Investors need statements to analyze investment potential. Banks require financial statements to decide whether or not to loan money, and many companies need statements to ascertain the risk involved in doing business with their customers and suppliers. These facts are then compiled, classified and summarized into financial reports for a business so that a financial statement can then be prepared.
This information helps you determine how much financing your business needs and helps outsiders determine whether lending you money or investing in your business is a wise use of their funds.
You'll probably also want to note any personal seed capital your business has, or will have. Financiers want and often require entrepreneurs to put their own funds in the venture, and the greater the portion you commit relative to your net worththe better.
You must also determine which type of financing would be most suitable for your business. Banks offer several types of loans to businesses that do not present too much risk.
Do you need a short-term working capital loan to increase your inventory? Do you want a transaction loan, with which you receive all the money at once, or a line of credit that lets you draw on funds as you need them? Do you need an intermediate-term loan to purchase larger assets such as real estate or equipment?
Or are you a high-risk business that needs to jump through the extra hoops required to secure a government-backed Small Business Administration loan? Structuring Your Financial Plan Begin your financial plan with information on where your firm stands financially at the end of the most recent quarter what its financial situation has looked like historically.
Then lay out your goals with financial projections for the next three to five years, depending on what lenders or investors have asked for. These are called "pro forma" statements, and they are based on your assumptions about how your business will perform.
Your one-year projections should be broken down by month, while your more distant projections can be broken down by year.
If your business plan is for the expansion of an existing business, your statements will be based on your business's existing financial data. If your business is new, your statements will be speculative, but you can make them realistic by basing them on the published financial statements of existing businesses similar to yours.
Three Key Financial Statements Your financial plan should include three key financial statements: Let's look at what each statement is and why you need it.
Lenders and investors want to know what kind of numbers your company is working with and whether your company is profitable or expects to be soon. Balance Sheet The Balance Sheet shows your company's assets and liabilities. It's called a balance sheet because the assets must perfectly balance the liabilities.
Within each category are numerous subcategories. For example, your assets will include cash, accounts receivable, inventory and equipment. Your liabilities will include accounts payable, wages and salaries, taxes, rent and utilities, and loan balances.
The Balance Sheetis important because it shows the company's financial position at a specific point in time, and it compares what you own to what you owe.
Topics you'll need to examine to predict cash flow include sales forecasts, cash receipts vs. How much will these expenses be, and how often will you need to pay them?
Will you have trade credit, and how long will you have to pay your suppliers? Cash flow statements not only show potential investors that you know what you're doing, they also help you to make sure your business model is financially viable and to establish goals that you want to achieve.
Your financial statements should show both a long- and short-term vision for your business. In business plans, three-year and five-year projections are considered long term, and your plan will be expected to cover at least three years. Your projections should be neither overly optimistic best-case scenarios, nor overly cautious worst-case scenarios, but realistic in-between projections that you can support.
Lenders may want your statements presented in a certain way, so ask before you draw them up. A bank, for example, may want to see monthly projections for the first year, quarterly projections for the second year and annual projections for the third year.
In addition to financial statements for your company, if you are a new business, you may need to provide personal financial statements for each owner.
Whatever their form, financial statements must be complete, accurate and thorough.
Each number on your spreadsheets must mean something. Don't estimate payrollfor instance; determine what it will actually be. Your income statement must reconcile to your cash flow statement, which reconciles to your balance sheet. Your balance sheet must balance at the end of every period.Financial data is always at the back of the business plan, but that doesn't mean it's any less important than up-front material such as the business concept and the management team.
Jul 03, · The Key Elements of the Financial Plan. by: Trevor Betenson Accounting. Digging into your business’s financials can feel a bit like eating your fruits and vegetables, but what’s good for your business’s health is good for you.
If you create and present financial statements that all work together to tell the story of your business, and /5(28). Aug 11, · Creating financial projections is an important part of your startup’s business plan. If you’re seeking financing, financial projections help convince prospective lenders and investors that your business will be profitable by offering them a good return on their investment/5(44).
The Business Plan Store includes three parts to the financial statements - the balance sheet, the income (profit and loss) statement, and the statement of cash flows or cash flow statement.
A balance sheet is a detailed snapshot of the condition or financial health of a company on a specific date. Dec 13, · Expert opinions may vary, but in general there are some standard financial statements and analyses that a business plan should include/5(16).
Financial data is always at the back of the business plan, but that doesn’t mean it’s any less important than such up-front material as the description of the business concept and the.
The financial part of a business plan includes various financial statements that show where your company currently stands and where it expects to be in the near future. This information helps you. Financial statements are written records that convey the financial activities and conditions of a business or entity and consist of four major components. Financial statements are meant to present. Accurately tracking financial data is not only critical for running the day-to-day operations of your small business, but it is also essential when seeking funding from lenders or investors to .