The saying that “cash is king” is never more true than for a small business owner. While large businesses may sit on huge reserves of cash and not be worried about borrowing when it runs low, a small business has to worry. A business plan for a small business should address these cash concerns.

Startup Cash

A primary reason to create a business plan is to be able to raise capital. Before doing so, the small business entrepreneur must know how much cash will be required to launch. The startup cash needs are determined by this equation: total payments needed before launch + shortfall between cash inflows for operations and cash outflows for expenses until break-even + a cash reserve. Entrepreneurs will often forget one of the last two numbers, raising only enough to cover the expenses prior to launch and forgetting that additional cash must be on hand to carry the business through its early months (or years) before it generates its own cash through operations. It can be very difficult to go back to funders for more money just as the company is ready to launch. Funding may not be forthcoming, or may be available only at punishing interest rates. Think ahead to plan for the full startup cash requirements so that the first round of funding can hopefully be your last.