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Financial Plan Basics
Posted by B2B on: 2006-07-03 10:15:53
by BPlanMasterSubmitted Saturday, May 28, 2005
Sound financial planning is essential to business success. Poor financial planning is one of the top two reasons for business failure (the other: poor business planning). Unfortunately, many great ideas fail because management had poor (sometimes non-existent) financial planning systems.
A thorough financial plan imposes discipline by setting profit expectations for your company. It helps you assess your company’s progress toward achieving financial objectives. It displays the financial results of your vision, strategy and implementation. A well-developed financial plan shows your plans for profit, cash flow and major purchases.
The financial plan will be the most important element of your business plan to potential investors or lenders. Your projections for revenue growth and profitability directly affect their decision to invest or extend credit. Financial ratios (e.g. return-on-investment) are used to evaluate investment and lending alternatives. As a result, a sound financial plan is vital to receiving funding.
The financial plan includes four main components: Financial Highlights, Financial Statements, Financial Ratios, and Graphs.
Financial Highlights, sometimes called Financial Overview, is the first section of your financial plan. It is an overview of important financial results including forecasted revenue, profit and cash flow. Your financial overview should contain the items that are most important to the reader of your business plan. For example, if you are writing your plan for investors, highlight forecasted sales, profit and return-on-investment.
The financial statements should include projected Cash Flow Statement and Income Statement. If you are seeking funding, a Balance Sheet and Break-Even Analysis will probably be required. Consider the option of including excerpting or summarizing your financial statements in your financial plan. In that case, you should include your entire financial statements in the appendix of your plan.
The financial ratios give your reader decision-making benchmarks. Depending on your industry and the purpose of your business plan, consider including ratios like working capital, return-on-investment, return-on-assets, return-on-equity, and debt-to-equity. You should also consider including industry and historical ratio comparisons.
Graphs provide a visual display of your business plan. Here they can be used to highlight noteworthy financial results. Common graphs to consider include projected Sales Volume, Revenue, Profit, Cash Flow, Break-Even Analysis, and Retained Earnings. Financial graphs may also be included in other sections of your business plan, such as the executive summary or the business overview. Place your graphs wisely: Having too many graphs creates unnecessary clutter for the reader.
Before presenting your plan, make sure your financial statements are correct. For example, recheck all totals for accuracy. Check that information that appears in more than one statement matches (e.g. ending cash balance in Statement of Cash Flow should match cash amounts in Balance Sheet). Consider hiring a certified public accountant to compile or review your financial statements.
Once you have established a financial plan, use it for setting your sales goals and operating budget. At regular intervals, compare actual results to the plan. Finally, update your financial plan annually (at least) to take into account variations in sales, expenses, financing and planned asset acquisitions.
Creating a thorough and realistic financial plan may seem overwhelming at first. But don’t be discouraged. Take it one step at a time. Give each piece thoughtful consideration. If you need additional help in writing a plan, engage the services of a plan writer or certified public accountant. After all, the success of your company depends on it.
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The BPlanMaster is Jeff Beckley, CPA. Jeff has vast experience in both public accounting and private industry. During his career, Jeff developed expertise creating and implementing business and financial plans. As an executive, he honed his skills in several key business disciplines, including sales, marketing, finance, information technology and operations.
Jeff has been a licensed CPA since 1993. Jeff is the managing partner of Beckley, CPA and is President of Market8, LLC, a leading provider of business plan products including FinancialPlanMaster and BPlanMaster. He received his B.S. in Accounting and Management from Eastern Illinois University. He is a member of:
•American Institute of Certified Public Accountants
•Texas Society of Certified Public Accountants
•International Newspaper Marketing Association
•The Direct Marketing Association
Jeff can be reached by email at jbeckley@beckleycpa.com
Copyright В© Jeff Beckley, CPA 2005. All rights reserved.
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