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.



Business Plans 101: Part 2 - To learn more about this author, visit Diane Tarshis's Website.

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