Factors To Consider In Projected Profit And Loss Statement Drawing A Business Plan Financial Info

Published: 11th April 2010
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The projected profit and loss statement, drawing a business plan, financial information analysis, revenue projection exercises are tools that make sound decision making easier to achieve. A statement with projections of profit and loss is a financial planning component for an enterprise. The putting together of a business plan shows an overview. The analysis of financial information employs the use of historical information to examine the present and prospective conditions of the subject. Whereas, revenue projections constitute an exercise that has different uses for different parties.

Factors influencing a business plan

The intended audience of a business plan may be internal or external. Externally focused plans have targeted goals important to external stakeholders, most likely potential investors in the business or lenders. They provide detailed information about the business, its products, its market, clients and potential clients, personnel and financial data and anything that would be relevant to the reaching of these goals. Plans for internal consumption target medium term goals that may be steps towards the attainment of goals later to be shared with an external audience. They could be about a product, a service, a system, financial or organizational changes, a production facility or some other subject. The plan may be accompanied by a list of identifiable factors by which the success of this plan can be measured. An internal operational plan sets out planning details that are needed by management; but, these may not be of interest to external stakeholders. It is more open and informal than the type prepared for external review.

Such a plan is used by startups as a funding tool. It highlights the strengths of the ideas, strategy, and the business team. The different parts of this plan are organized for maximum effect.

For a startup this plan has to be limited in content; but, powerful in its message. Ambitious capital seekers may even use more than one form. These can range from a summary of the executive summary, to an oral format or a more detailed written version.

Revenue Projections of the business

For companies no longer in the startup stage revenue projections help to forecast income cycles and consequent adjustments. Projections will analyze the three areas of the current business of the company, the sales in its pipeline and potential new business. For each of these categories an estimate of the amount of revenue that is received every month is factored in. The first category is the easiest to project as it is already being realized.

Updating the projections on a monthly basis will helping abreast of trends. Timely absorption of information facilitates corrective action. In the case of startups, experienced investors and lenders are aware the initial version will alter. Projections in this context demonstrate the preparedness of management.

The purposes of projection in profit and loss statements

These statements can be part of a business plan that reveals data pertaining to revenues, cost incurred in producing products and services of the business, operating expenses, and net income or loss. Basic assumptions for income and expenses are made in this context and they should be detailed in the business plan with supporting documentation taken from market study and the marketing plan. The projected financial statements should indicate economic changes in the expected business cycle. These projections should reflect any expected fluctuations in sales and expenses. The profit and loss statement will demonstrate income minus expenses and should be done on a monthly basis. The second and third year may be done on a quarterly basis. For startups in the initial period the projected net profits is usually in the red, because of high startup costs. This is not unexpected.

Analysis of Financial information

Known also as financial statement analysis this is very useful for different reasons. It is most useful in the making of investing and lending decisions. The objective of financial statements is to provide a historical record of events useful for assessing the cash flows of a business enterprise. Competently assembled valid data leads to sound decisions. The purpose could be a screening tool in selecting investment or merger candidates. It may be a forecasting tool of future financial conditions and results. It can also diagnose managerial, operating, or other problem areas. The tools used by the analyst are chosen based on which one is best suited for the purpose of the analysis. Comparative financial statements with year to year changes; index number trend series; common size financial statements with structural analysis, ratio analysis, specialized analysis of cash forecasts, analysis of changes in cash flows, statement of variation in gross margin, and break even analysis are the analytical tools that can be used in this exercise. Whatever methods are used by the analyst, one or more feature of the financial condition of a business will be examined. These features can generally be found in the areas of short term liquidity, flow of funds, capital structure and long term solvency, return on investments, operating performance and asset utilization. These are the building blocks of financial statement analysis.

Evan writes articles about the projected profit and loss statement and teaches people what to know about revenue projection.

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