Your business plan must provide at least a rough accounting for your startup costs and ongoing business costs. These costs include anything you need to buy or pay for to carry out the activities that must be done to deliver on your business goals.
Some terms you should be familiar with and include in your narrative:
- Capital equipment: U.S. accounting rules consider capital equipment that costs more than $5,000 and has an extended lifetime of over one year to be a fixed asset of a business. These assets do not include real estate or software.
- Fixed and variable costs: Fixed costs such as rent, web hosting and internet access remain constant over a period of time. Variable costs include one-time startup expenses such as a logo design or legal fee, discretionary expenses such as travel and training, and ongoing costs that vary month-to-month. In a fast-growing operation, variable costs such as independent contractor fees can increase substantially.
- Assumptions and projections: You should project your revenue and expenses for at least two or three years in your business plan in a way that shows you have a realistic chance of maintaining a positive cash flow. Nobody wants to provide seed money to a startup that is going to run out of money and shut down. So the projections must be based on realistic, conservative assumptions.
Journalists are well-equipped to explain their financial assumptions and projections in a narrative, but the business plan should also include a projected balance sheet that matches the narrative. Journalists may not be equipped to build financial projections and should seek help. In every state there are small business resources available at no cost. We also discuss building a budget in the next chapter.