As a new business owner, one of the first steps you will take in launching your new business is creating a business plan. This not only will it set your business up for future success, but if you are looking for funding, having a solid business plan helps investors and lenders see your vision as clearly as you do.
Jennifer Spaziano, vice president of business development at Accion emphasizes the importance of the financial portion of your plan. “This section … is crucial if you’re presenting your plan to potential lenders or investors, but it’s also important if you’re using it in-house as a roadmap to get started and continue to grow.”
She added that while you may have the best idea in the world for a business, it may need tweaking, but you won’t know until you sit down and work up the numbers.
Tips for writing the financial section
If you’ve never written a financial section of a business plan, or a business plan at all for that matter, these tips are helpful. In addition to the tips below, you can find business plan templates on a number of websites where you can fill in your business information and download your complete plan. Here are four tips Spaziano suggested:
- Follow generally accepted accounting principles (GAAP). As a rule, the financial part of your plan should follow these as set by the Federal Accounting Standards Advisory Board, especially if you’re putting it together primarily to get a loan or a line of credit.
- Get fluent in spreadsheets. Spreadsheets are the best and most accepted way to present financial information.
- Seek outside assistance. Getting advice from your financial planner or accountant can help you put the numbers together and present them properly. If you use an accountant and your financial statements have been audited, note that in the plan.
- Look up templates. If you want to attempt writing the financial section on your own, there are resources out there. SCORE, the Service Corps of Retired Executives, as well as many other sites, have templates available.
The necessary information
Each section of a business plan has its own set of required pertinent information, and the financial section is no different.
“There are two parts to the financial component of a business plan: historical data and prospective data,” according to Spaziano.” If you’re a startup, you obviously won’t have any previous financial information for the company, so many lenders will want to see your personal financial information in lieu of, or in addition to, your business financials.”
Historical data includes items like your balance sheet, cash flow statements, tax returns, and capital, while prospective data includes details like a projected income statement that will help lenders and investors understand how you want to invest their money.
Speaking of details, how much do you need?
As with any professional venture, attention to detail can be the difference between extreme success and failure. Finances are the backbone of a business, so when writing the financial section of your business plan, it’s important to be thorough.
“Be very careful to make sure that your projections match the numbers you put together for the funding request portion of the plan. At best, any inconsistencies here could delay consideration of your application, and at worst, could be a signal that you’re not as on top of things as you should be, disqualifying you altogether,” said Spaziano.
Aside from your business information, as noted above, more than likely you’ll be asked about your personal finances. Spaziano suggested making that part of your business plan and including your credit history or a copy of a recent credit card statement or credit score report, along with copies of your tax returns and other financial information a lender may request.
Put yourself in the shoes of the potential investor. Think about the information you would want as well as the particular aspects of the borrower’s finances you would want to be in order before investing your money in a business.
The financial section of a business plan is meant to accompany your funding request.
“It’s where you support the numbers you put together in your sales and marketing plan and demonstrate why you’re a good investment,” Spaziano said. “In this section, you’ll take all the marketing, sales and product information you’ve amassed and show [it] translates into dollars. Sharpen your pencil and get your spreadsheet on.”