Financial Plan

[] 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.)

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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.

General inflation rates are assumed to be [x]% per year.

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

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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.

The following table highlights the primary income-related items:
[] 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.

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Year Sales % Growth Gross Profit Dollars % Growth Operating Income Dollars % Growth Net Income Dollars % Growth
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19[xx] $[x]

19[xx] $[x] [x]%

19[xx] $[x] [x]% $[x] [x]% $[x] [x]% $[x] [x]%

19[xx] $[x] [x]% $[x] [x]% $[x] [x]% $[x] [x]%

19[xx] $[x] [x]% $[x] [x]% $[x] [x]% $[x] [x]%

$[x]

$[x] [x]%

$[x]

$[x] [x]%

$[x]

$[x] [x]%

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: Year Gross Profit Margin Operating Income Margin Net Income Margin 19[xx] [x]% [x]% [x]% 19[xx] [x]% [x]% [x]% 19[xx] [x]% [x]% [x]% 19[xx] [x]% [x]% [x]% 19[xx] [x]% [x]% [x]%

Return on Equity
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[x]%

[x]%

[x]%

[x]%

[x]%

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.

Gross Profit Analysis 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 breakeven point will be reached in [month], 19[xx]. Sales are projected to be $[x] above breakeven in [month], 19[xx]. The contribution margin for the first year is [x]% representing $ [x]. Cash Flows Statements 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.

The [initial/first year/total] capital required is $[x]. We require additional investments of $[x], $[x], $[x] and $[x] in [years/months], [years/months], [years/months] and [years/months] respectively, to enable us to increase our production capacities to meet market demand.
[] 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.

In order to purchase [additional facilities/equipment/inventory], an estimated total of $[x] loan financing is required for the five-year period. The annual requirements for each year are estimated as $[x], $[x], $[x], $[x] and $[x] respectively.
[] Discuss the level of safety for this loan or investment.

The level of safety is [normal/low/high] for this [industry/type of investment]. Our confidence in achieving the attached financial projections within [x]% is [high/average/90%]. In addition to the operation of the business, additional protection is provided by [x] as collateral. In a [worst case/liquidation/unforeseen] situation, the realizable value of the collateral would be $[x], reducing the amount "at risk" to $[x]. With a projected return of $[x], this represents a return of [x]% of the amount 'at risk'. How Funds Will Be Used
[] Describe specifically how the loan and/or investment funds will be used.

The [loan/equity investment] proceeds will be used to [purchase/buy/build/develop/gain/acquire/finance] [equipment/facilities/working capital].

Exit/Payback Strategy
[] Define how much time you will require before you can pay back the loan or investors can convert their equity; in other words, when will 'exit' be possible. 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.

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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. In order to [start/continue/proceed] we are requesting a [loan/investment] of $[x] by [date], 19[xx].

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