How To Write a Business Plan Part 12 – Your Financial Slide – Business Podcast
Part 12 of How to Write Your Business Plan. One of my favorite pieces of building a business plan because we get to see how much money we will make ?
A lot of entrepreneurs shy away from building their financials because they don’t know what goes in them. I lay it all out for you in this episode.
We’ve covered your elevator pitch, problem, solution, product, market size, business model, traction, competition, and moat slides for your business plan. Now we talk money?
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A full summary of the How to Build Your Barriers to Entry Slide podcast episode is below
Hello, friends. Welcome to another episode of Build a Business success Secrets. I am your host, Brandon C White. And today we are on part 12 our financial slide of our series on how to write a business plan in thirteen slides, a very quick review of where we’ve been:
In part one of this series, we did in overview of each of the 13 slides very quickly.
In part two, we talked about how to build your elevator pitch.
In part three, we talked about the three mistakes to avoid.
In part four, we talked about your problem slide.
Part five was your solution slide.
Part six was your product slide and how it solves the solution.
Part six was your product slide and how it is the solution to the problem.
Part seven, your market opportunity and we talked about how to build that correctly from the bottom up, not the top Down.
Part eight was your business model.
Part nine is your traction slide.
Part 10 is your competition slide
Part 11, we talked about barriers to entry and your moat, what you have and what you can create.
And today, in part 12 we’re talking about your financials, and I love this because it is the part that tells us how much money we can make.
Let’s not waste another second. Let’s get right to it. All right, We are on your financial slide, and I’m going to make this quick down and dirty financials. I am going to suggest that you head to my website if you have more questions, because financials is something that we can spend a ton of time on. But I want to break it down like a fraction for you, really, simply so that you can at least get started.
There are three main financial documents that you’re gonna need to know if you don’t already. One is your income statement, otherwise known as a profit and loss. The second one is you are a cash flow statement, which I would argue, is probably the most important one that you want to pay attention to and then your balance sheet.
So let’s talk about each one of these separately.
Your income statement or your profit and loss statement is really your financial performance over a set period of accounting time, usually monthly or quarterly and then yearly, and it gives a summary of how your business incurs its revenues, earns its revenues and then expenses through both operating and non operating activities.
If you can visualize in the top, you have all of your revenue by product. Now you could have another tab, which is normally what I build in a spreadsheet, and I have all my product lines. I have my projected revenue unit numbers, things like that, and then my cost of goods sold. And then I have that tab. Feed my income statement, roll up or profit and loss roll up. So I have all my revenue of how much it costs to produce that product. And then what we get is our gross revenue.
So an example would be I am making this water bottle and it sells for 49.95. I sell. Let’s make this simple. It’s $50 and I sell four of them. How much? I made him a $200 and it costs me about 50% to make, $25 so I’m going to have a gross revenue of $200 and you want to do that for all of your revenue lines, regardless, if it’s a product of service either or you wanna break that down and then you’re gonna have yourselves, general and administrative.
This is where you’re gonna put your salaries. This is where you’re gonna put your rent. This is where you’re gonna put your hosting costs, your professional services, your lawyers, your accountants. You’re gonna put your insurance that I know you have. You’re going to put all of those expenses in your P&O , and then you’re going to come up with a net profit.
Now there’s some pieces in there with cepeda earnings before taxes, depreciation in amortization. But for the most part, this is your income statement, and we’ll give you a good head start in building it the next part of your financials.
Your cash flow statement is arguably the most important document that you want to model, learn about and keep track of. And the reason is because your profit and loss statement will be a moment in time, but it doesn’t necessarily show how money moves. So let me give you an example.
If you incurred expenses in September, that would show up on your profit and loss as an expense because you probably received an invoice that you owe that. But you may not pay that invoice until October, which means that you actually have more money in your account, even though the profit and loss statement shows that you have less money on a Net profit basis.
And the reason that we really want to understand our cash flow is because the same thing can happen with us with revenue.
For example, let’s say that you have an online business doing some e-commerce and you have a merchant account, and in September you do $150,000 in sales. Now most people would think that you would get that money right into your bank account. But that’s actually not true all of the time, because merchants who give you credit can hold back money because they want to make sure that they have money for returns and charge backs and failed credit and things like that.
So you, actually, while your profit and loss statement says that you did $150,000 in revenue and in theory you have all of this money, you actually don’t have that much cash. They could hold back three quarters in some instances, I’ve heard about people they hold the whole amount because they’re charged backs are too high and this greatly affects your business because now you don’t have that cash in your bank account to pay your bills, your staff or anyone else.
So now you’re gonna have to figure out an alternative way to get funding, whether you’re gonna fund it yourself or you built up enough of a cushion or you have a credit loan or you’ve raised money for your business to get you through these cash flow times, so your cash flow is really the most important piece.
This is why, if you invoice someone, you want to collect that money as fast as possible.
Now you might have to give terms to someone, which means that you deliver your product. You give them 60 days to pay or 45 days to pay. If you’re dealing with big distribution partners, the big boys out there, they’re going to ask you first minutes his 90 days because they want to collect their money before they actually have to pay that money on the invoice.
So cash flow statement really, really important. This is where people really can get themselves into trouble running their business, because on this profit and loss basis, you look like you’re making a ton of money. But on a cash flow basis, you actually don’t have cash to operate your business. And that’s why you need a line of credit or something like that.
So doing your cash flow modeling is really important, and I can’t emphasize enough to you do it now. The cool thing is, is that it’s very similar to what I explained as a profit and loss. It’s set up similar, but the actual net cash amount going in and out of your business is different, because you might show that revenue in September like we talked about the $150,000. But you may not receive it until October, and then it’s going to show up as actual cash in your bank account that you can spend to pay your bills.
So really, focus on your cash flow. Think through how the cash is going to come in and out and make allowances for these things, especially if you’re running online business where you’re making these charges. Merchant accounts, merchants who extend you this credit can very likely give you hold back as your volume increases.
The last financial statement or tool that I want to talk about only briefly, is your balance sheet, and this is another document that is a moment in time. Your balance sheet changes every day because it summarizes your assets, liabilities and your shareholders equity at that specific point in time.
It gives investors an idea what the company owns, what it owes, as well as how much it has invested by shareholders.
So effectively the formula for this balance sheet, which we’re not going to go over in detail here because it really works better to do it in person and show an example. But the formula for your balance sheet is all of your company’s assets. Equal all of the company’s liabilities, plus to share how orders equity, how much investors have invested you as a founder, our investor.
So how much equity you have again? Your balance sheet equation is your assets equals your liabilities, plus shareholders equity. Now, many accounting programs, whether you’re using Quicken QuickBooks or anything like that, will usually keep track of this for you and the important thing to recognize is that your balance sheet is a very specific moment in time.
It literally could change from the morning to the evening because of cash coming in and out. Same thing what? Your cash flow statement. So keep these in mind. This is a high level summary for you to get started.
You could get started on a napkin, get started on a napkin. How much revenue do you have or predict what air your costs to make that revenue or service, what have your sales, general and administrative costs, And then what is your net profit?
Start there and then start building. And I highly encourage you as your business starts to get going to get an accountant’s so that they help you keep track of this stuff. And it is vitally important, especially when you have employees that you want to make sure you make those quarterly payments on your employee’s salaries, because you as a executive of your company are personally liable.
So you always want to make sure Uncle Sam gets his money first before you do other things. Because if you don’t make those payments, Uncle Sam’s gonna come after you as the executive being responsible for them.
So that’s an overview of all of your financials. In part 13 of our series coming up, we will tackle your team slide for your business plan, get to work on those financials, and we’ll see you the next episode.
Well, that wasn’t too bad, was it? One of the three major reasons that I see a lot of entrepreneurs and founders avoid building their business plan or writing their business plan is because they’re scared of the financials and the financials are one of the coolest parts of writing your business plan because you actually get to see how much money you make, where all of that time and effort, energy and frustration and excitement and all the things that go along with building a business all come down to play in that financial statement to see how much money you could make.
So get started building them and see what’s in store for you.
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