Every new company should make an effort to updating a business plan. Generally, such a plan will comprise six sections:
Now, ideally, you would comprehensively update each section every year. Have the size, shape and objectives of your company not changed all that much? If so, then you may not need to make major revisions to the entire plan. However, at the very least, you should always review and revise your strategic financial planning.
Lenders, investors and other interested parties understand that descriptions of a business or industry analysis may be subject to interpretation. But financials are a different matter. They need to add up (literally and figuratively) and contain realistic projections in today’s dollars.
For example, suppose a company with $10 million in sales in 2019 expects to double that figure over a three-year period. How will you get from Point A ($10 million in 2019) to Point B ($20 million in 2023)? Many roads may lead to the desired destination; your must explain its route when making a new business plan.
Let’s say your management team decides to double sales by hiring four new salespeople and acquiring the assets of a bankrupt competitor. These assumptions will drive the projected income statement, balance sheet and cash flow statement referenced in your business plan.
When updating a business plan and projecting the income statement, you’ll need to make assumptions about variable and fixed costs. Direct materials are generally considered variable. Salaries and rent are usually fixed. But many fixed costs can be variable over the long term. Consider rent: Once a lease expires, you could relocate to a different facility to accommodate changes in size.
Balance sheet items include receivables, inventory, payables and so on. These items are generally expected to grow in tandem with revenues. The financials in your business plan must accurately and reasonably justify the assumptions you’re making. These assumptions include your minimum cash balance, as well as debt increases or decreases to keep the balance sheet balanced. And these amounts must be current.
From a lending perspective, your bank will be expected to fund any cash shortfalls that take place as the company grows. So, realistic cash flow projections in your business plan are particularly critical. The financials section should outline how much financing you’ll need. In addition, it must explain how you intend to use those funds and when you expect to repay the loan(s).
Your business plan needs to tell an accurate, objective story of your company. Where the company has been, where it is right now and where it’s heading. Keep the whole thing as fresh as possible but pay special attention to the numbers. At Accounting Freedom, we are a CPA firm near Milwaukee, WI specializing in small businesses. We can help review your company’s financials, arrive at reasonable assumptions, and express your objectives and projections clearly. Call us at (262) 375-2440 to schedule your consultation!