Any type of business needs to highlight its growth strategies. There should be a laid down plan on what steps they would take to increase more growth. A good growth strategy is the one that focuses on areas of the business that requires growth. A successful growth strategy should always include the numbers. This is why we are focusing on how to write the financial section of a business plan in this article.
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How to Write the Financial Section of a Business Plan
Turn the Idea into a Plan
There is a really good business plan in your head. It is just a concept that is itching inside your mind for the past couple of days. The difference between this business concept of yours turning into a good business plan is the numbers.
If you have the numbers that this business idea of yours can generate then you will be able to term it as a business plan. Those discussions that you have during the meetings about how you will market your business is all good and dandy.
But your marketing strategy should focus on increasing the bottom line of your business. For Example, You are talking about launching a marketing campaign as part of your company’s growth strategy. This marketing strategy requires you to increase your brand awareness among people. But what does it have to do with the companies’ bottom-line?
Well, you should highlight in your plan that if everything goes well in your marketing campaign, then the companies’ social media following will increase by a million. Among those new million followers, 30% will be doing business with your company. Now, that is how you should be talking about numbers.
Financial Section of a Business Plan
The financial section of your business is a very key part of your whole business strategy. The financial section of your business is the first thing any investor will ask to see. Even when you are applying for a bank loan they will also ask to see the financial section of your business.
You may think that I do not need money from investors or banks. So, I do not need to create a financial section for my business. That is a very wrong way of thinking about the financial section. Here’s a metaphor to help you understand the job of the financial section in your business plan.
Think you are hearing a song. Close your eyes and think of your favorite song being played. You do not know the duration of the song. Can you guess the length of the song? The financial section of your business will help you have an approximate idea of the length of the song. The song, in this case, is the revenue.
The longer the length of the song the more money you are going to be making from this business. The financial section of your business will tell you how much money you will make. Judging from its forecast you will be able to decide whether your business strategy works or not.
Difference between Accounting and Financial Section
Most people think the financial section is the same as accounting. This is completely wrong. The financial section is on a whole different ballpark than accounting. The main difference between the financial section and accounting is accounting looks in the past. Accounting works with things that happened in the past. The profit of your business or the loss that you incurred in the last month is shown in your accounting statement.
Financial section deals with the future. It starts with the present situation of your business and takes a look into the future of your business. How your business will shape and what is the best strategy for the progression of your business. The financial calculations of a business plan are way different than what you do in accounting. In accounting, you have all the numbers and it is the matter of the numbers adding up. But for the financial calculations in a business plan, you need to work with hypothetical numbers.
You work with dates that may or may not happen. Figures that you are forecasting which might be right or also can be wrong. How the value of a specific product will depreciate also needs to be included in the calculations. So, for accounting, you can calculate using the past numbers. Whereas in financial plan calculations you need to come up with numbers depending on how the future will shape up.
Purpose of the Financial Section
There are two purposes that you need the financial section in your business plan. The first thing is it is going to be impossible to find investors without a financial plan. If you want to present your business idea to a venture capitalist firm then you must come up with a financial plan.
People want to see the numbers that your business is going to make before they invest. The most important purpose of a financial section in a business plan according to me is the projection of your business. The financial section can project how your business will do within a given period. This is important as you know approximately what to expect.
How to Write the Financial Section of the Business Plan?
You must start with the forecast of the sales you are going to do. Target your main source of revenue and start with that one. See how your sales will trend within a given period. You must create a budget for the expenses that are going to happen within that time. The expenses budget will take into account how much it will cost you to make the sales you predicted. Also, it should include fixed expenses such as rent, the payment of your employees, etc.
It is important to create a cash flow structure in your financial section.
This shows how the cash is moving from one part of your business to the other and the final destination it is ending up at. You must forecast how much income that will be coming in within that time the financial section is based upon. Also, you need to make sure you take in the assets and liabilities of your business when creating a business section. Do not forget to include the breakeven point of your business.
If you are looking to start a successful business or looking to build a good strategy to propel your business further. then it would be my suggestion to include the financial section in your business plan. I believe after reading this article you should know how to write the financial section of a business plan.