9. Financial Plan
Why Your Financial Plan is Important
The Financial Plan section of your plan details the financial implications of running your company.
It is absolutely critical to investors and lenders since it indicates whether you will be able to repay your loans and/or provide a nice Return on Investment upon exit.
For your own use, your financial plan helps you understand how much outside funding is required, when your levels of cash might fall low, and what sales and other goals you need to hit to become financially viable.
What to Include
The Financial Plan section has four sub-sections: Revenue Model, Financial Highlights, Funding Requirements/Use of Funds and Exit Strategy.
Here you will detail how your company generates revenues. Oftentimes this is very straightforward, for instance, if you sell products. Other times, your answer might be more complex, such as if you’re selling subscriptions (particularly at different price/service levels) or if you are selling multiple products and services.
In developing your plan, you need to create a full financial forecast including a 5-year Projected Income Statement, Projected Balance Sheet, and Projected Cash Flow Statement.
While your full financial projections will go in your Appendix, highlights of your projections will go in your Financial Plan section.
These highlights include your Revenues, Direct Expenses, Gross Profit, Other Expenses, EBITDA (Earnings Before Interest, Taxes, Depreciation and Amortization), and Net Income projections. Also include key assumptions used in creating these projections such as revenue and cost growth rates.
Funding Requirements/Use of Funds
In this section, you will detail how much outside funding you require, if any, and the core uses of these funds.
For example, detail how much of the funding you need for:
- Product Development
- Product Manufacturing
- Rent or Office/Building Build-Out
If you are seeking equity capital, you need to explain your “exit strategy” here or how investors will “cash out” from their investment.
To add credibility to your exit strategy, conduct market research. Specifically, find other companies in your market who have exited in the past few years. Mention how they exited and the amounts of the exit (e.g., XYZ Corp. bought ABC Corp. for $Y).