Today we are writing the last part of the Financial Plan: The Projection. A projection, or forecast, is written as a goal-setting tool for the financial future of your business. It serves as an estimate of your company’s ability to be profitable. It is great information for potential financiers of your business, and a great exercise for you to plan your financial road map. If you don’t have a map, how do you know where you are going?
The following 5 templates are taken from SCORE, SBA small business counselors, and are spreadsheets that will constitute your financial plan:
12-Month Profit and Loss Projection
This projection shows your expected income and expenses by month for the next year. You may find it helpful to use the sales forecast that you created in Step 6 during your marketing plan. You’ll want to make sure to explain any assumptions or exceptions in your projection. For example, the wedding industry generally has seasonality in its revenue stream. You’ll want to explain those variations in your projection. This is the template from SCORE: 12 Month Profit and Loss Projection.
Three-Year Profit Projection (Optional)
If you are seeking bank financing or outside investment, you’ll want to provide a three-year profit projection. This will be important to your financiers in determining the long-term viability of your business. This is the template from SCORE: Three-Year Profit Projection.
Projected Cash Flow
The Cash Flow Projection is probably the most helpful tool for small businesses. The number one reason most businesses fail is poor cash management. With the seasonality of the wedding industry, having a good handle on the ins and outs of your cash stream is very important. You’ll want to use the profit and loss statement to determine where you expect your cash to come from (sales, loans), and where you expect it to go (expenses, debt repayment). Here is the Cash Flow Projection from SCORE.
SCORE recommends explaining your major assumptions, including:
- If you make a sale in month 1, when do you actually collect the cash?
- When you buy inventory or materials, do you pay in advance, upon delivery, or much later?
- How will this affect cash flow?
- Are some expenses payable in advance?
- Are there irregular expenses, equipment purchase, or inventory buildup that should be budgeted?
Projected Balance Sheet
Your Projected Balance Sheet will show your assets, liabilities, and owner’s equity as expected for the 12 months you’ve covered in your 12-month profit projections. You’ll want to take a look at your current Balance Sheet (remember we did this in Step 10) and use your profit projections to determine what your balance sheet will look like in a year. This is the Projected Balance Sheet from SCORE.
The Breakeven Analysis enables you to determine what you have to earn in income to recover the costs of doing business. This is a powerful tool for all businesses, but more so for new businesses. Here is the SCORE template for Breakeven Analysis.
Tomorrow we’ll be discussing the appendices and addendums to your business plan. These are the items that go at the end of your plan to give it just a little more meat.