Successful Business Plans

Lesson 5: Show Me The Money!

Financial Projections

Here is the heart and soul of your business plan, the point in time where your vision is quantified in terms of dollars and cents and units of time (days, weeks, months, quarters, years). Individuals interested in your plan will go through your financial projections with a fine tooth comb. Your financial projections should be broken down into monthly projections for Years 1 and 2, and by quarter thereafter until Year 5. If it is imperative to your business plan to include more than five years of financial projections, don't hesitate to do so, but beyond Year 5, break them down annually, not by quarter.

Profit and Loss Statement Otherwise known as your Income Statement, here is where you plug in the projected revenues you outlined in your marketing plan. In my experience with start-up and growing business clients, projections become outdated given the impact of all the variables at work in a given enterprise and its market environment. Adjustments will need to be made constantly as you implement mid-course corrections over time.

Next, calculate your cost of goods/services sold (COGS), as well as all your anticipated fixed overhead costs. Keep in mind that your COGS will generally fluctuate with revenue volume, while fixed overhead costs will exist on a continued basis. The net difference of total revenues less total costs will determine the profit or loss of your business.

Balance Sheet The balance sheet gives a profile of the worth of your company's assets: cash, accounts receivable, inventory, machinery and equipment, land, etc., AND all the company's liabilities: accounts payable, notes payable, taxes and interest payable, salaries and wages payable, etc.

The difference between the assets and the liabilities constitutes the net worth of the company, also called the "owner's equity or stockholder's equity", at any particular moment in time. If you have a track record when the business plan is developed, as in an expansion of an existing operation, then the balance sheet may show considerable equity. If you are starting a new venture, the balance sheet may be very simple and show little or negative equity. Work with your accounting team to develop the details of the balance sheet, if necessary.

Cash Flow Statement The plotting of expected revenues, expenses, assets, liabilities and equity determines the level of cash flow. Cash flow totals are a critical index of how successful your business will be. Be sure to identify all changes in detail and leave nothing to the imagination. Be conservative, but realistic. Cash flow is what injects life into your business, and is the seed with which you can plant further successes, so make sure your cash flow is always positive.

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