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Financial Statements: A Critical Part of Your Business Plan

Fifth article in a series on developing an overall business plan

One of the final-and most important-steps in preparing your business plan is the development of your financial statements. This step is crucial if you want your plan to attract investors; they will study this part of the plan carefully to see if your business is viable.

Looking at your business from a numbers standpoint can help you identify weak areas in your overall business plan, too.

A financial plan contains three specific sections: an income statement, a cash flow analysis and a balance sheet. It also includes a brief analysis of each of these sections. Finally, your financial plan should include a definition of any assumptions upon which it is based, including projected revenue, increased costs, etc.

The income statement can also be described as the budget. The first section should include your income projections. Remember to include all sources, such as revenue from sales, interest, etc.

List your anticipated expenses after the income projections. Expenses include costs of goods, payroll, taxes, etc., and should be grouped into separate categories, such as cost of goods, administration and taxes.

Preparing your projections and expenses will enable you to conclude the income statement with your bottom line. At this point you can discuss profit or loss.

The income statement should project out over a period of three to five years. If you are in an established business, be sure to include historical data for up to the last three years.

The second section is the cash flow statement. Here, the categories should be the same as in the income statement, but you will also include time frames for each item, projecting when you will receive revenue and when you will need to pay expenses. This statement will assist you in planning for your expenses.

The last statement to prepare is the balance sheet, which lists all of the business assets and liabilities and presents a picture of the business at a given moment.

Seeking the advice of a CPA may be necessary to help you in preparing these statements. However, by conducting some research and showing a little diligence, you may be able to prepare them on your own. There are many resources available on the Internet and at your local library to educate you on this process.

Next issue: Putting it all together

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