Tips for making the financial part of your business plan a success
Tips for making the financial part of your business plan a success13 Août 2020
Tip # 1: Build on Realistic Predictions
The financial forecast represents a quantified translation of a project; this translation must be the closest to reality.
This quality will only be present in a business plan if the “raw materials” (the forecast data) used in the construction of the financial tables are fair and evaluated in the most objective way possible.
The two biggest threats to a project leader are:
- Overestimation of turnover: it should be paid a special attention. Contrary to what many of them think, all the time spent on the operational level is not necessarily recoverable and does not necessarily generate turnover
- Undervaluation of the working capital requirement: WCR is a key element of the business plan but is generally poorly calculated. And yet, a bad estimation of the WCR in the business plan is one of the first causes of the disappearance of new companies… In this respect, the payment deadlines (customers / suppliers) must be studied in a precise way, like the purchase of starting stocks and turnaround time of stocks.
To estimate at best all the forecast data of the business plan:
- The projected turnover will have to be determined by means of a market study;
- The main items of expenditure can be justified by estimates (such as estimation of the general expenses, calculation of the estimated depreciations, census of the personnel expenses forecast, and calculation of the financial expenses forecast).
Tip # 2: Consider a pessimistic scenario
In addition to being realistic, it may be interesting to become temporarily “pessimistic” by considering a catastrophic scenario that would take into account a lower turnover of about 20 to 25% compared to the “normal” version. The impact of a drop in turnover on the financial structure of the company can thus be highlighted.
The profitability of the project will have to be analyzed again. This will identify which loads can be compressed and reduced with the level of activity (so-called variable loads) and which will persist at an equivalent amount, regardless of the level of activity (variable charges).
Of course, even under the pessimistic scenario, the financial results will have to be positive (even if they will not necessarily be high).
Tip # 3: Respect certain financial balances
Building a good business plan is not enough, but you still have to respect certain financial standards and ratios.
In terms of balances:
- Durable goods must be financed by resources of the same kind (long-term investments must be financed by means of capital contributions and loan subscription, inventories must be financed by current account negotiating a payment term with suppliers),
- Banks generally do not accept to lend all amounts representing the financial need of a project. In most cases they require a contribution of around 20% from the project promoter. It will also help to make the project credible and show that the entrepreneur believes in its success.
At the standards level:
- The ratio [net debt / cash flow] must be less than 3 or 4,
- The [loan repayment / self-financing capacity] ratio must be less than 0.5,
- The margin rate should be similar to that prevailing on the market in the same sector of activity (although a difference may exist but it must be justified).
Tip # 4: Adapt your business plan to the interlocutor
We repeat it often but it is essential: there is not “ONE” business plan but “MANY” business plan. A version of this document must be established and personalized for each of its recipients. It must highlight concepts as well as financial ratios that concretely interest its reader.
For example, a business plan aimed at a banker will rather insist on notions such as cash flow, repayment capacity, and the debt ratio.
A business plan addressed to an investor will focus more on financial concepts such as net income, breakeven point, net dividend per share, etc.
This remark applies to both the financial part and the editorial part.
Tip # 5: Take care of the presentation
The financial part consists of a set of financial tables whose presentation must be irreproachable. The project leader can use an Excel spreadsheet, an online application or even in a business plan software.
Nevertheless he must ensure the quality of the finished product. To know how to present each financial table composing a business plan, we will go on the following point:
- Profit and loss account
- Forecast balance sheet
- Projected financing plan
- Cash budget
Tip # 6: Choosing Your Schedules
Any document proving the veracity of the information of the financial part will have to be inserted in the appendix of the business plan. This is generally the case with the results of the market study, customer letters, major partnership contracts and certain optional financial tables such as the summary of investments, the summary of financing, the VAT table and the monthly budget. It will of course include the cash flow, summary of overheads, staff costs, details of loan repayments, etc.
Tips for making the editorial part of your business plan a success
To succeed in the editorial part of a business plan, it is enough to use common sense, to be clear and coherent.
Tip # 7: Avoid Spelling Errors
This point is essential: the editorial part must be free from any misspelling, grammar, agreement or conjugation. This will help reassure the reader about the seriousness of the project.
For this, it is essential that the editor (re) promote himself as trustworthy person (by the various partners, by his family, by his chartered accountant or his advisor).
It should also avoid the familiar language. Moreover, it is generally advised, after writing the editorial part, to take a little “break” and refresh the mind to a rigorous re-reading later.
Tip # 8: Aerate the text
It is essential to avoid text boxes without page breaks or line breaks that will not make you want to be read by the interlocutor. The editorial part of a business plan must be airy and can be punctuated with images.
Adding a summury to the project and paginating it will make it much more pleasant to read and therefore increasing the interest of the different parties involved in the process.
Tip # 9: Stay simple
It is useless to enter precisely in the details within the editorial part. It is not necessary, for example, to detail the technical specificities of the project. It is necessary to be precise while remaining general. Indeed, except in the case of facing a specialist, the recipient will understand nothing that is indicated.
The excessive use of specific jargon must also be prohibited. Going to basics is a priority even though this should not overshadow the work done upstream. It is therefore important to present the offer globally, to emphasize its strengths and to recognize its weak points.
Tip # 10: Be consistent
The editorial part must make it possible to highlight certain coherence between the objectives of the company, the resources it will deploy, the targeted market and the place of the competitors in the latter.
The link between the professional experience of the entrepreneur and his project will also be essential because it will be studied by the one who will judge the project.
To succeed in your business plan is, above all, a question of common sense. However, despite the advice given above, the use of a professional is sometimes essential, particularly with regard to the construction of financial tables.
This is why our team remains at your disposal either by proving you clear vision on your future business or assist you in the daily activities of your future company. Do not hesitate and contact us now!