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9. Business Plan Format, Section 9:
Financial Plan (3 – 5 pages)
The financial plan is a reasonable estimate of your company’s financial future. Include a few paragraphs on the main features in the financial plan and back this up with financial projections.
Don’t include too much financial detail in the body of the business plan. If you have detailed projections and supporting calculations, place them in the appendix.
The following are the most important financial documents to include in the financial plan:
- Start-up expenses and capitalisation: a description and explanation of what it will cost to launch the business and where you expect to get this money
- 12-month profit and loss projection (month-by-month) and a three-year profit and loss projection (quarter-by-quarter)
- A 12-month cash-flow projection and a three-year cash-flow projection (quarter-by-quarter)
- A projected balance sheet at start-up and at the end of years one to three
- A break-even calculation
Astute investors will look at the charts, table, formulae and spreadsheets in your financial section very carefully, so it is important to put sufficient effort into them. Investors will determine the odds for continued survival based on the information provided in this section.
The three most important financial statements to include in your business are the income statement, cash flow statement and balance sheet. Of these three, the income statement is the best place to start. It is a simple and straightforward report on the proposed business’s cash-generating ability. It’s a score card on the financial performance of your business reflecting when sales are made and when expenses are incurred.
In the business plan, the income statement should be generated on a monthly basis during the first year, quarterly for the second and annually for each year thereafter. The information included is your financial projections of income, cost of goods, gross profit margin, operating expenses, total expenses, net profit, depreciation, net profit before interest, interest, net profit before taxes, taxes and profit after taxes. After the income state, include a short note analysing the statement, emphasising key points.
The cash flow statement shows how much cash is needed to meet obligations, when it is going to be required, and where it will come from. It should show a schedule of the money coming into the business and expenses that need to be paid. The result is the profit or loss at the end of the month or year.
Profits and losses are carried over to the next column to show the cumulative amount. If you run a loss on your cash flow statement, it is a strong indicator that you will need additional cash in order to meet expenses. You will also need to analyse the cash flow statement in a short summary.
The balance sheet is generated only on an annual basis for the business plan and is basically a summary of all the preceding financial information broken down into three areas: Assets, liabilities and equity. Investors might require a personal financial statement or balance sheet instead of one that describes the business. Again, you will need to create an analysis statement for the balance sheet covering the key points.