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Writing The Financial Portion Of A Business Plan
This is the section in which you make your case in words and back up what you say with financial statements and forms that document the viability of your business. If your plan will be presented to potential investors, this part of the business plan should contain the following sections: (1) Risk statement, (2) Cash Flow Statement, (3) Balance Sheet, (4) Income Statement, and (5) Funding Request and Return. If the plan is to remain an internal document, you should still create a Cash Flow Statement and Income Statement so you have figures by which you can gauge your company's performance.
A Business Plan Should Highlight Business Risks
No business is without risks. Your ability to identify and discuss them in a business plan demonstrates your skills as a manager and increases your credibility with potential investors. By identifying the risks in a business plan and setting forth a plan to deal with them, you show you have the ability to confront these issues and handle them. This is ultra important. Failure to state negative factors, will often undermine the credibility of your business plan in the eye of an experienced investor. If you are still wary, try to incorporate each of the identified negative risk factors into the various relevant parts of your business plan instead of stating all of the potential risks in a separate section.
To generate a complete list of the potential risks, first examine each of your assumptions about how your business will develop. The flipside of many of these assumptions if often a risk. Some common risks faced by companies include: (1) overpaying employees; (2) hiring friends rather than the most qualified candidates; (3) underestimating costs; (4) failing to meet sales projections; (5) overlooking competition; (6) trying to be all things to all customers; (7) losing a key customer; (8) inability to find skilled labor; (9) a decline in the industry's growth rate; and (10) a competitor releasing a new, better product or service.
Cash Flow Statement
The Cash Flow Statement informs the reader of a business plan about how much money you will need, when you will need it, and where the money will come from. As with all financial documents, your Cash Flow Statement should be prepared by a reputable accountant. Do not underestimate your cash flow needs, make sure you include the effects of seasonality and business cycles in each of your projections, and try to account for a gradual increase in sales. Once the Cash Flow Statement is prepared, briefly analyze its results and include this analysis in your business plan.
Unlike other financial statements, a balance sheet is created only once a year to calculate the net worth of a business. If your business plan is for a new start-up business, you will need to include a personal balance sheet summarizing your personal assets and liabilities. If your business is operating, include last years' balance sheet. Analyze the results of the balance sheet briefly and include this analysis in your business plan.
The income statement is where you make a case for your company's potential to generate cash. This financial statement is where you record revenue, expenses, capital, and the cost of goods. So how is this different from a cash flow statement? The only difference is that an income statement does not include the details of when revenue are collected or when expenses are paid. An income statement for a business plan should be broken out by month for the first year; quarterly for the second year; and annually for each year thereafter. Analyze the results of the income statement briefly and include this analysis in your business plan. If your business already exists, include income statements for previous years.
A Business Plan Should End With A Funding Request & Return
The end of your business plan, should conclude with a one to three page Funding Request and Return. The funding request should clearly:
Before presenting a business plan to a potential investor be sure to have it reviewed by an attorney for possible errors, misrepresentaions, etc... You do not want to fly in the face of any state security, or federal SEC rules and regulations.
© 2009 Melissa C. Marsh. All Rights Reserved.
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Located in Los Angeles, California, the Law Office of Melissa C. Marsh handles business law and corporation law matters as a lawyer for clients throughout Los Angeles including Burbank, Sherman Oaks, Studio City, Valley Village, North Hollywood, Woodland Hills, Hollywood, West LA as well as Riverside County, San Fernando, Ventura County, and Santa Clarita. Attorney Melissa C. Marsh has considerable experience handling business matters both nationally and internationally. We routinely assist our clients with incorporation, forming a California corporation, forming a California llc, partnership, annual minutes, shareholder meetings, director meetings, getting a taxpayer ID number (EIN), buying a business, selling a business, commercial lease review, employee disputes, independent contractors, construction, and personal matters such as preparing a will, living trust, power of attorney, health care directive, and more.