10 steps for simplifying business plan financials


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10 steps for simplifying business plan financials

  1. 1. 10 Steps for Simplifying Business Plan Financial Statements10 Steps for For the best insightsSimplifying on Business Plan Financials, findingBusiness Plan good investors click hereFinancialStatements
  2. 2. 10 Steps for Simplifying Business Plan Financial StatementsFor most business owners and entrepreneurs, preparing,and communicating the financial statement section of abusiness plan is like trying to give driving directions tosomeone who doesnt speak the same language."Numbers" is the language most investors speak. But, it isalso the language that many business owners andentrepreneurs dont speak or understand.So how do you bridge this gap?1) Understand there is a difference between "crunching"or preparing the financial statements and presentingthem.Preparing business plan financial statements oftenrequires expert knowledge of double-entry accounting,taxes, merger and acquisition accounting, and finance.Skills most business owners or entrepreneurs dont have,except for perhaps the most seasoned or those withaccounting backgrounds. Presenting the numbers,however, only requires that you understand how what youplan to do translates into cash; and, what the potential
  3. 3. 10 Steps for Simplifying Business Plan Financial Statementsfinancial risks for the business are, and how youllminimize them. If you cannot demonstrate that youunderstand these, then why would an investor ever giveyou money?2) Get help early on.Okay so you dont have any money to hire a CPA or anaccountant, and they just wont do it for nothing. Reachout to your local college. Find the head of the accountingdepartment or an accounting professor. Then, see howyour project might be used to help the class learn aboutaccounting, starting a business, or building financialmodels. The point is; you need someone who understandshow to build projected financial statements based on yourspecific plans for the business. It is also important to findsomeone who can help you understand your financialstatements.3) Know the kind of investor you are seeking.This is the same as a writer taking the time to know theaudience before writing a book. For example, a bankerputs more weight on the business liquidity, collateral, and
  4. 4. 10 Steps for Simplifying Business Plan Financial Statementsability to convert assets into cash quickly if the businessruns into trouble and a loan is called. The emphasis onthese financial measures is different for a venturecapitalist whose interest is more on how quickly yourbusiness can grow, the potential future cash flow it cangenerate, and the potential for cashing out at an amountmuch higher than the initial investment.4) Present only the numbers and measures mostimportant to your type or types of investors in the body ofyour business plan.Save the more detailed financial statements for theappendix and due diligence stage. Of course you needdetailed financial statements and projections to supportyour business plan, but dont think you need to sharethem with potential investors upfront. Investors are moreinterested in seeing if a few key numbers and financialmeasures make sense and that they support yourstrategies before they waste time digging through yoursupporting data. If they are interested in moving forwardwith you, believe me, they will dig into your financialstatements.
  5. 5. 10 Steps for Simplifying Business Plan Financial Statements5) Use graphs and tables wisely to present financialinformation.Graphs are great for presenting trends and comparisons.Keep them simple and uncluttered. Be sure headings,labels, axis tabs, and so on are clear and legible. Nothingis better than a great graph or table to convey a messageclearly and quickly. But remember, a bad graph or tablecan create much damage and confusion too.6) Check you numbers.Like typos, a wrong number can shatter your credibilityinstantly. It can cause your potential investors to loseconfidence in your ability, or to question yourunderstanding of the business. Be sure the numbers inyour plan agree to the correct model or version of yourfinancial plan. Verify the numbers in your business planagree to all supporting documents.
  6. 6. 10 Steps for Simplifying Business Plan Financial Statements7) Always include a statement of the sources and usesof cash.If you have teenagers, Im sure you always ask themwhere theyre going to spend the money youre about togive them, before you hand the money over to them. TheStatement of Sources and Uses does the same forinvestors. It tells potential investors how you plan to usetheir money. The statement accounts for all the moneycoming into the deal, whether it is bank debt, seller notes,personal cash, cash proceeds from the sale of stock, andso on. It then explains how you intend to use this money,whether it is to buy an existing business, buy certainassets, payoff existing debt, or payoff certain start-upliabilities, fees, and expenses.8) Include all three fundamental financial statements:income statement, balance sheet and cash flow.Dont just provide potential investors with an incomestatement, it doesnt give them the complete story. Also,be sure that all financial statements conform to GenerallyAccepted Accounting Principals or GAAP. Include at leastthree years of actual historical financial information, ifavailable, and five years of projected financial statements.
  7. 7. 10 Steps for Simplifying Business Plan Financial StatementsAlthough no one expects you to be able to predict thefuture with absolute certainty, projections do provideinsight into your thought process, assumptions, andunderstanding of the business and its markets.9) Maintain a good financial model capable of runningsensitivity analyses to show how your projected resultswill change as your assumptions change.This allows you and your investors to identify whichassumptions are most critical to your future performance.Each critical assumption needs evidence to support it.Also, include in your model benchmark comparisons toother companies in your industry. Compare things likerevenues per employee, gross margin per employee, grossmargin as a percentage of revenues, and various expenseand balance sheet ratios.
  8. 8. 10 Steps for Simplifying Business Plan Financial Statements10) Use footnotes and descriptions to explain how keynumbers were derived or the specific assumptions behindthem.As much as possible, keep these short and to the point.Dont get carried away footnoting every number. Footnoteonly key numbers or unusual items.At the end of the day, more business deals are notconsummated because investors dont feel like they cantrust the numbers for one reason or another. Spend thetime, effort and money to communicate your financialstatements clearly and convincingly. It can be the key tomaking your deal a reality.For the best insights on Business Plan Development,finding good investors click here