What to Include in Your Business Plan Financial Projections
- September 22nd, 2014
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You’re in the home stretch of creating your business plan when you get to the financial projections section. Now that you’ve done a thorough analysis of your target market and have outlined the objectives for your company, you’re able to determine how your resources should be efficiently allocated to yield the most profitable results. This is the time for you to provide all of the pertinent financial data to your business plan readers.
Business Plan Financial Projections: Historical Financial Data
If your business is already established, you’ll need to provide data showing the history of your company’s financial performance. Whenever you’re trying to borrow money in some capacity, creditors will typically want to see your financial history from the last three to five years, depending on how long you’ve been in business.
Your business plan financial projections should include your income and cash flow statements as well as balance sheets for every year you’ve been in business/up to three to five years. Whether you’ve been in business for a long time or you’re not yet in business, creditors are usually interested in learning about any collateral that you may have that will ensure your loan, so include that, too.
Business Plan Financial Projections: Prospective Financial Data
If someone is about to hand you money to use for your business, they’re going to want to be sure they’ll see that money again (with interest, of course!). That means you’ll need to provide an outline of your expectations of how your company will perform financially. How much money will your company bring in within the next five years? That’s the number one question that creditors will want answered.
Each of the upcoming five years should be documented with a forecasted income statement, balance sheet, cash flow statement, and capital expenditure budget. Your projections should either be measured monthly or quarterly for the first year, and can be stretched to either quarterly or yearly for the second through fifth years.
Don’t make the mistake of providing inconsistent information; potential creditors will be picking your business plan apart for errors, and it’ll be super embarrassing if they find any. Especially when dealing with numbers, it’s critical to make sure that everything adds up. An inconsistency between your funding requests and your financial projections will be one of the most glaring discrepancies possible, so pay very close attention in order to keep that from happening. Anything that you assume in your projections should be summarized to ensure total clarity in the information you’ve provided.
Conclude your business plan financial projections with a brief analysis of your financial information. There should be a ratio and trend analysis for all of your statements, historical and prospective. Graphs are a great idea for this section, because making information visual (especially positive information) increases the impact it’ll have on your readers.
From here, the last section of your business plan will be the appendix. However, as we mentioned in our first post for this series, the first part of your business plan is your business summary, but it’s the last part you write! So once you’ve wrapped up your appendix, all you have left to write is the business summary.