Among all the elements of a business plan, the section on financial components can be considered as the icing on the cake. Now that a great concept has been outlined, the need for the product or service in the marketplace has been established, how the project would be implemented has been detailed out and the readers of the plan have been assured of the team’s expertise and experience in the field, the next step is to prove that the business will be profitable with a sound cash flow. This section assumes a lot of importance as it provides information to the readers in evaluating the business whether it is a new investment opportunity or a capacity enhancement project.
The financial components section which forms a part of the elements of a business plan can even be considered as the operating plan for managing the finances of the business. It is, therefore, a good idea to start the section by describing the current financial status. Then go on to present the financial forecasts based on current parameters. If the purpose of preparing the business plan is to obtain financing, provide information on the amount and type of financing required, repayment plan and the anticipated return on investment. It is very important to be thorough in presenting these details as this section will be closely examined by those interested in investing in the business to understand as how the funds will be deployed in making it successful.
As it is required to draw information from other sections of the elements of a business plan, it is to be ensured that the data are all in congruence. Since the financial projections can be only as good as the assumptions made, it is important to make sure that the assumptions are realistic and valid by documenting as much as it is possible.
Typically, the financial components that must be included in this section of the elements of a business plan are the following:
A summary of start-up costs or a table on past performance in the case of an existing business that is looking to expand its capacity or service setup.Salaries and wages of personnel in a table format.Forecasted income statement.Projected profit and loss statement.Anticipated cash flow statement.Break-even analysis.Projected balance sheet.
In general, the projections of the financial components for a period of two to four years into the future must be provided. In the case of projected income and cash flow statements, provide data on a monthly basis for the first two years and thereafter on a quarterly or annual basis for the rest of the period.
Most businesses will have only limited revenue during the first 2 to 3 years of their operation and may not realize profits in this period. The financial components section of the elements of a business plan has to be carefully drafted with factual data to make it very convincing to the readers or investors so that funding for the initial difficult years can be obtained. It must be appreciated that without sufficient financial reserves in the beginning, it is difficult for any business to become successful.
The financial components section which forms a part of the elements of a business plan can even be considered as the operating plan for managing the finances of the business. It is, therefore, a good idea to start the section by describing the current financial status. Then go on to present the financial forecasts based on current parameters. If the purpose of preparing the business plan is to obtain financing, provide information on the amount and type of financing required, repayment plan and the anticipated return on investment. It is very important to be thorough in presenting these details as this section will be closely examined by those interested in investing in the business to understand as how the funds will be deployed in making it successful.
As it is required to draw information from other sections of the elements of a business plan, it is to be ensured that the data are all in congruence. Since the financial projections can be only as good as the assumptions made, it is important to make sure that the assumptions are realistic and valid by documenting as much as it is possible.
Typically, the financial components that must be included in this section of the elements of a business plan are the following:
A summary of start-up costs or a table on past performance in the case of an existing business that is looking to expand its capacity or service setup.Salaries and wages of personnel in a table format.Forecasted income statement.Projected profit and loss statement.Anticipated cash flow statement.Break-even analysis.Projected balance sheet.
In general, the projections of the financial components for a period of two to four years into the future must be provided. In the case of projected income and cash flow statements, provide data on a monthly basis for the first two years and thereafter on a quarterly or annual basis for the rest of the period.
Most businesses will have only limited revenue during the first 2 to 3 years of their operation and may not realize profits in this period. The financial components section of the elements of a business plan has to be carefully drafted with factual data to make it very convincing to the readers or investors so that funding for the initial difficult years can be obtained. It must be appreciated that without sufficient financial reserves in the beginning, it is difficult for any business to become successful.
No comments:
Post a Comment