Crunching the Numbers for a Business PlanPosted by Jessica Oman
Let’s get one thing straight: this blog post won’t tell you how to create financial projections for your company. But it (and the series of posts that follow) will introduce you to many of the concepts and considerations for forecasting your business’s financial performance and hopefully provide some of the language and terminology you’ll need when you start talking to lenders and investors.
For now, let’s go over some of the important tables you’ll need in your financial statements:
The cash flow statement is probably the most important table of them all. It’s where your reader will go to determine how cash flows into and out of your business. Don’t confuse cash balance with net profit; it’s not the same at all! You can have a profitable business with terrible cash flow and struggle to pay your bills even though your expenses are less than your revenues.
The balance sheet shows the growth (or not) of your company’s assets over time. It also shows how those assets are funded, through a combination of liabilities (debt) and equity. Debt + Equity must always equal Assets; when it doesn’t, there’s probably a calculation error or a line missing somewhere.
The income statement, sometimes called profit & loss, shows your total revenue minus your total expenses over a period of time.
Yep. That’s it.
This table shows how much revenue your company needs to earn in order to cover all of its expenses. This can change over time. As a general rule, if your company is covering its fixed expenses, it’s worth staying open, even if your variable expenses are putting you in the hole. Why? Because you can do something about your variable expenses. They’re under your control.
Often we also include an Assumptions page, a Startup Table, and an Equipment List too. This additional information just helps feed the rest of the tables and provides additional context for the reader.
Where do you struggle with creating financial projections?
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