Purpose

The financial section of your business plan provides the numerical validation of your plan. The financial section is very important because it:

1. Provides a summary of your business plan for review by lenders
2. Provides a monthly management guide for operation

Guidelines

Your financial plan should:

1. Be clear and concise
2. Include a contingency plan
3. Be used as an on-going budgeting tool and management control system
4. Be targeted at potential lenders or investors

Table 22 outlines some other points to keep in mind when you prepare your financial plan.

Table 22: Guidelines for Preparing Financial Statements

Financial Documents

Your financial section should include the following documents:

1. Cash Flow Projection
2. Income Statement
3. Statement of Personal Net Worth
4. List of Start-up Costs

Assumptions

To support your financial statements, you should include a commentary on the main assumptions you’ve made in preparing the statements; for example, number of staff, wage rates, and fluctuation in probable sales.

Table 23 shows the assumptions made when Fay’s Variety’s financial statements were prepared.

Role of Accountant or Financial Advisor

It is advisable to consult with an accountant or financial advisor to complete your financial section. An accountant or financial advisor can be helpful for setting up accounting records and financial control systems to help you operate your business.

A good accountant may also provide wide experience with other small businesses, knowledge about people and markets, and, of course, setting up regulatory accounts (IE. WCB, Canada Revenue Agency, Minister of Finance for Ontario) and providing tax advice.

Table 23: Assumptions for Financial Statements for Fay’s Variety

Click on Worksheet 8.11 (Word Document) to list your financial objectives.

1. CASH FLOW PROJECTION

Purpose

The Cash Flow Projection provides a complete picture of cash receipts and disbursements for an accounting period.

The Cash Flow Projection is not a substitute for the Income Statement. It only tracks the cash flow of a business.

Consult with Accountant Financial Advisor

Consult with your accountant or Financial Advisor to ensure that you are properly projecting your cash flow.

Be careful not to overestimate first year sales.

Example

An example of a Cash Flow Projection for Fay’s Variety has been included for you to use as a guideline.

Cash Flow Projection Example

Click on Worksheet 8.12  (Word Document) and Worksheet 8.12 (Excel) to plan your cash flow.

2. INCOME STATEMENT

Purpose

The Income Statement shows your operating profit or loss over a specific period of time.

For your business plan, you should forecast your income and expenses over a 12 month period.

Factors Affecting Income

Your operating profit or loss depends on:

1. Revenue

Generally, revenue includes sales; that is, the price of goods sold or services rendered to your customers.

Revenues should be recorded at the time they occur, not when payment is received from the customer.

2. Direct Costs

Direct costs include such costs as material purchases and labour.

3. Expenses

Expenses include any costs incurred in the process of earning revenue. For example, advertising, rent, utilities, and insurance can be considered expenses.

Expenses should be recorded in your accounting records at the time they are incurred, not when they are paid.

4. Drawings

Drawings are withdrawals which the owner of an unincorporated business makes for personal use.

Calculation of Operating Profit or Loss

The operating profit or loss is calculated by subtracting direct costs and expenses (and any drawings) from revenue.

Example

The Income Statement for Fay’s Variety is shown below to give you an idea of what you should be including in your Income Statement.

Click on Worksheet 8.13 (Word Document) and Worksheet 8.13 (Excel) to calculate your income statement. Use the 12-month projection that you completed from the previous worksheet to assist you with your Income Statement.

3. STATEMENT OF PERSONAL NET WORTH

Purpose

The Statement of Personal Net Worth is a listing of all your personal assets and liabilities.

List of Assets

The following assets should be listed:

1. Liquid Assets

Examples of liquid assets include:

2. Investment Assets

Investment assets include any assets tied up in an investment. Examples could include:

3. Personal Assets

Examples include your residence, automobiles, and other personal effects.

List of Liabilities

Liabilities which should be listed include:

1. Current Liabilities

2. Long Term Debt

Calculation of Personal Net Worth

The following equation can be used to calculate your net worth:

NET WORTH = TOTAL ASSETS – TOTAL LIABILITIES

Example

An example of a Statement of Personal Net Worth for Fay’s Variety is available.

Statement of Personal Net Worth Example  (PDF)

Click on Worksheet 8.14 (Word Document) and Worksheet 8.14 (Excel) to calculate your Personal Net Worth.

4. LIST OF START-UP COSTS

Purpose

This section of your business plan summarizes all your costs involved in setting up your new venture.

Items to List

Try to list any cost related to your start-up. Examples might include:

Example

Start-up costs for Fay’s Variety are included as an example for you to follow.

Click on Worksheet 8.15 (Word Document) to calculate your Start-up Costs.