- 1). Prepare a projected income statement. This document functions as a forecast for revenues and expenditures over a period of three years. Begin by forecasting sales and their costs (expenditures needed to make the sales). Add in all business expenses such as leases, utilities, staff, equipment, insurance and all other fixed and variable expenses. The bottom line is net income, consisting of projected revenues minus all projected expenditures.
- 2). Create a projected balance sheet. This consists of outlining a schedule showing acquisition of assets and remittance of liabilities to accrue assets and generate revenue.
- 3). Prepare a projected cash flow statement. Net income does not translate to cash on hand for operating your business. Keep in mind that the business may show strong sales and profits, but those profits can be restricted to accounts receivable, inventory, or equipment, leaving the business strapped for cash when bills are due. Putting this forecast together consists of listing all cash payments and receipts the business intends, be they debits or credits, and when payments or remittances can be expected. Any source of cash requires listing to include cash invested by shareholders and loans made from banks. The statement will show when the business is low on cash and when it needs to tap other sources of capital to keep the business running.
- 4). Develop capital and operating budgets. A capital budget will forecast all expenses to acquire tangible assets used to start and run the business. The operating budget determines expenditures for day-to-day activity when running the firm. In both budgets, develop contingency accounts for exceeding the budget, as well as alternatives to secure funding, when and if this occurs.
- 5). Write up a financial requirements and funding sources schedule. This document should detail all expenditures laid out on a time line along with all sources from which capital will be procured.
- 6). Conduct a sensitivity analysis. This consists of establishing scenarios and tweaking numbers to ascertain the impact on the overall financial plan. For example, if you have a five percent increase in sales, how will this affect profitability? Work through several possibilities that may affect the business, both positive and negative, in order to determine which business assumptions present the organization with the most vulnerability. Then develop strategies to mitigate the negative impact and amplify positive impacts.
- 7). Record all assumptions used in preparing the financial plan. The assumptions should describe how each financial figure record was determined. This serves to link the rest of the business plan to the financial plan and helps others understand how you arrived at the metrics outlined. This includes providing documentation such as market research, industry financial ratios and other supporting document.
- 8). Attach other relevant documents to the financial plan. This may include personal net worth and procedures for inventory control; appraisals on real estate, vehicles and equipment; details for accounts payable and receivable; a break-even analysis; sales terms and details on how cash flow is controlled.
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