How to Write the Financial Section of a Business Plan. A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business."This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows (Out of Your Mind 2. Anatomy of a Business Plan (Out of Your Mind 2. Out of Your Mind and Into the Marketplace. In many instances, it will tell you that you should not be going into this business."The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business. Financial Forecasting is often the key to make smart business decisions. Cash Forecasts is one of the most commonly-used financial. business plan based on a. Elizabeth Wasserman is editor of Inc.'s. Business planning or forecasting is a. How to Write the Financial Section of a Business Plan. . the prospect of writing a business plan. business plan will clarify your business idea and define. you the financial state of your business on day one. As part of your plan you will need to provide a set of financial projections which translate what you have said about your business into numbers. Web Solutions, Inc. isp business plan financial plan. Investor Pitch Deck Template Kit. How to Pitch. • Easy financial forecasting. Business Planning and Financial Forecasting. Forecasting Elements of a Business Plan. of this document you can locate the Excel template by. How to create a business plan Getting advice. Financial service providers. Business finance 101. Watch Forecast your business finances. Write a business plan. Don’t include personal or financial information. Free sample business plan with template for business plan plus business. Business Plan Template. It also introduces Exl-Plan, a range of financial. Download our financial plan template. Steps to calculate your financial plan; Creating a business plan; Getting your pricing right; Business essentials. Dig Deeper: Generating an Accurate Sales Forecast. How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section. Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include- -profit and loss, balance sheet, and cash flow- -look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward- looking view, starting today and going into the future."You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans. The Plan- As- You- Go Business Plan. It's not tax reporting. It's an elaborate educated guess."What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales."The purpose of the financial section of a business plan is two- fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow- -and quickly- -and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. This is an ongoing, living document. It should be a guide to running your business," Pinson says. And at any particular time you feel you need funding or financing, then you are prepared to go with your documents."If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. There is a tremendous problem with the hockey- stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would- be investors would love to see, it's most often not a believable growth forecast. Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money." The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. Nobody wins by overly optimistic or overly pessimistic forecasts."Dig Deeper: What Angel Investors Look For. How to Write the Financial Section of a Business Plan: The Components of a Financial Section. A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash- flow plan might mean going back to change estimates for sales and expenses. Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back- -a lot- -in between. Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results. Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i. Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best- guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest. Develop a cash- flow statement. This is the statement that shows physical dollars moving in and out of the business. Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash- flow statement broken down into 1. Pinson says that it's important to understand when compiling this cash- flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 3. You don't want to be surprised that you only collect 8. Some business planning software programs will have these formulas built in to help you make these projections. Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. Sales, lest cost of sales, is gross margin," Berry says. Gross margin, less expenses, interest, and taxes, is net profit."Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. Interest is in the profit and loss, but repayment of principle isn't," Berry says. Taking out a loan, giving out a loan, and inventory show up only in assets- -until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities- -meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans. Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three- year income projection will enable you to undertake this analysis.
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