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Business Plans 101: Part 2

Written by: Diane Tarshis

Article Overview: A business has a substantially better chance of succeeding if the entrepreneur takes the time to write a business plan. Not only can missteps be avoided, but the process of writing a business plan also allows the entrepreneur the opportunity to think proactively instead of reactively. When dealing with the day-to-day needs of a business the entrepreneur is typically in “firefighter mode,” putting out the fires of the day. Writing a business plan lets the entrepreneur take a step back and think about the business in a “big picture” context. This article continues the discussion of what needs to be included in a business plan, specifically outlining what needs to be included in the financial (or "numbers") portion.

Business Plans 101: Part 2

A business has a substantially better chance of succeeding if the entrepreneur takes the time to write a business plan. Not only can missteps be avoided, but the process of writing a business plan also allows the entrepreneur the opportunity to think proactively instead of reactively. When dealing with the day-to-day needs of a business the entrepreneur is typically in “firefighter mode,” putting out the fires of the day. Writing a business plan lets the entrepreneur take a step back and think about the business in a “big picture” context.


What Needs to be Included in a Business Plan?

There are two primary components to a business plan: (1) the narrative or text portion (i.e., the words) and (2) the quantitative or financial portion (i.e., the numbers). Below is a detailed description of what is needed in the financial portion of a business plan. Be sure to keep in mind that the words should drive the numbers, not the other way around. Note: A detailed discussion of the narrative portion is included in Part 1 of Business Plans 101.


Part 2. The Financials

When putting together a business plan’s financials, it is important to understand that the numbers need to support the words. Carefully examine your financials to be sure that you are where you want to be—sales don’t necessarily equal profits, and without making a profit your business won’t survive.

1. Sources and Uses of Funding
A numerical restatement of Section 8 as described above. Here you are listing all your funding sources and the specific uses/expenditures for those funds.

2. Capital Equipment List
All the equipment you need to run your business, i.e., the equipment you use to provide your service, manufacture your product, and sell, store or deliver merchandise. Do not include equipment you sell or equipment you expect to replace frequently (annually or more often).

3. Balance Sheet
Shows the assets, liabilities and net worth of a business at a specific point in time. Think of it as a snapshot of your finances on a particular day. The format is standardized, so balance sheets for all companies, big and small, contain the same categories arranged in the same order—although there are differences in detail, meaning the categories chosen will reflect the specific business you are in.

4. Breakeven Analysis
The point at which your business will be breaking even, i.e., neither making a profit nor losing money—shown either in dollar sales or unit sales.

5. Projected Income Statement
Also known as a Profit & Loss Statement. Shows a business’s financial state over a period of time, and is typically the basis for your budget(s). Don’t forget to include an explanation of your assumptions. These numbers typically become the basis for your budget(s). I typically include the following:

- Three-Year Summary
- Detail by Month, Year 1
- Detail by Quarter, Year 2 & Year 3
- Notes of Explanation

6. Cash Flow Projections
Cash is king! These are the most important financial spreadsheets you will create. They show when (and from where) cash will flow in and out of your business over time, and can make the difference between success and failure—they show you not only how much cash your business will need, but when it will be needed. Don’t forget to include an explanation of your assumptions. I typically include the following:

- Detail by Month, Year 1
- Detail by Quarter, Year 2 & Year 3
- Notes of Explanation

7. Other
For start-ups, I typically include several spreadsheets relating to payroll. I’ve listed the two primary ones below. They show which positions will be filled when and then factor in not only the salary, but also the employee benefits and taxes. These spreadsheet results then feed directly into the projected income statements and cash flow projections.

- Staffing & Payroll Breakdown
- Benefits & Taxes

If you cover all of these issues well, the reader should not be left with any obvious questions. The challenge is to have a business plan that tells a coherent story, and to have the numbers support that story.

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Article Tags: assets liabilities, balance sheet, better chance, big picture, detailed description, entrepreneur, expenditures, financial portion, fires, funding sources, narrative portion, net worth, point in time, profits, restatement, section 8, sn, text portion, writing a business plan



Related Forum Posts
New Study - Women prepare better business plans - I found an article in Business Week and I found this quite interesting. [quote:ka7lg35i]Who Prepares Better Business Plans, Men or Women? A new study based on four years of data from men and women in a training program for microenterprises finds that they come out the same in quality scores. "However, women scored significantly better on the presentation of their plan to judges," conclude the study's authors, Ronald G. Cook, Paul Belliveau, and Christine Lentz of Rider University, in a paper presented at a recent meeting of the Small Business Institute. [/quote:ka7lg35i] What do you guys think?
Money I made while in School - While in university I did have a Student Loan (still paying that bugger off) and had a part-time job as a Call Center agent (inbound). *Canada* I also designed websites (outsourced all the work). I just worked on getting new customers, managed the projects to completion and helped create Marketing Plans for my clients (Online and Offline). *Canada* When I was studying the in the States I also made some money as a Part-time Flight instructor. *USA*
My entry - 1. The Best Business Books Ever: The 100 Most Influential Business Books You'll Never Have Time to Read - this is a fascinating book about the history of Business theory, and I'd recommend it to anybody. 2. The Big Book of Small Business: You Don't Have to Run Your Business by the Seat of Your Pants, by Tom Gegax. Ditto. 3. PADI: The Business of Diving Book Okay, so this book won't be of use to anyone who doesn't want to start a scuba store, but I did, and this book was of course invaluable to me in reaching that goal.
Business Coaching Internship Review - I joined in during the first phase of the internship and at this point we are committed to doing research and development of RSC Business Group operating in Toronto. RSC Business Group already has products and services in Coaching Small businesses in Los Angeles but we didn't want to assume that the same products were wanted and needed in the Toronto market. Our goal at this point is to commit to interviewing 1000 business owners to capture this data. Through the teleconference internship I've been involved in we've been focusing on Communication Skills and on active listening which are practiced when we conduct our interviews and Coach our clients when they come on board. This is a lot harder than it sounds! Part of the internship is also creating the Toronto RSC Business Group's departments, job descriptions, Marketing and Communication plans etc that a business owner would create for their own company. This trains us in the way we would coach a company as well. The internship is phased in two parts and there is compensation plan involved as well for the clients you personally bring in. These clients are coached directly by Robert Chun as you begin but you are given a chance to learn his techniques. I haven't gone through this experience yet though. It's hard to explain Robert Chun's method of Coaching as it happens at a psychological level in his ability to listen and question the person being coached into the next steps they need to take. The Teleconferences are 2 hours long but it's very interactive. If you have a desire to explore this area of Business I'd recommend contacting Vwodek listed above and get invited to a Coaching Conference call. You can decided then if it's for you. Note: it is a commitment but the skills you walk away with whether you plan on working with RSC Business Group or not is invaluable.
Patent information - I'm also interested in Part 2. Thanks.


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