It doesn’t necessarily take a lot of money to make a lot of money, but it does take some. To beat the odds and avoid running out of money, successful entrepreneurs prepare by developing rigorous financial plans that forecast essential information such as how much money it’ll take to get off the ground and what to expect in the first few years so they can best allocate resources.

“Smart financial planning is crucial.” 

Whether you want to open a bookstore in Texas or launch a Web design company in Oregon, it’s possible to see exactly how existing companies have done it and truly plan for business in the real world. Here are a few principles to consider when planning your startup’s finances:

• Prepare a Cash Flow Statement. Before you start investing in or operating your business, prepare a detailed, monthly cash flow statement for the first 1 months. The first step is to anticipate all expenses you will incur prior to receiving any revenue (month zero). Then list anticipated revenues and expenses for each month; this will determine your monthly cash flow.
• Forecasting Startup Costs. The importance of being truly prepared for the financial reality of a startup business applies to all entrepreneurs. Even if you’re aware of all the different types of startup expenses, it can be tempting to sugarcoat the numbers when you’re anxious to get started. But be honest with yourself.
• Prepare a Sensitivity Analysis. The one thing I can assure you about your cash flow projections is that they will be wrong. What we don’t know is how wrong and in which direction. So once you have prepared your “best estimate” cash flow projection, do some sensitivity analysis.
• Heed Expert Advice. Even the best financial forecasting and fiscal planning don’t guarantee success in business–because those critical markers of the startup experience don’t account for the impact of realistic expectations for how much time and energy a new business requires and other sometimes-surprising aspects of entrepreneurship.

Once you have completed the above steps, you will have a reasonable understanding of your business’ cash requirements under a variety of circumstances.