Importance of financial statements in business plan

Some of the important objectives and importance of financial planning for an organization are as follows: Financial planning means deciding in advance how much to spend, on what to spend according to the funds at your disposal. In the words of Gerestenbug financial planning includes: For this the finance managers do the sales forecast and if the future prospects appear to be bright and expect increase in sale, then firm needs to increase its production capacity which means more requirement of long term funds.

Importance of financial statements in business plan

These statements are compiled based on day-to-day bookkeeping that tracks funds flowing in and out of the business. The information the statements provide offers benchmarks and feedback that help the company make minor adjustments and also determine its overall direction.

Financial statements are useful for making decisions regarding expansion and financing. They also figure into marketing decisions, providing data indicating which aspects of company operations provide the best return on investment.

Profit and Loss A profit and loss statement details how much profit -- or loss -- a business has made during a designated period, once operating expenses are subtracted from overall revenue. The upper part of the statement lists different sources of operating income, such as revenue from wholesale and retail sales, and rental or interest income.

importance of financial statements in business plan

The lower part of the income statement lists different categories of expenditures such as materials, labor, rent and depreciation. The most important pieces of information gleaned from a profit and loss statement are whether or not your business is earning a profit, and how much it is earning or losing.

Balance Sheet A balance sheet captures the financial health of your business at a particular moment in time. The assets section lists what your business owns, such as cash on hand, money in the bank, and money that is owed to you.

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The liabilities section lists everything your business owes, such as outstanding principle on loans, unpaid payroll, and unpaid bills. Cash Flow Projection A cash flow projection is a document that maps anticipated income and expenditures during an upcoming period. It is an essential planning tool that helps you to anticipate and plan for potential revenue shortfalls by conserving resources or seeking financing.

The cash flow projection contains sections detailing categories of anticipated expenditures such as payroll, rent and loan payments, as well as a section listing sources of anticipated revenue such as sales from wholesale and retail operations, and capital infusions from loans.

Profit and Loss

Comparing total anticipated income with total anticipated expenditures tells you whether you can expect to have sufficient operating capital. If your balance sheet and cash flow projection show that you have sufficient capital but your profit and loss statement shows that your business is losing money, you should conserve resources and strategize about ways to begin earning a profit before you run out of money.Oct 18,  · Financial statements, one of the most important aspect of any business which provide a clear picture of the company’s financial health for a particular period of time and also at any given point.

Financial data is always at the back of the business plan, but that doesn’t mean it’s any less important than such up-front material as the description of the business . Jul 03,  · The Key Elements of the Financial Plan.

by: Trevor Betenson Accounting. Digging into your business’s financials can feel a bit like eating your fruits and vegetables, but what’s good for your business’s health is good for you.

Even if you’re in the very beginning stages of your business, these financial statements can still /5(25). Financial data is always at the back of the business plan, but that doesn’t mean it’s any less important than such up-front material as the description of the business concept and the.

Feb 21,  · An accurate financial projections is extremely important for a new business because the organization‘s future greatly depends upon the decisions made using financial projections.

Because of this reason the assumptions involved in financial projections should be made carefully and with great accuracy. You're working on a great business plan for your business startup, to take to a bank or other lender. A key part of that plan is the financial statements. These statements will be looked at carefully by the lender, so here are some tips for making these documents SELL your business plan!

Financial Projection and its Importance: | Financial Projections