Have you ever overdrawn your account? That is something you want to avoid when you are self-employed. And that is exactly why you need a liquidity plan for the first three years. It is like a bank statement for the future.
As part of your business plan, you list everything coming in and going out financially in your business. Income includes, for example, your own capital, loans paid out and sales revenue.
Expenditure includes, for example, rent and utilities for your business premises, your own remuneration as an entrepreneur, staff costs, insurance premiums, investment spending, and monthly loan repayments and interest.
Once you have compiled everything, you can see whether you will still have cash available – in other words, remain liquid – at the end of each month.
In the first year, you will probably have a few months that end in the red. That is your working capital requirement.
We are happy to explain these and other details in our startup event series.
