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How to Write the Financial Section of a Business Plan

  • Tips for writing a financial section that can help attract investors or win approval for a loan
  • For those planning a business
  • Income statements, cash flow analyses, and balance sheets are crucial components

A business plan with inflated numbers or inaccurate financial statements will immediately drive away any potential investors or lenders. So how do you write an accurate and compelling financial section?

Your financial information should take a long-term outlook of your company’s anticipated performance. Existing companies looking to expand or pivot can look to their own historical data to determine these forecasts. Startups can base their numbers on market research, including the performance of comparable companies.

Several templates (such as these ones from SCORE) are available to ensure that you provide sufficient information. The financial section should be in spreadsheet form and hew to the accounting principles established by the Federal Accounting Standards Advisory Board. It’s worth it to hire an accountant or financial planner to review your numbers and make sure they’re sound.

The financial section should have three core components:

Income statement

The income statement, also known as the profit and loss statement, determines how much money is coming into your business through sales and other revenues and whether it is enough to offset costs. The statement should make reasonable assumptions for factors such as sales figures and tax rates.

The statement can also incorporate a tally of your company’s expenses. This can include startup costs, such as registration fees and equipment purchases, as well as ongoing operating costs like salaries, utilities, and loan payments.

It is helpful to update the income statement once a month at the outset for your first year in business. It can be updated more infrequently after that, such as once a quarter or even once per fiscal year.

Cash flow projection

Demonstrating a healthy cash flow is a critical part of the business plan’s financial section, as this shows that the business is sustainable and will pose minimal risk to any lenders or investors.

While a cash flow statement shows historical trends of how money is flowing into your company and where it is being spent, a cash flow projection anticipates what will occur in the future. The projection can serve as a model for planned actions in the future, such as hiring staffers or making capital investments, to determine the feasibility of such actions.

In addition to the cash flow projection, the financial section may include either a break-even analysis or cost-volume-profit analysis. The former estimates when your company will achieve profitability after initial expenses outweigh revenues, while the latter sets up various scenarios to estimate probable income and cash flow.

Balance sheet

The balance sheet tracks three factors:

  • Assets, or anything of value owned by the company such as cash, property, or equipment
  • Liabilities, or debts owed by the company
  • Equity, which is calculated by subtracting total liabilities from total assets

The relationship between these factors is often expressed through the equation Assets = Liabilities + Equity.

Balance sheets are often calculated once a year, such as at the end of a fiscal year. They can also be used for future projections, or to set a goal for your company which can later be compared to actual results.

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