Company Financial Statements - Getting Investment with your Business Plan

Introduction

Now this section is important to get right, you are going to try and turn what you have said throughout your plan into numbers. You will need to supply a set of financial projections for 1 –3. years however these should be reassessed regularly to ensure they are as accurate as possible. Important factors to consider are

• how much capital do you need especially if you are looking for investors and external funding.

• What guarantees and security can you off your lenders

• how do you plan to repay the borrowed monies

• what are your main sources of income.

It is also important especially if trading as a sole trade or a partnership to include personal finances. The reason for this is so that the investors can see you have set a reasonable budget for you and your family and will have enough money to live off to minimise stress and allow you to focus on the business, so do not underestimate the importance of this.

Financial Planning

In the introduction it was mentioned that you should do plans for the next three years, this is the minimum, if your break-even point is not till the end of year three then you are going to want to go to year 5 to show potential investors the profit will be worth the large scale investment. Remember that the forecasts level of detail and or sophistication should be reflective of your business. However it is important to note that your first year should be as detailed as possible, there should be very few unassigned or miscellaneous costs.

• Sales forecast – This should be a model which describes how much money you expect to make through sales of products and services.

• Cashflow statement – In a nut shell this is basically as the title of the item a cash flow! It needs to show the movement of money for at a minimum of 12 months but preferably 18 months. You are aiming to prove to a potential investor that the business will have enough working capital to operate, and by proving this you have considered all the possibilities including timing of sales, wages, bank charges, bad debt, supplier payments, credit accounts and anything else that will affect the monthly flow of money.

• Profit and loss forecast – This is a statement of profits or losses which you expect to make in a given year, this is done using your predicted sales the COG's (cost of goods) and any overheads you may have. Investors know that new businesses regularly over estimate the number of sales and underestimate the costs involved and so will take this into consideration, in order to show them that you are aware of this and that these are forecasts it is a good idea to include a forecast with sales starting three/four months later than planned and a forecast with 20-25% less sales, if you are still profitable with these margins of error it will give the reader more confidence in your business and financial models.

As an extra to your financial plans please be sure to include a risk analysis. Again this shows that you have thought about problems and issues which could arise. It will show that you have assessed the risks and come up with contingencies in advance, you could also take out insurance cover on some of these to protect yours and the investors money. Risks you should consider are:

• The actions and moves of your competitors, this is an important one as a better product for a more reasonable price could make your business obsolete.

• Commercial problems including sales, price wars, delivery problems

• operational problems, IT, technology, production failures

• Staff look at the availability and costs of well trained staff, lack of skills

• Acts of God.

This list is nowhere near exhaustive, look at your own business and assess where the risks are. Looking at this will show potential investors that you are not naive and have considered the potential losses and issues with the above and will make you a more credible investment prospect.