When you are working on your business plan or applying for funding, financial statements are crucial.
Why does the financial section matter?
You simply cannot justify your business without a solid bottom line. Investors, lenders, and grant committees need to see the numbers that illustrate business growth. Investors need to see the return on their investment and lenders need to see that you will be able to repay your loan.
Furthermore, financial projections enable you to plan and visualize how your business will do. Planning and budgeting are a pre-requisite to hiring employees, investing in office space, etc. To measure business growth, it is essential to have historical statements that show the actual numbers as a baseline for future revenue and expense projections.
What are the components of the financial section?
The financial section of your business plan should include the following:
Sales Forecast: Your sales forecast projects your sales over the course of multiple years, usually three years. You can simply set up a spreadsheet to make these projections.
Expense Budget: Your expense budget should parallel your sales forecast and estimate how much it is going to cost you to make your sales forecast. You will want to differentiate between fixed costs (i.e. payroll and rent) and variable costs (i.e. advertising, marketing, etc.)
Cash-Flow Statement: Your cash-flow statement should show the cash moving in and out of your business. This statement helps you plan and stay afloat even when payments are not received on time or when unanticipated costs are incurred.
Income Statement: Your income statement details your revenue, expenses, and profit.
Balance Sheet: Your balance sheet details your assets and liabilities.
If you have been in business for over a year, you should have both historical and pro-forma cash-flow statements, income statements, and balance sheets. By comparing historical statements, you can measure your business growth or benchmark your business against the competition. The financial section of a business plan is an essential tool for founders and small business owners.
One of the easiest ways to create statements is to either use software (i.e. Quickbooks) or hire a professional on an annual basis. Make sure you have access to these documents before you need them!