subject: How To Write A Startup Business Plan: Your Financials [print this page] The financial plan of a startup business plan is not only necessary to complete the plan, but a place where you can either win points with funders or make mistakes from which you cannot recover. The pro forma financial statements each have something to say to funders.
Income Statement
The income statement (also called the profit and loss statement or P & L) is the most explicit statement in terms of a telling a funder if the business is sound. The business can be called successful if it manages to create a profit and show continued growth year after year. Some small businesses, such as sole proprietorships, may show only modest growth if they are tied to the work of one individual, and this may be enough for some lenders. Investors, however, are interested in a business which can grow as this will be the most valuable in a sale or other liquidity event eventually. While the first year may show a loss or very small profit, it is expected that the company will become profitable soon after that point.
Balance Sheet
The balance sheet shows the balance of assets with liabilities and owners equity in the business. This statement illustrates the amount of leverage (debt) the company has, as well as the type of assets in the company. This will be of interest to both lenders and investors when they consider potential worst-case scenarios for the company. If the company fails, they know they will probably be able to recover at least some of the market value of sellable assets that the company owns, such as equipment, intellectual property, and inventory. This prevents the failure from being a complete loss for funders.
Cash Flow Statement
The cash flow statement shows the cash needs of the company, which relates to the startup capital required. It also shows how cash reserves will keep the companys bank balance positive over the first difficult years. The effects of being granted credit by suppliers (accounts payable) and collecting payments for customer purchases after the fact (accounts receivable) are shown on the cash flow statement, changing the requirements for cash reserves. Ideally, payments on expenses are delayed as much as possible and payments by customers are collected as early as possible (even ahead of the date of service or product delivery). This advantageous situation can mean the difference between bankruptcy and success for a business.
by: Eric Powers
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