To support entrepreneurs registered on VC4Africa we have created an easy to use format for the financial plan. In a series of articles on VC4Africa, financial coach Arnout Kroezen goes through the key points. Also see the post with steps 1 & 2: Costs & Revenues. Below Step 3: how to write a summary.
The figures in steps 1 and 2 (Costs and Revenues) can be researched and worked out in detail and in depth, but what do we present to the investors in our Business Plan? This need to be short, clear, and contain all relevant information. Again a combination of Budget and Cash Flow forecast, we call it ‘Operating Budget’. That is our choice because it covers the most relevant points in 1 overview, but feel free to choose another format. Whatever model you choose, start the financial section with a little introduction about the way the figures are presented.
In this example we have 3 products. The table shows that we expect the first sales of product A in Q1, for product B in Year 2 and the third product C to start selling in Year 3.
We only presented Year 1 (in four Quarters). The reason is that year 1 gives us clear deadlines for the coming period, relevant information for investors, and establishes the foundation that explains the companies projected growth curve from year to year. So if year 1 makes sense, it is easier for an investor to see how the plan will translate into year 2 and year 3.
It is good to support the table in the Business Plan with comments that explain the key line items. Try to answer some of the standard questions you think an investor will have when reading your plan. If there have been sales before presenting this Business Plan, that is a strong sign for any investor. If this is the case, don’t forget to mention it and to make this part of your financial forecast. This can be done in words above or under the table, or even better: insert a column before Q1 (Year -1).
Questions an investor will ask:
What is the expected profit & loss?
When will the company become profitable?
Are the Costs and Revenues coherent with each other?
How sensitive are the projections and what are the 2-3 key assumptions/scenarios that would radically change the outcome?*
* If there are key factors that could drastically change the company’s ability to achieve its projections, this should be mentioned in a section describing company risks. Here you can also explain what you plan to do to prevent these factors from impacting your business.
If you would like to go back to earlier parts of this series check out the introduction – Crash Course to writing a Financial Plan that will convince investors. VC4Africa welcomes you to share your experiences and insights in the comments below! Do you have questions? Just ask them below in the comments!