Components of a Business Financial Plan

The purpose of a business financial plan is to demonstrate to yourself, your lenders and your investors whether your business is economically viable. Typically, it is the final section of your overall business plan. Creating a successful financial section to your business plan begins with some basic components.

Profit and Loss Statement

The profit and loss (P&L) statement, also referred to as a statement of income, provides a high-level categorization of all the money that flowed into and out of your business in the past 12 months. It should be updated quarterly. Income should include all sales revenue, investments received, proceeds from loans and any other monies received. Expenses should include debts, staffing costs, lease payments, taxes, advertising and all other overhead expenditures. Subtract expenses from income to show the bottom-line financial position of your company.

Startups

If your company is new and has not yet generated income, your P&L should include the amount of capital you have on hand, its source, an itemized list of all necessary start-up expenses and the amount of funding required for your business to become viable.

Pro Forma Cash Flow

Pro forma cash flow, sometimes referred to as cash flow projections, is a speculative document. Essentially this report contains your best estimate of revenues and expenses for the next 12 months and should be broken out by month. The pro forma cash flow should be categorized and include sources. If your P&L shows a negative bottom line, or if your company is a startup, your pro forma cash flow needs to indicate your company's breakeven point.

Balance Sheet

The balance sheet differs from the P&L in that it offers a snapshot of your company's financial position at a particular moment in time, usually fiscal year-end. It should reflect all assets, liabilities and ownership equity.

Tips

Do not include superfluous information in your business financial plan. While your intent may be to anticipate and answer questions, too much information can sidetrack and confuse your reader. Simple charts and graphs help to make data easier for the reader to understand and process.

Supporting Documents

At the end of the business financial plan, include clearly labeled copies of supporting documentation and any legal agreements. Examples include three years of tax returns, a personal financial statement, resumes of key people in your company, letters of intent, leases, deeds, titles, business and professional licenses and franchise documents.

References

• Small Business Association
• Financial Planning: Introduction

Resources

• Free Sample Business Plans