What To Include In The Financial Section Of A Successful Business Plan

Having extraordinary skills and talent in a business area, being hardworking and determined, persistent, having great ideas and full of energy is a fantastic mix for a successful business career. But all those exquisite qualities mean nothing if the end result is not represented in the bottom line.

The financial section of the business plan is where all the operational items included in the rest of the business plan come together. There are three essential elements to a properly thought through and well constructed business plan. Those elements are a forecast profit and loss account stating the income and expenditure, a cash flow statement that determines the liquidity and a sensitivity analysis that indicates the risks and opportunities within the business plan.

The forecast profit and loss account should be prepared on a monthly basis for the first year with an annual projection for the second year. The first year of every new start up business can be difficult due to financing and funding growth from a standing start which is why the first financial year should be detailed.

The forecast profit and loss account is the financial calculation of all the sales, purchases, expenditure and prices contained within the other areas of the business plan. In addition full account should also be taken of the business administration costs. All the figures in the business plan income and expenditure account should be fully supported from the physical projections contained in the other sections and derived from those sections.

From the sales section multiply the sales volume of each product by the considered selling prices. Keep to a minimum sundry additional income that might be expected. The resultant financial calculation produces the expected monthly sales turnover.

Using the information in the production or operations section of the business plan and if included the purchasing section the sales volume should be evaluated at the expected purchase cost of the products and services. This produces a cost of sales figure which when deducted from the sales turnover provides a forecast gross profit figure each month.

The business plan should include notes and comments of all other main cost items including projections of staff requirements. Together with administration and overhead costs a monthly projection of the expected running costs of the business start up can be produced. The business running costs are an important area to forecast in detail as while sales prices and costs may be determined with some accuracy errors in the business running costs could cause a good business to fail.

The monthly forecast profit and loss account is complete by entering the sales turnover, deducting the cost of sales and the business running costs, overheads, to produce a net monthly profit. The bottom line may start in a monthly loss until volumes grow but should indicate a satisfactory profit. If a loss is indicated do not manipulate the numbers to show a profit which would be hiding the truth, instead go back to the sales and costs sections and consider what action is required to justifiably increase gross profit margins or reduce overhead costs.

Cash flow is often critical to a small business plan and a lack of capital or liquidity to carry out the ambitions and projections of the small business owner is a principal cause of small businesses going into liquidation before those business aspirations are achieved. The cash flow statement is based upon the volumes and prices included in the business plan and stated in such a way as to indicate the financial resources required.

Cash flow is different to the profit and loss account as the profit and loss account only states the different between sales sold and costs incurred. The cash flow statement takes account of both the profits made plus volume changes of purchases and stock, one off payments, financing debtor balances offset by creditor balances and shows how liquid and solvent a business is.

Producing cash flow statement tends to come within the province of accountants. A simple cash flow statement can be produced by starting with the net profit or loss each month, deducting the cost of stock which has not been sold yet including both raw materials and finished goods stock and also deducting any one off payments such as bills that have to be prepaid and the cost of paying for fixed asset purchases.

In addition when a new business starts up the amount owed to suppliers, creditors, is zero and the amount owed by customers, debtors, is zero. During the year these balances will change each month in proportion to the financial terms and conditions of the business and the movement of these balances need to be entered on the cash flow statement. An increase in debtors reduces the cash flow liquidity and an increase in creditors increases cash flow liquidity.

The third element of the financial section is an analysis of the whole business plan and the projections in what is called a sensitivity analysis. A technical accounting area for the majority of non accountants but nevertheless an important area as it is the financial sensitivity analysis that should indicate both the increased financial opportunities and the financial risks carried within the business plan.

All major areas within the business start up plan such as sales volume, sales prices, important cost elements and other factors that may have an impact on the business should be evaluated. For each item set an upper limit and lower limit based upon potential market conditions and risks.

Make a financial evaluate of each upper and lower limit for every item and determine the impact each would have on the profit and loss account and the cash flow statement. Also combine the financial effect of several factors to assess the impact of a combination of events on the small business. A lower sales volume may be uncomfortable for a small business but combined with lower sales prices and higher costs the risk could be severe.

The financial section of a business plan should be accurate and reflect the projected financial performance of the start up business. It is also important it is honest and evaluates the risks involved so that should any of those risks become reality urgent management action can be taken to limit the financial effect.

In practice some of those risks will happen and being forewarned can be the difference between survival and failure with liquidity being the most dangerous risk of all.

14 Bootstrapping Ideas – Build Your Small Business on a Budget

The sluggish economy has every small or solo business owner figuring out how they can get the biggest “bang for their buck”. Whether its money you spend on technology, systems, outsourced help or training, you want to get a great return on investment. And if you’re a start up you want to figure out how to avoid wasting money on services you don’t need. Even if you’re already profitable, conserving your cash and resources is crucial if you want to maximize your income. So, bootstrapping needs to be part of your small business planning.

Bootstrapping is all about finding ways to build your business without huge infusions of outside cash. It’s also about being conservative and strategic about how and where you spend.

Most micro businesses don’t have access to angel investors or venture funding. They use their own financial resources to get started. They borrow from savings, friends, family, credit cards or home equity. Or they get people in their personal network to invest in their business. After all, who will invest in your business if you won’t take a bit of financial risk and invest in yourself?

Bootstrapping is about getting the most value and forward momentum from your limited budget. This is where many small businesses stumble. My motto for all business owners is this: “Shop Around”. Remember that old song, “You Better Shop Around”? Well if you latch onto the first vendor or solution you run across without understanding the questions to ask and competitive rates, chances are you’re either paying more than you need to, or not getting what you need.

Everyone today is talking about going green and conserving resources. This applies to your business as well and you’ll also be doing the environment a favor!

Great Bootstrapping Ideas
1. If you’re a service business, start out with a home office. You can always rent or borrow conference room space if you need it once in a while.
2. Once you’re ready to rent space, don’t rent more than you need. Don’t pay for prime retail space unless you’re a retail business.
3. Another option- rent a larger, nicer space and sub-lease some of it to offset the rent. Then when you need the extra space take it back when the sub-lease expires.
4. Don’t overspend on web or graphic design. This is one of my “pet peeves” since I’ve seen so many business owners overpay simply because they didn’t understand exactly what they needed to ask a web designer before they hired them. Know what you need and shop around.
5. DO invest in getting expert help from a coach or mentor. It can end up saving you thousands of dollars and help you increase your income faster. This is why even the most successful coaches and Entrepreneurs also have coaches.
6. Use Voice Over Internet or VOIP, like Vonnage or Skype. You’ll save a lot on your phone services. I do video coaching using Skype and my clients love it.
7. If you have a home office, listing your phone as a residential number will also save you money. Of course, if you need your business listing in the Yellow Pages (few businesses do these days), this won’t work. But if people look for you online, you don’t need a business phone listing.
8. Don’t pay more than you need to for web hosting–under $10 a month for a basic site with no shopping cart.
9. Search on eBay for software and computers. Buying a slightly older version of the software you need can save a bundle. Almost anything can be found on eBay or Amazon.
10. Search for open source or free download software before buying something expensive. You can also do a Google search for the type of software you need and type “free” before the phrase–for example: “free scheduling software for chiropractors”.
11. For anything you need, take my “shop around” advice and search the Internet for the best prices or options.
12. Use independent freelancers rather than hiring employees and you’ll save a bundle on payroll taxes and workmen’s compensation insurance (US).
13. Consider outsourcing specific projects and tasks overseas where hourly rates are lower.
14. Remember that cheap is not always better!

Take a good look at your business and see where you need to spend more to make more and where you can cut back because you’re just not getting results. Even as your business grows, keep your expenses in check so your income can grow.

Your Perfect Business Plan

Everything here is is to help you write your perfect busines plan.

Free small business plan information to help you get started…

If you plan on receiving third party financing for you home business then creating a small business plan is something that you absolutely must do. Most people starting small businesses do not write out a business plan and from a academic standpoint this is large mistake.

Your business plan is in essence the backbone of your business.

You are going to need to create one especially if you plan on receiving a small business start up loan or grant. No investor will take your request for money seriously unless you can show them a viable business plan. I know you don’t know where to start, but don’t worry… It should not be too tough of a task after reviewing the information found here.

You have two options when creating a small business plan: you can hire a professional to write one out for you or you can create a free small business plan by writing it yourself.

Your small business plan can be simple, all it must do is describe what your business is and where you want it go in the future.

Essential parts of a small business plan:

Title Page:

On this page you include the name of your business, your business’s address, phone number, email address, website URL, and of course your name as well as an other business owner

On the title page you should also include a one page statement explaining why you created your business plan (e.i. why you need money to start for your small business)

Table of contents:

Summary

A sentence or two about each section of your business plan to grab the attention of your potential investors.

Business Description

This section contains the who, what, when, where, why, and how of your small business. Give your companies physical location information, when your business was formed, what type of legal entity your business is formed under, and a brief description of your product or service.

Product or Service Rendered

Explain how your business operates and be as specific as possible.

Your Plan

How are you going to market your product or service? Who are you going to market your product to? Who is your existing competition? Answer these questions in this section of your small business plan.

Day to Day Operational Requirements

What will you do on a day to day basis in your business? What type of equipment will you need? Answer these questions in this section of your small business plan.

Personnel

Who will be the people directly involved in your business? What will they do? If you are going to run a home business you may be the only person directly involved in your business. Explain your role, your background, and what you will have to do to run your business successfully.

Financial Data

To your potential investors this is the MOST important part of your small business plan.

The information that you must include in this section is as follows…

* Projected start up cost: How much money are you going to need to get your business started and what are you going to be spending that money on.

* Projected income statement: How much revenue do you expect to produce in your business start up phase?

* Expected profit and loss: Self explanatory…

* Projected monthly cash flow: Your cash flow is how much money you earn minus how much you spend.

* Your personal financial statement: Self explanatory…

* Supporting Docs: In this section you will want to include any supporting information required for the success of your home business and anything else that directly adds as perspective to your start up plans.