These projections are also required if you plan to approach any financial agency for a loan.

Most overlooked in these projections is the cost of selling the product or service to the market on credit.

"Most products and/or services have to be sold on terms - that is, on credit - which means that the payment is not received at the time of delivery," says Deanna McFarlane, manager of the Corporate Finance Broker Unit (CFBU) of the Private Sector Development Programme project unit within Jamaica Trade and Invest.

The CFBU assists SMEs to analyse and develop their business plans, complete with projected financials developed.

Credit or payment terms may be 15, 30, 45 or even 60 days after delivery is made.

This means that the business has to manufacture the goods, deliver them and wait on payment from the purchaser.

Running out of capital

If these conditions of sale are not calculated in the start-up costs - the cost of doing business - the entrepreneur will discover that he/she is in jeopardy of running out of working capital, which may result in frequent stops and starts in the production or business cycle.

This situation will result in less-than-expected earnings, frustration for the owner and workers and buyers of the product.

There is also a risk that other entrepreneurs may find that your inability to supply clients in a timely manner creates an opportunity for them to be 'first to market'.

The full cost of doing a business should include the cost of offering credit terms to the buyers.

Most businesses have to operate within the norms of that industry, and selling on credit is normal in most business transactions.

The business person is also encouraged not to give more credit than he/she is able to get - that is, if the suppliers of raw materials give 15 days' credit, then the manufacturer/service provider should not give more than 15 days' credit to the buyers of your product.

Be warned that while this is a good rule on the face of it, there are more factors to consider, such as the manufacturing-process time, storage, packaging, etc.

It is best for all the conditions of doing business to be taken into consideration during the business-planning stage and proper financing put in place for capital costs, as well as working capital costs, McFarlane notes.

"These are important considerations that should deter any start-up entrepreneur from setting up his or her business without first having a detailed business plan and projected financials prepared," she said.

"It is a wise man who counts all the costs before establishing a business venture."

The Jamaica Business Develop-ment Centre notes that your projected cash flow and expenditure estimates will tell you how much money you should actually have in the bank.

Assuming you are going into the restaurant business, elements to be included in these estimates are:

1 Inflation: Assume that each year prices and costs will go up at a rate that is at least equivalent to inflation. Statin publishes monthly and annual inflation rates on its website.

2. Income: Determined by the volume of products/meals sold at a set price.

3. Raw materials: The cost of these inputs should account for about 30 per cent of sale price.

4. Employee expenses: Salaries are paid weekly or bimonthly, depending on the operation. Added expenses include government payroll taxes - National Insurance Scheme, National Housing Trust and Education Tax - for your employees.

This will be approximately five per cent of each person's wages. There will also be the cost of paying yourself, as well as training costs.

5. Maintenance and rental: Includes cleaning supplies, maintenance and equipment repair, and rental of space, which varies depending on location and size of establishment.

6. Utilities: Electricity and/or gas will increase each year as your sales volume increases. Other utility costs include telephone and water.

7. Transportation: Needed to purchase supplies and make deliveries.

8. Bank loan: Your cash-flow statement should also include loan repayments.

9. Stationery and supplies: Stationery includes index cards and box, books, pens, paper (menus) and pencils. All are needed for recording. Annually, you will also need to buy a small stock of utensils, such as knives, buckets, pots, pans, plates, jugs and cups.

10. Depreciation of capital equipment: You are allowed by the Government to write off the cost of equipment over its estimated useful life.

Projections assume that the equipment will last five years, and that an equal amount will be written off each year.

11. Bad creditors/uncollected receivables: You may have a cash-on-delivery policy and may have no receivables. But as indicated by Jamaica Trade and Invest, you should make allowances for bad creditors if you offer credit.

12. Taxation: If you operate as a registered limited-liability company, you are taxed at the corporate rate - 33.33 per cent. Otherwise, self-employed persons pay 25 per cent income tax on profit. Returns are due by March 15 of each year.

13. Equity: You will need to put up some of your own money as capital in order to start the business. This is called equity. For these projections, we assume that the equity required for you to start up is $24,515.

14. Capital expenditure: This is the money spent on acquiring equipment and property. It is likely that your largest capital expenditure will come at start-up, but it is wise to reinvest capital in the business on a regular basis to remain on the cutting edge, or ahead of the competition.