How to Write the Financial Section of a Business Plan

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One of the most critical sections of a business plan is the Financials. In fact, after reading the Executive Summary, most potential investors, partners, and creditors go directly to the Financial Section to form a preliminary assessment of the profitability of a particular business venture. As is often the case, a poorly prepared Financial Section is enough ground to utterly crush the dream business of an aspiring entrepreneur. Many business plans fail to generate the desired investment because the financial information they shared are inadequate for investors to make reliable assessment about the viability of a business. To give your business a comfortable success rate, you must ensure that you provide sufficient information about the financial aspects of your business.

If you are establishing a new venture and intend to generate startup funds, it is important that you present clear and reasonable financials that will highlight your venture's profitability. Most entrepreneurs are keen when it comes to conceptualizing new products and services but some are rather inexperienced at the math of it all. To be safe, many startup consultants advise would-be entrepreneurs to seek professional accountants to help them draw up different financial documents and accounts.

If you have been in business for some time, on the other hand, it is very likely that you already have developed the crucial habit of reviewing your company's financial statements. This would be a clear advantage when drawing up a business plan document to secure additional funding for expansion or other purposes.

Regardless of whether this is your first time at handling the reins of entrepreneurship or have been managing a business for a while, this article makes it easy for anyone to understand and apply the basic financial concepts that are commonly used in crafting effective business plans.

Main Components of the Financial Section
 

In order to create a good business plan, you should provide all the financial aspects of the business you are either managing or envisioning in a separate section often called the Financials. Experts advise entrepreneurs to carefully prepare this section because it is--at least for most sources of funding--the most important part of a business plan. Preparing a half-cooked Financial Section is a sure way to ensure the untimely demise of an otherwise brilliant business idea.

Most business plans are backed by numbers and figures that denote the current financial position of a company and/or provide projected estimates of its performance over different periods (often the company's short- to mid-term operations). The Financials should be able to generate a complete picture of how a company uses its funds, how it generates sales, and how much profit it reins in to maintain and expand the business. For potential investors and creditors, the Financials should be able to show how the business can generate returns on the investment or granted loan.

Commonly, the following financial information are included in the business plan:

1. Assumptions Sheet - This is a short summary or listing of items that explains how the Financials were prepared.
2. Profit and Loss Statement - This shows whether and how much a company is earning from its business operations. Also called Income Statement, the Profit and Loss Statement itemizes sales, sales costs, operating expenses, and profits. From the Profit and Loss statement, investors and financial analysts can compute the gross profit margin (GPM) and net income margin (NIM) of a business operation.
3. Cash-Flow Analysis - This indicates how well-funded a company is when it comes to paying its bills and other obligations. Cash flow analyses are crucial to a business plan simply because businesses run on cash.
4. Balance Sheet - Comprised of different items categorized as assets, liabilities, and equity (capital), the balance sheet shows how much a company is worth.
5. Breakeven Analysis - This subsection shows the scenario wherein sales are just enough to cover all costs and expenses related to running the business. This point is a reference for showing when a business is starting to make profits or lose money.
6. Sources and Use of Funds - This can be a simple summary or list that details how your business is capitalized.
7. Start-up Costs - This is an estimate of how much is needed to start and sustain a business until it can generate adequate profits to sustain operations. This information is necessary for start-up business plans and is also often contained in the Executive Summary and referred to as Capitalization Requirement.

How to Present Your Financials in the Executive Summary
 
The executive summary is a quick look into your business plan and should include all the vital information that will persuade investors to consider infusing funds into your business. Often, a summary of your financial position as well as your projected performance in the short to mid term is a critical element in the Executive Summary.


In addition, you should also clearly state the funding requirement as gleaned from your detailed Financial Section. This will give creditors or investors a quick idea of how much investment or loan amount your company needs in order to reach its business targets. Justify the amount by describing how it will help attain sales or growth objectives or how it will generate the desired yield for stakeholders. Describe how the desired capital will be used, the equity amount that will be infused by owners or the collateral that will be offered in case of a business loan application.

Lastly, remember that veteran business plan reviewers directly go to the Financial Section after reading the Executive Summary. That should give you an idea of how critical numbers and figures really are in the world of entrepreneurship. To ensure that your business plan reflects an acceptable level of professionalism, use top level as well as detailed financial information in the form of graphs, tables, and charts. You should also make all your assumptions clear and reasonable and the sequencing of data logical such that your financial section constitutes a solid support for your entrepreneurial vision.