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Unformatted text preview: ng here, all along, was working capital.
Important: In strict accounting terms, working capital is equal to short-term assets minus short-term
liabilities. In real terms, however, working capital is the glue that holds your cash ﬂow together. Get it
into the bank before you need it, or you won’t survive the unexpected.
The Working Capital illustration on the previous page goes back to the beginning of this whole
example and does it right, with enough capital in the beginning to ﬁnance the company.
Instead of starting with $100 as capital, this business looks a lot better with starting capital of $400.
With this additional capital from the start, buying on credit and borrowing against assets is more
realistic. In this scenario, working capital is up to $550. Now it has a proper input of working capital
at the beginning. With even the barest of business plans, we could tell that $100 wasn’t enough to get
this business going.
As you can see from the examples, the numbers in a normal business analysis and in a business
plan are interrelated. In previous chapters we did the sales forecast and personnel plan, which then
reappeared in the income statement, also called the proﬁt and loss. You can see from the examples
how the income statement links to the balance sheet. We’ll go into cash ﬂow and balance in following
chapters, but the point here is that the assumptions and estimates in the standard business plan
tables link up to each other in a complex system of relationships. You can see how these relationships
work in the following illustrations. A More Realistic Case
Now let’s look at the implications in a real case. The real case is a computer reseller (that is, a
retail computer store) in a medium-sized local market, with sales of about $6 million per year. The
charts and underlying ﬁnancial analysis are taken from the sample plan for American Management
Technologies (AMT) included with Business Plan Pro®, and posted on our sample plan website
The ﬁrst chart, in this next illustration, shows a representative sample...
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This note was uploaded on 01/26/2014 for the course BUINESS 102 taught by Professor Unknown during the Winter '09 term at University of Phoenix.
- Winter '09