Welcome to the final section of the business plan before the Executive Summary…..Yeah!! Unfortunately the Financial Plan section takes longer than nearly any other section in the plan. This is true because here you will establish your company’s goals and expectations for sales, revenue, and growth. It is important that you properly research your industry and set expectations based on industry performance over the last two to three years. If your company is a smaller section of a larger industry, try to find a breakout percentage and use it for your research.
If you have a innovative product and stand to gain far above the norm, use industry standards anyway. Nothing scares investors more than prospective financial statements that far exceed the norm. It is better to out perform expectations then to have to explain miscalculations in the second phase of funding.
As you can see by the diagram below, it will take an additional couple of weeks to discuss the sections of the financial plan. This week we will discuss important assumptions, key financial indicators, and break even analysis.
Financial Plan
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Important Assumptions
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General Assumptions
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Key Financial Indicators
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Benchmarks
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Break-even Analysis
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Break-even Analysis
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Break-even Analysis
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Projected Profit and Loss
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Profit and Loss
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Profit Monthly
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Profit Yearly
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Projected Cash Flow
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Cash
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Cash Flow
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Projected Balance Sheet
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Balance Sheet
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Business Ratios
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Ratios
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Important Assumptions
Initially your assumptions should address those factors in your industry that traditionally affect your business’s finances. For example, if you are a bathing suit manufacturer in the United States, stating a 15% drop in production during the 4th quarter is a reasonable assumption. Be certain to list any mitigating factors such as government regulations, tax increases, seasonal expenses, and/or predictable fluctuations in revenue.
General assumptions should list factors that have a reasonable expectancy to remain consistent throughout the time period specified in your business plan. For example if your are a car dealer, you can list the following:
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New car inventory will be maintained at 40% of showroom
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Manufacturers setback remain at 3%
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Sales team will contain 10 members
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Sales commision average 15%
These assumptions can easily be put into a spreadsheet and the results posted in your plan.
Key Financial Indicators
Key Financial Indicators (KFI) represent the major financial factors that affect your business during the periods of your business plan including revenue, expenses, profit margin, inventory, and employment costs to name a few. Of course, each business will have different KFIs, but the intention is the same; to provide a overview or 10,000 foot view of the information that will be provide in susequent reports. I have included an example in graph form below:
Break Even Analysis
The break even analysis represents the point where revenues and are equal. Graphically it shows how much income is required to offset all of the expenses your business incurs on a monthly basis. It is very important that you have accurate figures for this section, make sure all of your expenses listed on your Income Statement, Balance Sheet, and P/L Statement are included in your break even analysis. The graphical representation below gives a gfood example of how your analysis should look.
Next week will we complete the Projected Profit and Loss Statement and the Projected Cash Flow Statement. Research is the key to solid financials and I am here to answer any questions you may have.