Financial Plan

LESSON 8
A financial plan helps determine if an idea is
sustainable, and then keeps you on track to
financial health as your business matures.
It’s an integral part to an overall business plan and
is made up of three financial statements—cash
flow statement, income statement and balance
sheet.
In your plan, each of these will include a brief
explanation or analysis.
 Importance of Financial Plan

A financial plan helps you know where your business

stands and lets you make better informed decisions about
resource allocation.
A financial plan has three major components: a cash flow
projection, income statement and balance sheet.
Your financial plan answers essential questions to set and
track progress toward goals.
Using financial management software gives you the tools
to make strategic decisions efficiently.
 Financial Plan
A. Pro forma Income Statement
B. Cash Flow Projections
C. Pro forma balance sheet
D. Break even analysis
E. Sources and application of funds
Components of a Small Business
Financial Plan
 Income statement
This shows how your business experienced profit or loss over a
specific period—usually over three months. Also known as a
profit-and-loss statement (P&L) or pro forma income statement,
it lists the following:
 Cost of sale or cost of goods (how much does it costs to
produce your goods or services?)
 Operating expenses like rent and utilities
 Revenue streams, usually in the form of sales.
 Amount of total net profit or loss, also known as a gross
margin.
 Balance sheet
 Rather than looking backward or peering into the future,
the balance sheet helps you see where you stand right
now. What do you own and what do you owe? To figure
it out, you’ll need to consider the following:
 Assets: How much cash, goods and resources do you
have available?
 Liabilities: What do you owe to suppliers, personnel,
landlords, creditors, etc.?
 Shareholder equity (the amount of money generated by
your business): Use this formula to calculate it:
 Shareholder Equity = Assets – Liability
 Cash Flow Projection
Perhaps one of the most critical aspects of your financial
plan is your cash flow statement.
Your business runs on cash.
Understanding how much cash is coming in and when to
expect it shows the difference between your profit and cash
position.
It should display how much cash you have now, where it’s
going, where it will come from and a schedule for each
activity
Sources and application of funds
 Sources and application of funds
Sources of funds are typically trading profits,
issues of shares or loan stock, sales of fixed assets,
and borrowings.
Applications are typically trading losses, purchases
of fixed assets, dividends paid, and repayment of
borrowings.
Any balancing figure represents an increase or
decrease in working capital.
 Sources and uses of funds in BP
The five primary categories of a sources and uses of
funds statement are
 beginning cash balances,
cash flows from operating activities,
cash flows from investing activities,
cash flows from financing activities, and
ending cash balances.
If all cash is accounted for unlocated funds will be
zero.
 APPLICATION OF FUNDS

It is prepared by incorporating the various

sources through which the funds are received
and the items where the funds are utilized.
 Purchase of Machinery is an application of
funds.
Profit earned during the year is a source of
fund.
EXAMPLE
BREAKEVEN
ANALYSIS
 BREAKEVEN ANALYSIS
A break-even analysis is a financial
calculation that weighs the costs of a new
business, service or product against the
unit sell price to determine the point at
which you will break even. In other words,
it reveals the point at which you will have
sold enough units to cover all of your costs.
CONTRIBUTION MARGIN PERCENTAGE =
Unit contribution Margin/Selling Price

Break-even Sales in Peso = Total Fixed

Assets/Contribution Margin percentage
Payback period
 PAYBACK PERIOD

It is important for the proponent to

estimate the number of years to
recover the investment of the
project. The shorter the number of
years of recovery, the better it is for
the entrepreneur.
EXAMPLE 2