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If you’ve ever drafted a traditional business plan or a lean startup plan, you know that it’s highly important to outline your startup’s finances. Traditional business plans require financial projections (what the cash flow looks like for your business) and a financing request, which outlines the amount of funding you’d like to request from investors.
Many entrepreneurs need funding from outside investors, so they thoroughly cover the financial section in their business plan. However, even if you don’t need funding, it’s still a good idea to compile this information to better understand the numbers behind your business. If you’ve never written this part of a business plan before, we rounded up the key areas that should be included.
What goes in your financial projections?
As mentioned earlier, this section gives readers a look at your startup’s cash flow. At the bare minimum, you should be able to provide three types of financial statements:
- A cash flow statement, broken down into 12 months, that shows money moving in and out of your startup. Note that the 12 month timeline is generally for brand new startups, while more established businesses are projected a couple of years out.
- An income (or profit and loss) statement that uses numbers from documents, like your cash flow statement, to forecast finances for the next three years.
- A balance sheet to deal with assets and liabilities.
By including these three documents, investors are given the understanding that while you are focused on sales, you are also taking into consideration retained earnings and the amount of money you plan to leave in the startup.
This section of your business plan also tends to be table-heavy, as it includes graphs and charts that cover the following areas:
- A sales forecast that projects what the course of your sales has been like throughout the last three years. It’s key to be realistic here (and all throughout each section of your financial projections) rather than guessing or inflating the numbers in an effort to impress investors.
- Your expenses budget, which allows you to better understand how much it will cost to make the sales you forecast, and differentiates between fixed costs (like payroll) and variable costs (like marketing expenses).
- A break-even analysis which builds to that big moment in business when your expenses match the volume of your sales.
What goes in your financing request?
Entrepreneurs seeking funding will need to clearly outline the amount of money requested, how it will be spent and the manner in which it will be spent in their financing request. Aside from covering these three points, be sure to address the following areas, as well:
- A summary of your business. While your business plan has likely already covered what your business does and its audience, it’s still a good idea to include a summary along with key details such as whether or not your business has incorporated and the type of legal entity it is classified as.
- Your financial situation. Many of these details can be found in your financial projections, including cash flow and income statements. Use this space to further outline the return on investment investors will receive from investing in your startup, your plan for paying off any outstanding debt, and if anything could potentially affect your ability to repay the funding request.
As time progresses, it’s a good idea to return to your business plan and make revisions. Revisit your financial projections and keep updating the numbers to reflect any changes, both positive or negative, that have taken place.