Last month we started our business plan focusing on the Business part. This month we will focus on the financial section which is vital to the health of your business. You will need some peace and quiet when going over this section. It is helpful to have your bank account information and their totals handy. If any of these sections get too difficult to understand just pass them over and go back later.

The Business: * Description of the Business * Location and hours of the Business * Products and Services * Marketing Analysis/Competition * Marketing Plan * Management * Personnel

Financial data: * Sources and Uses of Funds * Pro-Forma Income Projections (profit and loss statement) * Pro-Forma Cash Flow Projections * Break-even Analysis * Financial Assumptions * Supporting Documents- Resumes, tax returns, personal financial statements, letters of intent or reference, copies of leases, contracts, or other legal documents, and anything else that is relevant to the plan.

These are the parts of the business plan. Each piece is different. You'll find that it's like painting a portrait. As each piece is finished, you will see a clearer picture of your business. Let's get started on a plan aimed at getting financing for your business and go through step by step.

The Financial Data: This is the most important part of your business plan. This section will show how your business is going to perform. It can be the most difficult part of your plan to have succeed. If you are so inclined, you can have your accountant help you do this (but the key word is help. You must understand the financial aspects of your business to be successful). It takes a lot of thought about your business and honest evaluation of your sales and expenses. The finished product will show you whether you will have enough money to run your business and whether you can make enough money to make a living. Remember; don't let this section overwhelm you. You can do it.

Sources and Uses of Funds: This section is brief, you simply list where monies are coming from to fund the project or start-up of the business (Sources) and how you will spend the Sources to complete the Project or start up the business (Uses). Use the following chart as a guide (your chart may be very different). The totals of both sides must be equal. Working Capital is the money you have left over after totaling all of the specific Uses and subtracting that total from the Sources total. The Working Capital number will be used in month 1 of your Cash Flow Budget Worksheet. Sources: Uses: Cash from business and owner $ Remodel Space $ Investor Contribution $ Equipment $ Loan Proceeds $ Rent Deposit $ Utilities Deposit $ Total $ Office Supplies $ Initial Inventory $ Other (Identify) $ Working Capital $ Total $

Pro-Forma Income Projections (profit and loss statement): This section requires you to project (estimate) future sales/income and expenses based on the business plan going forward. Existing businesses can use their historical financial information as a starting point to project future sales and expenses. If you are a start-up, you won't have any prior numbers to work from. You'll have to give your best estimates on what they will be. You have to be realistic. Do some research to support your estimates. Get quotes for expense items to make sure your estimates are reasonable. This is a guideline for your business's ability to be profitable. The business may not show profitability in its' first year. However, it should be profitable within a reasonable amount of time or it may be showing you that the business can't support you. Use the attached Projected Profit and Loss Worksheet to help you calculate your first year. Other years do not need to be broken down month by month. They can be done in a single column listing the same categories that were used on the worksheet.

Pro-Forma Cash Flow Projections: This section is the most important for you. (Its' importance cannot be stressed enough). Cash Flow Projections tell you whether you'll have enough cash to allow your business to continue running during the critical beginning stages or heavy growth stages. The government estimates that most small businesses that file for bankruptcy are actually profitable when they file. These businesses just run out of money needed to run day-to-day operations. Use the attached Cash Flow Budget Worksheet to calculate your cash flow. Since there are technically no sales in your first month of business (there are sales but they don't get registered until month number two), you'll start Month 1 Beginning Cash Balance with the Working Capital amount you calculated in the Sources & Uses Section. Add the appropriate expenses underneath and you will be able to calculate how much money will be left for the start of month two. Remember, you will have to buy inventory or materials to replace what you sold in the previous month, so that amount will have to be plugged into the following month. Keep doing each month's calculation until you finish the first year. Each month you will take the Available Cash Balance and subtract all the expenses from it, which will give you the Beginning Cash Balance for the next month. This tells you if you have enough cash on hand to keep your business running smoothly.

Break-even Analysis: This section will show you what level of sales will be needed so that you're making is enough to cover all your fixed expenses. This will tell you at what point you start to produce profits. It requires you to determine two numbers. The first is your fixed cost. These are expenses you must pay every month regardless of your sales volume. Fixed costs include rent, insurance, interest, office supplies, maintenance fees, administrative costs, etc. Total your Fixed Costs and divide the total by your Average Gross Profit Margin. Simply put, your Gross Profit is the amount of profit you make on a sale. The Gross Profit Margin is your Gross Profit shown as a percentage of your total sales. For example, you sell an item for $25.00. The item cost you $15.00.Your Gross Profit is $10.00 ($25.00 sale minus $15.00 cost). Your Gross Profit Margin is calculated by dividing Gross Profits by Sales Price. In this example, the Gross Profit Margin is 40% ($10 $25). Your Average Gross Profit Margin is the average estimated gross Profit Margin on all sales of all products. This is also expressed as a percentage. Now that you know your Fixed Costs and your Average Gross Profit Margin, you can complete your break-even analysis. The formula is follows: Fixed Costs ------------------ = Break-even Point Profit Margin For example, if you have $1000 per month in Fixed Cost and your Average Gross Profit Margin is 40%, then your Break-even point would be $1000 divided by .40 or $2500. This means that you have to sell $2500.00 to break even for the month.

Financial Assumptions: This section explains how you came up with the numbers you used in your financial projections. The numbers that you are using can't be just made up. They must come from your research. Any part of the financial projections that is not obvious to the reader should be explained. Here are some examples of assumptions a business owner may make when creating financial projections. GROSS SALES- Projected sales are based on the sale of 20 (product) per week at $63 each as my research (copy enclosed) has indicated. The sales are projected from industry research in markets with my demographic size. COST of GOODS SOLD-The cost of goods sold is based on a 60% markup on inventory. PAYROLL- Payroll expense is calculated by the owners salary of $24,000 and 3 part time people working 15 hours a week at $7.00 per hour. At the end of your assumptions, discuss the potential risks that your business could face (new technologies, new competitors, etc.) and how you plan to deal with it.

Supporting Documents: This section should contain any other relevant information regarding your business. Incorporation papers, owner resumes and any letters of recommendation, copies of leases or contracts, owners personal financial statements, two years of owners tax returns, or anything else to support your business plan.