Shrewd entrepreneurs are always busy studying the financial reports of their business. This helps them to analyze whether or not the business is going smoothly. In order to achieve the above objective, entrepreneurs should know the fundamentals of business plans. There are 3 major constituents of a business plan, namely – cash-flow statement, income statement and the balance sheet.
These business plan components will reveal the financial conditions like savings, expenses, profits, etc. of the business. Therefore, entrepreneurs should know the ways to prepare a business plan with the said constituents.
Business plan preparation guidelines
Here is the basic form in which each business plan constituent or statement is prepared:
Cash Flow Statement – It is the one of the most crucial business data that throws up the estimate to fund projects. Entrepreneurs read cash flow statement to mark out the possible avenues to receive the finances. Even the timing of fund collection is decided on the basis of this statement. This statement has some basic terms which are as follows:
- Receivables – Revenue earned from accumulation of receivables.
- Cash sales – Revenue from paid-in-cash sales.
- Total income – It is the amount after adding up receivables, cash sales and other income (revenue derived from financial tools).
Income Statement – This statement reveals the expected revenue to be generated from a particular business. This the performance record of all investments. This also has some basic terms, namely:
- Cost of goods – The expenses of products mentioned in the inventory.
- Income – All revenues collected from the business and its subsidiaries.
- Gross profit margin – The difference between cost of goods and income is called Gross Profit margin. It is expressed as a percentage.
Balance Sheet – It is prepared on a yearly basis and can assists with the tax preparation process. Basically, balance sheets are summarized report of a business’ liabilities, assets, and equity. This too has basic terms that are mentioned below:
- Cash – It is the total amount of available cash at the end of a financial year.
- Total assets – Aggregate amount of all long-term assets and current assets.
- Total liabilities – Aggregate amount of all long-term and current liabilities.
Entrepreneurs should include brief but informative analytical statements in the entire constituents of the business plan. This will culminate into a well-thought out business plan.
