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Guide to Writing a Business Plan – Part 7 – Financial Analysis & Finance

October 11, 2011

In Part 7 of our 8-Part Guide to Writing a Business Plan, we look at the Financial Analysis and Finance sections of the Business Plan.

10. Financial Analysis

This should include the following information:

10.1 Profit and Loss statement for previous X years

10.2 Balance Sheet for previous X years

10.3 Fixed and variable cost projections

10.4 Sales projections for the next 3-5 years

10.5 Projected Cash Flow analysis for the next 3-5 years

10.6 Projected Profit and Loss statements for the next 3-5 years

10.7 Projected Balance Sheets for the next 3-5 years

10.1 If you have been trading previously, company history is imperative when projecting future success.

The Profit and Loss accounts give a picture of a company’s trading performance over a period of time in terms of income, sales and expenditure.

10.2 As with the Balance Sheet a historical perspective will provide a sound basis for future projections. A Balance Sheet is a snapshot of a company’s assets (what is owned) and liabilities (what is owed).

Total assets should always equal total liabilities, hence the ‘balance’. For example the money value of what you invest in the business (an asset) is owed to you by the business (a liability).

10.3 Establishing the fixed cost and the variable costs, when put together with the sales figures will establish the break even point of the business, the point at which the business start to make a profit.

10.4 Using historical information, your knowledge of the market place and your product or service, you will be able to project future sales.

10.5 A Cash Flow statement, usually constructed over the course of a year, compares your cash position at the end of the year to the position at the start, and the constant flow of money into and out of the business over the course of that year.

A Cash Flow statement deals only with the money circulating in the business. Projecting Cash Flow for a 3-5 year period will provide a useful tool in establishing whether your business is eating up cash or generating cash.

10.6 Using the projected sales and expenditures you will be able to put together a projected Profit and Loss statement.

10.7 Projecting a Balance Sheet allows you to see the funds that will be required as the business matures.

TIPS

  • Make sure all graphs and charts are clear and well laid out.
  • Prepare all information by year for a period of 3 to 5 years.
  • Display at least the first year of Cash Flow information by month.
  • Use accounting terms where appropriate, and always be clear when expressing a point.

11. Finance

Here you need to lay out the capital you require to start the business. Don’t just think about what you need in the start up phase, but also think about any further investment needed at a later date, which if requested at the time when required will be seen as a failure to plan properly or a failure to execute your plan effectively.

These are the basic ways of obtaining the finance you will require:

  • Business associates
  • External investors
  • Finance companies
  • Public grants

TIPS

  • Be brief and to the point, the financial information already supplied will support this section.
  • Do not elaborate at all, get to the point and be brief, each sentence is important. If a sentence does not hold important information, delete it.

Go to Part 8 – Conclusion

Go to the Guide to Writing a Business Plan Index