The short answer is the following formula:


Startup Expenses + (Monthly Fixed Expenses + Monthly Variable Expenses) * Number of months until projected break-even – Projected gross sales for same number of months


Cash flow planning is a critical step for starting your business.  Like many other components we’ve discussed, it is very important to write down all of your planning.  This not only keeps a record and supports managing your business, it forces you to think through every detail and build upon that detail over time.  For this exercise, you can use a spreadsheet to keep it simple.  Depending upon the size and complexity of your business, you may want to move to a money management tool like Quicken or Quick Books.

Let’s break this down step-by-step.

Startup Expenses

These are one-time expenses that are required to get your business started.  These will be different depending upon the type of businesses.  If your business is a physical store that sells products, your expenses will be considerably different from a services-based company or one that sells products online.

Here are some examples of start-up expenses and how they might appear in your spreadsheet:

Startup Expenses

Fixed Expenses

Fixed expenses are about the same each month and do not change based on your volume of business.  In other words, you will owe the same fixed expenses in a month you sell no product / services as you will owe in a month when you have $1,000s in sales.  It is best to minimize fixed expenses, especially in the early days of start-up before profitability.

Most fixed expenses are paid monthly but some are paid quarterly, semi-annual or annual.  When they are not monthly, it is a best practice to “budget” that amount each month and save those funds when they come in.  Quicken has a feature called “Savings Goals” that allows you to “hide” money each month for these expenses.

Here are some examples of fixed expenses:

Fixed Expenses

Variable Expenses

Variable expenses fluctuate depending upon your volume of business.  The larger components of these typically include hourly salaries and your cost of goods sold.  Cost of goods sold are what it costs to make your product or deliver your service.  Variable expenses are better than fixed (at least early in your business) because these costs should be low until you have increased sales.

Here are some examples of variable expenses:

Variable Expenses

Some expenses are hard to categorize.  For example, some marketing expenses are fixed and some are variable depending on the contract commitment.  Don’t get too hung up on what of your expenses are fixed and which are variable.  Just use your judgement.  Like most components of your business plan, what you write down will be wrong.  By writing it down we allow ourselves to continually update and improve.

Projected Gross Sales

This is one of the more difficult parts of your cash flow analysis.  You have to “guess” how much you are going to sell.  Since you have already been through the exercise to test your business idea (see Part 1 & Part 2), and your initial marketing strategies (see What is Digital Marketing), you should have a general idea of how many sales you will attract.

My experience with most small businesses is that we overestimate our early sales.  With a few exceptions (e.g., established franchise, high-traffic location, 1000’s of social media followers), early sales will be very light.  Your growth will be via word of mouth supported by your marketing strategy.  So assume light sales initially and let the surprise be on the positive side.

How Much Money Do I Need to Start My Business?

Follow these steps:


Step 1 –Startup Expenses

On one tab or sheet, estimate all start-up expenses and sum them to a single number.

It should look something like this:

Startup Expenses

Step 2 – Fixed and Variable Expenses

On a separate tab or sheet, carry over the single number from the startup expenses.

Create a column for each month starting now and going 12-24 months depending upon how comfortable you are projecting out that far.

Fill in your estimated fixed and variable expenses

Sum the fixed expenses and variable expenses each month.

Step 3 – Projected Gross Sales

Create a row above or below the fixed and variable expenses to capture gross sales.

Fill in your projected gross sales for each month.

At this point, your spreadsheet should look something like this:

Startup Fixed Variable and Sales

Step 4 – Calculate Monthly Profit / Loss

Add a row at the bottom titled “Monthly Profit / Loss”.  For each month, subtract the fixed and variable expenses from gross sales.  This number should be negative for the first few months.  If the number remains negative for all months, something needs to change.  You will either have to reduce your expenses or find ways to increase sales.

Step 5 – Determine Required Funding for your Business

You now have all of the variables you need to answer our key question: “How much money do I need to start my business?”.  Before we calculate, I would suggest you build in a little contingency (extra start-up money for the unexpected).  I would suggest between 10 and 20 percent.

“Operating Capital” is money to cover monthly expenses until sales are strong enough to cover all of your monthly expenses.  Each month your monthly profit / loss is negative, you are drawing from your operating capital to cover the loss.  To calculate your operating capital, add together each monthly profit / loss that is negative.

Now that you have operating capital, add it to your startup expenses.  This is how much money you are estimating you will need to get started.  Now add in your contingency.  If you decided to have a

  • 10% contingency, multiply the number by 1.1
  • 15% contingency, multiply the number by 1.15
  • 20% contingency, multiply the number by 1.2

Step 6 – Show your startup funding

Create a row next to your startup expenses row labeled: “Startup Funding”

Enter the amount of cash you are starting with that we calculated in step 5 in the same month or month before you show start-up expenses.

Step 7 – Show running cash balance

Create a row below your monthly profit / loss labeled: “Available Cash”.   Calculate by adding the startup funding and gross monthly sales and subtracting startup expenses, fixed expenses and variable expenses.  This will give you a running total of your available cash.

Your spreadsheet should now look something like this:

Cash Flow Sheet


As I mentioned above, you will adjust this cash flow several times before you get started and after your business is running.  Each month you should replace the estimated numbers with the actual numbers and adjust the forecast numbers in future months based upon those actual numbers.

I welcome your feedback and questions.


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Dan Gillingham is a retired executive, business owner and is currently volunteering as a small business counselor and mentor with SCORE

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