Essence of the financial projections for a business plan
The purpose of financial planning includes ensuring the balance between the company’s cash and material flows, reflecting future financial costs, sources of their coverage and expected financial results.
This section of a business plan is the most important and difficult one because it provides answers regarding the amount of profits received from the financial and material resources that are invested in the project.
Principles of financial plan preparation:
Reliability. The business plan is practically useless if the investor suspects that the financial projections do not correspond to any other part of the plan or an error was found.
Accuracy. Operational planning requires the highest degree of accuracy in conducting calculations, compared to the tactical and strategic planning.
Various scenarios. The preparation of a financial plan requires prediction of several possible developments, i.e., pessimistic, optimistic and realistic ones. Due to this, the investor will have a more complete perspective regarding the project’s growth.
Flexibility. Most often business plans are developed for several years. Therefore, it will be necessary to make adjustments based on the results of certain sub-periods (at least once a year). It always happens that the initial plan is subject to significant adjustments but as experience comes, the number of adjustments reduces.
Main documentation of the financial reports corresponds to three main accounting forms:
- Balance sheet, which divides assets by their structure and sources of their formation.
- Profit and loss statement, which reflects the formation of profits, costs and financial results.
- Cash flow statement that shows cash receipts and payments, as well as cash balances and deficits or surpluses.
The order of reports preparation is as follows. First of all, a statement of financial results is prepared. It is created on the basis of a production plan. After this a cash flow statement is generated and, finally, a balance sheet is created.
Types of financial plans
Financial plans are drawn up in accordance with the business planning needs. The structure of the financial plan changes depending on who will finance the business activity. For example, investors are offered an investment proposal, where the financial plan’s key point is the calculation of future investment gains.
If the financial plan is prepared for a bank, then the main emphasis should be made on the enterprise’s solvency. At the same time it is necessary to build a business plan that will be impeccable in terms of accounting.
If the financial plan is prepared for the own needs, then the main emphasis is made on the profitability of the project and its payback period.
How to make a business plan using Excel
Excel is a versatile tool allowing make a wide range of economic calculations. Due to the large number of functions, you can plan cash flows, discount them and calculate basic economic indicators.
The main thing you get using the Excel template is the model or the sequence of calculations to be submitted in the financial plan. Follow this order and you will be able to prepare basic calculations for any financial plan.
You can also get templates: