What is Business Plan and How it works-Cashflow Forecast and Capital Spending Plan

 If you want to start your business, then you need two types of investment. 
1. Capital Investment: This capital is required to get all the necessary stuff you need to start your business, like office furniture, laptops, etc. 
2. Working capital: When you start your business, for the first several months you will not get the amount of money you will spend every month.So You need to invest more capital in your business for those months. After several months your business will generate enough cash, which you need to run the business.Now Your business will become self-sustained.

These metrics are very important for your business, as they are key for your business. Many times business owners face trouble because they are not aware of these financial metrics of their business. We have learnt many things in the profit and loss forecast, and we are going to learn many things in the cash flow forecast. 

So now you need to create a capital spending plan for your business that shows how much money you are going to invest to start your business. How much money you need as a capital investment and how much money you need for initial working capital.

There are two types of items in which you will spend your capital to start your business – 
1. Capital Items: Items which are helpful for more than one year are called capital items. For example, laptops, office furniture, etc. 

2. Expense items: Items which are useful for less than one year are known as expense items. For example, inventory purchased before the launch of the business, etc.

Now you need to find out the approximate cash flow which your business will bring. If you remain dependent on guesswork, then it is quite hard to find out the expected cash flow of your business, so you need to do this using proven methods so that you can find out the cash flow as accurately as possible. In the first several months it will bring negative cash flow, and after several months, probably, it will bring positive cash flow.

You need to create cashflow forecast for the next two years using the below table:

1. Profit and Loss Forecast
2. Less: Credit Sales
3. Plus: Collection of Credit Sales
4. Plus:Credit Purchase
5. Less: Payment of Credit Purchase
6. Plus:With holding
7. Less: quarterly withholding Payment
8. Plus:Depreciation
9. Less:Principle Payment
10. Less:Extra Purchase
11. Other Cash Items(in/out)
12. Monthly net cash
13. Cumulative net cash