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How to write your Financial Plan for your New Business
04/07/2008 - By Natalie van Veen
You write a Financial Plan as part of your Business Plan. This in turn is the blueprint to the longevity and success of your business venture.
Business plans describe the goals and objectives of your business and explains how you intend to make them a reality.
Your business plan also helps you obtain financing for your business, provide you with a measure for evaluating results, helps you uncover potential flaws, commits your plan to writing, helps you anticipate and adapt to change and tests the commitment of you and your team members.
The Financial Plan explained in simple terms:
A sound Financial Plan must include pro-forma balance sheets, income statements and cash flow statements.
Considerations for the Financial Plan
Balance Sheet aka Statement of Financial Position
The Balance Sheet is a snap shot of the business at any point in time. In the case of a business start-up, it is often the starting balance sheet. A balance sheet is made up of three parts:
Assets: Things a business owns
Liabilities: Debts a business owns
Equity: The owners’ investment and re-investment in the business
Everything that the business owns, its assets have to have been paid for. Therefore we get the following formula:
Assets = Liabilities + Equity
This is extremely important as it gives the reader a picture of how the business is being financed through the owners’ money (equity) or through the creditors’ money (liabilities).
Cash Flow Statements
A Cash Flow Forecast is probably your most important financial tool. It is your cash flow that shows you if, and when, you will run out of cash essential to run your business. It allows you to take action before problems occur and event to do “what if” calculations before taking on new projects. The cash flow is a 12-month projection that forecasts the receipts and disbursements for your business. In a start-up situation, it is preferable to have a start-up month to specifically show the reader the costs incurred to start the business.
Income Statements
The purpose of the Income Statement Forecast is to project the revenues and expenses of your business over a given period of time – usually one year. Other terms for this are budgeted income statement or pro forma income statement. There are three things that need to be predicted to forecast your income statement:
the sales projection,
the cost of goods projection, and
the overhead’s projection.
For more information or assistance, please don’t hesitate to email me.
Cheers, Natalie
e: natalie_vanveen@yahoo.com.au
