When looking to present financial projections for business plans, we’re here to help you! Throughout the topics in our previous guides to building your business plan, we’ve gone over a number of focus areas. We’ve built up the costs, income, assets, and funding that make up our businesses in a structure that we’ll go over later on.
When presenting your projections, having a structure is key. This will guide you and allow you to present your financial projections and models in the most effective and impactful way possible.
Let’s talk about financial projections for business plans
- Structuring financial projections for your business plans effectively
- Build financial projections for your business plans using business planning software
- Breaking down your sales using Brixx for your business plan’s financial projections
- Creating financial projections for your business plans without specialised software
- Filling in the missing gaps of your business plan’s financial projections
- Moving beyond financial projections for business plans
While we’ve gone over the various elements of financial projections within business plans in an earlier post. There you will find information on the data you need to present to create effective financial projections.
Structuring financial projections for your business plans effectively
If you have been an avid reader of our blog or if you’ve signed up for the 90 Day Challenge, you may have been following along on our guides to building your business plan. As mentioned earlier, we’ve covered finances that make up businesses in a structure that looks something like this:
- Startup Costs
- Research
- One-off payments (deposits, certificates)
- Asset Purchases
- Running Costs
- Bills
- Legal & Finance
- Insurance
- Permits
- Transport
- Website
- Marketing
- Salaries and Contracts
- Staff
- Contractors
- Sales
- Product/Service Type 1 (and costs of selling)
- A Product/Service Type 2 (and costs of selling)
- Your Product/Service Type 3 (and costs of selling), etc.
- Funding
- Owner Capital
- Borrowing
- Other
It’s a picture of every activity in your business. You’ll probably have a lot more elements than this simple example. Your structure may be slightly different – it might have more sections, dividing the business into the categories you think are particularly important. It might have several sales sections for different routes to market, or types of sale events. These variations and others are perfectly fine. This structure isn’t ‘one size fits all’ but a guideline of how you could plan your business.
The structure above works well as the backbone of a Brixx plan. But it is also well suited to making a projection outside of Brixx. In either case, there’s another level of detail to this structure – which is where the numbers come in!
Build financial projections for your business plans using Brixx
In Brixx, you can rename and rearrange any element of your financial projections. This makes it easy to create the structure of headings (sections in Brixx) and subheadings (groups in Brixx) listed above. Under each group, you can add components to represent different individual costs, streams of income, assets and loans.
The beauty of this is that you’ll be able to drill into this structure in your financial reports in Brixx to reveal the components that contribute to the calculations for each line of your reports.
Each component in financial projections for business plans represents a business activity. Each has a form where you can enter simple information. Then, it will be calculated by Brixx and posted to the correct places in your financial reports and dashboard. Completing a Brixx projection will give you a 5-year financial projections dashboard. Additionally, you will get a cash flow forecast, profit and loss forecast and balance sheet forecast.
Breaking down your sales using Brixx for your business plan’s financial projections
While sorting your business’s costs into groups is generally an easy task, splitting down your sales into different groups of items can be tricky. How much detail should you include in your financial projections for business plans?
As we have discussed throughout a number of our articles, the level at which you forecast your sales depends on two things:
1. What level of detail is important?
2. What level of detail is easily understandable?
If you run a sweet shop, you could break your sales forecast down into the hundreds of types of sweets you sell. This would be accurate, certainly, but would it be worth it? And would someone reading your plan (which could well be you!) appreciate you splitting out your products into so many different rows? Could they find the information they need? For example, that the high cost of some sweets makes them a less profitable item to stock than others, or that there is a dramatic increase in the sales of liqueur chocolates in the run-up to Christmas?
If you sell 100 different products, it may be best to sort these into 5-10 types of income instead.
Here are 4 ways you could divide up your products or services:
1. Seasonal trends
2. Prices
3. Material or delivery costs to you, the business
4. Locations, or departments
Organising your products or services like this will give you, and anyone reading your business plan, a more thorough understanding of how your revenue streams are built up, without overwhelming them with details.
Direct/Material Costs
Some costs are directly related to the sale of goods or services. If no items are sold, no expenses are incurred.
Under each item or service that you sell, remember to account for the costs of providing these services. These costs will rise and fall depending on how much you forecast selling – so a good way to plan for these direct costs of selling is to plan for them as a certain amount per unit that you sell, or as a certain percentage of each sale.
Some things that the business sells have value and are assets to the business until they are sold.
You can drill into your products to see a breakdown of any direct costs associated with them:
Creating financial projections for your business plans without specialised software
Throughout our posts on building your business plan, we’ve been using Brixx as an example quite a bit! And it’s here at the financial planning stage that Brixx becomes a really useful, time-saving tool. But, if you prefer to do things another way, the same structural principles work just as well outside of Brixx as within it.
In a spreadsheet, create the structure above, add rows below each subheading for each item in the Financial projection – that is to say – each cost, income, asset purchase or source of funding that make up your business. I mentioned earlier that we’re going to be making a 5-year financial projection and that the first 12 months need to be especially detailed. For each item enter the expected amount that you will receive or be paid each month. Some items, like one-off costs or purchases, will just have 1 entry for the whole 60 months of the projection. However, if you have no historical data, you may want to read this article.
Filling in the missing gaps of your business plan’s financial projections
At its heart, ‘accounting’ is about making sure everything is ‘accounted’ for. The first thing to do when looking at financial projections for business plans is to make sure there is nothing missing. Throughout this post, we have touched on the areas common to most businesses – but your business may have costs or financial arrangements that have not been covered here. We’ve mentioned a few of them below.
Missing data
Read the headings of your financial plan – and if there is anything that has a financial impact that hasn’t been included so far, add it now – and if necessary create a new area for it in the structure of your projection.
VAT and Tax
It’s good practice to record VAT received on income and paid on costs separately from the rest of the income or cost in your financial reports. For example, if you sell a product for £120 including VAT your cash/revenue from the sale of this item should be recorded without the additional VAT amount – £100 instead of £120. This is because the VAT you collect from selling this product doesn’t belong to the business. A good analogy is that the business is acting as a tax collector for the government. The VAT you collect from sales should be recorded separately, as it will need to be paid back to the government, less any VAT you have paid on VAT-able expenses.
In Brixx, Income, Cost and Asset components all have VAT options that you can use to calculate VAT (or GST or Sales Tax) in the projection.
Inflation
One element we have not discussed so far is inflation. A 1-year financial plan does not have to account for inflation, but over the course of a 5-year plan, your costs and the prices you can charge will rise. In Brixx, you can add an inflation assumption to your plan under Settings.
Your Financial Projection Timeline
One other thing you may not have included in your financial projection up to now is when things happen. There are two sides to this – delayed cash payments and the actual timings of when your purchases, launch dates and big bills actually happen.
Delayed cash payments
In Brixx, the timing of payments is handled by a ‘Delay’ option on most components, which causes the cash flow part of the component’s transaction to happen a number of months after it affects the Profit and Loss Report.
You should state clearly what your assumptions around how quickly the business gets paid are, and how quickly it pays its suppliers. For example, you might assume that you will receive the cash payment from your sales within 30 days of making the sale.
When things happen on your financial timeline
When you launch a business you don’t end up footing the bill for everything on day 1. In fact, as we’ve seen a lot of the costs of starting a business come before the business opens its doors! Before you start paying your employees, you have to find them, interview them, build a team.
In Brixx, we’ve developed a way to make these time-based changes easily, without disrupting the integrity of the financial plan Every component in the Financial projection sits on a timeline.
The Brixx timeline will be familiar to you if you’ve ever used project planning tools or Gantt charts. Each component has a bar that you can move around and extend or shorten to show when it happens in the time compared to everything else in the projection.
Gantt charts like this are commonly used by project planners to help plot when different aspects of a project will happen (and may prove useful to you next week!). Brixx takes this a step further by having the component’s position on the timeline determine when it performs its calculations, sending figures to the Dashboard and Reports.
The purpose of all this is to make it easy to move financial activities (like buying a vehicle) around in time, and clearly see when all of the different parts of the plan are taking place. Time is often forgotten in planning, but when and in what order things happen can have a big effect on your cash flow, and thus your financial projections for your startup.
Moving beyond financial projections for business plans
In this post, we’ve gone over the basics for presenting financial projections for business plans. We have provided a basic structure that should be able to guide you on your path to presenting a comprehensive financial projection in your plan.
With comprehensive financial projections, combined with the rest of your competition and market research, you can map a clear strategy for the future. A specialised software like Brixx can help you create financial projections for business plans quickly and with ease.
