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Last updated on 2/6/20

Create a financial plan

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There are three essential financial documents to include in your business plan. We’ll explore what they are, why they’re important and how to create them.

Even if you’re writing a business plan for internal purposes, it’s still a good idea to include financial forecasts as it will help you ‘see’ your financial position in real terms. If you’re hoping to raise funding, your business plan will be incomplete without them.

These documents are your:

  1. Income sheet

  2. Cashflow projection

  3. Balance sheet

If the mere thought of creating financial documents leaves you nauseous, 🤢 don’t worry. 😉 There are lots of free Excel templates online. Download what you need and fill it in with your details/figures.

Let’s look at each of these sheets in turn.

Income sheet

This is the document that shows your revenue (the money coming into your business or its income), your expenses (the money going out, its costs) and your profit for a given time period. It’s sometimes also called a profit and loss sheet. The simple equation is this:

REVENUE – EXPENSES = Profit (or Loss)

You’ll need to present figures for more than just the first year so you can show how your business is capable of growing over time. It also acts as your own visual guide to see if you’re charging enough or need to earn more to reach your income goals. List each new year in a separate column.

Example income sheet.
Example income sheet

Vertex24 offers the above income sheet that’s free to download.

Company revenue is listed first and is broken down here into total revenue from sales, services, interest and other. If you are offering different services or products, with some selling better than others, you can alternatively list each one separately so you can see at a glance how much revenue you’re earning from which product.

List your expenses below your revenue. In this example, you can see that expenses include everything from advertising and furniture to rent, utility bills and travel.

Net income is the amount of profit (or loss) you’ve earned once you’ve deducted your expenses from your revenue. In this example, it’s £22,404.

2. Cash flow projection

This document shows the movement of money coming in and going out of your business usually over a year. If your customers pay you on time allowing you to pay business expenses without incurring interest, then your cash flow is good and fluid.

Your business will rely on this fluid in and out flow of money to function efficiently.

Cash flow projection
Example cash flow projection

Cash receipts are the money you’ve received. This could be from sales, a loan or bank interest received for example. Cash paid out includes everything from advertising, meals and entertaining to utilities, loans or start-up costs. A simple equation for this is:

Cash at start + cash in - cash out = end balance

3. Balance sheet

A balance sheet shows what a company owns (its assets) and owes (its liabilities) on a particular date. Simply put, it shows:

a) the money (or objects) you’ve put into your business (assets)

b) how you’ve spent it (liabilities)

These should always be equal: hence the two should ‘balance’.

Balance sheet
Example balance sheet.

Your assets include cash or anything that could be converted to cash. It also includes fixed assets such as land, office equipment, machinery or tools.

Liabilities can be either short-term (such as taxes you owe, or invoices you need to pay) or long-term (such as bank loans).

You can either create an Excel spreadsheet to create your own templates, or download them from the internet.

Once you’ve created your financial documents, you’ve completed the bulk of your business plan. You’ll now have everything you’ll need to write the executive summary.

In the next chapter, you’ll learn one technique to help you write a direct and comprehensive summary.

Let's recap!

Example of certificate of achievement
Example of certificate of achievement