"It's not exactly data, because you're still guessing the future.
One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money." The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. It should be a guide to running your business," Pinson says. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. They are going to want to see numbers that say your business will grow-and quickly-and that there is an exit strategy for them on the horizon, during which they can make a profit. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. "You can just guess based on past results. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at and is writing a book, The Plan-As-You-Go Business Plan. Business planning or forecasting is a forward-looking view, starting today and going into the future. But accounting looks back in time, starting today and taking a historical view. Many people get confused about this because the financial projections that you include-profit and loss, balance sheet, and cash flow-look similar to accounting statements your business generates. Realize that the financial section is not the same as accounting.
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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.
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"This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. You do this in a distinct section of your business plan for financial forecasts and statements. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. A business plan is all conceptual until you start filling in the numbers and terms.