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Business Plan Financial Projections

There are many ways to present your financial projections.  It is important that you chose a format that is logical, meaningful and easy for the reader to follow and understand.  An effective approach to achieve these goals is to have each line item on a lead schedule supported by assumptions and calculations on a supporting schedule or worksheet (further back in the projections package).  This allows the reader to chose the level of detail to review.  This approach also gives the reader sufficient information to evaluate your assumptions.  Even if the reader does not agree with the conclusions you have drawn from your research and operating results the reader will be able to understand your thought process.

The ability to defend the integrity of the financial models you have developed is directly related to the nature, scope and reliability of the data and information you have used to formulate your assumptions.

Research + Operating Results > Assumptions > Models > Projections

Format guide for developing financial projections:

Three years of projected financial statements by month, each year and each financial statement on a separate schedule (other variations: five years instead of three years, quarters instead of monthly, first year by month and subsequent years by quarter, etc. - if you are preparing the projections for a known third party you should consult the third party to see if they have a preference for the format, content and time frame)

 Balance Sheet: YR 1, YR 2, YR 3

 Income Statement: YR 1, YR 2, YR 3

 Statement of Cash Flows: YR 1, YR 2, YR 3

Supporting Schedules and Assumptions

Other Notes / Suggestions:

For a concise presentation certain Balance Sheet items may be consolidated, where appropriate.

If the projections are for an existing business you will need to set up a column in YR 1 for the opening balance sheet.

There should be a supporting schedule for each balance sheet line item.

The Income Statement may be laid out as follows:

  • Revenue (may be a supporting schedule for revenue by type / source)
  • Cost of Goods Sold (may be a supporting schedule for cost of goods sold by revenue type / source)
  • Gross Profit
  •  Expenses
    • Selling (supporting schedules for individual meaningful / material items)
    • G & A (supporting schedules for individual meaningful / material items)
    • Any Other Major Classification (if there is one - supporting schedules for individual meaningful / material items))
  • Income from Operations
  • Other Income /Expense (supporting schedules for individual meaningful / material items)
  • EBITDA
  • Interest (from supporting schedule)
  • Amortization  / Depreciation (from supporting schedule)
  • Corporate Income Taxes (from supporting schedule)
  • Net Income

The Statement of Cash Flows may be laid out as follows (this layout is not in Financial Statement format, but allows you to link cells from various worksheets directly to the Statement of Cash Flows):

  • Source of Funds (there should be a supporting schedule for each line item):
    • Cash Sales + Collections of Accounts Receivable
    • Interest
    • Proceeds from Financing
    • Other
       
  • Use of Funds (there should be a supporting schedule for each line item)
    • Fixed Asset Acquisitions
    • Other Assets Acquisitions
    • A/P & Accrued Liabilities
    • Corporate Income Taxes
    • Note Payable
    • Long Term Debt
    • Cost of Goods Sold
    • Sales Expense
    • G & A Expense
    • Interest
    • Other
       
  • Net Increase (Decrease)
  • Opening Cash Balance
  • Closing Cash Balance (cash on the Balance Sheet would be linked to this cell)

Possible Schedules

Accounts Receivable

  • Opening A/R
  • Sales (from Sales Schedule)
  • Collections (formula based, as stated in the assumptions)
  • Closing A/R

Inventory

  • Opening Inventory
  • Purchases
  • Cost of Goods Sold
  • Ending Inventory

Fixed Asset Acquisitions (you might also use this schedule for your depreciation worksheet as well)

Accounts Payable

  • Opening A/P
  • Purchases
  • Payments
  • Closing A/P

Sales / Cost of Sales Schedule / Gross Profit Schedule

  • Sales from separate Sales schedule
  • Cost of Goods Sold might be just a % applied to sales for each sales line item

Selling Expenses (the total from this schedule would be linked to the corresponding line item on the   Income Statement)

  • Advertising (including advertising, public relations, catalogs, brochures, trade shows, etc... you might have a sub-schedule linked to this for certain individual items)
  • Commissions / Royalties (might be a calculation linked to the sales schedule)
  • Salaries & Benefits (you should probably have a sub-schedule linked to this - start with current base and just show added positions - might have separate staffing sub-schedule to support this schedule)
  • Travel & Entertainment (including airfare, meals, mileage, etc. - you might have a sub-schedule linked to this for individually meaningful or material items)
  • Misc. (all other expenses not specifically listed - not individually meaningful or material)

G & A Expenses (you might have a sub-schedule linked to any of the line items that are individually meaningful or material)

  • Office and misc.
  • Professional fees
  • Rent
  • R & M
  • T & E
  • Utilities
  • Wages & benefits (from schedule)
  • Other

This is just a preliminary guide.  Please send an e-mail after you have reviewed this if you want to discuss your proposed projections layout in more detail.

 

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