Business Plan 101 - The Financial Section

By Eric Powers

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No part of the business plan is more important than the financial section. It is here that the plan can fail if the needs of funders are not taken into account. The financials should include the following key information:

Financial Summary

A simple, five year financial summary should show the expected growth in revenues and profit over the years, as well as expenses (yes, expenses do have to rise to allow for increased revenues). This type of summary can go further by showing some non-financial markers of success, such as the number of full-time employees, number of locations, number of products sold in a year, and number of clients. Readers will look to see that the growth described in this summary seems attainable from the market opportunity and size given as well as the strength of the marketing and operations plans and the management's means to execute them.

Sources and Uses of Funds

Within the financial section there should be details on the funding requirement for the business and who the funders will be. If any funding is secured already, this is certainly information to mention. However, if all funding is still uncertain, this section should at least describe the type of funders that are being targeted. The uses of the funds should then be detailed, showing what the pre-launch startup expenses will be as well as the needs for additional working capital going forward.

Pro Forma Financial Statements

Finally, a full set of pro forma (projected) financial statements should be included in the appendices of the business plan. These financial statements must be completely consistent with the financial summary and sources and uses of funds described earlier. The statements include the income statement (sometimes called the profit and loss statement or P & L), balance sheet, and cash flow statement. Generally, more detail is given for the first three years by showing quarterly results. Additional statements should then show annual results for the first five years.

The income statement shows the revenues and expenses (grouped into appropriate categories), and the profit or loss for each period. The balance sheet shows the breakdown of assets, liabilities and owner's equity in the business at given points of time. The cash flow statement shows the cash inflows and outflows from normal operations, investment in the business, and financing from lenders and investors. The advice of an accountant or business plan consultant familiar with drafting these statements is recommended to make sure that you get them right.

Looking for more expert advice on how to make a business plan? Download Growthink's "Ultimate" Business Plan Template here, http://www.growthink.com/products/business-plan-template, or call 800-506-5728 for a FREE consultation with a Growthink business plan consultant.

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