Business Financials and The Business Plan
The blog posts that were published last week were a good start for Accounting Month on this blog and they can be a fantastic resource for business owners, business staff, and start-up businesses who need to learn accounting. Here is a list of them for review:
- 40 Basic Accounting Principles that you need to know to understand Small Business Accounting
- Cost of Goods Sold – Additional Principles that Businesses with Inventory Must Know
- 65 Accounting Terms and Definitions
- Should I Hire a Bookkeeper? 3 Super Tips to Help Your Bookkeeping Decision
- 3 Business Financials: The Balance Sheet, The Income Statement and The Cash Flow Statement
In the future, this blog will have many more business tips that can be especially helpful for current business owners and start ups. Those will include advice on how to write a business plan. At this point, it’s appropriate to explain how the information from last week, particularly a better understanding of accounting principles and the business financials are related to the business plan.
Go to SBA.gov to find free tools for writing a business plan. Here is a sample outline of a business plan that the SBA website will help you create:
1. Executive Summary
1.3 What Drives Us
2. Company Description
2.2 Principal Members
2.3 Legal Structure
3. Market Research
3.4 Competitive Advantage
4. Product/Service Line
4.1 Product or Service
4.2 Pricing Structure
4.3 Product/Service Life Cycle
4.4 Intellectual Property Rights
4.5 Research & Development
5. Marketing & Sales
5.1 Growth Strategy
6. Financial Projections
6.1 Profit & Loss
6.2 Cash Flow
6.3 Balance Sheet
6.4 Break Even Analysis
6.5 Financial Assumptions
6.5.1 Assumptions for Profit and Loss Projections
6.5.2 Assumptions for Cash Flow Analysis
6.5.3 Assumptions for Balance Sheet
Obviously, the entire financial projections portion (section 6) is in bold to emphasize that the business plan ends with projected financials! There are a few reasons to write a business plan; I’ll mention two. One is to give your business direction. It helps you do your homework in an orderly fashion and make achievable goals for your business. The second is that if you are asking for a business loan, the business plan is the major document that helps you pitch to the lender to give you the money. You could go on and on with words in sections 1-5, but some lenders won’t even care to read that. They particularly want to see the numbers in order to evaluate their risk and their potential return on investment.
Before reading last week’s posts, one could easily read the sub-sections of section 6.5 and not even realize that the word “assumption” is an accounting term with a specific meaning. Some start up business owners may not even know what the business financials are and how they relate to each other. Yet, now you have the information you need at your fingertips. You also know how the business financials and the business plan are related. Stay tuned for Accounting Month. There is much more to come, especially concerning bookkeeping and tax savings — yay!
This article was not written by an accountant. Consult with a CPA or other accounting professional before performing accounting for your business.
If you have any questions (or answers to questions) about this article, leave a comment below.