The financial section of a business plan: what is it
In the business plan of an entrepreneurial project, aspects of commercial activity are considered. With its help, you can understand how promising it is. Creditors and investors, and in some situations, counterparties are guided by the position of the document. The content of a business plan allows you to see how to solve specific business problems, and its financial section displays a digital interpretation of expenses and incomes, as well as their ratio, which allows you to assess the real prospects of an entrepreneurial idea. What is a financial plan, and how to use it to assess the relevance of the project?
The financial section of the business plan summarizes all the information previously displayed in the document. It is expressed in digital form, which makes it possible to assess the prospects of the future business and understand how expedient it is to translate the planned into reality.
The format of the business plan is different for each project. It depends on its scale, characteristics and goals pursued. All its sections are compiled according to various schemes. The financial part of the document can be drawn up according to non-identical algorithms, but it must contain information:
- normative values obtained by calculation taking into account the regulated parameters;
- costs of organizing a business;
- costs of ensuring production activities; <
- determining the cost of labor results;
- drawing up a diagram of the financial flow;
- forming the financial balance of the project;
- calculating and analyzing basic financial indicators; <
- comparison of potential values of profit and loss;
- determination of methods of financing the project and their description.
How the financial section of the business plan is developed
The financial section of the business plan addresses the issues of financial support for organizational and production activities.
It defines the sources and methods of financing the project, as well as methods for the effective use of funds, taking into account the current situation and forecasting production volumes and the implementation of labor results. It is convenient to plan from the perspective of identifying the most likely cash flow movement. Based on its parameters, the financial results of activities and the estimated balance of the business entity are predicted.
When drawing up a business plan, it is necessary to focus on the payback period of the funds invested in the project. It should visually reveal the prospects of investments, as well as display specific numerical values of the potential value of profitability.
Definition of guideline values
When determining the calculation standards that are relevant to the project, it is necessary to take into account the taxation system chosen by the entrepreneur, which determines the amount of taxes and the timing of their transfer, as well as cost parameters applied to procurement materials to ensure the start and operation of the business, and to the results labor in the course of their implementation. In the calculations, it is important to display the current inflation rate and predict it for the future based on the current trend of past years. The indicator must be taken into account in all calculations.
A business plan is usually drawn up for 3-5 years. All standards that are relevant in the first year of business operation are described in detail. The maximum accounting period is one month. In the following years, it is allowed to plan events and determine standards on a quarterly basis.
General production costs
The business plan contains the main aspects of planning the production and commercial activities of the enterprise. With its help, it is possible to determine ways of solving specific financial and economic problems for the future, to convince creditors and investors to provide financial resources.
Methodological approaches to drafting the financial section of a business plan
Analyzing domestic experience in the preparation of business plans, we can conclude that of all its sections, the least developed financial plan.
The financial section of the business plan considers the issues of financial support for the activities of enterprises, firms, organization and the most effective use of available financial resources based on an assessment of current financial information and a forecast of the volume of sales of goods and services in the markets in subsequent periods.
The financial plan is developed in the form of the following forecast financial documents:
- forecast of financial results;
- projection of cash flow;
- forecast balance of the enterprise.
As a rule, the forecast period covers 3-5 years. Consider the sequence of designs using the same example of an enterprise that has already worked in the field of food production and wants to release a new type of product in the forecast period. He is interested in how the results of activities will develop in the future, taking into account the new production program.
The purpose of forecasting financial results is to present the prospects for the enterprise from the point of view of profitability (Table 1). Investors will be especially interested in the level of profitability in the coming period, as they can see what share of the profits the enterprises will receive.
Year 1, Year 2, etc. - these are the years of the forecast period, starting with the next in relation to the year of the development of the business plan (base year).
The starting point for making this forecast is planning sales in volume and value terms. In this case, calculations are carried out for all types of products, and then they are summed up in the result presented in table. 1 (line 1).
Subtracting the cost of goods sold from the net sales, we get the gross profit indicator. Cost indicators have already been calculated in the "Production plan" section of the business plan in question.
So, in our attempts to learn how to write business plans on our own, we, dear readers, have come to one of the largest and most important sections. The financial section of the business plan, which should contain almost all available financial information about the project, should show investors (if the business plan is investment) the viability of your proposal, its benefits, and security in terms of payment of loan funds and interest on them.
If a business plan is drawn up for personal use, then drawing up a financial plan will allow you to see, in addition to the "dry" figures of costs and profits, the real prospects for your future business.
Like all the previous sections of the business plan (which you can learn more about here), the financial forecast includes several different subsections, which I will discuss in detail in this article.
But first, it should be noted that a person who is far from financial calculations, with which a financial plan will abound, is unlikely to be able to "master the accounting jungle" on his own. Therefore, I would advise you to resort to the help of financial business planners to achieve the goal set before the project description.
But, nevertheless, you should have some idea of what the financial part of a business plan should contain. Or you still decide to do the description of the business project yourself. This will be relevant if a business plan is drawn up for yourself. Why, say, you need to involve a specialist in drawing up financial indicators when describing a project for making candles or a horseradish growing business. Agree - the scale is not at all the same. And with such a task it is quite possible to cope with yourself.
First of all, be sure to include all estimates, amounts, and other numbers that you relied on when writing the document. Also indicate who exactly made estimates, calculations, schedules, etc. All these data should be reflected in the subsection "Normative documents" to the table of contents ↑
This part of the financial indicators in the business plan should include:
- The price positions for raw materials and final products at the time of business establishment. For comparison, you can give examples of the pricing policy of competitive companies. Based on these figures, it is necessary to make a forecast of prices for the future - monthly, quarterly, for each year of the conditional life cycle of the enterprise. Price changes should be compiled taking into account possible inflation and other economic changes. Estimated indicators should be reflected, both with and without tax deductions.
- An indication of the tax regime for the enterprise, types of tax payments, their amounts, payment terms.
- Indicators of current and possible inflation are taken out as a separate item. As a rule, the forecast is made on the basis of the previous reporting period (usually 3 or 5 years).
Here you need to know that there are two types of expenses:
- And permanent
The concept of a financial plan seems difficult and unclear for a beginner, but there is nothing incomprehensible or difficult in it. This article will explain such a term in detail, and also tell you how to properly compose this document.
What is a financial plan?
A financial plan is an aggregate compound plan of work and further development of a firm or enterprise, but in monetary (more simply, value) terms. It provides a forecast and assessment:
- efficiency of the organization;
- financial results of production operations;
- financial results of investment activities.
The purpose of this document is to find the most effective financial planning strategy.
There are the following types of financial plans:
- a short-term planning period (detailed plan, covers an annual period or less);
- a medium-term planning period (1-2 years, less often 5 years, but no more; usually includes bold ideas for business transformation);
- a long-term period (from five years, forecasts and ideas for a long time. Rarely accurate, but credit institutions consider them especially carefully. Bankers need to understand does your business have long-term prospects and is it safe to invest in it).
The financial plan should cover the results of the production and economic activities of the firm, market research and accounting, the cost of production, costs and necessary expenses.
We are the company that will be able to create a plan that fully meets your needs. We have the necessary tools and skills to facilitate the financial planning of your company.
What does the financial plan consist of?
A well-formed financial plan consists of the following components:
- income (and all methods of receiving funds into the organization);
- expenses (various expenses on salaries, costs, risks and losses);
- relations with credit and tax organizations;
- the overall budget of the organization.
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Financial planning in a business plan
Planning is not so much and not only one of the essential elements of socialism, but most likely a natural result of the search by human society for the most rational and effective tools and methods of its historical development and survival. It took place and exists in one form or another and in the corresponding norms in all socio-economic systems, in any enterprises, in the family from the very beginning of its appearance, and even in each individual person.
Planning in general, as the greatest achievement of the human mind, is practically a natural and necessary element of people's behavior in everyday life and not in production. Human labor always presupposes conscious purposeful activity to achieve the desired result, the image (plan, project) of which he ideally has at the very beginning of any work, including in business. It is also known that self-organization is not a primary property of things, like disorganization (chaos) and requires special care - management, the most important function of which is planning. Therefore, planning can be viewed as designing the process of creating order out of disorder and increasing its degree, which reduces the uncertainty or entropy in this case of the enterprise system.
Planning of production and commercial activities is not only possible, but also vital for all organizational and legal forms of enterprises. The market does not suppress or deny planning in general, but only moves it mainly to the primary production link - enterprises and their associations. Even in the country as a whole, the area of necessary planning is not replaced by the completely invisible regulatory hand of the market. Both in the West and in the East, states define strategies for their economic development, global environmental problems, major social and scientific and technical programs, the distribution of the country's budget, defense, etc. At the level of enterprises, not only strategic (long-term) self-planning is carried out, but also detailed development of operational (current) plans for each department and even a workplace. In the calendar plans (monthly, ten-day, quarterly, semi-annual), the goals and objectives set by the long-term and medium-term plan are specified in detail. Production schedules include information about orders, their availability with material resources, the degree of utilization of production facilities and their use, taking into account the timing of each order. They also provide for the costs of reconstruction of existing facilities, replacement of equipment, training of employees, etc. In market conditions, stable enterprises widely use the advantages of planning in competition.
Numerous special studies in the United States have long ago revealed a high positive correlation between planning in market conditions and success in doing business in various business areas. It is reliably known that when planning their activities, firms have significantly higher economic results than without systematic planning.