Writing a Business Plan

8. Financial Performance

Your financial forecasts translate what you have said about your business into numbers.

8.1 Set out the historical financial information for the last three to five years, if available.

• Break total sales figures down into component parts.For example, sales of different types of product or to different types of customers.
• Show the gross margin for each component of sales. List what costs are included as direct costs for each component.
• Show the movement in the key working capital items of stock, trade debtors and creditors.Use ratios such as stock turnover (in months), debtors period (in days), and creditors period (in days).
• Highlight any major capital expenditure made in the period.
• Provide an up-to-date balance sheet, and a profit and loss account.

8.2 Provide forecasts for the next three (or even five) years.

• The sophistication of your forecasts should reflect the sophistication of your business. A small business may only need profit and loss, sales and cashflow statements. A more complex asset-based business - or one with complex working capital requirements - will need balance sheet forecasts as well.
• Use the same format as for the historical information, in order to aid comparisons.
• Clearly state the assumptions behind the forecasts. These should tie in with statements in the rest of the plan. For example, if the plan states that the market is becoming more competitive, then profit margins should probably be falling.

8.3 If you are raising finance, use the cashflow forecast to predict your cash requirements.

• Add a contingency element on to the funding requirement shown in the forecast. (This is often 10 to 20 per cent.) Consider what the mid-month peaks might be.
• Include the likely interest or dividend costs of any new finance.
• Carry out sensitivity tests on the cash required by reducing key items, such as sales or margin. Note the outcomes.
• State why the cash is required.