The projected profit and loss statement, drawing a business plan, financial information analysis, revenue projection exercises are tools that make sound decision making easier to achieve. A statement with projections of profit and loss is a financial planning component for an enterprise. The putting together of a business plan shows an overview. The analysis of financial information employs the use of historical information to examine the present and prospective conditions of the subject. Whereas, revenue projections constitute an exercise that has different uses for different parties.
Devising a business plan for your enterprise
A business plan may have two elements. These elements are its internal and external uses. The plans for internal usage target progression towards the achievement of goals to possibly be shared externally further down the line. When they are externally focused, funding needs are a prime driver.
For start ups the plan is an essential part of the fund raising process. It reflects the major selling points of the concepts, strategy, and the management behind a business. According to expert opinion a good example would be concise, persuasive, and realistic and it is expected to be a fluid document that changes as a business evolves. Investors or lenders will discuss the plan thoroughly. The objective of the plan is to generate interest sufficient to trigger the desire for a meeting with business leadership. Since time is money, an executive summary should be short, appealing, and complete enough that the reader understands the essence of the enterprise and its potential. The key points of the summary describe the business, what the customers need, how the business is intended to satisfy this need, why the business team is appropriate for the task, where the business is in the process of development, and how much investment or loan capital is required to support the business. The main contents of the plan should substantially describe the management, the market, the product and finance. Discussion of the market need is more pertinent than size and this should be accompanied with an explanation of how it was determined. An explanation of the product or service to be supplied by the business should explain its properties and benefits from the point of view of the intended customer. The income statement should show projections by month for the next six months, by quarter for the following six quarters, and then per year for another three years. Balance sheets are not as critical for start-ups as much as a flow of funds statement using a sources and uses format. An appendix of relevant articles or analyst reports may be useful as supplemental information.
As an introductory tool it is better when it is brief but compelling. Startups might also try more than one format for their plan. One format may be a brief teaser summary of the executive summary to wet the interest of potential investors, customers, or strategic partners. Another format may bean oral presentation meant to trigger discussion and the interest of potential investors in reading the written presentation. The content of the presentation is usually limited to the executive summary and a few key exhibits showing financial trends, decision making benchmarks, new products or services. A more detailed format is the written presentation. This might be still be designed to be brief but compelling. The different parts of the written plan are normally a cover page and table of contents; an executive summary; a business description; some business environment analysis; some industry background; some competitive analysis; some market analysis; discussion of a marketing plan; discussion of an operations plan; a management summary, the financial plan and any attachments and milestones to be shared.
The art of revenue projections
For a business that is not a startup, projecting revenue streams can help predict ebbs and flows in income, and facilitate adjustments needed to accommodate the flow. The process will incorporate three separate analysis for current business, sales in the pipeline and new business. For each category, an estimate of how much income is expected to be realized on a month-by-month basis is made. Usually a twelve month is as far as can be most accurately foreseen and present a picture of what the future may potentially hold. Projecting the revenue earning potential of current business is the easiest. One subcategory of this category is contracts in progress. The income from this is spread over the contract period on a monthly basis. Anticipated contracts is another subcategory that requires meeting with existing clients to learn about their ongoing needs for your products or services. This helps to give an idea about order size and timing, which is helpful in providing the date needed to spread projected earnings from these future contracts across the selected period. An extra step is the multiplication of projected income of anticipated contracts by the percentage of their probability in being realized.
Updating the projections on a monthly basis will helping abreast of trends. Timely absorption of information facilitates corrective action. In the case of startups, experienced investors and lenders are aware the initial version will alter. Projections in this context demonstrate the preparedness of management.
A projected profit and loss statements
The profit and statement may be one part of a business plan. It normally has data on the revenues, the production costs, the operating expense, and what is the net income or loss of a particular enterprise. Any of the assumptions underlying the projected data needs to be provided for clarity, with material to support it. This statement will generally reveal the income minus the expenses. Startup losses are anticipated in the early period.
The flexible uses of financial analysis
Also known as financial statement analysis, such analysis aids in sound decisions made by investors and lenders. It is applied to assemble the data needed to make the decisions. The tools in hand may be any of those involving comparative financial statements with year to year changes; the index number trend series; a view of common size financial statements with structural analysis, a ratio analysis, a specialized analysis of cash forecasts, an analysis of changes in cash flows, a statement of variation in gross margin, a break even. The analytical methods examine different facets of financial condition revealed by short term liquidity, the flow of funds, the capital structure and long term solvency, the return on investments, the operating performance and the asset utilization of the subject.
Melisa writes articles about a financial information analysis and teaches people what to know about revenue projection differences.