business plan financial statement

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Start » startup, business plan financials: 3 statements to include.

The finance section of your business plan is essential to securing investors and determining whether your idea is even viable. Here's what to include.

By: Danielle Fallon-O'Leary , Contributor

Businessman reviews financial documents

If your business plan is the blueprint of how to run your company, the financials section is the key to making it happen. The finance section of your business plan is essential to determining whether your idea is even viable in the long term. It’s also necessary to convince investors of this viability and subsequently secure the type and amount of funding you need. Here’s what to include in your business plan financials.

[Read: How to Write a One-Page Business Plan ]

What are business plan financials?

Business plan financials is the section of your business plan that outlines your past, current and projected financial state. This section includes all the numbers and hard data you’ll need to plan for your business’s future, and to make your case to potential investors. You will need to include supporting financial documents and any funding requests in this part of your business plan.

Business plan financials are vital because they allow you to budget for existing or future expenses, as well as forecast your business’s future finances. A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.

Sections to include in your business plan financials

Here are the three statements to include in the finance section of your business plan:

Profit and loss statement

A profit and loss statement , also known as an income statement, identifies your business’s revenue (profit) and expenses (loss). This document describes your company’s overall financial health in a given time period. While profit and loss statements are typically prepared quarterly, you will need to do so at least annually before filing your business tax return with the IRS.

Common items to include on a profit and loss statement :

Businesses that have not yet started should provide projected income statements in their financials section. Currently operational businesses should include past and present income statements, in addition to any future projections.

[Read: Top Small Business Planning Strategies ]

A strongly written finance section also helps you obtain necessary funding from investors, allowing you to grow your business.

A balance sheet provides a snapshot of your company’s finances, allowing you to keep track of earnings and expenses. It includes what your business owns (assets) versus what it owes (liabilities), as well as how much your business is currently worth (equity).

On the assets side of your balance sheet, you will have three subsections: current assets, fixed assets and other assets. Current assets include cash or its equivalent value, while fixed assets refer to long-term investments like equipment or buildings. Any assets that do not fall within these categories, such as patents and copyrights, can be classified as other assets.

On the liabilities side of your balance sheet, include a total of what your business owes. These can be broken down into two parts: current liabilities (amounts to be paid within a year) and long-term liabilities (amounts due for longer than a year, including mortgages and employee benefits).

Once you’ve calculated your assets and liabilities, you can determine your business’s net worth, also known as equity. This can be calculated by subtracting what you owe from what you own, or assets minus liabilities.

Cash flow statement

A cash flow statement shows the exact amount of money coming into your business (inflow) and going out of it (outflow). Each cost incurred or amount earned should be documented on its own line, and categorized into one of the following three categories: operating activities, investment activities and financing activities. These three categories can all have inflow and outflow activities.

Operating activities involve any ongoing expenses necessary for day-to-day operations; these are likely to make up the majority of your cash flow statement. Investment activities, on the other hand, cover any long-term payments that are needed to start and run your business. Finally, financing activities include the money you’ve used to fund your business venture, including transactions with creditors or funders.

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How to Write the Financial Section of a Business Plan

Susan Ward wrote about small businesses for The Balance for 18 years. She has run an IT consulting firm and designed and presented courses on how to promote small businesses.

business plan financial statement

Taking Stock of Expenses

The income statement, the cash flow projection, the balance sheet.

The financial section of your business plan determines whether or not your business idea is viable and will be the focus of any investors who may be attracted to your business idea. The financial section is composed of four financial statements: the income statement, the cash flow projection, the balance sheet, and the statement of shareholders' equity. It also should include a brief explanation and analysis of these four statements.

Think of your business expenses as two cost categories: your start-up expenses and your operating expenses. All the costs of getting your business up and running should be considered start-up expenses. These may include:

Your own list will expand as soon as you start to itemize them.

Operating expenses are the costs of keeping your business running . Think of these as your monthly expenses. Your list of operating expenses may include:

Once you have listed all of your operating expenses, the total will reflect the monthly cost of operating your business. Multiply this number by six, and you have a six-month estimate of your operating expenses. Adding this amount to your total startup expenses list, and you have a ballpark figure for your complete start-up costs.

Now you can begin to put together your financial statements for your business plan starting with the income statement.

The income statement shows your revenues, expenses, and profit for a particular period—a snapshot of your business that shows whether or not your business is profitable. Subtract expenses from your revenue to determine your profit or loss.

While established businesses normally produce an income statement each fiscal quarter or once each fiscal year, for the purposes of the business plan, an income statement should be generated monthly for the first year.

Not all of the categories in this income statement will apply to your business. Eliminate those that do not apply, and add categories where necessary to adapt this template to your business.

If you have a product-based business, the revenue section of the income statement will look different. Revenue will be called sales, and you should account for any inventory.

The cash flow projection shows how cash is expected to flow in and out of your business. It is an important tool for cash flow management because it indicates when your expenditures are too high or if you might need a short-term investment to deal with a cash flow surplus. As part of your business plan, the cash flow projection will show how much capital investment your business idea needs.

For investors, the cash flow projection shows whether your business is a good credit risk and if there is enough cash on hand to make your business a good candidate for a line of credit, a short-term loan , or a longer-term investment. You should include cash flow projections for each month over one year in the financial section of your business plan.

Do not confuse the cash flow projection with the cash flow statement. The cash flow statement shows the flow of cash in and out of your business. In other words, it describes the cash flow that has occurred in the past. The cash flow projection shows the cash that is anticipated to be generated or expended over a chosen period in the future.

There are three parts to the cash flow projection:

The balance sheet reports your business's net worth at a particular point in time. It summarizes all the financial data about your business in three categories:

The relationship between these elements of financial data is expressed with the equation: Assets = Liabilities + Equity .

For your business plan , you should create a pro forma balance sheet that summarizes the information in the income statement and cash flow projections. A business typically prepares a balance sheet once a year.

Once your balance sheet is complete, write a brief analysis for each of the three financial statements. The analysis should be short with highlights rather than in-depth analysis. The financial statements themselves should be placed in your business plan's appendices.

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Women & wealth, 3 financial statements your business plan must include.

Team building a business plan

One of the most common reasons that businesses fold is that they run out of money. This doesn't necessarily mean that they didn't have enough customers – many do – but rather that their expenses exceeded their revenue: They couldn't sell enough to cover their costs.

In fact, according to U.S. Bank data, 82 percent of businesses have poor cash flow management processes and/or a poor understanding of cash flow management and, according to a CB Insights study, 29 percent run out of cash altogether.

While financial statements can help business owners spot upcoming financial challenges, such as running low on inventory or raw materials, sometimes the problem is that they're using their financial statements incorrectly or ineffectively. This can lead entrepreneurs to overlook important warning signs specific to cash flow or operations, or to miss upcoming opportunities.

Financial statements are a critical section of any business plan, whether the company is pursuing outside financing or creating more of an internal operating manual. There are three primary financial statements a business needs to generate and regularly monitor:

Each statement provides insights into how the business is doing that can help owners and managers recognize how to improve operations. But because each statement serves a different purpose, it's important to know how to best use each one.

Profit and Loss Statement

Your P&L, or income statement, is an overview of your company's operations over a specific period of time – usually one year. It is a reflection of the business's financial performance or health. It's also generally used as a look back, although you can certainly use it when creating projections as well.

Your P&L summarizes how much revenue you generated, what your total expenses were, and what your resulting profit (or loss) was once those expenses were subtracted from your revenue.

The P&L is a useful tool for comparing performance and assessing growth. You can compare past years' P&L figures to your current and future years to see if your business is growing or shrinking.

Profits generated can then be used to buy more assets, reinvested in the business, applied to reduce liabilities, or paid out to owners as a dividend or bonus, all of which will be reflected on the balance sheet. That's how the two documents are related.

Balance Sheet

While your P&L reflects how much money came in and how much went out over the course of a year, a quarter, or a month, your balance sheet is a statement of what your business owns and what it owes at a particular point in time (the most common date used is 12/31).

At the top of the statement are all of your business assets – the things you own. This includes your property, plant and equipment – your long-term assets. Any real estate, computer equipment, raw materials, inventory and machinery would be included in this list. Short-term assets, such as accounts receivable (what your customers owe you), also fall into this category. Anything you use to generate income should be listed under assets.

Your liabilities and shareholders' equity goes on the bottom half of your balance sheet. Liabilities are what you owe. This includes expenses like building or equipment leases, loans, taxes owed and unpaid invoices.

Your shareholders' (or owners') equity is the value the business has created, which is shared by your shareholders – all your partners or owners in the business.

Shareholders' equity plus liabilities always equals your assets. The higher the shareholders' equity, the more value the business is creating.

Cash Flow Statement

Your cash flow statement is a look at all the money the business has earned and paid out over a period of time. Cash flow statements are frequently used for projections – for looking ahead to try and anticipate when the company might need an infusion of cash or be able to afford a major investment. For that reason, cash flow statements often break down cash inflow and outflow on a monthly basis.

Cash coming into the business can be generated by operations (what you sell to customers), investments (such as stocks or real estate), and/or financing (such as when you receive a loan or take on an investor).

When cash is paid to buy more assets or to pay back a loan or credit extended, those amounts fall under cash outflow.

Analyzing changes in cash flow over several periods, such as months or quarters, gives you, lenders or investors a sense of how cash-healthy the company is.

Putting It All Together

Where P&L statements provide an overview of how a business is doing, a cash flow statement can shine a spotlight on the peaks and valleys many companies experience during a typical year. For example, if you're a swimming pool retailer, your projections for the spring and summer months will likely go way up with demand, while cash flow in the winter months – at least in the north – may plummet. It's important to be prepared to sustain the business during November, December and January when you may have little in the way of cash coming in.

Your balance sheet is a reflection of how well you're using your company's assets. Over time, your assets and shareholders' equity should steadily rise, while your liabilities should decline. If they're headed in the other direction, you may be headed for a cash crunch.

These three financial statements are important business tools that can help you recognize where your attention needs to be directed in order for your business to grow. Update and look at them regularly to keep cash steadily flowing in, in order to bulk up your P&L and your balance sheet – and to help ensure your business survives and thrives.

Looking for additional guidance? Connect with a First Horizon banker to learn more.

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Access our collection of user-friendly templates for business planning, finance, sales, marketing, and management, designed to assist you in developing strategies for either launching a new business venture or expanding an existing one.

You can use the templates below as a starting point to create your startup business plan or map out how you will expand your existing business. Then meet with a SCORE mentor to get expert business planning advice and feedback on your business plan.

From creating a startup budget to managing cash flow for a growing business, keeping tabs on your business’s finances is essential to success. The templates below will help you monitor and manage your business’s financial situation, create financial projections and seek financing to start or grow your business.

This interactive calculator allows you to provide inputs and see a full estimated repayment schedule so that you can plan around your capital needs and cash flow.

Marketing helps your business build brand awareness, attract customers and create customer loyalty. Use these templates to forecast sales, develop your marketing strategy and map out your marketing budget and plan.

How healthy is your business? Are you missing out on potential growth opportunities or ignoring areas of weakness? Do you need to hire employees to reach your goals? The following templates will help you assess the state of your business and accomplish important management tasks.

Whether you are starting your business or established and looking to grow, our Business Healthcheck Tool will provide practical information and guidance.

Learn how having a SCORE mentor can be a valuable asset for your business. A SCORE mentor can provide guidance and support in various areas of business, including finance, marketing, and strategy. They can help you navigate challenges and make important decisions based on their expertise and experience. By seeking out a SCORE mentor, you can gain the guidance and support you need to help grow your business and achieve success.

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How to Craft the Financial Section of Business Plan (Hint: It’s All About the Numbers)

Writing a small business plan takes time and effort … especially when you have to dive into the numbers for the financial section. But, working on the financial section of business plan could lead to a big payoff for your business.

Read on to learn what is the financial section of a business plan, why it matters, and how to write one for your company.

What is the financial section of business plan?

Generally, the financial section is one of the last sections in a business plan. It describes a business’s historical financial state (if applicable) and future financial projections. Businesses include supporting documents such as budgets and financial statements, as well as funding requests in this section of the plan.

The financial part of the business plan introduces numbers. It comes after the executive summary, company description , market analysis, organization structure, product information, and marketing and sales strategies.

Businesses that are trying to get financing from lenders or investors use the financial section to make their case. This section also acts as a financial roadmap so you can budget for your business’s future income and expenses.

Why it matters

The financial section of the business plan is critical for moving beyond wordy aspirations and into hard data and the wonderful world of numbers.

Through the financial section, you can:

describes how you can use the four ways to use the financial section of business plan

So, if you want to possibly double your chances of securing a business loan, consider putting in a little time and effort into your business plan’s financial section.

Writing your financial section

To write the financial section, you first need to gather some information. Keep in mind that the information you gather depends on whether you have historical financial information or if you’re a brand-new startup.

Your financial section should detail:

Business expenses

Financial projections

Financial statements, break-even point, funding requests, exit strategy, business expenses.

Whether you’ve been in business for one day or 10 years, you have expenses. These expenses might simply be startup costs for new businesses or fixed and variable costs for veteran businesses.

Take a look at some common business expenses you may need to include in the financial section of business plan:

Write down each type of expense and amount you currently have as well as expenses you predict you’ll have. Use a consistent time period (e.g., monthly costs).

Indicate which expenses are fixed (unchanging month-to-month) and which are variable (subject to changes).

How much do you anticipate earning from sales each month?

If you operate an existing business, you can look at previous monthly revenue to make an educated estimate. Take factors into consideration, like seasonality and economic ups and downs, when basing projections on previous cash flow.

Coming up with your financial projections may be a bit trickier if you are a startup. After all, you have nothing to go off of. Come up with a reasonable monthly goal based on things like your industry, competitors, and the market. Hint : Look at your market analysis section of the business plan for guidance.

A financial statement details your business’s finances. The three main types of financial statements are income statements, cash flow statements, and balance sheets.

Income statements summarize your business’s income and expenses during a period of time (e.g., a month). This document shows whether your business had a net profit or loss during that time period.

Cash flow statements break down your business’s incoming and outgoing money. This document details whether your company has enough cash on hand to cover expenses.

The balance sheet summarizes your business’s assets, liabilities, and equity. Balance sheets help with debt management and business growth decisions.

If you run a startup, you can create “pro forma financial statements,” which are statements based on projections.

If you’ve been in business for a bit, you should have financial statements in your records. You can include these in your business plan. And, include forecasted financial statements.

business plan financial statement

You’re just in luck. Check out our FREE guide, Use Financial Statements to Assess the Health of Your Business , to learn more about the different types of financial statements for your business.

Potential investors want to know when your business will reach its break-even point. The break-even point is when your business’s sales equal its expenses.

Estimate when your company will reach its break-even point and detail it in the financial section of business plan.

If you’re looking for financing, detail your funding request here. Include how much you are looking for, list ideal terms (e.g., 10-year loan or 15% equity), and how long your request will cover.

Remember to discuss why you are requesting money and what you plan on using the money for (e.g., equipment).

Back up your funding request by emphasizing your financial projections.

Last but not least, your financial section should also discuss your business’s exit strategy. An exit strategy is a plan that outlines what you’ll do if you need to sell or close your business, retire, etc.

Investors and lenders want to know how their investment or loan is protected if your business doesn’t make it. The exit strategy does just that. It explains how your business will make ends meet even if it doesn’t make it.

When you’re working on the financial section of business plan, take advantage of your accounting records to make things easier on yourself. For organized books, try Patriot’s online accounting software . Get your free trial now!

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More From Forbes

Basics of a business plan financials section.

A good business plan is an entrepreneur’s best friend. It’s an indispensable document, and every section matters, from the executive summary to the market analysis to the appendix; however, no section matters as much as the financials section. You’re in business to make money, after all, and your business plan has to clearly, numerically reflect a lucrative business pursuit, preferably with visuals, especially if you want funding.

The financials section of your business plan tells you and your potential investors, loan providers or partners whether your business idea makes economic sense. Without an impressive financials section, you’re looking at an uphill battle when it comes to scoring capital; underwhelming financials may indicate a need to make some revisions to your approach.

Basic Financials

So, how to build an impressive financials section? As with all things in small business, there’s no one-size-fits-all approach; it varies by business and field. But there are some general guidelines that can give you a clear idea of where to start and what kind of data you’ll need to gather.

You need to include at least three documents in the financials section of your business plan:

1. Income statement: Are you profitable?

2. Cash flow statement: How much cash do you have on hand?

3. Balance sheet: What’s your net worth?

There’s other financial information you can — and often should — add to your business plan, like sales forecasts and personnel plans. But the income statement, cash flow projections and balance sheet are the ones you can’t leave out.

Here's a brief run-down of the three major data sets.

Income Statement

Also called a profit/loss statement, here’s where your reader can see if your business is profitable. If you’re not operating the business yet, this will be a projected income statement, based on a well-informed analysis of your business’s first year.

The income statement is broken down by month and shows revenue (sales), expenses (costs of operating) and the resulting profit or loss for one fiscal year. (Revenue - expenses = profit/loss.)

Cash Flow Statements

Here’s where your reader can see how much money you’re going to need in the first year of operations. If you’re not yet up and running, you’ll only have projections.

For cash flow projections, you’ll predict the cash money that will flow into and out of your business in a particular month. You’ll need a year’s worth of monthly projections. If you’re already operating, also include cash flow statements for past months showing actual numbers.

Cash flow statements have three basic components: cash revenues, cash disbursements and reconciliation of revenues to disbursements. For each month, you start with your previous month’s balance, add revenues and subtract disbursements. The final balance becomes the opening balance for the following month.

Here’s where your reader sees your business’s net worth. It breaks down into monthly balance sheets and a final net worth at the end of the fiscal year. There are three parts to a balance sheet:

• Accounts receivable

• Inventory, equipment

• Real estate

• Accounts payable

3. Equity: Total assets minus total liabilities (Assets = liabilities + equity.)

It’s good to offer readers an analysis of the three basic financial statements — how they fit together and what they mean for the future of your business. It doesn’t have to be in depth; focus is good. Just interpret the data from each statement, putting it in context and indicating what the reader should take away from the financials section of your business plan.

Other Financial Documents

These are the basics of your financials, but you’ll need to fill out the section with other data based on the specifics of your business and your capital needs. Other financial information you might provide includes:

• Sales forecast: Estimates of future sales volumes

• Personnel plan: Who you plan to recruit/hire and how much it will cost

• Breakeven analysis: Projected point at which your sales will match your expenses

• Financial history: Summary of your business finances from the start of operations to the present time

A lot of this can be made easier with business planning software, which can not only guide you through the process and make sure you don’t leave anything else but may also generate graphs, charts and other visuals to accompany the data in your financials section. Those types of visuals are highly recommended because some readers will skim. Anything you can do to convey information in a glance imparts a benefit.

Revisit Monthly

Once in operation, don’t forget to go back into your financials every month to update your projections with actual numbers and then adjust any future projections accordingly. Regular updates will tell you if you’re on track with your predictions and hitting your goals, as well as whether you need to make adjustments. Don’t forget this part — when you’re starting out, planning really is your best friend.

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How to make a financial statement for small business.

How to Make a Financial Statement for Small Business

A financial statement is a formal record of a company’s financial activity. These plans give a current landscape of your small business and forecast the future vision and plans of the business.

Creating financial statements for your small business starts with your day to day bookkeeping. You will use pull and organize the data from these records to put together your financial statements.

Financial statements are a key part of a business plan that will help your business attract an

investor or obtain bank loans.

Here are the types of financial statements and tips on how to create them:

Balance Sheet

A balance shows the assets, liabilities and shareholder equity during a specific period. To create a balance sheet, start by listing your assets on the left side of the page including cash you have in hand and in the bank, the value of the equipment you own, the value of the inventory you have in stock and any other financial assets. On the right side of the page list your liabilities including accounts payable, credit card balances, bank loans and any other money your company owes. Finally, total your assets and liabilities and then subtract your liabilities from your assets. The amount left is known as owner equity.

Income Sheet

An income sheet shows revenues, expenses and income or loss for a period. First, gather all types of earnings during the time period the statement will cover. These sources of earnings could be wholesale and retail sales or income from renting out propriety. Next total up all of your expenses such money spent on materials, payroll, advertising, utilities, equipment and rent on business properties. You can find your bottom line by subtracting your total expenses from your total income.

Statement of Cash Flow

A statement of cash flow shows the inflows and outflows of cash and the ending balance during a period. The statement of cash flows has three sections operating activities , investing activities and financing activities .

This article will also include information about:

What Should Be Included in a Financial Statement?

How do i write a financial plan for my business.

business plan financial statement

A financial statement reports the financial health and activity to potential investors and creditors.

Since the report is sent to external stakeholders, a business must prepare their reports according to the generally accepted accounting principles of the United States . This makes it easier for investors and creditors to compare the financial health of your companies to other by comparing financial statements.

Therefore it is standard practice to include these elements to your financial statement.

Assets: probable forecasted economic benefits obtained or managed by an external entity due to past transactions.

Comprehensive income : change in equity (net assets) during a period from transactions and other events and circumstances from external sources. It includes all changes in equity during a period except those resulting from investments by owners and distributions to owners.

Distributions to owners: decreases in net assets resulting from transferring assets, rendering services, or incurring liabilities to owners. Distributions to owners decrease ownership interest.

Equity : residual interest in the assets that remain after deducting its liabilities. In your company, equity is the ownership interest.

Expenses: outflows, uses of assets or incurring liabilities during a period from delivering or producing goods or services that make up your central operations.

Gains : increases in equity (net assets) from business transactions and from all other transactions except those that result from revenues or investments by owner.

Investments by owners : increases in net assets resulting from transfers to it from other entities of something of value to obtain or increase ownership interest (or equity) in it.

Liabilities : probable future sacrifices of economic benefits from present obligations to transfer assets or provide services in the future because of past transactions or events.

Losses : decreases in equity (net assets) from all business transactions and events and circumstances affecting a business during a period except that result from expenses or distributions to owners.

Revenues : inflows or enhancements of assets of a business or settlement of its liabilities during a period from delivering or producing goods, rendering services, or other activities that constitute the business’ ongoing central operations.

Business planning or forecasting is the view of your business starting today and going into the future. You don’t do the financials in a business plan the same way you calculate the details in your accounting reports.

There are two main purposes of the financial section of your business plan. First, this information is needed by potential investors, venture capitalists, angel investors and anyone else with a financial stake in your business. The second, and arguably, the most important purpose of the financial section of your business plan is for your own benefit, so you understand how to project how your business will do.

Step 1: Make A Sales Forecast

Create a spreadsheet projecting your sales over the course of three years. Set different sections for different lines of sales and columns for every month of the first year and on a quarterly basis for year two and three. You should spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units by unit cost to calculate cost of sales. You cost of sales in your sales forecast because you want to calculate the gross margin. The gross margin is sales less cost of sales.

Step 2: Create A Budget for Your Expenses

You need to understand how much it will cost you to actually make the sales you have forecasted. Consider your fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses) when you are creating your budget. With many of these numbers, you are going to have to estimate things like interest and taxes. multiply estimated profits by your best-guess tax percentage rate to estimate taxes and then multiply your estimated debts balance by an estimated interest rate to estimate interest.

business plan financial statement

Step 3: Develop Cash Flow Statement

This is a statement that shows physical money moving in and out of your business. You base your cash flow statement partly on your sales forecasts, balance sheet items and other assumptions. Existing business should have historical financial statements to use to project their cash flow. New businesses should start by projecting cash flow statement that is broken down into 12 months. To get these projections is important to know how you will be invoicing. Will you expect your customers to pay right away or within 30 to 90 days? You don’t want to be surprised that you only collect 70 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses. Some business planning software programs will have these formulas built in to help you make these projections.

Step 4: Project Net Profit

This step is your pro forma profit and loss statement that details forecasts for your business for the next three years. Use numbers that you put in your sales forecast, expense projections and cash flow statement. Net profit is gross margin minus expenses, interest and taxes.

Step 5: Deal with Your Assets and Liabilities

You have to deal with assets and liabilities that aren’t in the profits and loss statement and project your business’s net worth at the end of a fiscal year. Compile and estimate what money you will have on hand month by month including accounts receivable (money owed to you), inventory if you have it, land, buildings and equipment. Then figure out your liabilities or debts including accounts payable (money your business owes) and debts from outstanding loans.

Step 6: Find the Breakeven Point

The breakeven point is when your business expenses match your sales volume. Your three-year income projection should enable you to obtain this analysis. If your business is viable your overall revenue should eventually exceed your overall expenses. This is important information for potential investors who want to know that they are investing in a company that is growing quickly with an exit strategy.

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The Financials

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You can find detailed discussions of each of these online in Hurdle: The Book on Business Planning , but let’s discuss here what probably ought to be included in a business plan.

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1. Cash flow is the most important. Businesses run on cash . No business plan is complete without a cash flow plan.

2. Profit and loss , incorporating sales, cost of sales, operating expenses, and profits. This of course is also a pro forma income statement. In most cases it should show sales less cost of sales as gross margin, and gross margin less operating expenses as profit before interest and taxes (also called gross profit, and contribution to overhead). Normally there is also a projection of interest, taxes, and net profits.

3. Pro-forma balance sheet : Aside from cash and income, there is the balance of assets, liabilities, and capital.

4. Sales forecast : The form may vary to suit the business, but it is hard to imagine a plan without a sales forecast. Some plans forecast in excruciating detail, some summarize , but the forecast should be there. In the simplest of plans, the sales forecast might be a single line in the pro-forma income statement.

5. Personnel plan : Personnel costs are so intimately related to fixed costs that they should often be set aside and discussed. In some simple plans, they too, like the sales forecast, can be just a line or two in the income statement.

6. Business ratios : The numbers are there, when there is pro-forma income, cash, and balance sheet, so the ratios can be calculated. This isn’t as necessary for an internal plan as for one for bankers and investors, but some key ratios are almost always a good idea. They should probably include some profitability ratios like gross margin, return on sales, return on assets, and return on investment; plus some liquidity ratios such as debt to equity, current ratio, and working capital. You already know which ratios you like to use, and how to calculate them. A banker will have a similar view.

7. Break-even analysis : Most of the break-even analyses included with business plans have little value, but most bankers and analysts like to see them.

8. Market forecast : Aside from the sales forecast, which is essential, a market forecast is also a good idea. How many potential customers are there? How does market growth stand to impact this business?

To start creating your own financial statements, check out our free template downloads:

Tim BerryTim Berry

Tim Berry is the founder and chairman of Palo Alto Software and Bplans.com. Follow him on Twitter @Timberry .

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