Writing a financial section is crucial in a business plan to you and your investors or potential lenders. For you, it is the road-map to grow and get started. Having the best idea alone is not enough; concentrating on finance lessons by making a financial checkup comparing your sales figures, examining your model of business and its costs helps in figuring out a viable idea.
There are two parts to a business plan financial component: historical and prospective data. As startup small business finance you will not have any financial information.
Historical data refers to the money you have already invested in the business. It should include asset details you plan to use. However, if your small business requires financing, you must show income tax returns for the past 3 to 5 years. This also includes balance sheets, income statements, tax returns and cash flow statements.
- Balance Sheets: The balance sheet refers to the financial position as on the day it is prepared. It reveals the business assets and liabilities value. The assets also include accounts receivable, cash on hand, owned property and equipment. The liabilities refer to debts and accounts payable.
- Income Statements: This statement is prepared quarterly and in one glance it reveals the fact if a company is making money or not. The income statements reveal your net income, from where you received the money and its expenses.
- Tax Returns: Tax returns are determined as per the structure of your business. This may act as corporate tax returns or a personal tax with a Schedule C attachment.
- Cash Flow Statements: This reveals the inflow and outflow of the cash, if it is a return from the business activities or from investments you have made.
Collateral: In case, you wish to acquire a loan, you must show collateral to ensure payments such as real estate, inventory, vehicles, equipment, bonds and stocks.
A prospective data is essential as investors and lenders are not aware of your business outcomes and progresses. Thus a proper planning is required through different scenarios to work on different projections. This includes projected income statements, cash flow statements, balanced sheets and a capital expenditure budget.
Capital Expenditure Budget
A capital expense refers to a physical tangible asset like equipment, buildings or property. This budget refers to how much you plan spending to upgrade or buy the assets; it may be a new machinery purchase or HVAC system repairing.
Funders may also do analysis of your results and this is a sort of theoretical exercise that helps you run your business and make adjustments if necessary.
If your business is new make sure to also include all the startup costs including types of equipment, fixtures or tools. Other expenses include professional fees for accountants or lawyers, licensing and incorporation fees, computers, rent and security deposits. Show projections graphically with spreadsheets, demonstrating a positive trend. Include an analysis to explain the numbers.
A startup or existing business, you have to give your personal financial information as a part of your business plan. Submitting your credit history recent report also is mandatory with your tax returns.