Business financial plan. Forecast, cash flow, and break-even point.

1. What is a business plan?

The business plan is one of the first and most important steps when starting a new business. It is a tool that serves to compare ideas, set objectives, plan the company's future, and evaluate the feasibility and implementability of the idea. Moreover, the business plan is an essential tool for raising funds and is a dynamic document that requires continuous review to assist in monitoring and measuring business performance and, consequently, its ongoing management. 

Read also: How to create a financial plan that's read all year.

If the plan will be used by investors or lenders, it is essential to understand their objectives and address them in the plan so that it meets their specific investment or lending criteria.

The business plan should be easy to read, comprehensive, concise, and non-contradictory.

For example, the figures presented in the equipment expenditure plan must match those shown in the plan's financial projections.

Very often the latter do not align, and the business plan consequently loses credibility. 

It is important to identify as early as possible what a prospective investor needs to know about the business and the people who run it. The rationale behind the decisions made, clarity, and credibility are vital in a business plan. 

The plan must be feasible and must convince investors of the business's success. 

The plan should also show that the business will be able to support entrepreneurs as well as any loan requests they may have. 

2. The advantages of drafting a business plan

Drafting a business plan helps in: 

•     Presenting new ideas and researching them in a structured format.; 
•     Determining whether and/or when the business will be commercially viable;
•     Clarifying the business objective and presenting it to potential partners or investors.;
•     Predicting obstacles and proactively addressing them;
•     Marketing strategy forecast; 
•     Setting effective objectives and plans, including sales and financial targets, so that business performance can be continuously monitored. 

3. What a business plan should include: 

The following headings cover the essential elements that must be included in a logical order in any business plan in order to address the most important issues that an investor, bank, or financial institution would need to be assured of. 

a. Table of Contents 
b. Executive summary

This should be a brief summary of the rest of the plan and should be no more than two pages long. It is the first element an investor will read, so it must be clearly written, engaging to the reader, and ideally ensure that the plan will be superior to other business plans an investor or lender would receive.

4. Key issues: 

• What makes your business idea unique and gives it an advantage over similar businesses and products? 
• What experience do entrepreneurs have in their target market that will enable them to secure a financier confident in their ability to make the business successful?
• Is it shown or illustrated in the plan whether the business will be feasible and profitable?
• When and how will the lender or loan provider be repaid? What plans are in place to ensure that the investor will achieve the best return on their invested funds in the event of the business's sale, or when the business's entrepreneurs buy back their shares in the case of an equity investment? 

The executive summary should also include:

1.  Details about the products or services offered; 
2.  Summary of the target market and competition; 
3.  The amount of financing required and the purpose; 
4.  The total amount of money invested by business entrepreneurs

5. The goals, objectives, and vision of a business plan

Investors will want to learn about the entrepreneurs' motivations and vision, and especially how they plan to further develop the business, so it is important to consider the following questions: 

• What are the reasons for starting this business?
•  What do the entrepreneurs aim to achieve by launching this business? 
•  Will it supplement or replace the primary income of its entrepreneurs? 
•  Where will the business be in the next five years? 

Defining the vision will help identify clear and challenging objectives and will determine how these objectives will be implemented as the venture evolves. 

6. Business Description and Objective 

The plan must specifically define what the business will do. How will the products or services offered be differentiated from those of competitors in the market? The business description should provide a clear overview of the business's purpose and be easily understood by customers, staff, or potential investors. 

7. Legal structure 

What legal structure will the business have? Will the entrepreneur be part of a partnership or a private limited company? These decisions will affect the entrepreneurs' tax liability and thus impact cash flow. 

8. Management processes

The business plan will need to take into account the following key management functions: 

•     Sales and marketing; 
•     Finance; 
•     Recruitment and personnel;
•     Product development/source; 
•     Legal procedures; 
•     Administration 

The plan must demonstrate how business performance will be monitored and measured against objectives and how staff roles will be coordinated. 

9. Marketing strategy 

•  The marketing methods used for each of the targeted market segments; 
•  Specific actions needed to reach each segment; 
•  The timeline for each marketing activity; 
•  The individuals or organizations that will carry it out; 
• Marketing budget; 
• How will progress be reviewed and monitored?

10. Sales objectives 

Sales forecasts should be determined according to: 

•  Sales of various types of products or services by quantity and value; 
•  Sales by different consumer groups or territories;
•  Sales through various distribution or advertising channels. 

11. Financial forecasts 

•  Startup costs of the business;
•  Personal budget of business entrepreneurs; 
•  Additional financing; 
•  Details on how the funds were spent.; 
•  Break-even analysis; 
•  A detailed cash flow forecast that estimates how much money will be available each month.;
•  Profit and loss forecast ;
•  A balance sheet forecast that provides an overview of the business's trading position at a specified point in the future. 

12. Business operational requirements 

How will the plan be put back into action? 

• Basic operational planning should cover the following aspects of the business and include an assessment of their costs: facility details and a schematic plan.;
• List of necessary equipment and pricing; Staff – details of which roles need to be filled, including job descriptions; Suppliers – details of the suppliers and the credit terms they will offer.; 
• Compliance – regulations concerning occupational health and safety and any other specific regulations, together with a demonstration of how these will be met; 
• Licensing – details of any license or permit required to operate in the proposed line of business;
• Insurance – a statement of what insurance is required, including details of the relevant policies.

13. Training needs 

The business plan should include details of every relevant training conducted and required for the business's continuity. This will help identify skill gaps and quickly gather information about training providers and the funding needed for it. It will also help budget for training costs in the cash flow forecast. 

14. Business Risks 

•  Lack of management experience can be addressed by seeking support from a business advisor, mentor, accountant, or lawyer.; 
•  Lack of a trading history makes it difficult to obtain credit.;
•  Economic uncertainties, for example, if the loan taken is subject to interest, it will be necessary to provide for contingencies for an increase in the interest rate; 
•  Staff; 
•  Key suppliers; ;
•  Focusing on a small group of consumers; 
•  Customers' bad boxes that lead to cash flow problems; 
•  Difficulties of the partnership; 
•  Issues of insecurity; 
•  Failure to meet shooting objectives; 
•  Lack of resources during the key stages of development. 

15. Analysis Political, Economic, Social, and Technological 

PEST is an acronym for “political, economic, social, and technological.” This analysis provides a framework for reviewing a business based on external factors that may influence its future. By being aware of trends and changes in the external business environment, entrepreneurs can gain a competitive advantage. 

16. Analysis Strengths, Weaknesses, Opportunities, Threats 

SWOT is a planning tool used to understand the successes, weaknesses, opportunities, and threats associated with an enterprise. The method involves defining the objective of the enterprise or project and identifying the internal and external factors that support or hinder the achievement of that objective. SWOT is often used as part of the strategic planning process. 

17. Add-ons 

Appendices should include all documents that support the plan, for example: 

• CVs of entrepreneurs and key employees; 
• Certificate for each qualification;
• Possible lease agreement; 
• Market research data; financial forecasts; 
• Details of each professional advisor, key supplier, or insurance provider that has been engaged. 

Source: Tirana Municipality.