When drafting a business plan, one of the most prominent sections is the financials. Using your financial information, an investor will gauge how profitable you expect your company to be and what funding you need to achieve your goals. It’s also usually a tell-tale sign of how efficiently you can handle any money given to you.
Due to the significance of the finance section, it is essential you craft it to perfection. It should align with the rest of your document, including the executive summary, company structure and objectives, value proposition and market analysis. It should also prove the financial sense behind your business.
In this guide, we have explained everything you should include in the financial part of your business plan and our top tips to ensure the information you provide wins over investors.
What to include in your financial section
There are many different elements you should include in the financial section of your business plan. The ultimate aim is to provide a complete picture of your finances, taking them form your current to your future position. You also want to provide as much information as possible to address any questions an investor may have and ensure that any loose ends are tied.
The first thing to incorporate is your sales forecast. This details the expected sales your business will receive and how this will grow over time. The estimates will usually cover a set period, such as three or five years. You will also want to link in the changing cost of sales, as this will help you determine your profit and annual turnover. Investors will be particularly interested in this part as it dictates how successful your business is expected to be and the return on investment they can experience.
Next, create a costs and overheads projections. This is where you list the costs you will incur in order to operate. It is likely to include expenses associated with procuring equipment, premises or other assets and its long-term running (including supplies, salaries and so on). It will help you identify the funding gap you need in the early stage of your enterprise (which you will hope to fulfil through external finance and investment) as well as the income you need to balance your outgoing costs.
You will also want to produce a cash flow forecast. In this statement, you will include information about your incoming and outgoing payments, which will be impacted by timings. Ideally, these need to be well-balanced so that you have sufficient cash flow at any time. If they don’t add up or there’s any risk of cash blockages, it could be a red flag for debt – which won’t be welcomed by any investor. So, make sure to plot this out carefully and give yourself room for manoeuvre.
Then, you need to highlight your profit and loss statement. In this, you will project your revenue as a business, based on your sales forecasts. You will also use the data from your costs and overheads projections for your outgoings. This will cover a 3–5 year period broken down by months, but which you can summarise annually.
This will be supported by your breakeven analysis, which will identify when your enterprise will reach the breakeven point and start generating a profit. This is important as it shows when investors can expect to begin receiving ROI. It will also help you find the funding gap you need to fill until your sales start covering your expenses.
Finally, your finance section needs to contain a balance sheet. This looks at your liabilities, assets and equity to determine net worth of your company and where your business has its money tied up. Ideally, you want your liabilities, such as bills and loan repayments, to be less than your assets (such as buildings, vehicles, equipment, cash at bank and so on), which will then result in positive equity in your company. You will also need to predict any upcoming liabilities or assets you expect to take on and account for this in your planning.
When creating these reports, be sure that they align, otherwise the investor will see through your numbers – it is worth bringing in someone to review your numbers in this regard. It’ll also help you to find any anomalies you may have missed.
Our top tips
Once you have put together the individual elements that will make up your financial analysis, it’s time to focus on putting them in a format that engages investors and creates a positive picture of your business. We’ve listed our top tips for doing so.
Visualise your data
When presenting numerical data, it can be helpful to visualise it using graphs and spreadsheets. This is especially useful when you are showcasing a large amount of data in one place and make it easier to get your point across. So, consider how you can turn your financial information into graphics.
If you rely on visuals, make sure that you still provide commentary that explains what is being shown. This will enable you to talk through your financials during funding pitches and improve accessibility for investors who may prefer to digest information through text rather than graphs.
Utilise your historical accounts
If you are an established company, you should incorporate your financial history. Your past accounts can be used as a benchmark for how you expect your business to perform in the future. Include any data that you already have and explains how this fits into your ambitions for the future.
If you’re looking to launch a new venture, you won’t have any history to speak of. Instead, look into market data or competitor analysis that could mirror your journey. This will help you to create comparisons and ensure your financial projections are still founded in reality.
Check your assumptions
When writing your business plan, you will likely make claims across sections that rely on the financial information you have collated. You need to make sure that any assumptions you have made elsewhere in the document align with the data presented in the financial analysis. If there are mixed messages, it could alert an investor that you haven’t projected your finances correctly.
If you have referred to data, whether it’s your own or from elsewhere, you need to know where it has come from. This will help you to validate any claims you have made and answer any questions an investor may direct at you.
Know what you’re talking about
You need to know your business finances like the back of your hand. Ultimately, you are in charge, and you need to showcase your ability to handle your funding and generate income. An investor will want to see solid proof that you can be trusted, and the best way to provide this is by knowing what you are talking about.
Be sure that you understand everything presented in your financial section and talk others through it with confidence. You’re likely to experience scrutiny, so be prepared to answer questions adequately. This will highlight your expertise and assure investors that you can handle their money.
Do the maths
Nothing will show you up in a funding pitch like making a simple mathematical error. At worst, it can throw your entire business plan into disrepute. At best, it can distract from even the most excellent document.
Be careful when calculating your financial information to ensure that everything is correct. Then, double and triple check the data to make sure you haven’t made any errors and remove them before they reach the hands of an investor. Once you are sure everything adds up, you can be confident that you’re presenting an accurate view of your finances.
Get advice
The financial section of your business plan will be one of the most comprehensive parts, but it is essential to include the correct information to bring investors on board. By presenting accurate and honest data, you will effectively highlight the economic potential of your business and your capacity to operate it successfully.
If you need support in putting together your financial analysis and projections, we can help. Our team of advisors have worked with countless businesses to prepare them for investment, including creating documentation that wins funding.