Business Plan Writing: Financial Projections and Analysis
Updated: May 14, 2020
“If a proposal doesn't prove out as expected when we run it, sometimes we change the model.” - Edgar Fiedler
You’ve made your pitch for funding, and now you need to support your position with accurate financial projections. Generally, investors and banks would like to see at least your first three years forecasts ( and in some case, five-year economic forecasts). Financials are an essential requirement for your detailed business plan.
In this, the ninth article in our creating a business plan series we’re going to focus on the financial projections and modeling requirements to include within your comprehensive business plan.
There are a few specific projected forecast statements you must include for your readers to take your business plan seriously. It will help your business plan readers understand your expected financial performance. They’ll be looking for:
● Start-up and operations expenses statement
Your accountant or financial business advisor can help you draft these, as well as suggest other statements that might be useful, given your specific circumstances. If you’re not comfortable with these financial management reports, it’s best to leave them to a professional.
Your financial projections should include the following information.
If you have no established sales history, a sales forecast can be challenging. But if you have a thorough understanding of your market and industry, as well as prevailing market trends, you can make reasonably-educated guesses. Having this data will aid you to be able to create a meaningful Sales Forecast.
Break your sales forecast down into monthly sales per separate revenue streams (i.e. by service type, product sales). Focus on which units are selling, for what price, and in what quantity. If you have multiple revenue streams or varying categories of transactions, list them all separately, focusing on total annual sales. A useful 12-month sales forecast free template is available on the Score website. For a three-year sales forecast, try this example.
Start-Up and Operations Expenses Statement
As you start up your business, you’re likely to encounter costs in your ramp-up period. Typically these are the costs to set up your business and keep it afloat. Be sure to include all relevant expenses for website design, legal or accountancy fees, Companies registration costs (i.e. HMRC), any prototyping work that is part of your business feasibility plan, and other costs associated with your business set-up.
An expense statement is of limited value if there’s doubt about its accuracy. Be sure to include rent, labor costs, legal expenses, hardware and software purchases, marketing expenses, web design investments, and every other relevant, direct expense. Here is an example start-up expense template.
For your ongoing operations expenses, be sure to separate fixed costs and variable costs to give your readers a sense of which payments are stable and which can change. As a guideline, costs checklist to consider within your operations expenses (not a full list, and example only):
Fixed costs typically include:
rent, council tax, and insurance;
maintenance and repairs;
utilities (i.e. electricity, gas and water rates);
salaries (including employer's National Insurance, pension, holidays contributions, and other PAYE commitments);
planned advertising and promotions;
administrative costs (i.e. accountancy or legal fees
software and IT costs (i.e. book-keeping, Sales CRM, website domains, emails)
depreciation of fixed assets.