Unformatted text preview: lan. • Do you do your taxes on a cash basis or accrual basis? If you don’t know, and you are a very
small (one person, maybe two to three people) business, then you’re likely to be on a cash basis.
That makes your planning easier.
However, most businesses big enough to work with a CPA and have separate tax statements
use accrual accounting because they want to deduct expenses as they are incurred, even if they
aren’t fully paid for. By the time you are using accrual accounting, you’ll probably need more CHAPTER 4: STARTING A BUSINESS 4.9 sophisticated cash ﬂow tools and a more extensive business plan.
• As you approach banks and other lending institutions, expect to provide more detail on personal net worth, collateral, and your business’ ﬁnancial position. Some banks will accept a very
superﬁcial business plan as long as the collateral looks good. Others will demand to see detailed
monthly projections. No bank can lend money on a business plan alone; that would be against
banking law. But a bank wants to see a good plan. • If you’re looking for venture investment, take a good look at your plan. Professional investors will
expect your plan to provide proof, not just promises. They’ll want to see market data, competitive advantage, and management track records. They’ll want to see robust and comprehensive
ﬁnancial projections. True, you’ll hear stories about investors backing new companies without
a plan, but those are the exceptions, not the rule. So, however you cut it, your business plan is very important, even at the early start-up stage, and even
if you can keep it in your head. Before you purchase business stationery, telephones, or rent a location,
you should do a business plan. Realistic Start-up Costs START-UP COSTS Start-up expenses are those expenses
incurred before the business is running.
Many people underestimate start-up costs
and start their business in a haphazard,
unplanned way. This can work, but is
usually a harder way to do it. Customers
are wary of brand new businesses with
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