The rst set of bars should never drop below zero

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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.

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