How to Write a Business Plan: Financial Statements

Posted: July 29, 2010 by Stacey Abler/ Last modified: July 27, 2010

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We’re wrapping up the series on how to write a business plan. This last installment covers the financial statements part of the business plan.

If your business is brand new, this section of the business plan will include projections for the business. While these projections should be based on as much fact as possible, most people understand that projections are an educated guess and should be taken with a grain of salt. Projections generally cover either the next three years or the next five years. If your business is after funding, discuss with your lending institution or VC about how far out your projections should go.

If your business is existing, you will include the past three years (or what you have if you’ve been in business less than three years) with your business plan. If the business is still relatively new, the financial statement part of the plan may include actual statements as well as projections.

Let’s cover the three types of financial statements.

Income Statement

This is also known as the profit and loss statement of the business. The income statement lists all of the sources of revenue as well as all expenses that are associated with the business. This statement will result in net income (hopefully!) or possibly a net loss. Remember that it generally takes several years for a business to be profitable so don’t try to fudge to make your business show a net income in the first year. You do want to show progress though in turning that loss into a profit.

Balance Sheet

The balance sheet of the business showcases the total assets, total liabilities and equity. If the business has large holdings of assets and liabilities, it may be helpful to break down each section into current and long-term with current assets and liabilities being easily converted within one year.

Cash Flow Statement

The cash flow statement of the business shows the actual cash inflows and outflows for the business. This should balance with the accounts of the business.

All three statements should be included in the financial section of the business plan. If possible, have a certified accountant prepare these statements for the business.