A person climbing a long staircase towards a large dollar sign at the top, symbolizing financial goals or ambition.

What Information Should Be Included In The Financial Plan Section Of A Business Plan?

Posted on by Brian Colwell

The financial plan part of a business plan should include the following sub-sections: Funding Requirements, Operating Plan, and Financial Projections.

Funding Requirements

According to the US Small Business Administration (SBA): “If you’re asking for funding, this is where you’ll outline your funding requirements. Your goal is to clearly explain how much funding you’ll need over the next five years and what you’ll use it for. Specify whether you want debt or equity, the terms you’d like applied, and the length of time your request will cover. Give a detailed description of how you’ll use your funds. Specify if you need funds to buy equipment or materials, pay salaries, or cover specific bills until revenue increases. Always include a description of your future strategic financial plans, like paying off debt or selling your business.”

The Funding Requirements part of the Financial Plan component is the business’s official request for funding, answering the key questions: “How much money is needed to expand the business?” and “How will that money be spent?” Be realistic and conservative in the funding request and include multiple funding scenarios, especially for best and worst cases (funding hard caps and soft caps, for example). Keep in mind that one’s funding requests and scenarios must be backed up in the Financial Projections.

What Is Included In The Funding Requirements?

When outlining funding requirements, clarify the amount requested now, the amount required in the future, the time period that each request will cover, the type of funding (equity or debt, for example), and the terms to be applied. Below is a quick hit list of items to include in the Funding Requirements:

  • The amount requested now and the burn rate – How long will these funds last?
  • The amount required in the future and the timeframe covered by these funds – Most businesses plan this as a five year funding requirement.
  • The type of funding requested (equity or debt, for example) and the terms to be applied. 
  • In detail, how will the funds be used?
  • Any long-range financial strategies planned that would have any type of impact on the funding request (such as going public with the company or plans to sell the business in the future)
  • Any other strategic information that may have an impact on the business’s future financial environment or projections (such as acquisition or leveraged buyout)

Operating Plan

The Operating Plan details the day-to-day operations of the business and describes how the business actually functions on a continuing basis. Covering every bit of information from production and service delivery to human resource management and capital expense requirements, and also required to be as detailed as possible, this part of the business plan can become overwhelming to produce.

What Is Included In The Operating Plan?

To simplify the production of the Operating Plan, one should consider two unique areas that need to be accounted for when planning the operations of a company – The first area is the organizational structure of the company, and the second is the expense and capital requirements associated with its operation.

The Organizational Structure

The Operating Plan will highlight the logistics of the organization such as the various responsibilities of the management team and the tasks assigned to each division within the company. Note that much of the management team information can be gathered from Organization & Management section of the business plan.

The Expense & Capital Requirements

In this part of the Operating Plan one will develop capital and expense financial tables that will be supplied to the Financial Projections part of the business plan. The financial tables to develop in The Expense & Capital Requirements are:

  • The operating expense table
  • The capital requirements table
  • The cost of goods table

Financial Projections

According to the US Small Business Administration (SBA): “Supplement your funding request with financial projections. Your goal is to convince the reader that your business is stable and will be a financial success. If your business is already established, include income statements, balance sheets, and cash flow statements for the last three to five years. If you have other collateral you could put against a loan, make sure to list it now. Provide a prospective financial outlook for the next five years – Include forecasted income statements, balance sheets, cash flow statements, and capital expenditure budgets. For the first year, be even more specific and use quarterly — or even monthly — projections. Make sure to clearly explain your projections, and match them to your funding requests. This is a great place to use graphs and charts to tell the financial story of your business.”

The Financial Projections part of the business plan should be developed by a professional accountant after having completed the market analysis and having set goals for the company. Creditors are always on the lookout for inconsistencies – if there are assumptions made in the business’s projections, be sure to summarize what has been assumed.

What Is Included In The Financial Projections?

Start the Financial Projections part of the business plan with a brief analysis of the financial data, featuring a ratio and trend analysis for all financial statements, both from the Historical Financial Data and the Prospective Financial Data. Make sure to represent this data visually (using graphs of the trend analysis, for example). Following the ratio and trend analysis are the two primary sections to the Financial Projections – Historical Financial Data and Prospective Financial Data.

Historical Financial Data

Existing businesses will be required to supply three to five year historical data related to the company’s performance. Creditors will also be interested in understanding any loan collateral available, regardless of the stage of business growth. For businesses without three to five year historical financial data, report what is available with quarterly, rather than annual, tracking. Include the following in Historical Financial Data:

  • Startup Expenses
  • Payroll Costs
  • Operating Expenses
  • Cash flow Statements
  • Income Statements
  • Balance Sheet
  • Break-even Analysis
  • Financial Ratios
  • Cost Of Goods Sold (COGS)
  • Amortization & Depreciation

Prospective Financial Data

Before receiving funding, all businesses, whether start-up or growing, will be required to supply five years of Prospective Financial Data. Make sure to clearly explain projections, and match them to funding requests. For the first year supply monthly projections; for years two and three provide quarterly projections; for years four and five provide annual projections. Projections must be realistic and leave nothing to doubt – detail every conceivable forecasted income, expense, and cash flow for the next five years. Include the following in Prospective Financial Data:

  • Forecasted Payroll Costs
  • Forecasted Sales
  • Forecasted Operating Expenses
  • Forecasted Cash Flow Statements
  • Forecasted Income Statements
  • Forecasted Balance Sheet
  • Forecasted Break-even Analysis
  • Forecasted Financial Ratios
  • Forecasted Cost Of Goods Sold (COGS)
  • Forecasted Amortization & Depreciation

Thanks for reading!