The figures section of your business plan is almost complete: you have entered projected business expenses, monthly revenue and living expenses in your liquidity plan. And now it shows a shortfall in some months of the first year. What next?
You may still be able to increase your monthly revenue forecasts. Even then, however, a shortfall is likely in the early stage because expenses are generally higher than revenue at the outset.
The largest monthly shortfall shown in the liquidity plan determines your working capital requirement: the amount needed to close the gap between income and expenditure. In financing planning, you then look for ways to obtain these funds. The goal is to remain liquid every month until the business can sustain itself through its own revenue.
Working capital therefore serves as a financial safety buffer in the early stage. It is a very typical part of the capital required when starting a business and can also be financed with external funds.
