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When preparing financial projections for a business plan, you may need to consider raising finance from venture capitalists, business angels and/or banks.

Here are some tips. They assume you are using a fully-integrated financial planning tool, like our Exl-Plan range, to prepare projected income statements, cashflows and balance sheets covering a time horizon of 3-5 years or so.

1. Use "most likely" (highly probable) assumptions to generate initial projections but exclude, for time being, any assumptions about external funding. When the financial model runs without this funding, it should automatically build up a substantial overdraft (cash shortfall) based on projected net cash outflows.
2. Review the trend in the overdraft and identify its peak month/quarter and value.
3. Review the desired mix of external funding - overdraft, grants, loans and equity - and inject funding amounting to the peak overdraft into the model.
4. Rerun the model and check that key ratios - especially debt/equity and quick ratio - look sensible for all months/years. If needs be, adjust the mix of funding to improve these ratios. For example, if the debt/equity ratio is 100%, consider reducing the debt level and increasing the equity content.
5. Take note of the timing and amounts of proposed external funding.
6. Undertake sensitivity analyses by running the model with revised projections for sales volumes/prices, costs and/or overheads in order to identify a realistic "worst" case.
7. Repeat points 2-5 to determine "worst" case funding.
8. If desired, raise the projections with altered sales volumes/prices, costs and/or overheads to see the "best" case funding and help sell the business's potential to investors.

Base funding needs on the "most likely" projections but take account of higher requirements suggested by the "worst" case. - it may be prudent to seek too much money rather than too little!

For more guidance:

• White papers on Raising Finance and Preparing Financial Projections,
• Financial and Funding section in the Business Plan Guide.
• Financial Projections Software for developing fully-integrated, multi-year projections.

Twelve things to do when writing your business plan:

1. Create a framework for the plan e.g. table of contents.
2. Identify possible appendices, attachments etc.
3. Estimate page lengths for each key section.
4. List main issues and topics to be covered within key sections.
5. Assign work programs based on the framework and lists.
6. Draft all key sections in a logical sequence.
7. Check the preliminary draft for completeness and plug gaps.
8. Stand back and take a detached overview of the draft.
9. Let an outsider or adviser critique the latest draft.
10. Redraft, fine tune and spell check.
11. Write the executive summary and plan's conclusion.
12. Get an independent assessment of the final draft.

It is unusual for business and personal interests to coincide as has happened in recent weeks as a result of the publication by the Irish Government of a business plan for the National Asset Management Agency (Nama).

Nama is being set up to effectively manage the world's largest property portfolio valued at about €77 billion (US$ 115 billion). Its purpose is to rescue the Irish banking sector from insolvency and to restart normal lending in the Irish economy.

The need for Nama has arisen from an unrestrained property binge over the past decade led by ineffectual financial regulation, foolish bankers, greedy developers and an incompetent government. Excuse the intemperate language but there is no other way to describe their roles in pushing Ireland into the worst recession experienced by any developed nation since the Great Depression. This resulted in a huge oversupply of over-priced commercial property and hundreds of thousands of house owners facing into negative equity. More on the Irish property boom. Several books have been published recently about the role of politicans, bankers, regulators and developers in stoking the boom - see our bookshelf to browse or buy the best sellers.

Nama aims to address the bubble in commercial property by purchasing all the property-related loans of five Irish-owned banks for €54 billion with a view to securing capital and interest payments of these loans from developers over the next decade. While the Government accepts that it is overpaying for these loans, it expects (hopes?) to make a profit of over €5 billion overall based on its business plan.

Critics of Nama argue that Irish taxpayers could lose up to €10-15 billion according as many developers default on their loans. Brian Flanagan, founder of the PlanWare site has been deeply critical of Nama. Read his assessment of Nama's business plan here.

Here are some tips on getting ideas for a new or established business.

Bear in mind that ideas could be based on any of the following fundamental approaches:

• A manufactured product where you buy materials or parts and make up the product(s) yourself.
• A distributed product where you buy product from a wholesaler/MLM, retailer, or manufacturer.
• A service which you provide.

You should narrow your search to specific market or product areas as quickly as possible. For example, the "food business" is too broad a search area. Do you mean manufacturing, distribution or retailing, or do you mean fresh, frozen, pre-prepared etc. or do you mean beverages, sauces, confectionery etc.? It is better to pursue several specific ideas (hypotheses) rather than one diffuse concept which lacks specifics and proves impossible to research and evaluate.

When looking a market, segment it and keep segmenting so as to drill down to possible opportunities. 

Generally, you should always aim for quality rather than cheapness. Be very cautious about pursuing ideas which involve any prospect of price wars or are very price sensitive; getting sucked into short-lived fads; or having to compete head-to-head with large, entrenched businesses.

To locate ideas, observe consumer behavior:

1. What do people/organizations buy ?
2. What do they want and cannot buy ?
3. What do they buy and don't like ?
4. Where do they buy, when and how ?
5. Why do they buy ?
6. What are they buying more of ?
7. What else might they need but cannot get ?

Also, look at changing existing products or services with a view to:

• Making them larger/smaller, lighter/heavier, faster/slower
• Changing their color, material or shape
• Altering their quality or quantity
• Increasing mobility, access, portability, disposability
• Simplifying repair, maintenance, replacement, cleaning
• Introducing automation, simplification, convenience
• Adding new features, accessories, extensions
• Changing delivery method, packaging, unit size/shape
• Improving usability, performance or safety
• Broadening or narrowing the range
• Improving quality of service
• Catering for special groups of customers.
• Adapting to suit different market segments.

For further suggestions and tips, see our white paper on Getting New Business Ideas.

Entrepreneurs and business managers are often so preoccupied with immediate issues that they lose sight of their ultimate objectives. That's why a preparation of a strategic plan is a virtual necessity. This may not be a recipe for success, but without it a business is much more likely to fail.

A strategic plan is not the same thing as an operational plan. The former should be visionary, conceptual and directional in contrast to an operational plan which is likely to be shorter term, tactical, focused, implementable and measurable. As an example, compare the process of planning a vacation (where, when, duration, budget, who goes, how travel are all strategic issues) with the final preparations (tasks, deadlines, funding, weather, packing, transport and so on are all operational matters).

Nor should a strategic plan should be confused with a business plan. The former is likely to be a (very) short document whereas a business plan is usually a much more substantial and detailed document. A strategic plan provides the foundation and frame work for a business plan.

A satisfactory strategic plan must be realistic and attainable so as to allow managers and entrepreneurs to think strategically and act operationally - see white papers on Developing a Strategic Business Plan and Devising Business Strategies for further insights.

Finally, use our free Online Strategic Planner to create your own 2-3 page strategic plan - see this feedback from users.

Yes. Tax-related items in Exl-Plan, our range of financial projection tools, are parameter-driven so it can easily handle a diversity of regimes for corporation tax, payroll taxes as well as VAT, GST and other sales/input taxes. As evidence of this, Exl-Plan is used in over a hundred countries.

For corporation taxes, you specify effective tax rates after taking account of any losses forward, capital allowances and other adjustments.

Payroll taxes and social insurance type charges are expressed as a percentage of payroll costs.

In the case of VAT, GST etc., Exl-Plan accommodates several different tax rates for sales and inputs and lets the user specify the payment/refund frequency.

Get a detailed description of the Exl-Plan range. Note that all versions are available as either US/Canadian or UK/International editions.

When planning a new business or developing an existing one, it is useful to have a gut feel for the characteristics of a successful business. Here are some criteria against which to measure your business or its plan:

1. Be sensibly financed (with prudent mix of equity and debt).
2. Have a strong cash position (with access to follow-on or contingency funds).
3. Offer above-average profitability (in terms of return on capital invested).
4. Aim for rapid growth in revenues (with profits lagging but in prospect).
5. Target expanding, or otherwise attractive, market segments.
6. Develop a strong franchise or brand.
7. Devote substantial resources to innovation (R&D, offerings or market).
8. Compete on non-price issues (e.g. quality, service, functionality).
9. Be very close to customers and responsive to their needs.
10. Seek a specialist/leadership image with superior offerings.
11. Be well managed with high-grade staff & good people-management.

Behind every characteristic there should be an explicit strategy designed to increase the chances of success and not simply aimed at reducing the likelihood of failure. For example, for #1, a startup might decide to raise external equity and place minimal reliance on borrowings or an established business might set a limit of 50% on its projected debt/equity ratio. 

For more help on setting strategies, see Developing a Strategic Plan and Devising Business Strategies. Use the free Online Strategic Planner to create a 3-page strategic plan.

Before any detailed work commences on writing a comprehensive business plan, you should:

• Clearly define the target audience
• Determine its requirements in relation to the contents and levels of detail
• Map out the plan's structure (contents page)
• Decide on the likely length of the plan
• Identify all the main issues to be addressed.

Shortcomings in the concept and gaps in supporting evidence and proposals need to be clearly identified. This will facilitate an assessment of research to be undertaken before any drafting commences.

Bear in mind that a business plan should be the end result of a careful and extensive research and development project which must be completed before any serious writing of a plan should be started. Under no circumstances should you start writing a plan before all the key issues have been crystallized and addressed.

For more tips and suggestions, check the white paper on Writing a Business Plan and Free-Plan our free 150-page Business Plan Guide and Template (Word format). Also, refer to the 30-point Checklist for Preparing a Business Plan.

When planning the short- or long-term funding requirements of a business, it is more important to forecast the likely cash requirements than to project profitability etc. Whilst profit, the difference between sales and costs within a specified period, is a vital indicator of the performance of a business, the generation of a profit does not necessarily guarantee its development, or even the survival. Bear in mind that more businesses fail for lack of cash flow than for want of profit.

Sales and costs and, therefore, profits do not necessarily coincide with their associated cash inflows and outflows. While a sale may have been secured and goods delivered, the related payment may be deferred as a result of giving credit to the customer. At the same time, payments must be made to suppliers, staff etc., cash must be invested in rebuilding depleted stocks, new equipment may have to be purchased etc. For further information on the cash cycle and working capital, click here.

The net result is that cash receipts often lag cash payments and, whilst profits may be reported, the business may experience a short-term cash shortfall. For this reason it is essential to forecast cash flows as well as project likely profits.

The following simplified example illustrates the timing differences between profits and cash flows:

This shows that the cash associated with the reported profit for Month 1 will not fully materialize until Month 3 and that a serious cash short- fall will be experienced during Month 1 when receipts from sales will total only $20,000 as compared with cash payments to suppliers of $40,000.

Our Exl-Plan range of financial planners generate fully integrated profit & loss accounts with cashflow statements and balance sheets for up to five years ahead and Cashflow Plan is a specialist cashflow planner covering 12 months ahead, with weekly projections for the initial three months.

PlanWare's Blog focuses on business planning matters and offers advice to entrepreneurs, managers and users of our software. Feel free to add comments. Bookmark and revisit or, better still, subscribe to this feed http://planware.org/blog/atom.xml