Home Budget 2007 Company Profile Services Accountancy Zone Business Zone Tax Zone IR35 Update News Articles Feedback Search Legal Notice How To Find Us Business plans - Financial matters At the end of the day, you're in business to make money. An investor will invest in your business if he/she feels confident of a healthy return. This is where you can convince people that your nice words are backed up by realistic, professional and pertinent financial projections. Even if your business plan is for internal use only, it is still a worthwhile exercise putting your financial plans down on paper. Risks No business is without risks. Your ability to identify and discuss them demonstrates your skills as a manager and increases your credibility with potential investors. You will show that you've taken the initiative to confront these issues and are capable of handling them. Consider how you would react if: Your competitors cut their prices A key customer cancels a contract The industry growth rate drops Manufacturing costs increase Your sales projections were not achieved Try and evaluate your risks honestly. Cash Flow Statement As Fagin said in Oliver Twist, "In this world, one thing counts. In the bank - large amounts!" Cash is the lifeblood of any business. If your pile of it is bigger than the competitions, then you've one. It's that simple. A lack of understanding of cash and it's importance is probably the biggest reason for business failures. You need to forecast for the next three years your cash flows, in and out, into the future. Mention what plans you have to cover any shortfalls in cash predicted over this period. It is very important that, if you have any doubt, you ask us to verify the assumptions, calculations and presentation of this document. Avoid an unrealistically quick ramp-up of sales. Most companies experience a gradual increase in sales, even on a monthly basis. A sudden unexplained spike will stand-out and not look like an honest appraisal of your business. Balance Sheet/Profit Summary 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 start-up business, you will need to include a personal balance sheet summarizing your personal assets and liabilities. If your business exists already, include past years' balance sheets up to the balance sheet from your last reporting period. Analyze the results of the balance sheet briefly and include this analysis in your business plan. A profit summary records your revenue from sales, your expenses and, thus, your profit. For the first year of the three that you will project, break the year into quarters. Analyse the results of the income statement briefly and include this analysis in your business plan. If your business already exists, include profit and loss accounts for previous years. Avoid insufficiently documented assumptions about your company's growth. In other words, if you say you expect your firm to grow by 30% in the first year and 50% in the second, you need to document why those numbers are attainable. Include effects of seasonality and business cycles in all projections. For example, if you are in the gift business, you would need to show the Christmas buying season. Avoid large income or expense categories that are lumped together without backup information about the components. Finally, make sure that the information contained in your financial schedules is consistent with comments made in the main body of the plan. Funding Requirements State the amount of funding and the type (debt or equity) of investment you seek. It is important here to provide a breakdown of how the money will be applied. Discuss what effect the capital will have on the business' potential to grow and profit, when the money is needed, and what investment has already been made in the company. Investors will also want to know what they will receive in return for their capital. Be as clear as you can in this section both about the potential upside and the potential downside of investing in your business. A common mistake in a business plan is to be unclear in this section, which turns potential investors away. If the company founders have invested in the company, include this in your plan. Some investors are encouraged by founders putting their own money on the line. Finally, create an exit plan that describes how investors will get their money out of your company. One common investor worry is that even if a business is profitable, it may be difficult for them to get a good price for their shares. Don't forget to include future financing needs. Don't just look at what you need today, but give an idea of what you will need in the future to take the next step forward. Also, don't feel as if you should limit the amount of funding you ask for. Be realistic. If anything, you should ask for more than you need. It is better to have money to spare than to continuously be going back for "top-ups". [ Business Zone Home · Previous - Business Plans - Management · Next - Selecting The Right Structure ]