example of financial statement in business plan

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How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows  (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans.com and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money."  The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.  Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

• Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
• Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
• Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
• Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
• Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
• Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours."  If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: Bplans.com More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

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How to Prepare a Financial Plan for Startup Business (w/ example)

Financial Statements Template

Ajay Jagtap

• December 7, 2023
• 13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup or small business, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

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Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup or small business.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your small business and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan for your business plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

Start Forecasting

4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan for your small business, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or small businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is the Head of Content at Upmetrics. Before joining our team, he was a personal finance blogger and SaaS writer, covering topics such as startups, budgeting, and credit cards. If not writing, he’s probably having a power nap. Read more

Reach Your Goals with Accurate Planning

4 Key Financial Statements For Your Startup Business Plan

• September 12, 2022

If you’re preparing a business plan for your startup, chances are that investors (or a bank) have also asked you to produce financial projections for your business. That’s absolutely normal: any startup business plan should at least include forecasts of the 3 financial statements.

The financial projections need to be presented clearly with charts and tables so potential investors understand where you are going, and how much money you need to get there .

In this article we explain you what are the 4 financial statements you should include in the business plan for your startup. Let’s dive in!

Financial Statement #1: Profit & Loss

The profit and loss (P&L) , also referred to as “income statement”, is a summary of all your revenues and expenses over a given time period .

By subtracting expenses from revenues, it gives a clear picture of whether your business is profitable, or loss-making. With the balance sheet and the cash flow statement, it is one of the 3 consolidated financial statements every startup must produce every fiscal year .

Most small businesses produce a P&L on a yearly basis with the help of their accountant. Yet it is good practice to keep track of all revenues and expenses on a monthly or quarterly basis as part of your budget instead.

When projecting your financials as part of your business plan, you must do so on a monthly basis. Usually, most startups project 3 years hence 36 months. If you have some historical performance (for instance you started your business 2 years ago), project 5 years instead.

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Download an expert-built 5-year Excel financial model for your business plan

Financial Statement #2: Cash Flow

Whilst your P&L includes all your business’ revenues and expenses in a given period, the cash flow statement records all cash inflows and outflows over that same period.

Some expenses are not necessarily recorded in your P&L but should be included in your cash flow statement instead. Why is that? There are 2 main reasons:

• Your P&L shows a picture of all the revenues you generated over a given period as well as the expenses you incurred to generate these revenues . If you sell $100 worth of products in July 2021 and incurred $50 cost to source them from your supplier, your P&L shows $100 revenues minus $50 expenses for that month. But what about if you bought a $15,000 car to deliver these products to your customers? The $15,000 should not be recorded as an expense in your P&L, but a cash outflow instead. Indeed, the car will help you generate revenues, say over the next 5 years, not just in July 2021
• Some expenses in your P&L are not necessarily cash outflows. Think depreciation and amortization expenses for instance: they are pure artificial expenses and aren’t really “spent”. As such, whilst your P&L might include a $100 depreciation expense, your cash flow remains the same.

Financial Statement #3: Balance Sheet

Whilst the P&L and cash flow statement are a summary of your financial performance over a given time period, the balance sheet is a picture of your financials at a given time.

The balance sheet lists all your business’ assets and liabilities at a given time (at end of year for instance). As such, it includes things such as:

• Assets: patents, buildings, equipments, customer receivables, tax credits etc. Assets can be either tangible (e.g. buildings) or intangible (e.g. customer receivables ).
• Liabilities: debt, suppliers payables, etc.
• Equity : the paid-in capital invested to date in the company (from you and any other potential investors). Equity also includes the cumulative result of your P&L: the sum of your profits and losses to date

Whilst P&L and cash flow statement are fairly simple to build when preparing your business plan, you might need help for your balance sheet.

Financial Statement #4: Use of Funds

The use of funds is not a mandatory financial statement your accountant will need to prepare every year. Instead, you shall include it in your startup business plan, along with the 3 key financial statements.

Indeed, the use of funds tells investors where you will spend your money over a given time frame. For instance, if you are raising $500k to open a retail shop, you might need $250k for the first year lease and another $250k for the inventory.

Use of funds should not be an invention from you: instead it is the direct result of your cash flow statement . If you are raising for your first year of business, and your projected cash flow statement result in a $500k loss (including all revenues and expenses), you will need to raise $500k.

For instance, using the example above, if you need $500k over the next 12 months, raise $600k or so instead. Indeed, better be on the safe side in case things do not go as expected!

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Basics of a business plan financials section.

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A good business plan is an entrepreneur’s best friend. It’s an indispensable document, and every section matters, from the executive summary to the market analysis to the appendix; however, no section matters as much as the financials section. You’re in business to make money, after all, and your business plan has to clearly, numerically reflect a lucrative business pursuit, preferably with visuals, especially if you want funding.

The financials section of your business plan tells you and your potential investors, loan providers or partners whether your business idea makes economic sense. Without an impressive financials section, you’re looking at an uphill battle when it comes to scoring capital; underwhelming financials may indicate a need to make some revisions to your approach.

Basic Financials

So, how to build an impressive financials section? As with all things in small business, there’s no one-size-fits-all approach; it varies by business and field. But there are some general guidelines that can give you a clear idea of where to start and what kind of data you’ll need to gather.

You need to include at least three documents in the financials section of your business plan:

1. Income statement: Are you profitable?

2. Cash flow statement: How much cash do you have on hand?

3. Balance sheet: What’s your net worth?

There’s other financial information you can — and often should — add to your business plan, like sales forecasts and personnel plans. But the income statement, cash flow projections and balance sheet are the ones you can’t leave out.

Here's a brief run-down of the three major data sets.

Income Statement

Also called a profit/loss statement, here’s where your reader can see if your business is profitable. If you’re not operating the business yet, this will be a projected income statement, based on a well-informed analysis of your business’s first year.

The income statement is broken down by month and shows revenue (sales), expenses (costs of operating) and the resulting profit or loss for one fiscal year. (Revenue - expenses = profit/loss.)

Cash Flow Statements

Here’s where your reader can see how much money you’re going to need in the first year of operations. If you’re not yet up and running, you’ll only have projections.

For cash flow projections, you’ll predict the cash money that will flow into and out of your business in a particular month. You’ll need a year’s worth of monthly projections. If you’re already operating, also include cash flow statements for past months showing actual numbers.

Cash flow statements have three basic components: cash revenues, cash disbursements and reconciliation of revenues to disbursements. For each month, you start with your previous month’s balance, add revenues and subtract disbursements. The final balance becomes the opening balance for the following month.

Balance Sheet

Here’s where your reader sees your business’s net worth. It breaks down into monthly balance sheets and a final net worth at the end of the fiscal year. There are three parts to a balance sheet:

• Accounts receivable

• Inventory, equipment

• Real estate

2. Liabilities

• Accounts payable

• Loan debts

3. Equity: Total assets minus total liabilities (Assets = liabilities + equity.)

It’s good to offer readers an analysis of the three basic financial statements — how they fit together and what they mean for the future of your business. It doesn’t have to be in depth; focus is good. Just interpret the data from each statement, putting it in context and indicating what the reader should take away from the financials section of your business plan.

Other Financial Documents

These are the basics of your financials, but you’ll need to fill out the section with other data based on the specifics of your business and your capital needs. Other financial information you might provide includes:

• Sales forecast: Estimates of future sales volumes

• Personnel plan: Who you plan to recruit/hire and how much it will cost

• Breakeven analysis: Projected point at which your sales will match your expenses

• Financial history: Summary of your business finances from the start of operations to the present time

Make It Easy

A lot of this can be made easier with business planning software, which can not only guide you through the process and make sure you don’t leave anything else but may also generate graphs, charts and other visuals to accompany the data in your financials section. Those types of visuals are highly recommended because some readers will skim. Anything you can do to convey information in a glance imparts a benefit.

Revisit Monthly

Once in operation, don’t forget to go back into your financials every month to update your projections with actual numbers and then adjust any future projections accordingly. Regular updates will tell you if you’re on track with your predictions and hitting your goals, as well as whether you need to make adjustments. Don’t forget this part — when you’re starting out, planning really is your best friend.

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How to Craft the Financial Section of Business Plan (Hint: It’s All About the Numbers)

Writing a small business plan takes time and effort … especially when you have to dive into the numbers for the financial section. But, working on the financial section of business plan could lead to a big payoff for your business.

Read on to learn what is the financial section of a business plan, why it matters, and how to write one for your company.  

What is the financial section of business plan?

Generally, the financial section is one of the last sections in a business plan. It describes a business’s historical financial state (if applicable) and future financial projections. Businesses include supporting documents such as budgets and financial statements, as well as funding requests in this section of the plan.  

The financial part of the business plan introduces numbers. It comes after the executive summary, company description , market analysis, organization structure, product information, and marketing and sales strategies.

Businesses that are trying to get financing from lenders or investors use the financial section to make their case. This section also acts as a financial roadmap so you can budget for your business’s future income and expenses. 

Why it matters 

The financial section of the business plan is critical for moving beyond wordy aspirations and into hard data and the wonderful world of numbers. 

Through the financial section, you can:

• Forecast your business’s future finances
• Budget for expenses (e.g., startup costs)
• Get financing from lenders or investors
• Grow your business

• Growth : 64% of businesses with a business plan were able to grow their business, compared to 43% of businesses without a business plan.
• Financing : 36% of businesses with a business plan secured a loan, compared to 18% of businesses without a plan.

So, if you want to possibly double your chances of securing a business loan, consider putting in a little time and effort into your business plan’s financial section. 

Writing your financial section

To write the financial section, you first need to gather some information. Keep in mind that the information you gather depends on whether you have historical financial information or if you’re a brand-new startup. 

Your financial section should detail:

• Business expenses 

Financial projections

Financial statements, break-even point, funding requests, exit strategy, business expenses.

Whether you’ve been in business for one day or 10 years, you have expenses. These expenses might simply be startup costs for new businesses or fixed and variable costs for veteran businesses. 

Take a look at some common business expenses you may need to include in the financial section of business plan:

• Licenses and permits
• Cost of goods sold 
• Rent or mortgage payments
• Payroll costs (e.g., salaries and taxes)
• Utilities 
• Equipment 
• Supplies 
• Advertising 

Write down each type of expense and amount you currently have as well as expenses you predict you’ll have. Use a consistent time period (e.g., monthly costs). 

Indicate which expenses are fixed (unchanging month-to-month) and which are variable (subject to changes). 

How much do you anticipate earning from sales each month? 

If you operate an existing business, you can look at previous monthly revenue to make an educated estimate. Take factors into consideration, like seasonality and economic ups and downs, when basing projections on previous cash flow.

Coming up with your financial projections may be a bit trickier if you are a startup. After all, you have nothing to go off of. Come up with a reasonable monthly goal based on things like your industry, competitors, and the market. Hint : Look at your market analysis section of the business plan for guidance. 

A financial statement details your business’s finances. The three main types of financial statements are income statements, cash flow statements, and balance sheets.

Income statements summarize your business’s income and expenses during a period of time (e.g., a month). This document shows whether your business had a net profit or loss during that time period. 

Cash flow statements break down your business’s incoming and outgoing money. This document details whether your company has enough cash on hand to cover expenses.

The balance sheet summarizes your business’s assets, liabilities, and equity. Balance sheets help with debt management and business growth decisions. 

If you run a startup, you can create “pro forma financial statements,” which are statements based on projections.

If you’ve been in business for a bit, you should have financial statements in your records. You can include these in your business plan. And, include forecasted financial statements. 

You’re just in luck. Check out our FREE guide, Use Financial Statements to Assess the Health of Your Business , to learn more about the different types of financial statements for your business.

Potential investors want to know when your business will reach its break-even point. The break-even point is when your business’s sales equal its expenses. 

Estimate when your company will reach its break-even point and detail it in the financial section of business plan.

If you’re looking for financing, detail your funding request here. Include how much you are looking for, list ideal terms (e.g., 10-year loan or 15% equity), and how long your request will cover. 

Remember to discuss why you are requesting money and what you plan on using the money for (e.g., equipment). 

Back up your funding request by emphasizing your financial projections. 

Last but not least, your financial section should also discuss your business’s exit strategy. An exit strategy is a plan that outlines what you’ll do if you need to sell or close your business, retire, etc. 

Investors and lenders want to know how their investment or loan is protected if your business doesn’t make it. The exit strategy does just that. It explains how your business will make ends meet even if it doesn’t make it. 

When you’re working on the financial section of business plan, take advantage of your accounting records to make things easier on yourself. For organized books, try Patriot’s online accounting software . Get your free trial now!

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How to Develop a Small Business Financial Plan

By Andy Marker | April 29, 2022

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Financial planning is critical for any successful small business, but the process can be complicated. To help you get started, we’ve created a step-by-step guide and rounded up top tips from experts.

Included on this page, you’ll find what to include in a financial plan , steps to develop one , and a downloadable starter kit .

What Is a Small Business Financial Plan?

A small business financial plan is an outline of the financial status of your business, including income statements, balance sheets, and cash flow information. A financial plan can help guide a small business toward sustainable growth.

Financial plans can aid in business goal setting and metrics tracking, as well as provide proof of profitable ideas. Craig Hewitt, Founder of Castos , shares that “creating a financial plan will show you if your business ideas are sustainable. A financial plan will show you where your business stands and help you make better decisions about resource allocation. It will also help you plan growth, survive cash flow shortages, and pitch to investors.”

Why Is It Important for a Small Business to Have a Financial Plan?

All small businesses should create a financial plan. This allows you to assess your business’s financial needs, recognize areas of opportunity, and project your growth over time. A strong financial plan is also a bonus for potential investors.

Mark Daoust , the President and CEO of Quiet Light Brokerage, Inc., explains why a financial plan is important for small businesses: “It can sometimes be difficult for business owners to evaluate their own progress, especially when starting a new company. A financial plan can be helpful in showing increased revenues, cash flow growth, and overall profit in quantifiable data. It's very encouraging for small business owners who are often working long hours and dealing with so many stressful decisions to know that they are on the right track.”

To learn more about other important considerations for a small business, peruse our list of free startup plan, budget, and cost templates .

What Does a Small Business Financial Plan Include?

All small businesses should include an income statement, a balance sheet, and a cash flow statement in their financial plan. You may also include other documents, such as personnel plans, break-even points, and sales forecasts, depending on the business and industry.

• Balance Sheet: A balance sheet determines the difference between your liabilities and assets to determine your equity. “A balance sheet is a snapshot of a business’s financial position at a particular moment in time,” says Yüzbaşıoğlu. “It adds up everything your business owns and subtracts all debts — the difference reflects the net worth of the business, also referred to as equity .” Yüzbaşıoğlu explains that this statement consists of three parts: assets, liabilities, and equity. “Assets include your money in the bank, accounts receivable, inventories, and more. Liabilities can include your accounts payables, credit card balances, and loan repayments, for example. Equity for most small businesses is just the owner’s equity, but it could also include investors’ shares, retained earnings, or stock proceeds,” he says.
• Cash Flow Statement: A cash flow statement shows where the money is coming from and where it is going. For existing businesses, this will include bank statements that list deposits and expenditures. A new business may not have much cash flow information, but it can include all startup costs and funding sources. “A cash flow statement shows how much cash is generated and used during a given period of time. It documents all the money flowing in and out of your business,” explains Yüzbaşıoğlu.
• Break-Even Analysis: A break-even analysis is a projection of how long it will take you to recoup your investments, such as expenses from startup costs or ongoing projects. In order to perform this analysis, Yüzbaşıoğlu explains, “You need to know the difference between fixed costs and variable costs. Fixed costs are the expenses that stay the same, regardless of how much you sell or don't sell. For example, expenses such as rent, wages, and accounting fees are typically fixed. Variable costs are the expenses that change in accordance with production or sales volume. “In other words, [a break-even analysis] determines the units of products or services you need to sell at least to cover your production costs. Generally, to calculate the break-even point in business, divide fixed costs by the gross profit margin. This produces a dollar figure that a company needs to break even,” Yüzbaşıoğlu shares.
• Personnel Plan: A personnel plan is an outline of various positions or departments that states what they do, why they are necessary, and how much they cost. This document is generally more useful for large businesses, or those that find themselves spending a large percentage of their budget on labor.
• Sales Forecast: A sales forecast can help determine how many sales and how much money you expect to make in a given time period. To learn more about various methods of predicting these figures, check out our guide to sales forecasting .

How to Write a Small Business Financial Plan

Writing a financial plan begins with collecting financial information from your small business. Create income statements, balance sheets, and cash flow statements, and any other documents you need using that information. Then share those documents with relevant stakeholders.

“Creating a financial plan is key to any business and essential for success: It provides protection and an opportunity to grow,” says Yüzbaşıoğlu. “You can use [the financial plan] to make better-informed decisions about things like resource allocation on future projects and to help shape the success of your company.”

1. Create a Plan

Create a strategic business plan that includes your business strategy and goals, and define their financial impact. Your financial plan will inform decisions for every aspect of your business, so it is important to know what is important and what is at stake.

2. Gather Financial Information

Collect all of the available financial information about your business. Organize bank statements, loan information, sales numbers, inventory costs, payroll information, and any other income and expenses your business has incurred. If you have not already started to do so, regularly record all of this information and store it in an easily accessible place.

3. Create an Income Statement

Your income statement should display revenue, expenses, and profit for a given time period. Your revenue minus your expenses equals your profit or loss. Many businesses create a new statement yearly or quarterly, but small businesses with less cash flow may benefit from creating statements for shorter time frames.

4. Create a Balance Sheet

Your balance sheet is a snapshot of your business’s financial status at a particular moment in time. You should update it on the same schedule as your income statement. To determine your equity, calculate all of your assets minus your liabilities.

5. Create a Cash Flow Statement

As mentioned above, the cash flow statement shows all past and projected cash flow for your business. “Your cash flow statement needs to cover three sections: operating activities, investing activities, and financing activities,” suggests Hewitt. “Operating activities are the movement of cash from the sale or purchase of goods or services. Investing activities are the sale or purchase of long-term assets. Financing activities are transactions with creditors and investments.”

6. Create Other Documents as Needed

Depending on the age, size, and industry of your business, you may find it useful to include these other documents in your financial plan as well.

• Sales Forecast: Your sales forecast should reference sales numbers from your past to estimate sales numbers for your future. Sales forecasts may be more useful for established companies with historical numbers to compare to, but small businesses can use forecasts to set goals and break records month over month. “To make future financial projections, start with a sales forecast,” says Yüzbaşıoğlu. “Project your sales over the course of 12 months. After projecting sales, calculate your cost of sales (also called cost of goods or direct costs). This will let you calculate gross margin. Gross margin is sales less the cost of sales, and it's a useful number for comparing with different standard industry ratios.”

7. Save the Plan for Reference and Share as Needed

The most important part of a financial plan is sharing it with stakeholders. You can also use much of the same information in your financial plan to create a budget for your small business.

Additionally, be sure to conduct regular reviews, as things will inevitably change. “My best tip for small businesses when creating a financial plan is to schedule reviews. Once you have your plan in place, it is essential that you review it often and compare how well the strategy fits with the actual monthly expenses. This will help you adjust your plan accordingly and prepare for the year ahead,” suggests Janet Patterson, Loan and Finance Expert at  Highway Title Loans.

Small Business Financial Plan Example

Download Small Business Financial Plan Example Microsoft Excel | Google Sheets

Here is an example of what a completed small business financial plan dashboard might look like. Once you have completed your income statement, balance sheet, and cash flow statements, use a template to create visual graphs to display the information to make it easier to read and share. In this example, this small business plots its income and cash flow statements quarterly, but you may find it valuable to update yours more often.

Small Business Financial Plan Starter Kit

Download Small Business Financial Plan Starter Kit

We’ve created this small business financial plan starter kit to help you get organized and complete your financial plan. In this kit, you will find a fully customizable income statement template, a balance sheet template, a cash flow statement template, and a dashboard template to display results. We have also included templates for break-even analysis, a personnel plan, and sales forecasts to meet your ongoing financial planning needs.

Small Business Income Statement Template 

Download Small Business Income Statement Template Microsoft Excel | Google Sheets

Use this small business income statement template to input your income information and track your growth over time. This template is filled to track by the year, but you can also track by months or quarters. The template is fully customizable to suit your business needs.

Small Business Balance Sheet Template 

Download Small Business Balance Sheet Template Microsoft Excel | Google Sheets

This customizable balance sheet template was created with small businesses in mind. Use it to create a snapshot of your company’s assets, liabilities, and equity quarter over quarter. 

Small Business Cash Flow Statement Template 

Download Small Business Cash Flow Template Microsoft Excel | Google Sheets

Use this customizable cash flow statement template to stay organized when documenting your cash flow. Note the time frame and input all of your financial data in the appropriate cell. With this information, the template will automatically generate your total cash payments, net cash change, and ending cash position.

Break-Even Analysis Template 

Download Break-Even Analysis Template Microsoft Excel | Google Sheets

This powerful template can help you determine the point at which you will break even on product investment. Input the sale price of the product, as well as its various associated costs, and this template will display the number of units needed to break even on your initial costs.

Personnel Plan Template  

Download Personnel Plan Template Microsoft Excel | Google Sheets

Use this simple personnel plan template to help organize and define the monetary cost of the various roles or departments within your company. This template will generate a labor cost total that you can use to compare roles and determine whether you need to make cuts or identify areas for growth.

Sales Forecast Template

Download Sales Forecast Template Microsoft Excel | Google Sheets

Use this customizable template to forecast your sales month over month and determine the percentage changes. You can use this template to set goals and track sales history as well.

Small Business Financial Plan Dashboard Template

Download Small Business Financial Plan Dashboard Template Microsoft Excel | Google Sheets

This dashboard template provides a visual example of a small business financial plan. It presents the information from your income statement, balance sheet, and cash flow statement in a graphical form that is easy to read and share.

Tips for Completing a Financial Plan for a Small Business

You can simplify the development of your small business financial plan in many ways, from outlining your goals to considering where you may need help. We’ve outlined a few tips from our experts below:

• Outline Your Business Goals: Before you create a financial plan, outline your business goals. This will help you determine where money is being well spent to achieve those goals and where it may not be. “Before applying for financing or investment, list the expected business goals for the next three to five years. You can ask a certified public accountant for help in this regard,” says Thé. The U.S. Small Business Administration or a local small business development center can also help you to understand the local market and important factors for business success. For more help, check out our quick how-to guide on writing a business plan .
• Make Sure You Have the Right Permits and Insurance: One of the best ways to keep your financial plan on track is to anticipate large expenditures. Double- and triple-check that you have the permits and insurances you need so that you do not incur any fines or surprise expenses down the line. “If you own your own business, you're no longer able to count on your employer for your insurance needs. It's important to have a plan for how you're going to pay for this additional expense and make sure that you know what specific insurance you need to cover your business,” suggests Daost.
• Separate Personal Goals from Business Goals: Be as unbiased as possible when creating and laying out your business’s financial goals. Your financial and prestige goals as a business owner may be loftier than what your business can currently achieve in the present. Inflating sales forecasts or income numbers will only come back to bite you in the end.
• Consider Hiring Help: You don’t know what you don’t know, but fortunately, many financial experts are ready to help you. “Hiring financial advisors can help you make sound financial decisions for your business and create a financial roadmap to follow. Many businesses fail in the first few years due to poor planning, which leads to costly mistakes. Having a financial advisor can help keep your business alive, make a profit, and thrive,” says Hewitt.
• Include Less Obvious Expenses: No income or expense is too small to consider — it all matters when you are creating your financial plan. “I wish I had known that you’re supposed to incorporate anticipated internal hidden expenses in the plan as well,” Patterson shares. “I formulated my first financial plan myself and didn’t have enough knowledge back then. Hence, I missed out on essential expenses, like office maintenance, that are less common.”

Do Small Business Owners Need a Financial Planner?

Not all small business owners need a designated financial planner, but you should understand the documents and information that make up a financial plan. If you do not hire an advisor, you must be informed about your own finances.

Small business owners tend to wear many hats, but Powell says, “it depends on the organization of the owner and their experience with the financial side of operating businesses.” Hiring a financial advisor can take some tasks off your plate and save you time to focus on the many other details that need your attention. Financial planners are experts in their field and may have more intimate knowledge of market trends and changing tax information that can end up saving you money in the long run. 

Yüzbaşıoğlu adds, “Small business owners can greatly benefit from working with a financial advisor. A successful small business often requires more than just the skills of an entrepreneur; a financial advisor can help the company effectively manage risks and maximize opportunities.”

For more examples of the tasks a financial planner might be able to help with, check through our list of free financial planning templates .

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How to Write a Business Plan Financial Projection [Sample Template]

How do you prepare a business plan financial statement? Do you need help developing business plan financial projections? Do you need a business plan projections template? Then i advice you read on because this article is for you.

What is a Business Plan Financial Statement?

The financial statement is a distinct section of your business plan because it outlines your financial projections. A business lives and dies based on its financial feasibility and most importantly its profitability. Regardless of how hard you work or how much you have invested of your time and money, people, at the end of the day, only want to support something that can return their investments with profits.

Your executive summary may be brilliantly crafted, and your market or industry analysis may be the bomb. But your business plan isn’t just complete without a financial statement to justify it with good figures on the bottom line.

Your financial statement is what makes or mars your chances of obtaining a bank loan or attracting investors to your business. Even if you don’t need financing from a third party, compiling a financial statement will help you steer your business to success. So, before we dig further into how to prepare a financial statement, you need to understand what a financial statement is not.

What’s the Difference Between a Financial Projection Statement and Accounting Statement?

However, you need to keep in mind that the financial statement is not the same as an accounting statement. Granted, a financial statement includes financial projections such as profit and loss, balance sheets, and cash flow, all of which makes it look similar to an accounting statement.

But the major difference between them is that an accounting statement deals with the past, while the financial projections statement of your business plan outlines your future spending and earnings. Having made this point clear, let’s now look at the steps involved on preparing a financial statement for your business plan.

So what exactly do you have to include in this section? You will need to include three statements:

• Income Statement
• Balance Sheet
• Cash-Flow Statement

Now, let’s briefly discuss each.

Components of a Business Plan Financial Statement

Income statement.

This beautiful composition of numbers tells the reader what exactly your sources of revenue are and which expenses you spent your money on to arrive at the bottom line. Essentially, for a given time period, the income statement states the profit or loss ( revenue-expenses ) that you made.

Balance sheet

The key word here is “ balance, ” but you are probably wondering what exactly needs to be weighed, right? On one side you should list all your assets ( what you own ) and on the other side, all your liabilities ( what you owe ), thereby giving a snapshot of your net worth ( assets – liabilities = equity ).

Cash flow statement

This statement is similar to your income statement with one important difference; it takes into account just when revenues are actually collected and when expenses are paid. When the cash you have coming in ( collected revenue ) is greater than the cash you have going out ( disbursements ), your cash flow is said to be positive.

And when the opposite scenario is true, your cash flow is negative. Ideally, your cash flow statement will allow you to recognize where cash is low, when you might have a surplus, and how to be on top of your game when operating in an uncertain environment.

How to Prepare a Business Plan Financial Projections Statement

1. Start by preparing a revenue forecast and a forecast profit and loss statement

Also, prepare supporting schedules with detailed information about your projected personnel and marketing costs. If your business has few fixed assets or it’s just a cash business without significant receivables, you don’t need a forecast balance sheet.

2. Using your planned revenue model, prepare a spreadsheet

Set the key variables in such a way that they can be easily changed as your calculations chain through. To ensure that your projected revenues are realistic and attainable, run your draft through a number of iterations. For each year covered in your business plan, prepare a monthly forecast of revenues and spending.

3. If you plan to sell any goods, then include a forecast of goods sold

This applies the most to manufacturing businesses. Give a reasonable estimate for this cost. And be of the assumption that the efficiency of your products would increase with time and the cost of goods sold as a percentage of sales will decline.

4. Quantify your marketing plan

Look at each marketing strategy you outlined in the business plan and attach specific costs to each of them. That is, if you are looking at billboard advertising, TV advertising, and online marketing methods such as pay-per-click advertising and so on; then you should estimate the cost of each medium and have it documented.

5. Forecast the cost of running the business, including general and administrative costs

Also, forecast the cost of utilities, rents, and other recurring costs. Don’t leave out any category of expenses that is required to run your business. And don’t forget the cost of professional services such as accounting and legal services.

6. In the form of a spreadsheet, forecast the payroll

This outlines each individual that you plan to hire, the month they will start work, and their salary. Also include the percentage salary increases (due to increased cost of living and as reward for exemplary performance) that will come in the second and subsequent years of the forecast.

Additional tips for Writing a Business Plan Financial Statement

• Don’t stuff your pages with lots of information, and avoid large chunks of text. Also, use a font size that is large enough. Even if these would spread out your statement into more pages, don’t hesitate to spread it out. Legibility matters!
• After completing the spreadsheets in the financial statement, you should summarize the figures in the narrative section of your business plan.
• Put a table near the front of your financial statement that shows projected figures, pre-tax profit, and expenses. These are the figures you want the reader to remember. You can help the reader retain these figures in memory by including a bar chart of these figures, too.

As a final note, you should keep in mind that a financial statement is just an informed guess of what will likely happen in the future. In reality, the actual results you will achieve will vary. In fact, this difference may be very far from what you have forecast.

So, if your business is a start-up, prepare more capital than your projections show that you will need. Entrepreneurs have a natural tendency to project a faster revenue growth than what is realistic. So, don’t let this instinct fool you.

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Start » startup, business plan financials: 3 statements to include.

The finance section of your business plan is essential to securing investors and determining whether your idea is even viable. Here's what to include.

If your business plan is the blueprint of how to run your company, the financials section is the key to making it happen. The finance section of your business plan is essential to determining whether your idea is even viable in the long term. It’s also necessary to convince investors of this viability and subsequently secure the type and amount of funding you need. Here’s what to include in your business plan financials.

[Read: How to Write a One-Page Business Plan ]

What are business plan financials?

Business plan financials is the section of your business plan that outlines your past, current and projected financial state. This section includes all the numbers and hard data you’ll need to plan for your business’s future, and to make your case to potential investors. You will need to include supporting financial documents and any funding requests in this part of your business plan.

Business plan financials are vital because they allow you to budget for existing or future expenses, as well as forecast your business’s future finances. A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.

Sections to include in your business plan financials

Here are the three statements to include in the finance section of your business plan:

Profit and loss statement

A profit and loss statement , also known as an income statement, identifies your business’s revenue (profit) and expenses (loss). This document describes your company’s overall financial health in a given time period. While profit and loss statements are typically prepared quarterly, you will need to do so at least annually before filing your business tax return with the IRS.

Common items to include on a profit and loss statement :

• Revenue: total sales and refunds, including any money gained from selling property or equipment.
• Expenditures: total expenses.
• Cost of goods sold (COGS): the cost of making products, including materials and time.
• Gross margin: revenue minus COGS.
• Operational expenditures (OPEX): the cost of running your business, including paying employees, rent, equipment and travel expenses.
• Depreciation: any loss of value over time, such as with equipment.
• Earnings before tax (EBT): revenue minus COGS, OPEX, interest, loan payments and depreciation.
• Profit: revenue minus all of your expenses.

Businesses that have not yet started should provide projected income statements in their financials section. Currently operational businesses should include past and present income statements, in addition to any future projections.

[Read: Top Small Business Planning Strategies ]

A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.

Balance sheet

A balance sheet provides a snapshot of your company’s finances, allowing you to keep track of earnings and expenses. It includes what your business owns (assets) versus what it owes (liabilities), as well as how much your business is currently worth (equity).

On the assets side of your balance sheet, you will have three subsections: current assets, fixed assets and other assets. Current assets include cash or its equivalent value, while fixed assets refer to long-term investments like equipment or buildings. Any assets that do not fall within these categories, such as patents and copyrights, can be classified as other assets.

On the liabilities side of your balance sheet, include a total of what your business owes. These can be broken down into two parts: current liabilities (amounts to be paid within a year) and long-term liabilities (amounts due for longer than a year, including mortgages and employee benefits).

Once you’ve calculated your assets and liabilities, you can determine your business’s net worth, also known as equity. This can be calculated by subtracting what you owe from what you own, or assets minus liabilities.

Cash flow statement

A cash flow statement shows the exact amount of money coming into your business (inflow) and going out of it (outflow). Each cost incurred or amount earned should be documented on its own line, and categorized into one of the following three categories: operating activities, investment activities and financing activities. These three categories can all have inflow and outflow activities.

Operating activities involve any ongoing expenses necessary for day-to-day operations; these are likely to make up the majority of your cash flow statement. Investment activities, on the other hand, cover any long-term payments that are needed to start and run your business. Finally, financing activities include the money you’ve used to fund your business venture, including transactions with creditors or funders.

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Financial Statements

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on June 08, 2023

Are You Retirement Ready?

Table of contents, what are financial statements.

Financial statements are key tools businesses use to track and provide insights into a company's overall financial performance and health. These reports provide a snapshot of a business’s financial situation, results of operations, and cash flows.

While financial statements are used internally to guide management decisions, they are also used by external stakeholders such as investors, creditors, analysts, and regulators.

Financial statements aid in making decisions about investing in a company, lending money to a company, or providing other forms of financing.

There are three main types of financial statements: balance sheets , income statements , and cash flow statements .

These are compiled using Generally Accepted Accounting Principles (GAAP). GAAP is a set of guidelines and standards U.S.-based companies must follow when preparing their financial statements.

Balance Sheet

The balance sheet is a financial statement that provides an overview of a company's assets , liabilities , and equity . It is used to assess a company's financial situation at a given point in time.

There are two sections on the balance sheet ‒ the left side (assets) and the right side (liabilities and equity). The balance sheet adheres to the accounting equation:

The assets of a company should always equal the combination of its liabilities and shareholders' equity. Hence, a balance sheet should always balance.

For example, a company purchases equipment on credit for $2,000. This purchase will entail an increase in assets (equipment) and a liability (credit purchase) for the amount of $2,000. The company's assets would then equal its liabilities plus shareholders' equity.

Components of a Balance Sheet

Assets, liabilities, and equity comprise the balance sheet.

Assets are everything a company owns and can be used to generate revenue . They include cash, investments , inventory, and property, plant, & equipment (PP&E).

Liabilities

Liabilities are everything a company owes to others. These include accounts payables, loans, and notes payables.

Equity is the portion of the business that belongs to the owners (i.e., shareholders). Equity is also known as a company's book value or net worth. It represents the residual value of a company's assets after liabilities have been paid. It includes retained earnings, paid-in capital, outstanding shares, and treasury stock.

Balance Sheet Example

The following is an example of a balance sheet from Apple, Inc.:

Source: Apple’s Form 10-k from SEC (Page 34)

From the balance sheet above, we can see that as of September 2021, Apple, Inc.’s total assets amount to $351,002,000. Its total liabilities are $287,912,000, and total shareholders’ equity is $63,090,000, which, when lumped together, will equal the total assets of $351,002,000.

Income Statement

The income statement is a financial statement that reports a company's revenue, expenses, and profit (or loss) over a period of time.

It is also known as the profit and loss (P&L) statement and is important in gauging the profitability of a business.

Components of an Income Statement

The components of an income statement vary depending on the company but below are some of the most common items:

Revenue pertains to the money a company earns from selling its goods or services. Depending on the company, revenue can also be called “sales revenue” or “sales.”

Revenue is typically listed as net sales as it would exclude any applicable sales returns, allowances, and discounts before cost of goods sold is deducted to arrive at gross profit.

Cost of Goods Sold (COGS)

COGS refers to the direct costs associated with the production of a good. This is known as the cost of sales for businesses that provide services. This includes the cost of direct materials, direct labor, and direct factory overhead.

Gross Profit

Gross profit is the difference between a company's revenue (net sales) and the cost of goods sold. It reflects the efficiency of a company in its production and selling process.

Operating Expenses

Operating expenses are the costs associated with managing a business on a day-to-day basis. These are costs that consist of the direct costs involved in the production of a company’s products and services but are not included in COGS.

They include things like rent, utilities, and salaries/wages.

Selling, general, and administrative (SG&A) expenses, in other words, all non-production costs, are usually lumped together with operating expenses. Some companies also choose to put this as a separate line item from operating expenses.

Operating Profit

Operating profit is a company's income after deducting all operating expenses from the gross profit.

Non-Operating Items

Non-operating items are all the other revenues and expenses that are not part of the business's main operations. These include interest expenses, interest income, proceeds from sale of extraordinary items, lawsuit expenses, and taxes.

Net Profit or Loss

This is the amount of money a company has left over after taking into account all non-operating items from the operating profit. It is the income statement's bottom line and represents the company's total earnings or losses for a period of time.

Net profit occurs when a company’s revenues exceed its expenses. Net loss occurs when it is the other way around.

Income Statement Example

Shown below is the income statement from Apple, Inc.

Source: Apple’s Form 10-k from SEC (Page 32)

Per the income statement above, Apple, Inc.’s gross profit as of September 2021 was $152,836,000, the operating profit was $108,949,000, and the net profit was $94,680,000.

This means the company has a profit margin of 26% which is the percentage of its net profit from total sales.

Cash Flow Statement

A cash flow statement is another type of financial statement that provides a snapshot of a business's cash inflow and outflow during a specific period. This statement shows how much cash is being generated or used by a company, and can be used to assess its financial health.

Components of a Cash Flow Statement

A cash flow statement has these main components:

Cash Flow From Operating Activities (CFO)

This demonstrates the amount of cash generated by the business or used from its ongoing business operations. This can include salaries paid to employees, payments from customers, and cash paid to suppliers.

A company's operating cash flow is a key metric in assessing the financial viability of its core operations.

Cash Flow From Investing Activities (CFI)

This indicates how much cash the company has generated or used from investing activities. This can include things like buying property, plant, & equipment or investing in securities.

Companies use CFI to assess their ability to generate cash from their investments and to make decisions about future investment opportunities.

Cash Flow From Financing Activities (CFF)

This indicates the amount of money the company has generated or used from its financing activities. This can include issuing new equity, taking out loans, or repaying debt.

Companies use CFF to assess their operations' ability to finance and make decisions about issuing new equity and debt financing.

Cash Flow Statement Example

The following is an example of a cash flow statement of Apple, Inc.

Source: Apple’s Form 10-k from SEC (Page 36)

Based on the cash flow statement above, Apple, Inc.’s total CFO for September 2021 was $104,038,000. They used $14,545,000 for their investing activities and $93,353,000 in financing activities.

The total decrease in cash, cash equivalents, and restricted cash was $3,860,000. The total ending balance was $35,929,000 after deducting the said decrease from its beginning balance.

Limitations of Financial Statements

Financial statements are useful tools for analyzing a company's financial position, performance, and cash flow. However, several limitations should be considered when interpreting the data.

First, financial statements only provide a snapshot of a company's financial position at a specific point in time. They do not reveal how the company got to that point or what might happen in the future.

Second, financial statements only include information that can be quantified in monetary terms. This means the numbers do not reflect vital information like customer satisfaction or employee morale.

Third, management can manipulate financial statements to give a false impression of the company's financial health. For example, a company might recognize revenue early or delay expenses to make the financials look better than they actually are.

Fourth, financial statements only provide limited information about a company's competitive position. They do not reveal things like market share or brand awareness.

Finally, financial statements can be difficult to interpret without a basic understanding of accounting principles. This makes them inaccessible to many people who could benefit from using them.

Despite their limitations, financial statements are still valuable tools for analyzing a company's financial situation. When interpreting the data, it is important to consider the limitations of the information and use other resources to supplement the analysis.

Financial statements are records of a company’s financial activities and are used to reflect its performance.

The three main financial statements are the balance sheet, income statement, and cash flow statement. These statements are vital for understanding a company's financial situation, performance, and cash flow.

It is essential to keep in mind that financial statements have limitations. They should be used in conjunction with other financial information to get a complete picture of a company's financial situation.

Financial Statements FAQs

Why are financial statements important.

Financial statements are important because they provide a snapshot of a company's financial position at a specific point in time. They can be used to assess a company's financial health, performance, and cash flow.

How often should financial statements be prepared?

Most companies prepare financial statements on a quarterly or annual basis. However, some companies may prepare them more frequently if they are required to do so.

How accurate are financial statements?

The accuracy of financial statements is only as good as the information utilized to prepare them. The financial statements will also be inaccurate if a company's accounting records are inaccurate.

How are financial statements used to make business decisions?

Financial statements can be used to assess a company's financial health, performance, and cash flow. This information can be used to make informed business decisions about things like investment opportunities, pricing strategies, and expense management.

What is the impact of Generally Accepted Accounting Principles (GAAP) on financial statements?

Generally Accepted Accounting Principles (GAAP) are guidelines that companies must follow when preparing financial statements. GAAP includes standards for things like recognition, measurement, and disclosure. GAAP can impact financial statements on how revenue is recognized and expenses are reported. Following GAAP ensures that financial statements are consistent and comparable.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

Related Topics

• Articulation
• Capital Expenditures
• Capitalized Retained Earnings
• Cash Flow Analysis
• Cash Flow Management
• Cash Flow Planning
• Classified Financial Statement
• Components of the Accounting Equation
• Debt vs Equity
• Earnings Before Interest and Taxes (EBIT)
• Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA)
• Financial Statement Footnotes
• Financial Statement Preparation
• Fixed Expense
• Gross Income
• Gross Margin
• Gross Profit vs Gross Margin
• Gross Profit vs Net Profit
• How to Calculate Gross Profit and Gross Profit Margin
• How to Find Variable Costs
• How to Read an Annual Report
• Interim Statements
• Multi-Step Income Statement
• Net Income (NI)
• Net Operating Income (NOI)

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The Complete Financial Section of the Business Plan with Examples

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FINANCIAL SECTION OF YOUR BUSINESS PLAN

The Financial Section, in many cases, is the most scrutinized section of your business plan. In short, it provides details on how potentially profitable the business will be, how much debt and equity capital is required for the business venture, when debts are scheduled to be repaid to investors, your financial statement forecasts, and the assumptions made when creating your financial projections.

The Financial Section of your business plan relies on Forecasted Financial Statements. Forecasted financial statements help an entrepreneur determine the feasibility of his/her business venture and help to estimate the amount of money an entrepreneur will need in order to successfully launch and operate the proposed endeavor. In addition, these statement help investors in determining the plan's feasibility and its potential profitability. It is for these reasons that many refer the financial section as the "heart of a business plan". All other sections of the plan (operations section, management section, marketing section, etc) show an investor whether or not an entrepreneurs' financial projections can materialize as envisioned.

The financial section of the business plan can be developed by you or an accountant. At any rate, the structure of the financial section generally includes the following items;

• A.    Introduction to the Financial Plan
• B.    Forecasted Financial Statements
• C.    Notes to the Forecasted Financial Statements

Below further explains each of the above components; beginning with the "Introduction to the Financial Plan".

PART A.  -   INTRODUCTION TO THE FINANCIAL PLAN

The Financial section of your business plan will begin with an introduction to the Financial Plan. The actual structure and details provided in the introduction is left up to the entrepreneur. Moreover, some entrepreneurs (business plan writers) feel its imperative to give the reader a quick summary of each forecasted statement, while others only tell the reader how the financial plan section has been organized. The following example of an Introduction to the Financial Plan supports the latter.

Example of J&B Incorporated's Introduction to the Financial Plan

INTRODUCTION TO THE FINANCIAL PLAN

The Financial Plan outlines J&B's forecasted financial statements and the assumptions made when developing them. The Company's capital requirements, how the capital is to be used and our repayment plan is also illustrated here.

The following financial statements and analysis have been forecasted over a three year period.

The above financial statements assume that the Product Development Phase will begin January 1, 1998 and end on April 30, 1998. In May, J&B will begin its operations. The fiscal year end has been set for April 30 so that a full year of operation can be shown each year for the three year forecasted period.

Following the forecasted statements and analysis are "Notes to the Financial Statements". These Notes explain how we arrived at the account balances.

Notice, the above example tells the reader what he/she is expected to see under the Financial Plan. It does not go into details on how the Company plans to repay its debt nor how it will obtain its start-up capital. Rather the Introduction suggests that readers refer to the "Notes to the Financial Statements" for further information. If your Notes to the Financial Statements do not fully explain the "higher points" of your forecasted income statement, balance sheet, your loan repayment schedule, capital requirements, or how the capital will be used, we suggest you develop a in-depth Introduction. On the other end of the continuum, if your notes to the financial statements fully explain these items, you may elect to develop and Introduction similar to J&B Incorporated.

PART B FORECASTED FINANCIAL STATEMENTS

The next part of the Financial Plan is the Forecasted Financial Statements. You will include the following forecasted statements and analysis in your Financial Plan.

Below briefly explains the above statements and analysis and depicts how each should appear in Part B of your Financial Plan.

1.   -  THE FORECASTED INCOME STATEMENT

The first statement appearing in the financial plan is your Forecasted Income Statement. An Income Statement is a financial tool used to determine whether a company earned a profit or incurred a loss within a given time frame. An income statement is developed by listing all revenues (sales) within a specific time frame, listing all expenses within the same time frame and subtracting the expenses from the revenues to arrive at Earnings Before Taxes (EBT) for that time frame. Income taxes are then calculated and subtracted from earnings before taxes to arrive at a company's Net Income after taxes or what many people refer to as - THE BOTTOM LINE.

If you plan to open a new business or plan on expanding an existing one, you will not have actual revenues or expenses. In this case, you will be required to anticipate (forecast) revenues and expenses over a one year period, for a minimum of three years. In other words, you will have to construct what is known as an annual forecasted income statement for three years. The forecasted Income statement will show investors such as banks, governments, and private entities if and when your business plans to make a profit.

The forecasted income statements for three years should appear on One Page. Moreover, the one page will consist of three columns - one column for your first year forecasted income statement, one column for the second year forecasted income statement, and one column for your third year forecasted income statement. Below provides an example of how your forecasted incomes should appear.

Notice after each account item that a note and a number is stated. These numbers refer to the Notes to the Financial Statements and allows readers (investors) the opportunity to see how J&B arrived at each account balance or value. This will become more apparent later on as we discuss Part C of the Financial Plan entitled "Notes to the Forecasted Financial Statements".

Also, notice J&B's three year Forecasted Income Statement is one page in length. The revenue and expense "items" are listed on the left hand side, while each year's forecasted revenues and expenses ("values") are shown in a column to the right. Your forecasted income statement for a three year period should appear in a similar fashion. Moreover, it is more professional and investors can compare your expected revenue and expense projections from year to year.

This concludes our discussion on how your forecasted income statements should appear in your Financial Plan. Remember it is imperative to understand the theory behind the income statement before attempting to forecast your own. To learn more about this statement, please refer to the section entitled " The Income Statement ". When you understand the theory behind each financial statement and analysis, you will be equipped with the tools necessary tools needed in Forecasting Your Own Forecasted Financial Statements .

2. THE FORECASTED BALANCE SHEETS

The next statement to appear in the financial plan is your Forecasted Balance Sheets. Three, annual (year end) Forecasted Balance Sheets should follow your three year projected income statements. These forecasted balance sheets show investors the items your business anticipates to own at the beginning and end of each forecasted year. In addition, these statements will show investors how much your business anticipates to owe at the beginning and end of each forecasted period. By developing a forecasted annual balance sheet for three years into the future, you and investors will be able to determine if your proposed business provides an opportunity (IE profitable).

In addition to the three year forecasted balance sheets, investors will want to see an opening balance sheet. An opening balance sheet generally shows the businesses' assets, liabilities, and owner's investments into the business.

The three year forecasted balance sheets should be placed on one page. Moreover, the one page will consist of four columns - one column for your opening balance sheet, one column for the first year forecasted balance sheet, one column for the second year forecasted balance sheet, and one column for your third year forecasted balance sheet. Below provides an example of J&B Incorporated's forecasted Balance Sheet.

Notice J&B's three year Forecasted Balance is one page in length. The Asset, Liability, and Equity "items" are listed on the left hand side, while each year's forecasted account balances (values) are shown in a column to the right. Your forecasted balance sheet for a year three period should appear in a similar fashion. It is more tidy and investors can compare your expected financial position from year to year.

Also, notice after each account item that a note and a number is stated. These numbers refer to the Notes to the Financial Statements and allows readers (investors) the opportunity to see how J&B arrived at each account balance or value. This will become more apparent later on as we discuss Part C of the Financial Plan entitled "Notes to the Forecasted Financial Statements".

This concludes our discussion on how your projected balance sheet should appear in your Financial Plan. Remember it is imperative to understand the theory behind the Balance Sheet before attempting to forecast your own. To learn more about this statement, please refer to the section entitled " The Balance Sheet ". When you understand the theory behind each financial statement and analysis, you will be equipped with the tools necessary tools needed in Forecasting Your Own Forecasted Financial Statements .

3. FORECASTED CASH FLOW STATEMENTS

The next statement to appear in the financial plan is your Forecasted Cash-flow Statements. The Cash Flow Statement is a tool used to forecast the movement of cash into and out-off the business. The movement of cash into a company may result from sales to customers, cash from investors, cash from bank loans, cash from the owners, cash from interest earned, cash from commission sales, or from any other source that provides cash to the business. The movement of cash out-off the company might include items such as advertising, wages and salaries, inventory purchases, payment on taxes, payment on business loans, utilities, owner withdrawals, rent, dividends, and so on.

Without the necessary cash, a business will not survive. Therefore, a forecasted cash flow statement is constructed to determine if an entrepreneur's business will have enough cash to carry out the day to day (month to month) operations.

A cash flow statement can be organized on a daily, weekly, monthly or quarterly bases. Most bankers and other investors, however, prefer see a monthly cash flow statement for a three year period. In other words, you will be required to develop three forecasted cashflow statements, each consisting of a twelve month period.

This may seem overwhelming at first, but with the aid of a spreadsheet program such as Lotus 123 or Excel, the task becomes rather simple. If you do not have a spreadsheet program, you are advised to purchase one and learn how it operates - It is an invaluable business tool that will save you lots of time and money. Below provides an example of J&B's forecasted cashflow statement for a three year period. (please note: normally each annual cashflow statement is constructed in a spreadsheet program and consist of a twelve month forecasted period. Due to the margins of this program, we are unable to place twelve columns on one page. As a result, we have used two pages for each year to illustrate J&B's annual forecasted cash flow statement).

The remaining five (5) months of J&B's first year Forecasted Cashflow Statement is presented below. Recall this is not the correct format - the first year cashflow statement should be developed in a spreadsheet program and should appear on one page.

The remaining five (5) months of J&B's second year Forecasted Cashflow Statement is presented below. Recall this is not the correct format - the second year cashflow statement should be developed in a spreadsheet program and should appear on one page.

The remaining five (5) months of J&B's third year Forecasted Cashflow Statement is presented below. Recall this is not the correct procedure - the third year cashflow statement should be developed in a spreadsheet program and should appear on one page.

As you can see, the above forecasted cash flow statements project J&B's cash inflows (from customers, from a bank loan and investors) and all expected cash outflow (from purchases of inventory, for advertising, for rent etc,) each month for thirty-six months. The inflows and outflows are subtracted and the difference is known as the Net Cash Flow (Deficiency). The cash at the beginning of the month is then added to the Net Cash Flow (Deficiency) to produce the Ending Cash Balance for the month.

Notice at the beginning of each cash flow statement, an ASSUMPTION section has been used. This assists the reader (investor) in understanding how the entrepreneur arrived at various values throughout the Cash Flow Statement (optional).

Also notice, after some of the account items, a note and a number is stated. These numbers refer to the Notes to the Financial Statements and allows readers (investors) the opportunity to see how J&B arrived at each account balance or value. This will become more apparent later on as we discuss Part C of the Financial Plan entitled "Notes to the Forecasted Financial Statements".

We can not stress enough that you should have three cash flow statements; one for each forecasted year. In addition, each cash flow statement will consist of a twelve month forecasted period; for a total of thirty-six months.

This concludes our discussion on how your forecasted cash flow statement should appear in your Financial Plan. Remember, it is imperative to understand the theory behind the cash flow statement before attempting to forecast your own. To learn more about this statement, please refer to the section entitled " The Cash-Flow Statement ". When you understand the theory behind each financial statement and analysis, you will be equipped with the tools necessary tools needed in Forecasting Your Own Forecasted Financial Statements .

4. FORECASTED BREAK-EVEN ANALYSIS

The next analysis to appear in your financial plan is the Forecasted Break-even Analysis. A Break Even Analysis, in its simplest form, is a tool used to determine the level of sales a business must earn in order to achieve neither a profit nor a loss. In other words, the point at which a business' Net Income is ZERO (revenues - expenses = 0).

The break-even analysis focuses mainly on the items included in a company's income statement (revenues and expenses). Moreover, the Break-even Analysis relies on your forecasted Fixed Costs, your forecasted Variable Costs and your forecasted Selling Price(s). Forecasted Fixed Costs are costs and expenses that do not fluctuate with sales increases or decreases. Forecasted Variable Costs are costs and expenses that do fluctuate with sales increases or decreases. A Forecasted Selling Price (s) is the price or prices you plan to sell your product at.

Your Forecasted Break-even analysis can consist of one page or two pages; depending upon how much detail you decide to offer. For example, J&B Incorporated's forecasted break-even analysis, presented below, consists of two parts. PART A. provides the reader with all information required in making the break-even calculation, and PART B shows the actual break-even calculation.

In the above example, notice that J&B calculates its break-even point and provides an indication of how many units it plans to sell above its break-even point. To do this, J&B simply subtracts each years' forecasted break-even point from the number units it plans to sell in each forecasted year.

Also notice, J&B provides readers with all figures needed to calculate the break-even point. You may elect to use this format or you may decide to only provide the break-even calculations. Whichever format you decide, be sure your break-even point is calculated over a three year period - one column for each forecasted year. You may also decide to provide the reader with an explanation on why your forecasted break-even point is increasing or decreasing. For example, J&B's break-even point is increasing due to the company's planned decrease in its selling price, its estimated increase in variable costs, and its planned increase in fixed costs. As a result, the company is earning a lower contribution margin on each sale made during year two and three. Thus less "money" is contributing to their higher fixed costs.

This concludes our discussion on how your projected break-even analysis should appear in your Financial Plan. Remember, it is imperative to understand the theory behind the break-even analysis before attempting to forecast your own. To learn more about this financial analysis, please refer to the section entitled " The Break-even Analysis ". When you understand the theory behind each financial statement and analysis, you will be equipped with the tools necessary tools needed in Forecasting Your Own Forecasted Financial Statements .

5. SENSITIVITY ANALYSIS

A sensitivity analysis shows the effects on Net Income when forecasted sales are increased or decreased by various percentages. Since your forecasted sales will NEVER be one hundred percent accurate, the sensitivity analysis shows investors how your net income will change if your original sales forecast increases by 30%, 20% and 15% or if your original sales forecast decreases and a 15% or 20 %, for example. The percentages chosen for your sensitivity analysis is up to you, however, avoid percentages of 14% or lower.

Many entrepreneurs develop only one sensitivity analysis ( for their first year operation). Others develop three sensitivity analysis; one for each forecasted year of operation. Whichever format you plan to use is not important, what is important, however, is that you include this analysis in your business plan. It shows the investor that you understand; 1) the forecasting process and 2)that your original sales forecasts generally do NOT materialize as envisioned.

Like Break-even Analysis, the Sensitivity Analysis uses your forecasted income statement as its starting point. The analysis relies on distinguishing between Forecasted Fixed Costs and Forecasted Variable Costs. Recall, Forecasted Fixed Costs are costs and expenses that do not fluctuate with sales increases or decreases. Forecasted Variable Costs are costs and expenses that do fluctuate with sales increases or decreases.

Below provides an example of J&B's sensitivity analysis for its first forecasted year of operations. Notice, J&B has chosen a sales percentage increase of 15% of its original sales forecast and a sales percentage decrease of 20% of its original sales forecast.

Notice, J&B's forecasted Operating Expenses are considered to be Fixed Costs (they do not fluctuate with sales increases or decreases. Also, the company's Variable Costs, in this example, include only the Cost of Goods Sold (COGS will always fluctuate with sales increases or decreases and therefore will always be considered variable). The only other item, in the above example, that fluctuates with sales is Sales itself! In other words, if you increase the original forecasted sales by a certain percentage, then sales will have to increase by that amount (in units sold and in dollars). Alternatively if you decrease the original sales forecast by any amount, then SALES in units sold and in dollar will certainly change by that amount or percentage.

This concludes our discussion on how your projected sensitivity analysis should appear in your Financial Plan. Remember, it is imperative to understand the theory behind the sensitivity analysis before attempting to forecast your own. To learn more about this financial analysis, please refer to the section entitled " The Sensitivity Analysis ". When you understand the theory behind each financial statement and analysis, you will be equipped with the tools necessary tools needed in Forecasting Your Own Forecasted Financial Statements .

6. RATIO ANALYSIS

The next analysis appearing in the financial plan should be your Forecasted Ratio Analysis. In a nutshell, Ratio Analysis is a general technique for analyzing the performance of an existing or potential business.

Ratios involve dividing numbers from the Balance Sheet and Income Statement to create percentages and decimals. When aspiring entrepreneurs and existing business owners apply for a loan, for example, bankers usually look at their forecasted ratios and compare them to ratios of other businesses operating within the same industry.

Your projected ratios should be calculated over a three year forecasted period. Many business plan writers calculate the ratios and provide a narrative discussion, depicting how each has changed over the three year forecasted period. Others calculate the ratios and provide a footnote stating "a complete analysis regarding the forecasted ratios is available upon request. Yet other business plan writers feel the need to calculate various ratios and compare them to ratios of other businesses within the industry. The later approach can be time consuming and may not be "cost effective". Below provides an example of J&B's forecasted Ratio Calculations.

Notice the information provided in the above example. The name of each ratio, the formula required in calculating each ratio, the dollar amounts for each formula item, and the ratio calculation for each of the forecasted years. It is important to stress that these dollar amounts have been taking from J&B's forecasted Balance Sheet and Forecasted Income Statement. Therefore, the forecasted balance sheet and income statement must be complete before ratios can be calculated.

Also notice that J&B decided to calculate the ratios without providing any narrative discussion. Moreover, the company states that a "complete analysis is available upon request". If you want to impress the investor, it might in your best interest to provide the ratio analysis (narrative discussion) in your business plan. To do this, simply calculate each ratio for the three year forecasted period and then briefly discuss the variables attributing to change in ratio value.

This concludes our discussion on how your projected ratio analysis should appear in your Financial Plan. Remember, it is imperative to understand the theory behind the ratio analysis before attempting to forecast your own. To learn more about how to read or determine the meaning behind ratios, please refer to the section entitled " Ratio Analysis ". This section will also provide you with other ratio formulas which you may decide to include in your analysis.

This concludes PART B of the financial plan entitled "Forecasted Financial Statements".The purpose of this section was not to show you how to develop forecasted financial statements, rather the purpose was to show you how the statements generally appear in the Financial Plan.

To learn the theory behind each financial statement, please refer to the section entitled " Learning and Understanding Financial Statements ". To learn how to forecast your own financial statements, please refer to the section entitled " Forecasting your Own Financial Statements ".

In summary, be sure your forecasted financial statements and analysis provide for a three year forecasted period and include the following;

Please Note: as mentioned earlier, you will save yourself time and money if you develop the above financial items using a spreadsheet program.

PART C  -   NOTES TO THE FINANCIAL STATEMENTS

The third and final part of the financial section of the Business Plan is known as the notes to the forecasted financial statements. Notes to the Forecasted Financial Statements summarize the "activities" and "assumptions" made when creating the forecasted financial statements.. The Notes will give the readers (bankers, investors, and other readers) the necessary information needed to understand and comprehend your forecasts and projections. It also alleviates any guessing or questioning a reader may have when analyzing the financial section of the business plan. NOTE: never, ever, ever, create the notes to the forecasted financial statements until you have" fully completed" all forecasted statements and analysis.

There is no set structure nor specific guideline that dictate which topics should be included in the notes to the financial statements. Rather it is left up to the individual to decide which items warrant a "note" and which items are self explanatory. The following list provides some suggestions you may use when creating your notes section.

Your notes should provide details on each of the required three year forecasted periods.  Below provides a link to J&B's Notes to the Forecasted Financial Statements.  BUT FIRST - recall from above, the word "note" and a "number" followed several account items on J&B's forecasted income statement, balance sheet and cash flow statement, etc. For instance, on the company's income statement, an account called revenue from sales is present. Following the revenue from sales account is a "note 1". This refers to the first note under the Notes to the Forecasted Financial Statements. When investors read J&B's income statement and see note 1 beside the account item entitled "Total Revenue From Sales", they can quickly refer to the Notes section for information on how the entrepreneur arrived at these dollars amounts. As a result, the investor better understands the financial statements and the assumptions used when creating them. . Try is yourself - print off all J&B's financial statements and refer to the Notes below. You'll find your understanding of the financial statements as well as the company's initiatives is much better. Remember, when investors understand your financial projections, it reduces their risk, and in many cases, it increases your chances of receiving financing.

Link to:     J&B Incorporated's Notes to their Forecasted Financial Statements

For additional information on this topic, please refer to the section entitled " Notes to the Financial Statements ".

CONCLUSION OF THE FINANCIAL PLAN

This concludes our discussion on the Financial Plan section of a business plan. Remember the Financial Plan generally consists of three parts:

Below provides examples of how your Financial Plan should appear in its entirety. (Please note, the financial statements and analysis for two of the examples below; namely The Internet Company and Scholarship Information Services provide forecasts for a two year period. Your financial statements and analysis, however, generally provide projections for at least a three year period.

EXAMPLES OF THE FINANCIAL PLAN SECTION OF A BUSINESS PLAN J&B Incorporated Scholarship Information Services The Internet Company

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What Is a Balance Sheet? Definition, Formulas, and Example

Trevor Betenson

10 min. read

Updated May 2, 2024

Business financial statements consist of three main components: the income statement , statement of cash flows , and balance sheet. The balance sheet is often the most misunderstood of these components—but also extremely beneficial if you understand how to use it.

Check out our free downloadable Balance Sheet Template for more, and keep reading to learn the different elements of a balance sheet, and why they matter.

• What is a balance sheet?

The balance sheet provides a snapshot of the overall financial condition of your company at a specific point in time. It lists all of the company’s assets, liabilities, and owner’s equity in one simple document.

A balance sheet always has to balance—hence the name. Assets are on one side of the equation, and liabilities plus owner’s equity are on the other side.

Assets = Liabilities + Equity

• What is the purpose of the balance sheet?

Put simply, a balance sheet shows what a company owns (assets), what it owes (liabilities), and how much owners and shareholders have invested (equity).

Including a balance sheet in your business plan is an essential part of your financial forecast , alongside the income statement and cash flow statement.

These statements give anyone looking over the numbers a solid idea of the overall state of the business financially. In the case of the balance sheet in particular, what it’s telling you is whether or not you’re in debt, and how much your assets are worth. This information is critical to managing your business and the creation of a business plan.

The balance sheet includes spending and income that isn’t in the income statement (also called a profit and loss statement). For example, the money you spend to repay a loan or buy new assets doesn’t show up in the income statement. And the money you take in as a new loan or a new investment doesn’t show up in the income statement either. The money you are waiting to receive from customers’ outstanding invoices shows up in the balance sheet, not the income statement.

Among other things, your balance sheet can be used to determine your company’s net worth. By subtracting liabilities from assets, you can determine your company’s net worth at any given point in time.

• Key components of the balance sheet

Typically, a balance sheet is divided into three main parts: Assets, liabilities, and owner’s equity.

Assets on a balance sheet or typically organized from top to bottom based on how easily the asset can be converted into cash. This is called “liquidity.” The most “liquid” assets are at the top of the list and the least liquid are at the bottom of the list.

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In the context of a balance sheet, cash means the money you currently have on hand. In business planning, the term “cash” represents the bank or checking account balance for the business, also sometimes referred to as “cash and cash equivalents” or “CCE.”

A cash equivalent is an asset that is liquid and can be converted to cash immediately, like a money market account or a treasury bill.

Accounts receivable

Accounts receivable is money people are supposed to pay you, but that you have not actually received yet (hence the “receivables”).

Usually, this money is sales on credit, often from business-to-business (or “B2B”) sales, where your business has invoiced a customer but has not received payment yet.

Inventory includes the value of all of the finished goods and ready materials that your business has on hand but hasn’t sold yet.

Current assets

Current assets are those that can be converted to cash within one year or less. Cash, accounts receivable, and inventory are all current assets, and these amounts accumulated are sometimes referenced on a balance sheet as “total current assets.”

Long-term assets

Long-term assets are also referred to as “fixed assets” and include things that will have a long-standing value, such as land or equipment. Long-term assets typically cannot be converted to cash quickly.

Accumulated depreciation

Accumulated depreciation reduces the value of assets over time. For example, if a business purchases a car, the car will lose value as time goes on.

Total long-term assets

Total long-term assets is used to describe long-term assets plus depreciation on a balance sheet.

Liabilities

Like assets, liabilities are ordered by how quickly a business needs to pay them off. Current liabilities are typically due within one year. Long-term liabilities are due at any point after one year.

Accounts payable

Accounts payable is the money that your business owes to other vendors, the other side of the coin to “accounts receivable.” Your accounts payable number is the regular bills that your business is expected to pay.

Pay attention to whether this number is exceedingly high, especially if your business doesn’t have enough to cover it.

Sales taxes payable

This only applies to businesses that don’t pay sales tax right away, for example, a business that pays its sales tax each quarter. That might not be your business, so if it doesn’t apply, skip it.

Short-term debt

This is debt that you have to pay back within a year—usually any short-term loan. This can also be referred to on a balance sheet as a line item called current liabilities or short-term loans. Your related interest expenses don’t go here or anywhere on the balance sheet; those should be included in the income statement.

Total current liabilities

The above numbers added together are considered the current liabilities of a business, meaning that the business is responsible for paying them within one year.

Long-term debt

These are the financial obligations that it takes more than a year to pay back. This is often a hefty number, and it doesn’t include interest. For example, this number reflects long-term loans on things like buildings or expensive pieces of equipment. It should be decreasing over time as the business makes payments and lowers the principal amount of the loan.

Total liabilities

Everything listed above that you have to pay out or back is added together.

This is the sum of all shareholder money invested in the business and accumulated business profits. Owner’s equity includes common stock, retained earnings, and paid-in-capital.

Paid-in capital

Money is paid into the company as investments. This is not to be confused with the par value or market value of stocks. This is actual money paid into the company as equity investments by owners.

Retained earnings

Earnings (or losses) that have been reinvested into the company, that have not been paid out as dividends to the owners. When retained earnings are negative, the company has accumulated losses. This can also be referred to as “shareholder’s equity.”

This doesn’t apply to all legal structures for a business; if you are a pass-through tax entity , then all profits or losses will be passed on to owners, and your balance sheet should reflect that.

Net earnings

This is an important number—the higher it is, the more profitable your company is. This line item can also be called income or net profit. Earnings are the proverbial “bottom line”: sales less costs of sales and expenses.

Total owner’s equity

Equity means business ownership, also called capital. Equity can be calculated as the difference between assets and liabilities. This can also be referred to as “shareholder’s equity” or “stockholder’s equity.”

Total liabilities and equity

This is the final equation I mentioned at the beginning of this post, assets = liabilities + equity.

• How to use the balance sheet

Your balance sheet can provide a wealth of useful information to help improve financial management. For example, you can determine your company’s net worth by subtracting your balance sheet liabilities from your assets, as noted above.

Overall, the balance sheet gives you insights into the health of your business. It’s a snapshot of what you have (assets) and what you owe (liabilities). Keeping tabs on these numbers will help you understand your financial position and if you have enough cash to make further investments in your business.

Perhaps the most useful aspect of your balance sheet is its ability to alert you to upcoming cash shortages. After a highly profitable month or quarter, for example, business owners sometimes get lulled into a sense of financial complacency if they don’t consider the impact of upcoming expenses on their cash flow .

There are two easy-to-figure ratios that can be computed from the balance sheet to help determine whether your company will have sufficient cash flow to meet current financial obligations:

Current ratio

This measures liquidity to show whether your company has enough current (i.e., liquid) assets on hand to pay bills on-time and run operations effectively. It is expressed as the number of times current assets exceeds current liabilities.

The higher the current ratio, the better. A current ratio of 2:1 is generally considered acceptable for inventory-carrying businesses, although industry standards can vary widely. The acceptable current ratio for a retail business, for example, is different from that of a manufacturer.

Current ratio formula

Current Assets / Current Liabilities

Quick ratio

This ratio is similar to the current ratio but excludes inventory. A quick ratio of 1.5:1 is generally desirable for non-inventory-carrying businesses, but—just as with current ratios—desirable quick ratios differ from industry to industry.

Quick ratio formula

Current Assets – Inventory / Current Liabilities

Knowing your industry’s standards is an important part of evaluating your business’s balance sheet effectively.

• The limits of the balance sheet

Remember, the balance sheet alone doesn’t give you a complete view of your business finances. You’ll want to keep tabs on your profit & loss statement (income statement) and cash flow as well.

Your profit & loss statement will show you the sales you are making and your business expenses and calculates your profitability. This is crucial for understanding the core economics of your business and if you’re building a profitable business, or not.

Your cash flow forecast shows how cash is moving in and out of your business and can help you predict your future cash balances. Fast growth can reduce cash quickly, especially for businesses that carry inventory, so this is a crucial statement to pay attention to as well.

The three statements all work together to provide you with a complete picture of your business. The balance sheet also helps illustrate how cash and profits are very different things .

• Example of a balance sheet

Large businesses will have longer and more complex balance sheets for their businesses, sometimes having separate balance sheets for different segments or departments of their business. A small business balance sheet will be more straightforward and have fewer line items.

Here is a balance sheet from Apple, for example. You’ll see that it includes a complex stockholder’s equity section and several specifically itemized types of long-term assets and liabilities.

Apple’s balance sheet .

You’ll also notice that it says “Period Ending” at the top; this indicates that these numbers are reflective of the time up until the date listed at the top of the column. This terminology is used when you are reporting actual values, not creating a financial forecast for the future.

• Get familiar with your balance sheet

Most companies should update their balance once a month, or whenever lenders ask for an updated balance sheet. Today’s accounting software programs will create your balance sheet for you, but it’s up to you to enter accurate information into the program to generate useful data to work from.

The balance sheet can be an extremely useful financial tool for businesses that understand how to use it properly. If you’re not as familiar with your balance sheet as you’d like to be, now might be a good time to learn more about the workings of your balance sheet and how it can help improve financial management.

Create your balance sheet easily by downloading our Balance Sheet Template , and check out our full guide to write your financial plan.

Trevor is the CFO of Palo Alto Software, where he is responsible for leading the company’s accounting and finance efforts.

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Business Plan Example and Template

Learn how to create a business plan

What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

• Present the company’s mission.
• Describe the company’s product and/or service offerings.
• Give a summary of the target market and its demographics.
• Summarize the industry competition and how the company will capture a share of the available market.
• Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

• Describe the company’s position in the industry.
• Describe the existing competition and the major players in the industry.
• Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

• Define your target market, their needs, and their geographical location.
• Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
• Give an overview of the estimated sales volume vis-à-vis what competitors sell.
• Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

• Describe the products that the company will offer for sale and its unique selling proposition.
• List the different advertising platforms that the business will use to get its message to customers.
• Describe how the business plans to price its products in a way that allows it to make a profit.
• Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

• Describe the organizational structure of the company.
• List the owners of the company and their ownership percentages.
• List the key executives, their roles, and remuneration.
• List any internal and external professionals that the company plans to hire, and how they will be compensated.
• Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

• Describe the location of the business, including office and warehouse requirements.
• Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
• Describe the manufacturing process, and the time it will take to produce one unit of a product.
• Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
• Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

• Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

• Quotes of building and machinery leases
• Proposed office and warehouse plan
• Market research and a summary of the target market
• Credit information of the owners
• List of product and/or services

Related Readings

Thank you for reading CFI’s guide to Business Plans. To keep learning and advancing your career, the following CFI resources will be helpful:

• Corporate Structure
• Three Financial Statements
• Business Model Canvas Examples
• See all management & strategy resources
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• Building Your Business
• Becoming an Owner
• Business Plans

Writing a Business Plan—Financial Projections

Spell out your financial forecast in dollars and sense

Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it can be difficult to predict your financial performance three years down the road, especially if you are still raising seed money. Regardless, short- and medium-term financial projections are a required part of your business plan if you want serious attention from investors.

The financial section of your business plan should include a sales forecast , expenses budget , cash flow statement , balance sheet , and a profit and loss statement . Be sure to follow the generally accepted accounting principles (GAAP) set forth by the Financial Accounting Standards Board , a private-sector organization responsible for setting financial accounting and reporting standards in the U.S. If financial reporting is new territory for you, have an accountant review your projections.

Sales Forecast

As a startup business, you do not have past results to review, which can make forecasting sales difficult. It can be done, though, if you have a good understanding of the market you are entering and industry trends as a whole. In fact, sales forecasts based on a solid understanding of industry and market trends will show potential investors that you've done your homework and your forecast is more than just guesswork.

In practical terms, your forecast should be broken down by monthly sales with entries showing which units are being sold, their price points, and how many you expect to sell. When getting into the second year of your business plan and beyond, it's acceptable to reduce the forecast to quarterly sales. In fact, that's the case for most items in your business plan.

Expenses Budget

What you're selling has to cost something, and this budget is where you need to show your expenses. These include the cost to your business of the units being sold in addition to overhead. It's a good idea to break down your expenses by fixed costs and variable costs. For example, certain expenses will be the same or close to the same every month, including rent, insurance, and others. Some costs likely will vary month by month such as advertising or seasonal sales help.

Cash Flow Statement

As with your sales forecast, cash flow statements for a startup require doing some homework since you do not have historical data to use as a reference. This statement, in short, breaks down how much cash is coming into your business on a monthly basis vs. how much is going out. By using your sales forecasts and your expenses budget, you can estimate your cash flow intelligently.

Keep in mind that revenue often will trail sales, depending on the type of business you are operating. For example, if you have contracts with clients, they may not be paying for items they purchase until the month following delivery. Some clients may carry balances 60 or 90 days beyond delivery. You need to account for this lag when calculating exactly when you expect to see your revenue.

Profit and Loss Statement

Your P&L statement should take the information from your sales projections, expenses budget, and cash flow statement to project how much you expect in profits or losses through the three years included in your business plan. You should have a figure for each individual year as well as a figure for the full three-year period.

Balance Sheet

You provide a breakdown of all of your assets and liabilities in the balances sheet. Many of these assets and liabilities are items that go beyond monthly sales and expenses. For example, any property, equipment, or unsold inventory you own is an asset with a value that can be assigned to it. The same goes for outstanding invoices owed to you that have not been paid. Even though you don't have the cash in hand, you can count those invoices as assets. The amount you owe on a business loan or the amount you owe others on invoices you've not paid would count as liabilities. The balance is the difference between the value of everything you own vs. the value of everything you owe.

Break-Even Projection

If you've done a good job projecting your sales and expenses and inputting the numbers into a spreadsheet, you should be able to identify a date when your business breaks even—in other words, the date when you become profitable, with more money coming in than going out. As a startup business, this is not expected to happen overnight, but potential investors want to see that you have a date in mind and that you can support that projection with the numbers you've supplied in the financial section of your business plan.

Additional Tips

When putting together your financial projections, keep some general tips in mind:

• Get comfortable with spreadsheet software if you aren't already. It is the starting point for all financial projections and offers flexibility, allowing you to quickly change assumptions or weigh alternative scenarios. Microsoft Excel is the most common, and chances are you already have it on your computer. You can also buy special software packages to help with financial projections.
• Prepare a five-year projection . Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict. However, have the projection available in case an investor asks for it.
• Offer two scenarios only . Investors will want to see a best-case and worst-case scenario, but don’t inundate your business plan with myriad medium-case scenarios. They likely will just cause confusion.
• Be reasonable and clear . As mentioned before, financial forecasting is as much art as science. You’ll have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow, and how effective you’ll be at collecting on accounts receivable. It’s best to be realistic in your projections as you try to recruit investors. If your industry is going through a contraction period and you’re projecting revenue growth of 20 percent a month, expect investors to see red flags.

• Business Planning

Business Plan Financial Projections

Written by Dave Lavinsky

Financial projections are forecasted analyses of your business’ future that include income statements, balance sheets and cash flow statements. We have found them to be an crucial part of your business plan for the following reasons:

• They can help prove or disprove the viability of your business idea. For example, if your initial projections show your company will never make a sizable profit, your venture might not be feasible. Or, in such a case, you might figure out ways to raise prices, enter new markets, or streamline operations to make it profitable. 
• Financial projections give investors and lenders an idea of how well your business is likely to do in the future. They can give lenders the confidence that you’ll be able to comfortably repay their loan with interest. And for equity investors, your projections can give them faith that you’ll earn them a solid return on investment. In both cases, your projections can help you secure the funding you need to launch or grow your business.
• Financial projections help you track your progress over time and ensure your business is on track to meet its goals. For example, if your financial projections show you should generate $500,000 in sales during the year, but you are not on track to accomplish that, you’ll know you need to take corrective action to achieve your goal.

Below you’ll learn more about the key components of financial projections and how to complete and include them in your business plan.

What Are Business Plan Financial Projections?

Financial projections are an estimate of your company’s future financial performance through financial forecasting. They are typically used by businesses to secure funding, but can also be useful for internal decision-making and planning purposes. There are three main financial statements that you will need to include in your business plan financial projections:

1. Income Statement Projection

The income statement projection is a forecast of your company’s future revenues and expenses. It should include line items for each type of income and expense, as well as a total at the end.

There are a few key items you will need to include in your projection:

• Revenue: Your revenue projection should break down your expected sales by product or service, as well as by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Expenses: Your expense projection should include a breakdown of your expected costs by category, such as marketing, salaries, and rent. Again, it is important to be realistic in your estimates.
• Net Income: The net income projection is the difference between your revenue and expenses. This number tells you how much profit your company is expected to make.

Sample Income Statement

2. Cash Flow Statement & Projection

The cash flow statement and projection are a forecast of your company’s future cash inflows and outflows. It is important to include a cash flow projection in your business plan, as it will give investors and lenders an idea of your company’s ability to generate cash.

There are a few key items you will need to include in your cash flow projection:

• The cash flow statement shows a breakdown of your expected cash inflows and outflows by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Cash inflows should include items such as sales revenue, interest income, and capital gains. Cash outflows should include items such as salaries, rent, and marketing expenses.
• It is important to track your company’s cash flow over time to ensure that it is healthy. A healthy cash flow is necessary for a successful business.

Sample Cash Flow Statements

3. Balance Sheet Projection

The balance sheet projection is a forecast of your company’s future financial position. It should include line items for each type of asset and liability, as well as a total at the end.

A projection should include a breakdown of your company’s assets and liabilities by category. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.

It is important to track your company’s financial position over time to ensure that it is healthy. A healthy balance is necessary for a successful business.

Sample Balance Sheet

How to Create Financial Projections

Creating financial projections for your business plan can be a daunting task, but it’s important to put together accurate and realistic financial projections in order to give your business the best chance for success.  

Cost Assumptions

When you create financial projections, it is important to be realistic about the costs your business will incur, using historical financial data can help with this. You will need to make assumptions about the cost of goods sold, operational costs, and capital expenditures.

It is important to track your company’s expenses over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Capital Expenditures, Funding, Tax, and Balance Sheet Items

You will also need to make assumptions about capital expenditures, funding, tax, and balance sheet items. These assumptions will help you to create a realistic financial picture of your business.

Capital Expenditures

When projecting your company’s capital expenditures, you will need to make a number of assumptions about the type of equipment or property your business will purchase. You will also need to estimate the cost of the purchase.

When projecting your company’s funding needs, you will need to make a number of assumptions about where the money will come from. This might include assumptions about bank loans, venture capital, or angel investors.

When projecting your company’s tax liability, you will need to make a number of assumptions about the tax rates that will apply to your business. You will also need to estimate the amount of taxes your company will owe.

Balance Sheet Items

When projecting your company’s balance, you will need to make a number of assumptions about the type and amount of debt your business will have. You will also need to estimate the value of your company’s assets and liabilities.

Financial Projection Scenarios

Write two financial scenarios when creating your financial projections, a best-case scenario, and a worst-case scenario. Use your list of assumptions to come up with realistic numbers for each scenario.

Presuming that you have already generated a list of assumptions, the creation of best and worst-case scenarios should be relatively simple. For each assumption, generate a high and low estimate. For example, if you are assuming that your company will have $100,000 in revenue, your high estimate might be $120,000 and your low estimate might be $80,000.

Once you have generated high and low estimates for all of your assumptions, you can create two scenarios: a best case scenario and a worst-case scenario. Simply plug the high estimates into your financial projections for the best-case scenario and the low estimates into your financial projections for the worst-case scenario.

Conduct a Ratio Analysis

A ratio analysis is a useful tool that can be used to evaluate a company’s financial health. Ratios can be used to compare a company’s performance to its industry average or to its own historical performance.

There are a number of different ratios that can be used in ratio analysis. Some of the more popular ones include the following:

• Gross margin ratio
• Operating margin ratio
• Return on assets (ROA)
• Return on equity (ROE)

To conduct a ratio analysis, you will need financial statements for your company and for its competitors. You will also need industry average ratios. These can be found in industry reports or on financial websites.

Once you have the necessary information, you can calculate the ratios for your company and compare them to the industry averages or to your own historical performance. If your company’s ratios are significantly different from the industry averages, it might be indicative of a problem.

Be Realistic

When creating your financial projections, it is important to be realistic. Your projections should be based on your list of assumptions and should reflect your best estimate of what your company’s future financial performance will be. This includes projected operating income, a projected income statement, and a profit and loss statement.

Your goal should be to create a realistic set of financial projections that can be used to guide your company’s future decision-making.

Sales Forecast

One of the most important aspects of your financial projections is your sales forecast. Your sales forecast should be based on your list of assumptions and should reflect your best estimate of what your company’s future sales will be.

Your sales forecast should be realistic and achievable. Do not try to “game” the system by creating an overly optimistic or pessimistic forecast. Your goal should be to create a realistic sales forecast that can be used to guide your company’s future decision-making.

Creating a sales forecast is not an exact science, but there are a number of methods that can be used to generate realistic estimates. Some common methods include market analysis, competitor analysis, and customer surveys.

Create Multi-Year Financial Projections

When creating financial projections, it is important to generate projections for multiple years. This will give you a better sense of how your company’s financial performance is likely to change over time.

It is also important to remember that your financial projections are just that: projections. They are based on a number of assumptions and are not guaranteed to be accurate. As such, you should review and update your projections on a regular basis to ensure that they remain relevant.

Creating financial projections is an important part of any business plan. However, it’s important to remember that these projections are just estimates. They are not guarantees of future success.

Business Plan Financial Projections FAQs

What is a business plan financial projection.

A business plan financial projection is a forecast of your company's future financial performance. It should include line items for each type of asset and liability, as well as a total at the end.

What are annual income statements? 

The Annual income statement is a financial document and a financial model that summarize a company's revenues and expenses over the course of a fiscal year. They provide a snapshot of a company's financial health and performance and can be used to track trends and make comparisons with other businesses.

What are the necessary financial statements?

The necessary financial statements for a business plan are an income statement, cash flow statement, and balance sheet.

How do I create financial projections?

You can create financial projections by making a list of assumptions, creating two scenarios (best case and worst case), conducting a ratio analysis, and being realistic.

Business Financial Plan

A business financial plan is a critical and crucial document for companies and different kinds of business establishments. Whether you are a small start-up or an established corporation, it is necessary for you to create a business financial plan as it can help you achieve your desired financial condition and other strategic objectives. The financial planning process will allow you to identify the key points of your financial needs as well as the ways on how you can let the organization realize its financial goals.

• How Will a Financial Plan Be Useful for Me?
• Import/Export Business Plan Examples

Financial Plan Template

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Size: A4, US

Example Business Financial Plan Template

Micro Finance Business Plan Example

Financial Advisor Business Plan Example

Financial Plan for Start-Up Business Template

We listed a number of business financial plan templates and examples that you can use as document guides and references if you want to start creating your business’s own financial plan document. The examples available in this post can make it easier and faster for you to develop the format and discussion flow of your business plans .

Financial Plan Template Example

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Financial Planning Template Guideline Example

Size: 300 KB

Financial Planning for Small Businesses

Size: 338 KB

Importance of a Well-Formulated Business Financial Plan

A  financial adviser marketing plan  can help you select the best financial adviser that you can work with so that you can better the financial standing of your business. However, having a professional help you is not enough to maintain the efficiency and effectiveness of your financial actions. One of the documents that you can use to sustain your financial processes is a business financial plan. This document can also help you a lot if you want to grow as a business in terms of your finances. A few of the reasons why it is important for you to have a well-formulated business financial plan include the following:

• Having a business financial plan at hand can help your organization determine and focus on your financial goals may they be short-term or long-term. Being able to identify your objectives and goals can help you to balance and look into all the elements and factors that can affect your financial growth as a business. You may also see annual plans .
• Creating a business financial plan can promote communication between different business departments. This can ensure the management that all the stakeholders who are involved in the implementation of the business financial plan are fully aware of their tasks and obligations. Through this, ownership of responsibilities can be established.
• Developing a business financial plan can help you better manage your corporate finances. Some companies are not that sure where to start when it comes to financial planning. Having a business financial plan can help you have an easier time when dealing with the factors and elements that are needed to be put together so you can come up with strategies and tactics aligned with your financial vision and ability to execute call to actions. You may also see event budget examples .
• Making a business financial plan can give your business an idea about the expertise and skills that you need to look for when executing your financial plan. However, you have to remember that working with experts should not start in the processes of implementation as you need professional opinion and guidance from the very beginning of your financial planning undertaking. You may also see advertising plans .

Financial Business Plan and Budget Example

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Financial Plan Format Example

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Steps in Making a Business Financial Plan

Bridging the gap between your current financial condition and your financial aspiration can be overwhelming and intimidating. This is why you need to be well-guided in the implementation of your action plans that involve your finances and how you use them for your business operations. Here are the steps that you can follow when developing a simple and basic business financial plan:

• Create a team of professionals that can help you make a business financial plan appropriately. It is important for you to work with people who can add value to the planning processes of your finances. List down all the deliverable that are needed for the financial planning of your business so you can identify the people who are fit for the job.
• Identify your corporate goals. The  objectives of your business financial plan must be aligned with the things that you also would like to achieve as a business entity. Ensure that the vision of your business can be reflected in your business financial plan so that the successes of the document and its implementation can benefit the entire organization. You may also see  company plan examples .
• Assess the current financial condition of your business. This can help you identify the financial processes and decisions that can either positively or negatively impact your business. This will allow you to retain the activities that work to your advantage and remove the processes that can only ruin the financial sustainability of the business. You may also see strategic plan examples .
• List down your strengths so you can resort to them whenever needed. More so, present all the weak spots of your financial condition so you can work on them. Knowing your strengths and weaknesses can help your business financial plan to discuss the opportunities that you can take and the threats that you need to look into and prepare for. You may also see network marketing business plan examples .
• Put together all the business financial plans that you would like to realize based on your goals and objectives. Focus on the concerns that you would like to address and the plan of actions that you want to execute for the betterment of the business. Create call to actions that can be achieved with the help of your workforce and other stakeholders. You may also see business plan executive summary examples .
• Develop an immediate plan that will allow you to know how you can budget or use your finances. You can create a short-term, medium-term, and long-term plan depending on the attainability level of your vision and the realistic implementation of your desired actions.
• Review the entire business financial plan and incorporate adjustments or any other changes when necessary. Develop and update the document as you progress in your business financial planning and action plan implementation so you can maintain its relevance. You may also see  business plan outline examples .

Business Plan with Financial Updating and Forecasting Guide

Size: 96 KB

Comprehensive Financial Plan for Business

Do You Really Need a Business Financial Plan?

Have you ever asked yourself on why a business financial plan is still used nowadays in various industries even if businesses can resort to the usage of other documents and/or processes when evaluating their financial decisions? The underlying reason behind this is most likely the effectiveness of the document which can be observed in the improvement of a company’s financial condition. Listed below are some of the reasons why it is essential for you to come up with a business financial plan:

• A business financial plan can allow you to list down all the realistic and measurable call to actions that your business can follow. Developing a document that can make it easier for you to implement the things that are necessary for the achievement of your financial goals can positively impact your business and the way it functions as a corporate entity. You may also see importance of business plan examples .
• A business financial plan can make you become more aware of the current financial status of your business and the analysis of your current condition as a corporate entity in terms of your finances. Moreover, it can give you an idea on where your money is going and whether you are efficient enough when it comes to allocating, using, and saving your financial resources. Understanding the flow of money within your business can make it more efficient for you to think of ways on how you can maximize the amount that you spend for particular undertakings. You may also see  bar business plan examples .
• A business financial plan showcases the direction that you can follow so you can take care of your financial future. It is crucial for you to have a document that can serve as your guide whenever you execute action steps involving the finances of your business. Mapping your financial plan can make your business operations become more sustainable which in turn can allow you to better your professional relationships with your stakeholders. You may also see  market analysis business plan examples .
• A business financial plan can teach you  what you should know about financial analysis for small business plans  and even for bigger-scale business planning documents. With the presence of this document, you can make sure that there is a proper assessment of your financial actions, strategies, tactics, and plans. This can help you execute necessary adjustments so that you can potentially reach your goals and objectives as well as realize your financial vision for the organization.

Financial Planning and Business Management Discussion Example

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Business Planning and Financial Forecasting Start-Up

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Business Financial Planning Example

Tips in Making a Business Financial Plan

As a business document, a financial plan promotes awareness of your current corporate financial condition while ensuring that the gathered information can be used to improve the financial standing of the business. This document deals with the programs and activities that are needed for financial growth as well as the resources that the business needs to execute its action plans. A few of the tips that can help you make a highly functional business financial plan include the following:

• Establish a goal and a purpose. Your business financial plan should be guided by a vision so you can make sure that you will develop a relevant and measurable plan for your organization. It is important for you to be aware of what you would like to achieve so you can be focused with the things that you need to prioritize. You may also see  hotel operational business plan examples .
• Just like when creating a  financial consulting business plan , you need to give importance to the clarity of your discussion within a business financial plan. Create an understandable and organized document that contains an in-depth discussion of your financial condition, goals, and plans.
• Be aware of the factors that can affect the effective usage of your business financial plan as well as the elements that are needed to be present and at hand so that your business can achieve its organizational and financial objectives. You have to study the different areas of the business and the trends that are present in various financial reports so you can thoroughly identify how particular activities impact your profitability and financial sustainability. You may also see  implementation plan examples .
• Properly set the timeline of your business financial plan. For your goals to be attainable, you need to ensure that the time frame that you will follow is feasible. Knowing the time duration for each plan of action as well as the dates where milestones must be achieved and/or results are expected to show up can help you assess the success of your business financial plan accordingly. You may also see  risk plan examples .
• Remember that business financial planning is a continuous process. You have to ensure that you will not just look into the output that you would like to have. You need to work in all the phases or areas of your business’s financial planning processes so you can ensure that you can come up with a useful document. You may also see  bookkeeping business plan examples .
• Identify the financial barriers and hindrances for growth that the business is currently facing. In this way, you can also list down different activities and programs that can help you be prepared when facing risks and threats. Knowing the things that stop your business from growing financially can also make it easier for you to implement counteractions in a timely manner. You may also see  lawn care business plan examples .

If you do not know where to start when making a business financial plan, make sure to check out the examples that we have provided you with in this post. Browse through these examples and identify the ones that you can use as your content and formatting guides so you can develop a business financial plan with ease. You may also see  network marketing business plan examples .

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