Set your goals and track your progress.
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.
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 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: 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.
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.
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? 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. 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. You must have supporting schedules e. To learn more about what investors will be looking for, see Reading The Balance Sheet Use realistic projections.
Investors vary in their standards, but most like to see positive cash flow within the first year of operation, particularly if this if your first venture.
In order for your projections to be accurate, you must know your business. When you put together your financial statements, make sure there are absolutely no typos or mistakes in your calculations.
If you are inexperienced in preparing these statements, hire an accountant to help you. Even if you and all of your business partners know exactly what you are doing, you may still want to hire an unbiased, outside professional to check your work and give you a second opinion on whether your projections are realistic.
Additional Financial Information In addition to financial statements, prospective lenders or investors will also want to see a Sales Forecast and, if your business will have employees, a Personnel Plan.
Sales Forecast The Sales Forecast is a chart that breaks down how much your business expects to sell in various categories by month for the next year and by year for the following two to four years. For a cleaning service business, the sales forecast might list one-time cleanings, monthly cleaning contracts and annual cleaning contracts and further break those down by houses, condos, apartment units, entire apartment buildings and office buildings.When how to write a business plan is at the top of the SBA list of the ten steps in how to start a business, it tells you something about how important the experts consider it to be.
Planning a business and writing a business plan is more than just having a location picked and a product or service to sell. Building an accurate set of growth projections for your startup will take time.
When I first started my company, I avoided building a detailed set of projections because I knew the business model. 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(45). A Business Plan can be used to build the framework for your new or existing enterprise, and to set goals for your business.
It can also be used by your startup as a way to present your ideas, sales projections, and plans for achieving your objectives to potential investors for funding purposes. Writing your business plan.
From Innovation, Science and Economic Development Canada. Although business plans vary in terms of length and scope, all successful business .
A well-written business plan should include a mission statement, business and management structure, a marketing plan and financial projections.