Financial plan in a business project
In most cases, this does not happen because luck has "forgotten how to smile", but the financial plan (FP) was not thought out enough or not drawn up at all. Sometimes small, timely adjustments can make a big difference.
What is a financial plan Its main goals and objectives
In financial planning, not only mathematical calculations are important, but also the ability to predict and analyze. In the context of today's instability, there are constant changes in demand, tougher competition, rising prices for raw materials, materials and energy resources. All these nuances must certainly be taken into account when drawing up the FP, otherwise it will be impossible to adhere to it, and the document itself will become useless.
The main goal of financial planning is to control the ratio of income and expenses of the enterprise, contributing to the receipt of profit.
- Amount of capital required to support production.
- Funding sources.
- A list of inherent expenses for equipment, materials, renting premises, recruiting personnel, advertising, paying utility bills and taxes, etc.
- Conditions for maximizing profit and ensuring financial stability.
- Strategy for achieving investment attractiveness of the enterprise.
- Interim and final financial results.
The main task of the FP is to create an effective mechanism that manages all the financial resources of the enterprise and demonstrates to investors a profitable prospect of financial investments.
Sections and their contents
The legislation of the Russian Federation establishes three forms of financial reporting, the presence of which in the business plan is mandatory:
- A cash flow statement makes it possible to find out whether an organization has the necessary amount of cash in order to meet its current obligations. This document contains information about all financial flows of the enterprise, in other words, it shows where the money came from and what needs it was spent on. This report allows you to exercise control over the financial, investment and operational activities of any project:
- Reveal the lack of funds at one stage or another and eliminate it in a timely manner (for example, by means of a loan). At the same time, it will be possible not to suspend the activities of the company and to find a borrower with the most favorable conditions.
- Identify inappropriate expenses and ways to save.
- Rely on reliable data in the future when generating reports and forecasts.
- Provide the necessary reserve of funds for force majeure circumstances (untimely payment of customers for the products received, equipment breakdown, etc.)
- Determine the degree of self-sufficiency of the enterprise.
- the amount of funds to supply the production process with raw materials without losing quality;
- what investment options do you have and how profitable they are;
- a list of all expenses on materials, salaries for company employees, an advertising campaign for a product, utilities and other nuances to ensure;
- how to achieve high profitability of your business project;
- the best strategies and methods of increasing investment;
- preliminary results on the activities of the enterprise for a period of more than 2 years.
- payback period (one of the risk indicators contained in the implemented scheme denotes the period of time when funds invested in a business can be recovered with income);
- the amount of revenue (the amount of growth from new production minus the costs incurred is the degree of scale of the business);
- profitability index (wealth ratio);
- internal rate of return (a sign of the effectiveness of investment measures) - the most important criterion for determining the success of the program.
Aspiring entrepreneurs often have an extremely vague idea of what is behind the phrase "financial model". As a result, many people think that financial flows will develop on their own as they do business. Others feel that this area is too complex and requires a lot of learning in financial terminology. In fact, learning to translate your business into cash flow and numbers is important, but not as difficult as it sounds. Let's take a look at the key steps here.
What is a financial model?
We have already written a little about the components of the financial model earlier and promised to talk in more detail about how to build it.
In fact, a financial model is a monetary description of your company and its development. At the same time, the model reflects the relationships that are present both in financial flows in general and in the processes typical for your company in particular.
That is why a working financial model cannot be built without a good understanding of the business itself. And this is the part for which the entrepreneur himself is responsible. Anyone can learn how to transfer business processes to the format of a financial model - for a start, basic knowledge of mathematics and Excel is enough.
Traditionally, in large companies a number of blocks are included in the financial model: a planned cash flow statement, which reflects operating, investment and financial cash flows, a profit and loss statement, and a balance sheet.
An example of a ready-made cash flow statement might look like this:
At the start, you need to start with an estimate of the operational part, which will take into account your income and variable and fixed costs. In this article, we will only touch on this part of the model.
Start by planning your income
The financial model at the start is best done in Excel and planned by months.
First of all, make a list of all sources of revenue and, sequentially, for each of them, enter the sales plan by month in the table.
So, we proceed to the largest and most important section of your business plan, which contains financial information on the project, determines its cost and will help investors, business partners and you assess the ability of a new venture to ensure the flow of funds in volume sufficient to make payments on loan obligations (payment of interest or dividends, repayment of loans).
When describing the financial results of the project, be sure to include the conditions, estimates and assumptions on which you relied. Indicate who prepared the cost estimate - yourself or an independent appraiser. Remember that logical predictions can help you set quality goals and achieve quantitative targets.
In this case, it is highly advisable to seek help in drawing up a business plan and especially its financial part from experts. As a result, you will receive a well-written document with sound economic calculations that will make a favorable impression on investors and lenders.
Legally approved forms of accounting and financial reporting can be included in the section with financial information. As a rule, there are three main documents: a profit and loss statement, which reflects the company's activities by periods, a cash flow plan (Cash-Flo), a balance sheet, which allows you to assess the financial condition of the company at a particular point in time.
From the income statement you can find out if your business is making a profit and in what amount, after deducting all existing expenses. Although this document does not give an idea of either the value of the company (as opposed to the balance sheet of the enterprise), or the funds that it has.
This data is contained in the cash flow statement, which shows whether the company has enough cash to pay current obligations (settlements with suppliers, payment of wages to employees, payment of taxes and other obligatory payments, payments on loans and loans, etc.).
However, in order to find out the real value of the company, you need a balance sheet of the enterprise - the main form of financial statements. It contains information on all liabilities and assets of the company in value terms. Simply put, the asset of the balance sheet contains information about the property and funds of the enterprise, and in the liability - about the sources of this property and funds. The total amount of the asset and liability in the balance sheet must match.
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Describe in detail the proposed sources and schemes of financing, responsibility for repayment of loans, the system of guarantees that you can provide, and also indicate the need for additional financial resources, if any. Pay special attention to describing the current and forecasted situation on the market and in the economy, suggest several different scenarios for the development of events and ways to resolve possible crisis situations.
Prepare forecast and current financial statements, present the company's financial history and profit plan, assess the risks that investors and lenders may face, and indicate ways to minimize them.
Information about risks and guarantees is often presented in a separate subsection, which describes external and internal factors that affect a specific type of risk, and also provides measures to protect against possible financial losses of the company and the lender. Information about what problems may arise during the implementation of the project and how the entrepreneur is going to solve them is of great interest to investors.
The depth and risk analysis of the enterprise depend on the type of activity and the amount of expected losses. Risk means the likelihood (threat) of loss of a part of its resources by the enterprise, shortfall in income or the appearance of unplanned expenses arising from the production and financial activities of the company.
Financial plan of a business plan: how to carry out calculations to analyze the financial situation of an enterprise + formulas for calculating efficiency + 3 stages of calculating risks.
Business should make money. This is an unwritten rule for all entrepreneurs.
But we don't always get what we want. Due to some circumstances, the level of income can plummet.
The financial plan of the business plan is aimed not only at identifying holes in the project, it makes it possible to adjust the activities for 1 - 5 years in advance.
What is a business plan financial plan?
To understand what the structure of this business component should be, let's figure out what a financial plan is. What goals and objectives should you pursue to improve your own project.
The Financial Plan is a priority section for both a new venture and market veterans. Displays all activities in numbers, helping to increase profitability and adjust development priorities, if necessary.
A highly unstable market forces experts when analyzing a business to pay attention not only to mathematical calculations of the potential income of companies.
The level of demand and the social component of the field of activity in which it develops is taken into account.
High competition in the market, constant growth of prices for raw materials, depletion of energy sources - all this affects the economic component in business development. It can be very difficult to bring trading to a new level under the influence of all these factors.
The goal of the financial plan is to keep the level between the profit and the expenses of the organization under control so that the owner always remains in the black.
To achieve positive results, it is imperative to find out:
Any commercial undertaking is born from budgeting. Do not think that this is some kind of formal document that is needed for registration with the tax authority or other regulatory authority. The financial plan of the project is the basis of the company's activities in any field of entrepreneurship. Without its development, it is impossible to correlate profit with losses and direct work in a more profitable direction. How it is composed and what difficulties may be encountered along the way, you will learn from this article.
What is a financial plan for a business idea?
Some people think that you can put an equal sign between the concepts of "financial plan" and "business plan". This is not true. A financial plan is only one part of a serious, solid business plan, and it is he who determines the investment attractiveness of a business endeavor. The main purpose of its compilation is the calculation and planning of forthcoming expenses, determining the sources of their compensation, forecasting the monetary result. It also necessarily includes the calculations carried out during its development in a clear sequence.
This section of a business plan is not easy to prepare. Mainly because this part of the program has the greatest responsibility. The calculations and forecasts reflected in it are of too great importance and can only be recorded as a result of economic analysis. At the stage of preparing an investment project, it is necessary to formulate a number of basic questions that should be comprehensively considered in the process of this study. To summarize, we conclude that business schemes have no value without a section on monetary calculations. The business idea budget contains data that allows you to determine the final result of the enterprise for a specified period of time.
The relationship between the financial plan and the performance measurement of the business idea
It is easy to guess that on the basis of economic calculation, the investor evaluates its performance. This is understood as the correspondence of the purchase price of an asset to the income that it can bring, taking into account all the existing risks. The financial plan will unequivocally tell the investor whether it is worthwhile for him to acquire this object and contribute money to the project. The investment program is assessed by a number of performance indicators. Some of them are associated with the material condition of the enterprise, and some with the investment result calculated taking into account the discount rate.
The financial state of an organization is determined by how its income, profitability, liquidity, etc. change in the process of implementing the plan. How more or less sustainable a company becomes in finance.
How can you evaluate the effectiveness of an investment? For this, the following data are assessed:
All the above information represents the main parameters of the economic idea of the project.