An important lesson to learn is that every part on the Business plan is important and is not to be left aside. One of the parts of a good Business Plan is the financial section. Of course, depending on the company and its direction, some parts may be more important and more important to consider. Still, the financial status is making every element of the Business Plan be more efficient. The fundamental thing is to understand is that you are the only one responsible for making it happen.
The financials of a company include the income statement, balance sheet, cash flow statement and also the financial ratios.
The income statement or the statement of profit and loss shows the revenues, costs and expenses of a company over a period of time. This shows the net gain/loss from the equity position of a company during a certain accounting period. It helps managers and investors see if the company gained or lost money during the period of time evaluated.
The balance sheet (or statement of the financial position) shows the accounting value of all companyΓÇÖs assets, shareholdersΓÇÖ equity and liabilities. A small business can have a simple balance sheet, while a bigger business can choose to have a more complex one.
The cash flow statement (or funds flow statement) represents an analysis of the activities during the accounting period that affects the cash-ins and cash-outs of a business. This statement is useful for determining if the company is viable on a short term, mainly the ability to pay its bills.
The financial ratios, also named accounting ratios, are used in accounting in order to analyze the financial health of a company. They can be used by managers of the company, owners or potential shareholders and by creditors. They can be used in order to compare the SWs (strengths and weaknesses) for a variety of companies.
So, if you are looking to raise some money, you will have to keep in mind some things because, before investing in a company, an investor might be interested in the following aspects. First, they will look at the balance sheet and if the inventory of the accounts receivable are growing faster than the sales do, they will be cautious. This shows that your company makes more debt with less increase in the income. Secondly, the statement of cash flow can show that most of the cash is generated by the products or services sold or from sale of property, issuance of debt or stock. Then, looking at profit margins might be suggestive for the investment firms and if these are high it means that your company has something to enable you to charge more, for example a patent. This would be a good thing, suggesting the venture capitalists that your business is of high quality. And last, investors will look at the ROE (return on equity) and ROA (return on assets). If your company is generating more earnings per dollar than your competitors do, then you are a good venture.
So, be sure that investors will look very carefully at the financial status of your company. It depends only on you to make your business a profitable one, but also to create a great Business Plan.