Any new business, business idea, side hustle, investment strategy, or anything requiring investment capital will need to have a well-formulated financial plan. It is necessary to create a business plan and a financial plan to determine profits and loss. Writing a financial plan may seem like a daunting task. Concerns about the difficulty of earning the necessary profit for the total investment, or worry about how to achieve success and what the actual process will look like are normal thoughts. It’s important to have a plan because you need to know what will be expected and how to achieve what’s needed so that you can be prepared for the worst.
It’s better to find out that a business idea isn’t going to work in the planning phase than three years after you’ve invested everything you own. Be smart about your financial plan, and be honest with yourself. If the idea isn’t going to make you money, then go back to the drawing board, create new ideas, and give yourself time to determine what’s actually going to work.
The following are instructions on how to use an Excel workbook to create a business plan. Use these instructions to put together a plan that’s going to show you everything you could possibly need to know for starting your next endeavor.
Contents
- 1.0 Introduction
- 2.0 Startup Cost
- 3.0 Estimation of Revenue
- 3.1 Revenue Growth Rate Assumptions
- 4.0 Estimation of Expenses
- 5.0 Other Important Assumptions
- 6.0 Sensitivity Analysis
1.0 Introduction
The financial plan is the document that shows future projected financial statements for the company. To make the financial plan, the following fundamental steps are required:
2.0 Startup Cost
To start operations, every business will need funds that are either financed by investors, yourself, or a bank loan. The first step in the development of a financial plan is to determine the startup cost. The following is the startup cost for the financial plan for ABC Marketing Company:
3.0 Estimation of Revenue
For revenue estimation, the following steps should be taken:
- Determination of the types of services which the business is offering
- Estimated selling price against each service
- Estimation of monthly customer against each service type
After providing this data in the highlighted area of the basic assumption sheet, annual revenue will be automatically calculated and will be reflected in the pro forma income statement, cashflow statement, balance sheet, and all other financials.
Following is the example of the annual revenue calculation:
3.1 Revenue Growth Rate Assumptions
Revenue for 1st year is estimated in the step above, then the “revenue estimation” step will calculate the revenue of the next year, and a growth rate should be assumed for the following years. Example growth rate:
4.0 Estimation of Expenses
Every business will incur expenses to run its day-to-day operations, so monthly expenses of the business should be estimated. After providing input in the highlighted area of the basic assumption sheet, annual expenses will be automatically calculated to reflect the losses in the pro forma income statement, cashflow statement, balance sheet, and all other financials.
Example of Expenses:
5.0 Other Important Assumptions
Cost of services, cost of capital, increase in expenses, and tax rate are also important assumptions that change as the business changes. This can be checked by using the following example.
6.0 Sensitivity Analysis
The financial plan is based upon some assumptions and estimates, so the future practical situation may be quite different from these estimates. The situation may be in favor of the business, or it may be the worst-case scenario. A percentage is assumed for the favorable situation with an increase in revenue, and for the worst-case scenario with a decrease in revenue. For example, if 15% is assumed for increase and decrease in revenue:
The financial plan should be interlinked and apply the appropriate Excel formulas, and the input in the highlighted cells of the following financials will be automatically prepared.
- Projected Profit and Loss Statement
- Projected Cashflow Statement
- Projected Balance Sheet
- Profit and Loss Monthly Forecasting
- Cash Flow Monthly Forecasting
- Breakeven Analysis
- Business Ratios
- Company Valuation and Payback Period
- Sensitivity Analysis (Increase in Revenue)
- Sensitivity Analysis (Decrease in Revenue)
Try different approaches, consider higher loss examples and more challenges, and that way you can determine if you’re going to be able to make it work and be profitable. Be honest with yourself; super honest. It’s better to have estimated profit be on the lower side than the higher side. Keep it realistic, and have fun planning your next business venture. Check out other business plan posts:
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