Business Plan Expansion Financial Analysis
Business plans are not just for start-ups. They are vital tools for planning a business expansion, and one of the most important parts of planning an expansion is making sure the finances will be adequate to support the change.
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Time Frame
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A typical business expansion begins with an outlay of money for facilities during the first two years and accumulation of cash to fund additional outlays in years four through six.
Considerations
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Any outlay of cash to fund expansion also increases revenues, but expenses are not normally recovered until year eight.
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Benefits
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Capital invested in an expansion adds to the value of the company because facilities, inventory and increased business are all assets.
Function
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In a business plan for expansion, the financial analysis should show the cost of the capital, the anticipated additional revenues, and the number of years it will take to recover the invested capital plus costs. This is found by adding the expected yearly additional revenues plus any interest or other costs until the original capital investment amount is achieved.
Significance
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If your analysis shows the investment will not be recovered within eight to 10 years, the expansion plans should be modified to cut the upfront costs and fund more of the expansion out of revenues.
Warning
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If your analysis still shows difficulties in recovering the cost of the expansion after it is minimized and carried out in stages over a longer period of time, then expansion is not going to benefit the company and some other way of increasing revenues must be found.
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References
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