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A business plan contains a large amount of prose, but donors know that the numbers in the plan can make or break. These figures are presented in three basic financial statements. For a business to start these documents are "pro forma" which means they are projections of the future, since there is no financial history of the company. If the business is already operational, financial statements may include recent real numbers, the numbers present and planned objectives.
The three key financial statements of a business plan are the income statement, balance sheet and cash flow statement.
Income Statement
This statement (also called the profit and loss) shows the sales revenue, costs of doing business, other expenses, taxes, and profits (or net revenues) for periods of time. For periods prior and recently the next 1 to three years income statement generally shows the quarterly numbers to give more details. Annual data shown up to five years in the future. The statement shows the company's profitability, and these proportions as the profit margin (net income divided by revenue) can be easily derived from this statement.
Funders look at this statement to see indicators such as growth in the absolute level of revenues, the absolute level of net income and profit margin (representing the company to achieve greater efficiency in the conversion of sales to profits).
Balance Sheet
The balance sheet at Unlike the other two states, shows snapshots of the company's financial situation at certain points in time. At the end of the year, for example, balance shows the value of the assets, liabilities, and equity (sometimes called shareholders or stockholders' equity), drilling deeper into each of these categories as necessary. The word "balance" refers to the fact that the value of assets is always equal to total liabilities and stockholders' equity, creating a balance in equation (A = L + SE).
Sponsors use the balance in relation to the income statement to derive reasons such as return on assets, profitability on equity and return on invested capital. These numbers show how well the assets and investment in the company are being used to create profits.
Cash Flow
The cash flow statement, also called the statement of cash flows shows the inputs and outputs firm's cash for periods of time, like the income statement. Unlike the income statement, all numbers are in terms of cash and are generally divided into three sections, operation, financing, and investment, which covers some operations are not recognized in the income statement. Cash flows represent operating cash brought in through sales and cash paid for operating expenses and inventory. Cash flows from financing represents cash brought from lenders and investors and paid to the lenders when the principal is repaid or dividends are paid, for example. Investing cash flows are of investment in additional assets for the company, such as purchasing equipment or leasehold improvements in a rented facility.
Eric Powers is associated with Growthink, a business plan consulting firm. Since 1999, Growthink has developed business plans for more than 2,000 entrepreneurs and business owners who have raised more than $1 billion in growth capital. If you’d like professional assistance, call 800-506-5728 today for a free consultation with a Growthink business plan writer. Or, if you’re writing your plan yourself, Growthink also offers a business plan template to help you finish your plan quickly and easily.
Business Plan Fundamentals – Global Entrepreneurship Week Webinar
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