12 month projection and business plan sba

Expert business plan and financial models

SBA Loan Application: 6 Steps To Build Solid Financial Projections

• October 7, 2022
• Forecast your business

If you are a small business in the US, chances are you might have already heard of SBA loans . These loans, which range anywhere from $500 to $5.5 million are a great funding option for small businesses.

Yet, SBA loan application criteria are stringent: even if you are eligible, you will need to provide a number of documents to support your application. One of the most important document is your set of financial projections for your business.

Get your SBA loan application approved by building rock-solid financial forecasts for your business. In this article we will cover:

What is a SBA loan?

A SBA loan is a type of loan from a financial institution (e.g. a bank) which is partially guaranteed by the government.

The SBA is an initiative by the SBA (U.S. Small Business Administration), a U.S. government agency. The agency created these loans to simplify access to capital for small businesses. Because SBA loans are guaranteed by the government, banks and other lenders are indeed less reluctant to grant loans to small businesses with higher default risk.

There are a number of SBA loans out there which you can apply for. The most popular SBA loan is the 7(a) loan : it has low-interest rates, long repayment terms, and a very flexible use of loans clause. Yet, for a full list of the different SBA loans and their eligibility criteria, refer to the SBA website here .

However, as the US government guarantees SBA loans (often up to 85%), the eligibility criteria are rather stringent, and the process notoriously thorough.

One of the most important document you will have to provide is a set of financial projections for your business.

Why are SBA loans so attractive?

There are a number of advantages for SBA loans vs. common forms of debt, among which:

Highly competitive rates

Because SBA loans are partially guaranteed by the US government, institutions (banks) are more willing to grant startups loans with lower interest rates. Indeed, in an event of default, they can recover up to 85% their investment (see more on that above).

As per federal rules, SBA lenders are offering SBA loan interest rates  as the sum of the prime rate plus a markup rate known as the spread. The prime rate is set by the government and fluctuates over time. As of the date of this article (September 2021), the prime rate was 3.25%. For the current rate applicable, refer to this page here .

For the same reasons mentioned above, SBA loan fees are often much lower vs. bank debt fees. The upfront fee is also referred to as the guarantee fee. For instance the guarantee fee is limited to 2% for loans under $150,000.

Longer repayment terms

SBA loans typically have longer maturity dates (repayment terms). The maturities depends on the type of use of funds for the loan. Currently, the maximum maturities are:

• Working capital or inventory: 10 years
• Equipment: 10 years
• Real estate: 25 years

What are the different SBA loans?

There are a number of different SBA loans, each come with its own terms, eligibility criteria and conditions. We have summed up below the different types with their principal characteristics:

What are financial projections?

Financial projections (or financial forecasts), in short, are the forecast of your financial statements, often over a 3- to 5-year  period.

When we refer to financial projections, we often refer to the forecast of your profit-and-loss (or “income statement”). Yet, sometimes (especially for loan applications) financial projections require the forecast of all 3 financial statements : P&L, balance sheet and cash flow statement.

What financial projections do I need for a SBA loan?

When it comes to financial projections, SBA loan applications are relatively straightforward.

As per their exact guidelines, you will need to produce “Projected Financial Statements that include month to month cash flow projections, for at least one-year period”.

In simple terms, you will need to prepare financial forecasts of your profit-and-loss (P&L) and cash flow statement over 12 months minimum.

Whilst the forecast of the balance sheet isn’t strictly necessary, you will have to forecast things such as working capital and other cash flow movements that impact balance sheet.

Also, whilst SBA only requires 12 months forecasts, we do recommend preparing 3-year (36 months) forecasts for small businesses with limited financial performance and assets as they often have a higher default risk.

6 steps to build solid SBA loan financial projections

We have listed out below a list of 6 steps you should follow to build rock-solid financial forecasts for your SBA loan application.

Step 1. Start from your actuals

Before you start creating financial forecasts for your business, you should first look at your actuals. From there, we will identify and extrapolate a number of drivers which will allow us to project your revenues and expenses later on.

You don’t necessarily need now to start from your entire profit-and-loss or cash flow statement you would have exported from  Xero  for instance. Instead, identify what drives the most of your business’ performance: is this the number of customers you have? Is this the commission rate you are charging your customers?

The key drivers will help us estimate your financial forecasts later on. As such, they need to be clearly identified. A few examples of drivers for 3 illustrative businesses are:

• Retail : number of customers, average order value
• Ecommerce : number of visitors, conversion rate, average order value
• SaaS : number of users, churn, average revenue per user

Once you have identified your key drivers, include them as a start to your model. For instance, if you are generating $10,000 sales from 3,000 orders in a given month, your key drivers in that month can be:

• Orders per month: 2,000
• Average order value: $5.0

Step 2. Build your revenue model

Before we estimate revenue based on the drivers discussed earlier (step 1), we need to clearly identify what is your revenue model. Surprisingly enough, one business can have multiple revenue models. For a refresher,  read our article on the 8 most popular revenue models .

For example, if you sell subscriptions to customers (e.g. gym membership) yet you also sell one-time services (e.g. dedicated sessions with trainers), these should be listed as two separate revenue models as they work differently. The subscription is a function of the number of users you have, multiplied by a recurring monthly fee for instance. In comparison, sessions are a function of a portion of your users, multiplied by another one-time fee.

Once we have identified your revenue model(s), we need to build out revenue for each of them. Using our gym membership above, subscription revenue will be a function of the number you have over time times the recurring fee. For sessions instead, use a percentage of users who pay for a session each month (based on your historical if any) – for instance 5% of total users – and multiply it by the total number of users and the one-time session price.

The gym membership example above help us understand why we need the key drivers we brought up earlier.  Revenue projections should never be a plug – a guessed number from you . Instead, revenue is the function of multiple drivers. There are always at least 2 drivers for each revenue model: volume and price.

Step 3. Forecast your variable costs

Variable costs are expenses that increase or decrease based on the level of sales and/or another factor (e.g. customers for instance). As such, they can’t just be flat over time, instead their amount will vary based on other parameters of your financial plan.

Common variable costs are:

• Raw materials
• Advertising spend (e.g. paid ads)
• Packaging and shipping costs (ecommerce)
• Transportation
• Corporate taxes

If you have historical performance, use your actuals to forecast variable costs. For example, if you pay $10 in shipping costs in average per order, use the same value for your projections.

Instead, new businesses will have to find information either with  industry benchmarks , public sources (cost-per-click for paid ads spending can be found for any keyword on  Google Planner  for instance) or quotes from potential suppliers.

Step 4. Estimate all your fixed costs

Fixed costs in comparison, are easier to estimate as they remain fixed over the projected period. Common examples are:

• Salaries and benefits (for each employee)
• Website hosting
• Rent and utilities

Salaries and other payroll expenses often constitute the bulk of fixed costs. In order to accurately forecast salaries you need to estimate the right amount of people you will need over time, and their salaries. Average salaries for specific jobs and geographies can easily be found in  industry benchmarks . The number of people your business will need depends on their function: some teams will increase or decrease based on certain metrics such as revenue (sales and customer success teams often grow in line with revenue) whilst others will remain stable (administrative functions e.g. finance).

Read our article on  how to build a flexible hiring plan in Excel for your business  for more information on how to efficiently forecast salaries expenses as your business grows.

Step 5. Putting it all together

Once you have projected revenue and expenses based on your key drivers, you can now consolidate it all under your profit-and-loss. Subtract all expenses (fixed and variable) as well as startup costs from revenue to get to net profit .

To calculate your cash flow statement, no need to do anything complicated at this stage: simply use your net profit, and subtract any other cash items (i.e.  capital expenditures ), for instance the startup asset purchases discussed above (step 2).

Step 6. Review and adjust

After having built your projected profit-and-loss and (simplified) cash flow statement, take time to review your estimates. Do they make sense to you? Is there anything surprising in your projections?

The review of your financial forecast should help you determine 2 things:

• Are your projections error-free?  It’s easy to get lost in spreadsheet and make mistakes in your calculations.
• Are your projections realistic?  Now that you take a step back to look at the big picture (revenue, growth, margins, cash flow), it’s easier to assess whether your projections are unrealistic or not.

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How to Write an SBA Business Plan + Template

Noah Parsons

10 min. read

Updated August 1, 2024

Applying for a Small Business Administration loan typically requires a business plan.

Unfortunately, there’s no SBA loan business plan format that guarantees approval. The SBA even states you should “pick a business plan format that works for you.” 

While I agree with this sentiment, I’ve found that entrepreneurs who explain how funds will be used and how they will repay the loan tend to be more successful. 

Luckily, these details can be covered using our SBA-lender-approved business plan format . I’ll go over that structure in this article, and focus on the sections that the SBA prioritizes, so you can maximize your chances of getting funded .

You can even download a free SBA-lender-approved business plan template to fill out as you read. 

Let’s get started.

• Why you need a business plan for SBA loans

SBA loans require good documentation of your business and personal finances. You’ll need to pull together your past tax returns, bank statements, and various application forms depending on the type of SBA loan you apply for.

The bank issuing the loan will also want to know about the future of your business. 

They’ll want to see how the loan will be used and if future cash flow projections are realistic and indicate you can afford loan payments.

That’s where writing an SBA business plan comes in. 

Not only will your business plan describe your business to the lender, but it will include the financial projections the bank will use to determine if you qualify for the loan .

• What your business plan should include, according to the SBA

Business plans for SBA loans follow a fairly standard structure, but that doesn’t mean you need to follow it exactly. 

The SBA even recommends adjusting the plan outline to serve your needs. If a section does not apply to your business, it’s fine just to remove it.

Here’s the successful business plan structure I recommend for SBA loans:

1. Executive summary

A great executive summary is a short, simple overview of your business. It should be easy for a loan officer to read and clearly understand what your business does. 

When applying for an SBA loan, highlight your: 

• Business opportunity
• Financial forecast
• How much money you want to borrow and how it will be used

Remember, an executive summary should be short and to the point. The rest of your business plan will provide additional details.

[Dig deeper: How to write an executive summary ]

2. Company description

Some people call this section “Products and Services.” Either option is fine. The important thing is that you use this section to explain what your business opportunity is. 

You need to cover: 

• The problem you solve
• Who you’re solving it for
• What your solution is and why it’s better

Be specific and tell the story of your business and your customers. Focus on your strengths and what sets you apart from competitors. 

If your company is developing a product, include information on:

• What the product life cycle looks like
• Intellectual property filings
• Current research and development

If these topics don’t apply to your product, that’s fine. Just be sure that the description of what you sell is clear.

3. Market analysis

The market analysis chapter explains who your customers are. It provides an overview of your target market, competition, and industry.

Your target market is essentially a description of your ideal customers. Be sure to include specific demographic information (like age, gender, location, income) and psychographic information (hobbies, purchasing behaviors). 

This data should reinforce that your target market needs your solution .

It’s helpful to also include information on the size of your target market . Lenders will want to see evidence of enough potential customers to drive growth. 

While your target market information describes your customers, an industry overview discusses the type of business you’re in and its potential for growth. 

For example: If you’re starting a fast-casual restaurant, your industry overview might discuss the increased interest in fast-casual dining and how more people are eating in these types of restaurants every year. 

Finally, you’ll need to include a competitive analysis . This is a list of current competitors and alternatives, with explanations of why your business is a better option. 

Your goal is to show how your business is unique, what opportunities and threats there are, and how you plan to address the competition.

4. Organization and management

Also known as your company overview, this section is where you describe your legal structure, history, and team .

For your SBA loan application, you should focus on describing who is managing the business as clearly as possible. 

You may want to include an organizational chart. You should provide detailed resumes for everyone in leadership positions. Each team member’s experience, skills and professional qualifications can mitigate risk in the eyes of a lender .

To show you’re thinking ahead, it’s also helpful to include key positions you plan to fill as you grow. 

5. Sales and marketing plan

Your goal in this section is to summarize how you will attract, retain, and sell to your customers.

The marketing strategies and sales methods you describe should always have the customer top of mind, and demonstrate that you know how to connect with them. 

To help a loan officer visualize this, you can provide examples of marketing messaging, visuals, and promotions. If you have any research or results to show that your strategy has merit, include those as well. 

6. Financial projections

SBA lenders typically require 5 years of financial projections — including profit and loss statements , balance sheets , and cash flow statements . 

Be sure to include the SBA loan in your projections in the following areas: 

• A liability on your balance sheet.
• Payments on your cash flow.
• Interest expenses on your profit and loss statement. 

I’ll dive into specific details of what you should focus on in the “how to improve your chances” section.

Your first year of financial projections should include monthly details. After that, annual summaries are usually sufficient for most SBA lenders. Occasionally, a lender might require 24 months of monthly projections, so check with your bank before submitting your business plan. 

If your business is up and running, you must also provide historical financial reports for the past 12-24 months of operations—including income statements and a current balance sheet.

Typically, you will also need to provide reports on your personal finances , including any assets you have, such as a home or car. 

Finally, include a section explaining your use of funds—what exactly you plan to use the loan for.

7. Appendix

The appendix is your chance to provide additional documents that support sections of your business plan. 

When applying for a loan, these may include:

• Employee resumes
• Licenses and permits
• Patents and other legal documents
• Historical financial statements
• Credit histories

Don’t worry about stuffing your appendix full of additional documentation. Only include information if you believe it will strengthen your approval chances, or if your lender specifically asks for it.

• How to improve your chances of being approved for an SBA loan

Your SBA business plan needs to focus on the loan you are applying for and how that will impact your business financially. 

Make sure to include the following information in your financial plan to increase your chances of success with your lender:

Funding request 

In your executive summary, document how much money you are asking for. It’s best to put your number where it can be clearly read, instead of trying to bury it deep within your business plan.

Remember, there are limitations to how much you can borrow through SBA-backed loans.  Most have a maximum loan amount of $5 million, while SBA Express loans have a maximum loan amount of $350,000. 

Use of funds

You should also describe how you plan to use the loan and which aspects of the business you want to invest in. 

Some SBA loans are designed specifically for expanding export businesses or funding real estate transactions. So, make sure your use of funds description is appropriate for the loan you are applying for.

Cash flow forecast

Be sure to include the loan in your cash flow statements and projections . You want to demonstrate that you’ve planned how you will use and repay the loan.

You need to show:

• When you anticipate receiving the loan.
• How the loan will impact your finances. 
• Loan payments for the life of the loan. 

Having this prepared won’t just increase the chances of your application being approved—It  will make it much easier to manage the loan after you receive funding . 

Balance sheet 

You’ll also want to put the loan on your projected balance sheet , and show how the loan will get paid down over time. 

The money you owe will show up on your balance sheet as a liability, while the cash you receive from the loan will be an asset. Over time, your forecasted balance sheet will show that the loan is getting paid back. 

Your lender will want to see that you have forecasted this repayment properly.

Profit & Loss forecast

Your P&L should include the interest expenses for the loan, and show how the interest will impact your profitability in the coming months and years.

• How long does an SBA business plan need to be?

The SBA doesn’t have an official recommended or required business plan length . As a general rule of thumb, you should make your business plan as short and concise as possible. 

Your business plan is going to be reviewed by a bank loan officer, and they will be less than excited about the prospect of reading a 50-page business plan.

If possible, keep the written portion of your business plan between 10-15 pages. Your financial forecasts will take up several additional pages. 

If you’re struggling to keep it short, try a one-page plan

A great way to start your business plan is with a simple, one-page business plan that provides a brief and compelling overview of your business. 

A good one-page plan is easy to read and visually appealing. Once you have your one-page plan, you can expand on the ideas to develop your complete written business plan, and use the one-page plan as your executive summary. 

Loan officers will appreciate a concise overview of your business that provides the summary they need before they start looking at your complete business plan and financial plan .

• Resources and tools for writing an SBA business plan

Remember, you can download a free SBA-lender-approved business plan template . It includes detailed instructions to help you write each section, expert guidance and tips, and is formatted as lenders and investors expect.

If you’re looking for a more powerful plan writing tool, one that can also help you create financial forecasts for the use of your loan, I recommend you check out LivePlan . 

With LivePlan, you get:

• AI-powered recommendations: Generate and rewrite sections of your plan to be more professional and persuasive.
• Step-by-step instructions: In-app examples, tutorials, and tips to help you write an impressive business plan.
• Automatic financials: Skip the spreadsheets and complex formulas, and quickly create accurate financial forecasts with everything a lender needs.
• A built-in pitch presentation: Print or share your full business plan, one-page pitch, and financial reports—all with a professional and polished look.

Whether you use the template, LivePlan, or try writing a business plan yourself, following the structure and tips from this article will improve your chances of getting an SBA-backed loan. 

And for additional SBA-focused resources, check out our guide on how to get an SBA loan .   

Noah is the COO at Palo Alto Software, makers of the online business plan app LivePlan. He started his career at Yahoo! and then helped start the user review site Epinions.com. From there he started a software distribution business in the UK before coming to Palo Alto Software to run the marketing and product teams.

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Free Financial Templates for a Business Plan

By Andy Marker | July 29, 2020

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In this article, we’ve rounded up expert-tested financial templates for your business plan, all of which are free to download in Excel, Google Sheets, and PDF formats.

Included on this page, you’ll find the essential financial statement templates, including income statement templates , cash flow statement templates , and balance sheet templates . Plus, we cover the key elements of the financial section of a business plan .

Financial Plan Templates

Download and prepare these financial plan templates to include in your business plan. Use historical data and future projections to produce an overview of the financial health of your organization to support your business plan and gain buy-in from stakeholders

Business Financial Plan Template

Use this financial plan template to organize and prepare the financial section of your business plan. This customizable template has room to provide a financial overview, any important assumptions, key financial indicators and ratios, a break-even analysis, and pro forma financial statements to share key financial data with potential investors.

Download Financial Plan Template

Word | PDF | Smartsheet

Financial Plan Projections Template for Startups

This financial plan projections template comes as a set of pro forma templates designed to help startups. The template set includes a 12-month profit and loss statement, a balance sheet, and a cash flow statement for you to detail the current and projected financial position of a business.

‌ Download Startup Financial Projections Template

Excel | Smartsheet

Income Statement Templates for Business Plan

Also called profit and loss statements , these income statement templates will empower you to make critical business decisions by providing insight into your company, as well as illustrating the projected profitability associated with business activities. The numbers prepared in your income statement directly influence the cash flow and balance sheet forecasts.

Pro Forma Income Statement/Profit and Loss Sample

Use this pro forma income statement template to project income and expenses over a three-year time period. Pro forma income statements consider historical or market analysis data to calculate the estimated sales, cost of sales, profits, and more.

‌ Download Pro Forma Income Statement Sample - Excel

Small Business Profit and Loss Statement

Small businesses can use this simple profit and loss statement template to project income and expenses for a specific time period. Enter expected income, cost of goods sold, and business expenses, and the built-in formulas will automatically calculate the net income.

‌ Download Small Business Profit and Loss Template - Excel

3-Year Income Statement Template

Use this income statement template to calculate and assess the profit and loss generated by your business over three years. This template provides room to enter revenue and expenses associated with operating your business and allows you to track performance over time.

Download 3-Year Income Statement Template

For additional resources, including how to use profit and loss statements, visit “ Download Free Profit and Loss Templates .”

Cash Flow Statement Templates for Business Plan

Use these free cash flow statement templates to convey how efficiently your company manages the inflow and outflow of money. Use a cash flow statement to analyze the availability of liquid assets and your company’s ability to grow and sustain itself long term.

Simple Cash Flow Template

Use this basic cash flow template to compare your business cash flows against different time periods. Enter the beginning balance of cash on hand, and then detail itemized cash receipts, payments, costs of goods sold, and expenses. Once you enter those values, the built-in formulas will calculate total cash payments, net cash change, and the month ending cash position.

Download Simple Cash Flow Template

12-Month Cash Flow Forecast Template

Use this cash flow forecast template, also called a pro forma cash flow template, to track and compare expected and actual cash flow outcomes on a monthly and yearly basis. Enter the cash on hand at the beginning of each month, and then add the cash receipts (from customers, issuance of stock, and other operations). Finally, add the cash paid out (purchases made, wage expenses, and other cash outflow). Once you enter those values, the built-in formulas will calculate your cash position for each month with.

‌ Download 12-Month Cash Flow Forecast

3-Year Cash Flow Statement Template Set

Use this cash flow statement template set to analyze the amount of cash your company has compared to its expenses and liabilities. This template set contains a tab to create a monthly cash flow statement, a yearly cash flow statement, and a three-year cash flow statement to track cash flow for the operating, investing, and financing activities of your business.

Download 3-Year Cash Flow Statement Template

For additional information on managing your cash flow, including how to create a cash flow forecast, visit “ Free Cash Flow Statement Templates .”

Balance Sheet Templates for a Business Plan

Use these free balance sheet templates to convey the financial position of your business during a specific time period to potential investors and stakeholders.

Small Business Pro Forma Balance Sheet

Small businesses can use this pro forma balance sheet template to project account balances for assets, liabilities, and equity for a designated period. Established businesses can use this template (and its built-in formulas) to calculate key financial ratios, including working capital.

Download Pro Forma Balance Sheet Template

Monthly and Quarterly Balance Sheet Template

Use this balance sheet template to evaluate your company’s financial health on a monthly, quarterly, and annual basis. You can also use this template to project your financial position for a specified time in the future. Once you complete the balance sheet, you can compare and analyze your assets, liabilities, and equity on a quarter-over-quarter or year-over-year basis.

Download Monthly/Quarterly Balance Sheet Template - Excel

Yearly Balance Sheet Template

Use this balance sheet template to compare your company’s short and long-term assets, liabilities, and equity year-over-year. This template also provides calculations for common financial ratios with built-in formulas, so you can use it to evaluate account balances annually.

Download Yearly Balance Sheet Template - Excel

For more downloadable resources for a wide range of organizations, visit “ Free Balance Sheet Templates .”

Sales Forecast Templates for Business Plan

Sales projections are a fundamental part of a business plan, and should support all other components of your plan, including your market analysis, product offerings, and marketing plan . Use these sales forecast templates to estimate future sales, and ensure the numbers align with the sales numbers provided in your income statement.

Basic Sales Forecast Sample Template

Use this basic forecast template to project the sales of a specific product. Gather historical and industry sales data to generate monthly and yearly estimates of the number of units sold and the price per unit. Then, the pre-built formulas will calculate percentages automatically. You’ll also find details about which months provide the highest sales percentage, and the percentage change in sales month-over-month. 

Download Basic Sales Forecast Sample Template

12-Month Sales Forecast Template for Multiple Products

Use this sales forecast template to project the future sales of a business across multiple products or services over the course of a year. Enter your estimated monthly sales, and the built-in formulas will calculate annual totals. There is also space to record and track year-over-year sales, so you can pinpoint sales trends.

Download 12-Month Sales Forecasting Template for Multiple Products

3-Year Sales Forecast Template for Multiple Products

Use this sales forecast template to estimate the monthly and yearly sales for multiple products over a three-year period. Enter the monthly units sold, unit costs, and unit price. Once you enter those values, built-in formulas will automatically calculate revenue, margin per unit, and gross profit. This template also provides bar charts and line graphs to visually display sales and gross profit year over year.

Download 3-Year Sales Forecast Template - Excel

For a wider selection of resources to project your sales, visit “ Free Sales Forecasting Templates .”

Break-Even Analysis Template for Business Plan

A break-even analysis will help you ascertain the point at which a business, product, or service will become profitable. This analysis uses a calculation to pinpoint the number of service or unit sales you need to make to cover costs and make a profit.

Break-Even Analysis Template

Use this break-even analysis template to calculate the number of sales needed to become profitable. Enter the product's selling price at the top of the template, and then add the fixed and variable costs. Once you enter those values, the built-in formulas will calculate the total variable cost, the contribution margin, and break-even units and sales values.

Download Break-Even Analysis Template

For additional resources, visit, “ Free Financial Planning Templates .”

Business Budget Templates for Business Plan

These business budget templates will help you track costs (e.g., fixed and variable) and expenses (e.g., one-time and recurring) associated with starting and running a business. Having a detailed budget enables you to make sound strategic decisions, and should align with the expense values listed on your income statement.

Startup Budget Template

Use this startup budget template to track estimated and actual costs and expenses for various business categories, including administrative, marketing, labor, and other office costs. There is also room to provide funding estimates from investors, banks, and other sources to get a detailed view of the resources you need to start and operate your business.

Download Startup Budget Template

Small Business Budget Template

This business budget template is ideal for small businesses that want to record estimated revenue and expenditures on a monthly and yearly basis. This customizable template comes with a tab to list income, expenses, and a cash flow recording to track cash transactions and balances.

Download Small Business Budget Template

Professional Business Budget Template

Established organizations will appreciate this customizable business budget template, which  contains a separate tab to track projected business expenses, actual business expenses, variances, and an expense analysis. Once you enter projected and actual expenses, the built-in formulas will automatically calculate expense variances and populate the included visual charts. 

‌ Download Professional Business Budget Template

For additional resources to plan and track your business costs and expenses, visit “ Free Business Budget Templates for Any Company .”

Other Financial Templates for Business Plan

In this section, you’ll find additional financial templates that you may want to include as part of your larger business plan.

Startup Funding Requirements Template

This simple startup funding requirements template is useful for startups and small businesses that require funding to get business off the ground. The numbers generated in this template should align with those in your financial projections, and should detail the allocation of acquired capital to various startup expenses.

Download Startup Funding Requirements Template - Excel

Personnel Plan Template

Use this customizable personnel plan template to map out the current and future staff needed to get — and keep — the business running. This information belongs in the personnel section of a business plan, and details the job title, amount of pay, and hiring timeline for each position. This template calculates the monthly and yearly expenses associated with each role using built-in formulas. Additionally, you can add an organizational chart to provide a visual overview of the company’s structure. 

Download Personnel Plan Template - Excel

Elements of the Financial Section of a Business Plan

Whether your organization is a startup, a small business, or an enterprise, the financial plan is the cornerstone of any business plan. The financial section should demonstrate the feasibility and profitability of your idea and should support all other aspects of the business plan. 

Below, you’ll find a quick overview of the components of a solid financial plan.

• Financial Overview: This section provides a brief summary of the financial section, and includes key takeaways of the financial statements. If you prefer, you can also add a brief description of each statement in the respective statement’s section.
• Key Assumptions: This component details the basis for your financial projections, including tax and interest rates, economic climate, and other critical, underlying factors.
• Break-Even Analysis: This calculation helps establish the selling price of a product or service, and determines when a product or service should become profitable.
• Pro Forma Income Statement: Also known as a profit and loss statement, this section details the sales, cost of sales, profitability, and other vital financial information to stakeholders.
• Pro Forma Cash Flow Statement: This area outlines the projected cash inflows and outflows the business expects to generate from operating, financing, and investing activities during a specific timeframe.
• Pro Forma Balance Sheet: This document conveys how your business plans to manage assets, including receivables and inventory.
• Key Financial Indicators and Ratios: In this section, highlight key financial indicators and ratios extracted from financial statements that bankers, analysts, and investors can use to evaluate the financial health and position of your business.

Need help putting together the rest of your business plan? Check out our free simple business plan templates to get started. You can learn how to write a successful simple business plan  here . 

Visit this  free non-profit business plan template roundup  or download a  fill-in-the-blank business plan template  to make things easy. If you are looking for a business plan template by file type, visit our pages dedicated specifically to  Microsoft Excel ,  Microsoft Word , and  Adobe PDF  business plan templates. Read our articles offering  startup business plan templates  or  free 30-60-90-day business plan templates  to find more tailored options.

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The SBA is increasing EIDL limits up to $2,000,000. Here are the details

• As of May 6, 2022, the SBA is no longer processing EIDL loan increase requests or requests for reconsideration of previously declined loan applications due to a lack of available funding.
• The EIDL portal is now closed. Borrowers who need copies of their loan documents will need to create a new account with the SBA . 
• You are now required to start making payments on your SBA EIDL loan. Follow this link to learn more about how to set up monthly payments . 

The SBA recently announced a policy change that significantly in creases the EIDL loan limits up to 24 months of economic injury with a maximum loan amount of $2,000,000. The EIDL loans were previously limited to $150,000 and then $500,000.

Here is a refresher on the rules;

• The deadline to apply for the loan or for reconsideration is 12/31/21. 
• Borrowers can request increases up to their maximum eligible loan amount for up to two years after their loan origination date, or until the funds are exhausted, whichever is sooner.
• The loan terms will remain the same; 30-year term with a 3.75% fixed rate for businesses and 2.75% for nonprofits.
• For loan amounts over $25,000, SBA will record a UCC filing.
• Real estate collateral will not be required for any loans of $500,000 or less. 
• Deferment periods for all EIDL loans have been extended until next year. The first payment due date for loans made in 2020 will be 24 months from the date of the note. For loans made in the calendar year 2021, the first payment is due 18 months from the date of the note.

Here is what's new for this increase round; 

• (Gross Profit is your gross revenue less cost of goods)
• SBA will also require an unsecured personal guarantee for loan amounts over $200,000 from any individual with 20 percent or more ownership.

⚠️ Word of caution  

• As a reminder, the SBA places a lot of restrictions on how you can use your EIDL Funds. You can't even invest the money in an interest-bearing bank account.
• Even in the case in which you are legally entitled to take this loan, doesn't always mean it's the right thing for you.
• EIDL loans are loans that will need to be paid back; you're taking on debt that you'll have to pay monthly for the next 30 years.  

Here are the steps to be taken if you wish to request a loan increase;

The SBA added a “ Request more funds ” button which you can see once logged into your existing loan account. You can log on to your account here . See screenshot below.

If the “ Request more funds ”   button is not present, try a different browser. If that doesn't help, reach out to the SBA.

• You will be asked similar questions as in the box below.
• Next, you will use the slider bar to select a new increased loan amount.
• While the SBA initially gave the option to apply via email, your best option would be to apply through your portal as mentioned above. 
• Send an email to [email protected]  
• Use the subject line "EIDL Increase Request for [insert your 10-digit application number]" 
• Be sure to include in the body of your email identifying information for your current loan, including application number, loan number, business name, business address, business owner name(s), and phone number.
• Do not include any financial documents or tax records with your initial request. You will receive a follow-up email notification they'll need additional documents.
• If you applied online and did not hear back from the SBA, your best option would be to log on to your portal and check if it gives you the option to apply. 

What happens next?

• Upon emailing them, You may receive an auto-reply as follows "Thank you for contacting the Covid EIDL Increase Team. Your request has been received and will be processed in the order it was received." 
• Per SBA, it may take several weeks before you receive a response from them on the next steps.
• Some people already got a reply email but it's unclear who's getting what type of questions. Below is a compiled list of line items from the SBA reply email.

• once approved, you will be able to finalize the application through your SBA portal.

🆕 The IRS will start sending monthly checks to most families with children.

✨ Did you know that Oberlander & Co provides Virtual CFO to clients across the US? learn more here.

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Related articles, some business owners can now apply for ppp forgiveness directly with the sba, the sba launched a new round of eidl advances, where can i see my sba eidl balance and set up a payment schedule.

PROJECTIONS

2 To 3 Years Real Projections . 

It's important to provide realistic and well-supported projections to the lender to demonstrate that your business has a viable plan for growth and repayment of the loan.  When applying for an SBA 7(a) loan, you'll typically be required to provide several types of projections to help the lender assess the financial viability of your business.

These projections may include: Profit and Loss, Cash Flow, Balance Sheet, and Sales Projections  

Profit and loss projections: These projections provide a forecast of your business's income and expenses over a specific period, typically 12-24 months. They can help the lender assess the expected profitability of your business and its ability to generate sufficient cash flow to repay the loan.  

Cash flow projections: Cash flow projections show the expected inflows and outflows of cash in your business over a specific period. They provide insight into your business's ability to meet its financial obligations, such as loan payments, and ensure that it has sufficient working capital to operate effectively.  

Balance sheet projections: Balance sheet projections provide a snapshot of your business's financial position at a specific point in time. They show your business's assets, liabilities, and equity, which can help the lender assess its overall financial health and capacity to repay the loan.  

Sales projections: Sales projections show the expected revenue from your business's products or services over a specific period. They can help the lender assess the growth potential of your business and its ability to generate sufficient revenue to repay the loan.

SBA 7(a) Loan

Use of Funds: Working capital, debt restructure, business acquisitions, franchising, equipment, startup, payroll, marketing, expansion, lease hold improvements, commercial property, and the list goes on...

Interest Rate: Prime + 2.75% (Depending on the loan size banks can charge up to 6.5%)

Terms: Up to 10 Years

SBA 504 Loan

Use of Funds: Commercial property for owner use. Must be 51% owner occupied. Not for real estate investing. Can include land, construction, furniture, fixtures, lease improvements.

Terms: Up to 25 Years

SBA Express Loan

Use of Funds: All the same use as the SBA 7(a) loan. It is an SBA 7(a) loan but only up to $500,000 and fast tracked. Very few banks participate and they create unique programs around it. Minimum 1 to 2 years in business.

Our work is reader-supported, meaning that we may earn a commission from the products and services mentioned.

How to Create Financial Projections for your Business Plan

• Last Updated: September 10, 2024
• By: StartUp 101

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Starting a business is an exciting time, but one that can come with some uncertainty. Writing out your business plan helps to increase your success significantly in addition to reducing some of the worries by getting all the ideas out of your head and organized on paper.

Financial projections are an essential component of the  business plan  to provide a realistic view as to whether or not your business is financially viable for success.

By creating financial plans, you are also able to test some of your assumptions to see the financial impact and analyze whether your business idea is feasible.

What are financial projections?

Financial projections (sometimes referred to as pro forma) are an essential part of a business plan. They are used to forecast a business’s expected sales and expenses and analyze the financial feasibility of the company. These forecasts evaluate past trends, current market conditions, and future expectations. They will also take into account regional sales potential and growth strategies and examine external and internal costs, such as the cost of customer acquisition and the amount of money you can afford to pay team members and yourself.

While it may be tempting to skip this step, not completing it could be costly.

Why are financial projections important?

Financial projections are one of the most critical steps in starting a small business. These figures help show you whether or not your business has a reasonable chance of being profitable. If your company does not reflect a profit based on your projections, you may have to make some adjustments. Financial projections can also help determine realistic price points and sales goals. They can also show you whether or not a profitable market even exists for the product or service you wish to provide.

The sales forecast is also useful in analyzing cash flows from accounts receivable and accounts payable to ensure the company has enough cash to operate.

Another reason financial projections are important is when requesting funding.  The bank will review whether you have realistic financial projections before making a business loan.

How to create financial projections?

It is important to understand that financial projections are simply the best estimates you can determine based on the information available.

These figures are next to impossible to predict accurately. While this financial forecast can’t predict how the business will perform in the future, it will provide the analysis to make informed decisions and plans for the business.

Financial projections are typically shown as a 12-month projection in the first year and by quarter in the second year and third year.

To begin with, your business plan financial projections, start by focusing on your revenue potential and likely expenses.

1. Create sales projections

Projecting sales projections (also known as revenue projections) for a new business is difficult, especially if you are new to the type of business you are starting. They are a few approaches you can consider when preparing the sales forecast.  Some companies will have multiple sources of revenue. To make these easier to follow, each revenue stream is often put on a separate line in the projections.

Average household spending  – The Consumer Expenditure Survey program from the  U.S. Bureau of Labor Statistics  (scroll down to the Annual Calendar Year Tables) provides data on the expenditures of U.S. consumers. Using the average household spending multiplied by the population in your target area, you can come up with the total potential sales. Try not to get too carried away with your target area as it will have a significant impact on potential sales.

Using the BLS data, you can look up how much people spend on food and beverages (such as food at home, food away at home, bakery products, alcoholic beverages, etc.), appliances, apparel, education, reading – and the list goes on. This information can be assessed against demographic information such as age, income, education level, occupation, race, religion, and more.

Not only can you use this data to provide useful because you can use it to gauge the feasibility of your business. For instance, if there are three competitors in your market, and you need 10% of the market to make an adequate profit, this may be a good indication your business would be successful. If you needed 80% of the market, it would likely be much more challenging.

Trade associations –  Depending on the industry you are starting your business in, it’s likely there is an industry association. Do a Google search for “[type of business] industry association” or even find a Facebook group to join and ask questions. Many industry associations have statistics and formulas you can use to estimate sales. Make sure to reference your work, so the bank or prospective investors know you didn’t come up with these numbers out of thin air. Be sure to do your own due diligence as these numbers may be overly optimistic.

Menu of services –  Another way to project sales is to create a list of services to assess how many jobs you can do in a day and the pricing of each job.

For instance, if you own a  car detailing business and it takes 4 hours per vehicle to detail, you may be able to do up to two vehicles per day, ten vehicles a week, or 40 vehicles a month (you could squeeze in a few more in a month, but let’s keep the math easy for now).

Each vehicle brings in an average of $100 for a total monthly sales revenue of $4,000. Let’s say that after subtracting rent, utilities, supplies, advertising, etc, you are left with $2,000. Now you find that best case, you have a profit of $2,000, and by working 8 hours a day, you would make $12.50 per hour. Now you have to ask yourself that in this best-case scenario where you have clients lined up each and every day and you are making $12.50 per hour, is this business worth your time?

Regardless of how you project sales, be sure to explain the key assumptions in the business plan so the reader can follow the math!

2. Project operating expenses

Next, project the monthly operating expenses of the business. Some expenses are going to be easy to estimate, such as fixed costs like rent, insurance, and utilities. Other expenses need to be carefully examined as they can make a large difference in the projected profit.

The biggest expense for most businesses is the cost of goods sold, sometimes called COGS, cost of sales, or cost of inventory. This is the cost to produce the item being sold, such as the raw materials to produce it. A typical example is a wedding band sold at a jewelry store. The sales price to the customer may have been $1,000, but the jewelry store purchased it for $700. The cost of goods sold in this instance is $700. Many times COGS is represented as a percentage, which in this example would have been 70% ($700 /$1,000).

You can often find the average cost of goods for most businesses by searching for industry publications.

Another major expense for most businesses is employees. This number can be found for many industries as a percentage of sales; however, we would recommend you create a list of the positions needed, the number of employees for each position, the number of hours worked, and wages. By comparing the industry average with your own list, you can have some confidence your numbers are in the ballpark.

Make a list of the monthly expenses and the cost for those expenses to use later in the financial statements.

3. Seasonality

After getting the sales projections completed, you will also want to look at seasonality. Seasonality refers to the fluctuations in monthly sales. Some businesses will be affected more by seasonality than others, but it is important to analyze because it may show your business will run out of cash. Lenders and potential investors will expect some seasonality, but if you have a business that has steady sales, be sure to explain why your sales are consistent.

In most areas,  landscapers  are a common business that has fluctuating sales. The spring and fall are really busy, while in the winter, there is little to no work.

4. Financial projections

With the sales projections, expenses, and seasonality now out of the way, creating the pro forma financial statements are actually pretty straightforward.

Business plan financial forecasting is typically set up to show a three-year outlook. Depending on the project, especially if it is one that has a significant amount of research and development time before revenues start to come in, some banks and lenders will occasionally want to see a five-year outlook.

There will be three financial statements to create:

• Cash flow statement –  Similar to a detailed view of a checkbook, the projected cash flow statement  looks at cash coming in and cash going out of the business. Cash flow projections usually look at the first year broken out into 12 months, and the following two years by quarter.
• Profit and loss statement  – Also referred to as an income statement, this statement is an annual estimate of the taxable profits (or losses) of the business. The numbers in the P&L statement are similar to the cash flow statement; however, depreciation and amortization are also included.
• Balance sheet –  Not every bank will request a proforma balance sheet for a start-up business. The balance sheet is similar to a personal financial statement that looks at assets and liabilities to determine the net worth.

The balance sheet is projected at the end of each year.

5. Sources and uses of funds

The sources and uses of funds section provide an overview of the financing activities, use of working capital,  loan repayments, and how the money is spent.

The sources section is a list of where the money is coming from to fund the project. This will commonly have a line for the amount of the bank loan and another line for the amount the owner is investing in the business. Keep in mind when preparing this for the bank that most banks will want to see the business owner invest 15%-25% of their own funds in a start-up business.

The uses section provides details of all the startup costs for the business. Items are usually put into categories such as:

• Real estate
• Renovations

The amount in the sources section should equal the amount in the uses section.

Financial Projection Templates

There are free financial projection templates from  Smartsheet ,  Spreadsheet 123 , and others. LivePlan has a guided approach (like Turbo Tax) to creating financial projections that are pretty thorough and easy to use.

There are free financial projection templates from  Smartsheet ,  Spreadsheet 123 , and others.  LivePlan has a guided approach (like Turbo Tax) to creating financial projections that are pretty thorough and easy to use.

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• Building Your Business

How To Create Financial Projections for Your Business

Learn how to anticipate your business’s financial performance

• Understanding Financial Projections & Forecasting

Why Forecasting Is Critical for Your Business

Key financial statements for forecasting, how to create your financial projections, frequently asked questions (faqs).

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Just like a weather forecast lets you know that wearing closed-toe shoes will be important for that afternoon downpour later, a good financial forecast allows you to better anticipate financial highs and lows for your business.

Neglecting to compile financial projections for your business may signal to investors that you’re unprepared for the future, which may cause you to lose out on funding opportunities.

Read on to learn more about financial projections, how to compile and use them in a business plan, and why they can be crucial for every business owner.

Key Takeaways

• Financial forecasting is a projection of your business's future revenues and expenses based on comparative data analysis, industry research, and more.
• Financial projections are a valuable tool for entrepreneurs as they offer insight into a business's ability to generate profit, increase cash flow, and repay debts, which can be attractive to investors.
• Some of the key components to include in a financial projection include a sales projection, break-even analysis, and pro forma balance sheet and income statement.
• A financial projection can not only attract investors, but helps business owners anticipate fixed costs, find a break-even point, and prepare for the unexpected.

Understanding Financial Projections and Forecasting

Financial forecasting is an educated estimate of future revenues and expenses that involves comparative analysis to get a snapshot of what could happen in your business’s future.

This process helps in making predictions about future business performance based on current financial information, industry trends, and economic conditions. Financial forecasting also helps businesses make decisions about investments, financing sources, inventory management, cost control strategies, and even whether to move into another market.

Developing both short- and mid-term projections is usually necessary to help you determine immediate production and personnel needs as well as future resource requirements for raw materials, equipment, and machinery.

Financial projections are a valuable tool for entrepreneurs as they offer insight into a business's ability to generate profit, increase cash flow, and repay debts. They can also be used to make informed decisions about the business’s plans. Creating an accurate, adaptive financial projection for your business offers many benefits, including:

• Attracting investors and convincing them to fund your business
• Anticipating problems before they arise
• Visualizing your small-business objectives and budgets
• Demonstrating how you will repay small-business loans
• Planning for more significant business expenses
• Showing business growth potential
• Helping with proper pricing and production planning

Financial forecasting is essentially predicting the revenue and expenses for a business venture. Whether your business is new or established, forecasting can play a vital role in helping you plan for the future and budget your funds.

Creating financial projections may be a necessary exercise for many businesses, particularly those that do not have sufficient cash flow or need to rely on customer credit to maintain operations. Compiling financial information, knowing your market, and understanding what your potential investors are looking for can enable you to make intelligent decisions about your assets and resources.

The income statement, balance sheet, and statement of cash flow are three key financial reports needed for forecasting that can also provide analysts with crucial information about a business's financial health. Here is a closer look at each.

Income Statement

An income statement, also known as a profit and loss statement or P&L, is a financial document that provides an overview of an organization's revenues, expenses, and net income.

Balance Sheet

The balance sheet is a snapshot of the business's assets and liabilities at a certain point in time. Sometimes referred to as the “financial portrait” of a business, the balance sheet provides an overview of how much money the business has, what it owes, and its net worth.

The assets side of the balance sheet includes what the business owns as well as future ownership items. The other side of the sheet includes liabilities and equity, which represent what it owes or what others owe to the business.

A balance sheet that shows hypothetical calculations and future financial projections is also referred to as a “pro forma” balance sheet.

Cash Flow Statement

A cash flow statement monitors the business’s inflows and outflows—both cash and non-cash. Cash flow is the business’s projected earnings before interest, taxes, depreciation, and amortization ( EBITDA ) minus capital investments.

Here's how to compile your financial projections and fit the results into the three above statements.

A financial projections spreadsheet for your business should include these metrics and figures:

• Sales forecast
• Balance sheet
• Operating expenses
• Payroll expenses (if applicable)
• Amortization and depreciation
• Cash flow statement
• Income statement
• Cost of goods sold (COGS)
• Break-even analysis

Here are key steps to account for creating your financial projections.

Projecting Sales

The first step for a financial forecast starts with projecting your business’s sales, which are typically derived from past revenue as well as industry research. These projections allow businesses to understand what their risks are and how much they will need in terms of staffing, resources, and funding.

Sales forecasts also enable businesses to decide on important levels such as product variety, price points, and inventory capacity.

Income Statement Calculations

A projected income statement shows how much you expect in revenue and profit—as well as your estimated expenses and losses—over a specific time in the future. Like a standard income statement, elements on a projection include revenue, COGS, and expenses that you’ll calculate to determine figures such as the business’s gross profit margin and net income.

If you’re developing a hypothetical, or pro forma, income statement, you can use historical data from previous years’ income statements. You can also do a comparative analysis of two different income statement periods to come up with your figures.

Anticipate Fixed Costs

Fixed business costs are expenses that do not change based on the number of products sold. The best way to anticipate fixed business costs is to research your industry and prepare a budget using actual numbers from competitors in the industry. Anticipating fixed costs ensures your business doesn’t overpay for its needs and balances out its variable costs. A few examples of fixed business costs include:

• Rent or mortgage payments
• Operating expenses (also called selling, general and administrative expenses or SG&A)
• Utility bills
• Insurance premiums

Unfortunately, it might not be possible to predict accurately how much your fixed costs will change in a year due to variables such as inflation, property, and interest rates. It’s best to slightly overestimate fixed costs just in case you need to account for these potential fluctuations.

Find Your Break-Even Point

The break-even point (BEP) is the number at which a business has the same expenses as its revenue. In other words, it occurs when your operations generate enough revenue to cover all of your business’s costs and expenses. The BEP will differ depending on the type of business, market conditions, and other factors.

To find this number, you need to determine two things: your fixed costs and variable costs. Once you have these figures, you can find your BEP using this formula:

Break-even point = fixed expenses ➗ 1 – (variable expenses ➗ sales)

The BEP is an essential consideration for any projection because it is the point at which total revenue from a project equals total cost. This makes it the point of either profit or loss.

Plan for the Unexpected

It is necessary to have the proper financial safeguards in place to prepare for any unanticipated costs. A sudden vehicle repair, a leaky roof, or broken equipment can quickly derail your budget if you aren't prepared. Cash management is a financial management plan that ensures a business has enough cash on hand to maintain operations and meet short-term obligations.

To maintain cash reserves, you can apply for overdraft protection or an overdraft line of credit. Overdraft protection can be set up by a bank or credit card business and provides short-term loans if the account balance falls below zero. On the other hand, a line of credit is an agreement with a lending institution in which they provide you with an unsecured loan at any time until your balance reaches zero again.

How do you make financial projections for startups?

Financial projections for startups can be hard to complete. Historical financial data may not be available. Find someone with financial projections experience to give insight on risks and outcomes.

Consider business forecasting, too, which incorporates assumptions about the exponential growth of your business.

Startups can also benefit from using EBITDA to get a better look at potential cash flow.

What are the benefits associated with forecasting business finances?

Forecasting can be beneficial for businesses in many ways, including:

• Providing better understanding of your business cash flow
• Easing the process of planning and budgeting for the future based on income
• Improving decision-making
• Providing valuable insight into what's in their future
• Making decisions on how to best allocate resources for success

How many years should your financial forecast be?

Your financial forecast should either be projected over a specific time period or projected into perpetuity. There are various methods for determining how long a financial forecasting projection should go out, but many businesses use one to five years as a standard timeframe.

U.S. Small Business Administration. " Market Research and Competitive Analysis ."

Score. " Financial Projections Template ."

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How to Write the Financial Section of a Business Plan

An outline of your company's growth strategy is essential to a business plan, but it just isn't complete without the numbers to back it up. here's some advice on how to include things like a sales forecast, expense budget, and cash-flow statement..

A business plan is all conceptual until you start filling in the numbers and terms. The sections about your marketing plan and strategy are interesting to read, but they don't mean a thing if you can't justify your business with good figures on the bottom line. You do this in a distinct section of your business plan for financial forecasts and statements. The financial section of a business plan is one of the most essential components of the plan, as you will need it if you have any hope of winning over investors or obtaining a bank loan. Even if you don't need financing, you should compile a financial forecast in order to simply be successful in steering your business. "This is what will tell you whether the business will be viable or whether you are wasting your time and/or money," says Linda Pinson, author of Automate Your Business Plan for Windows  (Out of Your Mind 2008) and Anatomy of a Business Plan (Out of Your Mind 2008), who runs a publishing and software business Out of Your Mind and Into the Marketplace . "In many instances, it will tell you that you should not be going into this business." The following will cover what the financial section of a business plan is, what it should include, and how you should use it to not only win financing but to better manage your business.

Dig Deeper: Generating an Accurate Sales Forecast

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How to Write the Financial Section of a Business Plan: The Purpose of the Financial Section Let's start by explaining what the financial section of a business plan is not. Realize that the financial section is not the same as accounting. Many people get confused about this because the financial projections that you include--profit and loss, balance sheet, and cash flow--look similar to accounting statements your business generates. But accounting looks back in time, starting today and taking a historical view. Business planning or forecasting is a forward-looking view, starting today and going into the future. "You don't do financials in a business plan the same way you calculate the details in your accounting reports," says Tim Berry, president and founder of Palo Alto Software, who blogs at Bplans.com and is writing a book, The Plan-As-You-Go Business Plan. "It's not tax reporting. It's an elaborate educated guess." What this means, says Berry, is that you summarize and aggregate more than you might with accounting, which deals more in detail. "You don't have to imagine all future asset purchases with hypothetical dates and hypothetical depreciation schedules to estimate future depreciation," he says. "You can just guess based on past results. And you don't spend a lot of time on minute details in a financial forecast that depends on an educated guess for sales." The purpose of the financial section of a business plan is two-fold. You're going to need it if you are seeking investment from venture capitalists, angel investors, or even smart family members. They are going to want to see numbers that say your business will grow--and quickly--and that there is an exit strategy for them on the horizon, during which they can make a profit. Any bank or lender will also ask to see these numbers as well to make sure you can repay your loan. But the most important reason to compile this financial forecast is for your own benefit, so you understand how you project your business will do. "This is an ongoing, living document. It should be a guide to running your business," Pinson says. "And at any particular time you feel you need funding or financing, then you are prepared to go with your documents." If there is a rule of thumb when filling in the numbers in the financial section of your business plan, it's this: Be realistic. "There is a tremendous problem with the hockey-stick forecast" that projects growth as steady until it shoots up like the end of a hockey stick, Berry says. "They really aren't credible." Berry, who acts as an angel investor with the Willamette Angel Conference, says that while a startling growth trajectory is something that would-be investors would love to see, it's most often not a believable growth forecast. "Everyone wants to get involved in the next Google or Twitter, but every plan seems to have this hockey stick forecast," he says. "Sales are going along flat, but six months from now there is a huge turn and everything gets amazing, assuming they get the investors' money."  The way you come up a credible financial section for your business plan is to demonstrate that it's realistic. One way, Berry says, is to break the figures into components, by sales channel or target market segment, and provide realistic estimates for sales and revenue. "It's not exactly data, because you're still guessing the future. But if you break the guess into component guesses and look at each one individually, it somehow feels better," Berry says. "Nobody wins by overly optimistic or overly pessimistic forecasts."

Dig Deeper: What Angel Investors Look For

How to Write the Financial Section of a Business Plan: The Components of a Financial Section

A financial forecast isn't necessarily compiled in sequence. And you most likely won't present it in the final document in the same sequence you compile the figures and documents. Berry says that it's typical to start in one place and jump back and forth. For example, what you see in the cash-flow plan might mean going back to change estimates for sales and expenses.  Still, he says that it's easier to explain in sequence, as long as you understand that you don't start at step one and go to step six without looking back--a lot--in between.

• Start with a sales forecast. Set up a spreadsheet projecting your sales over the course of three years. Set up different sections for different lines of sales and columns for every month for the first year and either on a monthly or quarterly basis for the second and third years. "Ideally you want to project in spreadsheet blocks that include one block for unit sales, one block for pricing, a third block that multiplies units times price to calculate sales, a fourth block that has unit costs, and a fifth that multiplies units times unit cost to calculate cost of sales (also called COGS or direct costs)," Berry says. "Why do you want cost of sales in a sales forecast? Because you want to calculate gross margin. Gross margin is sales less cost of sales, and it's a useful number for comparing with different standard industry ratios." If it's a new product or a new line of business, you have to make an educated guess. The best way to do that, Berry says, is to look at past results.
• Create an expenses budget. You're going to need to understand how much it's going to cost you to actually make the sales you have forecast. Berry likes to differentiate between fixed costs (i.e., rent and payroll) and variable costs (i.e., most advertising and promotional expenses), because it's a good thing for a business to know. "Lower fixed costs mean less risk, which might be theoretical in business schools but are very concrete when you have rent and payroll checks to sign," Berry says. "Most of your variable costs are in those direct costs that belong in your sales forecast, but there are also some variable expenses, like ads and rebates and such." Once again, this is a forecast, not accounting, and you're going to have to estimate things like interest and taxes. Berry recommends you go with simple math. He says multiply estimated profits times your best-guess tax percentage rate to estimate taxes. And then multiply your estimated debts balance times an estimated interest rate to estimate interest.
• Develop a cash-flow statement. This is the statement that shows physical dollars moving in and out of the business. "Cash flow is king," Pinson says. You base this partly on your sales forecasts, balance sheet items, and other assumptions. If you are operating an existing business, you should have historical documents, such as profit and loss statements and balance sheets from years past to base these forecasts on. If you are starting a new business and do not have these historical financial statements, you start by projecting a cash-flow statement broken down into 12 months. Pinson says that it's important to understand when compiling this cash-flow projection that you need to choose a realistic ratio for how many of your invoices will be paid in cash, 30 days, 60 days, 90 days and so on. You don't want to be surprised that you only collect 80 percent of your invoices in the first 30 days when you are counting on 100 percent to pay your expenses, she says. Some business planning software programs will have these formulas built in to help you make these projections.
• Income projections. This is your pro forma profit and loss statement, detailing forecasts for your business for the coming three years. Use the numbers that you put in your sales forecast, expense projections, and cash flow statement. "Sales, lest cost of sales, is gross margin," Berry says. "Gross margin, less expenses, interest, and taxes, is net profit."
• Deal with assets and liabilities. You also need a projected balance sheet. You have to deal with assets and liabilities that aren't in the profits and loss statement and project the net worth of your business at the end of the fiscal year. Some of those are obvious and affect you at only the beginning, like startup assets. A lot are not obvious. "Interest is in the profit and loss, but repayment of principle isn't," Berry says. "Taking out a loan, giving out a loan, and inventory show up only in assets--until you pay for them." So the way to compile this is to start with assets, and estimate what you'll have on hand, month by month for cash, accounts receivable (money owed to you), inventory if you have it, and substantial assets like land, buildings, and equipment. Then figure out what you have as liabilities--meaning debts. That's money you owe because you haven't paid bills (which is called accounts payable) and the debts you have because of outstanding loans.
• Breakeven analysis. The breakeven point, Pinson says, is when your business's expenses match your sales or service volume. The three-year income projection will enable you to undertake this analysis. "If your business is viable, at a certain period of time your overall revenue will exceed your overall expenses, including interest." This is an important analysis for potential investors, who want to know that they are investing in a fast-growing business with an exit strategy.

Dig Deeper: How to Price Business Services

How to Write the Financial Section of a Business Plan: How to Use the Financial Section One of the biggest mistakes business people make is to look at their business plan, and particularly the financial section, only once a year. "I like to quote former President Dwight D. Eisenhower," says Berry. "'The plan is useless, but planning is essential.' What people do wrong is focus on the plan, and once the plan is done, it's forgotten. It's really a shame, because they could have used it as a tool for managing the company." In fact, Berry recommends that business executives sit down with the business plan once a month and fill in the actual numbers in the profit and loss statement and compare those numbers with projections. And then use those comparisons to revise projections in the future. Pinson also recommends that you undertake a financial statement analysis to develop a study of relationships and compare items in your financial statements, compare financial statements over time, and even compare your statements to those of other businesses. Part of this is a ratio analysis. She recommends you do some homework and find out some of the prevailing ratios used in your industry for liquidity analysis, profitability analysis, and debt and compare those standard ratios with your own. "This is all for your benefit," she says. "That's what financial statements are for. You should be utilizing your financial statements to measure your business against what you did in prior years or to measure your business against another business like yours."  If you are using your business plan to attract investment or get a loan, you may also include a business financial history as part of the financial section. This is a summary of your business from its start to the present. Sometimes a bank might have a section like this on a loan application. If you are seeking a loan, you may need to add supplementary documents to the financial section, such as the owner's financial statements, listing assets and liabilities. All of the various calculations you need to assemble the financial section of a business plan are a good reason to look for business planning software, so you can have this on your computer and make sure you get this right. Software programs also let you use some of your projections in the financial section to create pie charts or bar graphs that you can use elsewhere in your business plan to highlight your financials, your sales history, or your projected income over three years. "It's a pretty well-known fact that if you are going to seek equity investment from venture capitalists or angel investors," Pinson says, "they do like visuals."

Dig Deeper: How to Protect Your Margins in a Downturn

Related Links: Making It All Add Up: The Financial Section of a Business Plan One of the major benefits of creating a business plan is that it forces entrepreneurs to confront their company's finances squarely. Persuasive Projections You can avoid some of the most common mistakes by following this list of dos and don'ts. Making Your Financials Add Up No business plan is complete until it contains a set of financial projections that are not only inspiring but also logical and defensible. How many years should my financial projections cover for a new business? Some guidelines on what to include. Recommended Resources: Bplans.com More than 100 free sample business plans, plus articles, tips, and tools for developing your plan. Planning, Startups, Stories: Basic Business Numbers An online video in author Tim Berry's blog, outlining what you really need to know about basic business numbers. Out of Your Mind and Into the Marketplace Linda Pinson's business selling books and software for business planning. Palo Alto Software Business-planning tools and information from the maker of the Business Plan Pro software. U.S. Small Business Administration Government-sponsored website aiding small and midsize businesses. Financial Statement Section of a Business Plan for Start-Ups A guide to writing the financial section of a business plan developed by SCORE of northeastern Massachusetts.

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12 Month Projection: A Key Component of Business Strategy

A 12-month projection is a vital component of a business strategy for anticipating future performance and guiding decision-making. It allows companies to strategize and allocate resources effectively.

Crafting a 12-month projection is essential for businesses to forecast their financial health and operational progress. This forward-looking plan helps entrepreneurs and managers set realistic goals, prepare for potential challenges, and track the company’s trajectory. When done correctly, these projections can be the cornerstone of a strategic plan, ensuring all stakeholders have a clear vision of where the business is heading.

By offering details on sales targets, budgeting, and investment plans, a well-constructed 12-month projection becomes an indispensable tool for success, keeping the entire organization aligned and focused on long-term objectives.

Introduction To Business Strategy And Forecasting

Every business aims for success. To reach this goal, a clear strategy is essential. Strategy acts like a roadmap, guiding companies through twists and turns. The heart of this roadmap lies in forward thinking—forecasting. By predicting the future, businesses set themselves up for growth and resilience. Let’s delve into why projections, especially the 12-month kind, are crucial to strategic planning.

Understanding The Role Of Projections In Strategic Planning

Strategic planning is about making informed decisions. A 12-month projection shines a light on potential opportunities and challenges. It helps businesses plan for what’s coming. Think of projections as a business’s GPS—mapping out the financial journey ahead.

The Importance Of A 12-month Projection Horizon

A year is long enough to see significant trends but short enough for manageable adjustments. A 12-month projection keeps goals achievable and focus sharp. It balances ambition with real-world practicality, making it a staple in business strategy.

Building A 12-month Projection

Creating a 12-month projection is like mapping out a road trip for your business. It helps to steer your company toward success. Let’s explore how to build this vital tool and why it can make a huge difference in achieving your goals.

Identifying Key Performance Indicators

KPIs are the compass for your business journey . They guide your decisions and track progress. To set them, answer what matters most for growth. Common KPIs include sales, customer retention, and profit margins. List these indicators and make them clear, measurable, and relevant .

Analyzing Historical Business Data

Look back to leap forward. Analyze past performance to predict future outcomes. Use sales reports, expenses, and customer feedback. Patterns and trends become your advisor . This data lays the groundwork for accurate projections. Consider the impact of past events on current goals.

Incorporating Market Trends And Economic Indicators

Economic shifts and market changes affect your path. Stay ahead by weaving in these patterns . Include industry growth rates, regulatory changes, and consumer behavior shifts. Collect this information from reliable sources to align your projection with real-world scenarios.

Scenario Planning: Best, Worst, And Most Likely Cases

Hope for the best, prepare for the worst. Create three scenarios: optimistic, pessimistic, and realistic. Each scenario prepares your business for different futures . Outline the steps to navigate through each. This approach ensures flexibility and resilience.

Budgeting And Allocating Resources Effectively

Money and resources fuel your journey. Distribute them wisely . Match your budget to your goals. Allocate funds to high-impact areas. Keep a portion for unexpected expenses. Regular reviews keep you on track. Adjust as needed for smooth sailing.

Integrating 12-month Projections Into Business Strategy

Integrating 12-Month Projections into Business Strategy is a dynamic tool for steering a company towards long-term success. A clear, detailed 12-month projection is not just a number-crunching exercise—it forms the backbone of strategic planning. By forecasting future financial results and operational needs, businesses get a leg up in decision-making, risk management , and adapting to change.

Aligning Projections With Business Goals

Businesses must align their projections with their overarching goals. This realignment ensures resources focus on strategic targets. Clear goals guide projection planning . These projections map out the path to reach set milestones, revealing both opportunities and hurdles.

Using Projections For Decision Making

Projections enrich informed decision-making. Leaders use them to choose what initiatives to push or what costs to cut. They help leaders avoid guesswork by providing data-driven insight into potential outcomes.

Risk Management And Contingency Planning

Anticipating risks keeps businesses resilient. Projections identify potential threats and enable companies to prep early. This includes setting aside funds or crafting alternative plans. Ready responses minimize disruption.

Adapting Strategies Based On Projected Versus Actual Performance

It’s crucial to compare projected performance with actual outcomes regularly. This comparison reveals if strategies work as planned. Adjustments are then made swiftly to stay on the course of achieving business goals.

Challenges And Best Practices For Effective Projections

Creating a 12-month projection is pivotal in steering a business towards its goals. It presents anticipated revenues, expenses, and other financial elements. Nonetheless, this exercise can come with stumbling blocks. Let’s tackle the challenges and best practices for effective projections.

Dealing With Uncertainty And Volatility

Markets are often unpredictable. Unforeseen events can impact the best-laid plans. To manage this, businesses should:

• Include a margin of error in projections.
• Prepare for multiple scenarios.
• Stay updated with market trends.

Maintaining Accuracy And Realism In Projections

Ensuring that forecasts stay true to reality is crucial. To retain accuracy, businesses must:

• Use historical data as a benchmark.
• Be conservative in estimations.
• Ground projections in factual data.

Regular Review And Adjustment Of Forecasts

A static forecast is often a redundant one. Continual assessment keeps projections relevant. This entails:

• Scheduling periodic reviews of projections.
• Adjusting for real-world outcomes.
• Aligning forecasts with updated strategies.

Utilizing Technological Tools For Enhanced Projections

Technology can vastly improve projection accuracy. Software tools can aid in:

• Analyzing complex data efficiently.
• Forecasting with advanced algorithms.
• Visualizing data to uncover insights.

Case Studies: Successful 12-month Projection Implementations

A 12-month projection is the navigational star for any business venture , offering a clear path to follow and a structured plan to adhere to. By examining real-world examples , we can see how effective these projections are in guiding businesses to success . Let’s delve into two case studies from both a startup and a corporate perspective and glean insights on what to do and what to avoid.

Case Study Analysis Of A Growing Start-up

A tech start-up in its early growth stage embarked on a crucial 12-month journey. Their agile approach to projections allowed for quick pivoting based on market feedback. They set realistic milestones and adjusted their course intelligently.

• Revenue exceeded targets by 20%.
• Customer base grew by 35%.
• Product launches were ahead of schedule.

Case Study Analysis Of An Established Corporation

A well-known retailer with global operations crafted a detailed 12-month projection. They based their strategies on historical data and market analysis. Their focus on customer satisfaction paved the way for enhanced loyalty and sales.

Lessons Learned From Failed Projections

Not all projections hit their target. A prominent software company faced setbacks. Their overestimation of market demand led to excess inventory and missed profit margins . Here’s what went wrong:

• Overconfident sales forecasts without sufficient data.
• Lack of flexibility in adjusting projections.
• Insufficient risk management for unexpected market changes.

From these stories, businesses can learn valuable lessons for their 12-month projections. Success lies in the balance of ambition, data-driven strategies, and adaptability .

Conclusion And Future Outlook

Crafting a robust business strategy without a clear 12-month projection is akin to sailing a ship without a compass. As we wrap up the exploration of this indispensable tool, let’s crystalize its worth and envision the path forward.

Summarizing The Value Of 12-month Projections

Twelve-month projections serve as a cornerstone for strategic planning . They provide a glimpse into the financial health and trajectory of a business. Key benefits include:

• Clarity in financial goals
• Better risk management
• Informed decision-making

These forecasts empower leaders to steer their companies with confidence.

The Evolving Nature Of Business Forecasting

Today’s business environment is dynamic and unpredictable . As a result, forecasting methods are evolving. They now integrate:

• Advanced analytics
• Artificial intelligence
• Real-time data

This merger of technology with traditional techniques ensures that projections are more accurate and relevant .

Preparing For The Next 12 Months And Beyond

To ready your business for the future, focus on the following strategies:

• Continuously update your projections with new data.
• Stay adaptable to change and ready to pivot as necessary.
• Invest in forecasting tools and talent .

This forward-thinking approach will help secure long-term success and growth.

Frequently Asked Questions On 12 Month Projection: A Key Component Of Business Strategy

What is a 12-month projection.

A 12-month projection is a forecast of a company’s financial and operational performance for the upcoming year.

What Is A 12-month Projection And Business Plan?

A 12-month projection and business plan outlines financial forecasts and strategic goals for the coming year, guiding decision-making and growth efforts.

How Many Years Of Financial Projections Should Be Included In The Business Plan?

A business plan typically features three to five years of financial projections . These include income statements, balance sheets, cash flow statements, and capital expenditure budgets.

What Are Projections In A Business Plan?

Projections in a business plan are financial forecasts that outline expected income, expenses, and profitability over time. These estimates help gauge the venture’s potential success and are essential for securing investors and guiding growth.

Embracing a 12-month projection is crucial for guiding your business through uncertain waters. This forecast acts as a strategic compass, aligning goals with actionable insights. Making informed decisions is now simpler, driving growth and fostering enduring success. Lay this foundation to navigate tomorrow’s challenges with confidence.

Your strategy’s missing piece? Look no further.

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The 12-month cash flow statement is one of the three fundamental financial statements for a business. (The other two are the balance statement and the profit and loss statement .)

Like a checking account statement, the cash flow statement shows the money going into and out of your business. You'll include a cash flow statement in the financial section of your business plan. 

What is in a Cash Flow Statement?

The cash flow statement includes:

• Cash received . This might include income from sales, loan proceeds or interest income. You can estimate when you will get paid if you’ve already made sales or received orders.
• Cash paid out . This includes inventory, other purchases, payroll, rent, utilities, taxes, and loan payments. (This cash flow statement template consists of a “pre-startup” column for cash paid out before the cash flow statement period begins.)

Subtract cash paid out from cash received, and you have your cash position for the end of the month.

How to Use a Cash Flow Statement

For new and growing business owners, every dollar counts. Cash flow problems are a common cause of small business failure. Reviewing the company's cash flow statement regularly can help entrepreneurs avoid this fate. New and established business owners can use a cash flow projection to anticipate working capital needs and plan for upcoming expenses. 

Do you need help with your cash flow statement? Connect with a SCORE mentor online or in your community for free, personalized advice.

Small Business Cash Flow – Understanding Money Management Understanding cash flow and money management is critical to tracking profits and reinvesting for business growth.

7 Ways to Survive a Cash Flow Crunch A common challenge for small business owners is keeping their cash flow on an even keel. These 7 ideas can help you navigate a temporary cash shortfall.

3-Year Cash Flow Statement Use this 3-year cash flow statement template to create long-term cash flow projections and test different business scenarios.

Copyright © 2024 SCORE Association, SCORE.org

Funded, in part, through a Cooperative Agreement with the U.S. Small Business Administration. All opinions, and/or recommendations expressed herein are those of the author(s) and do not necessarily reflect the views of the SBA.