Financial Planning

Today we look at how to develop your financial statements to prepare them for your lender.

What do you need to prepare ?

There are 3 main financial statements you'll need to prepare:

• Cashflow
• Profit and Loss Account
• Balance Sheet

Perhaps the most important to spend your time on is your cashflow.

Throughout your business you're going to need positive cash.

No cash and you're out of business.

When you are planning your business you can finance negative cashflow in a number of ways and I'll look at that on day 7.

Preparing your financial statements

There's little chance of me taking you through preparing these via email or online. It is best if you actually "see" these financial statements and then work through them yourselves (remember, you get a full set of completed statements in each sample business plan - see the bottom of this page for more information)

What I can show you is the basics.

I can also tell you that I have developed a "financial planning wizard" where you can key in your assumptions for sales and costs and the spreadsheet will automatically produce all of your financial statements.

I give this away for free with every sample business plan on the Teneric site, and this is a simple and fast accurate way to forecast everything.

Cashflow versus Profit and Loss

The difference between these two items is time.

If you make a sale today then this is booked in your P&L this month no matter when you get paid.

If you get paid in 3 months then this will hit your cashflow, or bank account, in 3 months time.

Whilst you wait for this cash to arrive you'll need to fund your business.

Your cashflow will determine how much finance you'll need to fund your business.

The time issue is the same for cost.

If you buy something for your business today then it is booked in your P&L this month. But if your do not pay for it until 2 months time then this will only be deducted from your cashflow in 2 months time.

In the above scenario of receiving sales money in month 3 but paying for cost in month 2, your P&L in month 2 will show a profit but your cash- flow will still be negative because:

• sales and costs are booked in your P&L in the month they occur
• cash is booked when it is paid or is received

This is tricky but essential to manage. And the best way is to have your cashflow mapped out in advance -- otherwise you may have some nasty surprises.

Planning helps you look at your own business and the businesses of others to get the best of everything.

All the best

Peter Hale
www.teneric.co.uk