If you hope to get assistance with financing your business, you’ll have to show your business plan to either financial institutions or to venture capitalists. Potential investors or lenders will be especially interested in the financial section of your business plan. How this section is written can be the difference between getting funding and not getting funding, so you need to take great care and think through your financial information and projections carefully – lenders want to see that you’ll be able to repay your loan and investors want to see how they will profit.
There are some standard financial statements that make up this section. If your business is new, you will be making financial projections; if the business is an existing business, you’ll be using previous financial data which shows the business’ financial success and shows the current financial situation. Design your financials to show monthly projections for the next two years and then show annual projects for each year after that.
If you have an accountant that prepares your financial information, make sure that you understand how the figures were derived and what the terms and figures mean.
If you are presenting your business plan to potential investors or lenders, you should start the financial section with a financial needs summary. The financial needs summary shows exactly how much money you need and how you intend to use it. Your financial needs summary should consist of specific information – for instance, listing your proposed expenses into categories, such as operating expenses and capital needs.
The following reports will be part of your financial section:
Profit and Loss (or income) statement – This statement lists your revenues and expenses and shows the profits or losses your business will experience for a given time period. It can be a useful tool for planning and controlling expenses. It includes:
Sales Projections – This includes the number of units sold, your retail price, your net price and your gross revenue.
Cost of Goods – This includes your cost for each unit, including labor and materials, as well as other indirect costs, like shipping, packaging, etc.
Controllable Expenses – Includes expense that may vary from month to month (salaries and other payroll expenses like benefits, any legal or accounting expenses, add in advertising and marketing expenses, office supplies, utilities, etc.)
Fixed Expenses – Includes any expenses that remain the same each month (office rent, loan payments, depreciation, insurance, etc.)
The combined expenses subtracted from your gross profit is your net profits or losses, before taxes.
Balance sheet – This statement includes your assets and your liabilities and shows the net worth of the business. The balance sheet requires a standard format.
Cash flow statement – This statement shows the amount of cash required to do business over a given period of time – the cash coming in to the business, as well as the cash going out. Basically this statement is your shows your cash receipts minus your cash disbursements.
Another important part of your financial section is to clearly list your financial goals for your business. One suggestion is to include a milestone statement.
Milestone Statement – This report is good for measuring the success of the business. You list your expected sales, any increases or decreases on a monthly basis.
The financials section of the business plan tends to be a very straight forward section of the plan. There is little narrative – most of the section is simple spreadsheets, reports and statements, with an introductory section and a brief summary. Writing your financial section helps you gain a better understanding of your financial goals and how you will measure them, as well as providing a great deal of information to investors and creditors.
It may not be the most fun section of your business plan, but it’s an essential part of the plan – and hopefully, it could lead to finding the necessary cash influx for your business.