Financial Statements

The financial statements section of the business plan should be broken down into three key

subsections: the income statement, the balance sheet, and the cash-flow statement. Before

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proceeding with these sections, we discuss the assumptions used to build these sections. The

opening section of the financial statements section should also include, in summary format,

projections of sales, the sales growth rate, key expenses and their growth rates, net income

across the forecasting horizon, and assets and liabilities. [7]

As previously discussed, bankers—and to lesser extent venture capitalists—will be primarily

concerned with this section of the business plan. It is vital that this section—whether you are an

existing business seeking more funding or a start-up—have realistic financial projections. The

business plan should contain clear statements of the underlying assumptions that were used to

make these financial projections. The clearer the statements and the more realistic the

assumptions behind these statements, then the greater the confidence the reader will have in

these projections. Few businesspeople have a thorough understanding of these financial

statements; therefore, it is advisable that someone with an accounting or a financial background

review these statements before they are included in the report.

The future planning horizon for financial projections is normally between three and five years.

The duration that you will use will depend on the amount of capital that the business is seeking

to raise, the type of industry the business is in, and the forecasting issues associated with

making projections. Also, the detail required in these financial statements will be directly tied to

the type and size of the business.

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