what is financial analysis in business plan

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How to Prepare a Financial Plan for Startup Business (w/ example)

Free Financial Statements Template

Ajay Jagtap

• December 7, 2023
• 13 Min Read

If someone were to ask you about your business financials, could you give them a detailed answer?

Let’s say they ask—how do you allocate your operating expenses? What is your cash flow situation like? What is your exit strategy? And a series of similar other questions.

Instead of mumbling what to answer or shooting in the dark, as a founder, you must prepare yourself to answer this line of questioning—and creating a financial plan for your startup is the best way to do it.

A business plan’s financial plan section is no easy task—we get that.

But, you know what—this in-depth guide and financial plan example can make forecasting as simple as counting on your fingertips.

Ready to get started? Let’s begin by discussing startup financial planning.

What is Startup Financial Planning?

Startup financial planning, in simple terms, is a process of planning the financial aspects of a new business. It’s an integral part of a business plan and comprises its three major components: balance sheet, income statement, and cash-flow statement.

Apart from these statements, your financial section may also include revenue and sales forecasts, assets & liabilities, break-even analysis , and more. Your first financial plan may not be very detailed, but you can tweak and update it as your company grows.

Key Takeaways

• Realistic assumptions, thorough research, and a clear understanding of the market are the key to reliable financial projections.
• Cash flow projection, balance sheet, and income statement are three major components of a financial plan.
• Preparing a financial plan is easier and faster when you use a financial planning tool.
• Exploring “what-if” scenarios is an ideal method to understand the potential risks and opportunities involved in the business operations.

Why is Financial Planning Important to Your Startup?

Poor financial planning is one of the biggest reasons why most startups fail. In fact, a recent CNBC study reported that running out of cash was the reason behind 44% of startup failures in 2022.

A well-prepared financial plan provides a clear financial direction for your business, helps you set realistic financial objectives, create accurate forecasts, and shows your business is committed to its financial objectives.

It’s a key element of your business plan for winning potential investors. In fact, YC considered recent financial statements and projections to be critical elements of their Series A due diligence checklist .

Your financial plan demonstrates how your business manages expenses and generates revenue and helps them understand where your business stands today and in 5 years.

Makes sense why financial planning is important to your startup or small business, doesn’t it? Let’s cut to the chase and discuss the key components of a startup’s financial plan.

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Key Components of a Startup Financial Plan

Whether creating a financial plan from scratch for a business venture or just modifying it for an existing one, here are the key components to consider including in your startup’s financial planning process.

Income Statement

An Income statement , also known as a profit-and-loss statement(P&L), shows your company’s income and expenditures. It also demonstrates how your business experienced any profit or loss over a given time.

Consider it as a snapshot of your business that shows the feasibility of your business idea. An income statement can be generated considering three scenarios: worst, expected, and best.

Your income or P&L statement must list the following:

• Cost of goods or cost of sale
• Gross margin
• Operating expenses
• Revenue streams
• EBITDA (Earnings before interest, tax, depreciation , & amortization )

Established businesses can prepare annual income statements, whereas new businesses and startups should consider preparing monthly statements.

Cash flow Statement

A cash flow statement is one of the most critical financial statements for startups that summarize your business’s cash in-and-out flows over a given time.

This section provides details on the cash position of your business and its ability to meet monetary commitments on a timely basis.

Your cash flow projection consists of the following three components:

✅ Cash revenue projection: Here, you must enter each month’s estimated or expected sales figures.

✅ Cash disbursements: List expenditures that you expect to pay in cash for each month over one year.

✅ Cash flow reconciliation: Cash flow reconciliation is a process used to ensure the accuracy of cash flow projections. The adjusted amount is the cash flow balance carried over to the next month.

Furthermore, a company’s cash flow projections can be crucial while assessing liquidity, its ability to generate positive cash flows and pay off debts, and invest in growth initiatives.

Balance Sheet

Your balance sheet is a financial statement that reports your company’s assets, liabilities, and shareholder equity at a given time.

Consider it as a snapshot of what your business owns and owes, as well as the amount invested by the shareholders.

This statement consists of three parts: assets , liabilities, and the balance calculated by the difference between the first two. The final numbers on this sheet reflect the business owner’s equity or value.

Balance sheets follow the following accounting equation with assets on one side and liabilities plus Owner’s equity on the other:

Here is what’s the core purpose of having a balance-sheet:

• Indicates the capital need of the business
• It helps to identify the allocation of resources
• It calculates the requirement of seed money you put up, and
• How much finance is required?

Since it helps investors understand the condition of your business on a given date, it’s a financial statement you can’t miss out on.

Break-even Analysis

Break-even analysis is a startup or small business accounting practice used to determine when a company, product, or service will become profitable.

For instance, a break-even analysis could help you understand how many candles you need to sell to cover your warehousing and manufacturing costs and start making profits.

Remember, anything you sell beyond the break-even point will result in profit.

You must be aware of your fixed and variable costs to accurately determine your startup’s break-even point.

• Fixed costs: fixed expenses that stay the same no matter what.
• Variable costs: expenses that fluctuate over time depending on production or sales.

A break-even point helps you smartly price your goods or services, cover fixed costs, catch missing expenses, and set sales targets while helping investors gain confidence in your business. No brainer—why it’s a key component of your startup’s financial plan.

Having covered all the key elements of a financial plan, let’s discuss how you can create a financial plan for your startup or small business.

How to Create a Financial Section of a Startup Business Plan?

1. determine your financial needs.

You can’t start financial planning without understanding your financial requirements, can you? Get your notepad or simply open a notion doc; it’s time for some critical thinking.

Start by assessing your current situation by—calculating your income, expenses , assets, and liabilities, what the startup costs are, how much you have against them, and how much financing you need.

Assessing your current financial situation and health will help determine how much capital you need for your small business and help plan fundraising activities and outreach.

Furthermore, determining financial needs helps prioritize operational activities and expenses, effectively allocate resources, and increase the viability and sustainability of a business in the long run.

Having learned to determine financial needs, let’s head straight to setting financial goals.

2. Define Your Financial Goals

Setting realistic financial goals is fundamental in preparing an effective financial plan for your business plan. So, it would help to outline your long-term strategies and goals at the beginning of your financial planning process.

Let’s understand it this way—if you are a SaaS startup pursuing VC financing rounds, you may ask investors about what matters to them the most and prepare your financial plan accordingly.

However, a coffee shop owner seeking a business loan may need to create a plan that appeals to banks, not investors. At the same time, an internal financial plan designed to offer financial direction and resource allocation may not be the same as previous examples, seeing its different use case.

Feeling overwhelmed? Just define your financial goals—you’ll be fine.

You can start by identifying your business KPIs (key performance indicators); it would be an ideal starting point.

3. Choose the Right Financial Planning Tool

Let’s face it—preparing a financial plan using Excel is no joke. One would only use this method if they had all the time in the world.

Having the right financial planning software will simplify and speed up the process and guide you through creating accurate financial forecasts.

Many financial planning software and tools claim to be the ideal solution, but it’s you who will identify and choose a tool that is best for your financial planning needs.

Create a Financial Plan with Upmetrics in no time

Enter your Financial Assumptions, and we’ll calculate your monthly/quarterly and yearly financial projections.

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4. Make Assumptions Before Projecting Financials

Once you have a financial planning tool, you can move forward to the next step— making financial assumptions for your plan based on your company’s current performance and past financial records.

You’re just making predictions about your company’s financial future, so there’s no need to overthink or complicate the process.

You can gather your business’ historical financial data, market trends, and other relevant documents to help create a base for accurate financial projections.

After you have developed rough assumptions and a good understanding of your business finances, you can move forward to the next step—projecting financials.

5. Prepare Realistic Financial Projections

It’s a no-brainer—financial forecasting is the most critical yet challenging aspect of financial planning. However, it’s effortless if you’re using a financial planning software.

Upmetrics’ forecasting feature can help you project financials for up to 7 years. However, new startups usually consider planning for the next five years. Although it can be contradictory considering your financial goals and investor specifications.

Following are the two key aspects of your financial projections:

Revenue Projections

In simple terms, revenue projections help investors determine how much revenue your business plans to generate in years to come.

It generally involves conducting market research, determining pricing strategy , and cash flow analysis—which we’ve already discussed in the previous steps.

The following are the key components of an accurate revenue projection report:

• Market analysis
• Sales forecast
• Pricing strategy
• Growth assumptions
• Seasonal variations

This is a critical section for pre-revenue startups, so ensure your projections accurately align with your startup’s financial model and revenue goals.

Expense Projections

Both revenue and expense projections are correlated to each other. As revenue forecasts projected revenue assumptions, expense projections will estimate expenses associated with operating your business.

Accurately estimating your expenses will help in effective cash flow analysis and proper resource allocation.

These are the most common costs to consider while projecting expenses:

• Fixed costs
• Variable costs
• Employee costs or payroll expenses
• Operational expenses
• Marketing and advertising expenses
• Emergency fund

Remember, realistic assumptions, thorough research, and a clear understanding of your market are the key to reliable financial projections.

6. Consider “What if” Scenarios

After you project your financials, it’s time to test your assumptions with what-if analysis, also known as sensitivity analysis.

Using what-if analysis with different scenarios while projecting your financials will increase transparency and help investors better understand your startup’s future with its best, expected, and worst-case scenarios.

Exploring “what-if” scenarios is the best way to better understand the potential risks and opportunities involved in business operations. This proactive exercise will help you make strategic decisions and necessary adjustments to your financial plan.

7. Build a Visual Report

If you’ve closely followed the steps leading to this, you know how to research for financial projections, create a financial plan, and test assumptions using “what-if” scenarios.

Now, we’ll prepare visual reports to present your numbers in a visually appealing and easily digestible format.

Don’t worry—it’s no extra effort. You’ve already made a visual report while creating your financial plan and forecasting financials.

Check the dashboard to see the visual presentation of your projections and reports, and use the necessary financial data, diagrams, and graphs in the final draft of your financial plan.

Here’s what Upmetrics’ dashboard looks like:

8. Monitor and Adjust Your Financial Plan

Even though it’s not a primary step in creating a good financial plan for your small business, it’s quite essential to regularly monitor and adjust your financial plan to ensure the assumptions you made are still relevant, and you are heading in the right direction.

There are multiple ways to monitor your financial plan.

For instance, you can compare your assumptions with actual results to ensure accurate projections based on metrics like new customers acquired and acquisition costs, net profit, and gross margin.

Consider making necessary adjustments if your assumptions are not resonating with actual numbers.

Also, keep an eye on whether the changes you’ve identified are having the desired effect by monitoring their implementation.

And that was the last step in our financial planning guide. However, it’s not the end. Have a look at this financial plan example.

Startup Financial Plan Example

Having learned about financial planning, let’s quickly discuss a coffee shop startup financial plan example prepared using Upmetrics.

Important Assumptions

• The sales forecast is conservative and assumes a 5% increase in Year 2 and a 10% in Year 3.
• The analysis accounts for economic seasonality – wherein some months revenues peak (such as holidays ) and wanes in slower months.
• The analysis assumes the owner will not withdraw any salary till the 3rd year; at any time it is assumed that the owner’s withdrawal is available at his discretion.
• Sales are cash basis – nonaccrual accounting
• Moderate ramp- up in staff over the 5 years forecast
• Barista salary in the forecast is $36,000 in 2023.
• In general, most cafes have an 85% gross profit margin
• In general, most cafes have a 3% net profit margin

Projected Balance Sheet

Projected Cash-Flow Statement

Projected Profit & Loss Statement

Break Even Analysis

Start Preparing Your Financial Plan

We covered everything about financial planning in this guide, didn’t we? Although it doesn’t fulfill our objective to the fullest—we want you to finish your financial plan.

Sounds like a tough job? We have an easy way out for you—Upmetrics’ financial forecasting feature. Simply enter your financial assumptions, and let it do the rest.

So what are you waiting for? Try Upmetrics and create your financial plan in a snap.

Build your Business Plan Faster

with step-by-step Guidance & AI Assistance.

Frequently Asked Questions

How often should i update my financial projections.

Well, there is no particular rule about it. However, reviewing and updating your financial plan once a year is considered an ideal practice as it ensures that the financial aspirations you started and the projections you made are still relevant.

How do I estimate startup costs accurately?

You can estimate your startup costs by identifying and factoring various one-time, recurring, and hidden expenses. However, using a financial forecasting tool like Upmetrics will ensure accurate costs while speeding up the process.

What financial ratios should startups pay attention to?

Here’s a list of financial ratios every startup owner should keep an eye on:

• Net profit margin
• Current ratio
• Quick ratio
• Working capital
• Return on equity
• Debt-to-equity ratio
• Return on assets
• Debt-to-asset ratio

What are the 3 different scenarios in scenario analysis?

As discussed earlier, Scenario analysis is the process of ascertaining and analyzing possible events that can occur in the future. Startups or small businesses often consider analyzing these three scenarios:

• base-case (expected) scenario
• Worst-case scenario
• best case scenario.

About the Author

Ajay is a SaaS writer and personal finance blogger who has been active in the space for over three years, writing about startups, business planning, budgeting, credit cards, and other topics related to personal finance. If not writing, he’s probably having a power nap. Read more

Reach Your Goals with Accurate Planning

How To Conduct Financial Analysis for Your Company

Updated: July 22, 2024

Published: July 07, 2023

If someone were to ask you about your company’s financial strengths and weaknesses, could you give them a detailed answer?

As a founder, you need to know this type of information about your business. Understanding your financial performance is key to making better decisions about growth and investment plans. 

The key to painting that picture lies in a process known as financial analysis.

What is financial analysis?

Financial analysis is the process of going over a company’s financial data to evaluate its performance in order to make informed business decisions. Founders and executives use financial analysis to assess performance and make strategic decisions, such as where to invest money to improve growth. 

Externally, investors use financial analysis to make decisions about which companies are good investments. Potential lenders, such as banks, may also use financial analysis when they review loan applicants to assess your ability to pay back the money they lend.

Financial analysis is typically done by an external finance professional who reviews documents like the income statement, cash flow statement, and balance sheet.

How to do a financial analysis

1. collect your company’s financial statements.

Financial analysis helps you identify trends in your business’s performance. To get the best insights, compare your business performance over time.

Gather your recent financial statements, including your balance sheets, income statements, and cash flow statements. Look at the last three to five years’ worth of data, which is enough to establish a trend while still focusing on your most recent (and relevant) performance.

Once you have all your documents, arrange them in chronological order.

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2. Analyze balance sheets

Your balance sheets give you a snapshot of your company’s finances at a given point in time, such as the end of a fiscal year. On this sheet, you’ll see the value of your short- and long-term assets, debts, and owner’s equity. 

Look at your balance sheets and consider the following questions: 

• How much debt do you have compared to equity?
• Has your debt been increasing or decreasing over time?
• How liquid is the business? (i.e., how much of the business’s assets are short term?)
• How has the liquidity of the business changed over time?

3. Analyze income statements

Also known as a profit and loss (P&L) statement , the income statement provides insight into your company’s revenue , expenses, and profits. 

Evaluate your income statements and look for trends in your:

• Gross revenue: Total amount of income generated by sales.
• Operating income: Revenue minus the cost of goods sold (COGS). This tells you how much of your revenue remains after you account for operating expenses.
• Net profit (or loss): Revenue minus all expenses. This tells you how much money your company earned (or lost) after paying interest and taxes.

Startups can often take two to three years to become profitable . That’s why it’s helpful to track several financial metrics. 

For example, you can have a net loss while still generating an operating profit. This means your core business is profitable, but you may still be paying off interest on the loans it took to get the business off the ground.

4. Analyze cash flow statements

Your cash flow statements give you insight into how money flows in and out of your business by looking at your expenses and which activities generate income.

Here are some steps to take in your cash flow analysis :

• Review cash flow for each activity (operating, investing, financing). Note whether cash flow is positive (the activity generates income) or negative (the activity loses money). 
• Compare cash flow from each activity to see which generates the most income for your business. 
• Review cash inflow and outflow over time to identify trends. Are they increasing or decreasing?
• Review total cash to see if it is increasing or decreasing over time.

5. Calculate relevant financial ratios

Calculate financial ratios to get a more detailed picture of your company’s profitability, liquidity, and overall operational efficiency. Here are some of the most common metrics to consider in a ratio analysis.

6. Summarize your findings

Put together all your findings. You can use the following prompts to help organize your analysis:

• What are my company’s financial strengths? 
• What are my company’s financial weaknesses?
• How well did the company perform compared to previous financial projections?
• What are the possible explanations for my company’s strengths and weaknesses?
• What financial improvements do I want to make?

After you conduct your analysis, you’ll know where your business stands in terms of its finances and be able to have educated discussions with stakeholders and potential investors.

Furthermore, you’ll be able to use this knowledge to make more informed decisions about your business’s strategy.

Gaurav Nagani, CEO of help desk software company Desku.io, recommends conducting an analysis “before investing, at regular intervals, before making strategic decisions, and during difficult times.” This way, when you have to make impactful decisions, you’re doing so with a full picture of your company’s financial health. 

Common types of financial analysis

There are several different types of financial analysis that you, or a financial professional, can use, depending on what you hope to glean. 

Horizontal analysis

Horizontal analysis looks at a company’s performance over time by comparing financial statements over different periods, such as months, quarters, or years. 

You can use it to identify growth trends and support financial forecasting , which is the process of using historical data to predict your company’s performance in the future.

Vertical analysis

Vertical analysis looks at a company’s financial performance relative to one metric, such as your total assets. In this case, all line items on the financial statements are expressed as a percentage of total assets. For example, you can use the debt-to-asset ratio, which looks at your total debt as a percentage of total assets.

Say your total debt is $4m and you have $10m in total assets. A vertical analysis would show your debts as 40% of total assets, which is what you get when you divide $4m by $10m.

Using vertical analysis makes it easy to see relationships between the metrics on different financial statements. It’s also helpful for comparing companies with one another for benchmarking.

Valuation is the process of using a company’s financial information to estimate the value of the business . 

Investors often compare a company’s estimated value to its stock price to see if they want to buy shares. For startups, valuations are a necessary step to take before starting a priced fundraising round.

Growth Rates

Growth rates represent the percent change in a given metric over time, such as the percent change in net sales over four quarters. Analyzing growth rates can help forecast future performance for specific metrics.

Profitability

Analysts may use profitability ratios , which provide insight into how efficiently your company turns revenue into profit. The higher your profitability ratios, the more resources you’ll have to reinvest into the company’s growth or distribute to your shareholders.

Jeff Schmidt, vice president of financial modeling at Corporate Finance Institute, reminds entrepreneurs, “The point of analysis is to not focus on one method or another but consider the analysis in total and make the proper investment decision.” 

Financial analysis example

One example of a financial analysis would be if a financial analyst calculated your company’s profitability ratios , which assess your company’s ability to make money, and leverage ratios , which measure your company’s ability to pay off its debts. Based on the results of the analysis, the analyst will decide if they want to recommend your company as a good investment. 

Knowing how to do a financial analysis is a key skill for entrepreneurs because it helps you understand your company’s performance. You can use the insights you gain from financial analysis to make more informed decisions about your overall strategy. 

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• How to Write a Great Business Plan: Financial Analysis

The last article in a comprehensive series to help you craft the perfect business plan for your startup.

This article is part of a series on  how to write a great business plan .

Numbers tell the story. Bottom line results indicate the success or failure of any business.

Financial projections and estimates help entrepreneurs, lenders, and investors or lenders objectively evaluate a company's potential for success. If a business seeks outside funding, providing comprehensive financial reports and analysis is critical.

But most importantly, financial projections tell you whether your business has a chance of being viable--and if not let you know you have more work to do.

Most business plans include at least five basic reports or projections:

• Balance Sheet: Describes the company cash position including assets, liabilities, shareholders, and earnings retained to fund future operations or to serve as funding for expansion and growth. It indicates the financial health of a business.
• Income Statement: Also called a Profit and Loss statement, this report lists projected revenue and expenses. It shows whether a company will be profitable during a given time period.
• Cash Flow Statement: A projection of cash receipts and expense payments. It shows how and when cash will flow through the business; without cash, payments (including salaries) cannot be made.
• Operating Budget: A detailed breakdown of income and expenses; provides a guide for how the company will operate from a "dollars" point of view.
• Break-Even Analysis: A projection of the revenue required to cover all fixed and variable expenses. Shows when, under specific conditions, a business can expect to become profitable.

It's easy to find examples of all of the above. Even the most basic accounting software packages include templates and samples. You can also find templates in Excel and Google Docs. (A quick search like "google docs profit and loss statement" yields plenty of examples.)

Or you can work with an accountant to create the necessary financial projections and documents. Certainly feel free to do so... but I'd first recommend playing around with the reports yourself. While you don't need to be an accountant to run a business, you do need to understand your numbers... and the best way to understand your numbers is usually to actually work with your numbers.

But ultimately the tools you use to develop your numbers are not as important as whether those numbers are as accurate as possible--and whether those numbers help you decide whether to take the next step and put your business plan into action.

Then Financial Analysis can help you answer the most important business question: "Can we make a profit?"

Some business plans include less essential but potentially important information in an Appendix section. You may decide to include, as backup or additional information:

• Resumes of key leaders
• Additional descriptions of products and services
• Legal agreements
• Organizational charts
• Examples of marketing and advertising collateral
• Photographs of potential facilities, products, etc
• Backup for market research or competitive analysis
• Additional financial documents or projections

Keep in mind creating an Appendix is usually only necessary if you're seeking financing or hoping to bring in partners or investors. Initially the people reading your business plan don't wish to plow through reams and reams of charts, numbers, and backup information. If one does want to dig deeper, fine--he or she can check out the documents in the Appendix.

That way your business plan can share your story clearly and concisely.

Otherwise, since you created your business plan... you should already have the backup.

And one last thing: always remember the goal of your business plan is to convince you that your idea makes sense--because it's your time, your money, and your effort on the line.

More in this series:

• How to Write a Great Business Plan: Key Concepts
• How to Write a Great Business Plan: the Executive Summary
• How to Write a Great Business Plan: Overview and Objectives
• How to Write a Great Business Plan: Products and Services
• How to Write a Great Business Plan: Market Opportunities
• How to Write a Great Business Plan: Sales and Marketing
• How to Write a Great Business Plan: Competitive Analysis
• How to Write a Great Business Plan: Operations
• How to Write a Great Business Plan: Management Team

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What is Financial Analysis? Understanding the Fundamentals

If your business needs a better understanding of its current financial condition, you must conduct a financial analysis.  

By exploring critical financial insights, you can determine the strengths and weaknesses of your business, which will assist you in your planning and strategic decision-making.  

In this article, we'll uncover financial analysis in greater detail, including types of financial analysis, best practices, and how intuitive financial analysis software supersedes boring spreadsheets!

What is financial analysis?

Financial analysis is where financial statements and other relevant financial data are used to assess business health and performance.  

A financial analysis will assess the following performance criteria:  

• Profitability  
• Liquidity  
• The business's overall financial position  

Typically, it will leverage the right financial analysis tools and techniques for analysing financial data and use insights to recommend improving business performance and help you predict future performance.  

Fathom's financial analysis software is aimed at forward-thinking businesses of every size and industry, powering insights for over 75,000 companies worldwide.  

Why is financial analysis important?

Conducting a financial analysis enables businesses to identify the strengths and weaknesses of their financial position and build a clear picture of their financial profile.  

Financial analysis is vital for your business in identifying and preventing potential risks. You can also leverage analysis to build confidence amongst your investors and stakeholders, including banks and other finance lenders.  

With a holistic view of your performance and the right financial analysis tools, you can make better-informed decisions about your strategy and plan for your future.  

Key financial analysis outcomes your business needs to know

Financial analysis can lead to many necessary outcomes for effectively managing your business, including:  

• Improved communication: Financial analysis will provide you with the skills for communicating financial information to your team, shareholders and other stakeholders.  
• Strategic planning: The valuable insights into your financial health gained from financial analysis will aid your strategic planning, budgeting and resource allocation.  
• Allocating resources: With a fundamental analysis, you can make better-informed decisions about where you place your resources and why, for example, capital investments, growth, or dividends.  
• Credit evaluation: Your creditworthiness will be ascertained throughout the financial analysis process, putting you in good stead for banks and other lenders looking to determine the terms of a loan and credit and influencing how much you can borrow.  
• Predicting the future: Analysing your historical data and trends can help you forecast your future performance and lead to predictions about your business's future cash position.  
• Mergers and acquisitions (M&A): Financial analysis is crucial in potential businesses during M&A transactions.  

Financial analysis best practices

Financial analysts must implement best practices while they are at work. There is always the possibility that errors in large data sets can slip through the cracks without checks and balances in place.  

Financial planning analysis best practices should include:  

• Developing an extreme attention to detail  
• Being well-organised with financial data  
• The ability to make sound assumptions based on all data at hand  
• Factoring in a process for other individuals to review work  
• Conduct stress testing and auditing  
• Keeping your formulas and calculations as simple and easy to understand as possible  
• Use visualisation techniques, including charts and graphs to present data in an accessible manner.

The challenges of financial analysis

Even though financial analysis is critical to business decision-making, it has challenges. Some of these challenges can include:  

• The quality and availability of financial data: A financial analysis relies heavily on accurate and timely data. Without the right financial analysis software or adopting best practices within your business, there can be challenges in getting complete, reliable and up-to-date financial information.  
• Complex reports: Understanding and interpreting complicated financial analysis reports , which include balance sheets, income statements and cash flow statements, can be a challenge for those of us who are not well-versed, and it can also be tricky for diverse organisations with multiple business divisions, departments, locations or other business units. Fathom's financial analysis software has a new tracking feature for your divisional budgets. Please find out more about this in our release update .  
• Timeliness: Your financial analysis may need to be conducted swiftly if quick decision-making is required. This tight deadline can spawn issues with the accuracy and thoroughness of your analysis.  
• Subjectivity: Conducting a financial analysis often means making specific estimations about your business. We are all guilty of employing subjectivity when making assumptions, which can filter through to different interpretations and conclusions during the financial analysis.  

The different types of financial analysis

A financial analysis combines several techniques to provide a holistic view of your business's financial performance and prospects.  

Some of the most common types of financial analysis techniques include:  

• Scenario and Sensitivity  
• Financial Statement  
• Financial Ratio  
• Rates of Return (RoR)  

This section will explore each of these financial analysis types and how they can help your business.  

Scenario and sensitivity analysis

Performing a scenario and sensitivity analysis is where a company assesses its best-case or worst-case future.  

A scenario and sensitivity analysis helps businesses to measure risk exposure when preparing their budgets and forecasts.  

Learn how scenario planning can help with risk identification and resilience building in our article: Preparing for the Unexpected: How Scenario Planning Can Help Business Stay Ahead.  

Financial statement analysis

A financial statement analysis can include an examination of one of three key financial reports:  

• An income statement: also called a profit and loss, this financial analysis report shows a business's income and expenses over a given period, including gains, losses, revenue and expenses.  
• A balance sheet: a summary of your business's financial health, containing an overview of all your assets, equity and liabilities.  
• A cash flow statement: this is a statement of cash flows generated by your business, including the revenue, expenses, gains and losses, as well as your cash from debts, equity purchases and sales, and long-term liabilities, including loan payments and equity.  

A financial statement analysis can help businesses to understand their overall health and evaluate their financial performance and value.  

Fathom's product feature for financial statements includes custom terminology. Please read our blog for a quick wrap-up of everything we've recently released.  

Financial ratio analysis

A financial ratio analysis compares line-item data from your business's financial statements (income statements, balance sheets and cash flow statements) to show how you've performed over time.  

Financial ratios can be compared with industry averages to show how your business compares with others in the same sector.

Rate of Return analysis

Rate of return analysis (also known as RoR) can be applied to the net gains or losses of any of your business investments over a specific period, including stocks, real estate, bonds, and more.  

A RoR analysis is typically expressed as a percentage of its initial cost.  

Businesses can use this type of financial analysis to compare their investment performance with previous periods and returns from other investments.  

What about financial analysis software?  

With financial analysis software , you'll have an in-depth look at your business's financial and non-financial data. These software solutions can aid financial planning, budgeting, forecasting (learn more about what is cash flow forecasting ), risk assessment and reporting.  

Some of the primary benefits of financial analysis software include:  

• Having better clarity over your numbers with our insights at a glance.  
• The ability to visualize the growth of your business over time.  
• Using key performance indicators to track your business more strategically.  
• The convenience of presenting business results visually and intuitively.  
• An automatic sync with cloud accounting software like our Xero integration and QuickBooks integration
• A management reporting software with pre-defined report templates that save you time crafting and scheduling reports

The choice of financial analysis software will depend on your business's specific needs and goals. Still, Fathom will give you a clearer picture of your business performance and an in-depth analysis of your financials.  

Say hello to Fathom and goodbye to spreadsheets

With Fathom's financial analysis software, it is time to say goodbye to visually boring spreadsheets that limit you because you need to extract and prepare data manually. Instead, you can explore and visualise real-time, interactive data.  

Our financial analysis software will enable you to perform:  

• KPI tracking and analysis: supporting explanations to understand what your numbers mean  
• Profitability analysis: visualise the breakeven point and the margin of safety  
• Cash flow analysis : see cash inflows and outflows using the cash flow waterfall chart  
• Divisional analysis: track the profitability of your divisions, departments, locations or other business units  
• Goalseek: Understand the impact of changes to key business drivers.  

Fathom is the financial analysis tool of choice for over 75,000 businesses worldwide, who get an in-depth look at their financial and non-financial data.  

So why not start with Fathom today and see what all the fuss is about? Start your free 14-day trial today , completely credit-card-free.

Frequently asked questions about financial analysis

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More From Forbes

Basics of a business plan financials section.

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A good business plan is an entrepreneur’s best friend. It’s an indispensable document, and every section matters, from the executive summary to the market analysis to the appendix; however, no section matters as much as the financials section. You’re in business to make money, after all, and your business plan has to clearly, numerically reflect a lucrative business pursuit, preferably with visuals, especially if you want funding.

The financials section of your business plan tells you and your potential investors, loan providers or partners whether your business idea makes economic sense. Without an impressive financials section, you’re looking at an uphill battle when it comes to scoring capital; underwhelming financials may indicate a need to make some revisions to your approach.

Basic Financials

So, how to build an impressive financials section? As with all things in small business, there’s no one-size-fits-all approach; it varies by business and field. But there are some general guidelines that can give you a clear idea of where to start and what kind of data you’ll need to gather.

You need to include at least three documents in the financials section of your business plan:

1. Income statement: Are you profitable?

2. Cash flow statement: How much cash do you have on hand?

3. Balance sheet: What’s your net worth?

There’s other financial information you can — and often should — add to your business plan, like sales forecasts and personnel plans. But the income statement, cash flow projections and balance sheet are the ones you can’t leave out.

Here's a brief run-down of the three major data sets.

Income Statement

Also called a profit/loss statement, here’s where your reader can see if your business is profitable. If you’re not operating the business yet, this will be a projected income statement, based on a well-informed analysis of your business’s first year.

The income statement is broken down by month and shows revenue (sales), expenses (costs of operating) and the resulting profit or loss for one fiscal year. (Revenue - expenses = profit/loss.)

Cash Flow Statements

Here’s where your reader can see how much money you’re going to need in the first year of operations. If you’re not yet up and running, you’ll only have projections.

For cash flow projections, you’ll predict the cash money that will flow into and out of your business in a particular month. You’ll need a year’s worth of monthly projections. If you’re already operating, also include cash flow statements for past months showing actual numbers.

Cash flow statements have three basic components: cash revenues, cash disbursements and reconciliation of revenues to disbursements. For each month, you start with your previous month’s balance, add revenues and subtract disbursements. The final balance becomes the opening balance for the following month.

Balance Sheet

Here’s where your reader sees your business’s net worth. It breaks down into monthly balance sheets and a final net worth at the end of the fiscal year. There are three parts to a balance sheet:

• Accounts receivable

• Inventory, equipment

• Real estate

2. Liabilities

• Accounts payable

• Loan debts

3. Equity: Total assets minus total liabilities (Assets = liabilities + equity.)

It’s good to offer readers an analysis of the three basic financial statements — how they fit together and what they mean for the future of your business. It doesn’t have to be in depth; focus is good. Just interpret the data from each statement, putting it in context and indicating what the reader should take away from the financials section of your business plan.

Other Financial Documents

These are the basics of your financials, but you’ll need to fill out the section with other data based on the specifics of your business and your capital needs. Other financial information you might provide includes:

• Sales forecast: Estimates of future sales volumes

• Personnel plan: Who you plan to recruit/hire and how much it will cost

• Breakeven analysis: Projected point at which your sales will match your expenses

• Financial history: Summary of your business finances from the start of operations to the present time

Make It Easy

A lot of this can be made easier with business planning software, which can not only guide you through the process and make sure you don’t leave anything else but may also generate graphs, charts and other visuals to accompany the data in your financials section. Those types of visuals are highly recommended because some readers will skim. Anything you can do to convey information in a glance imparts a benefit.

Revisit Monthly

Once in operation, don’t forget to go back into your financials every month to update your projections with actual numbers and then adjust any future projections accordingly. Regular updates will tell you if you’re on track with your predictions and hitting your goals, as well as whether you need to make adjustments. Don’t forget this part — when you’re starting out, planning really is your best friend.

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How to Write a Financial Plan for a Business Plan

Noah Parsons

4 min. read

Updated July 11, 2024

Creating a financial plan for a business plan is often the most intimidating part for small business owners.

It’s also one of the most vital. Businesses with well-structured and accurate financial statements are more prepared to pitch to investors, receive funding, and achieve long-term success.

Thankfully, you don’t need an accounting degree to successfully create your budget and forecasts.

Here is everything you need to include in your business plan’s financial plan, along with optional performance metrics, funding specifics, mistakes to avoid , and free templates.

• Key components of a financial plan in business plans

A sound financial plan for a business plan is made up of six key components that help you easily track and forecast your business financials. They include your:

Sales forecast

What do you expect to sell in a given period? Segment and organize your sales projections with a personalized sales forecast based on your business type.

Subscription sales forecast

While not too different from traditional sales forecasts—there are a few specific terms and calculations you’ll need to know when forecasting sales for a subscription-based business.

Expense budget

Create, review, and revise your expense budget to keep your business on track and more easily predict future expenses.

How to forecast personnel costs

How much do your current, and future, employees’ pay, taxes, and benefits cost your business? Find out by forecasting your personnel costs.

Profit and loss forecast

Track how you make money and how much you spend by listing all of your revenue streams and expenses in your profit and loss statement.

Cash flow forecast

Manage and create projections for the inflow and outflow of cash by building a cash flow statement and forecast.

Balance sheet

Need a snapshot of your business’s financial position? Keep an eye on your assets, liabilities, and equity within the balance sheet.

What to include if you plan to pursue funding

Do you plan to pursue any form of funding or financing? If the answer is yes, you’ll need to include a few additional pieces of information as part of your business plan’s financial plan example.

Highlight any risks and assumptions

Every entrepreneur takes risks with the biggest being assumptions and guesses about the future. Just be sure to track and address these unknowns in your plan early on.

Plan your exit strategy

Investors will want to know your long-term plans as a business owner. While you don’t need to have all the details, it’s worth taking the time to think through how you eventually plan to leave your business.

• Financial ratios and metrics

With your financial statements and forecasts in place, you have all the numbers needed to calculate insightful financial ratios.

While including these metrics in your financial plan for a business plan is entirely optional, having them easily accessible can be valuable for tracking your performance and overall financial situation.

Key financial terms you should know

It’s not hard. Anybody who can run a business can understand these key financial terms. And every business owner and entrepreneur should know them.

Common business ratios

Unsure of which business ratios you should be using? Check out this list of key financial ratios that bankers, financial analysts, and investors will want to see.

Break-even analysis

Do you want to know when you’ll become profitable? Find out how much you need to sell to offset your production costs by conducting a break-even analysis.

How to calculate ROI

How much could a business decision be worth? Evaluate the efficiency or profitability by calculating the potential return on investment (ROI).

• How to improve your financial plan

Your financial statements are the core part of your business plan’s financial plan that you’ll revisit most often. Instead of worrying about getting it perfect the first time, check out the following resources to learn how to improve your projections over time.

Common mistakes with business forecasts

I was glad to be asked about common mistakes with startup financial projections. I read about 100 business plans per year, and I have this list of mistakes.

How to improve your financial projections

Learn how to improve your business financial projections by following these five basic guidelines.

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Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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How to Conduct a Strategic Financial Analysis for Your Business

Posted may 25, 2021 by noah parsons.

How often do you review your business numbers? If you look at the financial performance of your business at least once a month or perhaps even more frequently , you’re in good shape—and better off than most businesses.

Unfortunately, too many businesses review their books only every few months, and frankly, that’s not a great strategy. It gives those businesses fewer opportunities to see if things are going well or not. The more frequently you review your business finances, the more chances you have to find opportunities for growth .

But how do you approach reviewing your financials? What documents should you analyze? What exactly should you be looking for? Let’s try to answer those questions by introducing you to a process known as a strategic financial analysis.

What is a strategic financial analysis?

A strategic financial analysis is a review framework where you analyze performance, assess your goals, and make adjustments to your forecasts and strategy based on actual results. In short, this is where you connect the dots between your numbers and the actions that you’re taking. The intention is to identify any potential problems or opportunities within your financials and turn them into strategic steps for growth.

In some cases, this analysis may also include a deeper look at your business model, comparisons against your competitors , and even different forecast scenarios. 

What financial statements should I review when conducting a strategic financial analysis?

When you’re reviewing your business financials, you’ll want to check these three key reports:

• Profit and loss (also known as an income statement)
• Balance sheet

Each report will tell you different things about your business. Put together, they’ll provide you with nearly everything you’ll want to know about your business performance. By the end, you should be able to bring your forecasts for these statements up to speed based on your actual results . 

How to conduct a strategic financial analysis

Here are the five steps you’ll want to take when conducting a strategic analysis of your financial statements.

1. Compare your forecast to your actuals monthly

So, if you’re reviewing your business financials regularly, you’re off to a good start.

But to get even more value out of that financial review, you need to start comparing your actuals —how your business performed—to your forecast.

Ideally, compare your plan to what actually happens in a monthly meeting with your key staff. You’ll want to have your forecast handy as well as reports from your accounting software so you can compare the two and see if you’re on track. 

If you’re using LivePlan, the software will do all of the number-crunching and comparison work for you—no spreadsheets required—and you’ll be able to compare everything in a simple financial dashboard . 

2. Identify where you’re off track or exceeding projections

When you’re forecasting, you’re making educated guesses. This means that your actual financial performance in a given month will vary. 

You’ll typically either be off track and performing worse than expected. On track and sitting fairly close to expectations. Or, outperforming your forecasts and exceeding expectations. 

What does comparing my plan to my actual results do for me?

If you just review what happened in the past, you’ll get a good idea of what happened during the past month of your business. But, it’s difficult to know if your performance is good or bad if you’re not comparing your actual results against your plan. 

• How do you know if you’re meeting your sales goals? 
• Can you tell that you’re keeping your spending within your budget? 
• Are you keeping as much cash in the bank as you need to?

Even more importantly, if you have plans to grow your business or make significant investments, you’ll want to know if it makes financial sense to spend the money. Should you invest now or should you wait for a better time? Should you open a second location or hold off?

By reviewing your plan and comparing it to your actual results, you’ll get a better sense of when you should look to expand, and when you should be reining things in. Make a mistake and invest in your business at the wrong time and you could create a cash flow crunch that could sink your business.

3. Review your Income statement (profit and loss or P&L)

Your income statement (also called profit and loss or P&L) documents your income and your expenses. When you compare this statement to your forecast, you’ll see if your sales are meeting your goals and if you’re keeping your expenses in line with your budget.

If you’re not sure what’s included in an income statement or what types of information you’ll find there, start with this guide to reading a profit and loss or income statement that will help orient you to each line item. 

You can also download an income statement example to help you better visualize the information. For a more dynamic solution that displays actual results for completed periods right into your forecasted Profit and Loss statement, check out LivePlan’s LiveForecast feature . No more hours spent inputting accounting information. Just you spending more time digging into what is and isn’t working for your business.

When you’re ready to dive deeper and start your income statement analysis, use this income statement analysis guide for your monthly financial review. It walks you through typical questions that might come up as you’re doing your review. That way, you can use your findings to make better strategic decisions for the health and growth of your business. 

4. Analyze your cash flow statement

Your cash flow statement will tell you exactly how cash moved into and out of your business. Comparing this statement to your cash flow forecast will tell you if you’re on track to grow your bank balance the way you had planned, and why you might be off track if things aren’t going the way you had hoped.

Check out this article on how to read a cash flow statement for a line-by-line explanation of how it works. And download our cash flow statement example PDF and Excel spreadsheet if you’re looking for a sample to work from as you review your own.

When you’re ready to start comparing your actual cash flow to your forecast, this guide to cash flow analysis will help you get started. 

5. Review your balance sheet

Your balance sheet will give you a complete overview of your financial position. How much money are you owed and how much money do you owe? What assets does your business have? Your balance sheet analysis will help you understand if you’re collecting money from your customers at the right rate, and if you’re taking on more debt than planned. 

If you’re new to balance sheet review, this article offers more insight on how a balance sheet is set up, and what you need to know about each line. You can also download a balance sheet example to help you visualize it better. 

When you’re ready to do your monthly review, this balance sheet analysis guide will help you get started. 

Look beyond your financials for more insights

Doing a monthly financial statement analysis—comparing your actuals to your plan or forecast—helps you keep a finger on the pulse of your business finances. 

Additionally, it’s wise to look at industry benchmarks , financial shifts in your industry, and any other external factors that may be affecting your financial performance. Use your initial comparison to actual performance to jumpstart this market analysis and help you define the next steps. 

When you identify a gap or variance between what you forecast and what actually happened, use that information to help you make strategic shifts in your business so you can quickly address challenges and take advantage of opportunities.

Editors’ note: This article was originally published in 2019 and updated for 2021.

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What Is a Business Plan?

Understanding business plans, how to write a business plan, common elements of a business plan, the bottom line, business plan: what it is, what's included, and how to write one.

Adam Hayes, Ph.D., CFA, is a financial writer with 15+ years Wall Street experience as a derivatives trader. Besides his extensive derivative trading expertise, Adam is an expert in economics and behavioral finance. Adam received his master's in economics from The New School for Social Research and his Ph.D. from the University of Wisconsin-Madison in sociology. He is a CFA charterholder as well as holding FINRA Series 7, 55 & 63 licenses. He currently researches and teaches economic sociology and the social studies of finance at the Hebrew University in Jerusalem.

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A business plan is a document that outlines a company's goals and the strategies to achieve them. It's valuable for both startups and established companies. For startups, a well-crafted business plan is crucial for attracting potential lenders and investors. Established businesses use business plans to stay on track and aligned with their growth objectives. This article will explain the key components of an effective business plan and guidance on how to write one.

Key Takeaways

• A business plan is a document detailing a company's business activities and strategies for achieving its goals.
• Startup companies use business plans to launch their venture and to attract outside investors.
• For established companies, a business plan helps keep the executive team focused on short- and long-term objectives.
• There's no single required format for a business plan, but certain key elements are essential for most companies.

Investopedia / Ryan Oakley

Any new business should have a business plan in place before beginning operations. Banks and venture capital firms often want to see a business plan before considering making a loan or providing capital to new businesses.

Even if a company doesn't need additional funding, having a business plan helps it stay focused on its goals. Research from the University of Oregon shows that businesses with a plan are significantly more likely to secure funding than those without one. Moreover, companies with a business plan grow 30% faster than those that don't plan. According to a Harvard Business Review article, entrepreneurs who write formal plans are 16% more likely to achieve viability than those who don't.

A business plan should ideally be reviewed and updated periodically to reflect achieved goals or changes in direction. An established business moving in a new direction might even create an entirely new plan.

There are numerous benefits to creating (and sticking to) a well-conceived business plan. It allows for careful consideration of ideas before significant investment, highlights potential obstacles to success, and provides a tool for seeking objective feedback from trusted outsiders. A business plan may also help ensure that a company’s executive team remains aligned on strategic action items and priorities.

While business plans vary widely, even among competitors in the same industry, they often share basic elements detailed below.

A well-crafted business plan is essential for attracting investors and guiding a company's strategic growth. It should address market needs and investor requirements and provide clear financial projections.

While there are any number of templates that you can use to write a business plan, it's best to try to avoid producing a generic-looking one. Let your plan reflect the unique personality of your business.

Many business plans use some combination of the sections below, with varying levels of detail, depending on the company.

The length of a business plan can vary greatly from business to business. Regardless, gathering the basic information into a 15- to 25-page document is best. Any additional crucial elements, such as patent applications, can be referenced in the main document and included as appendices.

Common elements in many business plans include:

• Executive summary : This section introduces the company and includes its mission statement along with relevant information about the company's leadership, employees, operations, and locations.
• Products and services : Describe the products and services the company offers or plans to introduce. Include details on pricing, product lifespan, and unique consumer benefits. Mention production and manufacturing processes, relevant patents , proprietary technology , and research and development (R&D) information.
• Market analysis : Explain the current state of the industry and the competition. Detail where the company fits in, the types of customers it plans to target, and how it plans to capture market share from competitors.
• Marketing strategy : Outline the company's plans to attract and retain customers, including anticipated advertising and marketing campaigns. Describe the distribution channels that will be used to deliver products or services to consumers.
• Financial plans and projections : Established businesses should include financial statements, balance sheets, and other relevant financial information. New businesses should provide financial targets and estimates for the first few years. This section may also include any funding requests.

Investors want to see a clear exit strategy, expected returns, and a timeline for cashing out. It's likely a good idea to provide five-year profitability forecasts and realistic financial estimates.

2 Types of Business Plans

Business plans can vary in format, often categorized into traditional and lean startup plans. According to the U.S. Small Business Administration (SBA) , the traditional business plan is the more common of the two.

• Traditional business plans : These are detailed and lengthy, requiring more effort to create but offering comprehensive information that can be persuasive to potential investors.
• Lean startup business plans : These are concise, sometimes just one page, and focus on key elements. While they save time, companies should be ready to provide additional details if requested by investors or lenders.

Why Do Business Plans Fail?

A business plan isn't a surefire recipe for success. The plan may have been unrealistic in its assumptions and projections. Markets and the economy might change in ways that couldn't have been foreseen. A competitor might introduce a revolutionary new product or service. All this calls for building flexibility into your plan, so you can pivot to a new course if needed.

How Often Should a Business Plan Be Updated?

How frequently a business plan needs to be revised will depend on its nature. Updating your business plan is crucial due to changes in external factors (market trends, competition, and regulations) and internal developments (like employee growth and new products). While a well-established business might want to review its plan once a year and make changes if necessary, a new or fast-growing business in a fiercely competitive market might want to revise it more often, such as quarterly.

What Does a Lean Startup Business Plan Include?

The lean startup business plan is ideal for quickly explaining a business, especially for new companies that don't have much information yet. Key sections may include a value proposition , major activities and advantages, resources (staff, intellectual property, and capital), partnerships, customer segments, and revenue sources.

A well-crafted business plan is crucial for any company, whether it's a startup looking for investment or an established business wanting to stay on course. It outlines goals and strategies, boosting a company's chances of securing funding and achieving growth.

As your business and the market change, update your business plan regularly. This keeps it relevant and aligned with your current goals and conditions. Think of your business plan as a living document that evolves with your company, not something carved in stone.

University of Oregon Department of Economics. " Evaluation of the Effectiveness of Business Planning Using Palo Alto's Business Plan Pro ." Eason Ding & Tim Hursey.

Bplans. " Do You Need a Business Plan? Scientific Research Says Yes ."

Harvard Business Review. " Research: Writing a Business Plan Makes Your Startup More Likely to Succeed ."

Harvard Business Review. " How to Write a Winning Business Plan ."

U.S. Small Business Administration. " Write Your Business Plan ."

SCORE. " When and Why Should You Review Your Business Plan? "

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Business Plan Example and Template

Learn how to create a business plan

What is a Business Plan?

A business plan is a document that contains the operational and financial plan of a business, and details how its objectives will be achieved. It serves as a road map for the business and can be used when pitching investors or financial institutions for debt or equity financing .

A business plan should follow a standard format and contain all the important business plan elements. Typically, it should present whatever information an investor or financial institution expects to see before providing financing to a business.

Contents of a Business Plan

A business plan should be structured in a way that it contains all the important information that investors are looking for. Here are the main sections of a business plan:

1. Title Page

The title page captures the legal information of the business, which includes the registered business name, physical address, phone number, email address, date, and the company logo.

2. Executive Summary

The executive summary is the most important section because it is the first section that investors and bankers see when they open the business plan. It provides a summary of the entire business plan. It should be written last to ensure that you don’t leave any details out. It must be short and to the point, and it should capture the reader’s attention. The executive summary should not exceed two pages.

3. Industry Overview

The industry overview section provides information about the specific industry that the business operates in. Some of the information provided in this section includes major competitors, industry trends, and estimated revenues. It also shows the company’s position in the industry and how it will compete in the market against other major players.

4. Market Analysis and Competition

The market analysis section details the target market for the company’s product offerings. This section confirms that the company understands the market and that it has already analyzed the existing market to determine that there is adequate demand to support its proposed business model.

Market analysis includes information about the target market’s demographics , geographical location, consumer behavior, and market needs. The company can present numbers and sources to give an overview of the target market size.

A business can choose to consolidate the market analysis and competition analysis into one section or present them as two separate sections.

5. Sales and Marketing Plan

The sales and marketing plan details how the company plans to sell its products to the target market. It attempts to present the business’s unique selling proposition and the channels it will use to sell its goods and services. It details the company’s advertising and promotion activities, pricing strategy, sales and distribution methods, and after-sales support.

6. Management Plan

The management plan provides an outline of the company’s legal structure, its management team, and internal and external human resource requirements. It should list the number of employees that will be needed and the remuneration to be paid to each of the employees.

Any external professionals, such as lawyers, valuers, architects, and consultants, that the company will need should also be included. If the company intends to use the business plan to source funding from investors, it should list the members of the executive team, as well as the members of the advisory board.

7. Operating Plan

The operating plan provides an overview of the company’s physical requirements, such as office space, machinery, labor, supplies, and inventory . For a business that requires custom warehouses and specialized equipment, the operating plan will be more detailed, as compared to, say, a home-based consulting business. If the business plan is for a manufacturing company, it will include information on raw material requirements and the supply chain.

8. Financial Plan

The financial plan is an important section that will often determine whether the business will obtain required financing from financial institutions, investors, or venture capitalists. It should demonstrate that the proposed business is viable and will return enough revenues to be able to meet its financial obligations. Some of the information contained in the financial plan includes a projected income statement , balance sheet, and cash flow.

9. Appendices and Exhibits

The appendices and exhibits part is the last section of a business plan. It includes any additional information that banks and investors may be interested in or that adds credibility to the business. Some of the information that may be included in the appendices section includes office/building plans, detailed market research , products/services offering information, marketing brochures, and credit histories of the promoters.

Business Plan Template

Here is a basic template that any business can use when developing its business plan:

Section 1: Executive Summary

• Present the company’s mission.
• Describe the company’s product and/or service offerings.
• Give a summary of the target market and its demographics.
• Summarize the industry competition and how the company will capture a share of the available market.
• Give a summary of the operational plan, such as inventory, office and labor, and equipment requirements.

Section 2: Industry Overview

• Describe the company’s position in the industry.
• Describe the existing competition and the major players in the industry.
• Provide information about the industry that the business will operate in, estimated revenues, industry trends, government influences, as well as the demographics of the target market.

Section 3: Market Analysis and Competition

• Define your target market, their needs, and their geographical location.
• Describe the size of the market, the units of the company’s products that potential customers may buy, and the market changes that may occur due to overall economic changes.
• Give an overview of the estimated sales volume vis-à-vis what competitors sell.
• Give a plan on how the company plans to combat the existing competition to gain and retain market share.

Section 4: Sales and Marketing Plan

• Describe the products that the company will offer for sale and its unique selling proposition.
• List the different advertising platforms that the business will use to get its message to customers.
• Describe how the business plans to price its products in a way that allows it to make a profit.
• Give details on how the company’s products will be distributed to the target market and the shipping method.

Section 5: Management Plan

• Describe the organizational structure of the company.
• List the owners of the company and their ownership percentages.
• List the key executives, their roles, and remuneration.
• List any internal and external professionals that the company plans to hire, and how they will be compensated.
• Include a list of the members of the advisory board, if available.

Section 6: Operating Plan

• Describe the location of the business, including office and warehouse requirements.
• Describe the labor requirement of the company. Outline the number of staff that the company needs, their roles, skills training needed, and employee tenures (full-time or part-time).
• Describe the manufacturing process, and the time it will take to produce one unit of a product.
• Describe the equipment and machinery requirements, and if the company will lease or purchase equipment and machinery, and the related costs that the company estimates it will incur.
• Provide a list of raw material requirements, how they will be sourced, and the main suppliers that will supply the required inputs.

Section 7: Financial Plan

• Describe the financial projections of the company, by including the projected income statement, projected cash flow statement, and the balance sheet projection.

Section 8: Appendices and Exhibits

• Quotes of building and machinery leases
• Proposed office and warehouse plan
• Market research and a summary of the target market
• Credit information of the owners
• List of product and/or services

Related Readings

Thank you for reading CFI’s guide to Business Plans. To keep learning and advancing your career, the following CFI resources will be helpful:

• Corporate Structure
• Three Financial Statements
• Business Model Canvas Examples
• See all management & strategy resources
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6 Elements of a Successful Financial Plan for a Small Business

Improve your chances of growth by covering these bases in your plan.

Table of Contents

Many small businesses lack a full financial plan, even though evidence shows that it is essential to the long-term success and growth of any business. 

For example, a study in the New England Journal of Entrepreneurship found that entrepreneurs with a business plan are more successful than those without one. If you’re not sure how to get started, read on to learn the six key elements of a successful small business financial plan.

What is a business financial plan, and why is it important? 

A business financial plan is an overview of a business’s financial situation and a forward-looking projection for growth. A business financial plan typically has six parts: sales forecasting, expense outlay, a statement of financial position, a cash flow projection, a break-even analysis and an operations plan.

A good financial plan helps you manage cash flow and accounts for months when revenue might be lower than expected. It also helps you budget for daily and monthly expenses and plan for taxes each year.

Importantly, a financial plan helps you focus on the long-term growth of your business. That way, you don’t get so caught up in the day-to-day activities that you lose sight of your goals. Focusing on the long-term vision helps you prioritize your financial resources. 

The 6 components of a successful financial plan for business

1. sales forecasting.

You should have an estimate of your sales revenue for every month, quarter and year. Identifying any patterns in your sales cycles helps you better understand your business, and this knowledge is invaluable as you plan marketing initiatives and growth strategies . 

For instance, a seasonal business can aim to improve sales in the off-season to eventually become a year-round venture. Another business might become better prepared by understanding how upticks and downturns in business relate to factors such as the weather or the economy.

Sales forecasting is also the foundation for setting company growth goals. For instance, you could aim to improve your sales by 10 percent over each previous period.

2. Expense outlay

A full expense plan includes regular expenses, expected future expenses and associated expenses. Regular expenses are the current ongoing costs of your business, including operational costs such as rent, utilities and payroll. 

Regular expenses relate to standard business activities that occur each year, such as conference attendance, advertising and marketing, and the office holiday party. It’s a good idea to distinguish essential expenses from expenses that can be reduced or eliminated if needed.

Expected future expenses are known future costs, such as tax rate increases, minimum wage increases or maintenance needs. Generally, a part of the budget should also be allocated to unexpected future expenses, such as damage to your business caused by fire, flood or other unexpected disasters. Planning for future expenses ensures your business is financially prepared via budget reduction, increases in sales or financial assistance.

Associated expenses are the estimated costs of various initiatives, such as acquiring and training new hires, opening a new store or expanding delivery to a new territory. An accurate estimate of associated expenses helps you properly manage growth and prevents your business from exceeding your cost capabilities. 

As with expected future expenses, understanding how much capital is required to accomplish various growth goals helps you make the right decision about financing options.

3. Statement of financial position (assets and liabilities)

Assets and liabilities are the foundation of your business’s balance sheet and the primary determinants of your business’s net worth. Tracking both allows you to maximize your business’s potential value. 

Small businesses frequently undervalue their assets (such as machinery, property or inventory) and fail to properly account for outstanding bills. Your balance sheet offers a more complete view of your business’s health than a profit-and-loss statement or a cash flow report. 

A profit-and-loss statement shows how the business performed over a specific time period, while a balance sheet shows the financial position of the business on any given day.

4. Cash flow projection

You should be able to predict your cash flow on a monthly, quarterly and annual basis. Projecting cash flow for the full year allows you to get ahead of any financial struggles or challenges. 

It can also help you identify a cash flow problem before it hurts your business. You can set the most appropriate payment terms, such as how much you charge upfront or how many days after invoicing you expect payment .

A cash flow projection gives you a clear look at how much money is expected to be left at the end of each month so you can plan a possible expansion or other investments. It also helps you budget, such as by spending less one month for the anticipated cash needs of another month.

5. Break-even analysis

A break-even analysis evaluates fixed costs relative to the profit earned by each additional unit you produce and sell. This analysis is essential to understanding your business’s revenue and potential costs versus profits of expansion or growth of your output. 

Having your expenses fully fleshed out, as described above, makes your break-even analysis more accurate and useful. A break-even analysis is also the best way to determine your pricing.

In addition, a break-even analysis can tell you how many units you need to sell at various prices to cover your costs. You should aim to set a price that gives you a comfortable margin over your expenses while allowing your business to remain competitive.

6. Operations plan

To run your business as efficiently as possible, craft a detailed overview of your operational needs. Understanding what roles are required for you to operate your business at various volumes of output, how much output or work each employee can handle, and the costs of each stage of your supply chain will aid you in making informed decisions for your business’s growth and efficiency.

It’s important to tightly control expenses, such as payroll or supply chain costs, relative to growth. An operations plan can also make it easier to determine if there is room to optimize your operations or supply chain via automation, new technology or superior supply chain vendors.

For this reason, it is imperative for a business owner to conduct due diligence and become knowledgeable about merchant services before acquiring an account. Once the owner signs a contract, it cannot be changed, unless the business owner breaks the contract and acquires a new account with a new merchant services provider. 

Tips on writing a business financial plan

Business owners should create a financial plan annually to ensure they have a clear and accurate picture of their business’s finances and a realistic view for future growth or expansion. A financial plan helps the business’s leaders make informed decisions about purchases, debt, hiring, expense control and overall operations for the year ahead. 

A business financial plan is essential if a business owner is looking to sell their business, attract investors or enter a partnership with another business. Here are some tips for writing a business financial plan.

Review the previous year’s plan.

It’s a good idea to compare the previous year’s plan against actual performance and finances to see how accurate the previous plan and forecast were. That way, you can address any discrepancies or overlooked elements in next year’s plan.

Collaborate with other departments.

A business owner or other individual charged with creating the business financial plan should collaborate with the finance department, human resources department, sales team , operations leader, and those in charge of machinery, vehicles or other significant business tools. 

Each division should provide the necessary data about projections, value and expenses. All of these elements come together to create a comprehensive financial picture of the business.

Use available resources.

The Small Business Administration (SBA) and SCORE, the SBA’s nonprofit partner, are two excellent resources for learning about financial plans. Both can teach you the elements of a comprehensive plan and how best to work with the different departments in your business to collect the necessary information. Many websites, including business.com , and service providers, such as Intuit, offer advice on this matter. 

If you have questions or encounter challenges while creating your business financial plan, seek advice from your accountant or other small business owners in your network. Your city or state has a small business office that you can contact for help.

Business financial plan templates

Many business organizations offer free information that small business owners can use to create their financial plan. For example, the SBA’s Learning Platform offers a course on how to create a business plan. It also offers worksheets and templates to help you get started. You can seek additional help and more personalized service from your local office.

SCORE is the largest volunteer network of business mentors. It began as a group of retired executives (SCORE stands for “Service Corps of Retired Executives”) but has expanded to include business owners and executives from many industries. Advice is free and available online, and there are SBA district offices in every U.S. state. In addition to participating in group or at-home learning, you can be paired with a mentor for individualized help. 

SCORE offers templates and tips for creating a small business financial plan. SCORE is an excellent resource because it addresses different levels of experience and offers individualized help.

Other templates can be found in Microsoft Office’s template library, QuickBooks’ online resources, Shopify’s blog and other places. You can also ask your accountant for guidance, since many accountants provide financial planning services in addition to their usual tax services.

Diana Wertz contributed to the writing and research in this article.

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• Building Your Business
• Becoming an Owner
• Business Plans

Writing a Business Plan—Financial Projections

Spell out your financial forecast in dollars and sense

Creating financial projections for your startup is both an art and a science. Although investors want to see cold, hard numbers, it can be difficult to predict your financial performance three years down the road, especially if you are still raising seed money. Regardless, short- and medium-term financial projections are a required part of your business plan if you want serious attention from investors.

The financial section of your business plan should include a sales forecast , expenses budget , cash flow statement , balance sheet , and a profit and loss statement . Be sure to follow the generally accepted accounting principles (GAAP) set forth by the Financial Accounting Standards Board , a private-sector organization responsible for setting financial accounting and reporting standards in the U.S. If financial reporting is new territory for you, have an accountant review your projections.

Sales Forecast

As a startup business, you do not have past results to review, which can make forecasting sales difficult. It can be done, though, if you have a good understanding of the market you are entering and industry trends as a whole. In fact, sales forecasts based on a solid understanding of industry and market trends will show potential investors that you've done your homework and your forecast is more than just guesswork.

In practical terms, your forecast should be broken down by monthly sales with entries showing which units are being sold, their price points, and how many you expect to sell. When getting into the second year of your business plan and beyond, it's acceptable to reduce the forecast to quarterly sales. In fact, that's the case for most items in your business plan.

Expenses Budget

What you're selling has to cost something, and this budget is where you need to show your expenses. These include the cost to your business of the units being sold in addition to overhead. It's a good idea to break down your expenses by fixed costs and variable costs. For example, certain expenses will be the same or close to the same every month, including rent, insurance, and others. Some costs likely will vary month by month such as advertising or seasonal sales help.

Cash Flow Statement

As with your sales forecast, cash flow statements for a startup require doing some homework since you do not have historical data to use as a reference. This statement, in short, breaks down how much cash is coming into your business on a monthly basis vs. how much is going out. By using your sales forecasts and your expenses budget, you can estimate your cash flow intelligently.

Keep in mind that revenue often will trail sales, depending on the type of business you are operating. For example, if you have contracts with clients, they may not be paying for items they purchase until the month following delivery. Some clients may carry balances 60 or 90 days beyond delivery. You need to account for this lag when calculating exactly when you expect to see your revenue.

Profit and Loss Statement

Your P&L statement should take the information from your sales projections, expenses budget, and cash flow statement to project how much you expect in profits or losses through the three years included in your business plan. You should have a figure for each individual year as well as a figure for the full three-year period.

Balance Sheet

You provide a breakdown of all of your assets and liabilities in the balances sheet. Many of these assets and liabilities are items that go beyond monthly sales and expenses. For example, any property, equipment, or unsold inventory you own is an asset with a value that can be assigned to it. The same goes for outstanding invoices owed to you that have not been paid. Even though you don't have the cash in hand, you can count those invoices as assets. The amount you owe on a business loan or the amount you owe others on invoices you've not paid would count as liabilities. The balance is the difference between the value of everything you own vs. the value of everything you owe.

Break-Even Projection

If you've done a good job projecting your sales and expenses and inputting the numbers into a spreadsheet, you should be able to identify a date when your business breaks even—in other words, the date when you become profitable, with more money coming in than going out. As a startup business, this is not expected to happen overnight, but potential investors want to see that you have a date in mind and that you can support that projection with the numbers you've supplied in the financial section of your business plan.

Additional Tips

When putting together your financial projections, keep some general tips in mind:

• Get comfortable with spreadsheet software if you aren't already. It is the starting point for all financial projections and offers flexibility, allowing you to quickly change assumptions or weigh alternative scenarios. Microsoft Excel is the most common, and chances are you already have it on your computer. You can also buy special software packages to help with financial projections.
• Prepare a five-year projection . Don’t include this one in the business plan, since the further into the future you project, the harder it is to predict. However, have the projection available in case an investor asks for it.
• Offer two scenarios only . Investors will want to see a best-case and worst-case scenario, but don’t inundate your business plan with myriad medium-case scenarios. They likely will just cause confusion.
• Be reasonable and clear . As mentioned before, financial forecasting is as much art as science. You’ll have to assume certain things, such as your revenue growth, how your raw material and administrative costs will grow, and how effective you’ll be at collecting on accounts receivable. It’s best to be realistic in your projections as you try to recruit investors. If your industry is going through a contraction period and you’re projecting revenue growth of 20 percent a month, expect investors to see red flags.

• Business Planning

Business Plan Financial Projections

Written by Dave Lavinsky

Financial projections are forecasted analyses of your business’ future that include income statements, balance sheets and cash flow statements. We have found them to be an crucial part of your business plan for the following reasons:

• They can help prove or disprove the viability of your business idea. For example, if your initial projections show your company will never make a sizable profit, your venture might not be feasible. Or, in such a case, you might figure out ways to raise prices, enter new markets, or streamline operations to make it profitable. 
• Financial projections give investors and lenders an idea of how well your business is likely to do in the future. They can give lenders the confidence that you’ll be able to comfortably repay their loan with interest. And for equity investors, your projections can give them faith that you’ll earn them a solid return on investment. In both cases, your projections can help you secure the funding you need to launch or grow your business.
• Financial projections help you track your progress over time and ensure your business is on track to meet its goals. For example, if your financial projections show you should generate $500,000 in sales during the year, but you are not on track to accomplish that, you’ll know you need to take corrective action to achieve your goal.

Below you’ll learn more about the key components of financial projections and how to complete and include them in your business plan.

What Are Business Plan Financial Projections?

Financial projections are an estimate of your company’s future financial performance through financial forecasting. They are typically used by businesses to secure funding, but can also be useful for internal decision-making and planning purposes. There are three main financial statements that you will need to include in your business plan financial projections:

1. Income Statement Projection

The income statement projection is a forecast of your company’s future revenues and expenses. It should include line items for each type of income and expense, as well as a total at the end.

There are a few key items you will need to include in your projection:

• Revenue: Your revenue projection should break down your expected sales by product or service, as well as by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Expenses: Your expense projection should include a breakdown of your expected costs by category, such as marketing, salaries, and rent. Again, it is important to be realistic in your estimates.
• Net Income: The net income projection is the difference between your revenue and expenses. This number tells you how much profit your company is expected to make.

Sample Income Statement

2. Cash Flow Statement & Projection

The cash flow statement and projection are a forecast of your company’s future cash inflows and outflows. It is important to include a cash flow projection in your business plan, as it will give investors and lenders an idea of your company’s ability to generate cash.

There are a few key items you will need to include in your cash flow projection:

• The cash flow statement shows a breakdown of your expected cash inflows and outflows by month. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.
• Cash inflows should include items such as sales revenue, interest income, and capital gains. Cash outflows should include items such as salaries, rent, and marketing expenses.
• It is important to track your company’s cash flow over time to ensure that it is healthy. A healthy cash flow is necessary for a successful business.

Sample Cash Flow Statements

3. Balance Sheet Projection

The balance sheet projection is a forecast of your company’s future financial position. It should include line items for each type of asset and liability, as well as a total at the end.

A projection should include a breakdown of your company’s assets and liabilities by category. It is important to be realistic in your projections, so make sure to account for any seasonal variations in your business.

It is important to track your company’s financial position over time to ensure that it is healthy. A healthy balance is necessary for a successful business.

Sample Balance Sheet

How to Create Financial Projections

Creating financial projections for your business plan can be a daunting task, but it’s important to put together accurate and realistic financial projections in order to give your business the best chance for success.  

Cost Assumptions

When you create financial projections, it is important to be realistic about the costs your business will incur, using historical financial data can help with this. You will need to make assumptions about the cost of goods sold, operational costs, and capital expenditures.

It is important to track your company’s expenses over time to ensure that it is staying within its budget. A healthy bottom line is necessary for a successful business.

Capital Expenditures, Funding, Tax, and Balance Sheet Items

You will also need to make assumptions about capital expenditures, funding, tax, and balance sheet items. These assumptions will help you to create a realistic financial picture of your business.

Capital Expenditures

When projecting your company’s capital expenditures, you will need to make a number of assumptions about the type of equipment or property your business will purchase. You will also need to estimate the cost of the purchase.

When projecting your company’s funding needs, you will need to make a number of assumptions about where the money will come from. This might include assumptions about bank loans, venture capital, or angel investors.

When projecting your company’s tax liability, you will need to make a number of assumptions about the tax rates that will apply to your business. You will also need to estimate the amount of taxes your company will owe.

Balance Sheet Items

When projecting your company’s balance, you will need to make a number of assumptions about the type and amount of debt your business will have. You will also need to estimate the value of your company’s assets and liabilities.

Financial Projection Scenarios

Write two financial scenarios when creating your financial projections, a best-case scenario, and a worst-case scenario. Use your list of assumptions to come up with realistic numbers for each scenario.

Presuming that you have already generated a list of assumptions, the creation of best and worst-case scenarios should be relatively simple. For each assumption, generate a high and low estimate. For example, if you are assuming that your company will have $100,000 in revenue, your high estimate might be $120,000 and your low estimate might be $80,000.

Once you have generated high and low estimates for all of your assumptions, you can create two scenarios: a best case scenario and a worst-case scenario. Simply plug the high estimates into your financial projections for the best-case scenario and the low estimates into your financial projections for the worst-case scenario.

Conduct a Ratio Analysis

A ratio analysis is a useful tool that can be used to evaluate a company’s financial health. Ratios can be used to compare a company’s performance to its industry average or to its own historical performance.

There are a number of different ratios that can be used in ratio analysis. Some of the more popular ones include the following:

• Gross margin ratio
• Operating margin ratio
• Return on assets (ROA)
• Return on equity (ROE)

To conduct a ratio analysis, you will need financial statements for your company and for its competitors. You will also need industry average ratios. These can be found in industry reports or on financial websites.

Once you have the necessary information, you can calculate the ratios for your company and compare them to the industry averages or to your own historical performance. If your company’s ratios are significantly different from the industry averages, it might be indicative of a problem.

Be Realistic

When creating your financial projections, it is important to be realistic. Your projections should be based on your list of assumptions and should reflect your best estimate of what your company’s future financial performance will be. This includes projected operating income, a projected income statement, and a profit and loss statement.

Your goal should be to create a realistic set of financial projections that can be used to guide your company’s future decision-making.

Sales Forecast

One of the most important aspects of your financial projections is your sales forecast. Your sales forecast should be based on your list of assumptions and should reflect your best estimate of what your company’s future sales will be.

Your sales forecast should be realistic and achievable. Do not try to “game” the system by creating an overly optimistic or pessimistic forecast. Your goal should be to create a realistic sales forecast that can be used to guide your company’s future decision-making.

Creating a sales forecast is not an exact science, but there are a number of methods that can be used to generate realistic estimates. Some common methods include market analysis, competitor analysis, and customer surveys.

Create Multi-Year Financial Projections

When creating financial projections, it is important to generate projections for multiple years. This will give you a better sense of how your company’s financial performance is likely to change over time.

It is also important to remember that your financial projections are just that: projections. They are based on a number of assumptions and are not guaranteed to be accurate. As such, you should review and update your projections on a regular basis to ensure that they remain relevant.

Creating financial projections is an important part of any business plan. However, it’s important to remember that these projections are just estimates. They are not guarantees of future success.

Business Plan Financial Projections FAQs

What is a business plan financial projection.

A business plan financial projection is a forecast of your company's future financial performance. It should include line items for each type of asset and liability, as well as a total at the end.

What are annual income statements? 

The Annual income statement is a financial document and a financial model that summarize a company's revenues and expenses over the course of a fiscal year. They provide a snapshot of a company's financial health and performance and can be used to track trends and make comparisons with other businesses.

What are the necessary financial statements?

The necessary financial statements for a business plan are an income statement, cash flow statement, and balance sheet.

How do I create financial projections?

You can create financial projections by making a list of assumptions, creating two scenarios (best case and worst case), conducting a ratio analysis, and being realistic.

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How to Craft the Financial Section of Business Plan (Hint: It’s All About the Numbers)

Writing a small business plan takes time and effort … especially when you have to dive into the numbers for the financial section. But, working on the financial section of business plan could lead to a big payoff for your business.

Read on to learn what is the financial section of a business plan, why it matters, and how to write one for your company.  

What is the financial section of business plan?

Generally, the financial section is one of the last sections in a business plan. It describes a business’s historical financial state (if applicable) and future financial projections. Businesses include supporting documents such as budgets and financial statements, as well as funding requests in this section of the plan.  

The financial part of the business plan introduces numbers. It comes after the executive summary, company description , market analysis, organization structure, product information, and marketing and sales strategies.

Businesses that are trying to get financing from lenders or investors use the financial section to make their case. This section also acts as a financial roadmap so you can budget for your business’s future income and expenses. 

Why it matters 

The financial section of the business plan is critical for moving beyond wordy aspirations and into hard data and the wonderful world of numbers. 

Through the financial section, you can:

• Forecast your business’s future finances
• Budget for expenses (e.g., startup costs)
• Get financing from lenders or investors
• Grow your business

• Growth : 64% of businesses with a business plan were able to grow their business, compared to 43% of businesses without a business plan.
• Financing : 36% of businesses with a business plan secured a loan, compared to 18% of businesses without a plan.

So, if you want to possibly double your chances of securing a business loan, consider putting in a little time and effort into your business plan’s financial section. 

Writing your financial section

To write the financial section, you first need to gather some information. Keep in mind that the information you gather depends on whether you have historical financial information or if you’re a brand-new startup. 

Your financial section should detail:

• Business expenses 

Financial projections

Financial statements, break-even point, funding requests, exit strategy, business expenses.

Whether you’ve been in business for one day or 10 years, you have expenses. These expenses might simply be startup costs for new businesses or fixed and variable costs for veteran businesses. 

Take a look at some common business expenses you may need to include in the financial section of business plan:

• Licenses and permits
• Cost of goods sold 
• Rent or mortgage payments
• Payroll costs (e.g., salaries and taxes)
• Utilities 
• Equipment 
• Supplies 
• Advertising 

Write down each type of expense and amount you currently have as well as expenses you predict you’ll have. Use a consistent time period (e.g., monthly costs). 

Indicate which expenses are fixed (unchanging month-to-month) and which are variable (subject to changes). 

How much do you anticipate earning from sales each month? 

If you operate an existing business, you can look at previous monthly revenue to make an educated estimate. Take factors into consideration, like seasonality and economic ups and downs, when basing projections on previous cash flow.

Coming up with your financial projections may be a bit trickier if you are a startup. After all, you have nothing to go off of. Come up with a reasonable monthly goal based on things like your industry, competitors, and the market. Hint : Look at your market analysis section of the business plan for guidance. 

A financial statement details your business’s finances. The three main types of financial statements are income statements, cash flow statements, and balance sheets.

Income statements summarize your business’s income and expenses during a period of time (e.g., a month). This document shows whether your business had a net profit or loss during that time period. 

Cash flow statements break down your business’s incoming and outgoing money. This document details whether your company has enough cash on hand to cover expenses.

The balance sheet summarizes your business’s assets, liabilities, and equity. Balance sheets help with debt management and business growth decisions. 

If you run a startup, you can create “pro forma financial statements,” which are statements based on projections.

If you’ve been in business for a bit, you should have financial statements in your records. You can include these in your business plan. And, include forecasted financial statements. 

You’re just in luck. Check out our FREE guide, Use Financial Statements to Assess the Health of Your Business , to learn more about the different types of financial statements for your business.

Potential investors want to know when your business will reach its break-even point. The break-even point is when your business’s sales equal its expenses. 

Estimate when your company will reach its break-even point and detail it in the financial section of business plan.

If you’re looking for financing, detail your funding request here. Include how much you are looking for, list ideal terms (e.g., 10-year loan or 15% equity), and how long your request will cover. 

Remember to discuss why you are requesting money and what you plan on using the money for (e.g., equipment). 

Back up your funding request by emphasizing your financial projections. 

Last but not least, your financial section should also discuss your business’s exit strategy. An exit strategy is a plan that outlines what you’ll do if you need to sell or close your business, retire, etc. 

Investors and lenders want to know how their investment or loan is protected if your business doesn’t make it. The exit strategy does just that. It explains how your business will make ends meet even if it doesn’t make it. 

When you’re working on the financial section of business plan, take advantage of your accounting records to make things easier on yourself. For organized books, try Patriot’s online accounting software . Get your free trial now!

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Financial Forecast in a Business Plan

Written by True Tamplin, BSc, CEPF®

Reviewed by subject matter experts.

Updated on September 12, 2024

Are You Retirement Ready?

Table of contents, what is a financial forecast in a business plan.

A financial forecast in a business plan is a projection of the expected financial performance of a company over a specific period, often annually or quarterly. It provides insights into anticipated revenues, expenses, capital investments, and cash flows.

Rooted in both historical data and assumptions about future market conditions, this forecast helps stakeholders, including investors, lenders, and company leaders, gauge the business's potential profitability and financial health.

By comparing actual financial results with the forecast, businesses can identify gaps, make informed decisions, and adjust strategies accordingly.

Moreover, a well-constructed financial forecast demonstrates the company's understanding of its market and adds credibility to the business plan, increasing the likelihood of securing investments or loans.

In essence, it's a vital tool for planning, budgeting, and ensuring that a business remains on a sustainable financial trajectory.

Components of a Financial Forecast in a Business Plan

Sales and revenue forecast.

Businesses thrive on sales. Projecting future sales provides a cornerstone to any financial forecast. By analyzing market trends, past sales data, and growth strategies, businesses can predict revenue inflows.

This, in turn, dictates everything from inventory purchases to hiring strategies. In the ever-evolving marketplace, an accurate sales forecast is integral for optimal resource allocation and to prevent overhead costs that can cripple an enterprise.

Expense Forecast

As businesses strategize for growth, understanding expenditures becomes crucial. These can be both fixed, like rents and salaries, and variable, such as utility bills or raw material costs.

External factors like inflation, geopolitical scenarios, and supply chain disruptions can also influence business expenses. Therefore, an accurate expense forecast not only ensures sustainability but also charts out profitability margins.

Profit and Loss Statement (P&L Forecast)

Herein lies the essence of any business—profits. The P&L forecast provides a clear picture of the company's anticipated net profit or loss over a set period.

Distinguishing between gross profit, operational profit, and net profit helps streamline operations and understand where the bulk of revenues or costs stem from. A keen eye on this forecast can lead to timely interventions, ensuring financial stability.

Cash Flow Forecast

Cash is the lifeblood of a business. The cash flow forecast paints a picture of a business's liquidity by tracking both incoming and outgoing cash.

A well-managed cash flow ensures operational sustainability. A business might be profitable on paper, but if it lacks the liquidity to manage its immediate expenses, it can face significant hurdles.

Balance Sheet Forecast

A forward-looking balance sheet gives stakeholders a snapshot of a company's projected financial health, encompassing assets, liabilities, and owner’s equity.

Regularly updating and reviewing the balance sheet forecast can assist businesses in making informed financial decisions, whether it's taking on debt or making significant investments.

Capital Expenditure Forecast

For businesses looking towards expansion or major investments, the capital expenditure forecast is indispensable. It involves predictions related to expenses on assets that will benefit the business in the long run, like machinery, buildings, or technology.

Crucially, evaluating the potential return on these investments ensures that they generate value over time.

Importance of Financial Forecast in a Business Plan

Guide business strategies.

Financial forecasts are not just passive documents; they drive action. The insights derived from these forecasts shape a company's tactical and strategic decisions, ensuring alignment with financial expectations and goals.

Secure External Funding

For startups or businesses looking to expand, external funding often becomes essential. A robust financial forecast showcases the business's potential to prospective investors or lenders, bolstering its credibility and signaling its viability.

Risk Management

Financial projections serve as an early warning system. They highlight potential financial pitfalls, allowing businesses to devise countermeasures.

Whether it's diversifying sources of income, cutting down on non-essential expenses, or hedging against market volatility, these forecasts empower businesses to navigate challenges proactively.

Monitor Business Health

By juxtaposing actual financial outcomes with forecasts, businesses can gauge their performance. Discrepancies can lead to course corrections, ensuring that the business remains aligned with its broader financial and operational objectives.

Methods and Tools for Creating a Financial Forecast in a Business Plan

Quantitative methods.

Numbers often tell a compelling story. Time series analysis, econometric models, and other statistical tools provide a quantitative means to chart out a business's future. These rely heavily on historical data and established market trends to make informed predictions.

Qualitative Methods

Sometimes, numbers need a human touch. Techniques like the Delphi method or expert judgment pool insights from professionals to make predictions, especially when historical data might not be a reliable indicator.

While these methods might lack the objective precision of quantitative models, they provide valuable subjective insights, especially in rapidly evolving industries.

Modern Forecasting Tools

The digital age has democratized forecasting. Several software solutions, from simplistic spreadsheet templates to sophisticated AI-driven models, empower businesses to automate their financial forecasting processes.

Integration capabilities, real-time data processing, and advanced analytics further enhance their efficacy.

Challenges of Financial Forecast in a Business Plan

External economic factors.

While businesses can control their operations, external factors often remain unpredictable. Market volatilities, geopolitical events, or global crises can disrupt even the most meticulous forecasts, underscoring the importance of adaptability.

Internal Business Changes

Organizational restructuring, strategy pivots, or product launches can significantly alter a company's financial trajectory. Such internal changes necessitate regular revisions of the financial forecast to ensure it remains reflective of the business's evolving landscape.

Inherent Uncertainty

The future remains, by nature, uncertain. Even the most sophisticated forecasting models rely on assumptions and estimates.

Recognizing this inherent unpredictability, businesses should adopt a flexible approach, regularly revisiting their forecasts and adjusting them in light of new data or changing circumstances.

A financial forecast in a business plan is an indispensable tool that projects a company's future financial performance, derived from both historical data and future assumptions.

Essential components include sales and revenue predictions, expense projections, and comprehensive statements like the P&L and balance sheet forecasts.

The objective is not just to track figures but to guide strategy, secure funding, manage risks, and constantly monitor the company's financial health.

While modern tools and quantitative methods provide precision, qualitative insights capture the nuances of rapidly changing industries.

Challenges like external economic shifts, internal business alterations, and the inherent uncertainty of predicting the future underline the importance of flexibility and adaptability.

In essence, a robust financial forecast not only charts a course for a company's growth but also ensures it remains agile in the face of both expected and unforeseen challenges.

Financial Forecast in a Business Plan FAQs

Why is a financial forecast in a business plan crucial for startups.

A Financial Forecast in a Business Plan helps startups anticipate revenues and expenses, allowing them to strategize operations, secure funding, and ensure financial sustainability from the onset.

How often should a company update its Financial Forecast in a Business Plan?

While the frequency may vary depending on the industry and market dynamics, it's generally recommended to revisit and update the Financial Forecast in a Business Plan at least annually or when significant internal or external changes occur.

Can I create a Financial Forecast in a Business Plan without prior financial data?

Yes, startups and new businesses often rely on industry benchmarks, market research, and qualitative methods to create a Financial Forecast in a Business Plan, even without historical financial data.

How accurate is the Financial Forecast in a Business Plan?

While every effort is made to ensure accuracy, a Financial Forecast in a Business Plan is based on assumptions, projections, and available data. External factors and unforeseen changes can affect outcomes, making it essential to revisit and adjust forecasts regularly.

What tools can I use to automate the Financial Forecast in a Business Plan?

There are various software solutions, ranging from spreadsheet templates to sophisticated AI-driven platforms, designed to help businesses automate and enhance the accuracy of their Financial Forecast in a Business.

About the Author

True Tamplin, BSc, CEPF®

True Tamplin is a published author, public speaker, CEO of UpDigital, and founder of Finance Strategists.

True is a Certified Educator in Personal Finance (CEPF®), author of The Handy Financial Ratios Guide , a member of the Society for Advancing Business Editing and Writing, contributes to his financial education site, Finance Strategists, and has spoken to various financial communities such as the CFA Institute, as well as university students like his Alma mater, Biola University , where he received a bachelor of science in business and data analytics.

To learn more about True, visit his personal website or view his author profiles on Amazon , Nasdaq and Forbes .

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4 Financial Analysis Skills All Managers Need

• 07 Apr 2022

A common misconception in business is that financial analysis is only for financial analysts. The reality is that all managers should have at least a basic understanding of financial analysis to assess their organizations’ past, current, and future performance.

Business leadership relies on using financial statements to inform decisions and effectively communicate with stakeholders and investors. Here's an overview of what financial analysis is and four skills all managers need.

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What Is Financial Analysis?

Financial analysis is making sense of the numbers associated with a business's finances, which are gleaned from cash flow statements, balance sheets, ratios, income statements, and statements of shareholders’ equity. This data is essential when determining how a business is performing and recommending future improvements.

Types of Financial Analysis

There are many types of financial analysis, but these three methods are the most common:

• Horizontal analysis , also called "trend analysis," compares a business's financial documents to the previous period and evaluates changes over time. It involves determining whether numbers have increased or decreased and why.

• Vertical analysis is an examination of a company's finances that involves analyzing a single column of a financial document to determine how different numbers interact during a specific reporting period.

• Ratio analysis investigates the relationship between different pieces of financial information in the same report. It helps professionals make sense of a company's health and performance.

Individuals should familiarize themselves with each type of analysis to fully understand their organization's financial performance. Otherwise, it's difficult to determine whether a company is struggling or succeeding.

Managers need financial analysis skills to review a company's finances and make informed decisions. Here are four that all managers should learn.

Financial Analysis Skills

1. reading financial statements.

Effective leaders need to read and understand fundamental financial documents. The three most important are the balance sheet, income statement, and statement of cash flows.

• Balance sheets communicate a company's worth and list assets, liabilities, and equity for a reporting period. Managers can use this data to understand their business's financial position.
• Income statements , also known as "profit and loss (P&L) statements," summarize a company's income and expenses to demonstrate its performance over a given period.
• Cash flow statements record what happens to a company's cash over an accounting period. They help managers understand how well it can operate in the short- and long-term, given the cash flow it’s experiencing.

Together, these statements provide an account of a company's financial performance. Managers should know how to reference the data in these documents before making any organizational recommendations.

2. Calculating and Understanding Key Ratios

Thoroughly comprehending financial ratios is critical to understanding a company's financial status. Managers should be familiar with the following ratios:

• Profitability ratios: These determine an organization’s profitability and include profit margin; return on assets; return on equity; and earnings before interest, taxes, depreciation, and amortization (EBITDA).
• Liquidity ratios: Liquidity refers to a company's ability to convert assets into cash quickly. Key liquidity ratios include the current ratio and quick ratio.
• Leverage ratios: These calculate a company's dependency on debt to finance its endeavors. Important ratios include total debt to total assets, long-term debt to capitalization, total assets to net worth, and EBIT to interest expense.
• Productivity ratios: Also known as "activity ratios," these reflect how effectively a company uses its assets. Key ratios include asset turnover, inventory turnover, and receivables collection period.

Assessing a company's financial condition with ratio analysis is crucial for managers to learn. When leveraged correctly, comparing and contrasting ratios against previous periods can uncover whether a company is under- or overperforming.

3. Finding Meaning in Numbers

Numbers provide information, not comprehension, because everyone looks at numbers differently. Furthermore, companies across industries have different priorities.

In addition to financial literacy , managers need an in-depth understanding of how numbers should be applied to their businesses. High ratios can be problematic for one company and encouraging for another because financial data and numbers aren’t inherently universal.

To find meaning in your numbers, you must:

• Understand your business: What are your company’s goals? What inventory do you hold? In some cases, inventory value quickly depreciates.
• Compare your numbers to competitors in your industry: The same ratios don’t apply to every industry. For example, service industries don’t have as much inventory as product-based companies, so the ratios are inherently different.

In most cases, return on equity is the most important ratio, but this isn’t always true. Most business success is measured by the value companies provide to shareholders and owners, but managers should be aware, and have a clear understanding, of other possible profit metrics.

4. Thinking Beyond Numbers

Numbers are important but don't tell the entire story. Some of the most valuable company assets can't be assigned a number, such as:

• Brand: A company's brand is one of its most valuable assets , yet it's not reported on a balance sheet. Brand value is typically based on estimates and changes dramatically year over year. Unless your brand is sold to a parent company, it's difficult to calculate its value.
• Word of mouth: Referrals and recommendations are highly valuable because 90 percent of consumers are likely to trust a person’s company recommendation, even if it’s from a stranger. Similar to brand, it's possible to estimate the value of word of mouth , but it isn't reportable on financial statements. This is because it’s difficult to assign return on investment (ROI) to word-of-mouth campaigns.

Managers shouldn’t be discouraged by this. Even though these assets are difficult to report and track on financial statements, they’re still valuable and key factors in your company’s success.

How to Develop Financial Analysis Skills

If you're not yet proficient in finance, try not to get overwhelmed. Financial analysis skills aren’t only attainable but can be mastered with the right tools. Here are three ways you can start developing these skills:

• Conduct research: Researching independently can provide a surface-level understanding of financial concepts. While this doesn’t sufficiently inform you of the financial intricacies needed for decision-making, it's an excellent starting point.
• Learn from others: Consulting with others is an often-overlooked learning method. Reach out to your company’s accountants or finance experts and ask questions. Industry-specific knowledge can be useful when making financial decisions.
• Take a finance course: Taking a course is one of the best ways to obtain demonstrable proficiency in financial analysis. Consider Harvard Business School Online's course Leading with Finance , which can equip you with a comprehensive understanding of financial principles and how to leverage them for your business.

Learning the Skills to Make Financially Viable Decisions

Whether for personal interest or to inform your company's financial decisions, a business finance course can teach valuable financial skills.

If you're already a manager or aspiring to be one, understanding your organization’s financial landscape can take your decision-making abilities to the next level and provide valuable networking opportunities.

Do you want to improve your confidence and knowledge of finance? Explore Leading with Finance , one of our online finance and accounting courses . If you aren't sure which course is the right fit, download our free course flowchart to determine which best aligns with your goals.

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