Business Plan Financial Forecasts

An important section of your business plan contains the financial forecasts you have (or will) develop for your new business. The most commonly used business plan financial forecasts include:

• Sources and Applications of Funds
• Capital Equipment Register
• Balance Sheet
• Breakeven Analysis
• Income Statement Projections
• Cash Flow Projections
• Historical Records (for an existing business)

At the very least you should include Income Statement and Cash Flow Projections in the business plan for a new business venture!

Sources and Applications of Funds

For a new business seeking funding from external sources, the statement of the sources and applications of funds is critical. This document provides an outline of where you anticipate your funding will come from and provide details of any major expenditure that are necessary to operate the business.

All of the information should be supported by copies of relevant documents such as lease agreements, contracts or quotations.

Hint: The inflows and outflows of cash relating to the items included in this statement should also appear in your Cash-flow Statement.

Capital Equipment Register

The capital equipment register is a list of all of the capital equipment you will require to commence operating your business. The list should include details like the make and model of each piece of equipment, the supplier, the likely date of acquisition and the cost.

Balance Sheet

Balance Sheets are designed to show the financial position or net worth of a business on a given date. The format of a Balance Sheet is standard across of industries and markets and if you want the reader of your business plan to take you seriously, you should not deviate from it.

The underlying equation of your Balance sheet is:

Net Worth (or Equity) equals Assets minus Liabilities.

Breakeven analysis

A Breakeven Analysis is a method of calculating the level of sales required for the business to ‘break even’. Sales below this point will mean that the business is making a loss, and sale above that point will mean that the business is making a profit.

The underlying equation of breakeven analysis is:

Breakeven Sales equal Fixed Costs plus Variable Costs

Income Statement Projections

An Income Statement calculates the net surplus of deficit as a result of trading over a specified period of time which is calculated as follows:

Income minus Expenses equals Net Surplus (Deficit)

For your business plan you should attempt to develop Income Statement Projections to cover the first (or next) three years of operation.

• Sales analysis
• Pricing
• Anticipated operating expenditure

Cash Flow Projections

Cash flow projections are all about timing and liquidity.

By the time you are developing your cash flow statement you should have developed your Income Statements and your Source and Application of Funds Statement so you will have a pretty good idea of how much cash is likely to flow in (sales) and flow out (purchases and other expenditure) of your business. The cash flow statement provides details of when these in and outflows are likely to happen and calculates the cash position (liquidity) of the business over a given period of time.

Opening Cash Balance plus Cash In minus Cash Out equals Closing Cash Balance

Historical Records (for an existing business)

If your business has been operating for some time, it is usually a good idea to report on past performance as well as provide forecasts of your likely performance in the future.

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