Writing Section 2 of Business Plan: Financial Data

Section Two: Financial Data
A. Projected Financial Statements
The basic purposes of financial projections are:
• Establish the profit potential of the business, given reasonable assumptions
• Determine how much capital the company needs and how it will be used
• Demonstrate the business can generate the cash to operate and re-pay loans
It is usually helpful, but not necessary, to complete at least a rough draft of Section
One (the written section) before attempting the financial section.  In the written
section, you will develop and describe your strategies for the business.  In the
financial section, you will estimate the financial impact of those strategies by
developing projected Income Statements, Balance Sheets, and Cash Flow Statements.
It is usually recommended that these projected statements be on a monthly basis for
at least the first twelve months or until the business is profitable and stable.  Activity
displayed beyond the monthly detail may be in summary form (such as quarterly or
annually.)  The forecast period for most business plans is two to four years.
Before you start developing projected financial statements, gather the suggested
information on the following pages.  The personal computer is an excellent tool for
financial projections; and those with a good background in accounting and personal
computer spreadsheets may want to create their own financial forecast model.  (There
are also some specialized software programs which have basic templates to help with
your financial forecast.)
The quality of your projection depends on the accuracy of the assumptions.  (Garbage
in – Garbage out.)  Existing businesses will rely heavily on past financial results as the
basis for their forecasts.  Start-ups have greater challenges.  They must do extensive
research to prove the reasonableness of their numbers.  Examples of sources include:
Industry data from public sources and trade associations, personal interviews with
potential customers and people in the business, competitive observation and analysis,
etc.

Leave a Reply