This provides investors with information about how they can expect return on their investment. Your three-year projection will vary depending on what kind of growth you expect your business to have. Three-Year Projections All business plans are written for a specific purpose, with most formal plans written in order to raise initial or continuing investment for the operation of the business. Business plans should have pro forma spreadsheets for all past operations, if any, and projections out for the next three years.
Here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement.
Based in the Washington, D. Getty Images A business plan is all conceptual until you start filling in the numbers and terms.
The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line.
You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan.
Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business.
The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates.
But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future.
It's an elaborate educated guess. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members.
They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit.
Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. It should be a guide to running your business," Pinson says. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue.
But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says.
The Components of a Financial Section A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents.
Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.
Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between. Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years.
Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios.
The best way to do that, Berry says, is to look at past results. Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast.
Berry likes to differentiate between fixed costs i. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest. Develop a cash-flow statement.
This is the statement that shows physical dollars moving in and out of the business.You will want to show Cash Flow Projections for each month over a one year period as part of the Financial Plan portion of your business plan. There are three parts to the Cash Flow Projection.
The first part details your Cash Revenues. 5-Year Financial Plan Template Determine profitability and cash flow when launching new products using this template by - Alex Bejanishvili Posted in category BUSINESS & WORK FINANCIAL STATEMENTS. The Business Plan Store will prepare detailed financial projections for your business that express your vision in terms of dollars and units of time, and in a format that is easily understandable to people in the lending industries.
Business Plan and Financial Projections Model A complete application package should establish the project’s and investor group’s general eligibility, and give OPIC the basis on which it can respond to the amount and basic terms of the requested financing.
Creating a Sales Forecast Follow these tips to learn how to develop sales projections for your business plan. Next Article --shares; Add to Queue Use factors for a new product. The SBA connects entrepreneurs with lenders and funding to help them plan, start and grow their business.
We support America's small businesses. The SBA connects entrepreneurs with lenders and funding to help them plan, start and grow their business.