A robust financial plan is a key plank of an Outline Business Plan. This should show the profit and loss, balance sheet and cash flow for the past two years results, the current year forecast, the current year budget and a three year forecast.
Financial plans can give a great insight into the value and trajectory of the business, particularly when looking for funding, investors or partners.
The financial plan needs to be of sufficient detail to explain the dynamics of the revenue streams, what is contractually re-occurring and what is, by its nature, a “one-off”. It should also highlight any swings in input costs, working capital and investment.
Often the costs associated with growth – overseas expansion, a new product development/launch or acquisition – can mask the true performance of the business. When such one off events are stripped out to show the historic EBITDA on an adjusted basis, the underlying trajectory and performance of the business can be better understood.
The three year plan has to be credible and deliverable. This is not just an exercise for the Finance team. All the company’s functional teams have to participate in the build-up of the plan and should develop the detail required to back it up.
When developing the plan consider the starting point. Does two years of history fairly show the business growth trajectory particularly if the business is recovering from a cyclical downturn or some other industry specific event?
A well thought out financial plan is an extremely powerful statement of the Owners and Managers commitment to the business. Make sure you present it to all your key partners. It will inspire their confidence in your business and maybe even help win you that next contract.