Investors like to see that you’ve done your sums. Including detailed financial information proves that you have a grasp of the all-important monetary aspects of running a business. Unless you’re setting up a charity or social enterprise, you need to be aiming towards making a healthy profit.
Projections you must include in your proposal are:
- employee salaries and overhead costs
- revenue and sales
- percentage of return you expect from the new product/service
- when your business will produce enough revenue to cover all costs (break-even point)
A cash flow forecast is one of the most important elements of a financial plan. The amount of capital you require can be determined largely from accurate predictions of cash flow. Even if your profit is high, a lack of readily available money can lead to major problems including insolvency. An example could be if you’re waiting for substantial invoices to be paid; you may be owed a lot but without cash in the bank, you won’t be able to manage your expenses.
You can use a spreadsheet program to create your cash flow forecast - this will also allow you to keep it regularly updated once you start trading.
The simplest way to forecast cash flow is to list monthly income and expenditure costs, preferably with annual totals. You can also separate these figures out into various different sections (eg operational expenditure, bill payments etc).
Try to think pragmatically and account for all kinds of variables. For example, you’ll probably need to use more heating over the winter months so your expenditure on gas and electricity will increase. Similarly, if your product is seasonal (eg ice cream or mulled wine) then you’ll need to revise your income for the relevant season.
A profit and loss (or P&L) statement indicates how well a business has performed overall. It differs from the cash flow forecast in that it shows how much profit has been made (or the amount of loss sustained) over a specified period (usually a year), but it doesn’t account for actual cash in the bank. The P & L statement is also split up into various sections (eg payroll, rent, marketing expenses etc).
This is where you set out exactly how much investment you are seeking. Although you can just ask for a set figure if you require funding over a long period you could detail the initial amount needed to get the business off the ground and agree to further investment contingent upon a certain level of performance over a specified period.
State a realistic repayment period - it’s better to overstate the time required to avoid disappointment and show that you have taken into account different possible scenarios.
An investor will want to know exactly why you need their money and what it will be spent on. You may have an excellent business idea but you’ll have to prove that the funding sought will directly lead to success and is actually required in the first place (eg do you have savings or other personal assets?).
The return on investment (ROI) is a key element of any Business plan, showing how much effect an investment will have upon the business. There is a lot of free information and several ROI calculators available on the internet.