How to Write a Business Plan: Part 8 – Financial Projections

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The business plan boot camp will consist of nine parts in total, each tackling a portion of the plan and the basics of how to handle its successful creation as prospective businesses look to secure funding and backing. Put together, these skills will help create a business plan that will wow potential investors.

Part 8. Financial Projections

The Financial Projections section may take you a long time, as it requires that you research and analyze your market from top to bottom. You want to communicate to your investors that you have strong, concise and clear goals to meet. Only by doing thorough research in your market can you cost-effectively assign funds to the different needs of your business.

Important Elements of the Financial Projection

Financial data dating back to the establishment of your business

When you are already a business owner, your investors are going to be looking to you to show them how your business has performed over the years it has been in establishment. This information should be available as it is data that you should be keeping up with continuously, as the banks backing you often request your company data from three to five years back.

This is dependent upon the length of time you have been in business, but it’s important for you to start taking detailed records of your finances if you aren’t already doing so. You want to be as upfront and transparent as possible when you apply for funding. The only way to do this is to supply your investors with all of your financial data. Show your investors how your company has performed.

That doesn’t mean your records are going to be perfect. Investors understand that your company is going to go through high and low periods. The worst thing you can do is try to hide something from your investors. They need to know everything, good and bad. Be straight up.

Historical Data Statement

Include these items in your historical data statement:

  • Balance sheets from your business
  • Cash flow statements
  • Income statements
  • Documents outlining and proving your collateral

Remember that you’ll want to include these documents for every year your business has been open — up to five years. Including a list of collateral in your possession gives creditors an idea of what extras can be used to ensure the loan they are making is a good risk to the banking institution.

Financial data estimated for the future

Your potential creditors want to understand what you’ll be up to over the life of your loan — and so you’ll want to give them prospective financial data for the next five years. Remember, in this section, you are forecasting what your business may be able to do — based upon your historical growth and the industry’s future. Your creditors understand that your projects are estimates, but you should try to use the data you do have in smart ways to build your argument for creating a successful, sustainable business. At all times though, be able to back up these projections with reliable, empirical data.

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