Writing a business plan is the first step of every beginning entrepreneur in the field of innovation, economic, commercial or investment activities. In the post Part 1 of Writing a business plan, we’ve described the first 5 steps of its composition and provided a number of recommendations. See the next 5 steps in the article below.
6. How to make a financial budget
In this section, you will need to compile the financial information you have provided in the previous sections. The financial plan of the project will help to determine when and how much money you’ll need for the establishment and development of a profitable enterprise.
6.1. Identify sources of funding
In this section, you need to give a detailed explanation of the sources of financing for the project of creating your business – government subsidies, private funds (investment), bank loan, lease or something else. Terms of attracting sources of funding you define yourself.
General settings of the chosen funding should be reflected in the following table:
The presentation of the information on the used sources of the project financing
|4||Loans of financial institutions
|5||Other sources of financing|
|TOTAL amount of sources:|
6.2. Cost estimates before the first revenues from sales
Information provided in this section of the business plan should justify the attracting additional funding.
It is desirable to confirm the information on the main expected costs with the copies of agreements of intent, lease, purchase of equipment, etc. It is recommended to include copies of these documents in the application. Calculation of cost estimates before the first revenues from sales should be kept in a separate table:
The presentation of the cost estimates before the first revenues from sales
|1||Costs associated with the registration of an enterprise, total:|
|1.1||State fee for the registration|
|1.2||Registration in statistics authorities|
|1.3||Production of a stamp|
|1.4||Opening a bank account|
|1.6||Formation of the capital (for legal entities)|
|1.7||Patent or license fee|
|2||Organizational and technical training, total:|
|2.1||Implementation of the project|
|2.2||Payment of service inspections|
|2.3||Course fees for obtaining a license|
|2.4||Payment of certification of goods and services|
|2.5||Payment of premises rent|
|2.7||Acquisition of equipment|
|2.8||Acquisition tools and housewares|
|2.10||Acquisition of raw materials|
|2.11||Funds for personal consumption in the organizational period|
|2.12||Staff salaries before income|
|2.13||Charges for staff salaries|
|2.15||Purchase of office supplies|
Explanation: When filling in p. 1 of the table, you must make inquiries about the estimated value of the cost of individual items. Counting p. 1.6, you should keep in mind that the formation of capital can be made both in the form of cash contributions, as well as in the form of fixed and intangible assets of the founders if they are used for business purposes.
Intangible assets are properly executed rights to certain types of assets (real estate, machinery, and equipment), rights to the technology, patents, licenses, software products.
6.3. Work schedule of the first phase of the project implementation
The purpose of the work schedule is reconciling timing, size, financing, and costs during the creation of the business.
The presentation of the work schedule of the first phase of the project implementation (for the 1st month with a weekly breakdown)
|Costs of the first phase of the project implementation, total:|
|State registration of an enterprise|
|Obtaining a license, patent, certification, permit of an inspection|
|The lease contract|
|Acquisition of equipment, tools and housewares|
|Acquisition of raw materials and office supplies|
|Salaries of the employees|
|Charges for staff salaries (unified social tax)|
|Sources of financing, total:|
|Other sources of financing|
|Balance at the end of the week|
Comments for the table:
4. Calculation of credits
This subsection of a business plan requires elaboration if you want to borrow money from friends or a bank loan. In any case, you will have to pay interest and repay debts.
The following table will help you to prepare the data for inclusion in the next fiscal budget forms:
The presentation of the information on the calculation of credits
|Repayment of a credit|
|Payment of interest on a credit|
|Cumulative credit repayment|
|Cumulative interest payment|
6.5 Selecting method of taxation and calculation of taxes
In this section of a business plan, you should choose a tax system and calculate the amount of taxes that your enterprise would pay. The list depends on the chosen legal form of the company and the tax system.
6.6. A draft plan of financial performance
The plan of financial performance (or as it is called – Profit and loss statement) for the first year of the enterprise is usually made on a monthly basis.
This document shows your expected income and expenses over a certain period of time, as well as profit (or loss) that you will have in the corresponding period.
The form of the Profit and loss statement depends on the legal form of the organization and of the tax system, and looks like this:
|#||Income and expense items||Month|
|1||Revenues from sales to VAT|
|2||VAT included in sales revenue|
|3||Revenues from sales excluding VAT|
|4||Total variable costs without VAT|
|5||Total fixed costs without VAT|
|6||Interest on credit|
As an explanation to the table it should be noted the following:
6.7. Plan of cash flow
In the plan of cash flow you, on the one hand, decide when, how and from what sources in cash or money to the account will be received. On the other hand, you determine when and how much money you will pay to suppliers of raw materials, staff salaries, interest, creditors and taxes, etc.
This prediction is made for the year with a monthly breakdown, starting from zero period – the period preceding the moment of state registration.
The plan of cash flow should only include actual income and expenses (also called inflows and outflows) planned for each period of time.
|#||Income and expense items||Month|
|1||Cash balance at the beginning of the month|
|2||Sources of financing (private funds, loans, credits, subsidies)|
|3||Income from sales|
|6||Expenses of the organizational period|
|10||Payments on loans and credits|
|13||Cash balance at the end of the month|
6.8. The most important principles of economic management
For normal operation of the market conditions any commercial enterprise must adhere to at least three principles:
Without these three conditions, the company, even in case of successful marketing activities, can not successfully compete and has a compromised future. Therefore, without the knowledge of the economic foundations of business, the chances of budding entrepreneurs for success are low.
While managing your own business, even being competent in this professional sphere, you can not avoid these four economic issues:
The first issue is about planning. How to plan the work of the enterprise? To plan means to answer three questions: What is your business like today? What do you want to be tomorrow? What and in what order you need to do in order to move from the current state to the state of tomorrow? Answers should not be evasive. They should not be reduced to general discussion, because it is specific and vital moments – prices, number of customers, the number and composition of the staff, revenues and expenses and one-time costs for the creation of the so-called tangible and intangible assets of your company. The one who predicts plans success. The one who escapes plans to fail.
The second issue is about the organization. How to breathe life into the newly compiled plan, distributing the tasks on its implementation between the employees? In other words, how to make each of your employees clearly understand what and how he should do today and tomorrow. And it is necessary to take into account the ability and skills of a specific person, and most importantly, work to the final result, which is planned. It is about securing powers for each employee. In fact,it is necessary to draw up and communicate to each employee his job description, adding the column “What and when to do” to the column “Responsible for the performance”.
The third issue is motivation. Just to lead, even skillfully, is not enough for effective management. A more informed and motivated desire of the employee is needed, to do the task entrusted to him to the best interests of the business. The interest in the outcome of labor is needed. If to link it with the second and the first issue, it is necessary to speak not only about the salary (though about it too). Every employee should know exactly what he receives for the performance (or failure) of his duties – bonuses (deprivation of bonuses), additional profit earned, bonuses for the new order, penalties for defects in work, promotion (demotion). At first glance, with respect to small businesses, it seems an exaggeration. But only at first glance. The methods of punishing the innocent and rewarding the uninvolved is not for you.
The fourth issue is about control. Planning without comparing the obtained results with the planned ones is almost the same as to drive along a winding road at night with the headlights off. There are three control tasks – to measure, to compare and to understand. So, you’ll have to complete the table of your planned budget with two columns – “Plan” and “Deviation from the plan”. And after this in another column, you should write an honest answer to the question “Why this deviation happened?”.
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Answers may vary. And your decisions on the delivery of certain answers will be different:
Note that each of the four issues (planning – organization – motivation – control) are constantly repeated at each control cycle. And if you evade them every time, to count on the success of your business is at least naive.
It’s very useful not only to take these issues into account when developing a business plan for the establishment and development of your company but also to use them in the course of implementation of the project.
6.9. Calculation of the project
The main symptom of the financial viability of your company is nonnegativeness of the final cash flow at the end of the planning period in the “Plan of cash flow” during the preparation of the business plan. Without this prerequisite calculation of all other indicators of the project makes no sense, since it is impossible to work with “negative current account”.
The analysis of the effectiveness of the project can contain the calculation of these indicators:
In addition to these indicators, you can calculate how many products you need to produce or implement for your production to be break-even or profitable. The break-even point is the number of goods or the minimal sales per year that you need to achieve to cover all costs of the company, but still without profit.
7. How to assess the risks
This section should describe the potential risks that your future business may face.
The most frequently analyzed risks:
You should at least roughly estimate what risks you are most likely to face, how they can affect you and think over measures to prevent them or actions aimed at reducing the losses caused by these risks.
Another method of risk analysis is a calculation of the most important financial indicators of your project under the pessimistic scenario.
The recommended amount of “Risk Analysis” in the explanatory note is 1-2 pages (not counting 5 pages of tables of the financial budget of the project under the pessimistic scenario).
8. Execution of a business plan and its presentation
A business plan is drawn up as a bound report. These are some guidelines on its appearance:
The applications include documents that may serve as a confirmation or a detailed explanation of the information presented in the business plan. The mandatory ones include:
It is also possible to provide:
10. Examination of the business plan
 For commercial enterprise this point can reflect the costs of purchase goods at wholesale prices, and for services – the cost of consumables.