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Business Planning Papers:
Raising Finance from Venture Capitalists,
Business Angels & Banks

Page Contents

  1. Structuring the Business Plan
  2. Financial Sections within the Business Plan
  3. How NOT to Present Financial Projections
  4. Determining Your Funding Requirements
  5. Introducing PlanWare
  6. Copyright & Legal Stuff

Need Financial Projections for Your Plan ?

Use Exl-Plan for preparing comprehensive financial projections for 1/3/5/7 years ahead. Ideal for a business plan, strategic planning, cash flow forecasting, raising finance, budgeting and financial appraisals. Get full details, download free or trial copies or buy & use now.




1. Structuring the Business Plan

This white paper offers practical guidance on compiling the financial/funding sections of a business plan being used to raise finance from venture capitalists, business angels and/or banks. It is not a general guide to writing a business plan - for this see How to Write a Business Plan, Business Plan Guide and Business Plan Software.

The following table presents the structure of a business plan based on our widely-used 48-page Free-Plan business plan template (for Microsoft Word). This free template can be downloaded with a 90-topic help file and 100+ page manual here.

The table is color-coded to illustrate how the financial sections fit into the overall business plan.

Structure of a Business Plan

1. Introduction 8. Technology & R&D
2. Summary 9. Operational Plans
3. Mission & Strategies 10. Management & Administration
4. Present Status 11. Financial Projections
5. Products/Services 12. Funding
6. Target Markets 13. Implementation
7. Marketing/Sales Plans & Projections 14. Conclusion
 
 
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The green sections (7-10) serve as feeders into the financially-orientated red sections (11-12). These feeders should introduce relevant assumptions and data to be used in the financial projections. For example, Section 7 should spell out sales projections for the time horizon to be covered by the financial projections together with explanations and budgets for marketing/sales operations. The sales projections should be based on the proposed sales effort and should not be (simply) based on an assumed share of the target market e.g. "we expect to archive a 10% market share and on this basis our annual sales will be XX,000 units". In other words, your projections should be based on a combination of primary market research, industry knowledge, pilot selling and accepted sales performance norms and rather than crystal ball gazing.

Here are some other suggestions to consider when preparing feeder sections:

  • Always make realistic assumptions which are 80-90% attainable - don't make assumptions which have only a 50/50 chance of being attained.
  • Be aware of PlanWare's Double/Double/Half Rule which states that planners should double the time, double the cost and half the projected sales!
  • Get quotations/estimates for major expense items and adhere to industry cost norms e.g. food costs usually amount to 30% of menu prices.
  • Make forecasts based on quantities and unit prices e.g. sales volumes times prices and headcount times gross salaries/person.
  • Present simple, summary tables and charts in the body of the plan and relegate supporting detail to appendices. For example:

financial projections

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2. Financial Sections within the Business Plan

Typically, the financial sections of a business plan would include the following subsections:

11. Financial Projections 12. Funding
  11.1 Key Assumptions   12.1 Funding Requirements
  11.2 P&L Projections   12.2 Funding Proposals
  11.3 Cashflow Projections  
  11.4 Projected Balance Sheets  
  11.5 Key Ratios  
  11.6 Sensitivity Analysis  

For detailed guidance on the target length and contents of these sections, see 11. Financial Projections and 12. Funding in our Business Plan Guide. The white paper on Preparing Financial Projections may also be of interest.

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3. How NOT to Present Financial Projections

When presenting your financial projections, DON'T DO any of the following:

  • Start the business plan with your financial projections - the more detail and tables the better !
  • Don't summarize your projections - let readers figure out the full-year totals, profits, cash flows and so on for themselves.
  • If you include projected balance sheets, make sure that they don't balance.
  • Ignore the information needs and criteria of different types of providers of finance.
  • Don't produce any separate cash flow forecasts - just rename the P&L projections.
  • Ensure that your financial projections indicate 40% profit margins in the third year.
  • Ensure that the projected return to investors will exceed 100% per annum within three years.

Instead, make sure that you DO the following:

    • Place all detailed tables relating to projections in an appendix to your business plan.
    • Present summaries of your projections in the relevant sections of the plan and reference the detailed tables.
    • Check that all projected balance sheets balance.
    • Provide cash flow forecasts linked to the projected income statements and balance sheets. Typically, cashflow forecasts will be monthly for one or, at most, three years depending on the volatility of the monthly cash flows and time needed for the business to become cash positive.
    • Ensure financial ratios are realistic and in line with industry norms.
    • When presenting funding plans, take account of funders' needs and criteria relating to security, terms, timing, duration, amounts, repayments, stakes etc.
    • Bear in mind the golden rule - he who has the gold makes all the rules.

Here is a comprehensive Checklist on How to Write a Business Plan which will help you avoid pitfalls and traps.

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4. Determining Your Funding Requirements

When using a fully-integrated financial modeling tool like our Exl-Plan software, it is easy to determine funding requirements as follows:

  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 your 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!

Here is some more information about Exl-Plan, our range of powerful, easy-to-use packages for preparing comprehensive financial projections:

    • The Exl-Plan range comprises eight versions (Basic, Micro, Lite, Pro, Super, Super Plus, Ultra and Ultra Plus) to suit different sizes and types of businesses and offer varying levels of detail and sophistication.

    • All versions generate fully-integrated, pro-forma projections (P&Ls, cash flows, balance sheets, ratios and charts for 3-5-7 years ahead) which are ideal for inclusion in a business plan being used to seek external funding. Exl-Plan is used by startups, established businesses and professional advisers in over a hundred countries.

    • As Exl-Plan incorporates extensive formulae (up to 33,000 !) and preprogrammed menus & buttons (over 200 items) you only need a very basic knowledge of Excel to prepare highly professional and presentable projections. If you are an advanced Excel user, you can utilize your expertise to enhance and expand Exl-Plan to meet particular needs - see Extending Exl-Plan in the FAQs for Users.

    • Exl-Plan is suitable for managers and business people with minimal previous experience of financial or business planning as well as for experienced planners, accountants, consultants and model-builders.

    • Prices range from US$29 to US$289.

For more about Exl-Plan, see detailed information or download a trial copy.

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5. Introducing PlanWare

PlanWare develops and sells a range of financial planning packages - Exl-Plan and Cashflow Plan - for businesses of all sizes & types. Trial versions of all products can be downloaded from our PlanWare site and many other sources on the 'Net.

We also offer an extensive range of commercial software for writing business plans, market planning, assessing business ideas and evaluating strategies.

PlanWare also features:

Basic & Free Planners for Financial Projections and more ...

Our Exl-Plan range of integrated monthly/quarterly planners includes Exl-Plan Basic which uses annual assumptions to generate comprehensive 5-year projections. This simple, low-cost version (US$29) will meet many business planning needs. Get details, download free trial copy or buy & use now.

Also available is a completely free version, Exl-Plan Free, which is identical to Basic but projects for just two years ahead. Details and free download.

The Free and Basic versions of Exl-Plan are complemented by other more detailed, powerful versions of Exl-Plan. Get details and download trial copies.

All versions of Exl-Plan include a free 150-page Business Plan Guide & Template (for Word).




6. Copyright & Legal Stuff

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