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Business Plan Financial Projections

You may be expanding your business or starting a new business for many reasons. Your financial backers, however, are interested in their investment. To them, the heart of your business plan is represented by the financial projections which must include income statements, balance sheets, and cash flow statements. These statements must convince your backers of two very important details: your business will generate enough cash to (1) repay your backers and (2) fuel your incentive to succeed.

If you only need financial projections, whether for your business plan, or for planning your business, give us a call - we can help!

We've posted a brief discussion about financial statements here: Understanding Financial Statements

 

Example Income Statements

The income statement (profit and loss statement) shows the revenue, expenses, and net income (or net loss) for a period of time.  Net income is the amount by which total revenue exceeds total expenses.  The resulting profit is added to the retained earnings account (accumulated earnings of a company since its inception less dividends).  A net loss reduces the retained earnings account.  The projected income statements demonstrate that your business has the ability to earn profits over time.

Year 1 Year 2 Year 3 Year 4 Year 5
Revenues $1,976,000 $2,074,800 $2,178,540 $2,287,467 $2,401,840
Cost of Sales 1,213,659 1,274,342 1,338,059 1,404,962 1,475,210
Gross Profit $762,341 $800,458 $840,481 $882,505 $926,630
Accounting 6,000 6,300 6,615 6,946 7,293
Advertising & Promotion 15,000 12,360 12,731 13,113 13,506
Bank Charges 41,496 43,571 45,749 48,037 50,439
Compensation & Benefits 246,643 254,042 261,663 269,513 277,598
Consulting Fees 2,400 0 0 0 0
Insurance 1,000 1,050 1,103 1,158 1,216
Lease - Facilities 336,000 336,000 336,000 336,000 336,000
Legal & Professional 500 500 500 500 500
Licenses & Fees 500 510 520 531 541
Maintenance 600 612 624 637 649
Miscellaneous 1,800 1,836 1,873 1,910 1,948
Office supplies 2,700 2,754 2,809 2,865 2,923
Security 720 742 764 787 810
Telephone 1,800 1,836 1,873 1,910 1,948
Utilities 4,200 4,410 4,631 4,862 5,105
Website 1,800 1,800 1,800 1,800 1,800
  Total Operating Exp. 663,159 668,323 679,255 690,569 702,276
EBIDTA $99,182 $132,135 $161,226 $191,936 $224,354
Depreciation 4,916 4,916 4,916 4,916 4,916
Operating Profit $94,266 $127,219 $156,310 $187,020 $219,438
Interest Expense 43,199 40,274 37,059 33,524 29,639
Earnings Before Taxes 51,067 86,945 119,251 153,496 189,799
Income Taxes 17,873 30,431 41,738 53,724 66,429
Net Income $33,194 $56,514 $77,513 $99,772 $123,370

A discussion about understanding the income statement is here

 

Example Balance Sheets

The balance sheet is a statement of financial position that shows total assets = total liabilities + owners' equity. Financial position refers to the amount of resources (i.e., assets) and the liabilities of the business on a specific date. Owners' equity is the residual interest, or the amount of the assets to which the owners have claim because creditor claims (liabilities) legally come first. Owners' equity in a business derives from two sources: (1) paid-in capital, which is the investment of cash or other assets in the business by the owner or owners; and (2) retained earnings, which are the accumulated profits of the business less the losses and withdrawals. The purpose of the balance sheet is to report the financial position of a business at a particular point in time.

Begin Year 1 Year 2 Year 3 Year 4 Year 5
Cash $33,150 $110,697 $210,697 $243,259 $293,834 $363,370
Inventory 425,000 425,000 424,781 446,020 468,321 491,737
Prepaid Leases 28,000 28,000 28,000 28,000 28,000 28,000
  Total Current Assets $486,150 $563,697 $663,478 $717,279 $790,155 $883,107
Fixed Assets 33,850 33,850 33,850 33,850 33,850 33,850
Less:  Depreciation 0 4,916 9,832 14,747 19,664 24,579
Net Fixed Assets 33,850 28,934 24,018 19,103 14,186 9,271
Total Assets $520,000 $592,631 $687,496 $736,382 $804,341 $892,378
Accounts Payable 0 68,908 139,654 146,637 153,968 161,667
Long Term Debt 468,000 438,529 406,133 370,522 331,377 288,346
Total Liabilities 468,000 507,437 545,787 517,159 485,345 450,013
Owner's Equity
  Paid-in Capital 52,000 52,000 52,000 52,000 52,000 52,000
  Retained Earnings 0 33,194 89,709 167,223 266,996 390,365
Total Liabilities & Equity $520,000 $592,631 $687,496 $736,382 $804,341 $892,378

A discussion about understanding the balance sheet is here

 

Example Cash Flow Statements

Revenue does not necessarily mean receipt of cash, and expense does not automatically imply a cash payment. Net income and net cash flow (cash receipts less cash payments) are different. For example, taking out a bank loan generates cash, but this cash is not revenue since no merchandise has been sold and no services have been provided. Loan repayments consume cash, but do not reduce income - they are recorded as a reduction to liabilities. In our income statement example (above), although net income for Year 1 was $33,194, cash flow was $77, 547. The beginning cash balance in Year 1 was $33,150. Cash flow in Year 1 was $77,547. Add the two, and the ending cash balance in Year 1 becomes $110,697. Your statements "tie together." This is a simple check potential investors or lenders will perform.

Year 1 Year 2 Year 3 Year 4 Year 5
Operating Profit $94,266 $127,219 $156,310 $187,020 $219,438
Add:  Depreciation 4,916 4,916 4,916 4,916 4,916
99,182 132,135 161,226 191,936 224,354
Working Capital Investment (68,908) (70,966) 14,256 14,968 15,719
Cash From Operations 168,090 203,101 146,970 176,968 208,635
Interest Expense 43,199 40,274 37,059 33,524 29,639
Income Taxes 17,873 30,431 41,738 53,724 66,429
Net Cash Before Debt Pmt 107,018 132,396 68,173 89,720 112,567
Debt Payment 29,471 32,396 35,611 39,145 43,031
Change in Cash $77,547 $100,000 $32,562 $50,575 $69,536
Cash Reconciliation
Beginning Cash $33,150 $110,697 $210,697 $243,259 $293,834
Change in Cash 77,547 100,000 32,562 50,575 69,536
Ending Cash $110,697 $210,697 $243,259 $293,834 $363,370

A discussion about understanding the cash flow statement is here

 

Your business plan is the heart and soul of your operation and the most important set of documents you will provide a lending institution or potential investor.

The Business Plan Store will prepare detailed financial projections for your business or your business plan that express your vision in terms of dollars and units of time, and in a format that is easily understandable to all people in the lending industries.

 

We write business plans!  To get started on yours, contact us here.

 

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