The Financial Part of a Business Plan: Definition and Content

Caption: The financial part of a business plan is crucial for its success. The Financial Part of a Business Plan in a Nutshell Definition and Objectives The financial part of a business plan, often referred...

partie financiere business plan Caption: The financial part of a business plan is crucial for its success.

The Financial Part of a Business Plan in a Nutshell

Definition and Objectives

The financial part of a business plan, often referred to as financial projections, combines a set of data and presents it in various tables to illustrate the financial impact of a project. It complements the narrative elements of a business plan.

Its objective is to convince the reader of the business plan by clearly identifying:

  • The financial needs generated by the project
  • The value creation brought by the project
  • The project's sustainability

Content

The financial part of a business plan consists exclusively of financial tables. The key tables include:

  • Profit and loss forecast
  • Intermediate financial results
  • Forecasted balance sheet
  • Forecasted financing plan
  • Cash flow budget

It is important to note that the financial section should be tailored to its intended audience. The financial tables provided here are indicative and should be adapted based on the project type and the target audience. For example, if the goal is to secure a loan, emphasis should be placed on ratios such as debt ratio and repayment capacity. If the plan aims to attract investors, profitability, dividend payments, and potential capital gains should be highlighted.

The Detailed Content of the Financial Part of a Business Plan

Profit and Loss Forecast

Definition

The profit and loss forecast is one of the most important tables in the business plan. It reflects the financial management of a company over a specific period, known as the forecasted accounting period. This period can result in either an increase or decrease in the company's wealth.

It tracks a company's performance at various levels:

  • Operating profit: results from the company's economic activities
  • Financial profit: results from the company's financial activities, such as investments and financing policies
  • Current pre-tax profit: results from both economic and financial activities
  • Extraordinary profit: includes non-recurring operations (rarely seen in business plans)
  • Net profit: overall company's profit (operating, financial, and extraordinary)

Construction

The profit and loss forecast compares revenues (income) with expenses (costs), subtracting one from the other. The difference represents the profit, which can be either positive (when income exceeds expenses) or negative (when expenses exceed income).

Constructing a profit and loss forecast requires estimating the key components, including:

  • Forecasted turnover
  • Forecasted operating expenses
  • Forecasted personnel expenses
  • Forecasted financial expenses
  • Forecasted depreciation

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Intermediate Financial Results

Definition

The table of intermediate financial results contains the same information as the profit and loss forecast but organized differently. It focuses on financial indicators such as margin, gross operating surplus, and operating profit.

Construction

The construction of the table of intermediate financial results is straightforward since its data is derived from the profit and loss forecast. Here is how some indicators are calculated:

  • Gross margin: the percentage of profit obtained from a sale compared to the purchase price
  • Value added: the measure of gross wealth created by the company, which is then distributed among the factors of production (labor and capital) and the state through taxes
  • Gross operating surplus: the potential cash flow generated by the company's core activities, excluding financing and investment policies, as well as exceptional events

Forecasted Balance Sheet

Definition

The forecasted balance sheet is a table that reflects a company's assets and liabilities at the end of each forecasted accounting period. It outlines what the company owns (assets) and what it owes (liabilities) at a specific point in time. In other words, it summarizes a company's production resources and the financing means available to it.

The assets side may include fixed assets, inventory, accounts receivable, and cash and bank accounts. The liabilities side includes share capital, reserves (legal, statutory, discretionary), realized profits or losses, borrowings and similar financial debts, contributions in current accounts, supplier debts, tax debts, and social security debts.

Construction

Constructing a forecasted balance sheet is relatively simple in practice, requiring the identification of investments and their corresponding financing modes. Some key points to note are:

  • The net profit from the profit and loss forecast is integrated into the equity section of the liabilities side (as a positive amount for profit and a negative amount for losses)
  • Fixed assets are listed on the asset side net of depreciation
  • Unpaid and uncollected share capital is mentioned at the top of the asset side, before fixed assets
  • The total assets must equal the total liabilities

Forecasted Financing Plan

Definition

The forecasted financing plan ensures that all financial needs generated by the project are adequately funded. It includes:

  • Identified financing needs (referred to as "uses"), such as investments, loan repayments, shareholders' current account repayments, dividend distributions, and changes in working capital requirements
  • Provided sources of funding (referred to as "resources"), including capital contributions, current account contributions, bank loans, and self-financing capacity

Construction

The forecasted financing plan is typically divided into four periods: the initial period (the first day of activity), the end of the first year, the end of the second year, and the end of the third year. Some important considerations include:

  • The initial period's financing plan does not include self-financing capacity as it is assumed to be generated at the end of the fiscal year. However, it should account for the initial working capital requirements (stock purchases, financing of initial accounts receivable, etc.)
  • In subsequent periods, the variation in working capital requirements should be included (instead of the total amount of working capital requirements)
  • The difference between resources and financial needs affects the company's forecasted cash position

Cash Flow Budget

Definition

The cash flow budget is a statement that summarizes a company's cash position and details all incoming and outgoing cash flows, including customer receivables, loan disbursements, contributions to shareholders' current accounts, subsidies, supplier payments, VAT payments, loan or current account repayments, and dividend distributions.

It provides information on the company's net cash position throughout the forecasted financial period.

Construction

Constructing the cash flow budget does not require any specific developments. It simply requires a comprehensive and complete assessment of all projected cash flows. Some essential information for constructing the budget includes the payment terms negotiated with suppliers, the payment terms granted to customers, and the dates of various tax and social security payments.

Conclusion

The financial part of a business plan should include a concise conclusion that summarizes key financial ratios and information relevant to the reader. Commonly included ratios are the breakeven point, forecasted revenue, gross margin, operating profit, net profit, self-financing capacity, working capital, and working capital requirements. This list is not exhaustive and should be adapted to suit the target audience of the business plan.

Remember, the financial part of a business plan consists of financial tables, with the most important ones being the profit and loss forecast, forecasted balance sheet, intermediate financial results, forecasted financing plan, and cash flow budget.

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