How to Write a Business Plan:
Financial Planning Steps
Start With a Financial Model
Ideally, you should have a business plan template or financial worksheet which provides an Excel model to simplify the financial planning process. The Excel model should include short-term (2 or 3 year) and longer-term (5 year) financial statements (balance sheet, income statement and cash flow statement) all built out of formulas that tie them together. A worksheet should allow for you to test different levels of sales and costs to see the financial results in the statements. Creating a model like this from scratch can take a long time and require deep knowledge of the accounting principles behind financial statements which not all new entrepreneurs have.
Next, pull together all of the research you have gathered on the costs you will incur before you launch the company to determine the capital investment needed. These costs will include early marketing, salaries (if any), equipment, furniture, leases, business licensing, and insurance. The model should have a place to add this information.
Think deeply about what will drive revenues in your first years of operation. Create assumptions based on these revenue drivers, scaling up revenues at a conservative, but appropriate, rate over the first five years of operation. If you will expand your staff or add additional locations, make sure to incorporate the effect that this should have on revenues.
Check Cash Flow
Finally, double check that the cash flow statement shows an ending cash balance that remains positive at all times. If it goes negative, the company is under-funded and needs to raise additional capital in the start-up phase. Either add to the capital invested or loaned or find a way to reduce your startup costs if you find cash balances dipping below a reasonable reserve level at any time.
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