How Can I Prepare Financials In My Business Plan?
Your business plan is what separates the multitude of ideas from concept to reality. You know the product or service you’re planning to sell, what makes it tick, what separates it from the rest of the competition, and the plan is what takes it towards successful execution.
But plans are incomplete without financials. Whether you’re funding the business yourself or pitching it to an investor or bank, your financials, and their forecasting is imperative to move your idea beyond that of a concept. Your plan will include financials such as how you’re obtaining funding, your expense plans, and projected profit and loss statements. A plan will help you realize your financial goals faster, and keep your business running smoother.
Why Does a Business Plan Need Financials?
If you’re planning on approaching a bank for a loan, pitching to an investor, or even funding it yourself, forecast your financials based on what your current expenses are, your revenue plans, and your planned P&L statements.
Your financials will give your business plan the credence required to give banks and investors confidence that your idea and management are sound. Being able to see cash inflow and outflow, as well as how you’re planning future expenditures will also give you an idea of where the money is being spent, and whether it’s being spent wisely or not.
So What Do You Need In a Financials Section?
A few key elements that are always required in your business plan include,
Assets and liabilities
You need to know how much it’s going to cost you to produce, market, and distribute your product or service to your customers. There are going to be different types of costs.
Fixed costs are like rent for your office space and payroll for your employees. They will mostly remain static until you upgrade your office space or go on a hiring spree. Variable costs are expenses that will change frequently, such as marketing expenses. Depending on how well your product is being understood by the customers, you’ll have to change how much you spend on these frequently.
Assets and Liabilities
Your assets and liabilities are part of your net worth, and you will be required to disclose them to banks and investors if you’re hoping to secure funding. Not only do these items work as collateral, but they also show the bank and investor how much you’re worth and how much they can afford to invest in your venture.
Having a permanent office space that you own can be an asset. Any existing loans that you already have or other debts that you have to pay back will become liabilities. These items will be imperative in your business plan on your path to securing more funding.
This is part of the business plan where you show how much cash is flowing into your coffers. This statement is based on sales forecasts and balance sheets. When your business is already running, then you should have previous documentation ready to showcase how much money you’re earning. This includes profit and loss statements and balance sheets from previous years.
If you’ve yet to get your business started, then forecasting this cash flow is the answer. Break it down into manageable time slots, 30 days, 60 days, 6 months, and one year. You should also account for missing sales targets since not everything will always go according to plan.
The break-even point is when your business starts earning just as much money as you’ve put in. If you’ve invested a million dollars into your business over the course of two years, and your business earns that amount by the end of those two years, you’ve broken even. You have made neither a profit nor a loss on your business. But if your income starts increasing or your expenses start decreasing after this point, you will be able to turn a profit.
For investors and banks, it’s important because they need to know that your business isn’t just burning cash in vain. For you, it’s important because only after breaking even will you really start turning a profit on the business.
Whether you’ve already established your business or want to start up your first venture, a business plan with a solid financials section can mean the difference between success and failure. Having all of the sections I mentioned above can make it much easier for you to secure a loan from a bank, or convince an investor that you’re going to be the next unicorn. If you have any questions or need any help with your business plan, feel free to reach out to us at Inc! We’d be more than happy to help you on your business journey.