Business Financial Plan Is a Key Element of the Overall Business Plan

You business financial plan is a rather important part of your business plan, even if you are a new business that has not yet made its first dollar. If you are submitting your business plan to lenders in order to secure loans for the business—start up business or ongoing business—make sure you submit three financial statements in this section. They include a balance statement or balance sheet, income statement and cash flow statement.

For the new firm, your business financial plan should include these statements projecting out for a period of one year. The bankers will have a lot of questions on how you came up with these numbers so be prepared to discuss your marketing research and marketing plan in depth when you meet with them.

For the firm that has been in business for some time, the banks will want to see three years worth of these statements. For many businesses that we have visited with lately, this is a real problem due to the recent recession. Virtually everyone has at least one of the past three years with less than profitable numbers. Entrepreneurs say that a good away to work around this is to develop a great narrative about the situation in which you found yourself at the beginning of 2009 and how your worked your way out of it. Do the bankers need more convincing? You are here! You survived!

For both the new and existing company, lenders will want to know about sources of funding, capital equipment and forecast of income and cash flow. Typically, lenders will want to see a business tax return and the personal tax return of the owner of the existing business and the personal tax return of the entrepreneur who is starting a new business (no tax returns have yet been filed for the business).

For the existing company and for the new company, the business financial plan statements are an interrelation of six key elements of the business that the typical entrepreneur spends an ungodly amount of his or her time focused on -- revenue, expense, profit (loss), assets, liabilities and the all important net worth.

Business Financial Statements Defined

Let’s define each of the above-mentioned statements to determine what is involved in putting them together.

What is a balance statement? The balance statement represents the basic accounting equation … Assets - Liabilities = Net Worth. This number measures the value of a business at a given point in time. There are templates available to create a balance statement for your business. Go to this web page on the Small Business Administration's website for a an interactive business statement template.(You will need to click forward on this training program to get to the proper page, then click on balance statement templates.)

What is an income statement? The business’s income statement details how it has performed over a period of time—perhaps the last six months or one year. It is also called a profit and loss statement or income and expense statement. It measures business performance over specific period of time. The equation is: Revenue – Expenses = Profit (Loss). Go to this web page on the Small Business Administration's website for an interactive income statement template. (You will need to click forward on this training program to get to the proper page, then click on income statement templates.)

What is a cash flow statement? The cash flow statement is used to monitor incoming and outgoing cash on a monthly basis. If your cash flow statement is negative, there is more money going out than coming in…an unsustainable condition for your business. Go to this web page on the Small Business Administration's website for an interactive cash flow template.(You will need to click forward on this training program to get to the proper page, then click on cash flow statement templates.)

Putting Your Business Financial Plan Together

Putting together these projected statements are time consuming and difficult for the new business. For the ongoing business that uses one of the small business financial software packages, such as Quickbooks, putting these statements together is a snap. In Quickbooks, for example, when you want a particular report, you click on a “reports” section, click on the type of report you want, input in the date range and presto! you can print out the report.

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