Business Plan Tools & Guidelines

Financial Analysis

Financial Analysis, business plan financial, Financial review, profit and loss, The financial analysis is the most concrete, practical part of the business plan, the section likely to arouse the greatest interest. Financially astute readers may well turn to this section of your business plan first of all. This section, the most concrete, deals mainly with numbers. If you can translate your ideas into figures, you will demonstrate both your practical planning skills and the potential profitability of your business. The financial plan should reflect all the financial aspects of the entire business plan. When you write business plans for existing companies, base your future planning on their past history. For startups, construct the financial plan by taking some premises and assumptions on board. The data you have at hand estimates the costs and investments necessary at starting and the sales, revenue and expenses forecasts made on the the basis of the market analysis components and business statistics.

Which Documents Should Be Included in Business Financial Analysis Papers?

  • The cash flow analysis — the main aspect of your business, the one that arouses the greatest interest. It deals with the cash revenues and cash outlays over a given period of time (The cash flow does not treat the non-cash expenses). The desirable outcome is to prove that you can maintain a positive cash flow while you pay financing and interest.
  • The pro forma balance sheet deals with cash and income and also with assets, liabilities, and capital. The balance should result in the debit and credit balances ending up equal.
  • The break-even analysis results from an estimate of income and expenses. It determines whether or not your business will bring in enough money to meet its costs.
  • The sales forecast which outlines the methodology.
    • The business “inventory” for sale, which is based on value.
    • The business potential of selling, based on the market.
    • The business capacity for producing to sell, based on resources.
  • The personnel plan — this subject is also dealt with in the Management Team section. The resulting figures should be used further in cost calculations.
  • Profit and loss. Here you will consider the sales forecast, the sales costs, operating expenses, and the profits. Make month-by-month formal estimates of sales and expenses to obtain a profit projection for your first year of operations. It will reveal gross margin (obtained from sales, less cost of sales), gross profit or profit before interest and taxes (obtained from gross margin, less operating expenses) and net profit (obtained from gross profit, less interest and taxes).
  • The business ratio analysis results from existing figures. The financial sections of business plans require key ratios such as profitability ratios, gross margin, return on sales, return on investment and liquidity ratios such as current ratio, debt to equity and working capital.
  • The market forecast is treated in detail in the chapter on Strategy Implementation. A few lines on marketing may be appropriate here. Project the number of potential customers and the impact of market growth on the business.
A hint: Jot down your financial assumptions as you work through each section of the business plan. Always keep in focus the material aspects of the subjects you are dealing with. In this way, when you have finished writing the business plan, you will almost have completed the financial section simultaneously.