Anupam Gupta GBP Formatting The Financial Section Of Your Business Plan

Key Components of a Financial Plan

By the financial section of your business plan, you are simply translating your ideas into numbers. With this, you will be explaining your plan on getting cash, spending the cash on your startup, and operating cash flow for the initial few years. A financial plan helps the investors and lenders to understand their scope of generating revenue on their investment through your business. To leave a positive impression in front of your lenders and investors, your financial plan must include the below-discussed key components. Anupam Gupta GBP recommends his clients explain the points in sequence for maximum benefits.

• Sales Forecast

You should always project your sales forecast in a spreadsheet. Include your sales over the course of three years, add different sections showing different lines of sales. Considering showing the sales report of each month for the first year and for the second and third year, you can show either on a monthly or quarterly basis.

Ideally, the sales forecast is always projected in spreadsheet blocks. Those who don’t know can take the help from the below example –

First block – unit sales

Second block – pricing

Third block – calculate sales by multiplying units and price

Fourth block – unit costs

The fifth block – calculate the cost of sales by multiplying the units to unit cost (referred to as COGS or direct cost)

Also Read: Pakistan still has more nuclear weapons than India

Identifying this direct cost will help you to determine your gross margin, which is useful for comparing several numbers with industry-standard ratios. By sales forecast in your financial section, you are presenting an executive summary of the detailed financial information.

• Expenses Budget

To actually make the sales that you have forecasted, you need to understand how much it will cost you. Anupam Gupta GBP suggests preparing an expense budget consisting of both fixed and variable costs of your products or services. Fixed costs may contain rent and payroll while variable costs include advertising and promotional expenses. Lower fixed costs simply mean less risk to the business. You have already calculated most of your variable costs in the direct costs section, but this time you need to consider some more expenses such as advertising and rebate costs.

Anupam Gupta GBP reminds you that it is just a forecast and not accounting. You will get an estimate of things like interest and taxes.

• Cash-flow statement

The cash-flow statement is the key requirement for any business plan. While your complete business plan shows the story of your business and the execution of the plan, the cash-flow projection shows whether your plan is going to work. To grab the attention of your lenders and investors, you need to prepare a strong strategy. This consists of distributing cash to owners, hiring staff for your business, making significant purchases, and many such things. With the cash-flow projection, you will be showing the flow of cash of your business.

If you are preparing a business plan for an existing business then you must have many historical financial statements to base your assumptions of cash flow. In case you are starting a new business, you should start by projecting a cash-flow statement distributed into 12 months. Make sure you have selected a realistic ratio for your invoices that are to be paid in cash. There are different software programs that can assist you in making these projections and ultimately make your work easier.

The cash-flow statement consists of three parts –

• Cash revenues
• Cash disbursements
• Reconciliation of cash revenues to cash disbursements
• Income Projection and Balance Sheet

No doubt cash-flow is the kind of financial plan, but projecting income statements and balance sheets show the financial health of your company. You might not be aware of this, but many lenders and investors make their decision only after calculating profits from the projected income statement and balance sheet. It also details your business forecast for the coming three years. All your business financial data is summarized in three categories –

• Assets – The tangible objects that are valuable to your company, it could be anything – equipment, land, intellectual property, etc.
• Liabilities – All those debts owed to your company. It includes bank loans, mortgages, IOUs, unpaid bills, etc.
• Equity – Figuring out the difference between your total liabilities and total assets is equity. You can also consider it as the net worth of your business.

The relation between these elements is better understood by the below equation –

Assets = Liabilities + Equity

Generally, a balance sheet is prepared once a year. Ensure to include a brief analysis of these three financial statements in your balance sheet projection.

• Break-even analysis

Anupam Gupta GBP explains break-even point is when your calculated expenses match with the sales and service volume. To undertake this analysis, the income projection of three years plays a major role. Break-even analysis ensures potential investors that they are investing in a growing business that works with a well-planned exit strategy.