This part of the business plan will allow a funder to get an idea of your business’s attractiveness on the financial level: its main objective is, therefore, to convince the reader of the viability and profitability of your project. Thus, it is necessary to have identified the financial needs and value of the project while emphasizing its sustainability. These factors help protect you financially into the months and years ahead and help bankers or investors determine whether or not to invest in your business. This part also gives the project leader an image, reflecting his mastery of figures and his credibility.
Financial part business plan
This article will find five essential points to remember the purpose of preparing business plan.
1) 5 major financial tables
The majority of business plans have in common the presence of 5 tables in their financial part, essential in the eyes of investors for the understanding of your project:
Provisional income statement: It reflects the economic activity of the company over the financial year. It includes all income and expenses and makes it possible to express a result, positive or negative.
Provisional balance sheet: It gives a “snapshot” of the company’s assets on time.
Provisional financing plan: It makes it possible to compare its needs with its resources to ensure that the project has a financial balance.
The cash flow table allows us to analyze the actual inflows and outflows of monthly money to determine its net cash flow.
Old management intermediaries: They make it possible to analyze how the company’s final result is obtained.
These tables will make it possible to determine the investments necessary for the company’s operation, the expected expenses, revenues, and the final results. To be carried out successfully, this work requires great rigor from the project leader.
2) Adapt to the reader
Each of the tables mentioned above must be adapted according to the reader. Indeed, if the document is addressed to an investor, the data presented will differ from the data exposed to a banker. To obtain a loan, the repayment capacity of the entrepreneur will be highlighted. At the same time, if the project leader wishes to raise funds, he will have to insist on the concepts of dividends, capital gain, and profitability.
Real consistency must be created between the data presented and the reader so that the figures are as understandable as possible for all stakeholders. However, it should not be forgotten that the financial part must remain completely ” readable “: Even a person foreign to the field of finance or accounting must be able to understand your data. Therefore, it is necessary to keep it simple and not to multiply the assumptions that could harm the understanding of your project.
3) Be realistic and honest
During the construction of the business plan’s the question raise in our minds why financial planning is important for all of us for startups; the project leader may be tempted to inflate its numbers, results, thinking that a reader will be delighted to see strong growth and profitability in the 1 st year. However, disguised figures will probably have the opposite effect. Investors or bankers are not fooled, and they will not trust you or your project if necessary. It must be assumed that all the figures displayed on the financial part of the business plan are a simple digital translation of your “editorial” file (market study, concept, stakeholders). They cannot, in any case, be enhanced to gain credibility. Therefore, we must not forget that this part is not a part disconnected from the rest of the business plan. The action plan must be the same in the financial part and the strategic part.
If, during the preparation of your forecast, the expenses are higher than the inputs, do not increase sales to fill this gap, but take the opportunity to re-question yourself, review your business model, or the project as a whole. Know that any good business plan goes through many redesigns and reiterations, and it is normal to change data along the way.
4) Show the profitability of the project
Profitability being the main objective of many businesses, you will need to set it out in the financial part of your business plan. The provisional operating account (balance sheet + income statement) allows many answers concerning profitability by putting in parallel the expected income and expected expenses. But profitability can be estimated using several indicators.
A) Return on investment (ROI):
It allows you to assess the amount of money won or lost compared to the amount initially invested. ROI can also be referred to as the rate of return, rate of profit maximization. Take the example of an investment of $ 1,000, earning $ 100 in interest. The return on investment will therefore be 100/1000, or 10%.
B) Return on capital employed (ROE):
Ratio measures how the company spends the money invested by shareholders. It is obtained by comparing the net income received by investors with the funds they have injected.
It measures the creation of value brought by the project: It makes it possible to perceive whether a project is profitable. To calculate it, you have to compare the gains of a project compared to its initial investment. Its calculation formula will be:
D) The internal rate of return (IRR):
This ratio is an “investment decision” tool; it allows you to assess a project’s profitability compared to other financial investments. This is the discount rate for which the net present value is equal to 0. Therefore, the IRR must be greater than the discount rates of the net present value for an investment project to be selected.
5) Present a detailed plan
Nowadays, the majority of financial plans are built over 3 to 5 years. There is no real “rule” regarding the forecast time frame, but we recommend a 3-year timeline, as detailed as possible. By “detailed”, we mean a detailed financial plan month by month, with an annual summary to allow the reader to have an overview of the projections, but above all, to provide you with a more precise action plan. This “month by month” projection could be structured as follows: “Hiring of an employee in June, then of a second employee in November following the validation of objective X” or “Purchase of X $ of material in July following the achievement of objective Y ”.
In addition to being beneficial for you, this difficult exercise will show your seriousness, organization, and appetite for numbers to your business plan’s readers.
What role for the financial part of the business plan?
In conclusion, this financial part should not be considered the most important part of your business plan. Indeed, it is difficult to accurately predict your business development, and your financial forecast will never be exact. This part must, all the same, be connected to the other parts (strategy, market study, stakeholders, etc.): It is a real digital translation of the project, and it cannot, in any case, be different from the “editorial” parts of the project—business plan.
This part will help you make better strategic decisions from the start of your business, understand and make people understand the relationships between certain variables in your business plan, and measure your project’s risks. Also, it plays a real intermediary role with investors, financiers, and many other stakeholders, thanks to the use of a common language. This part will be reworked over time but should not be neglected by the project leader.
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