Checklist of Financial Statements Needed for Young Entrepreneurs Business Plan
Submitted by Wade Nembhard
So you have a great idea for a business product or service, but you haven't yet drafted a business plan to illustrate how it will all mesh together. As a young entrepreneur this is all pretty new to you, so you'll want to cover every possible detail. There are quite a few provisions and declarations that must be made for legal purposes, and If you have a business partner , you will no doubt deal with several revisions to the plan to include both you and your partners inputs. The business plan is the resume for your business, and if you are looking for investors you must make sure it spells crystal clear what your product or service is about and how it will be financially beneficial to them.
Business plans are very detailed, but experienced investors know a good laid plan when they see it. If you are not looking to impress an investor of course you won't have to worry about adding any wording to your plan to impress them. So how can you be sure you have everything neccessary to create a killer business to wow those investors?
Here's where to start.
The numbers and statements in the business plan will be critical. These numbers are presented in three basic financial statements. For a startup business these documents are all "pro forma" this means that they're projections of potential revenue since the business hasn't actuall produced anything yet. If the business is already in operation, the financial statements can include past actual numbers, the present numbers as well as projected targets. If your business has a unique product or service with a competitive edge over other startups or existing companies, you are more likely to receive investment money and very well become successful in your market. A SWOT Analysis which is list of the strengths, weaknesses, and threats to your business is also useful to land investment money.
Below is the checklist of everything you need to prepare a great plan for your startup business. The three needed financial statements for a business plan are the income statement, the balance sheet, and the cash flow statement.
Your Income Statement
The income statement is also called the profit and loss statement. It outlines the sales revenues, your business overhead such as costs, other expenses, taxes, and profit (or net income) over a certain span of time, most likely quarterly profits which have more detailed information than a monthly statement. Your annual details will project up to 5 years ahead. The income statement will document the ability of your business to make a profit and your profit margin. The profit margin is what investors love to look at.
Your Balance Sheet
The balance sheet, unlike the other two statements, shows snapshots of the financial situation of the company at given moments in time. At year's end, for example, the balance sheet will show the value of assets, liabilities and owner's equity (sometimes called shareholder's or stockholder's equity), drilling deeper into each of these categories as necessary. The word "balance" refers to the fact that the value of assets is always equal to the combined value of liabilities and owner's equity, creating balance in the equation (A = L + SE).
Funders use the balance sheet in conjunction with the income statement to derive ratios such as return on assets, return on equity, and return on invested capital. These numbers show how well the assets of and investment in the company are being employed to create profits.
Your Cash Flow Statement
Your cash flow statement shows the monies brought in and paid out of the business for a certain periods of time. Unlike the income statement, thre breakdown of the numbers numbers are in cash terms and spearated into three parts which include: operating, financing, and investing. These three parts document certain transactions not covered on the income statement. Operating cash flows represent cash brought in through sales and cash paid out for operating expenses and inventory. Financing cash flows represents cash brought in from lenders and investors and paid out to those funders when principal is repaid or dividends are paid back, for example. Investing cash flows show investment in additional assets for the company, such as the purchase of equipment or leasehold improvements on a rented facility.
Your business plan is never set in stone so treat is as a working document in progress. Overtime it will be revised to show how you can expand or contract your business.
| < Prev | Next > |
|---|
Comments