Financial Analysis Segment

The Financial Analysis section gives you the chance to see how your business will function financially over the next several years. Going through the process of analyzing your business from a financial point of vew will help you to see whether your idea will actually work and what the business should look like financially during its first few years of growth. Questions that will be answered by conducting a financial analysis of your business idea include how much money you will need to begin the business, how long it will take for your business to become profitable, how much the business will own in relation to the debt you'll need to obtain to start the business, and how high your sales will need to be in order to take care of your monthly expenses.

These questions and more will be answered by creating the following financial statements for your business. Each type of analysis allows you to look at the financial health of your business from a different angle.

Start-up costs are those materials, services, and the like which need to be purchased or obtained as part of opening your business.  These costs can usually be divided into two categories; Assets, usually material goods of some kind that retain value, and expenses, usually costs that are immaterial and/or are associated with some kind of service.

The Balance Sheet allows you to see three aspects of your business; What the business owns, also known as Assets, what the business owes, also known as Liabilities, and what the business is worth, also known as Owner's Equity or Shareholder's Equity.

As the name implies, the Cash flow statement reflects the inflow and outflow of cash for the business during a specified period of time. This statement is very useful in helping business owners to see whether their business is generating excess cash consistently or inconsistently, or whether the business is routinely running short of cash.

Income Statements can be viewed as a snapshot of a business's ongoing account statement given on a monthly, quarterly, or yearly basis. These statements detail the company's revenues and expenses of the selected time frame in order to give a clearer picture of the financial well-being of the firm, specifically, whether the firm has been profitable over the specified period of time and by how much.

Once all of your financial statements have been completed, you will be able to get the most out of your projections by using your numbers to create financial ratios. Doing so will help you to quickly analyze several aspects of your business's finances, including such things as how profitable your business is, how well you are doing in utilizing your resources to generate a profit, and how well your business is able to meet its short term obligations.

Click here for examples of the financial statements needed for your Business Plan.

The Entrepreneurial Perspective: Having the financial vision of your business written down will be a great help. At any time, you will be able to compare your current results with your previous projections to see whether or not your business is on target. However, if your previous projections are unrealistic, the comparison of actual results will either not be as helpful or down right discouraging. For this reason, make sure that your initial financial projections are realistic.

The Investor Perspective: Investors will be most concerned with one thing; whether the business idea is viable, or capable of growing and surviving over the long haul. Your financial projections should convey the business's viability in dollar terms. If the investor is able to see that the business is viable financially, they will be able to believe that they will indeed get a return on their investment.

The Partnership Perspective: Potential partners will also be looking for a financial return on their investment, whether that investment is actual equity (dollars) or sweat equity (hard work).