Lesson 5: Show Me The Money!
The financial portion of your business plan is a narrative that presents summaries of your business' financial history (if applicable), your financial projections and the assumptions on which you based them, your projected capital requirements and how the capital will be used, and your plan to repay your lenders and/or investors. Before you can write your financial plan narrative, you need to generate a set of projected financial statements that reflect the goals and information you have provided in earlier sections of your business plan.
More Than Dollars and Cents
For most entrepreneurs, the development of an idea or concept is the easy part. Turning it into a profitable reality takes thorough research, especially as it related to determining:
- Potential markets
- A realistic selling price for your products and services
- Assets needed to produce and deliver
- Costs associated with production
- Advertising and promotion dollars needed to obtain market share
- Fixed general and administration costs necessary to support the above, and to operate your enterprise.
In this section you should develop a set of financials that will include Profit and Loss Statements, Balance Sheets, and Cash Flow Statements. A thorough understanding of how they are developed and conceived must be a top priority. Presenting potential lenders or investors with a set of financials is meaningless if they are incomprehensible to you. Therefore, before you dive in and begin crunching numbers, become familiar with the financial statements.
If uncertainty exists about your overall knowledge and understanding of financial statements, I suggest you do one or more of the following:
- Purchase accounting learning and reference workbooks from a local bookstore.
- Borrow reference accounting workbooks at your local library.
- Take an accounting class at an accredited college or university.
- Obtain help from an outside accounting firm familiar with your line of business.
- Purchase user friendly accounting software such as QuickBooks or Peachtree Accounting, which guides you in formulating financial projections and managing the finances of your business.
I CANNOT STRESS THIS ENOUGH:
It is imperative that every business prepare financial statements on a monthly basis, regardless of its size or structure. Many of my clients initially think that monthly financial statements are either senseless or useless. UNTIL THEY FIND THEMSELVES IN A FINANCIAL MESS.
Financial statements are KEY MANAGEMENT TOOLS. Take the time to learn and interpret what the financial statements are telling you. It could mean the difference between the success and failure of your business.
