Professional Documents
Culture Documents
[] For a more detailed overview of the topic of a Financial Plan, refer to page 9-1 in the
BizPlanBuilder Reference Guide.
[] You should have a completed set of projected financial statements before you edit this
financial plan narrative for use in your business plan. (See The Financial Plan
Spreadsheet Templates in Chapter 9 of the BizPlanBuilder Reference Guide.)
Assumptions
[] Describe the assumptions you made to develop your financial statements (your business
assumptions, not the numbers you entered into the financial spreadsheets).
The financial projections are based on the assumption that the additional
[equipment/facility/product lines] will generate an increase in profits of [$][x][%] within
[years/months].
The new equipment will reduce costs by $[x], thereby increasing our profit margin by [x]
%.
Cost of Goods Sold will be reduced by [x]% by taking advantage of volume discounts.
We plan to have a working prototype by [month], 19[xx]. Field testing of the product is
to start by [month], 19[xx] and be completed by [month], 19[xx]. Initial market
penetration is anticipated to be $[x] at a margin of [x]%, and increase to $[x] at the end of
the first year and $[x] by the end of the fifth year.
[] It is usually assumed that your costs, including labor, will increase by the general inflation
rate. Hopefully, costs will also be decreased by volume discounts and better negotiations
with suppliers. If costs are shown to be level or decreasing, comment on that fact and the
underlying reasons.
Financial Statements
[] Keep in mind that projected financial statements do not stand on their own. Anyone
reviewing your financial statements will also expect to read a discussion that supports the
projections that you made (your research on your market, competition, etc.).
[] Discuss briefly the summary/analysis results for each of the financial statements that you
provide in the Supporting Documents section of your business plan. Growth rates for
sales and any large expense items should be discussed. Economies of scale should be
noted. Any large fluctuation in a category should be explained. Volume-adjusted
measurements are helpful to add perspective to the discussions. These include income
subtotals as a percent of sales; inventory, accounts receivable and accounts payable
levels in days; return on equity; etc.
[] The basic question to ask yourself is: "What would I want to know to evaluate a business
proposal before I would consider investing my own money?" If you have answered all the
questions that you would have as an investor, you are probably prepared for lenders or
outside investors.
[] If you have an established business, your operating results from any prior years should
be included in the following table.
[] The sales dollars, gross profit dollars, operating income dollars and net income dollars
come respectively from the Total Sales, Gross Profit, Income from Operations, and Net
Income After Taxes lines of your Income Statement for years 1 - 5.
[] The growth percents over prior years should be manually calculated by taking each
year's amount minus the previous year's amount, then dividing by the previous year's
amount.
Income Ratios:
[] Values for the ratios listed above can be obtained from the Ratio Analysis section of the
Integrated Financials Spreadsheet. If you did not use the Integrated Financials
Spreadsheet to project your financial statements, you will need to manually calculate any
ratios you plan to include. See the Analyzing Financial Statements discussion in Chapter
9 of the BizPlanBuilder Reference Guide for more information on ratios.
The Gross Profit Analysis in the Supporting Documents section shows monthly sales
revenue, cost of goods sold and gross profit values for each of our product lines for the
first year.
Budget
[] The budget is primarily for internal purposes. You may not want to include your budget in
your business plan package; instead, include a monthly Income Statement that
summarizes your expenses into categories. During your presentation, have the budget
available (in case your potential lender or investor asks to see it), and be prepared to
discuss it.
Income Statements
[] Comment on any large items or changes, such as R&D or marketing expenses that are
large in your first few months (especially as a percentage of sales revenue), but taper off
over time.
There are two Income Statements in the Supporting Documents section. One reflects the
first year by month, and the second shows annual values for five years.
Balance Sheets
[] Comment on any large or unusual items, such as other current assets, other assets,
other accounts payable, or accrued liabilities.
There are two Balance Sheets in the Supporting Documents section. One reflects the first
year by month, and the second shows annual values for five years.
Break-Even Analysis
The Break-Even Analysis in the Supporting Documents section indicates that the break-
even point will be reached in [month], 19[xx]. Sales are projected to be $[x] above break-
even in [month], 19[xx]. The contribution margin for the first year is [x]% representing $
[x].
There are two Statements of Changes in Financial Position (Cash Flows Statements) in
the Supporting Documents section. One reflects the first year by month, and the second
shows annual values for five years.
Capital Requirements
[] State what your capital requirements are.
[] Describe the operating requirements for the five years that have been projected in your
financial statements. Your operating working capital is defined as your accounts
receivable plus your inventory minus your accounts payable; this can be calculated for
each of the five years from the values on your Balance Sheet for years 1 - 5. See the
Working Capital and "Operating Working Capital" discussion in Chapter 9 of the
BizPlanBuilder Reference Guide for more information on estimating working capital.
After analyzing our working capital, we estimate our operating working capital
requirements as $[x], $[x], $[x], $[x] and $[x] for years one through five, respectively.
We will need to borrow $[x] to finance working capital for a period of [months/years],
the remainder to be financed through cash from operations.
[] Recap the total short term and long term loan requirements for the five-year period, and
for each of the five years.
[] Describe specifically how the loan and/or investment funds will be used.
[] Describe how repayment will be done, or the strategy for how investors' equity will be
converted to cash (i.e. a public stock offering, sale of the business, etc.).
[] Your financial projections should indicate that the loan/investment funds will help
generate the profits and cash required for payback and exit. Discuss any significant
increases in profits/cash flows that are expected as a direct result of financing, and how
these increases help to pay back the funds.
The financial projections indicate that exit of [investor] will be achievable in [x] years.
The exit settlement will be in the form of [x].
The increase in profits generated by [x] will allow us to have the funds to repay the loan
in [months/years].
Conclusion
[] This is the time and the place to ask for the cash. Be concise, be direct, be professional,
be sincere, and ask for either a signature or a list of additional items to be provided or
steps to be completed to get a signature. DO NOT BE VAGUE.
Based on the attached financial projections, we believe that this venture represents a
sound business investment.