This is one of the most important sections of your business plan because it lays out the viability of your venture. You should have at least a basic understanding of the numbers you’re presenting – sales forecasts, profit-and loss statements, balance sheets, and cash flow projections, etc. – before you speak with any prospective investor, because you will be asked to respond to questions about these financial numbers.
This is a snapshot of your business, laying out revenues, expenses, and profit for a particular period (monthly or quarterly, for example). It shows whether or not your business is profitable during the given period. If you’re laying out projected P&L, you should project numbers going out one year. Be careful not too be too conservative in your estimates, or you’ll lose your investor audience. On the other hand, an overly aggressive P&L suggests you have unrealistic expectations and won’t be able to meet them. Use your best judgment on these projections.
ii. Capitalization and Financial Projection
This is your plan for how much capital you want to raise. A couple of things you should keep in mind as you plan:
- Be realistic. Don’t try to plan for an amount you think you can raise; plan for the amount of capital you think you’ll need. You will appear more credible to your investors.
- Plan your capital requirements in stages, and try to figure out how much you’ll need for each stage. If you raise too much money too quickly, there’s a greater chance you’ll burn through it less efficiently. If you raise less than you need, you’ll have to adjust your growth and expansion plans.
Your business plan should list your revenue and income projections for the next three to five years.