Your new business idea is as sound as a rock, has fantastic market potential, and your management team is top-notch. Although these comments are alluring; investors also know they are subjective and not factual. Many investors will skip the gravy and go straight to the meat and potatoes financial part of your plan after reading your executive summary. Your financial plan answers basic question like these:
- Will the venture’s rate of return be adequate?
- How much cash will they need to invest?
- Are the plan’s assumptions reasonable?
- Do the numbers look right?
- What are the upside and downside risks?
Basic to the evaluation of a new business venture is the forecasting of financial statements. Financial statements are like report cards detailing what went on during the past year. Your job is to forecast financial statements for a three year planning horizon.
What should your financial plan section include?
- Proforma income statement for most likely scenario
- Proforma balance sheet for most likely scenario
- Proforma cash flow statement for most likely scenario
- Break-even analysis and graph (optional)
- Discussion of assumptions
- Highlight conclusions and sensitivity analysis