Tuesday, May 26, 2015

Understanding the Small Business Plan Financials

Trying to get a business loan, the lender will require among other things a business plan. One should not panic, there are plenty of resources on the web and off-line that can help. Really, a business plan is just a plan that shows the lender one has done their research and developed a reasonable plan to make their business a success. The primary difficulty with the business plan is the financials. Even experienced entrepreneurs sometimes have trouble with their financials. The following is a quick synopsis of what the three financials in a business plan are in relation to a business. These financials are an income statement, a cash flow statement, and a balance sheet.

The income statement is also known as a profit and loss statement (P&L statement). The intent of an income statement is to show how much net profit the business is or will be generating. It may be one of the simplest of statements because it calculates first a business's gross profits. Gross profit is revenue minus cost of goods. Then the statement begins to account for the other business expenses like payroll, rent, utilities, advertising, etc. Once that is calculated and subtracted from gross profit, it leaves the net profit. This will be an important figure for a lender.
The next financial is the cash flow statement, which essentially shows how cash is flowing in and out of the business. It can be argued the cash flow statement is similar to the profit and loss statement with a lot of the same categories. However, a cash flow statement accounts for loan payments (principal), owners draw, and capital purchases, but not depreciation or write-offs. Essentially any cash transaction is accounted for, so a company's liquidity is being tracked. Its goal is to point out when a business will need cash or be cash rich.
The final financial is the balance sheet. Everyone talks about a balance sheet being a snapshot in time about a company's health. The balance sheet totals the company's assets and liabilities. It also tracks the owner's equity by placing it with the liabilities, this provides a way for the two categories to balance. When totaled the assets and liabilities with owner's equity should equal each other. What one finds with this financial is where the business capital and liabilities are placed. It may not be too good if a business's assets are primarily in accounts receivables or equipment. Or the liability column is too heavy in the owner's invested capital showing little capital coming from revenue. Regardless, a balance sheet is a company's momentary report card.
When writing a business plan one should not be too afraid of the financials. Once the planner understands what they are trying to show, the numbers will come naturally to complete the plan.
There is more help for those looking for business loans. A very small business may be seeking a microloan business lender to acquire capital. There is also specific business loans for minorities that one can look into obtaining. Visit now for more information and assistance.
Article Source: http://EzineArticles.com/?expert=Darryl_Noble

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