UPDATE YOUR BUSINESS PLAN, ESPECIALLY THE FINANCIALS
Companies usually launch with a business plan but fail to keep it updated. There are six sections that generally comprise business plans: executive summary, business description, industry and marketing analysis, management description, implementation plan, and financials. All of these should be analyzed and evaluated annually, but, if nothing else, your financials need the most frequent updating.
Projecting the Future
Business plans are very important as they layout how you want to get from point A to B. It will provide a plan of how your business expects to grow revenue over a specified amount of time, how your management team will handle sales, how the company will acquire assets, etc. All of these details will help your company project an income statement, balance sheet, and cash flow statement.
Your financials within your business plan is the single section that is not open to different interpretations. It is one of the most important sections for investors and lenders and must contain realistic projections.
Accounting for Assumptions
Making assumptions based on well-informed data is the key to a successful business plan, and even more so when forecasting the financials. In the income statement, you’ll have to make assumptions about variable and fixed expenses. Things like materials are usually deemed a variable, and salaries are generally fixed. Some fixed expenses can become a variable over time, such as rent if a lease expires or you want to relocate.
Receivables, inventory, payables, etc. all comprise the balance sheet. Your projected balance sheet should include the estimated growth and revenues. The balance sheet is also where you track increased or decreased debt(s), so it is important to keep these amounts current.
Your projected cash flow statement might be the most important aspect of your financials, but it must be done in a realistic and objective manner.
If your company happens to have shortfalls as it is experiencing growth, your lender is the one who is expected to pay however much the shortfall is. Your financials should meticulously detail how much funding you’ll need for your company, how that money will be distributed, and the time frame of repaying the loan(s).
Don’t Neglect to Update Your Plan
Your business plan should be as updated, accurate, and objective as possible. If you feel you don’t have to update the summary, descriptions, analysis, or implementation aspects of your plan, at least update your financials reasonably often. We can help your business come to realistic projections and assumptions and review your financials.