How to Estimate Financials for Business Plans
The final section of a business plan includes financial estimates. The financial section is the crux of the business plan, as it determines whether your business is viable. Potential investors examine the business plan and the financials to determine the level of risk in your business. Estimating the financials of a business plan includes estimating start-up and operating expenses, income, cash flow, and a balance statement. Knowing how to estimate the financials in a business plan can help you plan your business and seek investors.
- Difficulty:
- Moderately Challenging
Instructions
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1
Begin by gathering data about the specific costs that you will need to establish your business. You should research business registration fees, licensing, permits, rent deposits, bank account deposits, equipment payments, utility deposits, and a beginning inventory if applicable. Add up the total amount, which will be your start-up expenses. Keep in mind that if you are an existing business, this section can be omitted.
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2
Make a list of operating costs that will help you keep your business operating. These might include rent payments, utilities, insurance, marketing, salaries, office supplies, and maintenance to name a few. Keep in mind that this is just a partial list to focus you in the right direction. When you are done with your full list of projected operating expenses, you may want to add 10% for contingencies or unplanned emergencies. Add this total together and then multiply it by 6 and by 12. This will give you estimated financial projections for six months and twelve months. Keep this information readily available as you will need it for the income statement of your business plan.
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3
Write your business name at the top of the income statement. Some prefer to use income statement templates through the Small Business Administration or Microsoft Office Excel. The income statement is a snapshot that determines how profitable your business will be. Try to be as reasonable as possible when working on this section. You should write revenue and then services, with a row listing each month of the year. Then include the services you plan to offer, so if you have five services you can write "Revenue: Services" and then on a new line, "Service 1," and each subsequent service on a separate line. At the bottom, tally these and that will be your revenue. If you have a product based business, the sales will include the inventory that you plan to sell. Beneath the revenue, include the costs that you estimated from step one and step two and this will be your net income before taxes.
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4
Enter your estimated sales figures for each month into a cash flow projection. Then, enter your disbursements or expense categories in from your ledger. This should be what you actually have to pay each month. Complete the cash flow projection by carrying over the cash balance from the previous month to the next month. One of the main dangers of completing a cash flow projection is being too optimistic regarding potential sales. Move on to the balance sheet after you have completed the cash flow projection for each month.
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Outline your assets, such as objects of value that are owned exclusively by your company, liabilities, such as debts owed to a creditor, and the equity, which is the difference between the liabilities and the assets. When completing a balance sheet, it is important to categorize your equity, liability, and assets. This balance sheet should be completed for approximately one year.
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Tips & Warnings
Most investors will want to see a decrease in debts over the course of the year by keeping up with regular payments, thus decreasing your company's liability.
If your business plan shows that you will be operating in the red or with a significant amount of debt, carefully consider how you will present your information to investors before submitting your business plan. Focus on what you will do to reduce your company's debt.
