimidate you. You’ve probably been thinking about the financial side of your business for some time.
What Is a Profit and Loss Forecast?
A profit and loss forecast is a projection of how much you will sell and how much profit you will make. This is the foundation of your business plan. It gives you and your potential backers the basic information necessary to decide whether your business will succeed. Basically, a profit and loss forecast forces you to estimate how many dollars you will take in and how many dollars you will spend for some future period.
Normally you will want to sign a lease for a business space rather than to accept a month-to-month tenancy. Business leases generally protect the tenant more than the landlord, although it may not seem so if you read all those fine print clauses. You’ll be sure that you can stay at the location long enough to build your business around it, and you’ll know what your rental costs will be. But what happens if your business fails or you discover the location is poor?
Many leases that last longer than a year contain a method to protect the landlord from inflation. Some are tied to a cost of-living index, which means your rent goes up each year at the same amount as the inflation rate. Others contain a percentage of sales clause, where you pay a set rent or a percentage of your gross sales, whichever is higher.