by Bernie Filipiak

“How much money do I need?” Entrepreneurs frequently face this question when planning a new business startup. Underestimate and you risk running short of cash and derailing your venture before it even gets started. Overestimating your needs has drawbacks too, as a higher amount may necessitate additional debt with its associated cost and could weigh down your balance sheet at a time when you want to be running as lean as possible.

Good budgeting and financial planning can help any small business rightsize its funding needs. But how can a startup with no experience make the most accurate projections possible? The answer may be found in spreadsheet templates that provide most line item revenue and expense categories from which any startup planner can choose to fit his/her business situation.

(At, one can download free spreadsheet templates with builtin formulas to prepare pro forma forecasts for the first three years of operation.) After choosing which revenue and expense line items fit your particular enterprise, the task of filling in the dollar numbers becomes paramount in proper financial planning. Completing that part of the exercise will take a lot of research, especially on the revenue side.

A proper financial plan will also require a monthly allocation of revenue and expenses to more closely predict when this funding cash will be needed. If possible, do not structure the funding as an upfront lump sum. It’s better to plan to draw down the cash on an as needed basis.

Just thinking about cash forecasting can make your head spin, but all is not lost. One must remember that most of these numbers are not written in stone but rather estimates that can readily be changed as new information becomes available.

Keeping an eye on the flow of cash both in and out will allow the entrepreneur to make key decisions about the timing of expenses and how that will affect the business. In both planning for and running a business, the owner must continually look ahead and contemplate the future with “what if” scenarios.

The ultimate goal is to see how much cash you need and when you will need it before you finalize any business decisions including starting up a new business venture.

Once you’ve determined your startup’s financing needs, you can identify the best sources for acquiring it. Many entrepreneurs rely on their own savings, while others look to their local banks for SBA-backed business loans. Here are several other options to consider as well:

Friends and family. A convenient source often used for small startups, but loans must be wisely structured to avoid damaging personal relationships.

Credit cards. Though convenient, credit cards usually have high interest rates. If you’re a sole proprietor, missed payments could damage your personal credit standing.

Crowdfunding. An Internet-based method where small business ideas are pitched to a cooperative pool of potential investors. Increasingly popular, crowdfunding nevertheless has limitations and currently lacks regulatory protections against fraud.

Angel investors and venture capital firms. These are individuals or groups who lend money or acquire an ownership interest in a small business, usually one with the potential for rapid growth and high returns.

Bernie Filipiak is a SCORE volunteer mentor and a retired CPA. To learn more about financing a small business, and other critical small business issues, and for an appointment with a volunteer mentor, contact SCORE, which originally stood for Service Corps of Retired Executives, is a nonprofit organization whose volunteers provide free, confidential business mentoring and training workshops to small business owners.

Good Planning Includes Forecasting Cash Needs