Chapter # 5

Financial Plan

Financial Plan for start up business

A financial

plan is a series of steps or goals used

by an individual or business, the cumulative
attainment of which are designed to accomplish
a financial goal.
The financial plan presents forecasts for the
future of the business.
Financial statements. Financial projections,

Capital and Operating Budgets and other

important documents related to company
finances.

Financial Plan for start up business

The Financial Planning activity involves

the

following tasks:

Assess the business environment

Confirm the business vision and objectives
Identify the types of resources needed to achieve these
objectives
Quantify the amount of resource (labor, equipment, materials)
Calculate the total cost of each type of resource
Summarize the costs to create a budget
Identify any risks and issues with the budget set

Financial Statements
Three important Statements referring to

new business:
Income Statement
Cash Flows
Balance Sheet

Income Statement
Also refer to Profit & Loss Statement,

Revenue statement, Statement of financial

performance, Earning statement.

indicates how the revenue (money received from

the sale of products and services before expenses
are taken out, also known as the "top line") is
transformed into the net income (the result after
all revenues and expenses have been accounted
for, also known as Net Profit or the "bottom line")

Income Statement
The Income Statement shows your

Revenues, Expenses, and Profit for a

particular period. It's a snapshot of your
business that shows whether or not your
business is profitable at that point in time.
Revenue - Expenses = Profit/Loss.

Income Statement
While established businesses normally

produce an Income Statement each fiscal

quarter, or even once each fiscal year, for
the purposes of the business plan, an
Income Statement should be generated
more frequently - monthly for the first year.

Sample Income
Statement

Cash Flow Statement

The Cash Flow Projection shows how

cash is expected to flow in and out of your

business
A Cash Flow Projection will give you a
much better idea of how much capital
investment your business idea needs.

Cash Flow Projection vs.

Cash Flow statement

The Cash Flow Statement shows how

cash has flowed in and out of your

business. In other words, it describes the
cash flow that has occurred in the past.
The Cash Flow Projection shows the cash
that is anticipated to be generated or
expended over a chosen period of time in
the future.

Cash Flow Projection

Three parts:
Cash Revenues
Cash Disbursements
Reconciliation of Cash Revenues to Cash

Disbursements

Sample Cash Flow

Statement

Balance Sheet
The Balance Sheet presents a picture of

your business' net worth at a particular

point in time.
It summarizes all the financial data about

your business, breaking that data into 3

categories; assets, liabilities, and equity.

Balance Sheet

Assets are tangible objects of financial value that

are owned by the company.
A liability is a debt owed to a creditor of the
company.
Equity is the net difference when the total liabilities
are subtracted from the total assets.
All accounts in General Ledger are categorized as
an asset, a liability or equity. The relationship
between them is expressed in this equation:
Assets = Liabilities + Equity.

Sample Balance sheet

Budgeting
Capital Budget

It is budget for major capital, or investment, expenditures.

long term economics decision making is called capital
budgeting.

Operating Budget

An operating budget is the annual budget projecting the

expenses of activities required to help and keep the
business in running condition.

Administrative Budget

A form of budget specifically developed for general

administrative activity like staff salaries, wages,
commissions etc