A Complete Guide to Writing Up Your Business Plan

When you’re ready to enlist the help of venture capital, angel investors, or even your local banker to secure funding for your company, preparing a solid and effective business plan is essential. While the business concept and information on key leadership are certainly important, investors and lenders are always going to want to get down to the nitty-gritty financial details of your firm. They want to know how your business shakes out by the numbers – how much your company is worth and what is it likely to be able to earn in the future.

There are at least three critical pieces of information investors and lenders need your income statement, your balance sheet and your cash-flow statement. This article examines the ins and outs of the first of those three.

1. The Income Statement

The income statement is a summation of all your revenue sources minus all of your costs. It is sometimes called an earnings statement or a profit and loss statement (P&L). It shows investors your ‘bottom line.’ From this data they can see if your firm is making money and worth the investment.

To get started you will need an Excel spreadsheet or some similar tool from other software. You will need to determine and enter the following information:

Gross revenue

  • sales
  • interest earnings
  • asset sales profits

Net Costs

  • Administrative expenses
  • Dividends paid to shareholders
  • Rent or building operation costs
  • Taxes
  • Insurance

Your specific business may have more details to be included. These represent the minimum amount of data required.

Your income statement will be scrutinized by investors, so make sure you can explain every line on the sheet. It is also a good idea to know how your profits stand up to other companies in your field. That will help you defend how and what your business is doing. If your income statement can be easily read and understood, you are on your way to preparing the next document, the balance sheet.

2. The Balance Sheet

Writing up an effective business plan to attract investors or lenders includes at least three essential items. Part I described the ins and outs of an income statement. This article defines the necessary elements of the balance sheet and Part III outlines the importance of the Cash Flow statement. Putting together a well-polished set of financial statements may be the key to securing the business financing you need.

A balance sheet is a measure of how much your business is worth. It can be created with a simple Excel spreadsheet or any similar software product or you can invest in business software to create more complex documents. It lists all your company’s assets (things you own) and subtracts all liabilities (debts you owe) to arrive at your net worth. This is also a way to determine your equity share in the company. Investors need to see how much of the company you own in order to know how much equity they bargain for.

Balance sheets are helpful for showing venture capitalists or bankers a full picture of your company’s current financial course. It can be useful to include balance sheets from previous years to illustrate how your company is doing better from year to year, with lower debt ratios or higher equity shares, for example.

In addition to providing investors and lenders with past balance sheets, you can also create projected balance sheets to show them your goals and plans to meet certain benchmarks. A look at the future can give investors an idea of how their money will be put to use and if it will be used well.

Once you have a solid income statement and balance sheet, you are ready to move on to mastering the Cash Flow statement. With the inclusion of all three, you will be prepared to face the tough questions on every investor’s mind.

3. The Cash Flow Statement

A successful investment campaign for your growing company will include pitching your firm to the right investors or lenders. And part of convincing those people to invest their cash in your company is presenting them with a succinct and promising business plan. The first two parts of this article discussed the income statement and balance sheet, and this last part goes over the importance of the cash flow statement.

A cash flow statement tracks how your company generates and uses cash during a given period of time (i.e. a month, quarter, or year). The income statement and balance sheets tell the venture capitalists and lenders how much your business makes and spends, while the cash flow statement explains how you make and spend that money, as well as laying out your bottom line.

Within your cash flow statement, there should be three, possibly four categories to include. The first is operating activities, which is how your company makes and uses money from its primary function. The second is investing activities, including purchases and sales of long-term investments, properties, or equipment. The third category is financing activities, meaning the purchase and sales of the company’s own stocks and bonds. Additionally, there may be some supplemental information to include, like the amounts of your income taxes and loan interest as well as any other non-cash exchanges.

Venture capitalists and bank lenders sometimes skip to the back of a business plan first because the cash flow statement can reveal so much about the fundamentals of a company. Investors can see at once if and how your firm is making money. It makes it easy to determine if your firm is in a position to grow or if it is spinning its wheels.

With an income statement, balance sheet and cash flow statement, your basic business plan is complete. Further information may be needed on a case-by-case basis depending on who your investors are, but with these three in hand, you will have a solid foundation upon which to attract business financing for your company.

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