CHAPTER #1 ' V/Ffinancing, starting the production of operations, obtaining the first sale, andso forth. An effectively prepared and presented schedule can be extremelyvaluable in convincing potential investors that the management team isaware of what needs to titre place to launch the venture and has a plan inplace to get there.1 ii._t1;_ E .it f'f:f.?' if as The final section of a business plan presents afirrn’s pro forma (or projected] financialgprojections. Having completed theprevious sections of the plan, it`s easy to see why the financial projectionscome last. They take the plans you’ve developed and express “diem in finan?cial terms.The first thing to include is a sources and uses of funds staterrterrt.which is a document that lays out specifically how much money a firm needs(if the intention of the business plan is to raise money), Where the money willcome from, and what the money will be used for. The next item to include isan assiamptiozus sheet, which.is an explanation ofthe most critical assump?tions that your financial statements are based on. Some assumptions Will bebased on general information. and no specific sources Will be cited to sub-stantiate the assumption. For example. if you believe that the U.S. economywill gain strength over the next three to five years, and that”s an underlyingassumption driving your sales projections, then you should state thatassumption. ln this instance, you wouldnt cite a specific source-you'rereflecting a consensus view. (it`s then up to your reader to agree or disagree]Other .assumptions will be based on very specific information, and youDescribe the purposeof E1 “sources and uses offunds" statement and an“assumptions sheet.”shouldcite _the source for your assumptions. For example;=if-~Sprig~Toys-" i =-#:==e~=1=<-'-“--"* 'ehas credible data that shows the educational segment ofthe children`stoy industry is expected to grow at a rate of 10 to l2 percent per year forthe foreseeable future, and this figure plays a large role in its belief thatit can increase its sales every year, then it should cite the sources of itsinformation _The importance of identifying the most critical assumptions that a businessis based on and thoroughly vetting the assumptions is illustrated in the “WhatV7ent Wrong" feature. StyleHop, the company that is the focus of the feature,failed largely because it neglected to plan and at least one of the key assump-tions that business Was based upon turned out to be incorrect.The pro forma (os projected) iirnanciai statements are the heart of thefinancial section of a business plan. Although at first glance preparing financialstatements appears to be a tedious exercise, it’s a fairly straightforwardprocess if the preceding sections of your plan are thorough. The financial state~ments also represent the finale of the entire plan. As a result, it`s interesting tosee how they turn out.A firm’s pro forma nnancial statements are similar to the historical state-ments ari established Hrm prepares, except they look forward rather than trackthe past. Pro forma financial statements include the pro forma income state?ment, the pro forma balance sheet, and the pro forma cash flow statement.The are usually prepared in this order because information flows logically fromone to the next. Most experts recommend three to five years of pro forma statefments. lf the company you`re Writing your plan for already exists, you shouldalso include three years of historical financial statements. Most business planWriters interpret or make sense of a firm’s historical or pro forma financialstatements through ratio analysis. Ratios, such as return on assets andreturn on sales, are computed by taking numbers out of financial statementsand forming ratios with them. Each ratio has a particular meaning in regard tothe potential of the business.We present a complete explanation. of how to complete pro forma financialstatements and ratio analysis in Chapter 8.
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